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FUTUREMED ANNUAL REPORT 2008

Healthcare Income Fund

2008 ANNUAL REPORT

CANADA’S LEADING VALUE-ADDED DISTRIBUTOR OF

CONSUMABLE SUPPLIES TO THE NURSING HOME INDUSTRY

FUTUREMED

A

CORPORATE PROFILEToday’s discerning Canadian customer expects quality, value, superior products and excellent service. Nowhere is this more evident than in the health care industry. Health care providers are catering to a burgeoning population that is more health conscious and living longer then ever before. This has created increased pressure on health care providers to satisfy greater demands with existing resources. This in turn has given rise to calls for enhanced levels of service and one-stop sourcing of supplies to fulfill requirements quickly and efficiently. Futuremed began opera-tion in 1985 and since day one we have focussed our attention on satisfying the needs of our niche in the health care market. We pride ourselves on being able to respond quickly to our customer’s demands. This means that we can bring new and innovative products to them quicker. We have been able to streamline the ordering process through creative order programs and custom Internet solutions.

CORPToday’s dquality, vservice. health cacatering health cobefore. Thealth cawith existo calls fstop souquickly ation in 1our attenin the hebeing abdemandsinnovativbeen ablthrough Internet

KEY HIGHLIGHTSSales up 41% on strong organic growth and • acquisition contributionMarket share up in all geographic markets• Acquisition of Dismed transforms Futuremed • into a national playerGovernment-funded long-term care sector • remains stable despite economic slowdown88% of total revenues from recurring, • consumable nursing supplies businessAccretive growth in distributable cash • generates conservative 84% payout ratio

FUTUREMED ANNUAL REPORT 2008

1NURSING SUPPLIES$ Millions

SPECIALIZED FURNITURE & EQUIPMENT$ Millions

PRIVATE LABEL PRODUCTS$ Millions

FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31

(in $’000s except per Unit amounts) 2008 2007

Sales:

Nursing supplies $ 131,902 $ 92,605

Furniture &Equipment 19,997 15,014

Total sales $ 151,899 $ 107,619

Gross profi t 39,067 31,416

Net earnings 11,458 3,910

Distributable Cash 15,884 14,223

Distributable Cash per Unit $ 1.11 $ 1.06

Distributions/Declared per Unit $ 0.93 $ 0.93

Payout Ratio 84% 87%

2004

2005

2006

2007

2008

$83.

7

$9

2.6

$131

.9

2004

2005

2006

2007

2008

$9.7

$12.

3

$14.

9

2004

2005

2006

2007

2008

$21.

4

$15.

0 $20.

0

A

2008 was another solid year for Futuremed as we generated strong organic growth in all of our

markets while the acquisition of Dismed on June 30 made a solid accretive contribution. Looking ahead,

we believe our growth will continue as Canada’s aging population drives increased demand for our

high quality products and services.

2

REPORT TO UNITHOLDERS

3mately $0.4 million of non-recurring expenses

related to the acquisition. Clearly, our purchase of

Dismed has been highly accretive to our distribut-

able cash.

STRONG ACCRETIVE GROWTHTurning to our geographic markets, we saw very

strong gains made in all of the regions in which we

operate.

Sales in Ontario rose 6.1% due primarily to

increased sales of incontinence products and

wound care items, as well as improved sales of our

private label products. During the year we were

able to increase our market share in Ontario’s Long

Term Care Sector (LTC) from 91% to 93%, an

enviable position in the largest province in the

country. We also opened a new showroom in

Kitchener Waterloo during the fi rst half of the year

to help further service our Ontario markets.

Sales in British Columbia were up 6.0% in

2008 due to new customers, increased orders from

existing customers, as well as higher sales of

nursing supplies and private label products. We

also increased our LTC market share in the

province to 39%, and believe we will see additional

growth going forward as we have the logistical and

sales support with our warehouse location in

Richmond, B.C. to further penetrate the province.

STRONG GROWTH IN A TURBULENT YEARWhile 2008 was a challenging year for the global

economy on a number of fronts, it was a year of

strong growth and transformational change for

Futuremed. We saw increased sales in all of our

geographic markets and across the majority of our

product lines, with signifi cant gains in market

share in Western Canada as well as our entrance

into the Province of Quebec. With our acquisition

of Dismed in June 2008, we have truly become a

national supplier of nursing supplies and special-

ized furniture and equipment to the long-term care

sector in Canada.

2008 was a solid year as sales were up over

41% to $151.9 million for the year, due in large

part to the Dismed acquisition. However, it is also

important to note that, excluding the Dismed sales

in the second half of the year, sales for our

underlying nursing home supplies and furniture

and equipment businesses, increased by 7.7%

compared to 2007.

We saw strong growth in our nursing supplies

segment, with sales up 42.4% over 2007, driven by

the contribution in sales from Dismed as well as

organic growth in our incontinence products and

other nursing supplies. We also saw solid gains in

our specialized furniture and equipment business,

with sales up in 2008 over the previous year.

With these increased sales, and not including

the contribution from Dismed, gross profi t increased

7.3% in 2008 compared to the prior year. Driving

this growth were solid gains in our nursing supply

business as well as a change in sales mix toward

higher-margin products.

These increases in sales and profi tability

resulted in distributable cash rising to $15.9

million, or $1.11 per Unit, from $14.2 million, or

$1.06 per Unit in 2007. This growth resulted in

further improvement in our payout ratio to 84%

for the year compared to 87% for 2007, well within

our targeted range. It should be noted that the

growth in per Unit amounts was despite a 7.1%

increase in the weighted average number of Units

outstanding in 2008 resulting from the issuance of

Units related to the Dismed acquisition.

Distributable cash in 2008 also included approxi-

Sales increased in all of our geographic markets and most of our product lines in 2008.

FUTUREMED ANNUAL REPORT 2008

4

The acquisition of Dismed transformed

Futuremed into a truly national player.

Sales in other Western Canadian provinces

were up 16.9% for the year, due primarily to

increased market share, infrastructure spending in

Saskatchewan, as well as increased revenues from

nursing supplies. Our LTC market share in Western

Canada improved to 73% at year end. We believe

that our extensive logistical and sales support in

Calgary, Alberta will help gain further market

share in our Western Canada market.

It should be noted that these results do not

include any contribution from Dismed, whose sales

are primarily in the province of Quebec.

A TRANSFORMATIONAL ACQUISITIONThis past year was transformational for Futuremed

as, with the acquisition of Dismed on June 30,

2008, we became a truly national player in the

consumable nursing supply and specialized

furniture and equipment business. Dismed is

Quebec’s leading distributor of medical supplies to

healthcare institutions in that province, offering a

comprehensive range of products, many of which

are exclusive to Dismed.

The acquisition brings a number of signifi cant

benefi ts to Futuremed and our Unitholders.

First, Dismed provides us with a leading

distribution platform in Quebec, a province where

5

We are confi dent our business will remain strong and growing going forward.

we did not participate to any great extent prior to

the acquisition. Dismed’s strong sales and market-

ing team will prove invaluable as we move to

increase our presence in the Province.

Second, our new operating base and facilities

in Quebec are an excellent platform from which to

launch our entrance into Eastern Canada. To date,

we have not attempted to penetrate these markets,

but now, with warehouses and sales people closer

to these markets, we anticipate we will see solid

growth in the region.

Third, the acquisition provides us with

enhanced purchasing power with our suppliers to

further grow distributable cash. In addition, we

expect to see solid operating synergies as we

combine our two platforms and share best

practices and technology infrastructures. These

synergies will also lead to growth in cash fl ow.

Fourth, Dismed’s 2,500 customers will benefi t

from the new products and services Futuremed

can offer them. Additionally, our current custom-

ers will be introduced to some of Dismed’s

exclusive products. This is a win-win for both our

customers, and for Futuremed.

Most importantly, when we completed the

acquisition we were confi dent we would achieve an

8%-10% accretion to our distributable cash. We are

pleased that we were able to achieve this goal in six

months, and are confi dent that we will be able to

further grow our distributable cash going forward.

FUTUREMED PROVIDES VALUE IN AN ECONOMIC DOWNTURNHistorically, economic downturns have not

impacted our business negatively. As a result, we

believe our business will not be materially

impacted by the current challenges being experi-

enced in the Canadian economy. The Canadian

long-term care sector is primarily government

funded, and caring for elderly Canadians remains a

government commitment and priority; it is not a

question of consumer discretionary spending. It is

also no secret that demographics are on our side

as the Canadian population aged over 85 is

growing rapidly. Also, Dismed’s business in Quebec

is largely linked to health care institutions, again

not an area of discretionary spending.

Despite the tight credit markets experienced

in 2008, we were able to cost-effectively fi nance

the Dismed acquisition, and are confi dent we have

the resources and fl exibility to meet all of our

obligations going forward. At the end of 2008, we

were well within all of our debt covenants and

coverage ratios, and had not utilized our $8 million

operating credit facility.

Subsequent to the year end we reached an

agreement to extend the credit facilities maturing

on January 10, 2010 to March 2012 on terms and

conditions that are similar to the existing facility.

We were pleased to have extended this loan on

very favourable terms to Futuremed, a testament

to the strength of our balance sheet and the

positive outlook for our business.

FUTUREMED ANNUAL REPORT 2008

6

20%, and we plan to maintain that pace through

the combination of strategically placed new

products and outsourced manufacturing in Asia.

Finally, we will continue to enter related

markets in the health care fi eld. Over the last two

years we successfully entered the physician

market, and with the Dismed acquisition we have

plans to further penetrate additional related

markets in the coming years.

In closing, we want to thank everyone at

Futuremed for their hard work and dedication this

past year. We look forward to the challenges

ahead, but remain confi dent in our ability to

maintain and grow our distributable cash for

Unitholders going forward.

RAYMOND STONE

President & CEO

We are Canada’s leading supplier of consumable products

to the long-term care sector.

GROWING OUR BUSINESS PRUDENTLYLooking ahead, we will continue to implement the

same proven growth strategies that have gener-

ated our strong operating and fi nancial perfor-

mance over the last twenty-four years.

As the country’s leading supplier of consum-

able nursing products to the long-term care sector,

we will benefi t from continued industry growth.

With baby-boomers getting older, and the size of

Canada’s 85-plus age group steadily growing, the

demand for long-term care facilities will increase,

benefi ting our business for years to come.

In addition to industry growth, we are

confi dent in our ability to continue expanding our

share of our target markets. As a national player in

the healthcare industry we are well-positioned for

continued growth across all of our business lines

and all of the markets in which we operate. In

addition to bringing the high-growth Quebec

market into our fold, we are excited to now have a

springboard in which to launch our business into

Eastern Canada.

We also intend to expand our line of private

label products. Since 2001, this business has

increased at an annual growth rate of more than

FUTUREMED ANNUAL REPORT 2008

7

The following discussion and analysis of the fi nancial condition and results of operations of Futuremed

Healthcare Income Fund (the “Fund”) is dated March 12, 2009 and should be read in conjunction with the

audited consolidated fi nancial statements and accompanying notes of the Fund as at December 31, 2008.

These fi nancial statements can be found electronically fi led on SEDAR at www.sedar.com.

The consolidated fi nancial statements of the Fund are prepared in accordance with Canadian Generally

Accepted Accounting Principles (“GAAP”). This discussion may also contain forward-looking statements.

Please see “Forward-Looking Statements” for a discussion of the risks, uncertainties, and assumptions

relating to these statements. This discussion also makes reference to certain non-GAAP measures, such as

distributable cash, to assist in assessing the Fund’s fi nancial performance. Non-GAAP measures do not have

any standard meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures

presented by other entities. See “Non-GAAP Measures” included elsewhere in this discussion and analysis.

OVERVIEWThe Fund is an unincorporated, open-ended limited purpose trust established under and governed by the

laws of the Province of Ontario. The Fund was created for the purpose of acquiring and holding, directly or

indirectly, all of the issued and outstanding limited partnership units (“LP units”) of Futuremed Health Care

Products Limited Partnership (“the Partnership”). The Fund and Partnership will collectively be referred to

as “Futuremed” in this Management’s Discussion and Analysis (“MD&A”). The Partnership (“FMD”) is

Canada’s leading value-added distributor of consumable medical supplies and specialized furniture and

equipment to the growing long-term care (“LTC”) facilities (i.e., nursing homes) market.

The Fund’s units trade on the Toronto Stock Exchange under the symbol FMD.UN.

ACQUISITION OF DISMED INC.On June 30, 2008, the Fund acquired all the outstanding shares of Dismed Inc. (“DMD”) for a purchase

price of approximately $25.0 Million excluding acquisition costs of $1.5 Million. The acquisition was funded

by an equity offering of 1,875,000 units at $9.10 per unit, and an increase in the term loan of $10.6 Million.

Dismed is located in Montreal and distributes nursing supplies, including incontinent products, to Acute

Care, Long Term Care and other types of Health Care facilities in the Province of Quebec. Dismed was

established in 1979.

FORWARD-LOOKING STATEMENTSCertain statements in this discussion and analysis may constitute “forward-looking” statements that involve

known and unknown risks, uncertainties and other factors that may cause the actual results, performance

or achievements of the Fund or the Partnership, or industry results, to be materially different from any

future results, performance or achievements expressed or implied by such forward-looking statements.

When used in this MD&A, such statements use such words as “may” “will” “expect” “believe” “plan” “could”

and other similar terminology. These statements refl ect current expectations regarding future events and

operating performance and speak only as of the date of this MD&A. Forward-looking statements involve

signifi cant risks and uncertainties, should not be read as guarantees of future performance or results, and

will not necessarily be accurate indications of whether or not such results will be achieved. A number of

factors could cause actual results to differ materially from the results discussed in the forward-looking

statements, including, but not limited to, the factors discussed under “Risk Factors”. Although the forward-

looking statements contained in this MD&A are based upon what management believes are reasonable

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

8 assumptions, neither the Fund nor the Partnership can assure that actual results will be consistent with

these forward-looking statements. These forward-looking statements are made as of the date of this

analysis, and the Fund and the Partnership assume no obligation to update or revise them to refl ect new

events or circumstances.

REVENUE AND EXPENSESAll of the Partnership’s revenue is attributable to the sale of consumable medical supplies and specialized

furniture and equipment to its customers under industry-standard purchase orders and terms of payment.

Futuremed has stable multi-year arrangements with a majority of its customers, many of whom have

committed to using Futuremed as their primary supplier of nursing supplies. Once a customer has entered

into a product supply contract for consumable medical supplies with Futuremed, Futuremed has often

acted as that customer’s exclusive supplier for all consumable medical supplies for the duration of the

contract. Futuremed also has preferred arrangements with several industry-leading suppliers for the

distribution of their products to the Canadian LTC sector served by the Partnership. Growth in revenue has

historically been the result of increasing market share, driven by new customer additions or selling more

products to existing customers. In 2008 signifi cant growth was achieved with the acquisition of DMD on

June 30, 2008.

The Partnership’s principal expense is the cost of products purchased from suppliers for sale to LTC

facilities. In addition, Futuremed incurs costs related to warehousing and distribution, sales and marketing,

and administration and general expenses typical of the distribution industry.

SEASONALITY AND CYCLICALITYThe Partnership’s revenue and profi tability is not subject to any material seasonality or cyclicality. The

Partnership operates in a subset of the Canadian healthcare industry, which does not typically experience

material seasonality and is not typically infl uenced by the overall state of the broader economy.

A portion of the Partnership’s revenue in any given period can be affected by government funding

initiatives related primarily to the building and refurbishment of the LTC facilities infrastructure in Canada.

Government funding programs for specifi ed projects or products can drive periods of increased revenue

concentration for the Partnership as a result of: (i) purchases made by LTC facility operators in the period

when such funding is made available to them, rather than more evenly throughout the fi scal year; and (ii)

incremental purchases of such products as a result of the specifi c funding made available to them.

Management believes that the timing and size of future purchases of certain of its products, principally

specialized furniture and equipment products, will continue to be infl uenced to some extent by specifi c

government funding programs for such products.

OUTLOOKManagement is satisfi ed with the fi nancial results achieved during the period ended December 31, 2008 and

expects to continue to further consolidate its position as Canada’s leading value-added distributor of

consumable nursing supplies and specialized furniture and equipment to the growing long-term care sector.

During the quarter ended December 31, 2008 (“The Quarter”), the Fund continued to secure nursing

supply contracts and achieve gains in market share across most of the regions in which the Fund operates.

Futuremed’s initiative to begin selling into the Physicians market originated on July 1, 2006, and is

ongoing. The growth of market share in this area of the market has slowed, but is within management’s

expectations, and the business generated is resulting in a positive contribution to earnings and distribut-

able cash for the quarter and year ended December 31, 2008.

FUTUREMED ANNUAL REPORT 2008

9Management of the Fund is confi dent that Futuremed will continue to generate suffi cient cash fl ow

from operations to allow the Fund to provide unitholders with sustainable cash distributions. However,

Futuremed’s and the Fund’s ability to sustain and increase distribution levels are dependant upon future

fi nancial performance, which in turn is subject to fi nancial, tax, business and other factors, many of which

are outside the control of management. See “Risk Factors”.

In the past, economic downturns have not impacted FMD’s results negatively. For this reason,

management believes that the current economic downturn being experienced in Canada will have little

material impact on FMD’s business. The long-term care sector is primarily government funded and

generally not susceptible to the overall economy. In addition, demographic changes are driving signifi cant

increases in demand for long-term care across the country that currently is well in excess of available

supply, resulting in substantial waiting lists for long-term care in most Provinces.

ANALYSIS OF OPERATING AND FINANCIAL RESULTSThe results of operations in the following discussion compares the results of the Fund for the three months and

year ended December 31, 2008, to the results of the Fund for the three and year ended December 31, 2007.

($’000s except per unit amounts)

Quarter ended Quarter ended Jan. 1, 2008 to Jan. 1, 2007 to Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2007

Sales 50,266 29,954 151,899 107,619

Gross Profi t 12,735 8,393 39,067 31,416

Selling, General & Admin Expense 6,956 3,607 21,665 14,962

Interest, net 694 500 2,218 1,887

Amortization 1,523 1,215 5,446 5,160

Foreign Exchange (Gain)/Loss (739) (112) (1,226) 216

Net Earnings 4,520 4,169 11,458 3,910

Distributable Cash 1 5,509 4,394 15,884 14,223

Distributable Cash per Unit 1 $ 0.36 $ 0.33 $ 1.11 $ 1.06

Distributions Declared per Unit 1 $ 0.23 $ 0.23 $ 0.93 $ 0.93

Payout Ratio 2 64% 71% 84% 87%

1 Distributable cash and distributable cash per unit are not recognized measures under GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, distributable cash and distributable cash per unit may not be comparable to similar measures presented by other issuers. See “Non-GAAP Measures”. 2 The payout ratio is defi ned as distributions declared as a proportion of cash available for distribution prior to changes in working capital. There is no GAAP measure comparable to payout ratio. Payout ratio is not a recognized measure under GAAP and does not have a standardizing meaning prescribed by GAAP. Therefore, other issuers may defi ne payout ratio differently. See “Non-GAAP Measures”.

10 SALESFor the Year ended December 31, 2008 (“The Period), total revenue grew by $44.3 Million. This was due, in

part, to the acquisition of DMD, which added $36.0 Million of revenue, and infrastructure spending in the

Province of Saskatchewan, in the amount of $1.4 Million. The balance was comprised of organic growth in

both the nursing supplies and furniture and equipment revenue streams.

($’000s - unaudited)

Quarter ended Quarter ended Jan. 1, 2008 to Jan. 1, 2007 to Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2007

Sales:

Nursing Supplies 44,254 25,180 131,902 92,605

Furniture & Equipment 6,012 4,774 19,997 15,014

Total 50,266 29,954 151,899 107,619

Geographic Sales:

Ontario 24,181 22,851 85,338 80,428

Quebec (DMD) 18,575 0 36,047 0

British Columbia 3,217 2,967 12,372 11,675

Alberta, Saskatchewan, Manitoba 4,293 4,136 18,142 15,516

Total 50,266 29,954 151,899 107,619

FMD experienced revenue growth across all of its geographic markets and across most product lines in the

Nursing Supplies division of the business. Increases in this revenue stream were driven by new customer

additions and increased utilization of consumable nursing supplies for the care and treatment of residents in

LTC facilities. Revenue increased in the quarter in Saskatchewan due to an increase in Furniture and

Equipment expenditure in that province when compared to the same quarter of last year. DMD’s revenue is

ahead of plan for the quarter, and is well within Management’s expectations.

Revenue from the nursing supplies stream for the quarter ended December 31, 2008 increased $19.1

Million, or 75.7% compared to the quarter ended December 31, 2007 due to the addition of $16.5 Million

from DMD. FMD recorded higher sales volumes of both incontinence products and other nursing supplies.

Incontinence products revenue was $20.3 Million in the fourth quarter of 2008, a $6.0 Million or 42.2%

increase over the comparable prior year period. Of this amount, $5.2 Million was attributable to DMD. Other

nursing supplies revenue increased by $12.3 Million, or 106%, to $24.0 Million in the same period. Of this

amount, $11.3 Million was attributable to DMD.

Revenue from the nursing supplies stream for the year ended December 31, 2008 increased by $39.3

Million, or 42.4% compared to the year ended December 31, 2007. Incontinence products revenue was $66.4

Million in 2008, a $13.1 Million or 24.7% increase over the comparable prior year period. Of this amount,

$10.5 Million was attributable to DMD. Other nursing supplies revenue increased by $25.4 Million, or 63.4%,

to $65.5 Million in the same period for 2008. Of this amount, $22.0 Million was attributable to DMD.

FUTUREMED ANNUAL REPORT 2008

11During the quarter ended December 31, 2008, revenue from the sale of furniture and equipment

increased by $1.2 Million, or 25.9% compared to the corresponding quarter in 2007. This was the result of

the inclusion of $2.1 Million from DMD, with a marginal decrease in replacement spending in the other

provinces when compared to the same period last year.

For the year ended December 31, 2008, the Furniture and Equipment revenue stream was impacted by

the government-funded infrastructure project mentioned above, which are announced from time to time. As

revenue from these projects is not easily predictable, until announcements of such projects are made, the

timing, or amount of such projects, is unknown. Sundry furniture and equipment sales increased by $5

Million in 2008 when compared to the prior period, due in part to the comments made above. Of this

amount, $3.6 Million was attributable to DMD, while $1.4 Million was the result of the Saskatchewan

Infrastructure project.

During the quarter ended December 31, 2008, revenue in Ontario increased by 5.8%, or $1.3 Million.

Revenue in British Columbia increased by 8.4% compared to 2007, while revenue from the other western

provinces (which include Alberta, Saskatchewan and Manitoba) grew 3.8% over the prior year. As this is the

fi rst year for which DMD’s revenue is being reported, there is no comparative fi gure. As mentioned above,

DMD’s revenue is ahead of plan, and above management’s expectations.

For the year ended December 31, 2008, revenue in Ontario increased by 6.1% in 2008 compared to the

prior year. Revenue in British Columbia rose 6.0% compared to 2007 during the period. Consistent revenue

growth was recorded in the other western provinces (which include Alberta, Saskatchewan and Manitoba).

Revenue in these provinces grew 16.9% over the prior year.

GROSS PROFITGross profi t for the quarter ended December 31, 2008 increased by 51.7% compared to the quarter ended

December 31, 2007. The increase was due primarily to the margin contributed by DMD in the amount of

$2.7 Million. Gross profi t, excluding the contribution from DMD, increased by $1.7 Million, or 20.1%, due to

increases in sales volumes and changes in sales mix. A proportionately smaller increase in lower margin rev-

enue from incontinence products was offset by a proportionately larger increase in higher margin revenue

from other nursing supplies (including a $0.8 Million increase in sales of higher margin private label prod-

ucts, compared to that of the corresponding quarter in the prior year), and increased discounts and rebates

from suppliers as a result of higher product volumes. Gross profi t on Nursing Supplies, net of the contribu-

tion from DMD increased by 4.0%, while gross profi t on Furniture and Equipment increased by 72.0%, due

primarily to increased replacement spending in the provinces.

For the year ended December 31, 2008, gross profi t increased by $7.6 Million, or 24.4%. Gross profi t

from DMD contributed $5.3 Million of this increase. Gross profi t, net of the contribution from DMD,

increased by 7.3%. Gross Profi t from Nursing Supplies (Net of DMD’s contribution) increased by 8.1% while

that from Furniture and Equipment increased by 21.3%. Sales mix resulted in a proportionately smaller

increase in lower margin revenue from incontinence products being offset by a proportionately larger

increase in higher margin revenue from other nursing supplies (including a $2.6 Million increase in sales of

higher margin private label products, compared to that of the corresponding period in the prior year), and

increased discounts and rebates from suppliers as a result of higher product volumes.

12 SELLING GENERAL AND ADMINISTRATIVE EXPENSESSelling, general and administrative (“SG&A”) expenses for the quarter ended December 31, 2008 increased

92.8% relative to the comparable prior year period. The increase was principally due to the addition of

DMD’s SG&A, which accounted for 56.5% of this increase. The remainder resulted primarily from the

impact of the hiring of additional staff required to support the anticipated higher level of sales and in-

creased logistics effort, and the new showroom that was opened in Kitchener/Waterloo during the second

quarter of 2008. Other factors affecting SG&A in the current period included an increase in delivery costs

due to higher fuel prices and delivery surcharges levied by transportation suppliers, as well as a reduction

in the number of large project orders for which delivery costs are typically recoverable by the Partnership.

However, delivery costs represented 4.5% of total revenue in the current quarter, compared to 3.7% in the

prior period. As a percentage of revenue, SG&A expenses increased to 13.8% of total revenue for the cur-

rent year, compared to 12.0% of total revenue for the comparative period last year.

For the year ended December 31, 2008, SG&A expenses increased 44.8% relative to the prior year. Of

this increase, 79.0% was due to the addition of DMD’s SG&A, with 7.8% being the result of non-recurring

expenses related to the DMD acquisition. The hiring of additional staff required to support the anticipated

higher level of sales and increased logistics effort accounted for the remaining 13.2%. In addition to the

costs mentioned relating to increases in SG&A in the quarter, other factors affecting SG&A in 2008 included

an increase in delivery costs due to higher fuel prices and delivery surcharges levied by transportation

suppliers, as well as a reduction in the number of large project orders for which delivery costs are typically

recoverable by the Partnership. Delivery costs represented 4.0% of total revenue in the current year, com-

pared to 3.9% in the prior period. As a percentage of revenue, SG&A expenses increased to 14.3% of total

revenue for the current year, compared to 13.9% of total revenue for the comparative period.

NET EARNINGSNet Earnings for the quarter ended December 31, 2008, were $4.5 million. For the year ended December 31,

2008, net earnings were $11.5 million.

INTERESTNet interest expense for the quarter ended December 31, 2008 relates primarily to the long-term debt of the

Fund. Management has fi xed the interest rate on half of the term loan through the use of an interest rate

swap resulting in an effective fi xed interest rate of 6.39% for 50% of the term loan. The effective interest

rate of the term loan was 6.21% for the quarter ended December 31, 2008, and 6.0% for the period ended

December 31, 2008.

AMORTIZATIONAmortization charges of $1.5 million for the quarter ended December 31, 2008, relate primarily to amortiza-

tion of separately identifi able intangible assets of the Fund.

Amortization charges of $5.4 million were booked for the year ended December 31, 2008

INCOME TAXESThe Fund currently qualifi es as a Mutual Fund Trust for Canadian income tax purposes and does not record

a provision for current income taxes on income earned by the Fund and its fl ow-through entities. Income

tax expense recorded in the consolidated fi nancial statements of the Fund relates to Futuremed General

Partner Inc., a wholly owned corporation within the corporate structure.

The Fund has not been subject to income tax to the extent that its taxable income is distributed to

unitholders. As a result of new legislation proposed by the Minister of Finance (Canada) on October 31,

FUTUREMED ANNUAL REPORT 2008

132006 and substantively enacted on September 12, 2007, the Fund will pay tax from January 1, 2011. This is

subject to normal growth restrictions in the legislation, which if not adhered to could subject the Fund to

tax before 2011.

Future income tax liabilities recognized in the consolidated balance sheet refl ect tax on temporary

differences expected to reverse after 2011.

LIQUIDITY AND CAPITAL RESOURCESCash from operations has historically been suffi cient to fund working capital and capital expenditure

requirements, as well as to facilitate the servicing of debt. Management believes that cash from operations,

together with the credit facilities that are in place, will continue to be suffi cient to support the working

capital and capital expenditure requirements of the business and distributions to unitholders. The Fund’s

distribution policy is to make distributions to Unitholders from cash generated from operations. The Board

of Trustees reviews and approves the level of distributions on a regular basis.

As at December 31, 2008, Futuremed’s working capital (current assets, including cash, less current

liabilities) was $19.6 million compared to $12.2 million at December 31, 2007. Liabilities consist of accounts

payable and accrued liabilities of $22.9 million. Futuremed’s working capital requirements consist of the

funding of accounts receivable, prepaid expenses and other receivables and inventory to the extent that

these exceed accounts payable and accrued liabilities. The Partnership’s principal source of liquidity is cash

provided by operations. At December 31, 2008, days sales outstanding amounted to 47 days, while days

payable outstanding was 60 days compared to 45 days and 67 days respectively last year. The inventory turn

ratio (based on annualized cost of goods sold) was 11 times compared to 9 times in the prior year period.

Capital expenditure requirements have traditionally been relatively low, and management does not expect

this trend to change in the near future.

The existing credit facilities of the Fund mature on January 6, 2010. Subsequent to year end, the Fund

reached an agreement with the existing lender to extend the credit facilities to March 2012 on terms and

conditions that are similar to the existing credit facilities agreement. Management expects that the revised

credit agreement will be fi nalized during the fi rst quarter of 2009.

As at December 31, 2008, the Fund was in compliance with all fi nancial and non-fi nancial covenants on

its credit facilities.

TOTAL CONTRACTUAL OBLIGATIONS ($ ‘000)

As at December 31, 2008 Total < 1 year 1-3 years 4-5 years > 5 years

Long Term-debt $ 40,755 $ 0 $ 40,755 $ 0 $ 0

Operating Leases 6,678 1,345 2,581 1,914 838

Other 5,806 5,806 0 0 0

Total $ 53,239 $ 7,151 $ 43,336 $ 1,914 $ 838

The above table shows the contractual obligations of Futuremed. Other Total Contractual Obligations

include commitments on short-term forward foreign exchange contracts (Principal amount of US$6,600)

used to hedge the currency risk on US dollar purchases.

14 CASH FLOW FROM OPERATIONS ($’000) Twelve Twelve Quarter ended Quarter ended Months ended Months ended Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2007

Net earnings (loss) for the period 4,520 4,169 11,458 3,910

Non-cash Interest Expense 77 0 172 0

Non Cash Amortization 1,523 1,215 5,446 5,160

Future Income Tax Expense (Recovery) (219) (985) (494) 5,281

Unrealized Gain on Swap Contracts (380) (106) (663) (74)

Net Change in Working Capital 403 1,954 (2,917) (727)

Cash Flow from Operations 5,924 6,247 13,002 13,550

Investing Activities (353) (5) (19,545) (128)

Financing Activities (3,580) (3,101) 5,529 (12,403)

Change in Cash Equivalents $ 1,991 $ 3,141 $ (1,014) $ 1,019

For the three months ended December 31, 2008, the Fund generated cash fl ow from operating activities of

$5.9 million, which refl ects continued strong operating performance.

INVESTING ACTIVITIESOperationally, Futuremed’s business is not capital intensive. Capital expenditures for the ongoing opera-

tions of Futuremed’s business are low and are primarily required for offi ce technology and warehouse

upgrades. Capital expenditures for the three months ended December 31, 2008 increased to approximately

$0.4 million from $0.05 million in the same period last year due primarily to an operational upgrade to the

Concord Warehouse facility to allow for greater space utilization and improved operating effi ciencies. This

is also the reason for the year-on-year increase in capital expenditure. This project will be completed in the

fi rst quarter of 2009, and the full benefi ts of the upgrades should be experienced from the beginning of the

second quarter of that year.

FINANCING ACTIVITIESIn connection with the January 2006 acquisition of Futuremed by the Fund, a four-year term loan of $30.5

million, and a revolving credit facility of up to $8.0 million for operating purposes, was entered into by

Futuremed. A further $10.6 Million of term debt was raised to fi nance the acquisition of Dismed Inc., which

closed June 30, 2008. There were no changes to these credit facilities during the quarter. The operating

facility was not utilized during either of the quarter or the year. Cash fl ows from fi nancing activities include

primarily distributions paid during the three months ended December 31, 2008 amounting to $3,534 million.

The December 2008 distribution of $1,178 was accrued and paid to unitholders on January 15, 2009.

For the period ending December 31, 2008, fi nancing activities include proceeds from equity issuance of

$15.8 Million and the increase in long term debt of $10.6 Million, offset by distributions made to unitholders of

$13.2 Million and the repayment of DMD’s credit facilities outstanding at the time of acquisition of $7.1

Million.

RELATED PARTY TRANSACTIONS

The Partnership’s lease at its Concord, Ontario facility is with a company, the principal of which is a unit

holder of Futuremed and president and chief executive offi cer of Futuremed General Partner Inc. Under the

FUTUREMED ANNUAL REPORT 2008

15terms of the lease, rental payments are $0.5 million annually. The lease expires at the end of April 2008, and

has been renewed by the Partnership up to January 2020. This lease is on normal commercial terms.

CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING POLICIESThe preparation of fi nancial statements in conformity with Canadian GAAP requires management to make

estimates and assumptions that affect the amounts reported in the fi nancial statements and accompanying

notes. Financial results as determined by actual events could differ from those estimates. The Fund’s fi nan-

cial statements have, in management’s opinion, been properly prepared within reasonable limits of material-

ity and, except as noted below, within the framework of the signifi cant accounting policies summarized in

the consolidated fi nancial statements prepared for the year ended December 31, 2008.

CHANGES IN ACCOUNTING POLICIES

New accounting standards have been adopted in 2008 as described below.

NEW ACCOUNTING STANDARDS

As required by the Canadian Institute of Chartered Accountants (CICA) the Fund adopted the follow-

ing new accounting standards as at January 1, 2008: Section 3031, Inventories; Section 3862, Financial

Instruments – Disclosures; Section 3863, Financial Instruments – Presentation; and Section 1535, Capital

Disclosures.

Section 3031, Inventories, relates to the accounting for inventories and revises and enhances the

requirements for assigning costs to inventories. The new standard applies to interim and annual fi nancial

statements relating to fi scal years beginning on or after January 1, 2008.

Sections 3862 and 3863 replace Handbook Section 3860 Financial Instruments- Disclosure and

Presentation, revising and enhancing its disclosure requirements, and carrying forward unchanged its

presentation requirements. These new sections place increased emphasis on disclosures about the nature

and extent of risks arising from fi nancial instruments and how the entity manages those risks.

Section 1535, Capital Disclosures, requires that an entity disclose information that enables users of its

fi nancial statements to evaluate an entity’s objectives, policies and processes for managing capital, including

disclosures of any externally imposed capital requirements and the consequences of non-compliance. The

new standard applies to annual fi nancial statements relating to fi scal years beginning on or after October 1,

2007, specifi cally January 1, 2008 for the partnership.

FUTURE ACCOUNTING STANDARDS

The CICA has issued a new accounting standard, Section 3064, Goodwill and Intangible Assets, which clarifi es

that costs can be capitalized only when they relate to an item that meets the defi nition of an asset. Section

1000, Financial Statement Concepts, was also amended to provide consistency with this new standard. The

new and amended standards will be effective for the Fund’s 2009 fi scal year. The Fund does not anticipate

that the adoption of this standard, effective January 1, 2009, will signifi cantly impact its fi nancial results.

The CICA has also issued Section 1582, Business Combinations, which replaces Section 1581, Section

1601, Consolidated Financial Statements, and Section 1602, Non-controlling Interests, which together

replace Section 1600. Under Section 1582, the purchase price used in a business combination is based on

fair value of shares exchanged at their market price at the date of exchange. Furthermore, virtually all

acquisition costs will be expensed which currently are capitalized as part of the purchase price. Contingent

liabilities are to be recognized at fair value at the acquisition date and remeasured at fair value through

earnings for each period until settled. Currently, only the contingent liabilities that are resolved and payable

are included in the cost to acquire the business. In addition, negative goodwill will be recognized immedi-

16 ately in earnings, unlike the current requirement to eliminate it by deducting it from assets in the purchase

price allocation. Sections 1601 and 1602 revise and enhance the standards for the preparation of consoli-

dated fi nancial statements subsequent to a business combination. All three sections come into effect for

fi nancial periods beginning January 1, 2011 with prospective application.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)In February 2008, the Accounting Standards Board confi rmed that Canadian publicly accountable entities

will have to adopt IFRS effective for fi scal years beginning on or after January 1, 2011. The Fund is cur-

rently evaluating this new requirement and is in the process of creating a detailed plan to convert to IFRS.

The Fund has performed an initial project scoping exercise to identify the more signifi cant differences

between Canadian Generally Accepted Accounting Principles (GAAP) and IFRS.

Futuremed’s conversion plan consists of three phases: diagnostic, design and implementation.

Management has completed the diagnostic phase which involved reviewing the major differences between

Canadian GAAP and IFRS relevant to the Fund, identifying accounting policy choices permitted under IFRS

and making preliminary implementation decisions. In this phase, management also made an initial assess-

ment of the impact of the required changes on the existing accounting systems and internal controls and

the potential magnitude of the fi nancial statement adjustments.

As this time, management has determined that the differences with the highest potential impact on the

Fund’s consolidated fi nancial statements include the treatment the Fund’s unitholders’ equity and the initial

adoption of IFRS under the provision of IFRS 1, First-time Adoption of IFRS.

DISCLOSURE CONTROLS AND PROCEDURES The Fund’s Management under the supervision of, and with the participation of the Fund’s Chief Executive

Offi cer (“CEO”) and Chief Financial Offi cer (“CFO”), has designed and evaluated the effectiveness of

disclosure controls and procedures, as defi ned under National Instrument 52-109 of the Canadian Securities

Administrators.

Disclosure controls and procedures are designed to provide reasonable assurance that information

required to be disclosed in reports fi led with Canadian securities regulatory authorities is recorded,

processed, summarized and reported in a timely fashion. The disclosure controls and procedures are

designed to ensure that information required to be disclosed by the Fund in such reports is then accumu-

lated and communicated to the Fund’s Management, including the CEO and the CFO, as appropriate, to

allow timely decisions regarding required disclosure.

INTERNAL CONTROLS OVER FINANCIAL REPORTING The Fund’s management under the supervision of, and with the participation of the Fund’s CEO and CFO

has designed and evaluated internal controls over fi nancial reporting, as defi ned under National Instrument

52-109 of the Canadian Securities Administrators.

The purpose of internal controls over fi nancial reporting is to provide reasonable assurance regarding

the reliability of fi nancial reporting, in accordance with GAAP, focusing in particular on controls over

information contained in the annual and interim fi nancial statements. The internal controls are not expected

to prevent and detect all misstatements due to error or fraud.

There have been no changes in the Fund’s internal controls over fi nancial reporting during the fi rst

quarter ended December 31, 2008, that have materially affected or are reasonably likely to materially affect

the Fund‘s internal control over fi nancial reporting.

FUTUREMED ANNUAL REPORT 2008

17FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTSThe Partnership’s fi nancial instruments consist of cash and cash equivalents, accounts receivable, accounts

payable and accrued liabilities, distributions payable and long-term debt. Aside from the long-term debt, the

carrying values approximate fair values due to their short-term nature. Based on prevailing interest rates,

the fair value of long-term revolving loans of the Partnership approximates the carrying value in all material

respects.

The Partnership purchases less than 10% of its annual cost of goods sold in US$, which results in a

small exposure to fl uctuations in the value of the US$ relative to the Canadian dollar. Management has

determined that it will purchase forward exchange contracts to cover approximately 50% of its projected

US$ requirements on an ongoing basis, and will constantly review this policy in the light of prevailing

market conditions. These contracts have been marked-to-market at each reporting period so as to refl ect

the market value of these contracts at those dates.

The Partnership uses a derivative swap contract to manage part of its exposure to movements in

interest rates on its variable interest term loan. This contract has been designated and accounted for as a

hedge. The fair value of this swap contract is a loss of $0.7M at December 31, 2008.

The Partnership does not own other instruments that may be settled by the delivery of non-fi nancial assets.

OUTSTANDING UNIT DATAOn June 30, 2008, 1,875,000 new units were issued at $9.10 per unit, in order to fi nance the acquisition of

Dismed Inc. At December 31, 2008, the Fund had 15,171,816 trust units and 108,374 special voting units

outstanding and Futuremed Holdings Limited Partnership had 108,374 Class B LP units outstanding. Class

B LP units enjoy similar rights and obligations as do trust units

RISKS AND UNCERTAINTIESThe result of operations, business prospects and fi nancial condition of the Partnership are subject to a

number of risks and uncertainties and are affected by a number of factors outside the control of manage-

ment of the Partnership.

The Fund’s future performance and its ability to generate suffi cient cash fl ow to meet its monthly cash

distributions to Unitholders involve a number of risks and uncertainties. Any of these risks and uncertain-

ties could have a material and adverse effect on the Fund’s results of operations, business prospects,

fi nancial condition, the cash available for distribution or the market price or value of the Fund’s Trust Units

RISKS RELATED TO THE BUSINESS AND THE INDUSTRY

GOVERNMENT REGULATION AND FUNDING

Government regulations and policies govern the licensing and operations of LTC facilities. In Ontario

(Futuremed’s largest market), for example, licenses for LTC facilities are issued for a term of one year, and

are routinely renewed (except in cases where there are specifi c concerns with respect to the subject

facility). If LTC facilities, which the Partnership serves, were to lose or fail to renew their licenses, the

business, operating results and fi nancial condition of the Partnership may be adversely affected.

The LTC sector in Canada receives funding from Canadian governments as part of the governments’

policy of universal healthcare coverage in Canada. In particular, funding for nursing supplies and specialized

furniture and equipment is largely, and in some cases wholly, funded by the provincial governments. There

can be no assurance that the current level of such funding will continue, or that such funding will increase

commensurate with actual expenses. Further, there can be no assurance that the procedures for providing

such funding to LTC facilities will not change. Any reduction in, or change in the method of providing, such

18 funding could have a material and adverse impact on the business, operating results and fi nancial condition

of the Partnership. In Ontario, government policies with respect to the regulation and structure of health-

care funding, including funding to the LTC sector, are currently being reviewed. There can be no assurance

that any new or proposed regulatory or policy change would not have an adverse impact on the business,

operating results and fi nancial condition of the Partnership.

The Partnership holds certain licenses and accreditations to permit it to import and sell its products. If

the Partnership’s licenses or accreditations are not renewed or are revoked by the applicable authorities,

the Partnership’s business, fi nancial condition and operations may be adversely affected.

LTC FACILITY OCCUPANCY LEVELS

The Partnership’s operating performance is affected by its customers’ ability to maintain high occupancy

levels. Government funding for the provision of nursing services and supplies to a particular LTC facility is

in part related to the LTC facility’s ability to maintain prescribed occupancy levels. Factors affecting a LTC

facility’s ability to maintain prescribed occupancy levels include demographic growth rates, increased

competition from or supply of other similar facilities, facility quality and maintenance levels, changes in

regional economic or social conditions, changes in regional facility dynamics, and changes in government

policy affecting the support of seniors and LTC facilities. As such, there is no assurance that future occu-

pancy levels at the LTC facilities serviced by the Partnership will be consistent with historical occupancy

levels. Any reduction in occupancy levels at LTC facilities serviced by the Partnership could have an adverse

impact on the business, operating results and fi nancial conditions of the Partnership.

BUSINESS PLAN EXECUTION

There can be no assurance that the Partnership’s business and growth strategy will enable it to sustain

current levels of profi tability in future periods. The Partnership’s future operating results will depend on a

number of factors, including its ability to continue to successfully execute its strategic initiatives. There can

be no assurance that the Partnership will be successful in executing such strategic initiatives or that such

initiatives will enable it to maintain its historical growth rates or profi tability levels. There can be no assur-

ance that the Partnership will be able to effectively manage organic or acquisition growth, and any failure to

do so could have a material effect on its business, fi nancial condition and results of operations.

In addition, the Partnership may increase its indebtedness to fi nance any acquisitions it undertakes.

There is no assurance that the Partnership will be able to make acquisitions on satisfactory terms, or at all. In

addition, acquisitions may result in liabilities and contingencies that could be signifi cant to the Partnership’s

operations. There is no assurance that the Partnership will be able to successfully integrate any acquisitions

and its failure to do so could adversely affect its business, fi nancial condition and result of operations.

RELATIONSHIPS WITH SUPPLIERS

The Partnership does not have any manufacturing operations and therefore relies on its suppliers to provide

it with products for distribution. Risks related to the reliance on the Partnership’s suppliers include, but are

not limited to, the potential for suppliers to elect to sell directly to the Partnership’s customers, the

potential for a disruption in product supply, and price increases that may not be able to be passed on to the

Partnership’s customers. The Partnership does not have preferred agreements with all of its suppliers, many

of whom also supply the Partnership’s competitors. The Partnership relies on one supplier to provide it with

all products for its incontinence line of products. If such supplier becomes unwilling or unable to continue

to supply the Partnership with products and the Partnership is unable to secure an alternate supplier on

favourable pricing terms within a reasonable period of time, or if the Partnership’s customers fail to accept

FUTUREMED ANNUAL REPORT 2008

19the alternate supplier’s product, the Partnership’s business, operating results and fi nancial condition could

be materially and adversely affected. Any change in the Partnership’s relationships with its suppliers that

would affect its ability to source quality products on a timely and cost-effective basis could have an adverse

impact on the business, operating results and fi nancial condition of the Partnership.

The Partnership relies on its suppliers to meet its customers’ needs and to provide nursing supplies

and specialized furniture and equipment. To the extent that the Partnership’s supply of products is

compromised and adequate alternative sources cannot be found, or cannot be found at on favourable terms,

the Partnership’s profi tability may be adversely affected.

The Partnership receives rebates from certain suppliers based on the volume of products purchased. If

the Partnership is unsuccessful in earning, negotiating or collecting rebates, it could have an adverse impact

on its business. The Partnership’s ability to earn rebates is ultimately a function of the volumes that it can

sell and the perception of its suppliers of what is required to motivate the Partnership’s best efforts on

behalf of their products. There can be no assurance that future negotiations with suppliers on rebates will

be as successful as they have been in the past. Rebates offered by the Partnership’s suppliers may cease or

become limited, and its efforts to collect cash rebates periodically throughout the year may be unsuccessful.

The occurrence of any of these events could have an adverse impact on the Partnership’s business, fi nancial

condition and results of operations.

IMPORT OF FOREIGN PRODUCTS

The products offered as part of the Partnership’s private label lines are manufactured on an outsourced

basis in countries with lower labour costs relative to North America. Any disruption in the Partnership’s

foreign manufacturing and supply relationships could cause product delays, create service interruptions, or

force the Partnership to fi nd alternative sources of products on potentially less attractive terms. The

Partnership’s competitors could import low-cost products similar to those sourced and distributed by the

Partnership, increasing price competition and reducing the Partnership’s opportunities for sales and margin

growth. The occurrence of any of these events could adversely affect the Partnership’s business, fi nancial

condition and results of operations.

In addition, trade with foreign countries may be subject to risk factors such as regulatory factors, the

economic stability of the foreign country and the structure of its government, labour factors and supply

factors. The sourcing of products from suppliers in Asia exposes the Partnership to potential product

quality issues. In addition, due to the distances involved, order sizes are larger and lead times are longer for

orders sourced from Asia. This increases the Partnership’s inventory obsolescence risk.

RELATIONSHIPS WITH CUSTOMERS

The Partnership’s success depends in large part on its ability to fulfi ll its obligations to customers and keep

its customers satisfi ed. If the Partnership fails to satisfactorily perform its customer obligations or address

performance issues, or if the Partnership makes errors in the services that it provides, customers may seek

alternate distributors, which could adversely affect the Partnership’s business, fi nancial condition and

results of operations.

Consolidation of LTC facilities or increased centralization of procurement may result in customers

seeking more favourable terms for products and services offered by the Partnership. Sales to customers on

terms less favourable to the Partnership would have an adverse effect on the Partnership’s business,

fi nancial condition and results of operations.

The Partnership’s largest customer accounted for approximately 7.6% of its total revenue in fi scal 2008

compared to 9.6% of fi scal 2007. If this customer terminates its relationship with the Partnership or there is

20 a signifi cant reduction of purchases by this customer, it could have a material adverse effect on the

Partnership’s business, results of operations and fi nancial condition.

PRODUCT LIABILITY

Diffi culties in product design, performance and reliability could result in delays in customer acceptance of

the Partnership’s products, lost sales, damage to the Partnership’s reputation, or lawsuits against the

Partnership. The products distributed by the Partnership are not error free. Undetected errors and

performance problems may be discovered in the future. The Partnership may not be able to adequately

address product defects or obtain future products in a timely manner. Product defects may expose the

Partnership to product liability claims for which it may not have suffi cient product liability insurance. Any

such occurrence could have a material adverse impact on the Partnership’s business, fi nancial condition and

results of operations.

GEOGRAPHIC CONCENTRATION

A majority of the Fund’s revenue is derived from its operations in Ontario, Quebec, British Columbia and

Alberta. If any of these provincial markets were to experience a decline in fi nancial performance as a result

of changes in local and regional economic conditions or adverse changes to the provincial regulatory

environment, the business, fi nancial condition and results of operations of the Partnership could be

adversely affected.

RELIANCE ON KEY MANAGEMENT AND PERSONNEL

The Fund’s ability to successfully implement its business strategy and to operate profi tably is dependent on

the abilities, experience and efforts of members of its senior management and key sales and support

personnel. In particular, the Fund believes that its President and Chief Executive Offi cer, Raymond Stone,

plays a signifi cant role in the success of the Partnership, that the loss of Mr. Stone’s services could have an

adverse effect on the Partnership, and there can be no assurance that the Partnership would be able to fi nd

a suitable replacement for Mr. Stone. While the Partnership has entered into employment agreements and

confi dentiality agreements with certain of its key employees, including Mr. Stone, should any of its key

employees become unable to or unwilling to continue their employment, the Partnership’s business,

fi nancial condition and results of operations could be signifi cantly adversely impacted. The loss of a key

salesperson to a competitor may result in the loss of that salesperson’s customers by the Partnership. The

Partnership’s continued growth depends on its ability to attract and retain experienced key employees. The

Partnership does not maintain life insurance on any of its offi cers or employees.

COMPETITION

The Partnership operates in a competitive environment and may not be able to continue to compete

successfully. The Partnership competes for customers based on: (i) quality of service; (ii) product availabil-

ity; (iii) product cost; (iv) ability to fi ll and invoice orders accurately; (v) delivery time; (vi) inventory

management capabilities; (vii) convenience; and (viii) ability to meet specialized requirements. The

Partnership’s competitors include large corporations, as well as regional and local distributors and manufac-

turers. The Partnership’s current or potential competitors may offer products at a lower price or products

and service that are superior to those of the Partnership. In addition, organizations that currently do not

focus on the LTC sector may decide to enter this sector. Such organizations may be larger and have more

fi nancial resources than the Partnership. If the Partnership does not compete successfully, the Partnership’s

business, fi nancial condition and results of operations may be adversely affected.

FUTUREMED ANNUAL REPORT 2008

21OPERATING HAZARDS

The Partnership’s sales are dependent on the continued operation of its facilities. The operation of facilities

involves some risks, including the failure or substandard performance of equipment, natural disasters, fi re

and suspension of operations. The Partnership also has exposure to future claims with respect to workers’

compensation and other matters. There can be no assurance as to the actual amount of these liabilities or

the timing of them. The occurrence of material operational problems, including but not limited to the above

events, may have a material adverse effect on the Partnership.

LEGAL PROCEEDINGS

From time to time, the Partnership is threatened with, is named as a defendant in, or may become subject

to, various legal proceedings in the ordinary course of conducting its business. A signifi cant judgement

against the Partnership or the imposition of a signifi cant fi ne or penalty as a result of a fi nding that the

Partnership has failed to comply with laws, regulations, contractual or other arrangements, or professional

standards could have a signifi cant adverse impact on the Partnership’s business, fi nancial condition and

results of operations.

EXCHANGE RATE FLUCTUATIONS

A portion of the Partnership’s expenses is paid in U.S. dollars, while most of the Partnership’s revenue is

received in Canadian dollars. The Fund’s distributions to unitholders will be in Canadian dollars. As a result,

the Partnership will be exposed to currency exchange rate risk.

The Partnership has implemented a hedging strategy to minimize the effects of currency fl uctuations

but there can be no assurance that the Partnership will be able to successfully implement its hedging

strategy and that the Partnership will not be affected by currency exchange fl uctuations.

UNINSURED AND UNDERINSURED LOSSES

The Partnership maintains insurance policies with insurers in amounts and with coverages and deductibles

that management believes are reasonable and prudent. The Partnership maintains comprehensive property,

casualty and liability insurance with coverages and amounts that management believes are suffi cient to

repair or replace any assets physically damaged or destroyed, to cover resultant business interruption losses

or extra expenses sustained, and to cover claims with respect to bodily injury or property damage arising

out of assets or operations. However, not all risks are covered by insurance, and no assurance can be given

that insurance will be consistently available or will be consistently available on an economically feasible

basis or that the amounts of insurance will at all times be suffi cient to cover each and every loss or claim

that may occur involving the assets or operations of the Partnership.

RISKS RELATED TO THE STRUCTURE OF THE FUND

DEPENDENCE ON THE TRUST AND THE PARTNERSHIP

The Fund is an unincorporated open-ended, limited purpose trust, which will be entirely dependent on the

operations and assets of the Partnership through the FHC Trust’s (the “Trust”) ownership of approximately

99.2% of the limited partnership units of Futuremed Holdings Limited Partnership (“FHLP”). Cash distribu-

tions to Unitholders will be dependent on, among other things, the ability of the Trust to pay interest on the

trust notes of the Trust issued in favour of the Fund (the “Trust Notes”) and to make cash distributions in

respect of the trust units, which, in turn, is dependent on the Partnership making cash distributions. The

ability of the Partnership or the Trust to make cash distributions or other payments or advances will be

22 subject to applicable laws and regulations and contractual restrictions contained in the instruments

governing any indebtedness of those entities, including restrictive covenants in Futuremed’s credit facilities.

CASH DISTRIBUTIONS ARE NOT GUARANTEED AND WILL FLUCTUATE WITH BUSINESS PERFORMANCE

Although the Fund intends to distribute the interest received in respect of the Trust Notes and the cash

distributions received in respect of the trust units, less expenses and amounts, if any, paid by the Fund in

connection with the redemption of units, there can be no assurance regarding the amounts of income to be

generated by the Partnership’s business or ultimately distributed to the Fund. The ability of the Fund to

make cash distributions, and the actual amount distributed will be entirely dependent on the operations and

assets of the Partnership, and will be subject to various factors including the Partnership’s fi nancial

performance, its obligations under applicable credit facilities, fl uctuations in its working capital, the

sustainability of its margins and its capital expenditure requirements. The market value of the units may

deteriorate if the Fund is unable to meet its distribution targets in the future, and that deterioration may be

signifi cant. In addition, the composition of cash distributions for tax purposes may change over time and

may affect the after-tax return for investors.

NATURE OF UNITS

Securities like the units are hybrids in that they share certain attributes common to both equity securities

and debt instruments. The units do not represent a direct investment in the business of the Partnership and

should not be viewed by investors as direct securities of FHLP or its subsidiaries. As holders of units,

unitholders will not have the statutory rights normally associated with ownership of shares of a corporation

including, for example, the right to bring “oppression” or “derivative” actions or rights of dissent. The units

represent a fractional interest in the Fund. The Fund’s primary assets will be Trust Units, Trust Notes and

common shares of Futuremed Holdings General Partner Inc. (“Futuremed GP”). The price per unit is a

function of anticipated distributable income

The cash distributions intended to be made to unitholders are not guaranteed and investors should not

view units as debt instruments of the Fund. Units are dissimilar to debt instruments in that the initial

purchase price of a unit does not represent a principal amount to be repaid to unitholders on a future date.

Investors who choose to liquidate their holdings will generally do so by selling their units in the market at

the prevailing market price.

The units are not “deposits” within the meaning of the Canada Deposit Insurance Corporation Act

(Canada) and are not insured under the provisions of that Act or any other legislation. Furthermore, the

Fund is not a trust company and, accordingly, is not registered under any trust and loan company legislation

as it does not carry on or intend to carry on the business of a trust company.

In December 2004 a new statute, the Trust Benefi ciaries’ Liability Act (Ontario) was enacted to

create a statutory limitation on the liability of unitholders of Ontario income trusts such as the Fund. The

legislation provides that a unitholder will not, as benefi ciary, be liable for any act, default, obligation or

liability of the trust or any of its trustees after the legislation comes into force. However, this legislation does

not address potential liabilities arising before the date the legislation came into force. In addition, this

legislation has not been judicially considered and it is possible that reliance on the legislation by a

Unitholder could be successfully challenged on jurisdictional or other grounds.

UNPREDICTABILITY AND VOLATILITY OF UNIT PRICE

A publicly-traded income fund will not necessarily trade at values determined by reference to the underly-

ing value of its business. The price at which the units will trade cannot be predicted. The market price of

FUTUREMED ANNUAL REPORT 2008

23the units could be subject to signifi cant fl uctuations in the response to changes in market rates of interest,

changes in general market conditions, variations in quarterly operating results and other factors. In

addition, the securities markets have experienced signifi cant price and volume fl uctuations from time to

time in recent years that often have been unrelated or disproportionate to the operating performance of

particular issuers. These broad fl uctuations may adversely affect the market price of the units.

The market value of the units may deteriorate if the Fund is unable to meet its distribution targets in

the future, and that deterioration may be material. In addition, the composition of cash distributions may

change over time and may affect the after-tax return for investors.

FUND NOT A CORPORATION

Purchasers are cautioned that, the Fund is not generally regulated by established corporate law and

unitholders’ rights are governed primarily by the specifi c provisions of the Fund’s Declaration of Trust,

which addresses such items as the nature of the units, the entitlement of unitholders to cash distributions,

restrictions respecting non-resident holdings, meetings of unitholders, delegation of authority, administra-

tion, Fund governance and liabilities and duties of the trustees to unitholders. As well, under certain

existing legislation such as the Bankruptcy and Insolvency Act and the Companies’ Creditors

Arrangement Act, the Fund is not a legally recognized entity within the defi nitions of these statutes. In the

event of insolvency or restructuring of the Fund, the rights of unitholders will be different from those of

shareholders of an insolvent or restructuring corporation.

DISTRIBUTION OF SECURITIES ON REDEMPTION OR TERMINATION OF THE FUND

Upon termination of the Fund, the trustees of the Fund may distribute the Trust Notes and Trust Units

directly to the Unitholders, subject to obtaining all required regulatory approvals. Upon redemption of

Units, the trustees may distribute the Trust Notes directly to Unitholders, subject to obtaining all required

regulatory approvals. In addition, Trust Notes and the Trust Units are not freely tradable or listed on any

stock exchange. Securities so distributed may not be qualifi ed investments for trusts governed by Plans,

depending on the circumstances at the time.

DILUTION OF EXISTING UNITHOLDERS AND LP UNITHOLDERS

The Fund’s Declaration of Trust authorizes the Fund to issue an unlimited number of units for that consid-

eration and on those terms and conditions as shall be established by the Trustees without the approval of

any unitholders. Other than for certain of the previous holders of units of the Partnership (“Existing

Investors”), the unitholders will have no pre-emptive rights in connection with such further issues.

Additional units will be issued by the Fund in connection with the indirect exchange of the Class B limited

partnership Units. In addition, FHLP is permitted to issue additional limited partnership units for any

consideration and on any terms and conditions.

STRUCTURAL SUBORDINATION OF THE UNITS

In the event of a bankruptcy, liquidation or reorganization of FHLP or any of its subsidiaries, holders of its

indebtedness and its trade creditors will generally be entitled to payment of their claims from the assets of

FHLP and those subsidiaries before any assets are made available for distribution to the Fund. The units are

effectively junior to the debt outstanding under Futuremed’s current senior secured credit facilities entered

into on January 6, 2006 (the “Credit Facilities”) and other liabilities (including trade payables) of FHLP and

its subsidiaries. FHLP and its subsidiaries will generate all of the Fund’s revenue available for distribution

and hold all of the Fund’s consolidated assets.

24 CAPITAL INVESTMENT

The timing and amount of capital expenditures by the Partnership will indirectly affect the amount of cash

available for distribution to unitholders. Distributions may be reduced, or even eliminated, at times when

the Partnership deems it necessary to make signifi cant capital or other expenditures.

LEVERAGE AND RESTRICTIVE COVENANTS

The ability of the Trust and the Partnership to make distributions, pay dividends or make other payments or

advances will be subject to applicable laws and contractual restrictions contained in the instruments

governing any indebtedness of those entitles (including the Credit Facilities). The degree to which the

Partnership is leveraged could have important consequences to the unitholders including: the Partnership’s

ability to obtain additional fi nancing for working capital, capital expenditures or acquisitions in the future

may be limited; a signifi cant portion of the Partnership’s cash fl ow from operations may be dedicated to the

payment of the principal of and interest on its indebtedness, thereby reducing funds available for future

operations; certain of the Partnership’s borrowings (including borrowings under the Credit Facilities) will

be at variable rates of interests, which exposes the Partnership to the risk of increased interest rates, which

may have an adverse effect on the Partnership’s fi nancial condition. These factors may increase the

sensitivity of distributable cash to interest rate variations.

The Credit Facilities will contain numerous restrictive covenants that limit the discretion of the

Partnership’s management with respect to certain business matters. These covenants place signifi cant

restrictions on, among other things, the ability of the Partnership to create liens or other encumbrances, to

pay distributions or make certain other payments, investments, loans and guarantees and to sell or other-

wise dispose of assets and merge or consolidate with another entity. In addition, the Credit Facilities will

contain fi nancial covenants that require the Partnership to meet certain fi nancial ratios and fi nancial

condition tests. A failure to comply with the obligations in the Credit Facilities could result in a default

which, if not cured or waived, could result in a termination of distributions by the Partnership and permit

acceleration of the relevant indebtedness. If the indebtedness under the Credit Facilities were to be

accelerated, there can be no assurance that the assets of the Partnership would be suffi cient to repay in full

that indebtedness. In addition, the Credit Facilities have maturity dates. There can be no assurance that

future borrowings or equity fi nancing will be available to the Partnership, or available on acceptable terms,

in an amount suffi cient to fund the Partnership’s needs. This could, in turn, have a material adverse effect

on the business, fi nancial condition and results of operations of the Partnership and the ability of the Fund

to make distributions on Units.

INCOME TAX MATTERS

There can be no assurance that Canadian federal income tax laws and administrative policies respecting the

treatment of mutual fund trusts will not be changed in a manner that adversely affects the holders of Units.

The Canadian Income Tax Act (the “Tax Act”) imposes penalties for the acquisition or holding of non-quali-

fi ed investments.

Interest on the Trust Notes accrues at the fund level for Canadian federal income tax purposes,

whether or not actually paid. The Fund’s Declaration of Trust provides that a suffi cient amount of the

Fund’s net income and net realized capital gains will be distributed each year to unitholders in order to

eliminate the Fund’s liability for tax under Part I of the Tax Act. Where such amount of net income (includ-

ing interest on the Trust Notes) and net realized capital gains of the Fund in a taxation year exceeds the

cash available for distribution in the year, such excess net income and net realized capital gains will be

FUTUREMED ANNUAL REPORT 2008

25distributed to unitholders in the form of additional units. Unitholders will generally be required to include

an amount equal to the fair market value of those units in their taxable income, in circumstances when they

do not directly receive a cash distribution.

Income fund structures generally involve a signifi cant amount of intercompany or similar debt,

generating substantial interest expense, which reduces earnings and therefore income tax payable. There

can be no assurance that taxation authorities will not seek to challenge the amount of interest expense

deducted on the note issued by Futuremed General Partner Inc. in favour of FHLP. Management believes

the interest expense inherent in the structure of the Fund is supportable and reasonable in the circum-

stances. If such a challenge were to succeed it could adversely affect the amount of distributable cash

available.

On June 22, 2007, Bill C-52 concerning the taxation of Specifi ed Investment Flow-Through (“SIFT”)

entities received Royal Assent. The SIFT Rules contained in Bill C-52 are not expected to apply to the Fund

until 2011 as the government has allowed a transition for publicly-traded trusts that existed prior to

November 1, 2006. To qualify for the interim period, the Fund must continue to comply with the Normal

Growth Guidelines regarding equity capital as outlined by the government. The Normal Growth Guidelines

provide for a safe harbour amount equal to 20% of the October 31, 2006 Market Capitalization for each of

the 2008 to 2010 calendar years. These amounts of safe harbour are cumulative during the interim period.

While we intend to comply with these guidelines, there can be no assurance that the Fund will be able to

retain the benefi t of the deferred application of the SIFT Rules until 2011. If the Fund is deemed to have

undergone undue expansion during the period up to December 31, 2010, as described in the Normal Growth

Guidelines, the SIFT Rules would become effective on a date earlier than January 1, 2011.

RESTRICTIONS ON POTENTIAL GROWTH

The payout by the Partnership of substantially all of its operating cash fl ow will make additional capital and

operating expenditures dependent on increased cash fl ow or additional fi nancing in the future. Lack of

those funds could limit the future growth of the Partnership and its cash fl ow.

RESTRICTIONS ON CERTAIN UNITHOLDERS AND LIQUIDITY OF UNITS

The Fund’s Declaration of Trust imposes various restrictions on unitholders. Non-resident unitholders and

partnerships that are not “Canadian Partnerships” for purposes of the Tax Act are prohibited from benefi -

cially owning more than 40% of Units (on a non-diluted and a fully-diluted basis). These restrictions may

limit (or inhibit the exercise of) the rights of certain unitholders, including non-residents of Canada and

U.S. persons, to acquire units, to exercise their rights as unitholders and to initiate and complete take-over

bids in respect of the units. As a result, these restrictions may limit the demand for units from certain

unitholders and thereby adversely affect the liquidity and market value of the units held by the public.

ENFORCEMENT OF INDEMNITIES

The proceeds of the Fund’s Initial Public Offering were used to indirectly acquire interests in the

Partnership, which were owned, directly or indirectly, by the Existing Investors. In light of the fact that the

Existing Investors represent separate fi nancial interests in the Partnership, the obligations of these parties

are, for the most part, several and not joint and several. Accordingly, any recourse of the Fund against the

Existing Investors would need to be taken against each such party individually.

26 NON-GAAP MEASURES

DISTRIBUTABLE CASH AND PAYOUT RATIO

Distributable Cash, Distributable Cash per Unit and Payout Ratio are not recognized performance measures

under Canadian Generally Accepted Accounting Principles. Canadian open-ended trusts, such as the Fund,

use Distributable Cash, Distributable Cash per Unit and Payout Ratio as indicators of fi nancial performance.

Distributable Cash, Distributable Cash per Unit and Payout Ratio may differ from similar computations as

reported by other entities and, accordingly, may not be comparable to Distributable Cash, Distributable

Cash per Unit, and Payout Ratio as reported by such entities.

Management believes that Distributable Cash, Distributable Cash per Unit and Payout Ratio are useful

supplemental measures that may assist investors in assessing fi nancial performance and the cash generated

by the Fund that is available to unitholders for distribution.

Distributable Cash is based on cash fl ows from operating activities, the GAAP measure reported in the

Fund’s consolidated statement of cash fl ow adjusted for cash fl ows for maintenance capital expenditures in

the period. The Fund determined that, to better refl ect its performance, the calculation should exclude the

impact of changes in working capital, as management believes that these changes in a period should not be

considered in a calculation intended to demonstrate the degree to which cash fl ow from earnings support

the fi nancial obligations of the Fund.

($’000’s except per unit amounts)

Twelve Twelve Quarter ended Quarter ended Months ended Months ended Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2007

Cash fl ows from operating activities 5,924 6,247 13,002 13,550

Less: Capital Expenditure (392) (5) (698) (128)

Distributable cash

(including impact of changes in working capital) 5,532 6,242 12,304 13,422

Add: changes in working capital (23) (1,848) 3,580 801

Distributable cash 5,509 4,394 15,884 14,223

Distributable cash per unit $ 1.06

(excluding impact of changes in working capital) $ 0.36 $ 0.33 $ 1.11 $ 1.06

Payout ratio is defi ned as distributions declared as a percentage of Distributable Cash.

($’000’s except per unit amounts)

Twelve Twelve Quarter ended Quarter ended Months ended Months ended Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2007

Distributable cash (see above) 5,509 4,394 15,884 14,223

Distributions declared 3,534 3,101 13,414 12,404

Payout ratio 64% 71% 84% 87%

Distributions declared per unit $ 0.23 $ 0.23 $ 0.93 $ 0.93

FUTUREMED ANNUAL REPORT 2008

27During the quarter ended December 31, 2008, the payout ratio was 64% compared to 71% in the prior year.

The accretion and synergies from the acquisition of Dismed Inc. were major contributors to this improved

ratio. The fund has embarked on a warehouse improvement project, which is to be fully operational by the

end of the fi rst quarter of 2009. Capital expenditures of $0.4 million were incurred in this respect in the

fourth quarter, which together with the capital expense incurred in the set-up of our new showroom in

Kitchener/Waterloo, negatively impacted our payout ratios for both the quarter and the year ended

December 31, 2008. Furthermore, in connection with the DMD acquisition, the Fund incurred non-recurring

expenditures during the third quarter of 2008 of $0.4 million that are not eligible for capitalization.

Excluding the effect of these expenses, the payout ratio for the three months and year ended December 31,

2008 would have been 60% and 80% respectively.

DISTRIBUTABLE CASHThe following table compares the amount of distributions made with the cash fl ow from operating activities

and the net earnings (loss):

($’000’s)

Three Three Twelve Twelve Months ended Months ended Months ended Months ended Dec. 31, 2008 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2007

Cash fl ow from operating activities 5,924 6,247 13,002 13,550

Net earnings (loss) 4,520 4,169 11,458 3,910

Distributions declared 3,534 3,101 13,414 12,404

(Shortfall)/Excess of cash fl ows

from operating activities over distributions declared 2,390 3,146 (412) (1,146)

(Shortfall)/Excess of net earnings

over distributions declared $ 986 $ 1,068 $ (1,956) $ (8,494)

During the quarter ended December 31, 2008, cash fl ows from operating activities were greater than

distributions declared by $2.4 million. During the year ended December 31, 2008, cash fl ows from operating

activities were less than distributions declared by $0.4 million. This is primarily the result of timing differences

embedded in working capital combined with an increase in distributions declared at June 30, 2008 as a result

of the acquisition of Dismed Inc. As the Fund makes monthly distributions at a constant amount per unit

during the year and given possible fl uctuations of sales between quarters combined with timing of cash fl ows

associated with working capital items, it is possible for such excesses or shortfalls to exist from time to time.

The amount of distributions declared generally will exceed the net earnings of the Fund as a result of

non-cash charges, most signifi cantly, amortization of intangible assets. For the quarter ended December 31,

2008 amortization of intangible assets amounting to $1.4 million was charged to net earnings. For the year

ended December 31, 2008, amortization of intangible assets amounting to $5.1 million was charged to net

earnings. The Fund does not retain additional amounts with respect to such amortization as the Fund’s

intangible assets do not require periodic investment to maintain existing levels of activity. Since January

2006, the date of the Initial Public Offering of the units of the Fund, the customer base continued to

increase organically in all geographical markets and across most product lines. The Fund’s operations are

not capital intensive and the Fund only needs to make minimum capital investments in order to maintain

existing productive capacity.

28 For the quarter ending December 31, 2008, the net earnings exceed distributions declared by approxi-

mately $1.0 million. For the Year ended December 31, 2008, the shortfall of distributions declared over net

earnings is $2.0 million. In the same period, the non-cash amortization charges amounted to $5.1 million.

SELECTED QUARTERLY INFORMATION (UNAUDITED)

($’000 except per unit amounts)

Three Three Twelve Twelve Months ended Months ended Months ended Months ended Mar. 31, 2007 June. 30, 2007 Sept. 30, 2007 Dec. 31, 2007

Sales 27,572 25,243 24,850 29,954

Net earnings 2,615 (4,633) 1,759 4,169

Basic and diluted net earnings per unit $ 0.20 $ (0.35) $ 0.13 $ 0.31

Cash fl ow from operating activities 1,909 3,241 2,153 6,247

Distributable Cash 3,919 3,076 2,834 4,394

Distributable Cash per basic and diluted units $ 0.29 $ 0.23 $ 0.21 $ 0.33

Distributions Declared per basic and diluted units $ 0.23 $ 0.23 $ 0.23 $ 0.23

($’000 except per unit amounts)

Three Three Twelve Twelve Months ended Months ended Months ended Months ended Mar. 31, 2008 June. 30, 2008 Sept. 30, 2008 Dec. 31, 2008

Sales 27,493 26,900 47,240 50,266

Net earnings (loss) 2,233 1,791 2,914 4,520

Basic and diluted net earnings (loss) per unit $ 0.17 $ 0.13 $ 0.19 $ 0.30

Cash fl ow from operating activities 1,033 2,744 3,301 5,924

Distributable Cash 3,266 2,881 4,208 5,509

Distributable Cash per basic and diluted units $ 0.24 $ 0.21 $ 0.28 $ 0.36

Distributions Declared per basic and diluted units $ 0.23 $ 0.23 $ 0.23 $ 0.23

In the quarter ended March 31, 2007, strong growth in both revenue streams produced higher revenues,

margins and operating cash fl ow than in prior quarters (in which there was no impact from infrastructure

projects). The build-up in working capital in the quarters ended December 31, 2006 and March 31, 2007 was

the result of organic growth in the business’ market share, and continued in the quarter ended March 31,

2007. In the quarter ended March 31, 2007, lack of Government infrastructure spending initiatives nega-

tively impacted the furniture and equipment revenue stream, but strong growth in the more predictable

nursing supplies revenue stream mitigated the negative impact substantially, both in terms of gross margin

generated, and positive operating cash fl ows. This continued through the quarter ended December 31, 2007,

and increased replacement spending on Furniture and Equipment impacted positively when compared to

the prior periods in which there was no infrastructure spending. The net earnings of the fund were adverse-

ly affected in the quarter ended June 30, 2007 as a result of a change in the legislation relating to the

taxation of Income Funds and other Special Income Flow Through entities. This has no effect on cash fl ows

or operating profi ts. In the quarter ended December 31, 2007, revenue from the predictable nursing

FUTUREMED ANNUAL REPORT 2008

29supplies stream continued to grow, while that of the furniture and equipment stream was impacted by the

lack of infrastructure project announcements in the various provinces. Gross margins remained healthy

despite competitive pressures, and selling, general and administrative expenses (SG & A”) remained

relatively constant when related to revenue. In the quarter ended December 31, 2007, increased revenue

and margins resulted in higher net earnings and operating cash fl ows. Despite the build up in working

capital required to fund the higher levels of business activity, payout ratios improved, and all obligations

were fully funded from existing resources of the fund.

In the quarter ended March 31, 2008, slightly reduced revenues and margins resulted in diminished net

earnings and operating cash fl ows. However, despite increased requirements for cash for a build up in

working capital, as well as slightly increased capital expenditure and SG & A levels, the Fund met all its

obligations for the quarter without utilizing the operating line. For the quarter ended June 30, 2008, the

margin squeeze as a result of infl ation in China, together with the proportionate increase in SG & A due to a

continued increase in delivery expenses negatively impacted the earnings of the Fund. Furthermore, an

increase in maintenance capital expenditure coupled with the reduced earnings contributed to reduced

distributable cash, and therefore a higher payout ratio for the quarter and the year to date period.

During the quarter ended September 30, 2008, the results showed the positive effect of the Dismed

acquisition, which was accretive from the date of acquisition on June 30, 2008,. Despite non-recurring

expenditure of $0.4 million related to the DMD acquisition, both the earnings and the cash fl ow showed

healthy growth for the quarter. A small infrastructure project that was completed in the Province of

Saskatchewan also positively impacted the results in the quarter, and all the obligations of the fund were

met from cash generated by the operations, without utilizing the operating line that is in place for fl uctua-

tions in working capital needs.

During the quarter ended December 31, 2008, the effects of the DMD acquisition continued to

positively impact the group’s fi nancial and operational results. Signifi cant investments in people and

facilities were made during fi scal 2008 to prepare the company for the increased level of activity that

management anticipates will occur going forward. The positive results in both the fourth quarter and the

fi scal year ended December 31, 2008 are due to proactive steps being taken to ensure that the infrastruc-

ture of the company can deal with the increased level , and complexity, required to ensure sustained growth

in the markets in which the company operates.

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS TO THE UNITHOLDERS OF FUTUREMED HEALTHCARE INCOME FUND

The accompanying consolidated financial statements for Futuremed Income Fund and the information

included in this annual report have been prepared by the Fund’s management who are responsible for their

consistency, integrity and objectivity. Management is also responsible for ensuring that the consolidated

financial statements are prepared and presented in accordance with generally accepted accounting

principles in Canada. To fulfill these responsibilities, management maintains appropriate internal control

systems as well as policies and procedures to ensure its reporting practices and accounting and administra-

tive procedures are of the highest quality.

PricewaterhouseCoopers LLP, the Fund’s independent auditor, is responsible for auditing the consoli-

dated financial statements in accordance with generally accepted accounting procedures in Canada, and has

expressed their opinion on the consolidated financial statements in this report. Their report, as auditors, is set

forth herein.

The Fund’s Board of Trustees is responsible for ensuring that management fulfills its responsibilities for

financial reporting and internal controls. The Board of Trustees carries out this responsibility through its

Audit Committee which meets regularly with management and the independent auditors. The majority of

members of the Audit Committee are independent of management. The consolidated financial statements

have been reviewed and approved by the Board of Trustees and its Audit Committee. The independent

auditors have direct and full access to the Audit Committee and the Board of Trustees.

Raymond Stone

President & CEO

30

FUTUREMED ANNUAL REPORT 2008

31AUDITOR’S REPORT TO THE UNITHOLDERS OF FUTUREMED HEALTHCARE INCOME FUND

We have audited the consolidated balance sheets of Futuremed Healthcare Income Fund (the Fund) as at

December 31, 2008 and 2007 and the consolidated statements of earnings and comprehensive income,

unitholders’ equity and cash fl ows for the years then ended. These fi nancial statements are the responsibil-

ity of the Fund’s management. Our responsibility is to express an opinion on these fi nancial statements

based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those

standards require that we plan and perform an audit to obtain reasonable assurance whether the fi nancial

statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the

accounting principles used and signifi cant estimates made by management, as well as evaluating the overall

fi nancial statement presentation.

In our opinion, these consolidated fi nancial statements present fairly, in all material respects, the

fi nancial position of the Fund as at December 31, 2008 and 2007 and the results of its operations and its cash

fl ows for the years then ended in accordance with Canadian generally accepted accounting principles.

PricewaterhouseCoopers LLP

Chartered Accountants, Licensed Public Accountants

March 12, 2009, Toronto, Canada

32 CONSOLIDATED BALANCE SHEETS (expressed in thousands of Canadian dollars)

As at December 31 2008 2007

Assets

CURRENT ASSETS

Cash and cash equivalents $ 3,558 $ 4,572

Accounts receivable 26,057 13,354

Inventories 12,402 8,792

Prepaid expenses and other receivables 1,649 584

43,666 27,302

Property and equipment (note 5) 6,023 1,258

Intangible assets (note 6) 78,721 74,503

Goodwill 72,145 62,824

200,555 165,887

Liabilities

CURRENT LIABILITIES

Accounts payable and accrued liabilities 22,923 14,033

Distributions payable 1,178 1,034

24,101 15,067

Long-term debt (note 8) 40,755 30,500

Future income taxes (note 11) 10,064 7,850

74,920 53,417

Unitholders’ Equity

Unitholders’ capital (note 9) 140,076 124,292

Defi cit (13,704) (11,748)

Accumulated other comprehensive loss (737) (74)

$ 125,635 $ 112,470

200,555 165,887

See accompanying notes to the consolidated fi nancial statements.

Approved by the Board of Trustees

John G. McLaughlin Raymond Stone

Trustee Trustee

FUTUREMED ANNUAL REPORT 2008

33CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (expressed in thousands of Canadian dollars, except per unit amounts)

For the years ended December 31 2008 2007

Sales $ 151,899 $ 107,619

Cost of sales 112,832 76,203

39,067 31,416

Selling, general and administrative expenses 21,665 14,962

Amortization of property and equipment 364 102

Amortization of intangible assets 5,082 5,058

Net interest expense 2,218 1,887

Foreign exchange (gain) loss (1,226) 216

28,103 22,225

Earnings before income taxes 10,964 9,191

Future income taxes (recovery) (note 11) (494) 5,281

Net earnings for the year 11,458 3,910

Other comprehensive income (loss)

Change in fair value of swap contract (note 13) (770) 12

Reclassifi cation of losses on swap contract

to consolidated statements of earnings 107 48

(663) 60

Comprehensive income $ 10,795 $ 3,970

Basic and diluted earnings per unit (note 9) $ 0.80 $ 0.29

See accompanying notes to the consolidated fi nancial statements.

34 CONSOLIDATED STATEMENTS OF UNITHOLDERS’ EQUITY(expressed in thousands of Canadian dollars)

Accumulated other For the years ended Dec 31, 2008 Capital Accumulated Accumulated comprehensive and 2007 (note 9) earnings distributions income (loss) Total

Unitholders’ equity – January 1, 2008 $ 124,292 $ 12,892 $ (24,640) $ (74) $ 112,470

Issuance of units during the year

– net of issuance cost of $1,278 15,784 — — — 15,784

Net earnings for the year — 11,458 — — 11,458

Other comprehensive income for the year — — — (663) (663)

Distributions declared to unitholders — — (13,414) — (13,414) for the year

Unitholders’ equity – December 31, 2008 140,076 24,350 (38,054) (737) 125,635

Unitholders’ equity – January 1, 2007 124,292 8,982 (12,236) (134) 120,904

Net earnings for the year 3,910 — 3,910

Other comprehensive income for the year — — — 60 60

Distributions declared to unitholders

for the year — — (12,404) — (12,404)

Unitholders’ equity –

December 31, 2007 $ 124,292 $ 12,892 $ (24,640) $ (74) $ 112,470

See accompanying notes to the consolidated fi nancial statements.

FUTUREMED ANNUAL REPORT 2008

35CONSOLIDATED CASH FLOWS (expressed in thousands of Canadian dollars)

For the years ended December 31, 2008 2007

Cash provided by (used in)

OPERATING ACTIVITIES

Net earnings for the year $ 11,458 $ 3,910

Items not affecting cash

Amortization of property and equipment 364 102

Amortization of intangible assets 5,082 5,058

Non-cash portion of interest expense relating to fi nancing costs (note 8) 172 —

Future income taxes (recovery) (494) 5,281

16,582 14,351

Net change in working capital (note 15) (2,917) (727)

Unrealized loss on swap contract included

in accounts payable and accrued liabilities (note 13) (663) (74)

13,002 13,550

INVESTING ACTIVITIES

Acquisition of Dismed Inc. (note 3) (18,847) —

Purchase of property and equipment (698) (128)

Proceeds on disposal of property and equipment — —

(19,545) (128)

FINANCING ACTIVITIES

Issuance of Class A units (note 3) 17,062 —

Cost of issuing units (1,278) —

Settlement of pre-acquisition long-term debt (7,068) —

Issuance of long-term debt 10,083 —

Distributions to unitholders (13,270) (12,403)

5,529 (12,403)

Change in cash and cash equivalents during the year (1,014) 1,019

Cash and cash equivalents - Beginning of year 4,572 3,553

Cash and cash equivalents - End of year 3,558 4,572

Supplemental cash fl ow information

Interest paid during the year $ 2,218 $ 1,865

See accompanying notes to the consolidated fi nancial statements.

36 1. ORGANIZATION

The Fund is an unincorporated, open-ended, limited purpose trust established under the laws of the

Province of Ontario pursuant to a Declaration of Trust dated November 25, 2005. The Fund was created to

indirectly acquire Futuremed Health Care Products Limited Partnership (the Partnership). The Fund is

authorized to issue an unlimited number of units. The Fund qualifi es as a mutual fund trust for the purposes

of the Income Tax Act (Canada).

Pursuant to a change in the tax legislation enacted on June 12, 2007, the Fund will be subject to a tax

from January 1, 2011, subject to growth restrictions set out in the legislation, which if not adhered to, could

subject the Fund to tax earlier.

On June 30, 2008, the Fund acquired all of the shares of Dismed Inc. (Dismed), a distributor of nursing

supplies based in the Province of Québec (note 3).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

These consolidated fi nancial statements have been prepared in accordance with Canadian generally

accepted accounting principles for consolidated fi nancial statements and include the accounts of the Fund

and its subsidiaries. Except as noted below, these consolidated fi nancial statements have been prepared

following accounting principles consistent with, and should be read in conjunction with, the annual

consolidated fi nancial statements prepared for the year ended December 31, 2007.

NEW ACCOUNTING STANDARDS

As required by The Canadian Institute of Chartered Accountants (CICA), the Fund adopted the following

new accounting standards as at January 1, 2008: Section 3031, Inventories; Section 3862, Financial

Instruments - Disclosures; Section 3863, Financial Instruments - Presentation; and Section 1535, Capital

Disclosures.

Section 3031, Inventories, relates to the accounting for inventories and revises the requirements for •

assigning costs to inventories. The adoption of this standard did not impact the consolidated fi nancial-

statements of the Fund.

Sections 3862 and 3863 replace Handbook Section 3860, Financial Instruments - Disclosure and •

Presentation, revising and enhancing its disclosure requirements, and carrying forward unchanged its

presentation requirements. These new sections place increased emphasis on disclosures about the

nature and extent of risks arising from fi nancial instruments and how the entity manages those risks.

Section 1535, Capital Disclosures, requires that an entity disclose information that enables users of its •

fi nancial statements to evaluate an entity’s objectives, policies and processes for managing capital,

including disclosures of any externally imposed capital requirements and the consequences of non-

compliance. The new standard applies to annual fi nancial statements relating to fi scal years beginning

on or after October 1, 2007, specifi cally January 1, 2008 for the Fund.

FUTURE ACCOUNTING STANDARDS

In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062,

Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. The new

sections establish standards on the recognition, measurement, presentation and disclosure of goodwill and

intangible assets subsequent to their initial recognition. These standards require retroactive application to

prior period fi nancial statements and are effective for the Fund’s 2009 fi scal year.

FUTUREMED ANNUAL REPORT 2008

37Management is currently assessing the impact of these new standards on its consolidated fi nancial

statements.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

In January 2006, the CICA Accounting Standards Board (ASB) adopted a strategic plan for the direction of

accounting standards in Canada. As part of the plan, accounting standards for public companies would be

required to converge with International Financial Reporting Standards (IFRS) for fi scal years beginning on

or after January 1, 2011 with comparative fi gures presented on the same basis. In February 2008, the CICA

ASB confi rmed the effective date of the initial adoption of IFRS. The impact of the transition of IFRS on the

Fund’s consolidated fi nancial statements has not yet been determined.

3. ACQUISITION

On June 30, 2008, the Fund acquired, through its wholly owned subsidiary, Futuremed Health Care

Products LP, all of the outstanding shares of Dismed for cash consideration of $24,993 excluding acquisition

costs of $1,505.

In connection with this acquisition, the Fund fi led a prospectus dated June 19, 2008 for the sale of

1,875,000 subscription receipts of the Fund at a price of $9.10 per subscription receipt (the Offering). Upon

closing on June 30, 2008, the Fund issued 1,875,000 Units and raised aggregate net proceeds of $15,784

after deducting expenses of the Offering of $1,278.

Concurrent with the closing of the acquisition, the Fund, through one of its subsidiaries, amended and

restated its credit agreement with its lenders to increase the principal loan facility by $10,600. The funds

were drawn immediately upon closing on June 30, 2008. Costs incurred in connection with this fi nancing

amounted to $517 and were netted against the carrying value of the liability.

The acquisition has been accounted for by the purchase method and accordingly, the Fund consoli-

dated Dismed’s fi nancial results for the period ended December 31, 2008. The allocation of the purchase

price has been summarized as follows:

(expressed in thousands of Canadian dollars, except per unit amounts) $

Net assets acquired

Net current assets (including cash of $596) 6,154

Property, plant and equipment 4,431

Intangible assets 9,300

Goodwill 9,321

Future income liability (2,708)

26,498

Satisfi ed by

Cash 17,925

Settlement of pre-acquisition long-term debt 7,068

Acquisition costs 1,505

26,498

38 The consideration above comprises a cash payment to the vendors of $17,925, a settlement of the pre-

acquisition long-term debt of $7,068 and includes an amount paid of $14 for fi nalization of the working

capital adjustment in connection with the acquisition.

As the acquisition closed on June 30, 2008, the results of Dismed are refl ected in the consolidated

statements of earnings from July 1, 2008.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

These consolidated fi nancial statements have been prepared in accordance with Canadian generally

accepted accounting principles (GAAP). The consolidated fi nancial statements include the accounts of the

Fund and its wholly owned subsidiaries. All inter-group transactions and balances are eliminated.

INCOME TAXES

Prior to June 12, 2007, pursuant to the Income Tax Act as previously enacted, the Fund was not subject to

income tax to the extent that its taxable income was distributed to unitholders. Accordingly, except for one

of the Fund’s wholly owned subsidiaries that is a corporation and subject to applicable income and capital

taxes, the Fund did not account for income taxes.

As a result of tax legislation enacted in June 2007, the Fund will pay tax on distributions declared

subsequent to January 1, 2011. As a result of this change, the Fund increased in 2007 the amount of future

income taxes recognized in order to provide for the future tax effect of existing temporary differences

between the accounting and tax bases of assets and liabilities that are expected to reverse subsequent to

January 1, 2011.

The Fund and its subsidiaries account for income taxes using the liability method. Future income taxes

arise due to the temporary differences in the fi nancial reporting and tax bases of assets and liabilities.

Changes in these temporary differences are refl ected in the provision for future income taxes using

substantively enacted income tax rates.

FINANCIAL INSTRUMENTS

On January 1, 2007, the Fund adopted CICA Handbook Section 1530, Comprehensive Income, Section 3251,

Equity, Section 3855, Financial Instruments - Recognition and Measurement; Section 3861, Financial

Instruments - Disclosure and Presentation, and Section 3865, Hedges. The principal requirements in the

accounting for fi nancial instruments and hedging relationships are described below.

A. SECTION 1530, COMPREHENSIVE INCOME

The Fund’s comprehensive income is composed of net earnings and other comprehensive income (OCI).

OCI includes the changes in fair value of designated cash fl ow hedges less any amounts realized in the

period. Realized gains or losses are reclassifi ed to income in the period that the underlying hedged item is

recognized in income.

B. SECTION 3251, EQUITY

Accumulated other comprehensive loss (AOCL) is included in the consolidated balance sheets as a separate

component of unitholders’ equity, and includes the effective portion of gains and losses on derivative

instruments designated as cash fl ow hedges (see note 4(d)).

FUTUREMED ANNUAL REPORT 2008

39C. SECTION 3855, FINANCIAL INSTRUMENTS - RECOGNITION AND MEASUREMENT; SECTION 3861, FINANCIAL

INSTRUMENTS - DISCLOSURE AND PRESENTATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Under the new standards, fi nancial assets and fi nancial liabilities are initially recognized at fair value and

their subsequent measurement is dependent on their classifi cation as described below. Their classifi cation

depends on the purpose for which the fi nancial instruments were acquired or issued, their characteristics

and the Fund’s designation of such instruments. The standards require that all fi nancial assets be classifi ed

either as held-for-trading (HFT), available-for-sale (AFS), held-to-maturity (HTM), or loans and receivables.

The standards require that all fi nancial assets, including all derivatives, be measured at fair value with the

exception of loans and receivables, debt securities classifi ed as HTM, and AFS fi nancial assets that do not

have quoted market prices in an active market. The Fund uses settlement date accounting for all fi nancial

assets and changes in fair value between the trade date and settlement date are refl ected as income or

expense for HFT fi nancial assets and liabilities, while changes in fair value between the trade date and

settlement date are refl ected in OCI for AFS fi nancial assets.

Held-for-trading | HFT fi nancial assets and liabilities are measured at fair value at the consolidated balance

sheet date. Gains and losses realized on disposal and unrealized gains and losses from market fl uctuations

are included in the consolidated statements of earnings in the period in which they arise. Other than cash

and cash equivalents, the Fund has not classifi ed any non-derivative fi nancial assets or liabilities as HFT.

Held-to-maturity | HTM fi nancial assets are non-derivative fi nancial assets with fi xed or determinable

payments and a fi xed maturity, other than loans and receivables that an entity has the positive intention and

ability to hold to maturity. These fi nancial assets are measured at amortized cost. The Fund does not have

any fi nancial instruments that are HTM.

Available-for-sale | AFS fi nancial assets are those non-derivative fi nancial assets that are designated as AFS,

or that are not classifi ed as loans and receivables, HTM investments or HFT. AFS fi nancial assets are carried

at fair value with unrealized gains and losses included in OCI until realized when the cumulative gain or loss

is transferred to the consolidated statements of earnings. The Fund has not designated any fi nancial assets

as AFS.

Loans and receivables | Loans and receivables are accounted for at amortized cost.

Other liabilities | Other liabilities (OL) are recorded at amortized cost and include all liabilities, other than

derivatives, loans or liabilities that are held for trading.

Derivatives | Derivatives are recorded at fair value and are reported as assets where they have a positive

fair value and as liabilities where they have a negative fair value. Changes in fair values of derivative

instruments are recorded as an income or expense in the period unless hedge accounting is applied.

Embedded derivatives | Derivatives embedded in other fi nancial instruments or contracts are separated

from their host contracts and accounted for as derivatives when: their economic characteristics and risks

are not closely related to those of the host contract; the terms of the embedded derivative are the same as

those of a free standing derivative; and the combined instrument or contract is not measured at fair value,

with changes in fair value recognized in the consolidated statements of earnings. These embedded deriva-

tives are measured at fair value with changes therein recognized in the consolidated statements of earnings.

The Fund selected January 1, 2003 as the transition date for embedded derivatives, as such, only contracts

40 or fi nancial instruments entered into or modifi ed after the transition date were examined for embedded

derivatives. As at December 31, 2008 and January 1, 2007, the Fund does not have any outstanding

contracts or fi nancial instruments with embedded derivatives that require bifurcation.

Transaction costs | Transaction costs related to HFT fi nancial assets and liabilities are expensed in the

period when incurred. Transaction costs related to AFS fi nancial assets, HTM fi nancial assets, OL and loans

and receivables are netted against the carrying value of the asset or liability and are then amortized over the

expected life of the instrument using the effective interest method.

Effective interest method | The Fund uses the effective interest method of amortization for transaction costs

or fees, premiums or discounts earned or incurred for fi nancial instruments.

D. SECTION 3865, HEDGES

Section 3865 specifi es the criteria that must be satisfi ed in order for hedge accounting to be applied and the

accounting for each of the permitted hedging strategies: fair value hedges and cash fl ow hedges. Derivatives

that have been designated, and function effectively as hedges in accordance with this section, are account-

ed for using hedge accounting principles. Derivatives that do not qualify for hedge accounting are recorded

in the consolidated balance sheets at fair value with changes in fair value recorded as income or expense in

the consolidated statements of earnings.

The Fund uses a number of derivative instruments to manage risks relating to its operations. The Fund

does not use derivatives for speculative purposes.

Prior to January 1, 2007, the Fund entered into cash fl ow hedging relationships to hedge interest rate

risk relating to its credit facilities (note 8). As these hedging relationships qualify for hedge accounting

under CICA Section 3865, the unrealized gains and losses of the swap agreement are recorded in AOCL.

These gains and losses are reclassifi ed to the consolidated statements of earnings in the same period during

which the variability of interest expense on the credit facilities affects the net earnings of the Fund.

The Fund uses derivatives to hedge current and anticipated foreign exchange risks related to purchas-

es. These contracts do not meet the criteria under Section 3865, Hedges, and are recorded at fair value in

the consolidated balance sheets. As a result, fl uctuations in the market value of these foreign exchange

contracts are recorded in the consolidated fi nancial statements from period to period.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on hand, balances with banks, and highly liquid money market

investments having original terms to maturity of three months or less when acquired. Cash and cash

equivalents are valued at cost plus accrued interest, which approximates market value.

USE OF ESTIMATES AND MEASUREMENT UNCERTAINTY

The preparation of consolidated fi nancial statements in accordance with Canadian generally accepted

accounting principles requires management to make estimates and assumptions that affect the reported

amount of assets and liabilities at the date of the consolidated fi nancial statements and the reported amount

of revenues and expenses during the reporting period. These estimates are reviewed periodically, and, as

adjustments become necessary, are reported in earnings in the period in which they become known.

The following are signifi cant areas in which management makes signifi cant accounting estimates that

are material to the consolidated fi nancial statements:

FUTUREMED ANNUAL REPORT 2008

41FUTURE INCOME TAXES

Determination of the future income tax liability of the Fund requires management to make estimates of the

reversal of existing temporary differences between the accounting and tax bases of assets and liabilities to

January 1, 2011.

IMPAIRMENT OF GOODWILL AND INDEFINITE LIVED INTANGIBLE ASSETS

The annual review of the carrying value of goodwill and indefi nite lived intangible assets requires manage-

ment to make estimates of future business performance.

ACCOUNTS RECEIVABLE AND INVENTORY VALUATION

The determination of the carrying value of accounts receivable and inventory require management to make

estimates of net realizable value.

EXCHANGEABLE SECURITIES

The Fund has applied the recommendations of the Emerging Issues Committee (EIC) of the CICA who

issued an Abstract of Issues Discussed No. 151, Exchangeable Securities Issued by Subsidiaries of Income

Trusts (EIC-151), which provides guidance on the presentation of exchangeable securities issued by a

subsidiary of an income trust. In order to be presented as equity, the exchangeable securities must have

distributions that are economically equivalent to distributions on units issued directly by the Fund and the

exchangeable securities must also ultimately be exchanged for units of the Fund. The Class B LP units

issued by a subsidiary of the Fund meet the above criteria and, accordingly, have been presented as equity.

INVENTORIES

Inventories are valued at the lower of cost, determined using an average cost method, and net realizable value.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated amortization and any impairment loss.

Amortization is recorded on a straight-line basis at the following annual rates:

Buildings 4%

Offi ce and warehouse equipment 10% to 20%

Furniture and fi xtures 20%

Computer equipment 20% to 33%

Motor vehicles 20%

Leasehold improvements are amortized on a straight-line basis over the term of the lease.

GOODWILL

Goodwill is the excess of the purchase price over the fair value of net assets acquired. Goodwill is recorded

at cost and is not amortized. Management tests goodwill for impairment annually or more frequently if

events or changes in circumstances indicate that the asset might be impaired. Goodwill is written down

when the carrying value exceeds the fair value.

Estimated fair value is based on discounted cash fl ows. The valuation approaches use key judgments

and assumptions that are sensitive to change, which include estimates of future business performance and

42 discount rates. When developing these key judgments and assumptions, the Fund considers economic,

operational and market conditions that could impact estimated fair value. However, estimates are inherently

uncertain and represent only management’s reasonable expectations regarding future developments. These

estimates and the key judgments and assumptions upon which the estimates are based will, in all likelihood,

differ in some respects from actual future results.

During its review of the carrying value of Goodwill, the Fund performed the fi rst step of its goodwill

impairment test in accordance with CICA Handbook Section 3064. Management determined that as of

December 31, 2008, the estimated fair value of the Fund exceeded its carrying value.

INTANGIBLE ASSETS

Intangible assets are assets acquired that lack physical substance and that meet the specifi ed criteria for

recognition apart from goodwill. Intangible assets acquired comprise non-competition agreements, custom-

er relationships, and trademarks.

Intangible assets are amortized on a straight-line basis over the following periods:

Non-competition agreement 1.5 years

Customer relationships 10 and 15 years

Trademarks indefi nite

Management reviews the carrying value of its trademarks annually, or more frequently if events or changes

in circumstances indicate that the asset might be impaired. The intangible assets will be written down if the

carrying amount is not recoverable and exceeds its fair value.

REVENUE RECOGNITION

Sales, net of discounts, are recognized when a written arrangement for sale is agreed with the customer that

establishes a fi xed and determinable sales price, and when the risks and rewards of ownership of the goods

have been passed to the customer and collection is reasonably assured.

CREDIT RISK MANAGEMENT

The Fund is exposed to credit risk on the accounts receivable from its customers. In order to reduce its credit

risk, the Fund has adopted credit policies that include the regular review of their customers’ credit limits.

Management assesses credit risk with respect to trade receivables to be limited by the Fund’s broad

customer base and its wide geographic dispersion.

TRANSLATION OF FOREIGN CURRENCY

Monetary assets and liabilities denominated in foreign currencies have been translated into Canadian dollars

at the rates of exchange prevailing at year-end. Revenues and expenses are translated at the average rate of

exchange for the year.

FUTUREMED ANNUAL REPORT 2008

435. PROPERTY AND EQUIPMENT 2008

Accumulated Cost amortization Net

Land 795 — 795

Buildings 2,778 71 2,707

Offi ce and warehouse equipment 733 225 508

Furniture and fi xtures 329 243 86

Computer equipment 1,344 556 788

Motor vehicles 25 4 21

Leasehold improvements 1,424 306 1,118

$ 7,428 $ 1,405 $ 6,023

2007

Accumulated Cost amortization Net

Offi ce and warehouse equipment 155 48 107

Furniture and fi xtures 76 10 66

Computer equipment 153 42 111

Leasehold improvements 1,078 104 974

$ 1,462 $ 204 $ 1,258

6. INTANGIBLE ASSETS

2008

Accumulated Cost amortization Net

Customer relationships 77,786 14,443 63,343

Trademarks 15,378 — 15,378

$ 93,164 $ 14,443 $ 78,721

2007

Accumulated Cost amortization Net

Customer relationships 70,786 9,361 61,425

Non-competition agreement 1,026 1,026 —

Trademarks 13,078 — 13,078

$ 84,890 $ 10,387 $ 74,503

44 Intangible assets not subject to amortization include trademarks amounting to $2,300 that were acquired

during the year as part of the acquisition of Dismed.

7. RELATED PARTY TRANSACTIONS

Rent in the amount of $494 (2007 - $456) for the head offi ce was paid to a company that is controlled by an

individual who is both a unitholder and the chief executive offi cer.

All related party transactions have been measured at the exchange amount, which is the amount of

consideration established and agreed to by the parties.

8. LONG-TERM DEBT 2008 2007

Revolving term loan 41,100 30,500

Financing fees (345) —

$ 40,755 $ `30,500

The Fund’s credit agreement has a revolving term loan facility of $49,100, of which $41,100 is drawn as at

December 31, 2008. Borrowings under the credit agreement are due by January 6, 2010. Interest on the

facilities is prime or bankers’ acceptance based, at the option of the borrower, plus an applicable margin

based on the ratio of senior funded debt to earnings before interest, taxes, depreciation and amortization.

During the year, $2,102 (2007 - $1,930) of interest expense is related to long-term debt. Management has

fi xed the interest rate on half of the term loan through the use of an interest rate swap resulting in an

effective fi xed rate of 6.39% for 50% of the principal. The effective interest rate of the term loan for the year

was 6.0% (2007 - 6.70%).

Included in the carrying value of long-term debt are fi nancing fees of $345 (2007-$nil). These fi nancing

fees will be recorded as interest expense over the term of the loan under the effective interest method.

During the year, $172 (2007 - $nil) of fi nancing costs are included in interest expense.

Obligations of the Fund under the credit agreement are collaterally secured by a fi rst ranking security

interest in all of the present and future undertakings, property and assets of the Fund, and all of its indirect

subsidiaries. The credit agreement subjects the Fund to certain fi nancial and non-fi nancial covenants such

as debt-to- EBITDA and fi xed change coverage ratios. The Fund is in compliance with all fi nancial and

non-fi nancial covenants at December 31, 2008.

The fair value of this variable rate debt is estimated to approximate is carrying value.

FUTUREMED ANNUAL REPORT 2008

459. UNITHOLDERS’ CAPITAL

Fund units and Class B LP units of Futuremed Holdings Limited Partnership included in unitholders’ capital

on the consolidated balance sheets are as follows:

2008 2007

15,171,816 units 150,030 132,968

108,374 Class B LP units 1,084 1,084

Costs incurred in relation to public equity offerings (11,038) (9,760)

140,076 $ 124,292

UNITS

The Declaration of Trust provides that an unlimited number of units of the Fund may be issued. Each unit is

transferable and represents an equal undivided benefi cial interest in any distributions of the Fund and in

the net assets of the Fund. All units have equal rights and privileges. Each unit entitles the holder to

participate equally in allocations and distributions and to one vote at all meetings of unitholders for each

whole unit held. The units issued are not subject to future calls or assessments. Units are redeemable at any

time at the option of the holder at amounts related to market prices at the time, subject to certain factors

including a maximum of $50 in cash redemptions by the Fund in any particular month. This limitation may

be waived at the discretion of the Trustees of the Fund. Redemptions in excess of this amount, assuming no

waiving of the limitation, shall be paid by way of a distribution in specie of a pro rata number of securities

held by the Fund.

The movement in the number of units and proceeds before costs of the offering is as follows:

2008

Number Gross of units proceeds

Balance as at December 31, 2007 13,296,816 132,968

Units issued as part of the public offering on June 30, 2008 1,875,000 17,062

Balance as at December 31, 2008 15,171,816 $ 150,030

2007

Number Gross of units proceeds

Balance as at December 31, 2006 12,641,792 126,418

Conversion of Class B units into units during the year 655,024 6,550

Balance as at December 31, 2007 13,296,816 $ 132,968

46 CLASS B LP UNITS

The Class B LP units of Futuremed Holdings Limited Partnership (FHLP) are held by the existing investors

of Futuremed Health Care Products Limited Partnership and are exchangeable into units of the Fund on a

one-for-one basis. The Class B LP units are entitled to distributions, which are economically equivalent to

the cash distributions to the holders of units of the Fund.

During 2008, there were no changes in the number of Class B LP units. The movement in the number

of Class B LP units during 2007 is as follows:

Number Gross of units proceeds

Balance as at December 31, 2006 763,398 7,634

Conversion of Class B LP units into units during the year (655,024) (6,550)

Balance as at December 31, 2007 and 2008 108,374 $ 1,084

SPECIAL VOTING UNITS

The Declaration of Trust provides that an unlimited number of special voting units may be issued. The

special voting units are not entitled to any interest in any distributions of the Fund or in the net assets of

the Fund. The Fund issued special voting units to each holder of Class B LP units. Each special voting unit

will solely entitle the holders of exchangeable Class B LP units to vote at the meeting of voting unitholders.

Upon exchange or conversion of the Class B LP units into units of the Fund, the special voting units will

immediately be cancelled without payment.

During 2008, there were no changes in the number of special voting units. The movement in the

number of special voting units during 2007 is as follows:

Number Gross of units proceeds

Balance - December 31, 2006 763,398 —

Cancelled upon redemption of Class B LP units into units (655,024) —

Balance as at December 31, 2007 and 2008 108,374 $ —

FUTUREMED ANNUAL REPORT 2008

47EARNINGS PER UNIT

Basic earnings per unit is calculated using the weighted average number of units and Class B LP units

outstanding during the year. A diluted earnings per unit amount is not presented as there are no potentially

dilutive securities or instruments.

The calculation of earnings per unit is as follows: Weighted average number of Net units and earnings for Class B LP Earnings the period units per unit

Basic earnings per unit - year ended December 31, 2008 11,458 14,350,395 0.80

Basic earnings per unit - year ended December 31, 2007 $ 3,910 13,405,190 $ 0.29

10. DISTRIBUTIONS

The Fund makes regular monthly distributions to unitholders of record as of the last business day of each

month. Distributions to unitholders are calculated and recorded on the accrual basis. Distributions for the

year ended December 31, 2008 are as follows:

Record Payment DistributionPeriod date date amount

January 2008 January 31, 2008 February 15, 2008 1,033

February 2008 February 28, 2008 March 15, 2008 1,034

March 2008 March 31, 2008 April 17, 2008 1,034

April 2008 April 30, 2008 May 15, 2008 1,033

May 2008 May 31, 2008 June 15, 2008 1,034

June 2008 June 30, 2008 July 16, 2008 1,178

July 2008 July 31, 2008 August 15, 2008 1,178

August 2008 August 31, 2008 September 17, 2008 1,178

September 2008 September 30, 2008 October 15, 2008 1,178

October 2008 October 31, 2008 November 17, 2008 1,178

November 2008 November 30, 2008 December 15, 2008 1,178

December 2008 December 31, 2008 January 15, 2009 1,178

$ 13,414

4811. INCOME TAXES

A provision for income taxes is recognized for the Fund’s subsidiaries, Futuremed General Partner Inc., a

corporation registered in the Province of Ontario and Dismed, a corporation registered in the Province of

Québec.

While the Fund will not be liable for current income taxes until after January 1, 2011, as a result of the

change in the tax legislation described in note 4, the Fund recognized in the prior year an additional future

income tax expense of $5,600. This additional future income tax expense arose from taxable temporary

differences of intangible assets of the Fund expected to reverse after January 1, 2011. Futuremed General

Partner Inc.’s share of temporary differences is recognized in full at December 31, 2008.

The provision for income taxes in the consolidated fi nancial statements refl ects an effective tax rate

that differs from the statutory rate for the following reasons:

2008 2007

Earnings before income taxes 10,964 9,191

Combined Canadian federal and provincial statutory tax rate 33.00% 36.12%

Income tax expense based on statutory income tax rate 3,618 3,320

Increase (decrease) resulting from

Net earnings of the Fund subject to tax in the hands of the unitholders (2,330) (2,373)

Interest deductibility on Futuremed General Partner Inc. notes (1,115) (1,221)

Interest deductibility on Dismed notes (566) —

Change in taxation legislation — 5,778

Other (101) (79)

Future income taxes (recovery) $ (494) $ 5,281

Effective income tax rate (4.5%) 57.5%

The principal temporary differences and tax losses that give rise to the net future income tax liability at

December 31, 2008 are as follows: (Taxable) Future deductible income tax Carrying temporary asset amount Tax basis difference (liability

Intangible assets - excluding trademarks 58,889 26,019 32,870 9,283

Trademarks 13,078 — 13,078 1,850

Acquisition costs — 2,061 (2,061) (591)

Tax loss carried forward — 2,119 (2,119) (610)

Fixed assets 1,093 451 642 180

Other (167) — (167) (48)

$ 72,893 $ 30,650 $ 42,243 $ 10,064

The taxable temporary differences of the Fund at December 31, 2007 include an amount of $25,310

expected to reverse subsequent to January 1, 2011.

FUTUREMED ANNUAL REPORT 2008

49

12. COMMITMENTS AND CONTINGENCIES

The Fund leases offi ce space, offi ce equipment, motor vehicles and warehouse equipment under various

operating leases.

Future minimum rental commitments, including amounts owed to a related party (note 7), under the

non-cancellable operating leases are approximately as follows:

$

2009 1,344,600

2010 1,314,650

2011 1,267,153

2012 1,011,441

2013 902,281

Thereafter 838,274

6,678,399

The Fund indemnifi es its current and former trustees and offi cers, to the extent permitted by law, against

any and all charges, costs, expenses, amounts paid in settlement and damages incurred by the trustees and

offi cers as a result of any lawsuit or any other judicial, administrative or investigative proceeding in which

the trustees and offi cers are sued as a result of their service. These indemnifi cation claims will be subject to

any statutory or other legal limitation period. The nature of this indemnity prevents the Fund from making a

reasonable estimate of the maximum potential amount it could be required to pay to counterparties. The

Fund has purchased directors’ and offi cers’ liability insurance. No amount has been recorded in the

consolidated fi nancial statements with respect to the indemnifi cation of directors and offi cers.

13. FINANCIAL INSTRUMENTS

The Fund’s fi nancial instruments include cash and cash equivalents, accounts receivable, accounts payable

and accrued liabilities, distributions payable and long-term debt, forward foreign exchange rate contracts

and an interest rate swap.

The Fund uses a derivative swap contract to manage part of its exposure to movements in interest

rates on its variable interest rate term loan. This contract has been designated and accounted for as a

hedge. The fair value of this swap contract is a loss of $737 as at December 31, 2008 and is included in

accounts payable and accrued liabilities. At December 31, 2007, the fair value of the swap was a loss of $74.

The Fund has entered into foreign exchange rate forward contracts and is obliged under these

contracts to purchase US dollars at a fi xed rate. These contracts have not been accounted for as hedges. As

at December 31, 2008, the outstanding US dollar purchase contracts totalled US$6,600 The fair value

adjustment of these contracts is included in accrued liabilities in the amount of $931 gain (2007 - $295

loss). During the year ended December 31, 2008, the Fund recorded a gain of $1,238 (2007 - loss of $216)

included in foreign exchange gain in the consolidated statements of earnings and comprehensive income.

The fair values of these derivative instruments are determined based on valuation techniques using

observable market data provided by major fi nancial institutions.

The fair values of other fi nancial instruments of the Fund are estimated by management to approxi-

mate carrying values, due either to their short-term nature or variable interest rate provisions that approxi-

mate market rates.

50

NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS

The Fund is exposed to market risks from changes in foreign currency exchange rates affecting procure-

ment activities and interest rates. In addition, the Fund is exposed to credit risks mainly from its trade

receivables. Furthermore, the Fund is exposed to liquidity risk relating to its credit and market risks or a

deterioration of its operating business or fi nancial market disturbances. The Fund manages and monitors

these risks primarily through its operating and fi nancing activities and, if required, through the use of

derivative fi nancial instruments.

CREDIT RISK

Credit risk is the risk of economic loss arising from a counterparty’s failure to repay debt according to the

contractual terms. Credit risk encompasses the direct risk of default, the risk of creditworthiness and concen-

tration risk. The Fund’s credit risk relates to its liquid assets, trade receivables and derivative instruments.

CASH AND CASH EQUIVALENTS

The Fund deposits its cash with reputable fi nancial institutions and therefore management believes the risk

of loss to be low.

TRADE RECEIVABLES

Trade receivables arise as a result of sales to customers of the Fund. The credit risk from trade receivables

relates to the risk that receivables will not prove to be recoverable. The maximum exposure of the risk is

defi ned by the trade receivables balance. In order to manage this risk, the Fund reviews and evaluates the

customers’ creditworthiness on a regular basis. The Fund records a bad debt provision when the expected

recovery is less than the balance of a specifi c receivable. Currently, the Fund has no signifi cant accounts

receivable balances that are past due or impaired as a result of credit defaults.

DERIVATIVE FINANCIAL INSTRUMENTS

Derivative fi nancial instruments comprise derivatives that are either included in hedge accounting or individu-

ally valued. The maximum exposure to credit risk is equal to the carrying amount of those derivatives

classifi ed as fi nancial assets. The counterparties to derivative fi nancial instruments are reputable Canadian

banks with strong credit ratings. Consequently, management believes the loss potential regarding credit risk is

limited. Currently, no derivative fi nancial instruments are past due or impaired as a result of credit risk related

defaults.

LIQUIDITY RISK

Liquidity risk encompasses the risk that the Fund will not meet its obligations in full. The Fund’s main

sources of liquidity are its operations and external borrowings. The Fund manages the liquidity risk by

holding an adequate amount of liquid assets and maintaining available an operating credit facility in addition

to the cash infl ow generated by its operations. The Fund’s credit facility has available credit of up to $8,000

and remained unutilized during the year. The Fund’s credit facility has available credit of up to $8,000 and

remained unutilized at December 31, 2008. The Fund reached an agreement with the existing lender to

extend the credit facilities to February 2012 on terms and conditions that are similar to the existing credit

facilities agreement. Management expects that the revised credit agreement will be fi nalized during the fi rst

quarter of 2009.

FUTUREMED ANNUAL REPORT 2008

51FINANCE MARKET RISK

The Fund is exposed to market risks resulting from changes in foreign currency exchange rates and interest

rates. Accordingly, changes in foreign currency exchange rates and interest rates may adversely affect the

Fund’s operating results and fi nancial situation. The Fund manages these risks primarily through the use of

derivative fi nancial instruments when deemed appropriate.

EXCHANGE RATE RISK

As certain purchases are denominated in US dollars, the exchange rate risk primarily relates to fl uctuations

between the US dollar and the Canadian dollar. The Fund’s purchases in US dollars represent less than 10%

of its cost of goods sold and therefore the exchange rate risk is limited. In order to manage the risk, the

Fund uses forward foreign exchange contracts to hedge approximately 50% of its projected US dollar

requirements over a one-year horizon.

INTEREST RATE RISK

The Fund holds a revolving term loan facility carrying a variable interest rate. This facility exposes the Fund

to some risk of rising interest rates. To manage this risk, the Fund has entered into a swap contract with a

major bank to fi x the interest rate on 50% of the loan’s principal.

SENSITIVITY ANALYSIS

Section 3862 requires disclosure of a sensitivity analysis to illustrate the sensitivity of the Fund’s fi nancial

position and performance to changes in market variables (foreign exchange rates and interest rates) as a

result of changes in the fair value of cash fl ows associated with the Fund’s fi nancial instruments. The

sensitivity analysis provided discloses the effect on net earnings at December 31, 2008, assuming that a

reasonably possible change in the relevant risk variable has occurred at December 31, 2008.

The estimated change to the income statement of a 100 basis points (bp) difference in market interest

rates from those applicable at December 31, 2008 with all other variables remaining constant is as follows:

I nterest rate risk

100bp 100bp increase decrease in income in income

Long-term debt $ (76) $ 76

Interest rate swap $ 38 $ (38)

5214. SEGMENTED DISCLOSURES AND ECONOMIC DEPENDENCE

The Fund distributes consumable nursing supplies and specialized furniture and equipment in Canada.

Management, in measuring performance and allocating resources, has determined that it has a single

reportable segment given similar economic characteristics, including the nature of its products, the type

and class of customers for its products, and the methods of distribution.

Revenues from one customer represent approximately 7.6% (2007 - 9.6%) of the Fund’s total revenues.

The Fund has relied on one supplier to provide it with the majority of product for its incontinence line.

Purchases from this supplier accounted for approximately 48.1% (2007 - 54.8%) of the Fund’s total

purchases.

15. NET CHANGE IN WORKING CAPITAL

2008 2007

Accounts receivable (3,208) 145

Inventories (27) (164)

Prepaid expenses and other receivables (876) (268)

Accounts payable and accrued liabilities 1,194 (440)

$ (2,917) $ (727)

16. CAPITAL DISCLOSURES

The Fund defi nes its capital as unitholders’ equity excluding accumulated other comprehensive loss and

long- term debt.

The Fund’s objectives when managing its capital are to maintain a capital structure that provides

fi nancing options to the Fund when a fi nancing or a refi nancing need arises to ensure access to capital on

commercially reasonable terms and to maintain fi nancial fl exibility in order to preserve its ability to meet

fi nancial obligations relating to operating requirements, and payments of distributions. In order to maintain

or adjust its capital structure, the Fund may issue debt to replace existing debt with similar or different

characteristics or issue additional debt. The Fund’s fi nancing and refi nancing depend on market and

economic conditions and the Fund’s needs.

The Fund determines the appropriate level of the long-term loan in the context of its cash fl ow and

overall business risks. The Fund has historically generated suffi cient cash fl ow to pay monthly distributions

to its unitholders and maintenance expenditures.

Although there are no externally imposed capital requirements, the Fund is subject to a number of

covenants and restrictions under the loan agreement, including the requirements to meet certain fi nancial

ratios such as capital expenditure coverage ratio. Management also uses these ratios as key indicators in

managing the Fund’s capital.

There were no changes in the Fund’s approach to capital management during the year.

17. SUBSEQUENT EVENT

The existing credit facilities of the Fund mature on January 6, 2010. Subsequent to year-end, the Fund

reached an agreement with the existing lender to extend the credit facilities to March 2012 on terms and

conditions that are similar to the existing credit facilities agreement. Management expects that the revised

credit agreement will be fi nalized during the fi rst quarter of 2009.

CORPORATE INFORMATION UNITHOLDER INFORMATION

FUTUREMED HEALTHCARE INCOME FUND277 Basaltic Road, Concord, ON L4K 5V6

Tel: 905-761-0068 Fax: 905-761-9929

Website: www.futuremed.ca

REGISTRAR AND TRANSFER AGENTCIBC Mellon Trust Company

320 Bay Street, P.O. Box 1, Toronto, ON M5H 4A6

www.cibcmellon.com

AUDITORSPricewaterhouseCoopers LLP

Toronto, Ontario

LEGAL COUNSELGoodmans LLP

Toronto, Ontario

INVESTOR INFORMATIONAnalysts, Unitholders and others seeking financial data

should visit Futuremed’s website at: www.futuremed.ca

or contact:

Daniel Sacks

Chief Financial Offi cer

905-761-0068

daniel@fmed.com

STOCK EXCHANGE LISTINGUnits of Futuremed are listed on the Toronto Stock Exchange

under the trading symbol “FMD.UN.”

MONTHLY DISTRIBUTIONS PER UNITJan. 2006 – $0.0647

Feb. 2006 to Dec. 2008 – $0.0771

ANNUAL MEETINGThe Annual Meeting of Unitholders will be held at

2:00 p.m. on Thursday, May 14, 2009 at The Albany Club,

91 King Street East, Toronto, Ontario M5C 1G3.

BOARD OF TRUSTEES

John McLaughlin

Chairman

J. Duncan Gibson

Trustee

Ken White

Trustee

BOARD OF DIRECTORS

Raymond Stone

President and Chief Executive Offcer

John McLaughlin

Chairman

J. Duncan Gibson

Trustee

Tim J. Murphy

Director

OFFICERS AND SENIOR MANAGEMENT

Raymond Stone

President and Chief Executive Offcer

Daniel Sacks

Chief Financial Offi cer

Francine Pomerlau

CEO, Dismed Inc.

Serge Varin

National V.P. Supply Chain Management

Errol Seef

V.P. Information Technology

Darren Lahey

National Sales Manager

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Telephone: 905.761.0068Facsimile: 905.761.9929Toll Free: 1.800.387.7025

futuremed.ca