Toronto, Canada
February 25, 1998

MDS and design, Sciex, ELAN, AutoLab and "Science Advancing Health" are trademarks of MDS Inc.

COMMENT REGARDING COMPARATIVE FIGURES

In this Annual Information Form, all references to specific years are references to the fiscal year ended October 31. All references to "$" or "dollars" are references to Canadian dollars, unless otherwise specified. Amounts for years prior to 1997 have been restated to reflect the Company's retroactive adoption of the proportionate consolidation method of accounting for its investments in joint ventures. This method of accounting was first adopted for use in 1995. In addition, all per share amounts have been restated to reflect the impact of a two-for-one share split which became effective November 15, 1996.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into this Annual Information Form (the "AIF"):

1. The audited consolidated financial statements of MDS Inc. ("MDS" or the "Company") for the years ended October 31, 1997 and October 31, 1996, reported on by Ernst & Young, Chartered Accountants (the "Financial Statements") on pages 33 to 43 of the MDS 1997 Annual Report to its shareholders (the "Annual Report"), and
   
   
2. the information contained under the heading "Management Discussion and Analysis" on pages 24 to 32 of the Annual Report.

1 - INCORPORATION

1.1 - Jurisdiction of Incorporation and Articles - Historical Perspective

MDS is a health and life sciences company, providing technology-based products, systems, information and services to health care providers and to manufacturers of medical products. The Company was incorporated on April 17, 1969 under the laws of the Province of Ontario under the name Medical Data Sciences Limited. The Company changed its name to MDS Health Group Limited in April of 1973 and completed a secondary public issue of shares on April 13, 1973. Following the public issue, the common shares of the Company were listed on the Toronto and Montreal stock exchanges. Since 1979, the Company has been listed only on the Toronto Stock Exchange.

Between 1973 and 1978, Articles of Amendment were filed by the Company, primarily to revise the terms of certain of the Company's then authorized share capital and to effect the amalgamation of the Company with certain of its subsidiaries. The Company was continued under the Canada Business Corporations Act on October 10, 1978, and on October 31 of that year the Company was amalgamated with several of its smaller subsidiaries.

On September 17, 1980, shareholders of the Company approved certain changes to the capital structure of the Company, resulting in new authorized share capital. The new capital structure included an unlimited number of both convertible Class A Common Shares and Class B Non-voting Shares. Holders of Common shares received one Class A Common share and one Class B Non-voting share for each MDS Common share then held. These two classes of share remain the sole forms of authorized capital of MDS. All other classes of shares created at that time or subsequently have since been cancelled.

On March 6, 1990, take-over bid provisions were added to the Class B Non-Voting Shares. In the event a take-over bid (as defined under applicable legislation) is made in respect of the Class A Common Shares, and holders of more than 50% of the Class A Common Shares accept the offer, the holders of the Class B Non-Voting Shares will be allowed to participate equally with the holders of the Class A Common Shares. This will be accomplished by providing the holders of the Class B Non-Voting Shares in such circumstances with the right to convert their Shares into Class A Common Shares on a one-for-one basis. Any Class B Non-Voting Shares so converted are required to be tendered pursuant to the bid, subject to the usual rights of withdrawal. In the event of liquidation, dissolution or winding up of the Company, the Class A Common Shares rank equally with the Class B Non-Voting Shares and will receive distributions equally with Shares of other such classes on a share-for-share basis.

The Class A Common Shares and the Class B Non-voting Shares have been split on a two-for-one basis three times, on the following dates: July 13, 1983; March 15, 1990; November 15, 1996.

The head office of MDS and its principal place of business is located at 100 International Boulevard, Toronto, Ontario, Canada, M9W 6J6.

1.2 - Corporate Structure

During 1997, the Company conducted business through several subsidiaries, the more significant of which are as follows (all are 100% subsidiaries of MDS and are incorporated in Canada unless noted otherwise):

• MDS Nordion Inc. ("Nordion"), a company in which MDS holds a 99% interest;
• MDS Ingram & Bell Inc. ("I&B");
• Panlabs International, Inc. ("Panlabs"), a Washington corporation ;
• Harris Laboratories, Inc. ("Harris"), a Nebraska corporation;
• Laboratoires Neo-Pharm Inc. ("Neo-Pharm"), which was amalgamated with MDS Inc. on October 31, 1997;
• Matrx Medical Inc. ("Matrx"), a Delaware corporation; and,
• Bow Valley Diagnostic Services Inc. ("Bow Valley"), an Alberta corporation.

MDS Nordion Inc. is the sole shareholder of Nordion Europe sa ("NESA"), a company incorporated under the laws of Belgium. MDS Ingram & Bell is a 50% shareholder in Source Medical Corporation ("Source"), a Canadian company. Bow Valley owns an indirect 28% interest in Calgary Laboratory Services ("CLS"), an Alberta partnership.

In addition to the incorporated subsidiaries listed above, the Company also conducts business through the following significant partnerships:

• Metro-McNair Clinical Laboratories L.P. ("Metro"), a limited partnership established under the laws of British Columbia in which MDS holds a 75% interest;
• Perkin-Elmer Sciex Instruments ("PE/Sciex"), a partnership established under the laws of Ontario in which MDS holds a 50% interest.

The entities outlined above are consolidated in the financial statements of MDS and are referred to hereafter as subsidiaries, with the exception of PE/Sciex which is accounted for on a proportionately consolidated basis. In addition, the Company's indirect interests in CLS and Source are also proportionately consolidated. (For Source this applies from October 1, 1997.)

In addition to its subsidiaries, the company has significant influence over and equity accounts for a number of laboratory businesses, the most significant of which is a 14.5% interest in Dynacare Kasper Medical Laboratories, an Alberta partnership. Finally, the Company's 38% interest in each of MDS Capital Corp. and MDS Health Ventures Inc. (which are described in more detail later in this document) are also accounted for on an equity basis.

Throughout this document, "MDS" or "the Company" will refer to MDS Inc. together with its subsidiaries, unless the context indicates otherwise.

2 - GENERAL DEVELOPMENT OF THE BUSINESS

2.1 - Overview

MDS is the largest health and life sciences company in Canada with revenues in 1997 of $930 million. Company revenues of $459 million in 1992 result in a compound average rate of 15% over the intervening five years. MDS is focused on providing technology-based solutions to its customers to help them improve the health and well-being of people. Customers include providers of health care such as hospitals, physicians, and other medical facilities, and manufacturers of health-related products. The services and products of the Company are designed to assist customers to lower costs and improve the safety and efficacy of their products and services.

Until 1991, clinical laboratory services were the primary business focus of the Company. MDS operated clinical laboratories in Ontario and New York State. In 1987 the Company acquired a 50% interest in Metro and in 1990 the Company acquired 100% of Bow Valley, expanding the laboratory operations to all provinces west of Quebec. In 1990, MDS acquired the Quebec, Saskatchewan, and New York State operations of Cybermedix, Inc. MDS subsequently sold its U.S. laboratory operations in 1992.

In 1986, MDS acquired a 49% interest in Ingram & Bell Inc., a medical supply manufacturing and distribution company, broadening the products and services offered to health care providers. This interest was increased to 100% in 1993. Effective October 1, 1997, I&B and Allegiance Healthcare Canada Inc., the Canadian subsidiary of Allegiance Healthcare Corporation, merged their respective Canadian health care product distribution businesses to form Source Medical Corporation. The medical product manufacturing business remains part of I&B.

With the acquisition of Sciex in 1981, MDS broadened its operations into analytical instruments.

In 1992, MDS acquired an initial 83% interest in Nordion International Inc. from the Canadian Development Investment Corporation pursuant to a privatization initiative by Atomic Energy of Canada Limited, thereby expanding its operations into medical isotope manufacturing and distribution. During 1995, the Company increased its ownership interest in Nordion when it purchased a minority stake then owned by Amersham, plc.

In 1995, MDS began acquiring contract pharmaceutical research organizations and expanded the services offered to the pharmaceutical development industry. Acquisitions included the purchase of Panlabs in 1995, and Harris and Neo-Pharm in 1996.

As at October 31, 1997, MDS had approximately 6,800 employees in eight countries around the world. The Company currently operates through six principal subsidiaries and five primary joint ventures. The Company's customers include a broad range of manufacturers of medical products including pharmaceutical manufacturers, biotechnology companies, and manufacturers of medical supplies and devices. These customers are located in essentially all major international markets. In Canada, the Company also provides products and services directly to health care providers including physicians and hospitals. No single customer accounts for more than 10% of revenues; however, the Ontario Ministry of Health, in its capacity as the funding body for the Ontario public health insurance programme, funds approximately 15% of total revenues.

In 1997, exports from Canada comprised 27% of total revenues or $249 million. Revenues from exports combined with revenues earned by operating units based outside of Canada made up 49% of total revenues for the year. Five years before, in 1992, export revenues accounted for 30% of consolidated revenues and foreign-based operating units added an additional 8% to consolidated revenues.

2.2 - Recent Industry Developments

MDS has benefited from the significant and rapid changes which are affecting health care and life sciences industries in Canada and elsewhere. These changes include:

1. intensifying cost containment pressures within the health care envelope;
2. rapid growth in demand for services due to ageing population bases;
3. rapid innovation in technology, increasing the availability of sophisticated treatment options;
4. growing consumer awareness of health care choices;
5. changing funding responsibilities as governments drive more of the costs of health care to consumers and their health insurance companies.

As a result of these changes, the balance of power within the health care and life sciences industry has shifted. The resulting competition for market power and control of the industry has played out differently in different jurisdictions. In Canada, the reduced level of federal government funding has left increased power in the hands of provincial governments. Delisting of health care services under provincial health care plans has, in turn, shifted increased responsibility back to consumers and direct providers. In the United States, health management organizations are playing an increasingly important role in treatment decisions. Combined with continued consolidation of hospital groups and others, economic power within the health care market is becoming further concentrated. This is resulting in new roles for market participants. The increased importance of productivity improvements and efficiencies has created new opportunities for value creation and has opened new business opportunities for those suppliers who are able to adapt quickly to the changing needs of their customers.

The explosion of new technologies has profoundly affected the life sciences market. Advances in biotechnology and genomics have created new opportunities in pharmacology which manufacturers are rushing to exploit. The number of new compounds currently in development is significantly higher than a few years ago. This explosion in development activity is driving a boom in outsourcing of research activities by pharmaceutical manufacturers. The advent of high throughput screening, accompanied by the technologies which make this possible, increases the number of new drug leads that can be investigated, enabling drug companies to identify promising candidates earlier. More importantly, researchers can eliminate unpromising candidates before large investment is made in further development.

2.3 - Business Strategy of MDS

MDS's business strategy is to be positioned to take advantage of emerging opportunities in markets where the Company has either an established base of involvement or strong technical capabilities which are consistent with the needs of our customers.

The goal of the Company is to be a leading provider of products and services in the selected niche markets of:

• drug discovery and development;
• automation and management of diagnostic laboratories;
• sterilization, radioisotopic production and distribution, and radiopharmaceuticals;
• ultra-trace analysis; and
• emerging diagnostic products and services.

Increasingly, technological leadership will be the main method of differentiation amongst participants in these markets. MDS invests significantly in research and development and in capital equipment to ensure its competitive edge. In 1997, the Company invested $17million in research and development and a further $55 million in capital assets.

MDS also believes that effective business alliances, such as joint ventures and similar entities, are becoming more common. Alliances that bring together the complementary capabilities of two or more companies may provide the best solutions to customers of the future. The ability of market participants to develop such alliances and to manage them successfully will be a key success factor for future growth. MDS is building on the success of its long-time joint ventures with The Perkin-Elmer Corporation and MDS Hudson Valley Laboratories and establishing new ones in areas of its business not traditionally managed in this way, including the recently completed Source Medical, Toronto Medical Laboratories, and Columbia/HCA joint ventures.

2.4 - Financial and Other Developments

Factors affecting the comparability of financial data for the years 1993 through 1997 (in addition to those factors disclosed in the Notes to the Selected Consolidated Financial Information) include the following:

Capital Structure

• In March 1996, the Company raised $44 million (net of share issue costs) from the sale of 4 million Class B Non-Voting Shares.
• On October 30, 1996, the shareholders of the Company approved a two-for-one shares split of the Class A Common Shares and Class B Non-Voting Shares, which became effective on November 15, 1996.

Acquisitions

• On April 30, 1993, the Company acquired the 51% of Ingram & Bell Inc. which it did not already own for a total consideration of $4.5 million, consisting of $2.8 million cash and the issuance of 120,519 Class B Non-Voting shares. The results of I&B were consolidated commencing November 1, 1992.
• During 1994, the Company purchased several environmental testing businesses, increased its ownership in an existing environmental subsidiary and acquired an interest in a small medical laboratory for total cash consideration of $4.9 million.
• During 1995, the Company acquired the 14% interest in Nordion formerly held by Amersham International plc for $17.6 million cash. The purchase price was equal to the net tangible assets acquired.
• During 1995, the Company acquired a medical laboratory and Panlabs International, Inc. for $37.3 million, including cash consideration of $35.7 million and a promissory note for $1.6 million. The above acquisitions resulted in $6.5 million of goodwill.
• During 1996, the Company acquired Harris Laboratories, Inc., Neo-Pharm Laboratories Inc., a laboratory operation, a supplier of specialty medical equipment and the 20% of the shares of Matrx Medical Inc. which it did not already own. In addition, the Company exercised an early settlement option on its earn-out obligation under the 1995 purchase agreement for Panlabs. Total consideration for these acquisitions was $82.2 million, comprising long-term debt of $12.4 million and cash of $69.8 million. Goodwill of $49.5 million was recorded on these transactions. Under the terms of certain of the purchase agreements, amounts up to $22 million may be paid based on future earnings of the companies, as defined, for the period October 1, 1996 to October 31, 1999. The amount and timing of the contingent consideration are not readily determinable at this time and have not, therefore, been reflected in the accounts.
• During the third quarter of 1996, the Company acquired a 35% interest in a joint venture in China which will provide drug research and development services in that country to both domestic and international pharmaceutical companies.
• During 1997, the Company acquired the 65% of the shares of AutoMed Corporation which it did not already own and 100% of Neurotech sa for total consideration of $7.2 million, comprising cash and long-term debt.

Divestitures

• During 1995 and 1996, Nordion sold its European in-vivo distribution and in-vitro manufacturer operations to allow management to focus on its continuing European radiochemical and radiopharmaceutical manufacturing and distribution operations.
• Effective May 13, 1997, the Company disposed of its environmental testing business for total consideration of $7.4 million, including cash of $4.4 million and a long-term note receivable.

Other Matters

• The Ontario fee settlement of December 1993 and health care cost issues in all other provinces required an acceleration of laboratory efficiency improvement programs and initiatives that were introduced in the Company's medical equipment and supplies distribution business. To reposition the Company for future growth and enhance earnings, a charge of $26.1 million was recorded in 1993, related to the costs of restructuring in that year and over the next several years. An additional provision of $8 million related to estimated losses to the date of disposition of certain non-strategic medical equipment and service subsidiaries was also recorded in 1993.
• During the third quarter of 1996, the Government of Canada, Atomic Energy of Canada Limited and the Company's subsidiary Nordion reached an agreement to build two specialized reactors to ensure a stable long-term supply of medical isotopes. The agreement culminated several years of negotiation and protects Nordion's worldwide leadership position in nuclear medicine. Construction of these new reactors commenced during the second quarter of 1997. The Government of Canada will provide Nordion with a $100 million non-interest-bearing loan to fund a portion of the construction costs. During 1997, the Company received $4 million under the terms of this loan. Repayment of the loan over a fifteen-year period will commence during the year 2000. To satisfy its future repayment obligation, the Company has pledged a financial instrument having a value at October 31, 1997 of $43 million as security for the loan.
• During 1996, the Company began operating a laboratory partnership with The Toronto Hospital. A number of contracts with other Toronto area hospitals are being negotiated by this new partnership. In addition, the Company has signed laboratory operating agreements with major hospitals in the Niagara region and in other areas of Ontario.
• During 1997, the Company established a partnership with the Calgary Regional Health Authority to manage all laboratory services in the region.
• During 1997, the Company established a joint venture with Columbia/HCA Healthcare Corporation, the largest private hospital network in the United States. The joint venture will initially provide consolidated laboratory services utilizing the Company's MDS AutoLab technology to Columbia operations in the state of Georgia. Shortly after the year-end, agreement in principle was reached to establish a new site covering Columbia/HCA's South Florida region.

3 - NARRATIVE DESCRIPTION OF THE BUSINESSES OF MDS

3.1 - Reportable Industry Segment

MDS operates within one reportable business segment - the provision of technology-based products and services to health care providers and manufacturers of medical products. The Company is organized into two principal operating groups within this industry. The business of the Company is best understood in terms of these two operating groups, and this section has been organized by Health Care businesses (section 3.2) and Life Sciences businesses (section 3.3).

3.2 - Health Care

Health Care businesses are those which supply products or services to individuals or institutions which in turn provide health care services directly to patients and consumers. Generally, the customers of the Company's health care businesses consist of physicians, hospitals, and similar service providers. Health Care businesses includes the following significant operating units and products or services:

3.2.1 - Clinical Laboratory Services

MDS Laboratory Services is the largest operator of private sector clinical laboratories in Canada. The Company is active in all provinces west of the Maritimes either directly or through joint ventures. Revenues from laboratory operations in 1997 amounted to $299 million. Approximately 51% of laboratory revenues originate in Ontario. A further 24% originate in British Columbia and 12% in Alberta. Laboratory revenue from U.S. sources comprised approximately 8% of total laboratory services revenues in 1997.

Although the customers of the laboratory services business are generally physicians and patients, the majority of funding for such services is provided under the terms of provincial health care programmes. Company operations in each province are organized to conform to government payment programmes existing in the relevant province. The operation of clinical laboratories is subject to significant government regulation in Canada. All laboratories are subject to periodic government inspection and proficiency testing by government agencies. The Company has been subject to such government inspection in all provinces in which it operates. MDS has never been subject to disciplinary or other actions as a result of a failure to meet standards in any area prescribed by regulation.

In most provinces, operators of clinical laboratories are required to carry licences which determine the nature of tests which can be carried out at each facility and govern the ability of the operator to draw samples for testing purposes. Such licences are for a limited term (generally renewing annually) and their renewal is subject to government approval. In addition, government agencies are empowered to revoke licences in the event of a failure by an operator to meet regulatory or other professional standards. Traditionally, renewals are automatic in the absence of significant regulatory or disciplinary action. The Company has never lost a licence due to non-renewal or direct revocation procedures by regulatory agencies.

In Alberta and Saskatchewan, licences have been replaced by service contracts with regional health authorities which run for various terms through 2002. The Company is in the first term of such a contract in Alberta and successfully renewed its Saskatchewan contracts for a second term. There is no reason to believe that further renewals will not occur at the end of the contract periods.

The laboratory business of MDS is carried out through the following types of licenced locations:

Specimen collection centres (SCC) - a location which is licenced to draw samples from a patient but which is not authorized to perform any testing procedures on the samples.

Local laboratories - a location which serves as both an SCC and as a testing facility. Such laboratories do not generally carry full testing approvals and therefore conduct only limited types of tests.

Central laboratories - a location to which all samples collected at SCC's are sent for testing, along with samples which cannot be tested at local laboratories.

At the end of 1997, MDS operated 248 specimen collection centres, 40 local laboratories, and 5 central laboratories, located from Quebec to British Columbia.

All clinical testing is conducted on samples drawn from patients based on requests received from physicians. Test results are reported back to physicians and are not made available directly to patients. Fees for most testing services (other than those performed in Quebec) are billed to a government health care agency according to a fixed fee schedule, subject in most cases to an overall fee cap.

Laboratory fees are generally set provincially following discussions between the owners of private laboratories and provincial ministry of health officials. In Ontario, private laboratories are represented by the Ontario Association of Medical Laboratories. Ontario fees have been established under an agreement which runs until March 31, 1998. In British Columbia, fees are negotiated on behalf of the laboratories by the British Columbia Medical Association ("BCMA"). The current agreement between the BCMA and the British Columbia government runs until March 31, 1998.

In Alberta, the fee-for-service system was replaced by bulk service contracts in each of the 17 regions established by the provincial ministry of health. MDS previously had operations in two of these regions. In 1995, the Company's Calgary laboratory operations were merged with those of a competitor to form the MDS Kasper Medical Laboratories partnership. MDS owns 53% of the merged businesses. During 1996, MDS Kasper Medical Laboratories and the Calgary Regional Health Authority formed a partnership known as Calgary Laboratory Services, of which MDS Kasper Medical Laboratories owns 50%. An agreement was successfully negotiated by CLS with the Calgary Regional Health Authority to manage all laboratory services in the Calgary region, including laboratory services provided within hospitals. In Edmonton, the MDS Stirrat Laboratory organization, along with two competing laboratory firms, merged to form the Dynacare Kasper Medical Laboratories partnership, which has contracted with the Capital Regional Health Authority to provide both hospital and outpatient diagnostic services in the region. MDS owns 14.5% of this limited partnership.

In Saskatchewan, where fee-for-service has also been replaced by a lump sum payment system, MDS has negotiated contracts to provide services to the Regional Health Authority in the delivery of health services in the Province.

MDS provides laboratory services in Quebec on a limited basis. Laboratory services in this province are generally provided by hospitals on an outpatient basis. Laboratory services provided by MDS in Quebec are billed directly to patients or physicians and therefore constitute only a small portion of the testing conducted in the province.

The principal competitors in the private clinical laboratory services business include Dynacare Inc., Canadian Medical Laboratories Inc., and Med-Chem Medical Laboratories Limited, all in Ontario, and BC Bio Laboratories Inc. in British Columbia.

The majority of the 4,000 employees of MDS who work in laboratory services are not covered by collective agreements. At October 31, 1997, employees in Alberta and Saskatchewan, along with employees of certain of the Company's hospital joint ventures, were subject to such agreements. MDS has not experienced a significant work stoppage due to labour activities and the Company believes that labour relations are good.

In addition to the direct provision of testing services, the Company also provides laboratory management services and manufactures laboratory automation equipment and software. Often these related businesses operate hand in hand. The Company has entered into agreements to provide laboratory management services to a number of hospitals and to groups of hospitals, primarily in the Ontario marketplace. These agreements generally provide for a fee-for-service related to the management of a laboratory located within a hospital.

The Company has also entered into direct partnerships with hospitals which combine management of in-house laboratories with construction of a centralized high volume laboratory serving a group of hospitals. MDS currently has three such partnerships (partner indicated in brackets): Toronto Medical Laboratories or TML (The Toronto Hospital); Integrated Regional Laboratories or IRL (Columbia/HCA Healthcare Inc.); and MDS Hudson Valley Laboratories or HVL (three New York state hospitals). Revenues from hospital partnerships made up 8% of laboratory services revenues in 1997, up from 4% in 1996.

MDS has committed significant resources to the development of these partnership businesses in 1996 and 1997 and expects to add additional partnerships in 1998 and future years. The majority of development activity is focused in the United States where laboratory consolidations and improved laboratory efficiency have only recently become primary areas of focus for health care providers. The Company's AutoLab unit has developed expertise in laboratory automation and has a proprietary line of automation equipment and software. Laboratory automation is often a key component of the joint venture or partnership agreements entered into by MDS. By the end of 1997, fully automated central laboratories had been built for the Company's reference laboratories in Toronto and Vancouver, along with the Toronto Medical Laboratories facility. Shortly before the end of 1997 the reference laboratory for IRL's first joint venture, located in Georgia, was completed. The Company has also sold automated laboratory equipment on a stand-alone basis.

3.2.2 - Distribution of Medical Products

MDS conducts its distribution services business through two primary subsidiaries: MDS Ingram & Bell, which owns 50% of Source Medical Corporation; and MDS Matrx.

Until October 1, 1997 Canadian distribution services were carried out through I&B. Effective October 1, I&B merged its distribution business with that of Allegiance Healthcare Canada Inc., forming Source Medical Corporation. I&B is a 50% owner of Source. Annual revenues from I&B amounted to $149 million in 1997, including the company's share of revenues from Source for the month of October.

Through Source, I&B provides marketing, sales, distribution and after-sale service for products ranging from technologically sophisticated medical equipment to volume products such as syringes and patient care products. Source has established relationships with major medical product manufacturers to market and sell their products in Canada. Source also provides logistics management services and stockless inventory services to hospitals and other health care providers. Source operates distribution and dedicated warehouse facilities in all regions of the country.

In addition to its participation in Source, I&B manufactures its own lines of proprietary medical products which are now distributed by Source. Manufacturing operations are located at facilities in Toronto and Montreal.

The medical product distribution industry in Canada is fragmented and represented by a number of different distribution channels. Many multi-national companies have subsidiaries in Canada which both manufacture and distribute their products on a direct basis. Most Canadian health care manufacturers are small in size and distribute their products through independent distribution channels. There are a number of regional and local distributors in Canada competing in this marketplace. In addition, national distributors and large manufacturers engage in direct selling and distribution of competing products. Major competitors in the distribution area included Allegiance Healthcare Canada Inc. (prior to the creation of Source), along with a number of regional and local distributors, and in the manufacturing area, Johnson & Johnson Medical Products, Abbott Laboratories Limited, Sherwood-Davis and Geck Inc. In addition, Livingston International Inc. competes in the distribution logistics end of the business through its Livingston Healthcare Inc. subsidiary.

The creation of Source Medical represents a key development for the medical supply distribution business in Canada. The combined company will have annual revenues of about $300 million and will distribute products manufactured by the parent companies along with products of other manufacturers. Also, Source will be the Canadian distributor of products manufactured by Baxter Corporation.

The majority of the distribution agreements entered into by Source are for a fixed term and subject to commercially reasonable cancellation provisions. It has been the experience of both I&B and Allegiance (as predecessors to Source) that renewal of such agreements ordinarily occur as a routine matter. The merger of the two companies has not resulted in the loss of any significant distribution contracts to date. Management is not aware of any significant vendors that intend to cancel or not to renew existing agreements.

MDS Matrx is located in Buffalo and serves the eastern United States and an international customer base as a specialized distributor of pre-hospital emergency medical supplies and equipment, and as a manufacturer of dental and veterinary equipment. Matrx's proprietary products include dental vacuum pumps, air compressors and nitrous oxide delivery equipment, and veterinary anesthesia equipment. The markets in which Matrx competes are highly fragmented and Matrx is among the top companies in each of its three businesses. Consolidation of the industries has begun, particularly in the emergency medical industry. This has been driven largely by consolidation of ambulance operators under corporate banners such as Laidlaw/American Medical Response and Rural Metro. Consolidation of all three industries is expected to be a positive factor for Matrx as the larger customers are expected to look to the larger suppliers in the businesses to consolidate their purchasing needs.

The distribution businesses of MDS employ approximately 575 people, of which 420 are located in Canada. This figure includes 50% of the employees of Source, reflecting MDS's proportionate interest in the business.

3.2.3 - Health Care - Other Matters

MDS expects that cost containment initiatives will remain a risk factor for health care businesses for the foreseeable future. For those provinces which continue to utilize a fee-for-service reimbursement model, migration towards lump-sum funding or capitation systems may serve to limit growth or even reduce revenue levels. However, such initiatives could also be expected to protect the market share of existing service providers. Distribution businesses are similarly constrained as their ultimate customers face reduced funding from governments and other agencies at the same time as an ageing population is expected to place more demands on the health care system.

To address these risks, MDS is continuing to invest in research and development focused on new, cost-saving technologies, including automation of routine, mechanical functions. More efficient methods of service delivery including improved laboratory management techniques, centralization of high volume testing currently performed in smaller on-site laboratories, and various supply chain management techniques are all dedicated to the reduction of cost and the elimination of waste within the systems.

MDS remains active with industry groups and as a member of advisory panels to governments and other agencies. This involvement enables the Company to be aware of proposed policy changes and to influence the direction in which such changes may proceed.

3.3 - Life Sciences

Life Sciences businesses are those whose primary business is the direct manufacture of medical products or which supply technology, products or services to other companies for use in the manufacture of medical products. Customers of the Company's Life Sciences businesses include companies involved in the development of pharmaceuticals and biotechnological products, as well as manufacturers of medical products such as medical supplies. In all cases, the products or services include a high level of technological sophistication or require significant technical or scientific expertise. The Life Sciences businesses include the following significant operating units and products or services:

3.3.1 - Pharmaceutical Services

MDS created its Pharmaceutical Services division in 1995 to take advantage of the significant opportunities which are believed to exist in drug discovery and contract research outsourcing for drug development companies.

During the 1970's, the majority of research leading up to development of pharmaceutical products was conducted in-house by integrated pharmaceutical companies. At that time the only significant function which was contracted out was preclinical toxicology screening. The drug development process is extremely expensive due to the cost of infrastructure required to support the full range of processes necessary for drug development and the long period of time required to achieve full regulatory approval of a new compound. On average, it takes 10 to 12 years and over US$500 million to bring a new pharmaceutical from discovery through Phases I to IV of clinical trials and make it available to consumers. Since patent protection for new products extends for only 17 to 20 years, the profitability of a new compound can be greatly enhanced by reducing the total cost of development and by shortening the elapsed period over which development occurs. In an effort to reduce both time and costs, major drug companies began outsourcing portions of the development work to companies that provide research services. These companies have become known as Contract Research Organizations or CRO's. Individual CRO's tend to specialize in particular stages of the drug development process and, therefore, develop expertise in those areas. This enables the pharmaceutical companies to achieve cost efficiencies and to shorten the research time for that stage.

The decision by MDS to enter the CRO business was influenced by a number of key trends that affect the industry. The Company believes that cost containment pressures at pharmaceutical companies will continue to lead to downsizing of in-house research and development capabilities and that pharmaceutical companies will focus increasingly on marketing and product distribution. Outside suppliers will increasingly be relied upon to provide services previously secured from in-house departments. Aside from reducing infrastructure costs for the pharmaceutical companies, this initiative is expected to lead to reduced cycle time for development. Outsourcing this activity may also lead to development of drug candidates which have a small market and might have been ignored by larger pharmaceutical companies which require large market drugs to cover the costs of their marketing and distribution channels.

Globalization of pharmaceutical markets, influenced by recent mergers, can be expected to influence the selection of a CRO. Those with an international presence and the ability to conduct trials in multiple jurisdictions are expected to be the preferred suppliers. The growth of the biotechnology industry is also influencing the growth of CRO's as most of these companies do not have the capability to conduct trials for their products.

MDS provides contract research services to pharmaceutical manufacturers and biotechnology companies, focusing particularly on drug discovery and early-stage drug development. MDS has provided services to pharmaceutical manufacturers for approximately five years, beginning as a centralized support laboratory providing testing services in connection with Phase III clinical trials. In 1995, MDS identified pharmaceutical development as a major growth area and, through its acquisition of Panlabs International, Inc., established a platform for a new division. The acquisitions of Harris Laboratories, Inc. and Laboratoires Neo-Pharm Inc. in 1996 broadened the range of research services offered to customers in the drug development field.

Services offered by MDS Pharmaceutical Services range from lead discovery through bioanalysis and into clinical trials services. The Company operates facilities in Canada, the United States, Europe, and Asia. The Company also participates in developments in the large Chinese marketplace through its 35% investee, Scientific China Inc. Over 1,000 employees work in Pharmaceutical Services at these locations.

Revenues from Pharmaceutical Services reached $115 million in 1997 and all operating units were included for the full 12 months. MDS Pharmaceutical Services is currently the seventh largest CRO internationally. Principal competitors include ClinTrials Research, Inc., Quintiles Transnational Corp., Covance, Inc., Parexel International, Corp., IBAH Inc., and Pharmaceutical Product Development, Inc. in the clinical trials market, and Phoenix International Life Sciences Inc. in the Phase I and bioanalytical market. Operations of the Company tend to be focused on earlier stages of the drug development process than the majority of its competitors and management believes that MDS Pharmaceutical Services is the leading global provider of Drug Development Services in these stages.

Revenue is earned by the Pharmaceutical Services division under contracts which typically run several months for drug discovery through Phase I clinical trials and as much as several years for Phase III clinical trials. In clinical trials testing, the Company will typically administer products owned and developed by others into test subjects. The pharmaceutical customer retains risk related to product failure, including risks related to adverse reactions by test subjects.

Terms of most contracts entered into by the Company entitle clients to cancellation rights. Such rights are common to these contracts and may be exercised by the client in the event of regulatory delays or if unexpected results are encountered in an earlier stage of the development programme. Although it is not possible for the Company to predict the occurrence of such delays or cancellations, the Company's strategy is to mitigate the impact of any such delays by maintaining a broad portfolio of on-going contracts.

Although MDS facilities devoted to pharmaceutical development are not directly subject to significant unusual government regulation, customers of the Company are subject to periodic review by drug approval authorities, principally the Food and Drug Administration in the United States. Under the terms of typical CRO contracts, the Company's customers can request that Company facilities be subjected to the same levels of review by the authorities. The Company meets current Good Laboratory Practices ("cGLP") standards for its laboratories and current Good Clinical Practices ("cGCP") standards for its clinic facilities. The Company has never experienced a contract cancellation for failure to meet such standards.

3.3.2 - Medical Isotopes and Sterilization

MDS Nordion Inc., with revenues of $209 million during 1997, is a leading manufacturer, marketer and distributor of radioisotope products, supplying a major segment of world demand for its main product categories. The primary uses for radioisotopes processed by Nordion are industrial irradiation for microbial control and in the manufacture of radiopharmaceuticals. Exports by Nordion to more than 70 countries account for more than 95% of its total sales.

Radioisotopes are forms of chemical elements that are radioactive. Nordion processes and repackages radioisotopes and uses the refined materials to produce products that include: immunochemical reagents and kits for clinical diagnosis and research investigation; radioisotopes for use in nuclear medicine; radioactive sources for the treatment of cancer; irradiators for research purposes and to treat blood for immuno-compromised patients; and sterilization systems and supplies to ensure that disposable medical products are contaminant-free.

In its industrial irradiation operations, MDS Nordion is the world's principal supplier of cobalt 60. Raw cobalt 60 material is produced under long-term supply contracts in nuclear reactors operated by Ontario Hydro and by Hydro Quebec. Nordion further processes the raw cobalt 60 (also referred to as a gamma source) for commercial use at its Kanata, Ontario facilities. Cobalt 60 is used in cancer therapy and in the commercial sterilization of surgical and medical supplies. Cobalt 60 is also being developed to become a leading tool for combating food-borne microbial such as e. coli in red meat and salmonella in poultry. MDS Nordion also markets related processing equipment and technology, including industrial scale irradiators and smaller research irradiators.

Other radioisotopes are used worldwide for medical diagnosis and treatment. Notable among these is molybdenum 99, which is purchased in an unfinished, non-purified form from Atomic Energy of Canada Limited ("AECL"). Technetium 99m, the most commonly used isotope for nuclear imaging procedures, is derived from molybdenum 99. Nordion's customers use other radioisotopes to manufacture radiopharmaceuticals that are used to treat numerous serious disease states. Medical isotopes are produced in research reactors and in devices known as cyclotrons. Nordion refines these materials in Kanata and at additional facilities in Vancouver and in Belgium. Medical radioisotope products are used in more than 50,000 diagnostic procedures each day such as bone scans and assessment of heart, liver and kidney functions. The demand for these products is expected to grow with the demands placed on the nuclear medicine industry.

Significant barriers to entry exist in both the medical isotopes and sterilization businesses. The manufacture of raw isotopes is dependent upon the availability of capacity in acceptable types of nuclear reactors. Processing facilities such as those operated by Nordion are centralized, capital intensive, and expensive to operate. In addition, due to the nature of the materials handled by the facilities, government and environmental regulation is a significant factor in the business. Efficient and safe transportation and logistical systems are also vital components of the business. Security of supply is a key customer concern, due to the short life span of the products. Nuclear decay renders some of the products processed by Nordion useless in a matter of days and isotopes are processed, delivered to manufacturers and then on to hospitals in only a few days.

In 1997, AECL, under contract to Nordion, initiated construction of two small, dedicated isotope reactors. As part of the out-of-court settlement resulting from a lawsuit filed by MDS, the Government of Canada will provide a $100 million interest-free loan to Nordion to assist in the financing of this project. The new facilities will be used exclusively for the production of isotopes for medical purposes. Nordion will own the reactors and AECL will operate them on a contract for service basis. These Maple reactors will replace the existing NRU reactor as the principal source of molybdenum and will enable Nordion to provide its customers with a stable and secure supply of these key medical isotopes. Maple 1 is expected to begin operations in 1999, with Maple 2 following in 2000.

Nordion employs 700 people at its Kanata, Ontario head office and facilities in British Columbia, Quebec, and Europe. Some technical and production employees of Nordion belong to the Public Service Alliance of Canada, a collective bargaining agent representing, among others, certain employees of the Government of Canada. Labour relations are judged to be good.

Nordion is dependent upon its suppliers (principally, Ontario Hydro, Hydro Quebec, and AECL) for its source of supply. Each of these entities is a Crown Corporation and is unionized. Because Nordion is able to maintain an inventory of Cobalt 60, a labour disruption at either Ontario Hydro or Hydro Quebec would not significantly impact the Company's ability to meet normal customer requirements in the short-term. Nordion has taken steps to lessen the risk that a labour disruption will cause an interruption in its source of supply of medical isotopes by establishing co-beneficial back-up arrangements with certain competitors.

The principal competitors are: in radiopharmaceuticals, Institut National des Radioelements (IRE) in Belgium and Atomic Energy Corporation of South Africa; and in industrial irradiation, REVISS of Russia.

3.3.3 - Analytical Instruments

The Sciex division of MDS manufactures ultra-trace chemical detection instrumentation based on mass spectrometry and is Canada's leading manufacturer of analytical instrumentation. Export sales account for more than 95% of the division's revenues. Through a joint venture with The Perkin-Elmer Corporation, one of the world's largest suppliers of analytical equipment, Sciex products reach a global market. In 1997, Sciex recorded revenues of $81 million.

Within the joint venture relationship, Sciex is primarily responsible for the design, development, and manufacture of instrumentation targeted towards the detection of trace chemicals or elements in a variety of application areas including the pharmaceutical, biotechnology, environmental and semiconductor industries.

Sciex has been a major innovator of technologically sophisticated mass spectrometry instrumentation. In each of its product lines, Sciex has been a pioneer. Accomplishments by the division include the introduction of the first triple-quad mass spectrometers, inductively coupled plasma mass spectrometers, and techniques for detecting ultra-trace amounts of small or large molecules by atmospheric pressure ionization (electrospray). Many of these products are in the second and third generation, and continue to hold a major share of their market segments.

The pharmaceutical and biotechnology markets are the major users of Sciex technology based on the principles of liquid chromatography coupled with mass spectrometry (LC/MS). Early models of this equipment revolutionized many of the processes which were fundamental limitations in the search for new drugs or biotechnology products. Productivity improvements continue with the introduction of newer models. Additional design features include enhanced computer control functions, improved sensitivities and speed. In 1997, Sciex introduced a smaller, lower cost version of these instruments and brought the benefits of the technology to new classes of users.

The ELAN Inductively Coupled Plasma Mass Spectrometry (ICP/MS) provides high sensitivity with extremely high specificity for a wide range of elements in the analysis of a single sample. The range of market areas that are addressed with the ELAN is very broad and includes environmental monitoring (drinking and wastewater analysis), toxicology (role of trace metals in human disorders), semiconductors (trace impurities), and the nuclear industry (impurities in uranium).

The most significant risk faced by Sciex is price competition and the threat of new competitive technologies. Sciex addresses this threat through an extensive research and development programme with a dual focus of enhancing existing products and identifying and developing new technologies. In 1997, Sciex invested over 10% of net revenues in research and development activities.

The Company's principal competitors include Micromass Limited in the United Kingdom (recently acquired by U.S.-based Watters Corporation), Thermo Instruments Inc. and Hewlett Packard Company in the United States.

MDS Sciex employs 295 people, and operates out of a combined manufacturing and research facility in Concord, Ontario, north of Toronto.

3.4 - Other Businesses

3.4.1 - MDS Communicare

In addition to its core businesses, MDS supplies products and services to the home health care and rehabilitation markets in Canada through its Doncaster Home Health Care operating unit. Products include a wide range of goods designed to enable quality home care and to enhance lifestyle for those consumers who are being provided their health care outside of a traditional institutional setting. Products range from disposal items such as syringes to durable items such as wheelchairs. The unit operates through 17 company locations and two franchised locations. The majority of the unit's revenue is earned from consumers; however, a portion of the revenue is received from various provincial home care and assistive devices programmes. As such, this portion of revenues has been subject to government cost constraining initiatives, particularly reduced reimbursement ratios. Recent government policy documents in most provinces indicate increased funding and focus on home care; however, there has been little direct benefit to the home care industry to date.

In addition to Doncaster, the Company also provides insurance paramedical and executive health assessment services through this operating unit. Revenues in 1997 amounted to $35 million.

3.4.2 - MDS Environmental Services

MDS disposed of its Environmental Services business during 1997. Revenues prior to the sale of the division amounted to $6 million.

3.4.3 - MDS Capital Corp.

MDS Capital Corp., in which MDS has a 38% interest, is the largest venture capital and fund management company in Canada focused on the health care and life sciences industry. It is also one of the largest such firms in the world. The company manages approximately $600 million through six funds, including two funds open to public investors. MDS Capital Corp. earns management fees from these funds, including incentive fees based on the overall success of the funds. The company employs 42 people, including 20 investment analysts. During calendar 1997, MDS Capital Corp. invested $137 million in 42 companies with new and follow-on investments.

Among the funds managed by MDS Capital Corp. is MDS Health Ventures Inc. This $27 million fund, in which MDS has a 38% direct interest, was the first venture capital fund organized by MDS.

MDS records it interests in MDS Capital Corp. and MDS Health Ventures Inc. on an equity basis. In 1997, MDS recorded equity earnings of $2.4 million from these two investments.

3.5 - Principal Facilities

Following are the principal operating facilities of the Company as at October 31, 1997:

Location of Facility	Type of Facility	Principal User
Toronto, Ontario	Corporate Head Office	MDS Inc.
Toronto, Ontario	Central Reference Laboratory	MDS Laboratory Services
Concord, Ontario	Manufacturing Plant	MDS Sciex
Kanata, Ontario	Manufacturing Plant	MDS Nordion
Fleurus, Belgium	Manufacturing Plant	MDS Nordion
Calgary, Alberta	Central Reference Laboratory	MDS Laboratory Services
Richmond, British Columbia	Central Reference Laboratory	MDS Laboratory Services
Lincoln, Nebraska	Clinical Trials Facility	MDS Pharmaceutical Services
Seattle, Washington	Research Laboratory	MDS Pharmaceutical Services
Taipei, Taiwan	Research Laboratory	MDS Pharmaceutical Services
Montreal, Quebec	Research Laboratory	MDS Pharmaceutical Services
Beijing, China	Clinical Trials and Laboratory Facility	MDS Pharmaceutical Services
Buffalo, New York	Manufacturing Plant and Warehouse	MDS Matrx
Toronto, Ontario	Manufacturing Plant and Warehouse	MDS Ingram & Bell

3.6 - Research and Development

Research and Development Costs are described in Note 10 to the Financial Statements set forth on page 42 of the Annual Report which is incorporated by reference into this AIF.

3.7 - Environmental Compliance

The Company has established a policy to facilitate compliance with all applicable environmental laws and regulations. The policy includes regular environmental assessments of company activities, establishment of remedial and contingency plans to deals with any incidents, and regular reporting to the Board through the Environmental Committee of the Board on the environmental status of the Company and its subsidiaries. MDS believes its approach to environmental compliance meets the regulated requirements and it is not expected that this policy will have a significant impact on capital expenditures.

3.8 - Other Risk Factors

3.8.1 - Insurance

The Company maintains a global insurance policy covering all of its operating units. The programme provides adequate coverage for normal operating risks and includes liability coverage to $120 million.

3.8.2 - Year 2000

MDS established a comprehensive programme during 1997 to:

• Identify areas of vulnerability for the Company with respect to Year 2000 issues;
• Assess the extent to which the Company is affected by these vulnerabilities;
• Rank the areas of vulnerability and the risk based on the extent to which the areas are critical to the Company's continuing operations;
• Determine appropriate remedial actions; and,
• Establish timeframes that allow for completion and confirmation of remedial actions well in advance of January 1, 2000. (Collectively, "the Project"), and
• Ensure full commitment of the MDS Board of Directors and the management groups from all divisions to completion of the Project.

Following is a summary of the scope of activities undertaken to date, the current status of the Project, the expected timing for testing and implementation, and the current and estimated costs to be incurred with respect to the Project.

The Project is supported at both the divisional and corporate levels. Each division President is directly responsible and accountable for Year 2000 compliance within the division. Divisional champions and project managers responsible for Year 2000 compliance have been appointed who report to senior divisional management and ensure adequate resources are allocated, appropriate priorities are established, key risk areas are identified and acted upon, and all risks and opportunities are managed effectively.

A corporate management office for the Project ("MO") has been established to coordinate and support divisional efforts and to otherwise direct the corporate actions. The role of the MO is to facilitate detailed planning, risk assessment, prioritization and costing. Through its coordination activities, the MO leverages common efforts to avoid duplication and ensures that Project status reports are prepared by divisional teams on a timely basis. The MO consolidates divisional reports and prepares summary reports on a regular basis for Executive management and the Board of Directors. Reports prepared by divisional representatives and the MO highlight over-all status and progress, provide detailed activity reports by division and by major system, identify key risks in the Project, and maintain an updated time schedule for implementation of remedial actions. The Company has developed an intranet site specifically for the Project which serves to catalogue best practices, methodologies and processes. The site also facilitates communication amongst division representatives and with the MO.

The Project is not limited to internal MDS systems and technology, but encompasses business partners, suppliers, and customers for which a Year 2000-related failure could have direct or indirect implications to MDS. For areas of risk not under the direct control of MDS, area specialists within the Company (e.g.: purchasing managers, sales and marketing staff) are identifying areas of external risk, communicating with external parties to determine the status of their plans, and recommending actions by MDS to limit exposure to an external Year 2000-related failure. External risks are also addressed in divisional and corporate reporting. Communication with key customers, suppliers, and business partners commenced during 1997 and will continue during 1998.

Identification of the key areas of concern where MDS is a vendor or user of technology occurred in 1997. Development of remedial action plans has begun and some action steps have been taken. The projected completion date for remedial action for a majority of the risk areas is the fourth quarter of 1998. All other remedial activities, including testing of all critical systems, are targeted for completion early in fiscal 1999.

The Company estimates Year 2000 compliance expenditures of $6.5 million divided approximately evenly between operating and capital costs. A substantial part of the operational initiatives is expected to be undertaken by existing personnel of information technology departments within the Company. It is not expected that a significant portion of such operating costs will be incremental in nature. No incremental expenditures were incurred in 1997 related to Year 2000 compliance. The majority of Year 2000 compliance costs is expected to be incurred during 1998. These costs are not expected to have a material impact on earnings for the year.

3.8.3 - Other

Under the terms of its operating agreement with AECL, Nordion is fully indemnified by AECL for nuclear risk governed by the Nuclear Liability Act relating to the operation of the NRU reactor. This indemnification will be extended to the reactors currently under construction when they become operational.

4 - SELECTED CONSOLIDATED FINANCIAL INFORMATION

4.1 - Summary Annual Information (Year to October 31)

($ 000's except per share amounts)	1997	1996	1995	1994	1993
Consolidated Statements of Income
Net revenues (1)	$929,977	$818,863	$689,231	$652,536	$662,761
Operating income	108,341	91,633	71,935	62,242	56,703
Net income before unusual items	64,947	51,098	35,203	29,128	23,728
Net income	64,947	51,098	35,203	33,458	1,352
Earnings per share before unusual items	$1.15	$0.93	$0.67	$0.56	$0.46
Earnings per share (2,3)	$1.15	$0.93	$0.67	$0.64	$0.03
Consolidated Statements of Financial Position
Capital employed (4)	$659,901	$585,315	$511,560	$469,740	$454,909
Total assets	915,147	865,935	729,884	724,415	724,939
Long term debt	145,697	182,869	139,120	161,642	182,819
Total shareholders' equity	494,494	437,981	356,093	325,547	290,056
Weighted average shares outstanding	56,428	54,735	52,155	52,308	51,862
Long term debt/shareholders' equity	29%	42%	39%	50%	63%
Current ratio	1.20	1.40	1.25	1.50	1.60
Consolidated Statements of Cash Flows
Cash flow from operations	$117,432	$83,042	$74,132	$70,923	$60,543
Capital assets purchased	55,002	33,521	30,405	16,020	20,294
Acquisitions	5,591	69,775	33,375	4,912	7,632
Net repayment (issues) of long-term debt	38,352	(32,366)	40,080	35,094	15,922

Notes

1. Figures for fiscal periods 1993 and 1994 have been restated to reflect the proportionate consolidation method of accounting for investments in joint ventures.
2. Class B Non-Voting shareholders are entitled to an additional 1.25¢ per share per annum by means of a non-cumulative dividend in addition to any dividends paid on the Class A Common Shares. The earnings per share are calculated without the deduction of the additional dividends.
3. Earnings per share have been restated to reflect the impact of the two-for-one share split which was effective November 15, 1996.
4. Capital employed consists of total assets (excluding cash) less non-interest bearing liabilities.

4.2 - Summary Quarterly Information ($000's except per share amounts)

Fiscal 1997	January 31	April 30	July 31	October 31
Net Revenues	$223,222	$240,653	$230,493	$235,609
Net Income	15,223	16,923	16,304	16,497
Earnings per Share	$0.27	$0.30	$0.29	$0.29
Fiscal 1996	January 31	April 30	July 31	October 31
Net Revenues	184,823	197,487	209,640	226,913
Net Income	11,490	11,427	13,845	14,336
Earnings per Share	$0.22	$0.21	$0.25	$0.25

4.3 - Dividends

The Company has paid dividends on its Class A Common and Class B Non-Voting Shares during the last five years as set out in the following table:

Fiscal Year	Dividends per Class A Common Share	Dividends per Class B Non-Voting Share
1993	6.00¢	7.25¢
1994	6.75¢	8.00¢
1995	7.50¢	8.75¢
1996	8.75¢	10.00¢
1997	10.00¢	11.25¢

There are no restrictions preventing the payment of dividends. The Corporation has two classes of shares outstanding, Class A Common and Class B Non-Voting shares, both of which participate equally in dividends after the declaration of a 0.625¢ per share non-cumulative dividend on the Class B Non-Voting Shares in each fiscal half-year of the Corporation. Historically the dividends have been declared payable in April and October.

5 - MANAGEMENT'S DISCUSSION AND ANALYSIS

Please refer to the disclosure contained on pages 24 through 32 of the Annual Report under the heading "Management Discussion and Analysis" which is incorporated by reference into this AIF.

6 - MARKET FOR SECURITIES

The outstanding Class A Common and Class B Non-Voting Shares of the Company are listed for trading on The Toronto Stock Exchange (symbols MHG.A and MHG.B respectively).

7 - DIRECTORS AND SENIOR CORPORATE OFFICERS

Each director is elected to serve until the next annual meeting of the Company or until his or her successor is elected or appointed. The name, municipality of residence, position with the Company and principal occupation of the directors and officers of the Company are as follows and the year each director first became a director is in brackets after the word "Director":

Directors
Name & Address	Position Held	Principal Occupation
Ruth M. Corbin, Toronto, Ontario (C,E)	Director (1995)	President, Decision Resources Inc.
Wendy K. Dobson, Ashburn, Ontario (C,A)	Director (1995)	Professor and Director, Centre for International Business Faculty of Management, University of Toronto
Dr. John R. Evans Toronto Ontario (C,H,M)	Director (1989)	Chairman, Torstar Corporation
Robert W. Luba Toronto, Ontario (A,C)	Director (1996)	President, Luba Financial Inc.
Wilfred G. Lewitt Mississauga, Ontario (H)	Director (1970)	Chairman of the Board Chairman, MDS Inc.
John A. Rogers Toronto, Ontario	Director (1993)	President President & Chief Executive Officer, MDS Inc.
R. Michael Warren Toronto, Ontario (A,C,H)	Director (1976)	Chairman, The Warren Group Inc.
Roger Wilson, Q.C. Toronto, Ontario (C,E,H)	Director (1974)	Partner, Fasken Campbell Godfrey
Ronald H. Yamada Toronto, Ontario (E)	Director (1969) Senior Vice-President	Senior Vice-President, Information Strategies and Corporate Affairs, MDS Inc.

Other Corporate Officers
Name & Address	Principal Occupation
Peter E. Brent Toronto, Ontario	Vice-President, Legal Affairs and Corporate Secretary
Douglas M. Phillips Mississauga, Ontario	Senior Vice-President, Finance and Chief Financial Officer
Edward K. Rygiel Don Mills, Ontario	Senior Vice-President, Corporate Development
Anthony Businskas Oakville, Ontario	Vice-President, Corporate Finance
John D. Gleason Oakville, Ontario	Vice-President, Corporate Strategic Initiatives
James M. Reid Oakville, Ontario	Vice-President, Organization Dynamics

NOTES:

1. Audit Committee
2. Corporate Governance and Nominating Committee
3. Environmental Committee
4. Human Resources and Compensation Committee
5. Medical Advisory Committee

All of the directors and officers have been engaged for more than five years in their present principal occupations or in other capacities with the companies or organizations with which they currently hold positions, with the exception of:

1. Ruth M. Corbin who was appointed Director of the Company on March 27, 1995, is President of Decision Resources Inc. 1994 to present and from 1992 to 1994 held the position of Chief Operating Officer, Angus Reid Group.
2. Wendy K. Dobson who was appointed Director of the Company on September 13, 1995, is Professor and Director of the University of Toronto, Faculty of Management, 1990 to present.
3. Robert W. Luba, who was appointed Director of the Company on March 19, 1996, is President of Luba Financial Inc. and has held this position since 1994. He was President and Chief Executive Officer of Royal Bank Investment Management Inc. from 1991 to 1993.

As at October 31, 1997 the percentage of Class A Common Shares and Class B Non-Voting Shares beneficially owned, directly or indirectly, by all directors and senior officers of the Company as a group, was approximately 5.6% and 0.8% respectively.

8 - ADDITIONAL INFORMATION

Additional information, including directors' and officers' remuneration and indebtedness, principal holders of the issuer's securities, options to purchase securities and a description of the Company's share capital, is contained in the 1997 Information Circular dated January 30, 1998. A copy of the 1997 Information Circular may be obtained upon request from the Secretary of the Company.

Additional financial information is also provided in the Financial Statements set forth in the Company's 1997 Annual Report which is incorporated by reference to this AIF. A copy of the Annual Report may be obtained upon request from the Secretary of the Company.

When the securities of the Company are in the course of a distribution pursuant to a short form prospectus or a preliminary short form prospectus, the following documents may be obtained upon request from the Secretary of the Company:

1. the Company's AIF, together with any documents incorporated by reference in the AIF,
2. the comparative financial statements for its most recently completed financial year together with the accompanying report of the auditor and any interim financial statements of the Company,
3. the Company's information circular for its meeting of shareholders in respect of its most recent annual meeting