<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION                                                                           Exhibit 13
MCI Communications Corporation and Subsidiaries

Year ended December 31,                               1997             1996              1995             1994         1993

---------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts and employees)
<S>                                                 <C>             <C>               <C>               <C>         <C>    

CONSOLIDATED INCOME STATEMENT DATA
Revenue                                            $19,653          $18,494           $15,265          $13,338     $ 11,921
Total operating expenses                            18,978           16,181            14,147           11,882       10,653
Income from operations                                 675            2,313             1,118            1,456        1,268
Equity in income (losses) of affiliated companies     (144)            (156)             (187)              (4)          (2)
Income before extraordinary item                       149            1,202               548              795          627
Net income                                             149            1,202               548              795          582
Earnings applicable to common stockholders             149            1,202               548              794          581
Basic earnings per common share, before 
extraordinary item                                     .22             1.75               .81             1.33         1.20
Basic earnings per common share                        .22             1.75               .81             1.33         1.11
Diluted earnings per common share, before
  extraordinary item                                   .21             1.73               .80             1.32         1.12
Diluted earnings per common share                      .21             1.73               .80             1.32         1.04
Cash dividends per share                               .05              .05               .05              .05          .05


CONSOLIDATED BALANCE SHEET DATA
Gross investment in property and equipment         $21,724           $18,709          $15,547          $13,408     $ 11,618
Total assets                                        25,510           22,978            19,301           16,366       11,276
Long-term debt                                       3,276            4,798             3,444            2,997        2,366
Subsidiary Trust mandatorily redeemable 
preferred securities                                   750              750                -                 -            -
Stockholders' equity                                11,311           10,661             9,602            9,004        4,713


CONSOLIDATED CASH FLOW DATA
Cash from operating activities                      $3,488          $ 3,144          $  2,979          $ 2,355      $ 1,978
Capital expenditures for property and equipment      3,828            3,347             2,866            2,897        1,733
Acquisition of businesses and investment
   in affiliates, DBS and News Corp.                   291            1,549             2,737              284            8
Cash from (used for) financing activities              480            1,354               355            3,826         (286)

OPERATIONS DATA
Capacity circuit miles                              11,401            9,157             6,786            4,767        3,556
Number of full-time employees                       60,409           55,285            50,367           40,667       36,235
</TABLE>

In 1997, the company  adopted  Statement of Financial  Accounting  Standards No.
128,   "Earnings  Per  Share"  (SFAS  No.  128).  This  statement  modifies  the
computation of earnings per share (EPS) by replacing the  computation of primary
EPS with  basic  EPS,  which  excludes  the  dilutive  effect  of  common  stock
equivalents. Additionally, the statement replaces fully diluted EPS with diluted
EPS. The calculation of common stock equivalents using the treasury stock method
is modified  under  diluted EPS to utilize an average price during the period as
compared  to the  Accounting  Principles  Board  Opinion  No. 15  method,  which
utilized the higher of the average or ending price.  EPS  information  for years
prior to 1997 has been restated to reflect the provisions of SFAS No. 128.

In May 1996, MCI Capital I, a  wholly-owned  Delaware  statutory  business trust
(Trust),  issued  $750  million  aggregate  principal  amount  of 8%  Cumulative
Quarterly Income Preferred Securities,  Series A (preferred securities) due June
30,  2026.  The Trust  exists  for the sole  purpose of  issuing  the  preferred
securities  and investing  the proceeds in the company's 8% Junior  Subordinated
Deferrable Interest Debentures, Series A (Subordinated Debt Securities) due June
30, 2026.

In September  and November  1995,  the company  acquired all of the  outstanding
shares of common stock of Nationwide Cellular Service,  Inc.  (Nationwide),  and
SHL Systemhouse Co. (MCI Systemhouse), respectively, (collectively, the acquired
companies). These acquisitions were accounted for as purchases; accordingly, the
net assets and results of operations  of the acquired  companies are included in
the information above since their respective acquisition dates.

In 1994,  British  Telecommunications  plc (BT)  completed  the  purchase of 136
million  shares of the company's  Class A common stock for $4.3  billion,  which
resulted in a 20% voting interest in the company.  This purchase was achieved by
the company's issuance of 108.5 million shares of Class A common stock to BT for
$3.5 billion on September  30, 1994 and BT's  conversion  on that date of 13,736
shares of the company's Series D convertible preferred stock, purchased for $830
million in June 1993,  into 27.5 million  shares of Class A common  stock.  This
investment is included in stockholders' equity.


<PAGE>




MANAGEMENT'S DISCUSSION AND ANALYSIS


OVERVIEW
The following discussion and analysis provides  information  management believes
is relevant to an assessment and understanding of MCI Communications Corporation
and subsidiaries' (collectively, the company) consolidated results of operations
and  financial  condition  for the three  years ended  December  31,  1997.  The
discussion  should  be read  in  conjunction  with  the  company's  consolidated
financial statements and accompanying notes.

The company is a leading provider of local-to-global  communications services to
business,  government and  residential  users.  The company  operates one of the
world's largest and most advanced digital networks,  connecting local markets in
the U.S.  to more  than 280  countries  and  locations  worldwide.  The  company
provides a broad  range of  communications  services,  including  long-distance,
local and wireless  telecommunications  services and information technology (IT)
services.  The  company's  "core"  business,   long-distance  telecommunications
services,   comprises  a  portfolio  of  domestic  and  international  services,
including voice, intelligent 800, data, conferencing, Internet, managed network,
and electronic  messaging services.  Through continued  investments and business
acquisitions in recent years, the company has expanded its portfolio of services
into certain  ventures and developing  markets,  including the U.S.  local,  IT,
wireless, international and multimedia markets (the VDM businesses).

Merger Agreement
On November 9, 1997,  the company  entered into an Agreement  and Plan of Merger
(the MCI WorldCom Merger Agreement) with WorldCom,  Inc.  (WorldCom),  a Georgia
corporation, and TC Investments Corp. (Merger Sub), a Delaware corporation and a
wholly-owned  subsidiary  of WorldCom,  pursuant to which the company will merge
with and into Merger Sub (the MCI WorldCom Merger or the Merger.) As a result of
the Merger,  (a) each outstanding share of the company's common stock, par value
$.10 per share,  (other than  shares  owned by WorldCom or Merger Sub or held by
the company)  will be converted  into the right to receive that number of shares
of  WorldCom  common  stock,  par value  $.01 per share,  equal to the  quotient
determined by dividing  $51.00 by the average of the high and low sale prices of
WorldCom  common stock as reported on the Nasdaq  National Market on each of the
20  consecutive  trading  days  ending with the third  trading  day  immediately
preceding the effective time of the Merger (the Exchange  Ratio),  provided that
the Exchange Ratio shall not be less than 1.2439 or greater than 1.7586; and (b)
each outstanding  share of the company's Class A common stock shall be converted
into the right to receive $51.00 in cash, without interest thereon. The combined
companies plan to operate under the MCI WorldCom name.

-------------------------------------------------------------------------------

Forward-looking Statements May Prove Inaccurate
The  company  has  made  certain  forward-looking   statements  in  Management's
Discussion   and  Analysis   that  are  subject  to  risks  and   uncertainties.
Forward-looking  statements include  information  concerning the possible future
results of operations of the company, its core business,  its investments in VDM
businesses,  the possible  future  results of  operations of the company and MCI
WorldCom  after the Merger and  statements  preceded  by,  followed  by, or that
include  the  words  believes,   expects,   anticipates,   intends,  or  similar
expressions.  For those  statements,  the company  claims the  protection of the
safe-harbor for forward-looking  statements  contained in the Private Securities
Litigation  Reform  Act of 1995.  The  reader is  cautioned  that the  following
important  factors,  among others,  in addition to those contained  elsewhere in
Management's Discussion and Analysis,  could adversely affect the future results
of the company, its long-distance telecommunications services and VDM businesses
and the company and MCI WorldCom  after the Merger and could cause those results
to differ  materially  from the  statements  and  information  expressed  in the
forward-looking statements:  material adverse changes in the economic conditions
in the markets  served by the company and MCI WorldCom;  a significant  delay in
the expected closing of the Merger;  future regulatory actions and conditions in
the company's operating areas, including the ability of the company to implement
its  local  strategy  and  obtain  local  facilities  at  competitive  rates and
resulting changes in the  implementation of its local strategy,  and the ability
to pass on additional charges imposed by the Federal  Communications  Commission
(FCC);  competition  from  others in the U.S.  and  international  long-distance
markets,  including the entry of the regional Bell operating  companies  (RBOCs)
and other  companies in the  long-distance  markets in the U.S.; and the cost of
the company's year 2000 compliance efforts.


<PAGE>


Concurrent with the MCI WorldCom Merger Agreement, the company,  WorldCom and BT
entered  into  an  agreement  (the BT  Termination  Agreement)  whereby  (i) the
Agreement  and Plan of Merger,  dated as of November 3, 1996, as last amended on
August  21,  1997  (the MCI BT Merger  Agreement),  among  the  company,  BT and
Tadworth  Corporation  was  terminated;  (ii) WorldCom agreed to pay BT a fee of
$450  million and expenses not in excess of $15 million in order to induce BT to
waive its  rights  under and agree to  terminate,  the MCI BT Merger  Agreement;
(iii) BT agreed to support and vote its shares of Class A common  stock in favor
of the  Merger;  and (iv) BT agreed to  exercise  its call option to acquire the
company's  shares in Concert  Communications  Company  (Concert CS)  immediately
following the effective time of the Merger. The company will be a distributor of
Concert CS services  on a  nonexclusive  basis to  customers  in the U.S.  for a
period of at least two years and as many as five years  following  BT's exercise
of its call option.

On March 11, 1998, the  stockholders of the company and shareholders of WorldCom
approved  the  Merger.  The Merger is also  subject to the  receipt of  required
regulatory approvals which the company expects to receive in the summer of 1998.
The Merger will be accounted for as a purchase for financial accounting purposes
in  accordance  with  generally  accepted  accounting  principles.  The  company
believes  that the MCI  WorldCom  Merger will create a fully  integrated  global
communications  company that will be well positioned to take advantage of growth
opportunities  in the global  telecommunications  market by providing a complete
range  of  local,  long-distance,   Internet  and  international  communications
services.

Telecommunications Legislation
In 1997, the  implementation  of the  Telecommunications  Act of 1996 (1996 Act)
continued to influence market  opportunities for entry into local markets and to
govern the climate for long-distance  services, with federal courts and lawsuits
playing an increasingly  important role. The 1996 Act encouraged  competition in
local markets by requiring incumbent local exchange companies (ILECs), including
the RBOCS, to interconnect  with new competitive local exchange carriers (CLECs)
and, among other things,  permit the CLECs to use unbundled  parts of the ILECs'
networks. The 1996 Act directed the Federal  Communications  Commission (FCC) to
issue rules  governing the  availability  of these  unbundled  network  elements
(UNEs) and guidelines  governing  ILEC-CLEC  interconnection  arrangements.  The
FCC's rules  prescribed the minimum  degree of unbundling  required of ILECs and
that UNEs should be priced at forward-looking  costs.  However, on petitions for
review by the ILECs and certain state public utility commissions, the U.S. Court
of Appeals for the Eighth Circuit  (Eighth  Circuit)  concluded that the FCC had
exceeded  its  authority  in  issuing  these  rules.  As a  result,  each  state
independently must determine its own applicable  interconnection  guidelines and
pricing. Many states have explicitly adopted  forward-looking cost principles on
their own,  mitigating the effects of the Eighth Circuit  decision.  The Supreme
Court has agreed to review the Eighth  Circuit  decision  during  1998,  and the
company is hopeful that the FCC's rules will be reinstated.

The 1996 Act also  barred  the  RBOCs  from  providing  in-region  long-distance
services until their local markets had been sufficiently  opened to competition.
The FCC has denied RBOC petitions to provide long-distance services in Oklahoma,
Michigan,  South  Carolina  and  Louisiana.  On March 20, 1998 the D.C.  Circuit
affirmed the FCC's rejection of SBC Communications  Inc.'s  long-distance bid in
Oklahoma. On December 31, 1997, a federal district court in Wichita Falls, Texas
declared  unconstitutional  the 1996 Act's provisions  barring RBOC provision of
in-region  long-distance  services.  The company and others  have  appealed  the
decision  and the judge has stayed the  decision  pending its appeal to the U.S.
Court of Appeals for the Fifth Circuit.

During 1997,  the company made progress in opening local markets to  competition
by obtaining regulatory approval as a CLEC in 18 additional states, bringing the
total to 42 states.  Applications  are pending in 7 other  states as of December
31,  1997.  The company  also made  progress  in  convincing  regulators  of the
inadequate  steps  being taken by the ILECs to open local  markets.  The FCC and
several state  regulators have  determined that the operational  support systems
necessary to sell local services  provisioned  from the ILEC networks  currently
are insufficient to enable the company to compete  effectively with the ILEC for
customers when using such ILEC facilities.

In May 1997, the FCC also adopted several orders that implemented  access charge
reform  and  adjusted  the price cap rules  that  regulate  the  largest  ILECs'
interstate access charges. The FCC's Access Reform Order restructured interstate
access  charges to shift more costs  directly  to end users.  The Access  Reform
Order  also  reduced  per-minute  charges  long-distance  carriers  will pay and
created new flat-rate  charges to long-distance  carriers based on the number of
pre-subscribed  customers  the  carrier has and  subscriber  lines held by these
customers.  As a result of FCC actions in 1997, the  long-distance  industry saw
annualized interstate access reductions of $1.7 billion. State intrastate access
charges were reduced by more than $100 million in 1997.

While  per-minute  access rates were dropping,  per-line charges were increasing
and new universal service support  obligations for  telecommunications  services
for schools and libraries and rural health care facilities  were created.  Costs
of providing telecommunications service in 1998 are expected to increase despite
rate  reductions  that went into  effect on  January 1, 1998.  The  company  has
announced that it will continue to review costs and rates,  and will recalibrate
rates as necessary to ensure it is collecting the amounts  necessary to pay ILEC
per-minute  and per-line  access charges and the universal  service  obligations
imposed directly on the company.

Certain provisions of the access reform, price cap, and universal service orders
are now under review by various U.S. Courts of Appeals. In addition, the company
has renewed its requests that the FCC itself  revisit  access reform and mandate
that access charges decrease to cost.

Internationally,  the company  will also  benefit  from the signing of the World
Trade  Organization  Telecom  Agreement by the United States and 71 other member
countries  that opens to  competition  markets  controlled by  monopolies.  This
agreement  should provide  additional  opportunities  for the company to provide
services in the rapidly expanding global market.

Recently Issued Accounting Pronouncements
In 1997, the Financial  Accounting  Standards Board issued three statements that
will be effective for the company's  year ending  December 31, 1998. The company
is  currently  evaluating  the effects of  Statements  of  Financial  Accounting
Standards  (SFAS) No.  130,  "Reporting  Comprehensive  Income",  SFAS No.  131,
"Disclosure about Segments of an Enterprise and Related  Information",  and SFAS
No.132,   "Employers'   Disclosures  about  Pensions  and  Other  Postretirement
Benefits", however management believes the adoption of these statements will not
have a material  impact on the financial  statements  taken as a whole. In March
1998, the American Institute of Certified Public Accountants issued Statement of
Position No. 98-1  "Accounting for the Costs of Computer  Software  Developed or
Obtained for Internal Use", that will be effective for the company's year ending
December 31, 1999.  Management is currently analyzing the impact of the adoption
of the statement, which may be material to the financial statements.

CONSOLIDATED RESULTS OF OPERATIONS

The following discusses the company's consolidated results of operations for the
three  years ended  December  31,  1997.  Prior to 1996 and the  acquisition  of
Nationwide and MCI  Systemhouse  in September and November  1995,  respectively,
substantially  all of the company's  revenue was derived from its core business.
Refer  to  the  Enterprise  Reporting  section  for  further  discussion  of the
company's core and VDM businesses.

Revenue
In 1997, revenue increased by $1.2 billion,  or 6%, from 1996 compared to a $3.2
billion,  or 21%  increase in 1996  revenue over 1995.  In 1997,  core  business
revenue increased $835 million, or 5%, while VDM revenue, excluding intercompany
sales,  increased $324 million, or 19%. In 1996, core business revenue increased
$1.8 billion or 12% and VDM revenue,  excluding  intercompany  sales,  increased
$1.4  billion.  Core  business  growth  slowed in 1997 as a result of the access
price reduction flow through,  competitive pricing dynamics in certain areas and
strategic  decisions by management.  In 1997,  management  took several steps to
improve long-term  profitability  and growth including  eliminating  acquisition
promotions  in  the  residential  market,  focusing  on  high-value  residential
customers and de-emphasizing  growth in the wholesale carrier sales channel.  In
1997, the VDM revenue increase was driven by increases in IT and local services,
while the 1996  year-over-year  revenue  increase  reflects the full year impact
from acquired  companies  which  accounted for 44% of the  consolidated  revenue
growth during that period.

Cost of Services
Cost of  services  consist  of  telecommunications  expense  and  costs of other
products   and   services    primarily    associated    with   VDM   businesses.
Telecommunications expense is primarily comprised of access facilities fees paid
to local exchange  carriers and other domestic service  providers,  and payments
made to foreign  telephone  companies  (international  settlements)  to complete
calls made to foreign countries from the U.S. by the company's customers. In the
VDM  businesses,   costs  of  other  products  and  services  primarily  include
equipment,  software, and IT services costs. In 1997, cost of services increased
by $1,467 million,  or 15.5%, to $10,956 million  compared to $9,489 million and
$7,893 million in 1996 and 1995, respectively.  Cost of services as a percentage
of revenue  was 55.7% in 1997,  51.3% in 1996 and 51.7% in 1995.  The  increased
expense  and  related  percentage  of revenue  in 1997  reflects  $361  million,
representing  1.8% of revenue,  of costs to exit,  restructure or settle several
business  contracts as the company  de-emphasized its wholesale carrier business
and ceased certain product and service offerings. The remaining increase in cost
of services and the related  percentage  of revenue  increase was  primarily the
result of consolidated revenue growth and increases in direct operating expenses
in the  company's  local  and IT  businesses.  Telecommunications  expense  as a
percentage  of core  business  revenue was 50.2% in 1997 as compared to 49.9% in
1996 and 51.9% in 1995.  The  increase  from 1996 to 1997 was due to the revenue
mix and the impact of newly  required  compensation  to payphone  owners for 800
calls, partially offset by the reduction in international settlement expense and
more efficient  network  usage.  In 1996,  cost of services  increased by $1,596
million,  or 20%, from 1995,  which was  consistent,  as a percentage,  with the
increase in  consolidated  revenue and full year  consolidation  of the acquired
companies.

Sales, Operations and General
Sales,  operations and general  expenses  increased in 1997 by $912 million,  or
18.1%,  to $5,940  million as compared to $5,028  million and $4,426  million in
1996 and  1995,  respectively.  Sales,  operations  and  general  expenses  as a
percentage of revenue were 30.2% in 1997,  27.2% in 1996,and  29.0% in 1995. The
higher  expenses  and  related  percentage  of  revenue  in 1997 and  1995  were
primarily the result of business  growth and certain actions taken in the second
half of 1997 as  discussed  below.  During the second half of 1997,  the company
initiated and completed a  comprehensive  review of certain  product and service
offerings, and selected operations. In conjunction with this review, the company
decided to consolidate  certain  operating centers and streamline or discontinue
certain  non-core or  under-performing  IT operations,  and  reorganize  certain
operations and to eliminate  certain  product and service  offerings  within its
core business. The company recorded $282 million,  representing 1.4% of revenue,
of costs  for  these  actions  which  included  approximately  $103  million  of
severance in connection with workforce alignments associated with reorganization
efforts and $93 million of  obligations  and  penalties  associated  with lease,
vendor and customer contracts.  The remainder  represents other costs associated
with the  company's  business  reorganization  and  certain  legal  costs.  Cash
expenditures  related to these  obligations  were and will continue to be funded
through cash from operations.  Once these initiatives are completed, the company
expects annual operating expense savings of approximately $150 million in sales,
operations and general  expense,  partially offset by increased costs associated
with planned business growth.

During the fourth quarter of 1997, the company also incurred  approximately $220
million,  representing  1.1%  of  revenue,  of  costs  for  employee  pre-merger
retention bonuses and increased  customer  retention  activities.  In connection
with the  execution  of the BT Merger  Agreement  and as modified  under the MCI
WorldCom Merger  Agreement,  pre-merger  retention bonus pools (retention pools)
totaling $270 million were established to retain key executives and employees of
the  company.  The company  recorded  compensation  costs in 1997 of $93 million
related to these  retention  pools of which $82 million was paid by December 31,
1997. The remaining accrued  compensation costs of $11 million and other amounts
payable from these  retention  pools are  scheduled to be paid in 1998 and 1999.
However,  all unpaid  amounts  under these  retention  pools will be paid on the
closing date of the MCI WorldCom Merger or any other  transaction  involving the
sale or other disposition of a majority of the company's capital stock or assets
if occurring  earlier  than the  scheduled  payment  dates.  Customer  retention
activities   included   additional   advertising  and  marketing   expenses  for
residential product offerings meant, in part, to reinforce the company brand and
service  offerings to consumers.  These  initiatives  included  advertising  and
marketing  related to a national  product  rollout  as well as  increased  brand
advertising  for  consumer  offerings.  The  company  does not expect to incur a
similar level of expense in 1998 related to these activities.

The remaining increase in sales, operations and general expenses in 1997 was due
to  business  growth in local  and IT  services  and the  related  increases  in
marketing,  selling,  and personnel  costs.  The percentage  reduction in sales,
operations and general expenses in 1996 was primarily the result of cost savings
associated with the 1995 restructuring  efforts, and more efficient  utilization
of personnel costs. In 1995,  sales,  operations and general  expenses  included
$216  million  of costs  related  to the  consolidation  of the  company's  core
business operations and the centralization of major administrative functions.

Depreciation including Asset Write-downs
Depreciation  expense  increased  by $418  million,  or 25%,  to $2,082  million
compared to $1,664  million and $1,308  million in 1996 and 1995,  respectively.
The  increase  primarily  relates  to  capital  expenditures  for  property  and
equipment principally for the core and local services communications networks to
increase network  capacity,  redundancy and reliability and add product features
and  functionality  which were $3.8 billion and $3.3 billion for the years ended
December 31, 1997, and 1996 respectively.  In 1998, the company expects to incur
$3.3 billion in capital expenditures,  an anticipated year-over-year decline due
to lower  long-distance  network  requirements.  The 1997 expense  increase also
reflects $60 million related to the write-down of certain assets included in the
company's  fourth quarter 1997 asset  disposition  plan described  below and the
depreciation impact of asset additions.  In 1996, depreciation expense increased
by $356 million,  or 27%, primarily as a result of the network additions in 1996
and 1995.  During the third quarter of 1995, the company recorded a $520 million
charge for an asset  write-down  primarily  related to the  consolidation of the
company's core business, the centralization of major administrative functions or
assets no longer aligned with strategic product offerings.

In connection  with an asset  disposition  plan adopted in the fourth quarter of
1997, the company will dispose of certain equipment  primarily in the first half
of 1998.  The net book value of the assets to be  disposed  of  aggregated  $265
million with no significant proceeds expected. The productive assets included in
the  disposition  plan were  identified  in  response  to  changes  in  specific
customer,  product  and  technology  strategies.  The  major  part of this  plan
included  the early  replacement  of central  processing  units and data storage
devices.  The company reassessed and consequently revised its strategies related
to data  processing and storage in order to maximize  facility space in its data
centers which is critical to support  growth in products  that require  customer
collocation  in such  centers.  The company  will replace  this  equipment  with
devices that offer  greater  processing  and storage  capabilities  with reduced
operating and maintenance  costs and less floor space.  Depreciation  expense in
1997 includes $60 million representing the net book value of the assets included
in the  disposition  plan which had been  removed  from  service by December 31,
1997.  The company  will  continue to use the  remaining  assets  until they are
removed from service and accelerate the recognition of  depreciation  expense on
these assets over their shortened  remaining service period. The company expects
that  substantially  all of the  remaining  assets  will be  decommissioned  and
disposed of by June 30, 1998.  This change will result in  estimated  additional
depreciation  expense of up to  approximately  $190 million in the first half of
1998. The company had been  depreciating  this  equipment  over estimated  lives
averaging six years.  This would compare with an average life of four years, had
the assets been  depreciated  over the revised service period as contemplated in
the fourth quarter 1997 disposition plan.  Moreover,  had the company originally
depreciated these assets ratably over such revised service period,  depreciation
expense,  exclusive  of the $60  million  referred  to  above,  would  have been
approximately $59 million,  $55 million and $43 million higher in 1997, 1996 and
1995, respectively.

Interest
Interest  expense in 1997 rose $39  million  from 1996 due to an increase in the
average amount of debt  outstanding as a result of commercial paper issuances in
1997 and capital  lease  commitments  made in 1997.  In 1996,  interest  expense
increased $47 million from 1995 also due to an increase in the average amount of
outstanding  debt as a result of commercial  paper and debt securities  issuance
during 1995.

Interest income decreased $16 million from 1996 due to lower cash and marketable
securities  balances held throughout  1997. In 1996,  interest income  decreased
$113 million from 1995 due to lower marketable securities balances that resulted
from the continued use of cash to fund capital network expenditures, investments
in the VDM  businesses  and the Direct  Broadcast  Satellite  (DBS)  license and
construction costs.

Equity in Income (Losses) of Affiliated Companies
Equity in income  (losses) of affiliated  companies  decreased by $12 million to
$(144)  million  in  1997.  The  company's  share  of  operating  losses  of ICS
Communications,  Inc. (ICS), Concert CS, and its former on-line project with the
News  Corporation  Limited (News Corp.)  declined in 1997.  These  declines were
offset by the  company's  share of increased  operating  losses of Avantel which
included  $16  million  related  to the  company's  share  of  operating  losses
recognized  in  connection  with  an  Avantel  restructuring  and  equal  access
implementation.  In 1996, equity in losses of affiliated  companies decreased by
$31 million as compared to 1995.  This  decrease is the result of the absence in
1996 of any charges  similar to the $95 million charge  incurred in 1995 related
to investee restructuring plans and the 1995 write-down of the carrying value of
several equity investees, offset by increased losses in certain of the company's
investments  and start-up  ventures  including  Avantel,  ICS, and the company's
on-line project with News Corp.

Other
Other  expense,  net,  increased  by $10  million in 1997 and  decreased  by $27
million in 1996.  The 1996  decrease is  primarily  due to $54 million full year
dividend income from the company's preferred stock investment in News Corp.
compared to a partial year in 1995.

Distributions on Subsidiary Trust Mandatorily Redeemable Preferred Securities
Distributions on subsidiary Trust mandatorily  redeemable preferred  securities,
issued in May 1996,  totaled  $60  million  and $35  million for the years ended
December 31, 1997, and 1996, respectively.

ENTERPRISE REPORTING

This section  discusses the results of operations of the company's  core and VDM
businesses. The Enterprise Reporting financial data table and ensuing discussion
on pages 8 to 10 are intended to supplement management's discussion and analysis
of the consolidated results of operations.  The unaudited data appearing in this
table was  prepared  using all amounts  included in the  consolidated  financial
statements  and reflects  estimates and  allocations  that  management  believes
provide a reasonable basis on which to present such information. The revenue and
net income (loss) amounts include sales of services  between the core businesses
and VDM businesses based primarily upon prevailing market rates.  Administrative
expenses are  allocated to the  respective  enterprises  on a fully  distributed
basis  reflective  of  actual   utilization.   Net  interest  expense  is  fully
distributed based upon proportionate debt levels reflecting the cash flow of the
respective  enterprise.  The  consolidated  income tax provision and related tax
payments  are  allocated  to each  enterprise  based  on their  respective  tax
attributes.


<PAGE>
<TABLE>
<CAPTION>


SUPPLEMENTAL ENTERPRISE REPORTING DATA

                                                     CORE RESULTS                        VDM RESULTS
Year ended December 31,                               1997     1996                 1997       1996
---------------------------------------------------------------------------------------------------------------------------
(In millions)
<S>                                                <C>      <C>                   <C>        <C>    
Revenue                                            $17,619  $16,784               $2,508     $1,953
Income (loss) from operations                        1,535    2,453                 (814)      (126)
Equity in income (losses) of affiliated companies        -        -                 (144)      (156)
Net income (loss)                                      945    1,514                 (766)      (298)
Depreciation including asset write-downs             1,860    1,536                  222        128
Net interest, income taxes and other expense          (590)    (939)                 192        (16)
EBITDA*                                              3,395    3,989                 (592)         2
</TABLE>

* EBITDA,  as defined by  management,  includes  earnings,  excluding  equity in
income (losses) of affiliates, other income (expense), net, and subsidiary Trust
mandatorily  redeemable  preferred  securities  before  interest,  income taxes,
depreciation  including asset write-downs and amortization.  EBITDA represents a
measure of the  company's  ability to generate cash flows and does not represent
net income or cash flows from operating,  investing and financing  activities as
defined by generally accepted  accounting  principles  (GAAP).  EBITDA should be
considered in addition to, but not as a substitute for, or superior to, measures
of financial  performance reported in accordance with GAAP. EBITDA is often used
by analysts when evaluating the performance of a company.  Readers are cautioned
that the company's  definition of EBITDA may not be comparable to similar titled
measures used by other companies or analysts.

CORE BUSINESS
In 1997,  revenue increased 5%, to $17.6 billion,  on traffic growth of 6%, from
1996. In 1996, revenue and traffic increased 12% and 13%, respectively. The 1997
revenue  growth  reflects a reduction  of $67 million  primarily  related to the
impact of an increase in uncollectible  provisions  required by bankruptcies and
delinquencies  of business  customer  accounts.  In addition  and as  previously
mentioned,  revenue and traffic  growth slowed in 1997 due to several  strategic
decisions  addressing  long-term  financial  performance of the business and the
continued industry-wide  competitive pricing pressures.  The revenue and traffic
trends and  related  variance in 1997 and 1996  reflects  changes in product and
business sales channel mix, the impact of eliminating  acquisition promotions in
the residential market, focus on high-value residential customers,  and enhanced
and value added services.

Revenue in the business market  continued to increase in 1997 driven by sales to
commercial  customers,  while  revenue and traffic  growth on sales to wholesale
carrier  customers  slowed  as the  company  took  actions  to  restructure  and
de-emphasize  this  sales  channel to improve  profitability.  In 1997,  revenue
growth in the business  market  continued in  strategic  services  such as data,
Internet,  and conferencing as well as traditional  voice services.  In the mass
market,  the company  continued to focus on  transitioning  its customer base to
high-value  customers  by  offering  integrated   communications  services  with
products such as MCI One(R). While revenue decreased in the mass market in 1997,
customer churn continued to decline and revenue and traffic trends improved with
the  launch of 5-Cent  SundaysSM  and  growth in  transactional  brands  such as
10-321(R)  and  1-800-COLLECT(R).  In  1996,  revenue  in  the  business  market
increased   across  all  sales  channels  driven  by  growth  in  strategic  and
traditional  products,  while  growth  in the  mass  market  was  slowed  due to
competitive pressures.

VENTURES AND DEVELOPING MARKETS BUSINESSES

Investments  in the VDM businesses  are included in the  accompanying  financial
statements as consolidated  subsidiaries,  unconsolidated  equity investments or
cost method investments such as News Corp. The company's result of operations in
these businesses is provided below.

Local Services
The company  provides  switched  local service to both business and  residential
customers  and  provides  dedicated  access and dark fiber  services to business
customers  using  its owned  network  facilities  and  facilities  or  wholesale
services provided by other companies. In addition to these services, the company
provides  infrastructure  support to the company's core  long-distance  network.
Company-owned  facilities-based  local  service  continues  to  be  a  strategic
priority  of the  company  because  it is a  critical  factor in its  ability to
deliver  end-to-end  communications  service  from local  markets in the U.S. to
domestic and  worldwide  locations.  At December 31, 1997,  the company had been
granted authority to offer local exchange service in 42 states, had applications
for authority pending in 7 other states,  and has an investment in a provider of
local  service in Alaska.  Since  December 31, 1996,  the number of  operational
local city networks  increased to 80 in 39 cities from 62 networks in 35 cities,
and route  miles  increased  by 24%, to 3,654 miles at  December  31,  1997.  At
December 31, 1997, the company provided facilities-based, switched local service
in 31 markets and intends to have  service  operational  in at least 100 markets
after the  completion of the MCI WorldCom  Merger.  Local service  expansion and
traffic  growth  continued  to be  hampered  by  changes  in  Federal  and state
regulations governing the opening of local markets. In January 1998, the company
ceased efforts to resell local services to new residential consumers due to high
costs associated with the service offering.

In 1997,  local service revenue  increased $165 million,  to $343 million,  from
$178  million in 1996 on sales of  switched,  competitive  access  services  and
fiber-optic  capacity. A majority of this growth resulted from services provided
to the company's  business  customers,  with a smaller  portion  resulting  from
services provided to residential  customers and the core long-distance  network.
The loss from  operations  was $(559)  million  and $(97)  million for the years
ended  December  31,  1997,  and 1996,  respectively,  while net loss was $(375)
million and $(70) million,  respectively,  for the same periods.  EBITDA for the
years ended  December 31, 1997,  and 1996 was $(485)  million and $(62) million,
respectively.  In 1997,  local services'  start-up  nature and  facilities-based
expansion into 13 new markets  contributed  to the increases in operating  costs
and net loss and the decrease in EBITDA.

Information Technology Services
IT services include the results of MCI Systemhouse and call center services. MCI
Systemhouse  services  include  equipment  deployment,  consulting  and  systems
integration,  and outsourcing.  IT services revenue increased by $426 million to
$1,827  million,  or 30%,  in 1997  from  $1,401 in 1996.  Revenue  grew in each
service line in 1997 compared to 1996.  Revenue from  equipment  deployment  and
educational  services  increased  15%, to $788 million;  consulting  and systems
integration revenue increased 51%, to $603 million; outsourcing services revenue
grew by 45%, to $324 million, and call center services revenue increased 20%, to
$112  million.  This  growth  reflects  the  emerging  industry-wide  demand for
information technology and call center outsourcing and automation services. Cost
of services and sales,  operations and general expenses increased by 48% in 1997
as a result of the business  growth and the related  increase in  equipment  and
personnel requirements to address new contract and customer requirements as well
as strategic  decisions  made by  management.  As previously  described,  in the
second half of 1997 MCI  Systemhouse  initiated  efforts to consolidate  certain
operating   centers  and  streamline   certain  non-core  and  under  performing
operations to enhance efficiencies within its expanding organization.  Including
the impact of costs  associated  with these 1997  actions,  IT  services  income
(loss) from  operations  was $(195)  million and $42  million,  and net loss was
$(212)  million and $(59)  million for the years ended  December 31,  1997,  and
1996,  respectively.  EBITDA was $(83)  million  and $114  million  for the same
periods.

Backlog, which includes amounts committed under executed contracts or letters of
intent at December 31, 1997 and 1996, was approximately $2 billion, the majority
of which is from MCI Systemhouse's  largest customers.  The company expects that
approximately 24% of the backlog will be delivered in the next 12 months.  Since
revenue  depends on actual usage under  service  contracts and may be subject to
termination  under  certain  circumstances,  actual  revenue  for  a  particular
contract may be higher or lower than the reported backlog for such contract.

Wireless
Wireless includes the results of operations of the company's cellular and paging
services. In 1997, the company focused on providing wireless services as part of
a total  communications  services package rather than as stand-alone  offerings.
Wireless  revenue  decreased  by $33 million,  to $314  million,  in 1997.  This
decrease  is the  result  of a  reduction  in paging  subscribers  of 43% to 176
thousand.  This decline was offset by a 3% increase in cellular  subscribers  at
December 31, 1997.

International Services
During  1997,  the  company  invested  $61  million in Concert CS, a 24.9% owned
international  services  venture with BT that  provides a complete  portfolio of
advanced global communications services, including virtual network, frame relay,
managed  bandwidth  and packet  services,  available to  multinational  business
customers worldwide.  For the years ended December 31, 1997 and 1996, Concert CS
distributor  revenue  amounted to  approximately  $750 million and $570 million,
respectively.  The company's  share of Concert CS losses  reported in accordance
with U.S. GAAP was $(21) million and $(31) million for the years ended  December
31, 1997,  and 1996,  respectively.  Through  December 31, 1997, the company had
invested approximately $231 million in Concert CS since its launch in July 1994.

Pursuant to the BT  Termination  Agreement,  BT has agreed to exercise  its call
option to acquire the companys  shares in Concert CS immediately  following the
effective  time of the MCI  WorldCom  Merger.  Upon  purchase  of the  companys
interest  in  Concert  CS by BT,  the  company  will no longer  be an  exclusive
distributor of Concert CS. However, Concert CS will continue to provide services
to MCI WorldCom on a  nonexclusive  basis for customers in the U.S. for a period
of at least  two  years  and as many as five  years.  MCI  WorldCom  expects  to
continue providing global service solutions either through Concert CS or its own
operations.

In April  1997,  the company  formed a strategic  alliance  with  Telefonica  de
Espana,   S.A.   (Telefonica)  to  explore   opportunities  in  Latin  America's
telecommunications  market.  In March 1998, the company and Telefonica  expanded
the scope of their alliance to include WorldCom and to pursue certain activities
in the Americas and Europe.

During 1997, the company invested an additional $54 million in Avantel,  a 44.5%
owned business venture with Grupo Financiero Banamex-Accival, bringing its total
invested cash position to $549 million. Avantel built Mexico's first all digital
fiber-optic   network  and  was  the  first   company  to  provide   alternative
long-distance service in Mexico's  telecommunications  market, competing against
Telefonos de Mexico. On January 1, 1997,  Avantel began offering a full range of
competitive,   switched  long-distance  services  to  residential  and  business
customers.  Offering  services  throughout most of Mexico,  Avantel has obtained
more than a 10% share in the  addressable  Mexico long-distance  market.  The
company's  share of  Avantel's  losses  reported in  accordance  with U.S.  GAAP
increased by $73 million, to $(103) million, in 1997 from $(30) million in 1996.
The  increased  losses  relate to the start-up  nature of their  operations  and
additional costs incurred with the  implementation of equal access in Mexico and
certain restructuring efforts. The company expects to incur additional losses on
its  investment  during  1998 as Avantel  continues  to expand its  service  and
customer bases in Mexico's telecommunications market. In connection with the
strategic  alliance  agreement,  Telefonica  agreed to invest  $250  million  in
Avantel  and to purchase  additional  equity if certain  qualified  transactions
occur. In certain circumstances, Telefonica has the right to require the company
to acquire its interest in Avantel at its cost.

Multimedia Services
The company's  investments in News Corp. and DBS comprise  Multimedia  Services.
Dividend  income on the company's  investment in News Corp.  for the years ended
December 31, 1997 and 1996 was $59 million and $54 million, respectively.

DBS is a  point-to-multipoint  broadcast  service that uses high-powered Ku band
satellites placed in geosynchronous  orbit. In December 1996, the FCC issued the
DBS license  awarded to the company in the January 1996 public  auction.  In May
1997,  the  company and News Corp.  entered  into an  agreement  to form a joint
venture (DBS Venture) in which both parties would  contribute  their  respective
DBS assets and cash. In exchange,  the company would receive a 19.9% interest in
the new venture. The agreement also provided that the parties would seek a third
party to acquire their  combined  interests in this DBS business.  In June 1997,
the company and News Corp.  entered into an agreement with  Primestar  Partners,
L.P.  (Primestar)  for the sale and transfer of the  company's and News Corp.'s
DBS  assets  other  than  two of the  four  DBS  Venture  satellites  (Primestar
Transaction).  In March  1998,  the  parties  sold their  interest in one of the
remaining  satellites.  The parties are  pursuing the  disposition  of the other
satellite, which is still under construction.  The Primestar Transaction is part
of a larger  transaction  that involves the  consolidation  of Primestar and TCI
Satellite  Entertainment,  Inc. into a newly formed entity (New  Primestar) that
was completed in April 1998.  Concurrent with the  consummation of the Primestar
Transaction,  the company will acquire  preferred shares in a subsidiary of News
Corp. for a face amount equal to the company's cost of obtaining the FCC license
plus  interest  thereon.  The  company  will  also  receive  from New  Primestar
consideration in the form of cash and interest bearing  non-voting New Primestar
securities for its share of the DBS Venture assets transferred to New Primestar.
The Primestar Transaction is subject to regulatory approvals, including approval
by the FCC and the  Department of Justice.  As of December 31, 1997, the company
had capitalized $1,043 million related to its investment in DBS, $682 million of
which was for the payment of the license and the remainder  related primarily to
the construction of two satellites.

YEAR 2000 EFFORTS
The company is continuing its  evaluation and upgrading of its computer  systems
and  applications  for the year 2000.  The company is also seeking  confirmation
from its primary  processing  and supplier  vendors that they are developing and
implementing plans to become year 2000 compliant.  The company is utilizing both
internal and external resources to identify, correct or reprogram, and test its
systems for year 2000 compliance. The company expects to incur internal labor as
well as consulting and other expenses related to  infrastructure  and facilities
enhancements  necessary  to prepare  its  systems  for the year 2000.  The costs
incurred to date have not been  significant,  however,  the  company  expects to
incur approximately $400 million in expense over the next two years to implement
its year  2000  plan.  The  company  expects  to be year 2000  compliant  before
December 31, 1999.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows
Cash from  operating  activities  increased by $344  million to $3,488  million.
Receipts from customers increased by $1,589 million in 1997 due primarily to the
increase in revenue.  Payments to suppliers  and  employees  increased by $1,397
million as a result of the increases in costs of services and sales,  operations
and  general  expenses in 1997.  Taxes paid  decreased  in 1997 by $203  million
primarily due to the reduction in net income for the year. Interest paid in 1997
rose as the result of higher  average debt balances  during the year.  Cash used
for  investing  activities  decreased by $888  million in 1997 due  primarily to
lower  funding   requirements   for  investments  in  VDM  businesses.   Capital
expenditures, primarily for the company's core and local services networks, were
the most significant  investing activity and increased by $481 million to $3,828
million.  The company also made  additional  capital  contributions  to Avantel,
Concert CS, and other  affiliated  entities of $130 million,  an approximate 60%
decline from 1996. Current year investments related to DBS and related satellite
construction  costs declined by $692 million from 1996 due primarily to the $682
million  payment for the FCC license  made in 1996.  In 1996,  the company  also
invested an additional $350 million in News Corp. No additional investments were
made in News  Corp.  in 1997.  Cash  from  operating  activities  and  financing
activities was used to support the company's investing activities during 1997.

Cash required from financing  activities declined by $874 million in 1997 due to
the  increase in cash from  operating  activities  and the  reduction in amounts
required for investing activities. In 1997, the company's financing requirements
were met by issuances of commercial  paper and proceeds raised from issuances of
stock to employees  under  benefit  plans.  During 1997,  the  commercial  paper
balance increased to $384 million. Proceeds from issuances of common stock under
employee benefit plans were $580 million, an increase of $154 million from 1996.
Other  investing  activities in 1997 included the payment of dividends on common
stock of $35 million,  distributions  paid on the subsidiary  Trust  mandatorily
redeemable  preferred  securities of $60 million and purchases of treasury stock
of $93 million.

Working Capital
Working  capital  (defined  as current  assets  less  current  liabilities)  was
$(2,836) million and $(330) million at December 31, 1997 and 1996, respectively.
The  significant  decrease  in  working  capital  is the result of the change in
classification  of  commercial  paper  balances  of $1,806  million  to  current
liabilities as described  below. At December 31, 1997,  current assets increased
by $544 million from December 31, 1996, primarily as a result of the increase in
accounts  receivable  related to the growth in revenue;  and a receivable from a
sale-lease back  transaction  offset by a  reduction  in  marketable  securities
balances  that  were  used  to  fund  working  capital   requirements.   Current
liabilities,  excluding  the  reclassification  referred to above,  increased by
$1,244  million  from  December 31, 1996 as a result of the increase in accounts
payable, accrued telecommunications  expenses and other accrued liabilities from
higher operating  expenses and the impact of the actions taken by the company in
the last half of 1997.

Liquidity and Capital Resources
In 1997,  the  company  funded its  capital  expenditures  and other  investment
activities  through cash from  operations,  commercial paper issuances and other
financing  activities.  In 1998, the company plans approximately $3.3 billion in
capital  expenditures,  with the  year-to-year  reduction coming from lower core
business  requirements,  a  majority  of  which  will be  funded  by  cash  from
operations.  The company has a $4 billion bank credit facility that supports the
companys   commercial  paper  program  and  may  be  used  to  fund  short-term
fluctuations in working capital and other  corporate  requirements.  This credit
facility expires in April 1998 and, accordingly, borrowings associated with this
bank credit facility have been classified as short-term  liabilities at December
31,  1997.  The  company  expects to extend this  credit  facility  prior to its
expiration.  The company also has a $1.2 billion shelf  registration  in effect,
which  covers the  issuance of debt  securities  with a range of  maturities  at
either fixed or variable rates.  At December 31, 1997,  there was $1,806 million
outstanding under the commercial paper program and bank credit facility,  and no
securities  had been issued under the shelf  registration.  The company plans to
issue up to $1 billion  aggregate  principal  amount of senior  debt  securities
under this shelf registration  during the second quarter of 1998, which proceeds
will be used for general corporate  purposes,  including repayment of short term
borrowings under the companys commercial paper program. The company believes it
will  be  able  to  meet  its  current  and  long-term   liquidity  and  capital
requirements  from cash from  operating  activities,  existing  debt  facilities
including  the  extended   facility   discussed  above  and  use  of  the  shelf
registration. In July 1997, the company entered into a forward starting interest
rate swap agreement (the swap) in the notional  principal amount of $500 million
for a term of 15 years. The swap involves the receipt of floating-rate  interest
and the  payment of  fixed-rate  interest at 6.71%  without the  exchange of the
underlying  principal  amount.  The swap has been  designated as a hedge against
adverse  changes in market  interest  rates on  fixed-rate  debt  expected to be
issued in the second  quarter of 1998.  The  companys  credit  risk  related to
interest  rate swaps is dependent  upon both the movement of interest  rates and
the possibility of non-payment by swap counterparties. The company mitigates its
credit  risk  by  only  entering   into  swap   agreements   with   high-quality
counterparties. The company believes its market risk exposure with regard to its
financial  instruments is limited to changes in interest rates  primarily in the
U.S. Based upon the composition of the companys  variable rate debt outstanding
at December 31, 1997 which is primarily  borrowings  under the commercial  paper
program,  the  company  does not  believe  that a  hypothetical  100 basis point
increase in short-term rates would be material to net income.

The companys debt to total capitalization,  defined as total debt to total debt
plus subsidiary Trust mandatorily  redeemable  preferred  securities and equity,
increased  to 31% at December  31,  1997,  from 30% at December  31,  1996.  The
increase in 1997 was the result of  commercial  paper  issuances in 1997 to fund
investments in the VDM  businesses,  capital  expenditures  and other  corporate
requirements.

<PAGE>
<TABLE>
<CAPTION>


CONSOLIDATED INCOME STATEMENTS
MCI Communications Corporation and Subsidiaries

Year ended December 31,                                                             1997              1996             1995
---------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
<S>                                                                              <C>               <C>              <C>    
REVENUE                                                                          $19,653           $18,494          $15,265
                                                                                  
OPERATING EXPENSES
  Cost of services                                                                10,956             9,489            7,893
  Sales, operations and general                                                    5,940             5,028            4,426
  Depreciation including asset write-downs                                         2,082             1,664            1,828
                                                                                                                
                                                                                  -----------------------------------------
TOTAL OPERATING EXPENSES                                                          18,978            16,181           14,147
                                                                                                          
                                                                                  -----------------------------------------
INCOME FROM OPERATIONS                                                               675             2,313            1,118

Interest expense                                                                    (235)             (196)            (149)
Interest income                                                                       18                34              147
Equity in income (losses) of affiliated companies                                   (144)             (156)            (187)
Other expense, net                                                                   (15)               (5)             (32)
                                                                                  
INCOME BEFORE INCOME TAXES                                                           299             1,990              897

Income tax provision                                                                  90               753              349
Distributions on subsidiary Trust mandatorily redeemable preferred securities         60                35                -
                                                                                                                 
                                                                                  -----------------------------------------
NET INCOME                                                                    $      149           $ 1,202         $    548
                                                                                                                    
                                                                                   =======================================


BASIC EARNINGS PER COMMON SHARE                                                 $   0.22         $    1.75         $   0.81
DILUTED EARNINGS PER COMMON SHARE                                               $   0.21         $    1.73         $   0.80


Weighted average number of common shares                                             693               687              680
Weighted average number of common shares - assuming dilution                         707               695              687

See accompanying Notes to Consolidated Financial Statements.


</TABLE>


<PAGE>
<TABLE>
<CAPTION>


CONSOLIDATED BALANCE SHEETS
MCI Communications Corporation and Subsidiaries

December 31,                                                                                 1997                      1996
---------------------------------------------------------------------------------------------------------------------------
(In millions)
<S>                                                                                 <C>                         <C>   
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                                            $        261               $       187
Marketable securities                                                                           -                       161
Receivables, net of allowance for
  uncollectibles  of $372 and $273  million                                                 3,576                     3,480
Other current assets                                                                        1,423                       888

  TOTAL CURRENT ASSETS                                                                      5,260                     4,716

PROPERTY AND EQUIPMENT
Communications  system in service                                                          16,291                    14,005
Furniture, fixtures and equipment                                                           3,263                     2,848
Other property                                                                                616                       519
                                                                                        
  TOTAL PROPERTY AND EQUIPMENT                                                             20,170                    17,372
Accumulated  depreciation                                                                  (7,856)                   (6,535)
Construction in progress                                                                    1,554                     1,337

  TOTAL PROPERTY AND EQUIPMENT, NET                                                        13,868                    12,174


Investment in affiliates                                                                      653                       690
Investment in Direct Broadcast Satellite                                                    1,043                       893
Investment in News Corp.                                                                    1,350                     1,350
Other assets and deferred charges, net                                                        991                       736
Goodwill, net                                                                               2,345                     2,419

TOTAL OTHER ASSETS                                                                          6,382                     6,088

TOTAL ASSETS                                                                            $  25,510                 $  22,978

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable                                                                        $   1,321                $      992
Accrued telecommunications  expense                                                         2,416                     2,045
Other accrued liabilities                                                                   2,248                     1,806
Long-term debt due within one year                                                          2,111                       203

  TOTAL CURRENT LIABILITIES                                                                 8,096                     5,046

NONCURRENT LIABILITIES
Long-term debt                                                                              3,276                     4,798
Deferred taxes and other                                                                    2,077                     1,723

   TOTAL NONCURRENT LIABILITIES                                                             5,353                     6,521

COMMITMENTS AND CONTINGENT LIABILITIES

COMPANY OBLIGATED  MANDATORILY  REDEEMABLE  PREFERRED SECURITIES  OF
SUBSIDIARY  TRUST HOLDING  SOLELY JUNIOR SUBORDINATED  DEFERRABLE  INTEREST
DEBENTURES OF THE COMPANY                                                                     750                       750

STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value, authorized  500 million shares, issued  136
 million shares                                                                                14                        14
Common stock, $.10 par value, authorized  2 billion shares, issued  593 million shares         60                        60
Additional paid-in capital                                                                  6,362                     6,410
Retained earnings                                                                           5,345                     5,231
Treasury stock, at cost, 22 and 44 million shares                                           (470)                   (1,054)

  TOTAL STOCKHOLDERS'  EQUITY                                                              11,311                    10,661

TOTAL LIABILITIES AND STOCKHOLDERS'  EQUITY                                              $ 25,510                  $ 22,978

See accompanying Notes to Consolidated Financial Statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


CONSOLIDATED  STATEMENTS OF CASH FLOWS
MCI Communications Corporation and Subsidiaries

Year ended December 31,                                                     1997             1996              1995
---------------------------------------------------------------------------------------------------------------------------
(In millions)

OPERATING ACTIVITIES
<S>                                                                     <C>              <C>               <C>    
  Receipts from customers                                               $ 19,405         $ 17,816          $ 14,888
  Payments to suppliers and employees                                    (15,341)         (13,944)          (11,549)
  Taxes paid                                                                (412)            (615)             (416)
  Interest paid                                                             (176)            (147)             (113)
  Interest received                                                           12               34               169

       CASH FROM OPERATING ACTIVITIES                                      3,488            3,144             2,979

INVESTING ACTIVITIES
  Capital expenditures for property and equipment                         (3,828)          (3,347)           (2,866)
  Purchases of marketable securities                                          (3)            (487)           (4,630)
  Proceeds from sales and maturities of marketable  securities               222              641             5,930
  Acquisition of businesses, net of cash acquired                              -              (40)           (1,243)
  Investment in News Corp.                                                     -             (350)           (1,000)
  Investment in Direct Broadcast Satellite                                  (161)            (853)                -
  Investment in affiliates                                                  (130)            (306)             (494)
  Other, net                                                                   6              (40)               11

       CASH USED FOR INVESTING ACTIVITIES                                 (3,894)          (4,782)           (4,292)

       NET CASH FLOW BEFORE FINANCING ACTIVITIES                            (406)          (1,638)           (1,313)

FINANCING ACTIVITIES
  Issuance of Senior Notes and other debt                                      -              796                 -
  Payment of Senior Notes and other debt                                    (296)            (595)             (305)
  Commercial paper and bank credit facility activity, net                    384              717               702
  Issuance of subsidiary Trust mandatorily redeemable 
  preferred securities, net                                                    -              726                 -
  Issuance of common stock for employee plans                                580              426               275
  Payment of dividends on common stock                                       (35)             (34)              (33)
  Distributions  paid on subsidiary Trust mandatorily redeemable 
  preferred securities                                                       (60)             (35)                -
  Purchase of treasury stock                                                 (93)            (647)             (284)

       CASH FROM FINANCING ACTIVITIES                                        480            1,354               355

Net increase(decrease)in cash and cash equivalents                           74             (284)             (958)
Cash and cash equivalents at beginning of year                               187              471             1,429

CASH AND CASH EQUIVALENTS AT END OF YEAR                                 $   261         $    187           $   471

Reconciliation of net income to cash from operating activities:
Net income                                                               $   149        $   1,202          $    548
Adjustments to net income:
  Depreciation including asset write-downs and amortization                2,118            1,722             1,887
  Equity in (income) losses of affiliated companies                          144              156               187
  Deferred income tax provision                                               92              298               144
Net change in operating  activity accounts other than cash and cash equivalents,
  net of effects of acquisition of businesses:
  Receivables                                                                (96)            (568)             (442)
  Operating accounts payable and accrued liabilities                         621              350               634
  Other operating activity accounts                                          460              (16)               21

        CASH FROM OPERATING ACTIVITIES                                    $3,488         $  3,144           $ 2,979

See accompanying  Notes to Consolidated Financial Statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MCI Communications Corporation and Subsidiaries


                                        Class A           Additional                  Treasury      Stock-
                                         Common   Common  Paid-in      Retained         Stock,      holders'    
                                          Stock   Stock   Capital      Earnings        at Cost      Equity
(In millions)  
<S>                                         <C>    <C>    <C>           <C>             <C>       <C>

BALANCE AT DECEMBER 31, 1994                $14    $60    $6,227        $3,548          $(845)    $9,004
Common stock issued for employee
  stock and benefit plans
  (18 million shares)                         -      -       132             -            189        321
Tax benefit of common stock
  transactions related to employee
  benefit plans                               -      -        25             -              -         25
Acquisition of business
  (.8 million shares)                         -      -        16             -              -         16
Unrealized loss on investments and other      -      -         5             -              -          5
Net income                                    -      -         -           548              -        548
Common stock dividends                        -      -         -           (33)             -        (33)
Treasury stock purchased
  (13 million shares)                         -      -         -             -           (284       (284)



BALANCE AT DECEMBER 31, 1995                 14     60     6,405         4,063           (940)     9,602
Common stock issued for employee
  stock and benefit plans
  (23 million shares)                         -      -      (56)            -            533         477
Tax benefit of common stock
  transactions related to employee
  benefit plans                               -      -        60             -              -         60
Unrealized gains on investments and other     -      -         1             -              -          1
Net income                                    -      -         -         1,202              -      1,202
Common stock dividends                        -      -         -           (34)             -        (34)
Treasury stock purchased
  (23 million shares)                         -      -         -             -           (647)       (647)


BALANCE AT DECEMBER 31, 1996                 14     60     6,410         5,231         (1,054)     10,661
Common stock issued for employee
  stock and benefit plans
  (25 million shares)                         -     -       (111)           -            671          560
Tax benefit of common stock
  transactions related to employee
  benefit plans                               -     -         44             -              -          44
Unrealized gains on investments and other     -     -         19             -              -          19
Net income                                    -     -          -           149              -         149
Common stock dividends                        -     -          -           (35)             -         (35)
Treasury stock purchased
  (3 million shares)                          -     -          -             -            (87)        (87)


BALANCE AT DECEMBER 31, 1997                 $14  $60     $6,362        $5,345          $(470)     $11,311





See accompanying Notes to Consolidated Financial Statements.
</TABLE>



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MCI Communications Corporation and Subsidiaries

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
MCI   Communications    Corporation   and   its   majority-owned    subsidiaries
(collectively,  the company) operate  predominately  in a single  industry,  the
telecommunications  industry  which  includes the broad range of  long-distance,
local,  and wireless  telecommunications  services;  the company  also  provides
information  technology  services.   Long-distance  telecommunications  services
comprise a wide spectrum of domestic and international  voice and data services,
including  long-distance  telephone,   data  communications,   teleconferencing,
Internet and electronic messaging services.

Use of Estimates in Preparation of Financial Statements
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those  estimates.  Estimates are used when  accounting
for  revenue,   including   long-term  customer  contracts  and  allowances  for
uncollectible receivables, investments, telecommunications expense, depreciation
including asset write-downs and amortization,  reorganization accruals, employee
benefit plans and taxes.

Principles of Consolidation
The financial  statements include the consolidated  accounts of the company with
all significant intercompany transactions eliminated.

Revenue
The company records as revenue the amount of communications  services furnished,
as measured  primarily by the minutes of traffic  processed,  after deducting an
estimate  of  traffic  which  will be  neither  billed  nor  collected.  Service
discounts  and  incentives  are  accounted  for as a reduction  of revenue  when
granted or,  where a service  continuation  contract  exists,  ratably  over the
contract  period.  Revenue from information  technology  services is recognized,
depending on the service  provided,  on a percentage of  completion  basis or as
services and products are furnished or delivered.

Cash and Cash Equivalents
Cash equivalents consist primarily of certificates of deposit, securities of the
U.S. Government and its agencies and corporate debt securities having maturities
of 90  days  or  less  when  purchased.  The  carrying  amount  reported  in the
accompanying balance sheets for cash equivalents  approximates fair value due to
the short-term maturity of these instruments.

Investments
Investments in marketable  securities are classified as  available-for-sale  and
are reported at fair value in accordance with Statement of Financial  Accounting
Standards  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities."  The  fair  values  are  based on  quoted  market  prices,  and any
unrealized  gains or losses,  net of applicable  income taxes, are excluded from
earnings  and  reported  as a net amount in  additional  paid-in  capital  until
realized. Realized gains and losses are recorded in the income statement and the
cost assigned to securities sold is based on the specific identification method.

The company  uses the equity  method to account for  investments  in entities in
which  it has  less  than a  majority  interest  but  can  exercise  significant
influence.  These investments are classified on the accompanying  balance sheets
as investments in affiliates.  Under the equity method, investments,  originally
recorded at cost,  are  adjusted to  recognize  the  company's  share of the net
earnings or losses of the affiliates as they occur,  rather than as dividends or
other  distributions  are  received,  limited  to the  extent  of the  company's
investment in,  advances to, and  guarantees  for the  investees.  The company's
share of net earnings or losses of affiliates includes  amortization of purchase
adjustments.  Unlisted  securities or securities in privately  held companies in
which  the  ownership  is less  than  20%  and the  company  does  not  exercise
significant influence are recorded at cost.


<PAGE>



Property and Equipment
The communications  system in service is recorded at cost and includes material,
interest,  labor and  overhead.  The costs of  construction  and  equipment  are
transferred to  communications  system in service as  construction  projects are
completed  and/or  equipment  is placed in  service.  Depreciation  is  recorded
commencing  with the first full  month  that the  assets  are in service  and is
provided using the straight-line method over the assets' estimated useful lives.
A majority of the  company's  communications  system  assets are grouped in like
pools for depreciation  purposes.  For these asset groups, the cost of equipment
retired  in the  ordinary  course of  business,  less  proceeds,  is  charged to
accumulated depreciation. Gains or losses on assets that are not grouped in like
pools for  depreciation  purposes are  included in  depreciation  expenses.  The
company  periodically  reviews and adjusts  the useful  lives  assigned to fixed
assets to ensure  that  depreciation  charges  provide  appropriate  recovery of
capital costs over the estimated physical and technological lives of the assets.
The  weighted   average   depreciable   life  of  the  assets   comprising   the
communications  system in service approximates nine years.  Furniture,  fixtures
and  equipment  are  depreciated  over a weighted  average life of six years and
include  computer  and data  center  equipment  along with other  administrative
assets.  Other  property  includes land,  buildings and leasehold  improvements.
Buildings are depreciated using lives of up to 35 years.  Leasehold improvements
are depreciated over the shorter of the life of the equipment or the life of the
lease.  Maintenance,  repairs, and reengineering costs are charged to expense as
incurred.

Capital Leases
Certain of the company's lease obligations meet the criteria of a capital lease.
These  obligations  are  recorded  at the  present  value  of the  future  lease
payments,  including  estimated  bargain  purchase  options,  discounted  at the
approximate  interest rate implicit in each lease.  Amounts are depreciated over
the estimated useful lives of the equipment, which are generally longer than the
terms of the leases.  Leases not  capitalized  are  primarily  for land on which
communications equipment is located and for administrative facilities, including
office  buildings,  vehicles,  certain  data  processing  equipment  and  office
equipment.

Other Assets and Deferred Charges,net
Other assets and deferred charges,  net includes  unamortized customer discounts
and service incentives,  right-of-way agreements with third parties,  noncurrent
marketable  securities and  investments  accounted for at cost and debt issuance
costs. Deferred customer discounts and service incentives are amortized over the
life of the specific  contract to which they relate;  also  included are amounts
recoverable under long-term customer service contracts, which are amortized over
the contract period.  Right-of-way  costs are amortized as the assets are placed
in service, over the lesser of the remaining term of the agreements or 25 years.
Debt issuance costs are amortized over the life of the applicable debt.

Goodwill
Goodwill  represents  the  excess of the cost to acquire  subsidiaries  over the
estimated  fair  market  value of the net assets  acquired.  These  amounts  are
amortized using the straight-line method over lives ranging from 10 to 40 years.
The company  periodically  evaluates the  realizability  of goodwill  based upon
projected  undiscounted  cash  flows and  operating  income  or other  valuation
techniques for each subsidiary having a material  goodwill balance.  The company
believes that no impairment of goodwill existed at December 31, 1997.

Long-Lived Assets
In the event that facts and circumstances indicate that the carrying amount of a
long-lived asset may be impaired,  an evaluation of recoverability is performed.
If an  evaluation  is required,  the estimated  future  undiscounted  cash flows
associated  with the  asset  are  compared  to the  asset's  carrying  amount to
determine if a write-down to market value or discounted cash flow is required.

Transactions with British Telecommunications plc
British  Telecommunications plc (BT) controls an approximate 20% voting interest
in the company  through its  ownership of Class A common stock and common stock.
In 1994,  the  company  and BT formed a joint  venture,  Concert  Communications
Company (Concert CS), to provide global enhanced  telecommunications services to
business  customers.  The  company  and BT lease each  other's  access  lines at
accepted  market rates in the ordinary  course of business to process traffic in
the U.S. and U.K. During 1997, 1996 and 1995, the amounts  associated with these
transactions were not material to the company.

Foreign Exchange Contracts and Interest Rate Swaps
The company  enters into  foreign  exchange  contracts  and  interest  rate swap
agreements  to hedge its foreign  currency  risks and reduce its  interest  rate
exposure.  While the company  does not engage in  speculation,  it is exposed to
credit  rate risk in the event of  nonperformance  by the other  parties  to the
agreements.  The  company  manages  credit  risk  by  regularly  monitoring  and
evaluating the  counterparties and believes the credit risk exposure is limited.
At December  31,  1997,  the fair value of and  potential  risk of loss on these
agreements were not material.

Income Taxes
The company files a consolidated  federal income tax return on a March 31 fiscal
year end.  Deferred income taxes are provided on transactions  that are reported
in the financial  statements in different  periods than for income tax purposes.
Income tax benefits of tax deductions  related to common stock transactions with
the company's employee benefit plans are recorded directly to additional paid-in
capital. General business credits are accounted for by the flow-through method.

Basic and Diluted Earnings per Common Share 
The company  implemented  Statement of Financial  Accounting  Standards  No. 128
(SFAS No. 128) Earnings per Share, in 1997, which requires certain disclosures
relating to the  calculation of earnings per share (EPS).  Basic EPS is based on
the weighted  average number of shares of common stock  outstanding  during each
year.  Diluted EPS is based on the weighted  average  number of shares of common
stock  outstanding  during each year,  adjusted  for the effect of common  stock
equivalents arising from the assumed exercise of stock options, if dilutive.

Reclassifications
Certain prior year  information has been  reclassified to conform to the current
year presentation.

NOTE 2. MERGER AGREEMENT

On November 9, 1997,  the company  entered into an Agreement  and Plan of Merger
(the MCI WorldCom Merger Agreement) with WorldCom,  Inc.  (WorldCom),  a Georgia
corporation, and TC Investments Corp. (Merger Sub), a Delaware corporation and a
wholly-owned  subsidiary  of WorldCom,  pursuant to which the company will merge
with and into Merger Sub (the MCI WorldCom Merger or the Merger). As a result of
the Merger,  (a) each outstanding share of the company's common stock, par value
$.10 per share,  (other than  shares  owned by WorldCom or Merger Sub or held by
the company)  will be converted  into the right to receive that number of shares
of  WorldCom  common  stock,  par value  $.01 per share,  equal to the  quotient
determined by dividing  $51.00 by the average of the high and low sale prices of
WorldCom  common stock as reported on the Nasdaq  National Market on each of the
20  consecutive  trading  days  ending with the third  trading  day  immediately
preceding the effective time of the Merger (the Exchange  Ratio),  provided that
the Exchange Ratio shall not be less than 1.2439 or greater than 1.7586; and (b)
each outstanding  share of the company's Class A common stock shall be converted
into the right to receive $51.00 in cash, without interest thereon. The combined
companies plan to operate under the MCI WorldCom name.

Concurrent with the MCI WorldCom Merger Agreement, the company,  WorldCom and BT
entered  into  an  agreement  (the BT  Termination  Agreement)  whereby  (i) the
Agreement  and Plan of Merger,  dated as of November 3, 1996, as last amended on
August  21,  1997  (the MCI BT Merger  Agreement),  among  the  company,  BT and
Tadworth  Corporation  was  terminated;  (ii) WorldCom agreed to pay BT a fee of
$450  million and expenses not in excess of $15 million in order to induce BT to
waive its  rights  under and agree to  terminate,  the MCI BT Merger  Agreement;
(iii) BT agreed to support and vote its shares of Class A common  stock in favor
of the  Merger;  and (iv) BT agreed to  exercise  its call option to acquire the
company's  shares in Concert CS immediately  following the effective time of the
Merger  . The  company  will  be a  distributor  of  Concert  CS  services  on a
nonexclusive  basis to  customers in the U.S. for at least two years and as many
as five years following BT's exercise of its call option.

On March 11, 1998, the  stockholders of the company and shareholders of WorldCom
approved  the  Merger.  The Merger is also  subject to the  receipt of  required
regulatory approvals.

In  connection  with the  execution of the BT Merger  Agreement  and as modified
under the MCI  WorldCom  Merger  Agreement,  pre-merger  retention  bonus  pools
(retention   pools)  totaling  $270  million  were  established  to  retain  key
executives and employees of the company. The company recorded compensation costs
in 1997 of $93 million,  related to these  retention  pools of which $82 million
was paid by December 31, 1997. The remaining accrued  compensation  costs of $11
million and other amounts payable from these retention pools are scheduled to be
paid in 1998 and 1999.  However,  all unpaid amounts under these retention pools
will be paid  on the  closing  date of the  MCI  WorldCom  Merger  or any  other
transaction  involving  the  sale or  other  disposition  of a  majority  of the
company's  capital  stock or  assets if  occurring  earlier  than the  scheduled
payment dates.  The company and WorldCom have certain  interconnection  or other
service  agreements at prevailing  market rates in the ordinary  course of their
businesses.  Since the  execution  of the MCI  WorldCom  Merger  Agreement,  the
amounts associated with these transactions were not material to the company.


<PAGE>



NOTE 3. INVESTMENTS IN MARKETABLE SECURITIES

At December 31, 1997 and 1996, the company had various investments in marketable
securities,  all of which were  classified as  available-for-sale  and stated at
fair value. At December 31, 1997, the portfolio  consisted of equity  securities
with an  aggregate  cost of $60 million and fair value of $120  million and were
included in other assets and deferred  charges,  net. At December 31, 1996,  the
portfolio  consisted of $40 million of certificates of deposit,  $143 million of
U.S. Government agency securities,  $67 million of corporate debt securities and
equity  securities  with an aggregate cost and fair value of $11 million.  These
investments were included in the  accompanying  balance sheet as either cash and
cash  equivalents,  marketable  securities or other assets and deferred charges,
net, as appropriate.

Gross unrealized holding gains associated with these investments at December 31,
1997 were $60 million and there were no gross unrealized holding gains or losses
at December 31,  1996.  There were no realized  gains on sales of available  for
sale marketable securities for the years ended December 31, 1997 and 1996.

NOTE 4. INVESTMENTS IN AFFILIATES

The company has various investments in affiliates accounted for under the equity
method. At December 31, 1997 and 1996, the net investment  balance in affiliated
companies was $653 million and $690 million,  respectively. The more significant
of these are Avantel,  S.A. de C.V. (Avantel) and Concert CS. Avantel is a 44.5%
owned business venture with Grupo Financiero  Banamex-Accival  formed to provide
competitive domestic and international long-distance telecommunications services
in Mexico. At December 31, 1997 and 1996, the net investment balance for Avantel
was $415 million and $465 million, respectively. The company's 24.9% interest in
Concert  CS,  had a net  investment  balance  of $92  million  and $53  million,
respectively  at December 31, 1997 and 1996.  In 1997,  the company  pledged its
investment in Avantel as security for a loan to Avantel.  In  connection  with a
strategic  alliance  agreement  with  Telefonica  de Espana,  S.A.  (Telefonica)
entered in April 1997 and  expanded in March 1998,  Telefonica  agreed to invest
$250 million in Avantel and to purchase  additional  equity if certain qualified
transactions  occur.  In  certain  circumstances,  Telefonica  has the  right to
require the company to acquire its interest in Avantel at cost.

The summarized financial  information for all affiliated companies accounted for
by the  company  under  the  equity  method,  as  reported  in  their  financial
statements  as of  December  31,  1997 and 1996 and for the  three  years  ended
December 31, 1997 is as follows:
<TABLE>
<CAPTION>



December 31,                                             1997                   1996
            ---
--------------------------------------- ---------------------- ----------------------
---------------------------------------                        ----------------------
(In millions)
<S>                                                 <C>                        <C>    
Current assets                                                                
                                                    $     647                  $  425
Other assets                                            
                                                        1,864                   1,674
Current liabilities                                                           
                                                          863                     868
Noncurrent liabilities                                                        
                                                          785                     739
</TABLE> 
<TABLE>
<CAPTION>



Year ended December 31,                                  1997                   1996                   1995
--------------------------------------- ---------------------- ---------------------- ----------------------
---------------------------------------
(In millions)
<S>                                                  <C>                   <C>                    <C>
Net Sales                                            $  1,309              $     868              $     590
Gross profit                                              366                    146                    100
Net loss from continuing operations                      (341)                  (395)                  (437)
Net loss                                                 (190)                  (395)                  (442)
</TABLE>

The company's share of net losses of affiliated companies including amortization
of purchase  adjustments was $(144) million,  $(156) million and $(187) million,
in 1997, 1996 and 1995, respectively. The company conducts business with Concert
CS through  the  provision  and receipt of  communications  services at accepted
rates in the  ordinary  course of  business.  The company  and  Avantel  conduct
business  through the  exchange of domestic  and  international  interconnection
services at prevailing  market rates in the ordinary course of business.  During
1997,  1996 and 1995, the amounts  associated with these  transactions  were not
material to the company.

NOTE 5.  INVESTMENTS IN NEWS CORP. AND DIRECT BROADCAST SATELLITE

At  December  31,  1997,  the company had  invested  $1,350  million in the News
Corporation  Limited  (News  Corp.)  comprised  of  (i)  cumulative  convertible
preferred shares of two U.S.  subsidiaries of News Corp. with a stated value and
liquidation  preference of $1,148 million and bearing a dividend rate of 5.147%,
and (ii) four-year  warrants  (purchase price $202 million) to acquire up to 210
million News Corp. ordinary shares for an exercise price of $1,148 million.  The
exercise price of the warrants is payable,  at the company's  option,  in either
cash or through the surrender of the cumulative convertible preferred shares, or
a  combination  of both. In May 1997,  the company and News Corp.  amended their
investment  agreement to, among other things,  terminate the company's  previous
obligation  to invest an  additional  $650  million  in News Corp.  The  company
recorded dividend income of $59 million,  $54 million and $18 million,  in 1997,
1996 and 1995, respectively, on its investment.

Direct Broadcast Satellite (DBS) is a point-to-multipoint broadcast service that
uses high-powered Ku band satellites placed in geosynchronous orbit. In December
1996, the FCC issued the DBS license  awarded to the company in the January 1996
public  auction.  In May  1997,  the  company  and News  Corp.  entered  into an
agreement  to form a joint  venture (DBS  Venture) in which both  parties  would
contribute their respective DBS assets and cash. In exchange,  the company would
receive a 19.9%  interest in the new venture.  The agreement  also provided that
the parties would seek a third party to acquire their combined interests in this
DBS business. In June 1997, the company and News Corp. entered into an agreement
with  Primestar  Partners,  L.P.  (Primestar)  for the sale and  transfer of the
company's  and News  Corp.'s  DBS assets other than two of the four DBS Venture
satellites  (Primestar  Transaction).  In March  1998,  the  parties  sold their
interest  in one of the  remaining  satellites.  The parties  are  pursuing  the
disposition  of the other  satellite,  which is still  under  construction.  The
Primestar  Transaction  is  part  of a  larger  transaction  that  involves  the
consolidation  of Primestar and TCI Satellite  Entertainment,  Inc. into a newly
formed entity (New Primestar) that was completed in April 1998.  Concurrent with
the  consummation  of  the  Primestar  Transaction,  the  company  will  acquire
preferred  shares in a subsidiary  of News Corp.  for a face amount equal to the
company's cost of obtaining the FCC license plus interest  thereon.  The company
will  also  receive  from New  Primestar  consideration  in the form of cash and
interest  bearing  non-voting New Primestar  securities for its share of the DBS
Venture  assets  transferred  to New  Primestar.  The Primestar  Transaction  is
subject  to  regulatory  approvals,  including  approval  by  the  FCC  and  the
Department  of Justice.  As of December  31, 1997,  the company had  capitalized
$1,043  million  related to its investment in DBS, $682 million of which was for
the  payment  of  the  license  and  the  remainder  related  primarily  to  the
construction of two satellites.

NOTE 6.  SUPPLEMENTARY BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>

December 31,                                                                1997             1996
---------------------------------------------------------------------------------------------------------------------------
(In millions) 
Other current assets:
<S>                                                                     <C>               <C>           
  Deferred income taxes                                                 $    452          $   376
  Other receivables, net                                                     578              191
  Other                                                                      393              321
---------------------------------------------------------------------------------------------------------------------------
Total other current assets                                              $  1,423        $   888
---------------------------------------------------------------------------------------------------------------------------

Other accrued liabilities:
  Taxes, other than income                                              $    207          $   335
  Payroll and employee benefits                                              431              328
  Reorganization costs                                                       295               92
  Other                                                                    1,315            1,051
---------------------------------------------------------------------------------------------------------------------------
Total other accrued liabilities                                          $ 2,248           $1,806
---------------------------------------------------------------------------------------------------------------------------

Deferred taxes and other:
  Deferred income taxes                                                  $ 1,866           $1,697
  Other                                                                      211               26
---------------------------------------------------------------------------------------------------------------------------
Total deferred taxes and other                                           $ 2,077           $1,723
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

Accumulated  amortization associated with goodwill at December 31, 1997 and 1996
was $321 million and $247 million, respectively.

At December  31,  1997 and 1996,  checks not yet  presented  for payment of $319
million and $338 million in excess of cash balances, respectively, were included
in  accounts  payable  on  the  accompanying  balance  sheet.  The  company  had
sufficient  funds  available  to cover these  outstanding  checks when they were
presented for payment.

In 1997,  the company  completed a  comprehensive  review of product and service
offerings.  In  conjunction  with this  review,  the  company  decided  to exit,
restructure or settle several business contracts;  consolidate certain operating
centers and streamline or discontinue  certain non-core or  under-performing  IT
operations;  and reorganize  certain operations or eliminate certain product and
service offerings within its core business. The company recorded $361 million in
its costs of services to reflect costs and  provisions to exit,  restructure  or
settle  several  business  contracts  and cease  certain  product and service
offerings.  The company also recorded $282 million in its sales,  operations and
general  expense  primarily for other  reorganization  actions,  which  included
approximately $103 million of severance  associated with workforce alignment and
$93 million of  obligations  and  penalties  associated  with lease,  vendor and
customer  contracts.  The remainder  represents  other costs associated with the
company's business reorganization and certain legal costs.

At December 31, 1997, the company had expended $153 million of the accrued costs
related to the above  items,  with the  majority of the  remaining  $490 million
expected to be expended during 1998. The remaining  accrual,  which was included
in reorganization  costs and other in other accrued  liabilities,  was primarily
comprised of lease  obligations,  severance  and  customer  and vendor  contract
termination and commitment costs and certain legal costs. Cash expenditures from
these  obligations  were  and will  continue  to be  funded  through  cash  from
operations.  Reorganization liabilities at December 31, 1997 also included lease
and  other  commitments  related  to the  company's  consolidation  of its  core
business and centralization of major  administrative  functions that occurred in
the year ended December 31, 1995.

NOTE 7.  DEBT AND LEASE OBLIGATIONS

Company debt consists of:
<TABLE>
<CAPTION>

December 31,                                                                1997             1996
---------------------------------------------------------------------------------------------------------------------------
(In millions)
<S>                                                                       <C>              <C>    
Senior Notes, net of unamortized discounts of
    $1.1 million and $1.5 million at weighted average
     interest rates of 6.9%, and with maturities ranging
     from February 1998 to August 2006                                    $1,468           $1,485
Senior Debentures, net of unamortized discounts
    of $6.5 million and $6.5 million at a weighted
    average interest rates of 7.6%, and with
    maturities ranging from January 2023 to June 2027                      1,384            1,384
Capital lease obligations at a weighted
    average interest rate of 8.6% and 9.1%                                   528              504
Commercial paper and bank credit facility
    borrowings at a weighted average interest
    rate of 5.8% and 5.4%                                                  1,806            1,422
Other debt at a weighted average interest
    rate of  7.4% and 5%                                                     201              206
---------------------------------------------------------------------------------------------------------------------------
Total debt                                                                 5,387            5,001
Debt due within one year                                                  (2,111)            (203)
===========================================================================================================================
Total long-term debt                                                      $3,276           $4,798
===========================================================================================================================
</TABLE>

Annual  maturities of long-term  debt for the five years after December 31, 1997
are as follows:  $2,111 million in 1998;  $596 million in 1999;  $281 million in
2000; $47 million in 2001; and $41 million in 2002.

Total  interest  costs were $388 million in 1997,  $314 million in 1996 and $242
million  in  1995,  of  which  $153  million,  $118  million  and  $93  million,
respectively, were capitalized.

At  December  31,  1997 and 1996,  the  estimated  fair  value of the  company's
long-term debt,  excluding  capital lease  obligations,  is listed below.  These
valuations  represent  either  quoted market  values,  where  available,  or the
company's estimate based upon market prices of comparable debt instruments.
<TABLE>
<CAPTION>

December 31,                                                    1997                              1996
---------------------------------------------------------------------------------------------------------------------------
                                                                       Estimated                          Estimated
                                                      Carrying              Fair         Carrying              Fair
                                                        Amount             Value           Amount             Value
---------------------------------------------------------------------------------------------------------------------------
(In millions)
<S>                                                     <C>                <C>            <C>                <C>   
Senior Notes                                            $1,468            $1,503           $1,485            $1,516
Senior Debentures                                        1,384             1,438            1,384             1,456
Commercial paper and bank
  credit facility borrowings                             1,806             1,806            1,422             1,422
Other debt                                                 201               201              206               206
---------------------------------------------------------------------------------------------------------------------------
Total debt, excluding capital leases                    $4,859            $4,948           $4,497            $4,600
===========================================================================================================================
</TABLE>

The excess in the  estimated  fair value versus the carrying  amount of debt for
1997 and 1996  reflects  the trend  during the periods  where  market rates were
below the company's fixed-rate debt.

Senior Notes and Debentures
In June 1996, the company issued $500 million in aggregate principal amount of 7
1/8% Senior  Debentures  due June 15, 2027. In August 1996,  the company  issued
$300  million  aggregate  principal  amount of 6.95% Senior Notes due August 15,
2006.  The proceeds of the issuances were used for general  corporate  purposes,
including the repayment of short-term  borrowings under the company's commercial
paper  program.  The company has in effect a $1.2  billion  shelf  registration,
which will  enable it to issue debt  securities  with a range of  maturities  at
either fixed or variable rates.  The company had not issued any securities under
this shelf  registration at December 31, 1997. During 1997 and 1996, the company
repaid $17 million and $300  million,  respectively,  of maturing  Senior Notes,
leaving $2,852 million and $2,869  million of debt  securities  outstanding at a
weighted  average  annual  interest rate of 7.22% and 7.21% at December 31, 1997
and 1996, respectively.

Commercial Paper and Bank Credit Facility Borrowings
On April 30, 1997,  the company  entered into a revolving  credit loan agreement
with several parties under which the company may borrow up to $4 billion through
April 28, 1998. This credit  facility  supports the company's  commercial  paper
program and, in conjunction with this program,  may be used to fund fluctuations
in  working  capital  and other  general  corporate  requirements.  There are no
amounts  outstanding  under this credit  facility at December 31,  1997.  During
1997,  the company issued $7,340 million and repaid $6,956 million of commercial
paper borrowings.  During 1996, the company issued commercial paper and borrowed
under the credit facility an aggregate of $9,089 million and repaid an aggregate
of $8,372  million.  Borrowings  under the  commercial  paper program and credit
facility are classified as current, as the remaining term of the credit facility
agreement  is less than one year.  The company  expects to extend this  facility
prior to its expiration.

Interest Rate Swap
In July 1997,  the company  entered into a forward  starting  interest rate swap
agreement  (the "swap") in the notional  principal  amount of $500 million for a
term of 15 years.  The swap involves the receipt of  floating-rate  interest and
the  payment  of  fixed-rate  interest  at 6.71%  without  the  exchange  of the
underlying  principal  amount.  The  swap,  which  requires  biannual  net  cash
settlements  commencing  in July 1998,  has been  designated  as a hedge against
adverse  changes in market  interest  rates on  fixed-rate  debt  expected to be
issued under the shelf  registration  in the second quarter of 1998. The gain or
loss  recognized upon the expiration or settlement of the swap will be amortized
over the life of the  associated  debt as an  offset  or  addition  to  interest
expense.  The fair  value of the swap and  amount  of gain or loss  deferred  is
estimated as the amount the company  would  receive  (pay) to terminate the swap
taking  into  account the  then-current  interest  rates.  The  unrealized  loss
resulting from the fair value of the swap at December 31, 1997, was $20 million.

Lease Obligations
Future  minimum  rental  commitments  for capital  leases are as  follows:  $181
million in 1998;  $56 million in 1999; $54 million in 2000; $57 million in 2001;
$45  million  in 2002;  and $461  million  thereafter.  At  December  31,  1997,
aggregate  future  minimum  capital lease  payments were $854 million  including
interest of $326 million.  The present value of future capital lease payments at
December  31, 1997 was $528  million.  The gross and net book values of property
and  equipment  financed by capital  leases were $353 million and $202  million,
respectively,   at  December  31,  1997  and  $497  million  and  $215  million,
respectively,  at December 31,  1996.  Future  minimum  rental  commitments  for
noncancelable  operating  leases are as  follows:  $401  million  in 1998;  $355
million in 1999;  $302 million in 2000;  $232  million in 2001;  $181 million in
2002;  and $770  million  thereafter.  At December 31,  1997,  aggregate  future
minimum payments for noncancelable  operating leases were $2,241 million.  Total
rental expense for all operating leases was $361 million,  $332 million and $321
million for the years ended December 31, 1997, 1996 and 1995, respectively.

In December 1997, the company sold equipment at net book value to an independent
entity  and  leased  it back  under a six  year  noncancelable  operating  lease
agreement with options to renew the lease for an additional  three-year term and
to purchase the  equipment at various  amounts  during the lease term based upon
amounts as specified under the lease terms. At December 31, 1997,  other current
assets on the  accompanying  balance sheet included a receivable of $360 million
for the transaction proceeds, which were received in January 1998.

NOTE  8.  COMPANY  OBLIGATED  MANDATORILY  REDEEMABLE  PREFERRED  SECURITIES  OF
SUBSIDIARY  TRUST  HOLDING  SOLELY  JUNIOR   SUBORDINATED   DEFERRABLE  INTEREST
DEBENTURES OF THE COMPANY

On May 29, 1996, MCI Capital I, a wholly-owned Delaware statutory business trust
(Trust),  issued  $750  million  aggregate  principal  amount  of 8%  Cumulative
Quarterly Income Preferred  Securities,  Series A representing 30 million shares
outstanding  (preferred  securities) due June 30, 2026. The Trust exists for the
sole purpose of issuing the preferred  securities  and investing the proceeds in
the company's 8% Junior Subordinated  Deferrable Interest  Debentures,  Series A
(Subordinated  Debt Securities) due June 30, 2026, the only assets of the Trust.
The net proceeds from the issuance of the Subordinated Debt Securities were used
for general corporate purposes.

Holders  of the  preferred  securities  are  entitled  to  receive  preferential
cumulative cash distributions from the Trust on a quarterly basis,  provided the
company has not elected to defer the payment of interest due on the Subordinated
Debt  Securities to the Trust.  The company may elect this deferral from time to
time, provided that the period of each such deferral does not exceed five years.
The company  made $60 million  and $35  million in Trust  distributions  for the
years ended December 31, 1997, and 1996, respectively.  The preferred securities
are subject to mandatory redemption,  in whole or in part, upon repayment of the
Subordinated  Debt  Securities  at maturity or earlier in an amount equal to the
amount of Subordinated Debt Securities maturing or being repaid. In addition, in
the event the company  terminates the Trust,  the  Subordinated  Debt Securities
will be  distributed  to the then  holders of the  preferred  securities  of the
Trust.  The Trust assets had an estimated  fair market value of $788 million and
$750 million at December 31, 1997 and 1996, respectively.

In  connection  with the  issuance  of the  preferred  securities,  the  company
executed a Trust Agreement, an Indenture, a Guarantee Agreement,  and an Expense
Agreement.   These   agreements,   taken  together  with  the  issuance  of  the
Subordinated Debt Securities,  constitute a full, irrevocable, and unconditional
guarantee by the company of all of the Trust's  obligations  under the preferred
securities  (the  Guarantee).  The  Guarantee  Agreement  covers  payment of the
preferred  securities'  quarterly  distributions  and  payments  on  maturity or
redemption of the preferred  securities,  but only in each case to the extent of
funds held by the Trust.  If the company does not make interest  payments on the
Subordinated Debt Securities held by the Trust, the Trust will have insufficient
funds to pay such  distributions.  The  obligations  of the  company  under  the
Guarantee and the  Subordinated  Debt  Securities are  subordinate and junior in
right of payment to all senior debt of the company.

NOTE 9.  STOCKHOLDERS' EQUITY

Preferred Stock Rights Plan
In September  1994,  the company's  board of directors  adopted a  stockholders'
rights  plan  (Rights  Plan) and  declared a  dividend  of one  preferred  share
purchase  right (Right) for each  outstanding  share of common stock and Class A
common stock (collectively,  Common Shares). The Rights dividend was distributed
on October  11,  1994 to the  holders of record on that  date.  The Rights  have
attached  and will  continue  to attach to certain  future  issuances  of Common
Shares.  Each Right entitles the registered  holder to purchase from the company
one  one-hundredth  of a share of the  company's  Series E Junior  Participating
Preferred  Stock,  par value $.10 per share (Series E Preferred  Stock),  for an
initial  purchase  price of $100,  subject to  adjustment.  The Rights  Plan was
amended on November 9, 1997,  in  connection  with the Merger to avoid  WorldCom
becoming  an  "acquiring  person"  under  the  Rights  Plan as a  result  of the
approval,  execution  or delivery of the MCI  WorldCom  Merger  Agreement or the
consummation of the Merger.

The Rights will become  exercisable  upon the  occurrence  of certain  specified
events,  including a public announcement that a person or group of affiliated or
associated  persons  (Acquiring  Person)  (other  than  WorldCom  or  any of its
affiliates  as a  result  of the  approval,  execution  or  delivery  of the MCI
WorldCom  Merger  Agreement  or the  consummation  of the Merger)  has  acquired
beneficial  ownership of 10% or more of the outstanding Common Shares (more than
20.1% in the case of share  acquisitions by BT). In the event that any person or
group of affiliated  or associated  persons  becomes an Acquiring  Person,  each
holder of a Right (other than Rights beneficially owned by the Acquiring Person,
which will  become  void)  will  thereafter  have the right,  subject to certain
restrictions,  to receive upon exercise in lieu of Series E Preferred Stock that
number  of  shares of the  company's  common  stock  (or,  at the  option of the
company,  that  number of one  one-hundredth  of a share of  Series E  Preferred
Stock) determined as set forth in the Rights Plan.

For purposes of the Rights Plan, the company's board of directors has designated
10 million shares of Series E Preferred Stock,  which amount may be increased or
decreased by the board of  directors.  All Rights  expire on September 30, 2004,
unless this date is extended or the Rights are earlier  redeemed or exchanged by
the company in  accordance  with the Rights Plan.  In addition,  the Rights Plan
provides that the Rights will expire  immediately prior to the effective time of
the Merger.

Class A Common Stock
In September  1994,  the company issued 136 million shares of its Class A common
stock to BT for $4.3  billion,  which  resulted in a 20% voting  interest in the
company.  At December 31,  1997,  the Class A common  stock is  equivalent  on a
per-share  basis to the company's  common stock,  except with respect to certain
voting rights.  BT is entitled to proportionate  representation on the company's
board of directors, which currently equates to three seats. In addition to board
representation, BT is entitled to preemptive rights with respect to the issuance
of additional shares of common stock and to investor protections with respect to
certain  corporate  actions  of the  company.  Shares  of Class A  common  stock
automatically  convert  into common  stock upon  transfer  and in certain  other
events.

Class A and Common Stock  Dividends 
For each of the three years ended December 31, 1997,  1996 and 1995, the company
paid annual dividends of $.05 per share on its common stock.

NOTE 10.  STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS

Employee Stock Option Plan
The current  Employee  Stock Option Plan (Stock  Option  Plan)  provides for the
issuance  of up to 142  million  shares of  common  stock.  On an annual  basis,
pursuant to the Stock  Option  Plan,  the board of  directors  may  increase the
maximum  number of shares  available for issuance under the Stock Option Plan as
of  each  January  1,  by up to 5% of the  number  of  shares  of  common  stock
outstanding at each such date.  Options  granted under the Stock Option Plan are
exercisable  at  such  times  and in  such  installments  as  determined  by the
compensation  committee of the board of  directors.  Options  granted  under the
Stock  Option Plan may not have an option price lower than the fair market value
of the common stock on the date of the grant.

Stock  appreciation  rights may be granted in  combination  with a stock  option
either at the time of the grant or any time thereafter. As of December 31, 1997,
no stock appreciation rights had been granted.

The   compensation   committee  may  also  grant  restricted  stock  awards  and
performance  share  awards,  subject  to  such  conditions,   restrictions,  and
requirements as the committee in its sole  discretion may determine.  During the
year ended December 31, 1997, no restricted shares were granted. At December 31,
1997,  there  were  approximately  276,000  restricted  shares  outstanding.  No
performance share awards had been issued at December 31, 1997.

The   compensation   committee  may  grant  both  incentive  stock  options  and
nonqualified options under the Plan. All options granted in the last three years
have been  nonqualified  options.  These  nonqualified  options expire after ten
years, and are exercisable ratably over a three year period.

Under the Stock Option Plan,  executives  may be granted  incentive  stock units
(ISUs)  that vest over a three  year  period and  entitle  the holder to receive
shares  of the  company's  common  stock.  At  December  31,  1997,  there  were
approximately  2.3 million  ISUs  outstanding.  For the year ended  December 31,
1997, the company recognized  approximately $34 million of compensation  expense
for ISU's issued during the year. In  conjunction  with the MCI WorldCom  Merger
Agreement,  the senior  retention ISUs granted under the MCI BT Merger Agreement
were cancelled.

Directors' Stock Option Plan
The company also has a stock option plan for non-employee  directors (Directors'
Plan) that provides for the issuance of up to 2 million  shares of common stock.
Under the  Directors'  Plan,  each  non-employee  director has been granted upon
commencement  of  service as a director a  five-year  option to  purchase  up to
40,000  shares of common  stock at the closing  price of the common stock on the
date of grant. Two directors  declined such option.  The options are exercisable
after the first anniversary of the date of grant, in cumulative  installments of
25% per year.  Similar  options will be granted  automatically  to all new board
members who are not employees.  Upon the fifth  anniversary of the date of grant
of options,  the unexercised portion of the grant expires,  and a new option for
40,000 shares is granted automatically.

Both of the above plans permit the holder of an option to pay the purchase price
for stock option exercises by surrendering  shares of the company's common stock
having a fair market value equal to, or greater than, the purchase price.

Employee Stock Purchase Plan
Under the current  Employee  Stock  Purchase Plan (ESPP Plan),  up to 56 million
shares of common  stock may be  purchased  by eligible  employees of the company
through  payroll  deductions of up to 15% of their  eligible  compensation.  The
purchase price is equal to the lesser of (a) 85% of the fair market value of the
stock on the date it is  purchased  or (b) 85% of the fair  market  value of the
stock on certain  specified  valuation  dates.  During 1997 and 1996,  employees
purchased approximately 6.8 million and 6.3 million shares, respectively,  under
the ESPP Plan.

Common Stock Reserved for Future Issuance
At December 31,  1997,  96 million  shares of the  company's  authorized  common
stock,  including  69.5 million  shares under  option,  were reserved for future
issuance under the Employee and Directors' Stock Option Plans and the ESPP Plan.
The company had opted to use treasury shares to fulfill the purchases made under
these plans during the three-year period ended December 31, 1997.

Accounting for Stock Issued to Employees
The company  accounts  for its stock option  plans under  Accounting  Principles
Board (APB),  Opinion No. 25 "Accounting  for Stock Issued to Employees" and, in
accordance with the recognition requirements set forth under this pronouncement,
no  compensation  expense was  recognized for the three years ended December 31,
1997. In 1996, the company  elected to adopt SFAS No. 123  "Accounting for Stock
Based Compensation" for disclosure purposes only.

For disclosure purposes,  the fair value of each stock option grant is estimated
on the date of grant  using  the  Black-Scholes  option-pricing  model  with the
following  weighted-average  assumptions used for stock options granted in 1997,
1996,  and 1995,  respectively:  annual  dividends  of $0.05 and  actual  option
forfeitures for all three years,  expected volatility of 24.7%, 24.7% and 33.2%,
risk-free interest rate of 6.3%, 5.4%, and 7.4%, and expected life of five years
for all grants. The weighted-average  fair value of the stock options granted in
1997, 1996, and 1995 was $12.52, $9.42, and $7.83, respectively.

The fair value of each stock  purchase right under the ESPP Plan is estimated on
the  date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
following weighted-average assumptions used for stock purchase rights granted in
1997,  1996 and 1995,  respectively:  expected  volatility  of 36.5%,  30.7% and
30.2%,  risk-free interest rate of 5.2%, 5.1% and 5.7%, and expected life of one
month for all  grants.  The  weighted-average  fair value of the stock  purchase
rights granted in 1997, 1996 and 1995 was $5.78, $4.87 and $3.99, respectively.

Under the above models,  the total value of stock options granted in 1997, 1996,
and 1995 was $155 million, $195 million, and $167 million,  respectively,  which
would be  amortized  ratably  on a pro forma  basis over the  three-year  option
vesting  period,  and the total value of the stock  purchase  rights  granted in
1997, 1996 and 1995 was $40 million, $31 million, and $26 million, respectively.
Had the company determined  compensation cost for these plans in accordance with
SFAS No. 123, the company's pro forma net income and earnings per
share would have been:


<TABLE>
<CAPTION>

Year ended December 31,                             1997            1996           1995
------------------------------------------ -------------- --------------- --------------
------------------------------------------ -------------- --------------- --------------
(In millions, except per share amounts)
<S>                                             <C>               <C>             <C>    
Pro forma net income                            $     20          $1,105          $ 498

Pro forma basic earnings per share               $  0.03         $  1.61          $0.73

Pro forma diluted earnings per share             $  0.03         $  1.59          $0.72
</TABLE>

The SFAS No. 123 method of accounting does not apply to options granted prior to
January 1, 1995, and, accordingly, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.

Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>

                                                        Number       Exercise Price      Weighted-Average
                                                      of Shares          Range            Exercise Price
---------------------------------------------------------------------------------------------------------------------------
(In millions, except exercise price amounts)
---------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>                    <C>    
---------------------------------------------------------------------------------------------------------------------------
Shares under option, December 31, 1994                    62.3         $  3.44-28.75           $19.97
Options granted                                           25.2           18.38-26.50            19.13
Options exercised                                        (9.8)            3.44-26.88            15.20
Options terminated                                       (6.0)            5.38-28.25            22.37
---------------------------------------------------------------------------------------------------------------------------
Shares under option, December 31, 1995                    71.7         $  3.44-28.75           $20.13
Options granted                                           22.4           25.13-30.25            29.18
Options exercised                                       (13.6)            3.44-28.75            18.83
Options terminated                                       (5.5)            9.94-30.06            25.04
---------------------------------------------------------------------------------------------------------------------------
Shares under option, December 31, 1996                    75.0         $  9.94-30.25           $22.70
Options granted                                           13.1           29.75-42.56            36.26
Options exercised                                       (16.5)            9.94-36.25            21.03
Options terminated                                       (2.1)            9.94-42.56            29.07
---------------------------------------------------------------------------------------------------------------------------
Shares under option, December 31, 1997                    69.5         $  9.94-42.56           $25.46
---------------------------------------------------------------------------------------------------------------------------
Options exercisable, December 31, 1997                    38.7            9.94-36.25            21.83
Options exercisable, December 31, 1996                    36.4            9.94-28.75            19.91
Options exercisable, December 31, 1995                    31.1            3.44-28.75            18.17
</TABLE>


The following  table  summarizes  information  about the shares  outstanding  at
December 31, 1997:
<TABLE>
<CAPTION>

                -------------------Options Outstanding-------------------   --------Options Exercisable-----------
                  Number         Weighted-Average                               Number
Range of          Outstanding   Remaining Contractual  Weighted-Average          Outstanding    Weighted-Average
Exercise Prices   (In millions)  Life (Years)          Exercise Price           (In millions)  Exercise Price
---------------   -------------  ------------          --------------           -------------  --------------
<S>                     <C>           <C>                      <C>                      <C>             <C>    
$ 9.94-14.88             3.4            4.1                    $10.38                    3.4            $10.38
15.81-19.56             18.2            6.6                     18.07                   12.7             17.94
20.06-24.13              6.7            6.0                     21.09                    6.6             21.07
25.00-30.25             28.9            8.4                     28.28                   15.9             27.62
35.25-42.56             12.3            9.9                     36.29                    0.1             36.25
                                                             
                        69.5                                                            38.7
                                                                      
</TABLE>

At  December  31,  1997,  the  company  had an  aggregate  of 11 million  shares
available for future grant under both its Employee and  Directors'  Stock Option
Plans combined.

NOTE 11.  EMPLOYEE BENEFIT PLANS

Pension Plans
The company maintains a noncontributory  defined benefit pension plan (MCI Plan)
and  a   supplemental   pension  plan   (Supplemental   Plan).   Western   Union
International,  Inc.  (WUI),  a subsidiary  of the  company,  also has a defined
benefit pension plan (WUI Plan).  Collectively,  these plans cover substantially
all employees who work 1,000 hours in a year.

The MCI Plan and the  Supplemental  Plan provide pension benefits that are based
on the employee's compensation for each year of service prior to retirement. The
WUI Plan provides pension benefits based on the employee's compensation for each
year of service after 1990 and prior to retirement.

The company's policy is to fund the MCI Plan and the WUI Plan in accordance with
the funding  requirements of the Employee Retirement Income Security Act of 1974
and within the limits of allowable tax  deductions.  The assets of the plans are
primarily invested in corporate equities,  government securities,  and corporate
debt securities.

Net periodic pension cost includes:
<TABLE>
<CAPTION>

Year ended December 31,                                                 1997               1996                1995

---------------------------------------------------------------------------------------------------------------------------
(In millions)
<S>                                                                     <C>                 <C>                 <C>   
Service cost during the period                                          $57                 $45                 $40

Interest cost on projected benefit obligation                            34                  29                  25

Actual return on plan assets                                            (70)                (54)                (70)

Net amortization and deferral                                            32                  22                  48

===========================================================================================================================
Net pension cost                                                        $53                 $42                 $43
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
The company's pension asset consists of:

December 31,                                                            1997               1996
---------------------------------------------------------------------------------------------------------------------------
(In millions)
<S>                                                                   <C>                  <C>        
Plan assets at fair value                                             $ 494                $453
Accumulated benefit obligation including vested
  benefits of $390 in 1997 and $307 in 1996                            (447)              (347)
===========================================================================================================================
Plan assets in excess of accumulated
  benefit obligation                                                    $47               $ 106
===========================================================================================================================

Plan assets at fair value                                              $494               $453

Projected benefit obligation for service
  rendered to date                                                     (563)              (432)
---------------------------------------------------------------------------------------------------------------------------
Plan assets (less than) in excess of projected benefit obligation       (69)                21
Unrecognized net loss (gain) from past experience
  different from that assumed                                            35                 (1)
Prior service cost not yet recognized in net
  periodic pension cost                                                  31                 30
Unrecognized net asset at January 1, 1986
  being recognized over 16 years                                         (3)                (3)
===========================================================================================================================
Total (liability) prepaid pension asset                                 $(6)               $47
===========================================================================================================================
</TABLE>
The  discount  rate and rate of increase in future  compensation  levels used in
determining the actuarial present value of the projected  benefit  obligation at
December 31,  1997,  was 7.0% for both plans and 5.75% and 5.00% for the MCI and
WUI Plans, respectively.  At December 31, 1996, the discount rate used was 7.75%
for both plans, and the rate of increase in future compensation levels was 5.75%
and 5.00% for the MCI and WUI plans,  respectively.  The expected long-term rate
of  return on assets in 1997 and 1996 was 9.0% for the MCI Plan and 8.5% for the
WUI Plan.

Annual  service cost is  determined  using the Projected  Unit Credit  actuarial
method,  and prior service cost is amortized on a  straight-line  basis over the
average remaining service period of employees.

Effective January 1, 1996, the company amended the MCI Plan. Retirement benefits
are calculated by first  establishing  an initial  balance for each  participant
based on the present value of benefits  earned  through 1995.  For service after
1995,  participants  accrue  benefits  based on a specific  percentage of annual
salary and earn interest credits based on the prior year's balance at a specific
interest rate. Employees who are age 50 or older and have at least five years of
service as of December 31,  1995,  will have their  benefits  continue to accrue
under the previous  formula  through the year 2000.  Effective  January 1, 1997,
employees of MCI  Systemhouse  Corp.  became  eligible to participate in the MCI
Plan.


<PAGE>



Employee Stock Ownership Plan and 401(k) Plans
The  company has  combined  employee  stock  ownership  (ESOP) and 401(k)  plans
covering substantially all of its employees. The 401(k) plans allow employees to
defer pretax income in accordance with the requirements of Internal Revenue Code
Section  401(k).  The company  matches  employee  contributions  up to a certain
limit.  Participants vest in the company's  matching  contributions at a rate of
20% per year of  service  and are  immediately  100%  vested  in their  elective
deferrals. The company contributed approximately 1.5 million shares, 1.6 million
shares,  and 1.7 million  shares of its common stock as the  company's  matching
contribution  to the 401(k)  plans for the plan years ended  December  31, 1997,
1996, and 1995, respectively. The company suspended contributions to the ESOP in
1994.

WUI sponsors a 401(k) savings plan for its collectively bargained employees (WUI
401(k)).  The savings plan is intended to meet  requirements of Internal Revenue
Code Section  401(k).  WUI 401(k)  participants  vest in the company's  matching
contributions  at a rate of 20% per year of  service  and are  immediately  100%
vested in their elective deferrals. The company contributed approximately 15,000
shares,  18,000 shares,  and 24,000 shares of its common stock to the WUI 401(k)
for the plan years ended December 31, 1997, 1996, and 1995, respectively.

Employee Severance Plan
The company has a severance  plan covering  substantially  all of its employees,
which  entitles  employees to receive  severance pay benefits in the event their
employment  is  permanently  terminated as a result of a  reduction-in-force or
other internal  reorganizations as specified in the severance plan. Each covered
employee is eligible to receive a severance  benefit  based on years of service.
For the year ended  December 31, 1997,  approximately  $103 million of severance
under the plan was included in sales,  operations and general expenses and other
accrued  liabilities in connection  with work force  alignments  associated with
reorganization  efforts.  As a result of its  decision  to sell and  discontinue
certain non-core  operations and streamline other  operations,  the company will
eliminate  approximately 4,500 positions in specific areas of the company. These
employees include  management and non management,  mostly in staff,  support and
administrative  positions.  Approximately  3,200 of these employees had left the
company by March 31, 1998. The remaining  employees are expected to leave by the
end of 1998.

NOTE 12. INCOME TAXES
<TABLE>
<CAPTION>

The components of the total income tax provision are:

Year ended December 31,                                   1997              1996             1995
---------------------------------------------------------------------------------------------------------------------------
(In millions)
<S>                                                       <C>               <C>              <C>    
Current
Federal                                                   $ 21              $387             $182
State and local                                              -                68               23
---------------------------------------------------------------------------------------------------------------------------
Current income tax provision                                21               455              205

Deferred
Federal                                                     57               276              129
State and local                                             12                22               15
---------------------------------------------------------------------------------------------------------------------------
Deferred income tax provision                               69               298              144
---------------------------------------------------------------------------------------------------------------------------
Total income tax provision                                $ 90              $753             $349
===========================================================================================================================
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

A  reconciliation  of the  statutory  federal  income tax rate to the  company's
effective income tax rate is:

Year ended December 31,                                     1997            1996             1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>              <C>    
Statutory federal income tax rate                           35%               35%              35%
State and local income taxes, net
  of federal income tax effect                               3                 3                3
Nondeductible amortization                                  10                 1                2
Nontaxable dividends                                        (7)               (1)              (1)
R&D tax credits                                             (8)               (1)              (1)
Other                                                        5                 1                1
===========================================================================================================================
Effective income tax rate                                   38%               38%              39%
===========================================================================================================================
</TABLE>
In 1997, 1996, and 1995, the company recorded a tax benefit of $44 million,  $60
million,  and $25 million,  respectively,  to additional paid-in capital for tax
deductions related to common stock transactions with its employee benefit plans.

At December  31, 1997,  for federal  income tax  purposes,  the company had $179
million of Alternative Minimum Tax (AMT) credit carryforwards available that had
no expiration date. In addition,  the company had available $576 million of U.S.
net operating loss carryforwards  expiring through 2012, $121 million which were
subject  to  limitation  due to change in  ownership  control,  $159  million of
Canadian net operating loss carryforwards  expiring through 2004 and $53 million
of U.K. net operating loss carryforwards which had an indefinite life.

At December 31, 1997,  1996,  and 1995,  the company's  net deferred  income tax
liability was comprised of the following:
<TABLE>
<CAPTION>

                                                          1997              1996             1995
---------------------------------------------------------------------------------------------------------------------------
(In millions)
<S>                                                   <C>              <C>              <C>    
     Deferred income tax asset                        $    929         $     550        $     587

     Deferred income tax liability                      (2,343)           (1,871)          (1,627)
===========================================================================================================================
Net deferred income tax liability                      $(1,414)          $(1,321)         $(1,040)
===========================================================================================================================

The components of these amounts are:
     Communications system                             $(2,373)          $(1,885)         $(1,577)
     Customer discounts                                    (22)              (77)             (87)
     Allowance for uncollectibles                           37               114               56
     Reorganization and realignment expenses               228                34               61
     Domestic equity investments                            (6)               62               38
     Alternative minimum and general
       business tax credits                                 41                 -              104
     Net operating loss carryforward                       296                96               33
     Capital losses carryforward                            64                 -                -
     Other, net                                            321               335              332
===========================================================================================================================
Net deferred income tax liability                      $(1,414)          $(1,321)         $(1,040)
===========================================================================================================================
</TABLE>
The company  believes  that it is more likely than not that it will  realize the
deferred  income tax asset and,  accordingly,  no valuation  allowance  has been
recorded in the three years ended December 31, 1997.

NOTE 13.  ASSET DISPOSALS

In connection  with an asset  disposition  plan adopted in the fourth quarter of
1997, the company will dispose of certain equipment  primarily in the first half
of 1998.  The net book value of the assets to be  disposed  of  aggregated  $265
million with no significant proceeds expected. The productive assets included in
the  disposition  plan were  identified  in  response  to  changes  in  specific
customer,  product  and  technology  strategies.  The  major  part of this  plan
included  the early  replacement  of central  processing  units and data storage
devices.  The company reassessed and consequently revised its strategies related
to data  processing and storage in order to maximize  facility space in its data
centers which is critical to support  growth in products  that require  customer
collocation  in such  centers.  The company  will replace  this  equipment  with
devices that offer  greater  processing  and storage  capabilities  with reduced
operating and maintenance  costs and less floor space.  Depreciation  expense in
1997 includes $60 million representing the net book value of the assets included
in the  disposition  plan which had been  removed  from  service by December 31,
1997.  The company  will  continue to use the  remaining  assets  until they are
removed from service and accelerate the recognition of  depreciation  expense on
these assets over their shortened  remaining service period. The company expects
that  substantially  all of the  remaining  assets  will be  decommissioned  and
disposed of by June 30, 1998.  This change will result in  estimated  additional
depreciation  expense of up to  approximately  $190 million in the first half of
1998. The company had been  depreciating  this  equipment  over estimated  lives
averaging six years.  This would compare with an average life of four years, had
the assets been  depreciated  over the revised service period as contemplated in
the fourth quarter 1997 disposition plan.  Moreover,  had the company originally
depreciated these assets ratably over such revised service period,  depreciation
expense,  exclusive  of the $60  million  referred  to  above,  would  have been
approximately $59 million,  $55 million and $43 million higher in 1997, 1996 and
1995, respectively.

During the third quarter of 1995, the company recorded a $520 million charge for
an asset write-down.  The write-down primarily related to communications systems
and administrative  assets that had become redundant due to the consolidation of
its core business and centralization of major  administrative  functions or were
no longer aligned with strategic product offerings. The amount of the write-down
was measured in conformity with Statement of Financial  Accounting Standards No.
121  "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed of."

NOTE 14. CONTINGENCIES

The  company,  in the  normal  course  of  business,  is a party to a number  of
lawsuits and  regulatory  and other  proceedings  and has included  accrued loss
contingencies  in other accrued  liabilities  for certain of these matters.  The
company does not expect that the results in these lawsuits and proceedings  will
have a material adverse effect on the consolidated financial position or results
of operations of the company.

On November 4, 1996, and thereafter, and on August 25, 1997, and thereafter, the
company  and all of its  directors,  including  the two  directors  who are also
executive  officers of the company and the three  directors  elected by BT, were
named as defendants  in a total of 15 complaints  filed in the Court of Chancery
in the State of Delaware.  BT was named as a defendant in 13 of the  complaints.
The complaints were brought by alleged stockholders of the company, individually
and  purportedly  as class  actions on behalf of all other  stockholders  of the
company. In general, the complaints allege that the company's directors breached
their  fiduciary duty in connection  with the MCI BT Merger  Agreement,  that BT
aided and abetted those breaches of duty,  that BT owes fiduciary  duties to the
other  stockholders  of the  company  and  that  it  breached  those  duties  in
connection  with the MCI BT Merger  Agreement.  The complaints  seek damages and
injunctive and other relief.

On or about October 8, 1997, all of the company's  directors,  including the two
directors who are also executive officers of the company and the three directors
elected by BT,  were named as  defendants  in a purported  derivative  complaint
filed in the  Court  of  Chancery  in the  State of  Delaware.  BT and  Tadworth
Corporation  were  also  named as  defendants,  and the  company  was named as a
nominal  defendant.  The plaintiff,  derivatively  and on behalf of the company,
alleges  breach of  fiduciary  duty by the  company's  directors  and aiding and
abetting  those  breaches  of duty by BT in  connection  with the MCI BT  Merger
Agreement and WorldCom's  exchange offer. The complaint seeks injunctive relief,
damages, and other relief.

One of the  purported  shareholder  class actions  pending in Delaware  Chancery
Court has been amended and plaintiffs in four of the other purported shareholder
class  actions have moved to amend their  complaints to name WorldCom and Merger
Sub. as  additional  defendants. They  generally  allege  that the  defendants
breached their fiduciary duty to shareholders in connection with the Merger, the
agreement to pay a termination fee to WorldCom,  and alleged  discrimination  in
favor of BT in connection with the Merger.  They seek,  inter alia,  damages and
injunctive relief  prohibiting the consummation of the Merger and the payment of
the inducement fee to BT.

Three  complaints  have been filed in the federal  district court in Washington,
D.C., as class  actions on behalf of  purchasers of the company's  shares during
three different periods from; August 14, 1997 through August 22, 1997; August 14
through August 20, 1997 and July 10 through July 22, 1997. The three  complaints
allege  that the company and certain of its  officers  and  directors  failed to
disclose material information about the company,  including that the company was
renegotiating  the terms of the MCI BT Merger  Agreement dated November 3, 1996.
The complaints seek damages and other relief.

The  company  believes  that all of the  complaints  are  without  merit and the
company  presently  does not expect that the above  actions will have a material
adverse effect on the consolidated  financial  position or results of operations
of the company.


<PAGE>


NOTE 15.  BASIC AND DILUTED EARNINGS PER SHARE

The company implemented SFAS No. 128 in 1997, which requires certain disclosures
relating  to  the  calculation  of  earnings  per  share.  The  following  is  a
reconciliation  of the numerators and  denominators of the basic and diluted EPS
computations for net income.

Basic Earnings Per Share
<TABLE>
<CAPTION>

For the Year ended December 31,                      1997                  1996              1995
-------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
<S>                                                       <C>            <C>              <C>    
Net income                                                $ 149          $ 1,202          $   548
                                                          ========================================
Weighted average shares of common
   stock outstanding                                        693              687              680
                                                          ========================================

Basic earnings per share for net income                   $0.22            $1.75         $   0.81
                                                          ========================================
</TABLE>
SFAS No. 128  replaces  primary  EPS with basic EPS and  excludes  the effect of
common  stock  equivalents  when  computing  basic EPS. In previous  years,  the
company  included the effect of common stock  equivalents for the calculation of
primary EPS in  accordance  with APB Opinion No. 15. At December 31,  1996,  and
1995, primary EPS were disclosed as $1.73 and $0.80, respectively.

Diluted Earnings Per Share
<TABLE>
<CAPTION>
For the Year ended December 31,                      1997                  1996              1995
-------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
<S>                                                 <C>                <C>                  <C>  
Net income                                         $  149              $ 1,202              $ 548
                                                   ==============================================

Adjustment of shares outstanding:
  Weighted average shares of common
      stock outstanding                               693                  687                680
  Shares of common stock issuable upon the
    assumed exercise of common stock
    equivalents                                        71                  55                  52
  Shares of common stock assumed
    repurchased for treasury                          (57)                (47)                (45)
         `                                                                             
Adjusted shares of common stock and
  common stock equivalents for
  computation                                         707                 695                 687
                                                   ===============================================

Diluted earnings per share for net income          $0.21               $ 1.73               $0.80
                                                   ===============================================
</TABLE>
SFAS No. 128 requires that the average stock price for the period always be used
in determining the number of treasury  shares assumed  repurchased for treasury,
rather  than the  higher of the  average  or ending  stock  price,  as  required
previously  under APB Opinion No. 15.  Accordingly,  fully  diluted EPS has been
restated  from $1.72 and $0.79 at December 31, 1996 and 1995,  respectively,  to
reflect diluted EPS in accordance with SFAS No. 128.


<PAGE>



The following  provides  information  regarding those options to purchase common
stock that were excluded from the  computation of diluted EPS under the treasury
stock method because the options'  exercise  prices was greater than the average
market price of the common  shares.  Had they been included in the  computation,
these options would have had an antidilutive effect on EPS.
<TABLE>
<CAPTION>

For the Year ended December 31,                               1997              1996               1995
<S>                                                  <C>                        <C>                <C>    <C>    <C>
Number of Options Excluded:                          0.2 million                20.0 million       19.8 million

Price Range Covered by Excluded Options:             $38.38 - $42.56            $28.00 - $30.25    $22.50 - $28.75

Date Range for Expiration of Options:                 May 7, 2007 -             June 28, 2003 -     April 27, 2003 -
                                                         July 9, 2007             November 2, 2006    December  5, 2005
</TABLE>
NOTE 16. SELECTED QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended                                  Dec. 31,          Sept. 30,          June 30,          Mar. 31,
                                                     1997              1997               1997              1997
---------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
<S>                                                    <C>                <C>              <C>               <C>    
Revenue                                                 $5,108            $4,819           $4,843            $4,883
Operating expenses:
  Cost of services                                       2,866             3,018            2,547             2,525
   Sales, operations and general                         1,912             1,444            1,265             1,319
  Depreciation including asset-write-down                  607               543              479               453
Income (loss) from operations                             (277)             (186)             552               586
Equity in income (losses) of affiliated companies          (37)              (46)             (24)              (37)
Net income (loss)                                         (244)             (182)             280               295
Basic earnings (loss) per common share                    (.35)             (.26)             .41               .43
Diluted earnings (loss) per common share                  (.35)             (.26)             .40               .42
Weighted average number of common shares                   703               695              689               685
Weighted average number of common shares - assuming dilution 703             695              708               701

Three months ended                                  Dec. 31,          Sept. 30,          June 30,          Mar. 31,
                                                          1996              1996             1996              1996
---------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)

Revenue                                                 $4,753            $4,685           $4,565            $4,491
Operating expenses:
  Cost of services                                       2,433             2,370            2,342             2,344
  Sales, operations and general                          1,310             1,304            1,229             1,185
  Depreciation                                             441               430              412               381
Income from operations                                     569               581              582               581
Equity in income (losses) of affiliated companies          (28)              (28)             (45)              (55)
Net income                                                 303               304              300               295
Basic earnings per common share                            .44               .44              .44               .43
Diluted earnings per common share                          .44               .44              .43               .42
Weighted average number of common shares                   685               685              689               689
Weighted average number of common shares -
 assuming dilution                                         694               691               698               701
</TABLE>
Since there are changes in the  weighted  average  number of shares  outstanding
each  quarter,  the sum of earnings  per common and common  equivalent  share by
quarter may not equal the total share for the applicable year.

EPS amounts have been restated to conform to SFAS No. 128.

------------------------------------------------------------








Concert is a  trademark  of  Concert  Communications  Company  and is used under
license.


<PAGE>


REPORT OF  MANAGEMENT  

The  management  of the  company is  responsible  for the
financial information and representations contained in the financial statements,
notes and all other sections of the annual report. The financial statements have
been  prepared in  conformity  with  generally  accepted  accounting  principles
appropriate under the circumstances to reflect,  in all material  respects,  the
substance of events and  transactions  which have  occurred.  In  preparing  the
financial  statements,  it is necessary that management make informed  estimates
and judgments  based on currently  available  information in order to record the
results of certain events and  transactions.  

The  company  maintains  a  system  of  internal  controls  designed  to  enable
management  to  meet  its   responsibility   for  reporting  reliable  financial
information.  The system is designed to provide reasonable assurance that assets
are safeguarded  and  transactions  are recorded and executed with  managements
authorization.  Internal control systems are subject to inherent limitations due
to the necessity to balance costs incurred with benefits  provided.  The company
believes  that the  existing  system of internal  controls  provides  reasonable
assurance that errors or irregularities  that could be material to the financial
statements are prevented or would be detected in a timely manner.

The board of directors  pursues its oversight role for the financial  statements
through its audit committee,  which is comprised solely of directors who are not
officers or employees of the company. They are responsible for engaging, subject
to stockholder approval, the independent accountants.  The audit committee meets
periodically  with  management and the  independent  accountants to review their
activities in connection  with  financial  reporting  matters.  The  independent
accountants have full and free access to meet with the audit committee,  without
management  representatives present, to discuss the results of their examination
and the adequacy and quality of internal controls and financial reporting.

The  report  of our  independent  accountants,  Price  Waterhouse  LLP,  appears
herewith.  Their  audit of the  financial  statements  includes  a review of the
companys  system of  internal  controls  and  testing of records as required by
generally accepted auditing standards.

/s/ David M.Case

David  M.  Case 
Vice  President  and  Controller  
April  9,  1998 


<PAGE>

  REPORT  OF INDEPENDENT  ACCOUNTANTS 

To the Board of Directors and Stockholders of MCI Communications Corporation

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  income  statements,  statements  of cash  flows and  stockholders
equity present fairly, in all material  respects,  the financial position of MCI
Communications  Corporation and its  subsidiaries at December 31, 1997 and 1996,
and the results of their  operations  and their cash flows for each of the three
years in the period ended  December  31,  1997,  in  conformity  with  generally
accepted   accounting   principles.   These   financial   statements   are   the
responsibility of the companys management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ Price Waterhouse LLP 

Price Waterhouse LLP
April 9, 1998 
Washington, D.C.