Exhibit 13

       Annual Report of CFW Communications Company to its Shareholders for the
year ended December 31, 1997.

<PAGE>


FINANCIAL HIGHLIGHTS
CFW Communications Company

<TABLE>
<CAPTION>
===============================================================================================================
                                                                                 Amount of           Percent
                                             1997               1996             Increase           Increase
---------------------------------------------------------------------------------------------------------------
<S><C>
Operating Revenues                      $  59,010,000      $  49,948,300       $  9,061,700           18.1%
Operating Expenses                      $  39,597,800      $  34,533,300       $  5,064,500           14.7%
Operating Cash Flows(a)                 $  28,608,400      $  23,824,600       $  4,783,800           20.1%
Operating Income                        $  19,412,200      $  15,415,000       $  3,997,200           25.9%
Net Income(b)                           $  12,220,900      $   9,549,700       $  2,671,200           28.0%
Net Income Per Share - Diluted(b)       $        0.94      $        0.73       $       0.21           28.8%
Cash Dividends Per Share                $       0.412      $       0.392       $       0.02            5.1%
Average No. Of Common
   Shares Outstanding - Diluted            13,055,800         13,056,100               (300)           -
Investment In Property
   & Equipment                          $ 137,703,200      $ 127,196,100       $ 10,507,100            8.3%
===============================================================================================================
</TABLE>

(a) Operating Income before depreciation and amortization.
(b) Excluding gain on sale of investment and loss on write-down of investment,
    1997 net income was $10,788,700 and 1997 net income per common share -
    diluted was $0.83, an increase over the prior year of 13.0% and 13.7%,
    respectively.

                           [3 BAR GRAPHS SHOWN HERE]


                          Operating
               Net          Cash         Operating
             Income         Flow          Revenue
                        (in millions)

1993           7.2          15.3            27.3
1994           7.6          17.3            32.2
1995           8.5          19.9           43.10
1996           9.5          23.8            49.9
1997          12.1          28.6            59.0








                                  Table of Contents
        Letter to Shareholders                                              2
        Key Highlights                                                      6
        Integrated Full-Service Solutions                                   7
        Consolidated Financial Statements                                  14
        Independent Auditor's Report                                       26
        Management's Discussion & Analysis                                 27
        Board of Directors & Executive Officers                            32
        General Information                                 Inside Back Cover

                                       1

<PAGE>


LETTER
to the shareholders


[GRAPHIC APPEARS HERE]


We entered 1997 with excitement and anticipation, looking forward to the
celebration of our company's 100th Year Anniversary. It's a heritage of which we
are extremely proud, and one on which we have built a solid foundation for the
future. Looking back, we not only celebrated a centennial of providing
high-quality services - but also started our quest for a second hundred years as
a regional, full-service telecommunications provider. In year 101, we are firmly
positioned to capitalize on the dynamic growth opportunities of the
communications industry and bring integrated state-of-the-art communications
solutions to an expanding service region.

     A highlight of 1997 was our launch of Personal Communications Services, a
fully-digital wireless phone service marketed under the Intelos brand. In
conjunction with this service, we opened our first integrated retail stores
throughout central and western Virginia. With Personal Communications by
Intelos, our serviced communities have the latest in digital wireless
communications and we have the flagship product, distribution channels, and
network facilities from which to expand and implement a full-service
communications strategy. In 1997, we also introduced high-speed wireless
internet access and long distance telephone services. Additionally, we laid the
foundation for continued growth in telephone services, including an aggressive
strategy for expanded local telephone and long distance services for surrounding
communities. These accomplishments, and many others, have enhanced our portfolio
of services and represent significant long-term growth opportunities for CFW.

Financial Growth

Operating revenues were $59.0 million in 1997, an increase of 18% over the
previous year. Operating cash flows were $28.6 million, an increase of 20% over
1996. Operating income was $19.4 million, a 26% increase over last year. These
record results reflect strong customer growth in our cellular, paging, and
wireless cable operations, solid contributions from our telephone operations,
and doubling of our directory assistance calling volume.

     Net income for 1997 was $12.2 million, or $.94 per share - diluted,
including a $5.1 million ($3.1 million after tax, or $0.24 per share) gain on
the sale of our investment
                         [CAPTION ON LEFT SIDE OF PAGE]
INTELOS 1997
COVERAGE AREA
[MAP]
INTELOS
COVERAGE
PCS PRIMEC
COVERAGE AGEA
INTELOS CUSTOMERS
ENJOY A ROBUST
DIGITAL NETWORK.
ACROSS THE STATE AND
ACROSS THE NATION.
                                       2

<PAGE>


[GRAPHIC APPEARS HERE]

in the Roanoke MSA Cellular Partnership and a $2.8 million ($1.7 million after
tax, or $0.13 per share) loss on the write-down of our investment in American
Telecasting, Inc. Exclusive of these investment transactions, earnings for 1997
were $10.8 million, or $0.83 per share, a 13% increase over net income of $9.5
million, or $0.73 per share - diluted for 1996. These earnings results reflect
the aforementioned growth from our consolidated operations, partially offset by
$0.8 million of equity losses reflecting our share of the operating losses
associated with our investments in Personal Communications Services (PCS)
alliances that commenced operations in Virginia in the fourth quarter of 1997.

Strategic Accomplishments

The Company's accomplishments in 1997 clearly demonstrate our ability to plan
for and implement key strategic objectives. While many PCS providers were just
getting started, we diligently went about raising capital, building a
substantial contiguous digital network, and becoming the first in our region,
and one of the first in the nation, to offer PCS throughout rural markets.

     As managing partner and the largest owner in the Virginia PCS Alliance,
L.C. and West Virginia PCS Alliance, L.C., we have designed and are deploying a
robust digital PCS network to serve an area populated by nearly five million
people covering central and western Virginia and most of West Virginia. In
Virginia, we now offer Personal Communications by Intelos in eleven cities and
their surrounding communities. By the end of 1998, our PCS network will have
expanded to include the major West Virginia markets of Charleston, Huntington,
Clarksburg, Fairmont, Morgantown, and their surrounding communities. And with
national roaming agreements in place, our customers can now look forward to the
benefits of digital PCS services in over 600 cities nationwide.

     In 1997, we experienced continued growth in telephone access lines and
associated features. Additionally, services such as voicemail and paging
exhibited solid subscriber growth, up 25% and 31%, respectively, from the
previous year. We also introduced long distance services to our local telephone
service area, adding nearly 4,000 customers in the fourth quarter, and are now
expanding these services to surrounding communities. Also, in early 1998, we
will begin
                        [CAPTION ON RIGHT SIDE OF PAGE]
BEGINNING WITH PCS.
CFW HAS AN OPPORTUNITY
TO DEPLOY ITS INTEGRATED
SOLUTIONS STRATEGY
ACROSS VIRGINIA AND
WEST VIRGINIA

                                       3

<PAGE>

offering competitive local telephone services to selected cities within the
region, including Charlottesville and Staunton, Virginia.

     Since first introducing internet services in late 1995, we continue to
experience strong growth, ending the year with more than 4,500 business and
residential customers. To complement this service, we began offering high-speed
wireless internet access in Charlottesville and the surrounding communities
during the second half of 1997. This service is efficiently transmitted through
the Company's wireless cable television system and provides internet customers
with a state-of-the-art performance alternative. Our plan is to expand the
high-speed internet service into our remaining wireless cable markets during
1998.

[GRAPHIC APPEARS HERE]

     Using an experimental license from the FCC in 1997, we participated with a
consortium of manufacturers to test the transmission of two-way digital
telephone and internet access services over wireless cable spectrum. The test
was successful and we await further FCC rulemaking in 1998 which would permit
commercial use of our wireless cable spectrum for two-way transmissions.

     As previously mentioned, 1997 was an exceptional growth year for our
directory assistance services. We entered the year handling approximately
100,000 calls per average business day. Today, we are handling more than 220,000
calls per average business day. We are pleased to have been recognized by AT&T
as one of their premier directory assistance service providers. We are also
pleased to have commenced providing directory assistance services to GTE
Mobilnet customers in two states and to our own Intelos customers in Virginia.

Integrated, Full-Service Communications Provider

In October 1997, we opened our first integrated communications retail store in
Charlottesville, Virginia. The store showcases Personal Communications by
Intelos and features a wide variety of communications services including long
distance, paging, cable television, internet access, security alarm and business
telephone services. Indeed, we now service this market with a complete package
of voice, data and video solutions. This reflects a totally integrated and
full-service philosophy that many local telephone, cable, and long distance
providers are still striving to achieve.

     We are replicating our integrated, full-service strategy throughout central
and western Virginia and West Virginia. In 1997, we opened six integrated
communications retail stores. Each store showcases Personal Communications by
Intelos and offers a variety of advanced communications services. Our strategic
plan calls for
                         [CAPTION ON LEFT SIDE OF PAGE]
DIRECTORY ASSISTANCE
Calls from anywhere
in the United States
IN 1997.
DIRECTORY ASSISTANCE
CONTRIBUTED MORE
THAN $10 MILLION
TO REVENUES, AND
ASSISTED WITH MORE
THAN 50 MILLION
CUSTOMER INQUIRIES.
                                       4

<PAGE>

additional retail storefronts to open in 1998, providing a broader service area
for residents and businesses of Virginia and West Virginia, and leading the way
for our integrated, full-service communications concept.

      In today's competitive environment, it is critical to provide quality
customer care and innovative product packaging. In 1998, we will open our new
integrated customer care center that will allow customers to address their
diverse communications needs with just one call. Our unmatched portfolio of
services will also enable us to introduce unique service bundles aimed at
increasing customer loyalty, revenues, and multiple-service customers.

Our Future

These are truly dynamic times for CFW. As we move forward into the future, we
are well positioned to capitalize on the growth opportunities within our
expanded region. Our challenge is to continue to sharpen our focus on the core
principles and values that have enabled us to distinguish ourselves within the
industry and to differentiate ourselves from an ever increasing number of
competitors. Today, you can be confident that CFW is a company with the
infrastructure for robust growth. Our comprehensive family of integrated,
high-quality service offerings are in place; so is our commitment to our
customers, our shareholders, our employees, and our communities.

[GRAPHIC APPEARS HERE]

     CFW ended 1997, our centennial year, with more than 35,000 telephone access
lines and strong growth in internet, long distance, and network services. Our
wireless services, introduced to a five-county region in the early nineties,
have built a base of nearly 30,000 cellular and paging customers. Looking ahead,
we foresee the opportunity for unprecedented customer growth in wireless
services, as we and our alliances introduce PCS services to communities across
Virginia and West Virginia.

     It is our belief that now, more than at any other time in our history, we
are strategically prepared to face the challenges that lie ahead, and capitalize
on the opportunities that are presented to us. We look forward to an exciting
1998, and the continued growth of our services into an expanded geographic
region. Thank you for your continued support.


/s/ Robert S. Yeago, Jr.                   /s/ James S. Quarforth
---------------------------                ---------------------------

Robert S. Yeago, Jr.                       James S. Quarforth
Chairman of the Board                      President and Chief Executive Officer

                                       5

<PAGE>


 <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<PAGE 6 TEXT IS MISSING>>>>>>>>>>>>>>>>>>>>>>>
KEY
HIGHLIGHTS
for the year
Intelos
Personal Communications Services (PCS), branded Intelos, is a fully-digital
wireless service that combines the functionality of a home or business phone
with the mobility of wireless. PCS provides superior voice quality, clarity, and
privacy, plus incorporates standard features such as Caller ID, Call Waiting,
Three Way Conferencing, Alphanumeric text messaging, an extended local calling
area, and first incoming minute free. Some handsets, like the one shown, can
switch between digital PCS and cellular services.

o Commenced offering Personal Communications Services in eleven cities and their
surrounding communities in central and western Virginia - becoming the first in
our region, and one of the first in the nation, to offer this state-of-the-art
digital service to rural communities. Further growth opportunities lie ahead as
we launch service in West Virginia in 1998.

o Recognized for our quality service, we doubled directory assistance calling
volume as we began providing services to AT&T customers seeking numbers in the
Mid-Atlantic region. We also began providing similar services to GTE wireless
customers in Virginia and Pennsylvania.

o Commenced offering long distance services in our local service area,
attracting nearly 4,000 residential customers in the fourth quarter of 1997 and
laying the groundwork to offer such service to nearby communities in 1998.

o Launched high-speed wireless internet service in Charlottesville and
surrounding areas-meeting customer demands for speed. Customers enjoy download
performance that is significantly faster than traditional services.

o Opened integrated communications retail stores in Charlottesville, Lynchburg,
and Roanoke. The stores showcase Personal Communications by Intelos and
offer a wide array of communications services.

o Played a key role in the deployment of a local area school computer
network, a two-year project which began as The Educational Challenge
issued by the CFW Communicatons Foundation. Today, students and
educators enjoy a robust network connecting them to the world.



                                                       INTELOS 1997
                                                       COVERAGE AREA
                                                             2


                                                   REGIONAL SERVICE AREA
                                                             3


                                                   DIRECTORY ASSISTANCE
                                                             4


KEY
HIGHLIGHTS

 <<<<<<<<<<<<<<<<<<<<<<<<<ABOVE LINES OF TEXT IS WHAT WAS IN FILE>>>>>>>>>>>>>>

                                       6

<PAGE>


INTEGRATED
full-service solutions


[GRAPHIC APPEARS HERE]


Total Communications

Our strategy to become the region's premier provider of integrated
communications solutions is driven by a strong desire to service the needs of
our customers. Our traditional voice solutions, network facilities, wireless
alternatives, cable television, and internet connectivity, combined with the
recent addition of Personal Communications by Intelos, positions us to deliver a
comprehensive range of services that span video, voice, and data in all of its
forms.

Setting the Standard

Through innovation, a bold vision for the delivery of integrated solutions, and
the most comprehensive family of services available, CFW is fast defining the
standard for all communications service providers. CFW customers can select the
exact set of communications services they desire, and few companies can match
our combination of depth, breadth, or community presence. We also set the
standard for support, consistently recognized as one of the top-rated service
providers in our region. Soon we will offer our customers a single telephone
number to support our entire line of services, and the ability to consolidate
all of their CFW services on a single bill.

Single Source

CFW's total integration concept is supported by an expanded retail outlet
strategy. In these conveniently located "soft-tech" centers, customers can
comfortably experience state-of-the-art communications services in a relaxed
environment. The outlets showcase Personal Communications by Intelos, and
reinforce our extensive ability to serve both business and residential
customers.

Seamlessly integrated, full-service solutions from a regional provider with a
track record for excellent service, value, and dependability. For important
connections, the choice is CFW.

                        [CAPTION LOCATED ON RIGHT SIDE]
THE COMPANY'S
INTERGRATED FULL-SERVICE SOLUTIONS
STRATEGY IS EXEMPLIFIED BY
CONVENIENT AND COMFORTABLE RETAIL OUTLETS.



                                       7

<PAGE>


RESIDENTIAL
total solutions

CFW MEETS RESIDENTIAL
COMMUNICATIONS NEEDS
WITH INTEGRATED
SOLUTIONS RANGING
FROM TELEPHONES
TO ENTERTAINMENT.

<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<TEXT IS MISSING>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
                             TEXT READS AS FOLLOWS
At work, communications tools may be a necessity. At home, however,
telecommunications may be more a matter of convenience. And residential
customers want more than just dial tone from a communications provider.
Residential applications require flexibility, dependability, a wide selection of
services, and a provider that's committed to superior customer care. CFW
provides a single source solution for residential customers, allowing the
creation of customized, home-based communications systems that are tailor made
for value.

THE RESIDENTIAL PROPOSITION

At CFW, our concept of integrated, full-service solutions for residential
customers is all encompassing. The transient information age has increased the
communications complexity of most families, and CFW has successfully expanded
our services to meet the needs of these dynamic and rapidly changing lifestyles.
Residential telephone service has long been at the heart of CFW service
offerings, but our long reaching solutions go well beyond the phone jack. Today,
we can couple telephone services with competitive long distance, directory
assistance, voicemail, paging, local internet connectivity, alarm and monitoring
services, cable television, and cellular. And, with the added appeal of the
feature-rich Personal Communications by Intelos, our residential proposition is
stronger than ever. CFW, with a full complement of services, is prepared to meet
all of the communications needs of our expanding residential service region.


[GRAPHIC APPEARS HERE]

                                       8

<PAGE>


[GRAPHIC APPEARS HERE]


CFW IS MORE THAN
A QUALITY PROVIDER
OF COMMUNICATIONS
SERVICES. WE'RE
AN INTEGRATED PART
OF THE COMMUNITIES
WE SERVE.

Supporting Services

Though CFW can offer far more services than most other providers, our
residential proposition would be incomplete without one essential element -
customer care. Our company was built on a foundation of customer-centric
philosophies that have made customer service a differentiating factor for more
than 100 years. Today, we support our residential customers with business
offices and retail outlets that offer personalized, face-to-face customer care.
We still take payments over the counter, the way our predecessors did, and we
take great pride in being known as a service company. Customers can also contact
us by mail, fax, and e-mail, or reach a friendly, professional customer service
representative by dialing a toll-free or local number. Our sterling ability to
provide superior customer service gives credibility to the total communications
concept. When customers choose us, we focus on providing the high-quality
support that they so rightly deserve.

Community Involvement

CFW employees don't just service residential areas, we live in these same
communities. Our employees coach in youth leagues, are active in church and
civic organizations, schools, and other volunteer groups. The CFW Communications
Foundation assists local charities, and we have been recognized by the
Commonwealth of Virginia for outstanding support of Emergency Medical Services.
Perhaps our greatest accomplishment is in local school systems, where more than
1,000 computers go online with a network infrastructure supplied by the Company
and put into operation with many hours of employee volunteer labor. Even our
long distance program, termed "Speak Out For Education", returns a portion of
long distance operating revenues back to area schools.

When residential customers choose CFW, they know they're working with a trusted
resource that is committed to unparalleled service, dependability, and value.
CFW delivers and supports the communications requirements of any household.
Clearly, the right choice and the right services.

                                       9

<PAGE>

CFW'S ABILITY TO
CRAFT CUSTOM BUSINESS
SOLUTIONS HAS EARNED
US A REPUTATION FOR
LASTING SERVICE
AND SUPPORT.

Businesses have unique communications requirements and expectations. Mobile
communications, internet connectivity, on-premises telephone systems, wiring,
paging, and a host of additional services must be seamlessly combined to ensure
that a business is up and running, and continuously connected for maximum
effectiveness. CFW meets the total communications needs of businesses, large or
small, with a comprehensive family of services, and a formula for mutually
beneficial success.

More Than Communications

CFW provides far more for business customers than the ability to communicate.
Rather, we transform telecommunications into a vital strategic advantage. We
work closely with our business partners to determine the precise combination of
services that will enable them to derive the maximum benefit. That's when the
power of our total solutions concept becomes most evident. CFW has the resources
to draw upon the breadth of our technical capabilities and counsel our business
customers on the services that will help them operate at their peak potential.
Over time, as technology evolves and new services become available, we are there
with suggestions on how to integrate these opportunities, thus improving
communications capabilities and strengthening their competitive position. CFW is
a trusted ally - and valuable consultant - continually updating business
customers with the latest in reliable, state-of-the-art communications services.


[GRAPHIC APPEARS HERE]


BUSINESS
total solutions

                                       10

<PAGE>


[GRAPHIC APPEARS HERE]



<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<TEXT IS MISSING>>>>>>>>>>>>>
>>>>>>>>>>>>>>>>>>>
THE BUSINESS PROPOSITION
CFW has the breadth of services required to meet the communications needs of any
business, from large industrial manufacturers and health care facilities to the
smallest, most enterprising start-up. We can provide local dial tone, special
services such as ISDN, T1, Caller ID, and others, long distance, Centrex,
on-premises business telephone systems, alarm and monitoring services, and cable
television. We can also provide fully integrated voicemail and paging solutions,
high-speed wireless or traditional internet connectivity, and a variety of
cellular services. Businesses also benefit from Personal Communications by
Intelos, the first wireless alternative that is secure, clear, and incorporates
features such as Caller ID, Three Way Calling, and a state-wide local calling
area. Best of all, businesses can select the exact set of services they require,
from a single provider that is renowned for reliability, dependability, and
customer service.

ATTENTION TO DETAIL

Our ability to customize a communications package for any business serves as a
great differentiator, but it is our attention to detail that makes us special.
CFW business-to-business sales representatives are well-trained professionals
that play an active and personal role in the servicing of business clients. They
are supported by an organization of technical, engineering, and administrative
resources that assist in delivering the highest levels of quality and service.

Business customers depend on CFW for all kinds of telecommunications systems.
Being an integrated, total solutions provider and a trusted business partner is
a responsibility we take seriously.




COMPANIES LIKE
J.S. MATHERS, INC.
TRUST CFW TO MEET THE
DYNAMIC COMMUNICATIONS
NEEDS OF THEIR BUSINESS.

                                       11

<PAGE>



NETWORK
total solutions


[GRAPHIC APPEARS HERE]


CFW makes efficient use of our capital infrastructure, while adding positively
to the Company's profitability. Network services are a good example of how CFW
maximizes its regional presence, while contributing to the strategic growth and
expansion of the total services concept.

Fiber Network

In 1997, ValleyNet connected its fiber optic network, which encompasses 450
miles of CFW-owned fiber, to Carolina's FiberNet. The contiguous network serves
eight states and represents 3,400 miles of fiber cable. The extensive network
provides an attractive, alternative traffic route for long distance carriers,
private network facilities and local internet access. In addition to wholesale
opportunities, it is an important component in the efficient deployment of other
CFW services such as local telephone, internet, and Personal Communications
Services.

What City, Please

CFW directory assistance service professionals handle more than 220,000 requests
per business day, a direct result of our capabilities and commitment to service
excellence. We began the year with AT&T customers from across the country
calling for telephone numbers within a four-state region. AT&T soon recognized
CFW's superior, high-quality performance and routed us additional callers
seeking telephone numbers in three more states. CFW directory assistance
professionals also handle GTE Mobilnet customers in Virginia and Pennsylvania
and CFW and Intelos customers that request directory listings. Today, after
creating more than 150 local jobs in 1997, CFW directory assistance operators
routinely project our philosophy of world-class customer care over a million
times a week.

Continued growth in network services will enable and enhance other CFW services,
while demonstrating the same professionalism, dedication, and high-quality
customer care that is synonymous with our heritage. Another clear indication of
why CFW is the total communications provider of choice.

                                       12

<PAGE>


    <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<TEXT IS MISSING>>>>>>>>>>>>>>>>>>>>>>>>


FUTURE
innovative solutions

The telecommunications landscape is changing, literally, at the speed of light.
CFW will be at the forefront of these changes, expanding our regional footprint
and extending the value and quality of our fully-integrated solutions to
business and residential customers throughout Virginia and West Virginia. And
while we will move confidently and strategically towards the natural extension
of our service areas, we shall never lose sight of the customer perspective and
the commitment to the quality and values that enabled our previous success.

BRIGHT FUTURE

Our successful launch of Personal Communications by Intelos is enhanced only by
an even more promising future. We are proud to be first to market in many of our
service areas with our robust network, creating an opportunity to establish a
solid service provider identity and creating wholesale opportunities for future
growth. Our comprehensive family of services will also provide for attractive
multiple-service bundles that can target specific market segments within any of
our served regions. CFW is an approved Competitive Local Exchange Carrier (CLEC)
in eleven Virginia counties, opening powerful, full-integrated solution
opportunities that include local telephone, long distance, PCS, cable, and
internet services. By bundling services, CFW will attract new customers while
providing differentiation and increased customer satisfaction. And, as we
implement our vision for integrated communications services, we will simplify
the support process by moving to a one-number customer care system. To that end,
we have started construction on a customer care facility that will house the
resources and sophisticated computer-telephony network that is required to
replicate our value-added service philosophies across an expanded regional
footprint. Continued investments in customer care, integrated billing, and the
delivery of state-of-the-art services result in a bright future for CFW, and
world-class telecommunications services for all of our customers.



POSITIONING FOR GROWTH
THROUGH TECHNOLOGICAL
INNOVATION, VALUE-ADDED
SERVICES, AND DEDICATED
EMPLOYEES.


[GRAPHIC APPEARS HERE]


                                       13

<PAGE>




CONSOLIDATED BALANCE SHEETS
CFW Communications Company and Subsidiaries

<TABLE>
<CAPTION>
==================================================================================================================
December 31,                                                           1997             1996            1995
------------------------------------------------------------------------------------------------------------------
<S><C>
ASSETS

CURRENT ASSETS
    Cash and cash equivalents                                   $     1,224,347   $   3,003,607   $    5,264,986
    Accounts receivable                                              12,931,115       9,441,979        8,677,086
    Materials and supplies                                            2,039,345       2,019,836        1,980,837
    Prepaid expenses and other                                          349,617         471,339          347,550
    Income taxes receivable                                                   -         617,067            3,356
------------------------------------------------------------------------------------------------------------------

                                                                     16,544,424      15,553,828       16,273,815
------------------------------------------------------------------------------------------------------------------

SECURITIES AND INVESTMENTS                                           16,873,601      20,597,270       29,471,626
------------------------------------------------------------------------------------------------------------------

PROPERTY AND EQUIPMENT
    In service                                                      135,689,959     124,388,071      107,420,864
    Under construction                                                2,013,191       2,807,983        4,385,440
------------------------------------------------------------------------------------------------------------------
                                                                    137,703,150     127,196,054      111,806,304
    Less accumulated depreciation                                    42,032,163      37,162,040       30,713,237
------------------------------------------------------------------------------------------------------------------
                                                                     95,670,987      90,034,014       81,093,067
------------------------------------------------------------------------------------------------------------------

OTHER ASSETS
    Cost in excess of net assets of business acquired,
       less accumulated amortization                                 13,062,856      12,660,497       13,268,224
    Deferred charges                                                  2,311,206       2,198,923        3,144,581
    Radio spectrum licenses                                           3,984,455       1,355,347                -
------------------------------------------------------------------------------------------------------------------
                                                                     19,358,517      16,214,767       16,412,805
------------------------------------------------------------------------------------------------------------------
                                                                   $148,447,529    $142,399,879     $143,251,313
==================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       14

<PAGE>


<TABLE>
<CAPTION>
==================================================================================================================
December 31,                                                           1997             1996            1995
------------------------------------------------------------------------------------------------------------------
<S><C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                              $   4,169,282  $    3,346,045   $    3,674,310
    Customers' deposits                                                 457,343         469,566          477,393
    Advance billings                                                  2,081,491       1,876,808        1,506,777
    Accrued payroll                                                   1,459,821       1,007,883          833,232
    Accrued interest                                                    815,622         726,000          726,000
    Other accrued liabilities                                         2,651,719       2,987,816        2,384,774
    Deferred revenue                                                  1,329,877       1,181,481          972,593
    Income taxes payable                                                124,545               -                -
------------------------------------------------------------------------------------------------------------------
                                                                     13,089,700      11,595,599       10,575,079
------------------------------------------------------------------------------------------------------------------

LONG-TERM DEBT                                                       24,606,160      24,000,000       20,000,000
------------------------------------------------------------------------------------------------------------------

LONG-TERM LIABILITIES
    Deferred income taxes                                             9,242,246      10,702,885       13,866,047
    Retirement benefits other than pensions                           8,431,688       7,724,107        7,149,957
    Other                                                             1,471,543       1,478,467        1,543,863
------------------------------------------------------------------------------------------------------------------
                                                                     19,145,477      19,905,459       22,559,867
------------------------------------------------------------------------------------------------------------------

MINORITY INTERESTS                                                    1,150,690         896,895          874,664
------------------------------------------------------------------------------------------------------------------

COMMITMENTS

SHAREHOLDERS' EQUITY
    Preferred stock, no par value per share, authorized                       -               -                -
       1,000,000 shares; none issued
    Common stock, no par value per share, authorized                 43,420,269      43,378,440       43,531,164
       20,000,000 shares;  issued 12,986,654 shares
       (12,980,212 in 1996 and 12,983,318 in 1995)
    Retained earnings                                                47,035,233      40,163,310       35,700,859
    Unrealized gain on securities available for sale, net                     -       2,460,176       10,009,680
------------------------------------------------------------------------------------------------------------------
                                                                     90,455,502      86,001,926       89,241,703
------------------------------------------------------------------------------------------------------------------
                                                                   $148,447,529    $142,399,879     $143,251,313
==================================================================================================================
</TABLE>

                                       15

<PAGE>


CONSOLIDATED STATEMENTS OF INCOME
CFW Communications Company and Subsidiaries

<TABLE>
<CAPTION>
==================================================================================================================
Years Ended December 31,                                               1997             1996            1995
------------------------------------------------------------------------------------------------------------------
<S><C>
OPERATING REVENUES
    Wireline communications                                         $34,495,331     $32,479,810      $29,196,134
    Wireless communications                                          11,714,012       9,205,028        7,618,528
    Directory assistance                                             10,533,459       6,399,865        4,705,959
    Other communications services                                     2,267,156       1,863,584        1,568,395
------------------------------------------------------------------------------------------------------------------
                                                                     59,009,958      49,948,287       43,089,016
------------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES
    Maintenance and support                                           9,659,569       9,528,425        8,391,967
    Depreciation and amortization                                     9,196,237       8,409,662        6,437,849
    Customer operations                                              14,282,592      11,156,489        9,274,890
    Corporate operations                                              6,459,352       5,438,732        5,562,721
------------------------------------------------------------------------------------------------------------------
                                                                     39,597,750      34,533,308       29,667,427
------------------------------------------------------------------------------------------------------------------

OPERATING INCOME                                                     19,412,208      15,414,979       13,421,589

OTHER INCOME (EXPENSES)
    Other expenses, principally interest                             (1,140,020)     (1,273,045)      (1,871,953)
    Interest and dividend income                                        284,660         587,393          603,521
    Equity loss from PCS investee                                      (834,075)              -                -
    Equity income from other wireless investees                          74,115         449,893          839,948
    Gain on sale of investment                                        5,077,379               -          926,699
    Loss on write-down of investment                                 (2,808,145)              -                -
------------------------------------------------------------------------------------------------------------------
                                                                     20,066,122      15,179,220       13,919,804

INCOME TAXES                                                          7,398,495       5,162,497        5,005,941
------------------------------------------------------------------------------------------------------------------
                                                                     12,667,627      10,016,723        8,913,863

MINORITY INTERESTS                                                     (446,695)       (467,017)        (420,250)
------------------------------------------------------------------------------------------------------------------

NET INCOME                                                          $12,220,932    $  9,549,706     $  8,493,613
==================================================================================================================
Net income per common share - basic                                 $      0.94    $       0.74     $       0.66
Net income per common share - diluted                               $      0.94    $       0.73     $       0.66

Average shares outstanding - basic                                   12,982,289      12,977,920       12,864,755
Average shares outstanding - diluted                                 13,055,814      13,056,081       12,933,926
------------------------------------------------------------------------------------------------------------------

Cash dividends per share                                             $    0.412    $      0.392     $      0.379
==================================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       16

<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS
CFW Communications Company and Subsidiaries

<TABLE>
<CAPTION>
==================================================================================================================================
Years Ended December 31,                                                                1997             1996            1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                       $12,220,932     $ 9,549,706      $ 8,493,613
    Adjustments to reconcile net income
       to net cash provided by operating activities:
          Depreciation                                                                 8,559,656       7,916,152        6,155,979
          Amortization                                                                   636,581         493,510          281,870
          Deferred taxes                                                                 105,664       1,612,833        1,031,266
          Retirement benefits other than pensions                                        707,581         574,150          636,051
          Other                                                                          (10,426)         42,812         (318,381)
          Equity from wireless investees                                                 759,960        (449,893)        (839,948)
          Minority interests, net of distributions                                       (41,306)         22,231           50,954
          Distributions received from investments                                         99,704         155,141           40,013
          Gain on sale of investment                                                  (5,077,379)              -         (926,699)
          Loss on write-down of investment                                             2,808,145               -                -
    Changes in assets and liabilities from operations:
          Increase in accounts receivable                                             (3,489,136)       (823,032)      (3,145,144)
          Increase in materials and supplies                                             (19,509)        (38,999)        (344,113)
          (Increase) decrease in income taxes                                            741,612        (613,711)         778,496
          (Increase) decrease in other current assets                                   (238,786)       (123,789)         312,883
          Increase (decrease) in accounts payable                                        823,237        (328,265)        (826,489)
          Increase (decrease) in other accrued liabilities                              (144,075)        777,693          964,516
          Increase in other current liabilities                                          192,460         571,092          669,216
----------------------------------------------------------------------------------------------------------------------------------

    Net cash provided by operating activities                                         18,634,915      19,337,631       13,014,083
----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment                                              (14,196,629)    (15,874,951)     (11,595,802)
    Purchase of PCS licenses                                                          (4,459,818)     (1,355,347)               -
    Investments in PCS alliances                                                      (1,492,709)     (4,351,235)        (558,223)
    Maturities and distributions from securities and other investments                   551,243       1,222,502        3,061,055
    Purchase of cellular minority interests                                           (1,103,481)              -                -
    Proceeds from sale of investment                                                   6,594,399               -                -
----------------------------------------------------------------------------------------------------------------------------------

    Net cash used in investing activities                                            (14,106,995)    (20,359,031)      (9,092,970)
----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Cash dividends                                                                    (5,349,009)     (5,087,255)      (4,852,005)
    Proceeds from (payments on) borrowings                                            (1,000,000)      4,000,000         (114,163)
    Stock redeemed                                                                             -        (175,313)      (2,561,500)
    Net proceeds from exercise of stock options                                           41,829          22,589          312,655
----------------------------------------------------------------------------------------------------------------------------------

    Net cash used in financing activities                                             (6,307,180)     (1,239,979)      (7,215,013)
----------------------------------------------------------------------------------------------------------------------------------

    Decrease in cash and cash equivalents                                             (1,779,260)     (2,261,379)      (3,293,900)
    Cash and cash equivalents:
    Beginning                                                                          3,003,607       5,264,986        8,558,886
----------------------------------------------------------------------------------------------------------------------------------

    Ending                                                                           $ 1,224,347     $ 3,003,607      $ 5,264,986
==================================================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       17

<PAGE>


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CFW Communications Company and Subsidiaries

<TABLE>
<CAPTION>
==================================================================================================================================
                                                                                                               Unrealized Gain
                                                                 Common Stock                 Retained          on Securities
                                                           Shares             Amount          Earnings     Available for Sale, Net
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Balance, December 31, 1994                               12,676,548        $ 37,280,009    $  32,059,251         $  6,238,013

    Net income                                                    -                   -        8,493,613                    -
    Unrealized gain on securities
       available for sale, net                                    -                   -                -            3,771,667
    Cash dividends                                                -                   -       (4,852,005)                   -
    Stock options exercised, net                             29,509             312,655                -                    -
    Business acquisition                                    404,761           8,500,000                -                    -
    Stock redeemed                                         (127,500)         (2,561,500)               -                    -
----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1995                               12,983,318          43,531,164       35,700,859           10,009,680

    Net income                                                    -                   -        9,549,706                    -
    Unrealized loss on securities
       available for sale, net                                    -                   -                -           (7,549,504)
    Cash dividends                                                -                   -       (5,087,255)                   -
    Stock options exercised, net                              6,894              22,589                -                    -
    Stock redeemed                                          (10,000)           (175,313)               -                    -
----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1996                               12,980,212          43,378,440       40,163,310            2,460,176

    Net income                                                    -                   -       12,220,932                    -
    Unrealized loss on securities
       available for sale, net                                    -                   -                -           (2,460,176)
    Cash dividends                                                -                   -       (5,349,009)                   -
    Stock options exercised, net                              6,442              41,829                -                    -
----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997                               12,986,654         $43,420,269      $47,035,233      $             -
==================================================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       18

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CFW Communications Company and Subsidiaries

Note 1. Significant Accounting Policies

CFW Communications Company is a diversified regional communications company that
provides a broad range of products and services to businesses, telecommunication
carriers and residential customers in Virginia and surrounding states. The
Company's services include local telephone, long distance, cellular, personal
communications services, paging, wireline and wireless cable television,
directory assistance, competitive access, local internet access and alarm
monitoring and installation. Significant accounting policies follow:

ACCOUNTING ESTIMATES: 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company, its wholly owned subsidiaries and those partnerships
where the Company, as managing partner, exercises control. All significant
intercompany accounts and transactions have been eliminated.

CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments with a purchased maturity of three
months or less to be cash equivalents. The Company places its temporary cash
investments with high credit quality financial institutions. At times such
investments may be in excess of the FDIC insurance limit.

SECURITIES AND INVESTMENTS: The Company has investments in debt and equity
securities and partnerships. Information regarding these investments is reviewed
continuously for evidence of impairment in value (see Note 3). No further
impairment was deemed to have occurred at December 31, 1997.

     Management determines the appropriate classification of securities at the
date of purchase and continually thereafter. The classification of those
securities and the related accounting policies are as follows:

AVAILABLE FOR SALE SECURITIES: Securities classified as available for sale
primarily are traded on a national exchange and are those securities that the
Company intends to hold for an indefinite period of time but not necessarily to
maturity. Any decision to sell a security classified as available for sale would
be based on various factors including changes in market conditions, liquidity
needs and other similar factors. Securities available for sale are stated at
fair value and unrealized holding gains and losses, net of the related deferred
tax effect, are reported as a separate component of shareholders' equity.
Realized gains and losses, determined on the basis of the cost of specific
securities sold, are included in earnings.

EQUITY METHOD INVESTMENTS: These investments consist of partnership and
corporate investments where the Company's ownership is 20% or more, except where
such investments meet the requirements for consolidation. Under the equity
method, the Company's share in earnings or losses of these companies is included
in earnings.

INVESTMENTS CARRIED AT COST: These are investments in which the Company does not
have significant ownership and for which there is no ready market.

     Interest on debt securities is recognized in income as accrued, and
dividends on marketable equity securities recognized in income when declared.
Realized gains or losses are determined on the basis of specific securities sold
and are included in earnings.

PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Accumulated
depreciation is charged with the cost of property retired, plus removal cost,
less salvage. Depreciation is determined under the remaining life method and
straight line composite rates. Depreciation provisions were approximately 6.6%,
6.4% and 6.5% of average depreciable assets for the years 1997, 1996 and 1995,
respectively.

COST IN EXCESS OF NET ASSETS ACQUIRED: Cost in excess of net assets acquired
resulting from acquisitions is being amortized over 30 years using the
straight-line method.

PENSION BENEFITS: The Company sponsors a non-contributory defined benefit
pension plan covering all employees who meet eligibility requirements. Pension
benefits vest after five years of service and are based on years of service and
average final compensation subject to certain reductions if the employee retires
before reaching age 62. The Company's funding policy has been to contribute up
to the maximum amount allowable by applicable regulations. Contributions are
intended to provide not only for benefits based on service to date, but also for
those expected to be earned in the future.

     The Company also sponsors a contributory defined contribution plan under
Internal Revenue Code Section 401(k) for substantially all employees. The
Company contributes 60% of each participant's annual contribution for
contributions up to 6% of each participant's annual compensation. The employee
elects the type of investment fund from the equity, bond and annuity
alternatives offered by the plan.

RETIREMENT BENEFITS OTHER THAN PENSIONS: The Company provides certain health
care benefits for all retired employees that meet eligibility requirements. The
Company's share of the estimated costs of benefits that

                                       19

<PAGE>


will be paid after retirement is generally being accrued by charges to expense
over the eligible employees' service periods to the dates they are fully
eligible for benefits.

INCOME TAXES: Deferred income taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.

NET INCOME PER SHARE: At December 31, 1997, the Company adopted the provisions
of Financial Accounting Standards Board (FASB) Statement No. 128, Earnings Per
Share, which provides for the dual presentation of basic net income per share
and diluted net income per share. Basic net income per share was computed by
dividing net income by the weighted average number of common shares outstanding
during the year. Diluted net income per share was computed under the treasury
stock method assuming the conversion, as of the beginning of the year, of all
dilutive stock options. Net income per share for all prior periods presented has
been restated to conform with FASB Statement No. 128.

     The weighted average number of common shares outstanding, which was used to
compute diluted net income per share, were increased by 73,525, 78,161 and
69,171 shares for 1997, 1996 and 1995, respectively, to reflect the assumed
conversion of dilutive stock options. The Company has 52,450, 54,450 and 57,200
stock options outstanding in 1997, 1996 and 1995, respectively, which could
potentially dilute net income per share in future periods, but which were not
included in diluted net income per share for the periods presented since the
results were antidilutive. There were no adjustments to net income in the
computation of diluted net income per share.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of financial instruments
recorded on the balance sheet, except securities and investments, are not
significantly different from the carrying amounts. Information as to securities
and investments is included elsewhere in Notes 1, 2 and 3. The fair value of off
balance sheet guarantees, as described in Note 2, is not determinable due to the
nature of the transaction.

DISCLOSURES REGARDING OPERATING SEGMENTS AND RELATED INFORMATION: The Company
will adopt the additional disclosure provisions of FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information, in 1998.
The Company has one customer that accounts for greater than 10% of its revenue,
primarily consisting of carrier access charges for long distance services,
billing and collecting services and directory assistance. The percent of
operating revenue from this customer was 34% in 1997, 24% in 1996 and 24% in
1995.

COMPREHENSIVE INCOME: The Company will adopt the additional disclosure
provisions of FASB Statement No. 130, Reporting Comprehensive Income, in 1998.
This pronouncement will result in the Company presenting in a financial
statement all items required to be recognized under accounting standards as
components of comprehensive income.

FINANCIAL STATEMENT CLASSIFICATIONS: Certain amounts on the prior year financial
statements have been reclassified, with no effect on net income, to conform with
classification adopted in 1997.

Note 2. Investments in Wireless Affiliates

In April 1997, the Company sold its 30% limited interest in the Roanoke MSA
Cellular Partnership to GTE Wireless (GTE) for approximately $6.6 million and
recognized a gain on the sale of approximately $5.1 million. The Company
recognized equity income from the Roanoke MSA Cellular Partnership of $16,334,
$374,432, and $768,986 in 1997, 1996 and 1995, respectively. In addition, in
April 1997, the Company purchased from GTE an 8.4% limited interest in the
Virginia RSA 6 Cellular Partnership for approximately $1.1 million. At December
31, 1997, the Company had an 84% ownership interest in the Virginia RSA 6
Cellular Partnership.

     The Company has a 21% common ownership interest in Virginia PCS Alliance,
L.C. (VA Alliance), a provider of personal communications services (PCS) serving
a 1.6 million populated area in central and western Virginia. The Company is
managing such build-out pursuant to a services agreement. PCS operations began
throughout the Virginia region in the fourth quarter of 1997.

     In September 1996, the Company invested approximately $4.0 million for a
convertible preferred ownership interest in the VA Alliance which is convertible
after four years into additional common ownership interest. If converted, the
Company would have a 43% common ownership interest in the VA Alliance. In
December 1996, the VA Alliance also issued $12.9 million of redeemable preferred
ownership interest that can be redeemed by the investor after December 31, 2001.
In the event the investor elects to redeem such preferred equity after such
date, the Company may elect to fund $11.4 million of such obligation in exchange
for additional common ownership in the VA Alliance. In the event this redemption
and funding occurs, and the Company converts its convertible preferred ownership
interest, the Company would have a 65% common ownership interest in the VA
Alliance.

     The Company has a 45% common ownership interest in the West Virginia PCS
Alliance, L.C. (WV Alliance), an owner of PCS radio spectrum licenses for most
of West Virginia and parts of eastern Kentucky, southwestern Virginia and
eastern Ohio. In August 1997, the Company contributed PCS licenses and
approximately $1.0 million in cash in exchange for such ownership in the WV
Alliance. The contributed PCS licenses were previously acquired through the FCC
PCS license auctions and also purchased from GTE for approximately $8.5 million
of which the Company's share was approximately $4.25 million.

     The contributed licenses enable the WV Alliance to build-out and operate a
system to provide PCS services to a 2.0 million populated area. The Company is
managing

                                       20

<PAGE>


this build-out pursuant to a services agreement. The WV Alliance expects to
commence operations by midyear 1998.

     Combined summarized financial information for the VA Alliance and WV
Alliance (Alliances), both of which are accounted for by the equity method, are
as follows:

                                        1997           1996
-----------------------------------------------------------------
Current assets                    $    5,756,000  $  3,416,000
Noncurrent assets                    101,560,000    37,239,000
Current liabilities                   37,549,000     5,263,000
Noncurrent liabilities                33,571,000    11,154,000
Redeemable preferred interest         12,812,000    12,821,000

                                        1997
-----------------------------------------------------------------
Net sales                         $      119,000
Gross profit (loss)                     (197,000)
Net loss applicable to
    common owners                     (3,952,000)
Company's share of net loss             (834,200)

     The Company has entered into guarantee agreements whereby the Company is
committed to provide guarantees of up to $36.2 million of the VA Alliance's debt
and redeemable preferred obligations, with such guarantees becoming effective as
obligations are incurred by the VA Alliance. At December 31, 1997, the Company
has guaranteed $16.9 million of the VA Alliance's obligations. The Company
expects to provide guarantees not to exceed $16.0 million, for a portion of the
debt obligations to be incurred by the WV Alliance.

     The Company also has committed to contribute $12.1 million of additional
capital to the VA Alliance payable $2.0 million, $3.4 million, $3.4 million and
$3.3 million in January of 1998, 1999, 2000 and 2001, respectively. Such
additional capital commitments will be reduced by proceeds, if any, from future
equity offerings by the VA Alliance. The Company expects to provide additional
capital to the WV Alliance not to exceed $3.0 million, in the aggregate, payable
in four annual installments commencing in 1999.

     In its managing partner role, the Company provides certain corporate
services for the Alliances, including executive, finance, accounting,
information management, human resources, and other general and administrative
services (collectively, "corporate services"). In 1997 the Company charged the
Alliances $0.5 million for these corporate services.

     Retained earnings of the Company at December 31, 1997, includes accumulated
losses of $ 0.5 million related to these Alliances.

Note 3. Securities and Investments

Investments consist of the following as of December 31:

<TABLE>
<CAPTION>
                                                                                                   Carrying Values
                                                 Type of Ownership                      1997             1996            1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Available for Sale
American Telecasting, Inc.                       Equity Securities                  $  1,285,022     $  8,119,644      $20,475,624
Mortgage-backed securities                       Debt Securities                         971,288        1,512,249        2,502,374
----------------------------------------------------------------------------------------------------------------------------------
                                                                                       2,256,310        9,631,893       22,977,998
                                                                                    ----------------------------------------------
Equity Method
Virginia PCS Alliance, L.C.                      Equity and Convertible
                                                    Preferred Interests                4,504,770        5,074,818          723,583
West Virginia PCS Alliance, L.C.                 Equity Interest                       5,774,728                -                -
Roanoke Cellular Limited                         Limited Partnership
    Partnership                                     Interest                                   -        1,500,687        1,280,987
Virginia Telecommunications                       General Partnership
    Partnership                                     Interest                             380,394          416,926          307,174
Virginia Independent                             Limited Partnership
    Telephone Alliance                              Interest                             445,050          425,352          377,463
Other                                            Partnership Interests                   527,733          569,032          489,021
----------------------------------------------------------------------------------------------------------------------------------
                                                                                      11,632,675        7,986,815        3,178,228
                                                                                     ---------------------------------------------
Cost Method
Illuminet Holdings, Inc.                         Equity and Convertible
                                                    Debt Securities                    1,771,765        1,764,839        1,706,700
Multimedia Medical Systems, Inc.                 Equity Securities                     1,052,650        1,052,650        1,000,000
Applied Video Technology                         Equity Securities                             -                -          446,219
Other                                            Equity Securities                       160,201          161,073          162,481
----------------------------------------------------------------------------------------------------------------------------------
                                                                                       2,984,616        2,978,562        3,315,400
                                                                                     ---------------------------------------------
                                                                                     $16,873,601      $20,597,270      $29,471,626
==================================================================================================================================
</TABLE>

     Expected maturities on mortgage-backed securities will differ from
contractual maturities because the issuers of these securities have the right to
call or prepay their obligations without any penalties.

                                       21

<PAGE>


     At December 31, 1997, the Company recognized a $2.8 million impairment loss
on its investment in American Telecasting, Inc. (ATEL) which resulted in a
current cost basis in the investment of $1.3 million. The Company concluded that
the decline in value was other than temporary given recent trading prices in the
common stock, ATEL's financial condition and continued financial losses, coupled
with delays in rulemaking by the FCC which is necessary to permit ATEL to
provide two-way telephony and internet services over its wireless cable
spectrum.

     Changes in the unrealized gain (loss) on available for sale securities
during the years ended December 31, 1997, 1996 and 1995, reported as a separate
component of shareholders' equity are as follows:

<TABLE>
<CAPTION>
                                                                                        1997            1996              1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Unrealized gain, beginning balance                                                   $ 4,026,475    $  16,382,455     $10,209,515
Unrealized holding gains (losses) during the year                                     (4,026,475)     (12,355,980)      6,172,940
----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain, ending balance                                                                -        4,026,475      16,382,455
Deferred tax effect related to net unrealized holding gains                                    -       (1,566,299)     (6,372,775)
----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain included in shareholders' equity                                     $         -    $   2,460,176     $10,009,680
==================================================================================================================================
</TABLE>

Note 4. Long-Term Debt and Lines of Credit

Long-term debt and lines of credit consist of the following as of December 31:

<TABLE>
<CAPTION>

                                                                                        1997              1996           1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
7.26% Unsecured senior notes due in annual
    installments from 1998 to 2008                                                   $20,000,000      $20,000,000     $20,000,000
6.25% Notes payable secured by certain PCS
    radio spectrum licenses due from 1999 to 2006                                      1,606,160               -                -
Borrowings under lines of credit                                                       3,000,000       4,000,000                -
----------------------------------------------------------------------------------------------------------------------------------
                                                                                     $24,606,160     $24,000,000      $20,000,000
==================================================================================================================================
</TABLE>

     The unsecured senior note agreement contains various restrictive convenants
including restrictions relating to additional debt issuances, fixed charges, net
worth and payment of dividends. Approximately $9.0 million of retained earnings
were available for the payment of dividends at December 31, 1997.

     The Company paid $3.6 million of principal on the unsecured senior notes in
January 1998 with proceeds from the borrowings under the Company's lines of
credit. The Company has classified this payment amount and borrowings under
lines of credit as long-term as the Company has the ability and the intent to
refinance these borrowings with an existing line of credit that has a maturity
of beyond one year. The Company has available lines of credit aggregating $24.0
million at December 31, 1997. The blended interest rate on the borrowings under
lines of credit as of December 31, 1997 and 1996, was 5.9%.

     Interest expense was $888,000, $1,325,000 and $1,134,000 for 1997, 1996 and
1995, respectively. Maturities of long-term debt for each of the next five years
are 1998 - $0; 1999 - $8,533,000; 2000 - $1,983,000; 2001 - $1,994,000; and 2002
-$2,005,000.

Note 5. Income Taxes

The components of income tax expense are as follows for the years ended
December 31:

<TABLE>
<CAPTION>
                                                                                        1997              1996           1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Current tax expense:
    Federal tax expense                                                               $6,165,040      $3,159,133       $3,651,126
    State tax expense                                                                  1,127,791         390,531          323,549
----------------------------------------------------------------------------------------------------------------------------------
                                                                                       7,292,831       3,549,664        3,974,675
Deferred tax expense                                                                     105,664       1,647,215        1,151,009
Deferred investment tax credits amortized                                                      -         (34,382)        (119,743)
----------------------------------------------------------------------------------------------------------------------------------
                                                                                      $7,398,495      $5,162,497       $5,005,941
==================================================================================================================================
</TABLE>

                                       22

<PAGE>


     Total income tax expense was different than an amount computed by applying
the graduated statutory federal income tax rates to income before taxes. The
reasons for the differences are as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                                                        1997              1996           1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Computed tax at statutory rate                                                        $6,766,799      $5,049,271       $4,624,844
Investment tax credits amortization                                                            -         (34,382)        (119,743)
State income taxes, net of federal income tax benefit                                    744,265         257,750          368,099
Other - net                                                                             (112,569)       (110,142)         132,741
----------------------------------------------------------------------------------------------------------------------------------
                                                                                      $7,398,495      $5,162,497       $5,005,941
==================================================================================================================================
</TABLE>

     Net deferred income tax assets and liabilities consist of the following
components at December 31:

<TABLE>
<CAPTION>
                                                                                        1997              1996           1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Deferred income tax assets:
    Retirement benefits other than pension                                           $ 3,106,609    $  2,897,931     $  2,626,922
    Net operating loss of acquired company                                             1,074,000       1,074,000        1,074,000
    Other                                                                                339,672         110,711           82,886
----------------------------------------------------------------------------------------------------------------------------------
                                                                                       4,520,281       4,082,642        3,783,808
----------------------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
    Investments, net                                                                      33,454         883,342        1,174,238
    Property and equipment                                                            13,689,777      12,231,842       10,100,735
    Unrealized gain on securities available for sale                                           -       1,566,299        6,372,775
    Other                                                                                 39,296         104,044            2,107
----------------------------------------------------------------------------------------------------------------------------------
                                                                                      13,762,527      14,785,527       17,649,855
----------------------------------------------------------------------------------------------------------------------------------
Net deferred income tax liabilities                                                  $ 9,242,246     $10,702,885      $13,866,047
==================================================================================================================================
</TABLE>

Note 6. Pension Plans

Net pension cost for the Company's pension plans consisted of the following
components for the years ended December 31:

<TABLE>
<CAPTION>
                                                                                        1997            1996               1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Service cost-benefits earned                                                         $   486,925     $   445,527     $    341,474
Interest cost on projected benefit obligations                                         1,175,197       1,043,933          970,892
Actual return on plan assets                                                          (2,394,773)     (1,432,109)      (2,140,429)
Net amortization and deferral                                                            860,521           2,121          783,605
----------------------------------------------------------------------------------------------------------------------------------
Defined benefit plan expense (credit)                                                    127,870          59,472          (44,458)
Defined contribution plan expense                                                        336,926         245,883          194,250
----------------------------------------------------------------------------------------------------------------------------------
                                                                                     $   464,796     $   305,355     $    149,792
==================================================================================================================================
</TABLE>

     Assumptions used by the Company in the determination of pension plan
information consisted of the following as of December 31:

<TABLE>
<CAPTION>
                                                                                             1997            1996            1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Discount rate                                                                                7.50%           7.75%           7.50%
Rate of increase in compensation levels                                                      4.75%           4.75%           5.00%
Expected long-term rate of return on plan assets                                            10.00%           9.50%           9.50%
</TABLE>

                                       23

<PAGE>


     The following table sets forth the defined benefit plan's funded status and
amounts recognized in the accompanying balance sheets as of December 31:

<TABLE>
<CAPTION>
                                                                                        1997            1996               1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Actuarial present value of benefit obligations:
    Vested benefits                                                                  $13,225,345      $12,129,936      $10,122,138
                                                                                     ==============================================
    Accumulated benefits                                                             $13,445,262      $12,497,226      $10,466,270
                                                                                     ==============================================
    Projected benefits                                                               $16,655,591      $15,646,558      $14,348,088
Plan assets at fair value, primarily equity securities
    and group annuity contracts                                                       17,791,099       16,279,589       15,639,445
----------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligations                                 1,135,508          633,031        1,291,357
Items not yet recognized:
    Net gain                                                                          (2,178,484)      (1,858,242)      (1,803,414)
    Prior service cost                                                                   565,873          860,197          190,734
    Transition obligations                                                                63,122           78,903           94,684
----------------------------------------------------------------------------------------------------------------------------------
Liability included in balance sheets                                               $    (413,981)    $   (286,111)    $   (226,639)
==================================================================================================================================
</TABLE>

Note 7. Retirement Benefits Other Than Pensions.

The Company sponsors two defined benefit plans for retirees that cover both
salaried and nonsalaried employees. The individual plans provide medical
benefits for all retirees and group life benefits for employees retiring prior
to January 1994. The health care plan requires no contributions, except for
personnel electing early retirement prior to age 62, provided they have 20 years
of service. The group life plan premium is contributory on a retiree/company
shared basis. Both plans anticipate that benefits offered under the plans will
be adjusted periodically in accordance with changes adopted for the active
employee plans. Neither plan is currently being funded.

     The following table sets forth the plans' combined status reconciled with
the obligation recognized in the accompanying balance sheets as of December 31:

<TABLE>
<CAPTION>
                                                                                         1997            1996               1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Accumulated postretirement benefit obligations:
    Retirees                                                                          $2,677,064      $1,945,327       $1,852,859
    Fully eligible active plan participants                                              951,478       1,685,990        1,589,434
    Other active plan participants                                                     3,506,074       2,991,410        3,028,227
----------------------------------------------------------------------------------------------------------------------------------
                                                                                       7,134,616       6,622,727        6,470,520
Unrecognized net gain                                                                    851,378         852,485          430,542
----------------------------------------------------------------------------------------------------------------------------------
                                                                                       7,985,994       7,475,212        6,901,062
Other benefits                                                                           445,694         248,895          248,895
----------------------------------------------------------------------------------------------------------------------------------
Liability included in balance sheets                                                  $8,431,688      $7,724,107       $7,149,957
==================================================================================================================================
</TABLE>

     Provision for retirement benefits other than pensions included the
following components for the years ended December 31:

<TABLE>
<CAPTION>
                                                                                        1997            1996               1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Service cost - benefits attributed to service during the year                           $177,187        $207,319         $206,737
Interest cost on accumulated postretirement benefit obligations                          503,626         476,194          464,122
Amortization of unrecognized net gain                                                    (12,656)              -           (2,420)
----------------------------------------------------------------------------------------------------------------------------------
                                                                                        $668,157        $683,513         $668,439
==================================================================================================================================
</TABLE>

     The discount rates used to compute the accumulated postretirement benefit
obligations were 7.50%, 7.75% and 7.50% at December 31, 1997, 1996 and 1995,
respectively. For measurement purposes, an 8% annual rate of increase in the per
capita cost of covered benefits was assumed for 1997, with such annual rate of
increase gradually declining to 5.75% in 2001 and remaining at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. Increasing the assumed health care cost trend rate by
one percentage point in each year would increase the accumulated postretirement
benefit obligations by approximately $1.1 million and the aggregate of the
service and interest cost components of the provision for retirement benefits
other than pensions for the year then ended by approximately $0.1 million.

                                       24

<PAGE>


Note 8. Stock Plans

The Company's 1997 Stock Compensation Plan (Option Plan), which replaces the
Company's 1988 Stock Option Plan, provides for the grant of stock options, stock
appreciation rights (SARS), stock awards and performance shares to officers and
certain key management employees. A maximum of 950,000 shares of common stock
may be issued under the Option Plan by means of the exercise of options or SARS,
the grant of stock awards and/or the settlement of performance shares. The
Company's Non-Employee Directors' Stock Option Plan (Directors' Plan) provides a
non-employee director the opportunity to receive stock options in lieu of a
retainer fee. A maximum of 25,000 shares of common stock may be issued upon the
exercise of options granted under the Directors' Plan. Stock options must be
granted under the Plans at not less than 100% of fair market value at the date
of grant and have a maximum life of ten years from the date of grant. Options
and other awards under the Plans may be exercised in compliance with such
requirements as determined by a committee of the Board of Directors.

     A summary of the status of these plans at December 31, 1997, 1996 and 1995
and changes during the years ended on those dates is as follows:

<TABLE>
<CAPTION>
                                                          1997                        1996                        1995
----------------------------------------------------------------------------------------------------------------------------------

                                                           Weighted-Average            Weighted-Average           Weighted-Average
                                                               Exercise                    Exercise                   Exercise
Options                                           Shares         Price         Shares        Price         Shares       Price
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Outstanding at beginning of year                  325,022          $15.90      244,606         $ 14.99     241,615        $ 14.09
Granted                                           109,373           20.68       99,800           17.68      44,250          19.21
Exercised                                          (8,915)          10.33      (12,084)           9.79     (29,500)         10.68
Forfeited                                         (16,270)          20.90       (7,300)          20.12     (11,750)         22.52
----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year                        409,210          $17.10      325,022          $15.90     244,606         $14.99
----------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year                        212,545          $14.89      177,348          $13.43     161,815         $12.02
----------------------------------------------------------------------------------------------------------------------------------
Weighted average fair value per option of
    options granted during the year                       $6.15                        $4.85                       $5.69
==================================================================================================================================
</TABLE>

     The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
                                                            Options Outstanding                            Options Exercisable
----------------------------------------------------------------------------------------------------------------------------------
                                                            Weighted-Average      Weighted-                             Weighted-
                                                 Number         Remaining          Average               Number          Average
      Range of                                     of          Contractual        Exercise                 of           Exercise
   Exercise Prices                               Shares           Life              Price                Shares           Price
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
   $ 6.50 - 10.00                                74,781          2 years           $  7.95               74,781          $  7.95
   $12.75 - 18.25                               152,056          7 years           $ 16.63               73,756          $ 15.62
   $19.37 - 25.75                               182,373          8 years           $ 21.24               64,008          $ 22.14
</TABLE>

     Grants of options under the Plans are accounted for following Accounting
Principles Board (APB) Opinion No. 25 and related interpretations. Accordingly,
no compensation cost has been recorded. The Company has elected to apply the
disclosure-only provisions of FASB Statement No. 123. However, had compensation
cost been recorded based on the fair value of awards at the grant date, the pro
forma impact on the Company's net income and net income per common share-diluted
would have been less than $0.2 million and $0.02 per share for 1997, 1996 and
1995. The pro forma effects of applying FASB Statement No. 123 are not
indicative of future amounts since, among other reasons, the requirements of the
Statement have been applied only to options granted after December 31, 1994.

     The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions: dividend rate
of 1.9% to 2.3% for 1997, 2.0% for 1996, and 1.9% for 1995; risk-free interest
rates of 5.9% to 6.3% for 1997 and 6.4% for 1996 and 1995; expected lives of 6
years for 1997 and 8 years for 1996 and 1995; and price volatility of 23.1% to
24.6% for 1997 and 15.8% for 1996 and 1995.

     The Company also has a plan whereby its common stock can be purchased by
employees at a price 10% less than the market price on the issue date.

                                       25

<PAGE>


Note 9. Supplementary Disclosures Of Cash Flow Information

The following information is presented as supplementary disclosures for the
Consolidated Statements of Cash Flows:

<TABLE>
<CAPTION>
                                                                                        1997            1996               1995
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Cash payments for:
    Interest, net of capitalized interest of $762,643
    in 1997, $322,516 in 1996, and $404,147 in 1995                                   $1,067,098      $1,174,778       $1,079,601
----------------------------------------------------------------------------------------------------------------------------------
Income taxes                                                                          $6,551,222      $4,166,400       $3,196,178
==================================================================================================================================
</TABLE>

     In 1997, the Company contributed PCS radio spectrum licenses valued at
$4.25 million to the West Virginia PCS Alliance, L.C. in exchange for equity
ownership (Note 2). In 1997, the Company acquired through the FCC auction
certain PCS radio spectrum licenses for approximately $1.6 million of notes
payable. In 1995, the Company acquired a cable television company for
approximately $8.5 million of common stock. The excess of the total acquisition
cost over the fair value of the net assets acquired was $7.7 million.

Note 10. Lease Commitments

The Company has several operating leases for administrative office space, retail
space, tower space, channel rights, and equipment. The leases for retail and
tower space have initial lease periods of ten to thirty years. These leases are
associated with the operation of a cellular business in Virginia Rural Service
Area 6 in which the Company is the general partner. The leases for channel
rights relate to the Company's wireless cable operations and have initial terms
of three to ten years. The equipment leases have an initial term of three years.
Rental expense for operating leases was $1,352,000, $977,000, $809,000, in 1997,
1996, and 1995, respectively. The total amount committed under these lease
agreements is $917,000 in 1998, $893,000 in 1999, $854,000 in 2000, $701,000 in
2001, $621,000 in 2002 and $6,353,000 for the years thereafter.

================================================================================

INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
CFW Communications Company
Waynesboro, Virginia

     We have audited the accompanying consolidated balance sheets of CFW
Communications Company and subsidiaries as of December 31, 1997, 1996, and 1995,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. These standards 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 disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CFW
Communications Company and subsidiaries as of December 31, 1997, 1996, and 1995,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.


                                         /s/ McGladrey & Pullen, LLP
                                         ---------------------------------------
                                             McGladrey & Pullen, LLP


Richmond, Virginia
February 13, 1998

                                       26


<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS


OVERVIEW

CFW Communications Company ("CFW" or the "Company") is a diversified regional
communications company providing a broad range of products and services to
business and residential customers. These communications products and services
include local telephone, long distance, cellular, personal communications
services (PCS), paging, wireless and wireline cable television, directory
assistance, competitive access, local internet access, and alarm monitoring and
installation.

     The Company's strategy is to be a regional full-service provider of
communications products and services to customers within an expanding service
area. The Company has implemented this strategy through acquisitions,
investments in spectrum licenses and internal growth through capital investment.
In addition, the Company has leveraged its existing switching platform and fiber
optic network by introducing new services such as long distance directory
assistance, long distance services to local telephone customers and surrounding
communities, cable television, local internet access, and various enhanced
services such as Call Waiting and Caller Identification. These activities
continue to contribute to growth in the Company's operating revenues.

     As a result of the Company's increasing focus on and growth in wireless
communications and other competitive communications related businesses, a larger
percentage of the Company's operating revenues and operating cash flows
(operating cash flows is defined as operating income before depreciation and
amortization) are being generated by businesses other than the mature telephone
operations. Accordingly, management believes operating cash flows is a
meaningful indicator of the Company's performance. Operating cash flows is
commonly used in the wireless communications industry and by financial analysts
and others who follow the industry to measure operating performance. Operating
cash flows should not be construed as an alternative to operating income or cash
flows from operating activities (both as determined in accordance with generally
accepted accounting principles) or as a measure of liquidity.

     Through the Virginia PCS Alliance, L.C. ("VA Alliance") and West Virginia
PCS Alliance, L.C. ("WV Alliance"), and other PCS joint ventures, the Company
has acquired radio spectrum licenses for personal communications services
("PCS") for markets with an aggregate population of five million people. These
licenses will enable the Company, as managing partner of the Alliances, to
deploy PCS services in central and western Virginia, West Virginia and parts of
Maryland, Ohio, Pennsylvania, Kentucky and Tennessee. In the fourth quarter of
1997 the VA Alliance commenced providing PCS to a 1.6 million populated area in
central and western Virginia. The Company has commenced construction of the PCS
network in the WV Alliance and expects to commence providing PCS services in the
Charleston and Huntington corridor by mid-1998 and the Clarksburg, Fairmont and
Morgantown areas in the second half of 1998.

     In 1998, management expects continued proportionate growth in revenue and
operating cash flows from its current consolidated operations. However, the
recent trend of lower operating margins due to start-up costs associated with
deploying new services in existing markets and expansion into new markets is
expected to continue. In 1997, the Company recognized a loss of approximately
$0.8 million for its share of losses from PCS partnerships which were
operational for only a portion of the fourth quarter. The Company's recognition
of its share of losses associated with its investments in PCS partnerships is
expected to be at least as significant in 1998, on an annualized basis, as the
Company recognizes a full year of operating losses from the VA Alliance and
begins recognizing its share of operating losses from the WV Alliance, which is
expected to commence operations in 1998. These losses from equity investments
are expected to exceed net income growth from consolidated operations and will
likely result in consolidated net income levels below amounts reported in recent
years. These losses from equity investments are expected to continue into future
years until build-out is completed and a sufficient customer base is
established.

     The Company wishes to caution readers that these forward-looking statements
and any other forward-looking statements made by the Company are based on a
number of assumptions, estimates and projections including, but not limited to,
continuation of economic growth and demand for wireless and wireline
communications services; continuation of current level of services for certain
material customers; reform initiatives being considered by the FCC being
relatively revenue neutral; significant competition in the Company's telephone
service area not emerging in 1998; the impact on capital requirements and
earnings from new business opportunities and expansion into new markets;
anticipated competitive activity; and achievement of build-out, operational,
capital, financing and marketing plans relating to deployment of PCS services.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
any significant deviations from these assumptions could cause actual results to
differ materially from those in the above and other forward-looking statements.
Forward-looking statements included herein are as of the date hereof and the
Company undertakes no obligation to revise or update such statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

RESULTS OF OPERATIONS

SUMMARY - Operating revenues were $59.0 million in 1997, an increase of 18% over
1996. Operating cash flows were $28.6 million, an increase of 20% over 1996.
Operating income was $19.4 million, a 26% increase over last year. Strong
customer growth in our cellular, paging, and wireless cable operations of 33%,
31%, and 15%, respectively, fueled

                                       27

<PAGE>


the growth in our wireless operations. Operating results from our wireline
operations reflect continued strong contributions from our telephone operations,
led by 4.3% growth in access lines, growth in minutes and calling features,
doubling of internet customers and effective cost control. Doubling of our
directory assistance calling volume with the commencement of services in New
Jersey, Delaware and Pennsylvania resulted in strong revenue, operating cash
flows and earnings growth from our directory assistance operations.

     Net income for 1997 was $12.2 million, or $0.94 per share - diluted,
including a $5.1 million ($3.1 million after tax, or $0.24 per share) gain on
the sale of our investment in the Roanoke MSA Cellular Partnership (Note 2) and
a $2.8 million ($1.7 million after tax, or $0.13 per share) loss on write-down
of our investment in American Telecasting, Inc. (ATEL) (Note 3). Exclusive of
these transactions, earnings for 1997 were $10.8 million, or $0.83 per share, a
13% increase over net income of $9.5 million, or $0.73 per share for 1996. These
current earnings results reflect the aforementioned growth from our consolidated
operations, partially offset by our share of the expected operating losses from
our investments in a PCS partnership of $0.8 million ($0.5 million after tax)
that commenced operations in the fourth quarter of 1997.

     The Company reported net income for 1996 of $9.5 million, or $0.73 per
share - diluted, a 12% increase over net income for 1995 of $8.5 million, or
$0.66 per share. Growth from telephone and managed cellular operations, coupled
with 1996 earnings from directory assistance operations, which incurred
significant start-up losses in 1995, accounted for the majority of the increase.
Results for 1995 included a gain of $0.9 million ($0.6 million after-tax, or
$0.045 per share) from the sale of an investment. Excluding this gain, net
income for 1996 rose $1.6 million, or 21%, over 1995.

     Operating cash flows were $23.8 million in 1996, a 20% increase over
operating cash flow results of $19.9 million in 1995. This reflects increases
from telephone operations of $1.9 million, primarily from increases in access
and toll minutes, and $0.3 million from managed cellular operations, primarily
from customer growth of 46% in 1996 and 40% in 1995, coupled with a $1.2 million
contribution in 1996 from directory assistance operations which reported a cash
flow loss of $0.9 million in 1995, its first year of operations.

OPERATING REVENUES - Total operating revenues were $59.0 million, an increase of
$9.1 million, or 18%, over 1996 ($6.9 million, or 16%, over 1995). The increases
were primarily attributable to doubling of the Company's directory assistance
call volume through the expansion of our contract with AT&T to include directory
assistance in the states of New Jersey, Delaware and Pennsylvania, growth in
toll and access minutes of use, access lines and calling features, growth in
cellular, paging and wireless cable customers of 33%, 31% and 15% (46%, 29% and
38% growth in 1996 over 1995), respectively, and doubling of internet customers.

     Wireline communications revenues include telephone revenues, fiber optic
network usage and wireline cable revenues. Telephone revenues, which include
local service, access and toll service, directory advertising and calling
feature revenues were $28.8 million, an increase of $1.4 million, or 5%, over
1996. Telephone revenues increased 7%, or $1.8 million, for 1996 over 1995.
These increases were primarily due to growth in access lines of 4.3% and 3.3%,
in 1997 and 1996, respectively, and revenue growth from custom calling features
of 28% and 15%, respectively. Revenues from fiber optic network usage, which
includes internet services, were $4.0 million, an increase of 11%, or $0.4
million, over 1996 (25%, or $0.7 million increase in 1996 over 1995) due to
expanded network services and growth of over 112% in our internet customer base.
Wireline cable revenues were $1.7 million in 1997 compared to $1.5 million in
1996.

     Wireless communications revenues include cellular and paging revenues of
$8.6 million, an increase of $1.8 million, or 26%, over 1996 ($1.1 million, or
20%, over 1995), from access, toll, and roaming; and wireless cable revenues of
$3.1 million, an increase of 30% over 1996 (24% increase over 1995), from
customer basic and premium revenues and the introduction of wireless internet
services in late 1997 in our Charlottesville, Virginia, market. The increases
reflect a 33% and 31% (46% and 27% growth in 1996 over 1995) growth in cellular
and paging customers, respectively. The cable increase reflects a lower customer
growth rate of 15% in 1997 due to 1996 being the initial service year in
Richmond, Virginia, and high growth in the Shenandoah Valley market in 1996 due
to introducing an expanded channel line (38% growth in 1996 over 1995).

     Directory assistance revenues, which includes net revenues from providing
directory listings for customers seeking telephone numbers in the mid-Atlantic
states, increased $4.1 million, or 65%, over 1996 ($1.7 million, or 36%, over
1995). During the first half of 1997, the Company commenced directory assistance
services to AT&T customers seeking telephone numbers in New Jersey and Delaware.
During August through October 1997, the Company expanded this service to
encompass Pennsylvania. In 1997, the Company also commenced providing services
to our PCS customers and GTE wireless customers in Virginia and Pennsylvania.
Although directory assistance had not reached its annualized run rate in new
traffic territories, year over year call volume is up 23.9 million, or 78%.
These new territories are expected to generate, on an annualized basis, over
120% growth in calling volume.

     Other communications revenues, which include revenues from the Company's
sale and lease of communications equipment and security alarm monitoring and
installation, increased $0.4 million, or 22%, over 1996 and $0.3 million, or
19%, over 1995.

OPERATING EXPENSES - Total operating expenses were $39.6 million, an increase of
$5.1 million, or 15%, over 1996 ($4.9 million, or 16%, increase in 1996 over
1995). Directory assistance costs, primarily associated with contract expansion,
accounted for $3.9 million of the 1997 increase.

                                       28

<PAGE>


Growth in cellular and wireless cable customers contributed an additional $1.5
million in operating expenses 1997 over 1996. The increase in 1996 over 1995 was
primarily attributable to growth in cellular and wireless cable customers and
wireless cable expanded operations. In addition, 1996 was the first full year of
wireline cable operations.

     Maintenance and support expenses, which include costs related to specific
property and equipment, as well as indirect costs such as general engineering
and general administration of property and equipment, increased $0.1 million, or
1%, over 1996. The Company controlled expenses by acquiring access and other
network pricing decreases, coupled with more efficient utilization of our
facilities and equipment infrastructure. Maintenance and support expenses
increased $1.1 million, or 14%, over 1995 primarily as a result of increased
costs to support the growth in customers and services.

     Depreciation and amortization expenses increased $0.8 million, or 9%, over
1996 and $2.0 million, or 31%, over 1995. The increase in 1997 was a result of
capital growth to support continued business expansion primarily in our wireless
operations and directory assistance. The increase of $2.0 million in 1996 was a
result of license amortization and depreciation related to the commencement of
wireless cable services in our Richmond, Virginia, market. In addition, the
Company recognized an additional $0.7 million in 1996 relating to the disposal
of certain regulated telephone plant and equipment.

     Customer operations expenses, which included marketing, product management,
product advertising, sales, publication of a regional telephone directory,
customer services and directory assistance services, increased $3.1 million, or
28%, over 1996 and $1.9 million, or 20%, over 1995. Approximately 92% of these
increases relate to the directory assistance business and reflect continued
training and additional staff related to the expansion of states handled for the
new directory assistance markets served. Additionally, the Company has invested
resources in customer service related functions in order to support our growth
businesses. The 1996 increase was primarily attributable to sales commissions
related to strong customer growth in our wireless operations.

     Corporate operations expenses, which include taxes other than income,
executive, accounting, legal, purchasing, information management, human
resources and other general and administrative expenses, increased $1.0 million,
or 19%, over 1996 and decreased $0.1 million from 1995. The increase in 1997
relates primarily to internal infrastructure growth necessary to support the
overall growth of the Company.

OTHER INCOME (EXPENSES) - Other income (expenses) which includes interest
expense, dividend and interest income, equity income (loss) from wireless
investees, gain on sale of investment and loss on write-down of investment,
increased $0.9 million over 1996.

     Other expenses, principally interest, decreased $0.1 million, or 10%, from
1996 and $0.6 million, or 32%, from 1995. The reduction in interest expense in
1997 is primarily a result of additional interest expense from increased
borrowings, offset by capitalization of interest costs. The Company capitalized
interest on property under construction and investments in PCS alliances of $0.8
million in 1997 and $0.3 million in 1996, respectively. As a result of the VA
Alliance commencing operations during the fourth quarter of 1997 and the
anticipated commencement of operations of the WV Alliance in midyear 1998, the
Company expects the capitalization of interest costs to be reduced during 1998.
The $0.6 million reduction from 1996 under 1995 was primarily a result of costs
recognized in 1995 from an adverse ruling in litigation involving wireless cable
operations, which the Company assumed with its 1994 acquisition of American
Quality Cable.

     Interest and dividend income was down $0.3 million, or 52%, under 1996 due
to the Company's utilization of cash to support the strong growth in customer
base and business expansion.

     Equity loss from PCS investees totaled $0.8 million for 1997, as the VA
Alliance commenced operations in the fourth quarter. The Company has a 21%
common ownership interest in the VA Alliance. The Company also has a 45% common
ownership interest in the WV Alliance, which expects to commence operations by
midyear 1998.

     Equity income from other wireless investees, which includes equity earnings
from the Company's cellular partnership interests decreased $0.4 million, or
84%, in 1997 and $0.4 million, or 46%, in 1996. The decrease in 1997 is
principally due to the sale of the Company's 30% limited interest in the Roanoke
MSA cellular partnership to GTE in April 1997 (Note 2). The $0.4 million
decrease in 1996 over 1995 was due to higher operating costs.

     The Company recognized a $5.1 million gain on the sale of its 30% limited
ownership interest in the Roanoke MSA Cellular Partnership to GTE Wireless in
April 1997 (Note 2).

     The Company recognized a $2.8 million impairment loss on its investment in
ATEL at December 31, 1997. The Company concluded that the decline in value was
other than temporary given recent trading prices in the common stock, ATEL's
financial condition and continued financial losses, coupled with delays in
rulemaking by the FCC which is necessary to permit ATEL to provide two-way
telephony and internet services over its wireless cable spectrum.

INCOME TAXES - Income taxes increased $2.2 million, or 43%, over 1997 and $0.2
million, or 3%, over 1996. The 1997 increase was due to an increase in taxable
income from operations, $2.0 million of taxes from the gain on the sale of the
Roanoke MSA Cellular Partnership, offset partially by a $1.1 million deferred
tax benefit from the write-down of the Company's investment in ATEL. The 1996
increase was due to an increase in taxable income from operations offset by
adjustments to tax deductible amounts. The effective rate was 38% and 35% in
1997 and 1996, respectively.

                                       29

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its working capital requirements and capital expenditures
from net cash provided from operating activities and borrowings under committed
credit facilities. The Company has $21.0 million in unused aggregate borrowings
available under its existing credit facilities.

     During 1997, net cash provided by operating activities was $18.6 million.
Principle changes in operating assets and liabilities included a $2.8 million
increase in current assets, excluding cash, and a $1.5 million increase in
current liabilities. The increase in operating assets resulted primarily from an
increase in accounts receivable associated with directory assistance, directory
listings, and access billings. Operating liabilities increased primarily as a
result of advanced billings for cellular and wireless cable operations. The
Company's investing activities included the investment of $14.2 million in
property and equipment, $2.6 million investment in PCS and cellular (Note 2) and
$4.5 million for PCS licenses, of which licenses valued at $4.3 million were
subsequently contributed to the WV Alliance (Note 2), offset by proceeds of $6.6
million from the sale of our Roanoke MSA Cellular Partnership interest (Note 2)
and distributions and liquidations of various investments. Net cash used in
financing aggregated $6.3 million, including $5.3 million used to pay dividends.

     The Company had firm cash commitments relating to purchases of property and
equipment of approximately $3.2 million as of December 31, 1997. Capital
expenditures for 1998, including these commitments, are expected to approximate
1997 levels in order for the Company to continue its growth trend in wireless
communications and other services. Funds required for dividends, capital
expenditures, interest and debt principal payments, and partnership
contributions are expected to be provided from internal sources and borrowings
drawn against available credit facilities. The Company has entered into certain
guarantee agreements relating to its investment in the VA Alliance and expects
to enter into similar debt guarantee agreements with the WV Alliance during 1998
(Note 2). Management anticipates that funds required for additional capital
contributions to the VA Alliance and WV Alliance (Note 2) will be provided from
increased cash flow resulting from lower estimated tax payments due to the
Company recognizing its proportionate share of the tax losses generated by the
VA Alliance and WV Alliance, both limited liability companies, cash flows from
operations and borrowings under existing lines of credit.

IMPACT OF YEAR 2000

The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

     The Company is in the process of conducting a comprehensive review of its
computer systems to identify the internal systems that could be impacted by the
year 2000 issue and is developing an implementation plan to resolve the issue.
The review also entails formal communications with all of the Company's
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
resolve their own year 2000 issues.

     Based on our findings and assessment to date, the Company will be
performing certain planned telephone switching software upgrades and computer
software and system upgrades, which are being performed primarily to better meet
the business and growth needs of the Company. The total year 2000 project cost
is not expected to be material to the Company's business operations or financial
condition. The Company expects its year 2000 program to be completed on a timely
basis. However, if such modifications and upgrades are not made, or are not
completed timely, the year 2000 issue could have a material impact on the
operations of the Company. There can be no assurance that the systems of other
companies on which the Company's systems rely also will be timely converted or
that any such failure to convert by another company would not have an adverse
effect on the Company's systems or costs of upgrades.

     The costs of the program and estimated completion date are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area,
compliance by third parties which interact with the Company's systems, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.

                                       30

<PAGE>



QUARTERLY REVIEW

<TABLE>
<CAPTION>
=================================================================================================================================
(in thousands, except per share amounts)               First Quarter      Second Quarter       Third Quarter      Fourth Quarter
---------------------------------------------------------------------------------------------------------------------------------
<S><C>
1997
Operating revenues                                  $       13,466        $       14,503     $       15,157      $       15,884
Operating cash flows                                         6,673                 6,838              7,387               7,710
Operating income                                             4,486                 4,607              5,132               5,187
Gain on sale of investment                                       -                 5,077                  -                   -
Loss on write-down of investment                                 -                     -                  -              (2,808)
Equity loss from PCS investee                                    -                     -                (60)               (774)
Net income                                                   2,480                 5,905              2,894                 942
Net income per share - basic                                 0.191                 0.453              0.223               0.074
Net income per share - diluted                               0.190                 0.452              0.222               0.072
---------------------------------------------------------------------------------------------------------------------------------
Stock price range                                     $22.25-18.25          $19.50-16.62       $22.50-17.50        $24.75-18.50
Quarterly dividend                                    $      0.103          $      0.103       $      0.103        $      0.103
---------------------------------------------------------------------------------------------------------------------------------

1996
Operating revenues                                    $     12,061          $     12,305       $     12,537        $     13,045
Operating cash flows                                         5,535                 5,932              6,058               6,299
Operating income                                             3,722                 4,034              4,047               3,612
Net income                                                   2,306                 2,332              2,292               2,620
Net income per share - basic                                 0.178                 0.180              0.176               0.202
Net income per share - diluted                               0.177                 0.179              0.175               0.201
---------------------------------------------------------------------------------------------------------------------------------
Stock price range                                     $18.50-17.25          $24.00-17.75       $24.00-19.25        $23.25-21.25
Quarterly dividend                                    $      0.098          $      0.098       $      0.098        $      0.098
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

- Fourth quarter 1997 includes equity loss from investment in PCS partnership
  (Note 2), which commenced operations during the fourth quarter, of $0.8
  million ($0.5 million after-tax or $0.04 per share).

- Fourth quarter 1997 includes a loss on write-down of the investment in
  American Telecasting, Inc. (Note 3) of $2.8 million ($1.7 million after-tax
  or $0.13 per share).

- Second quarter 1997 includes gain on the sale of investment in the Roanoke MSA
  Cellular Partnership (Note 2) of $5.1 million ($3.1 million after-tax or $0.24
  per share).

- Fourth quarter 1996 includes additional depreciation expense of $0.7 million
  ($0.4 million after-tax or $0.3 per share) relating to disposal of certain
  regulated plant and equipment. Fourth quarter 1996 also includes a reduction
  to income tax of $0.4 million or $0.03 per share as a result of a refinement
  to estimated income taxes for the year.


SELECTED FINANCIAL DATA AND FIVE YEAR GROWTH COMPARISON

<TABLE>
<CAPTION>
==================================================================================================================================
                                              1997               1996               1995               1994              1993
----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Operating revenues                       $  59,010,000       $  49,948,300      $  43,089,000      $  32,197,700    $  27,349,600
Operating expenses                          39,597,800          34,533,300         29,667,400         19,949,300       16,208,000
Income taxes                                 7,398,500           5,162,500          5,005,900          3,550,400        3,766,700
Gain on sale in investment                   5,077,400                   -            926,699                  -                -
Loss on write-down of investment            (2,808,100)                  -                  -                  -                -
Net income                                  12,220,900           9,549,700          8,493,600          7,562,800        7,176,400
Net income per share - diluted                    0.94                0.73               0.66               0.63             0.62
Cash dividends per share                         0.412               0.392              0.379              0.368            0.355
Total assets                               148,447,500         142,399,900        143,251,300        123,964,300       98,975,900
Long-term debt                              24,606,200          24,000,000         20,000,000         20,066,900       20,114,200
Retirement benefits
    other than pensions                      8,431,700           7,724,100          7,150,000          6,513,900        6,356,900
Investment in property
    and equipment                         $137,703,200        $127,196,100       $111,806,300       $103,086,300    $  71,456,200
Average number of common
    shares outstanding - diluted            13,055,814          13,056,081         12,933,926         12,016,163       11,600,019
Number of employees                                567                 454                492                232              166
Number of shareholders                           2,884               2,883              2,889              2,638            1,853
==================================================================================================================================
</TABLE>

                                       31

<PAGE>



BOARD OF DIRECTORS

C. Phillip Barger            John B. Mitchell        Carl A. Rosberg
Chairman                     President               Senior Vice President
E. W. Barger & Company       Hammond-Mitchell, Inc.  CFW Communications
T/A Barger Insurance Network
                             John N. Neff            Robert S. Yeago, Jr.
William Wayt Gibbs, V        President and           Chairman of the Board
President                    Chief Executive Officer CFW Communications
Comprehensive Computer       Nielsen Builders, Inc.
Consultants
                             James S. Quarforth
C. Wilson McNeely, III       President and
President                    Chief Executive Officer
Eagle Corporation            CFW Communications


EXECUTIVE OFFICERS

J. William Brownlee          David R. Maccarelli     Christina S. Smith
Vice President and           Senior Vice President   Vice President
Chief Operating Officer -                            Administration
Wireline                     Michael B. Moneymaker   Treasurer and Secretary
                             Vice President Finance
Warren C. Catlett                                    Robert S. Yeago, Jr.
Vice President Strategy and  James S. Quarforth      Chairman of the Board
Business Development         President and
                             Chief Executive Officer Walter M. Zirkle, III
David E. Lowe                                        Vice President and
President -                  Carl A. Rosberg         Chief Operating Officer -
West Virginia Operations     Senior Vice President   Wireless


IN MEMORIAM-1912-1997

[PHOTO APPEARS HERE]

DENNIS B. DRAPER  served CFW in a variety of capacities for over 50 years,
beginning with his employment in 1941 as a plant supervisor. He was elected
Corporate Secretary in 1944 and elected to the Board of Directors in 1947, a
position he held until 1992.

     He was promoted to Vice President and General Plant Manager in 1949 to
oversee the maintenance and expansion of all the Company's plant operations. In
June 1963, he was elected President and took on the additional responsibility of
Chairman of the Board in 1969.

     Relinquishing the position of President in 1978, he continued as Chairman
of the Board and Chief Executive Officer. In 1982, he retired from active
employment after 41 years of service, but continued as a member of the Board
until 1992, serving as its Chairman through 1990.

     Mr. Draper served as President of the Virginia Independent Telephone
Association in 1956 and had served as a member of the Board of the United States
Telephone Association. He was also active in local Chambers of Commerce and
civic organizations.


IN RECOGNITION

[PHOTO APPEARS HERE]

Our appreciation is extended to MEREDITH E. YEAGO for his many years of
dedicated service to CFW. He retired from the Board of Directors in January
1998.

     Mr. Yeago came to the Company in 1950 as an accountant after graduating
from the University of Virginia School of Commerce. He was elected Treasurer in
1953 and elected to the additional position of Corporate Secretary in 1966. He
was elected as a member of the Board of Directors in 1969.

     In 1978, he was promoted to Vice President and Treasurer, a position held
until his retirement from active employment in July 1989 after 39 years of
service. He continued as a member of the Board of Directors until this year.

     During his telephone career, Mr. Yeago served as President of the Virginia
Independent Telephone Association in 1969 and served on Boards of local civic
and charitable organizations.

                                       32