SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549

                                 FORM 10-K

              Annual Report Pursuant to Section 13 or 15(d) of
                    the Securities Exchange Act of 1934

 For the fiscal year ended December 31, 1997 Commission file number 1-4929

                             COMSAT CORPORATION
           (Exact name of registrant as specified in its charter)

District of Columbia                              52-0781863
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                   Identification No.)

                 6560 Rock Spring Drive, Bethesda, MD 20817
                 (Address of principal executive offices)

Registrant's telephone number, including area code:  (301) 214-3000

Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each exchange on
     Title of each class                                which registered
     -------------------                             ------------------------

     Common Stock, without par value                 New York Stock Exchange
                                                     Chicago Stock Exchange
                                                     Pacific Stock Exchange

     8 1/8% Cumulative Monthly Income                New York Stock Exchange
     Preferred Securities of
     COMSAT Capital I, L.P.

Securities registered pursuant to Section 12(g) of the Act:  None.

     Indicate  by check  mark  whether  the  Registrant  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the  Securities Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports),  and (2) has been subject to
such filing requirements for the past 90 days. Yes X   No

     Indicate by check mark if disclosure of delinquent  filers pursuant to
Item  405 of  Regulation  S-K is not  contained  herein,  and  will  not be
contained,  to the best of Registrant's  knowledge,  in definitive proxy or
information  statements  incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]

     Aggregate market value of voting stock held by  non-affiliates  of the
Registrant was  $1,635,327,690  based on a closing market price of $33 7/16
per share on February 27, 1998, as reported on the  composite  tape for New
York Stock Exchange listed issues.

     51,012,180 shares of common stock, without par value, were outstanding
on February 28, 1998.

                    DOCUMENTS INCORPORATED BY REFERENCE
           The following documents are incorporated by reference:

                                               Part of the Form 10-K into
     Title                                which the document is incorporated
     -----                                ----------------------------------
COMSAT - Annual Meeting of                             Part III
  Shareholders - Notice and
  Proxy Statement - 1998



<PAGE>


                                   PART I

ITEM 1.  BUSINESS

                            GENERAL INFORMATION

BUSINESS SEGMENTS

     COMSAT  Corporation  (COMSAT,  the corporation or Registrant)  reports
operating  results and financial data in two business  segments:  Satellite
Services and Network Services.

     The Satellite  Services segment consists of the  corporation's  COMSAT
World Systems (CWS) and COMSAT Mobile Communications (CMC) businesses.  CWS
provides voice, data, video and audio  communications  services between the
U.S. and other  countries using the satellite  system of the  International
Telecommunications  Satellite Organization (INTELSAT).  CMC provides voice,
data,  fax,  telex and  information  services for ships,  aircraft and land
mobile  applications  throughout  the world  primarily  using the satellite
system of the International Mobile Satellite Organization (Inmarsat).

     The Network  Services  segment  consists of the  corporation's  COMSAT
International  (CI),  COMSAT  Laboratories  (Labs) and Government  Programs
businesses. CI operates an integrated group of telecommunications companies
that  are  engaged   principally   in  providing   individualized   digital
communications  network  solutions  to  business  clients  and  carriers in
high-growth  emerging markets overseas.  Labs provides technical consulting
in  the  design  and   development  of  advanced   digital   communications
technologies  and  also  designs,   develops  and  licenses  communications
products for satellite  access,  compression  and networking  applications.
Government  Programs includes the operations of COMSAT General  Corporation
(COMSAT General) and COMSAT Government Services, Inc. (CGSI), both of which
are wholly-owned  subsidiaries of the corporation.  The Labs and Government
Programs sectors of Network Services now include certain non-manufacturing,
telecommunications  contracts and businesses that were previously  reported
as part of COMSAT RSI, Inc. (CRSI) in the Technology Services segment.

     The  revenues,  operating  income  (loss) and  identifiable  assets by
business segment,  for each of the last three years are shown in Note 15 to
the financial statements.

      During the second quarter of 1997, the  corporation  began  accounting
for the operations of both Ascent  Entertainment  Group,  Inc. (Ascent) and
substantially  all of the  manufacturing  assets  of CRSI  as  discontinued
operations.  See Note 2 to the financial  statements.  Ascent,  through its
subsidiaries,  provides  on-demand  in-room  entertainment  programming and
information  services  primarily to the domestic lodging  industry,  owns a
professional  basketball  team and a professional  hockey team, owns a film
and television  production  company,  and provides  satellite  distribution
support   services  to  the  National   Broadcasting   Company  (NBC).  The
corporation   distributed  its  80.67%  ownership  interest  in  Ascent  to
shareholders on June 27, 1997.

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     CRSI designs,  manufactures and integrates earth stations,  as well as
wireless and  advanced  antenna  systems.  In March 1998,  the  corporation
entered into a stock purchase  agreement to sell substantially all of CRSI.
See  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations-Outlook." The sale of substantially all of the assets
and  liabilities  of JEFA  Wireless  Systems,  a  subsidiary  of CRSI,  was
completed in a separate transaction in February 1998. Also included as part
of  discontinued  operations is  Electromechanical  System,  Inc.  (EMS), a
wholly-owned  subsidiary  of CRSI,  and an  equity  ownership  interest  in
Plexsys International  Corporation  (Plexsys),  which are being retained by
COMSAT per the terms of the stock purchase agreement, pending evaluation of
available alternatives.  The long-term contract for construction of a radio
telescope in Greenbank,  West Virginia also is to be retained and completed
by the corporation in connection with the stock purchase agreement

     Prior  to  the  second  quarter  of  1997,  the  corporation  reported
operating   results  and  financial  data  in  three   business   segments:
International  Communications  (consisting of CWS, CMC and CI),  Technology
Services (consisting of CRSI and the Labs) and Entertainment (consisting of
Ascent).

     The corporation had  approximately  2,732 employees as of December 31,
1997,  approximately  1,367  of whom  were  employed  in the  corporation's
continuing  operations.  None of the  employees is  represented  by a labor
union,  except  for  approximately  68  employees  working  for CRSI on the
construction  of the Greenbank  radio  telescope.  The union  employees are
expected  to become  employees  of COMSAT  or a  subsidiary  on or prior to
consummation of the CRSI sale.

COMMUNICATIONS SATELLITE ACT OF 1962

     COMSAT was  incorporated  in 1963 under  District of Columbia  law, as
authorized by the Communications Satellite Act of 1962 (the Satellite Act).
In 1993, COMSAT changed its corporate name from  "Communications  Satellite
Corporation"  to  "COMSAT   Corporation."   COMSAT  is  not  an  agency  or
establishment of the U.S. Government.  The U.S. Government has not invested
funds in COMSAT,  guaranteed  funds  invested in COMSAT or  guaranteed  the
payment of dividends by COMSAT.

     Although  COMSAT is a private  corporation,  the Satellite Act governs
certain aspects of COMSAT's structure, ownership and operations,  including
the  following:  three  of  COMSAT's  15  directors  are  appointed  by the
President  of the United  States  with the advice and consent of the United
States  Senate;  COMSAT's  issuance of capital stock and borrowing of money
must be authorized by the Federal  Communications  Commission (FCC);  there
are  limitations on the classes of persons that may hold shares of COMSAT's
common  stock and on the number of shares a person or class of persons  may
hold;  and, on matters  that may affect the  national  interest and foreign
policy of the United  States,  COMSAT's  representatives  to  INTELSAT  and
Inmarsat  receive  instructions  from the  U.S.  Government.  Congress  has
reserved  the right to amend the  Satellite  Act, and  amendments,  if any,
could materially affect the corporation.

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<PAGE>

     In  June  1997,  a bill  captioned  as the  "Communications  Satellite
Competition and  Privatization  Act of 1997" (H.R.  1872) was introduced in
the U.S. House of  Representatives  by Congressmen Thomas Bliley and Edward
Markey.  If enacted as proposed,  H.R.  1872 would have a material  adverse
effect on  COMSAT's  financial  condition  and  results  of  operations  by
restricting or prohibiting COMSAT from offering certain existing and future
services via the INTELSAT and Inmarsat  satellite  systems,  would  relieve
major  customers  from existing  contracts with the  corporation  and would
damage or impair  COMSAT's  investment  in INTELSAT  and Inmarsat by, among
other  actions,  requiring  the return or orbital  positions  and  spectrum
currently needed in INTELSAT and Inmarsat  operations.  Moreover,  the bill
would direct the FCC to require  direct  access to INTELSAT and Inmarsat in
the U.S.  market and  discontinue  COMSAT's  exclusive  provider  role. The
corporation  is, and plans to continue,  opposing  H.R. 1872 in its present
form.  For a discussion of H.R.  1872,  see  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations-Outlook."

GOVERNMENT REGULATION

     Under  the  Satellite  Act,  the  International   Maritime   Satellite
Telecommunications  Act of 1978 (the Inmarsat  Act) and the  Communications
Act of 1934,  as amended  (the  Communications  Act),  COMSAT is subject to
regulation  by the FCC  with  respect  to its  capital  and  organizational
structure,  as well as CWS's  and CMC's  plant,  operations,  services  and
rates.  FCC  decisions  and policies  have had and will  continue to have a
significant impact on the corporation. For a discussion of certain of these
matters see Note 9 to the financial statements.

     In April 1997, the corporation  petitioned the FCC for  classification
as a non-dominant carrier and for regulatory forbearance. Because COMSAT is
currently classified by the FCC as a dominant carrier, COMSAT is subject to
rate  base/rate-of-return  regulation  for the services it provides via the
INTELSAT  system,  is  required to file  tariffs for voice,  data and video
service  on 14  days'  notice,  and is  subject  to  structural  separation
requirements.  In  contrast,  COMSAT's  competitors  are  entirely  free of
rate-of return  regulation,  tariff  regulation  and structural  separation
requirements.

     The petition requests that limits on the corporation's  rate of return
and structural  separation  requirements be removed and that CWS be allowed
to change its tariff rates and  introduce  new services on one-day  notice.
The  corporation  believes  that  the  relief  requested  will  enable  the
corporation to compete more effectively under current market conditions. In
particular,  lifting rate-of-return  regulation and more flexible tariffing
requirements,  are expected to permit the  corporation to offer customers a
wider  range of  services  at lower  prices by  eliminating  inefficiencies
associated with structural separation and cost-of-services rules.

     The petition  would not eliminate all FCC  regulatory  oversight  over
COMSAT or all existing regulatory constraints. If COMSAT is classified as a
non-dominant carrier or the FCC exercises its forbearance authority, COMSAT
would continue to be governed by the reasonableness  and  nondiscrimination
requirements of the Communications Act, would still file tariffs, and would
remain subject to the FCC's  complaint  procedures.  In addition,  COMSAT's
capital  structure  and  debt-financing  activities  would  continue  to be
regulated by the FCC under the Satellite Act. See "Management's  Discussion
and Analysis of Financial  Condition and Results of  Operations-  Liquidity
and Capital  Resources."  The Satellite  Act provides  that no  shareholder


                                     4

<PAGE>

(other than communications common carriers authorized to hold shares by the
FCC) may own more than 10% of the corporation's  common stock.  COMSAT also
is barred from providing  domestic  service in the U.S., which precludes it
from providing "one-stop" shopping for international and domestic services.
In addition,  unlike its  competitors,  COMSAT is only permitted to provide
earth station services  through a separate  subsidiary.  See  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations -
Outlook"  for a  discussion  of proposed  legislation  which  could  affect
certain of those requirements.

     CI's companies operate in various developing countries and are subject
to  regulation  by the local  regulatory  authorities  in those  countries.
Because the regulatory  environment in those countries is rapidly  evolving
as the local  economies are  developing,  CI's  companies  face  increasing
business  uncertainties  which  could  have  an  adverse  effect  on  their
operations in those  countries.  For a discussion  of a pending  regulatory
proceeding  in Argentina  affecting  COMSAT  Argentina,  see  "Management's
Discussion   and   Analysis   of   Financial   Condition   and  Results  of
Operations-Outlook-Network Services."

                            SATELLITE SERVICES


COMSAT WORLD SYSTEMS

     SERVICES.  COMSAT World Systems (CWS) provides  satellite capacity for
telephone, data, video and audio communications services between the United
States  and the rest of the world  using the  global  network  of  INTELSAT
satellites.  CWS's  customers  include  U.S.  international  communications
common  carriers,  teleports,  private  network  providers,   multinational
corporations,   U.S.   and   international   broadcasters,   news-gathering
organizations, digital audio companies and the U.S. government.

     The largest  portion of CWS's  revenues  comes from leasing  full-time
voice grade half-circuits  (two-way  communications  links between an earth
station and an INTELSAT  satellite)  to U.S.  international  communications
common carriers. The three largest carrier customers are AT&T Corp. (AT&T),
MCI International  Inc. (MCI) and Sprint  Communications  Company (Sprint).
CWS offers  significant  discounts to  customers  entering  into  long-term
commitments for full-time voice-grade  half-circuits.  Approximately 93% of
all eligible voice-grade half-circuits are now under such commitments.

     CWS's voice and data services are primarily  digital,  which  provides
higher quality  transmissions  than analog  services.  CWS's  International
Digital  Route  (IDR)   service,   for  example,   makes  it  possible  for
communications  carriers  to  provide  digital  public-switched   telephone
network  circuits.  The carriers  apply  techniques  to such  circuits that
permit  a  single  digital  circuit  to  handle  multiple  telephone  calls
simultaneously.

     For private-line  customers,  CWS offers an all-digital  International
Business  Service  (IBS),  as well as an  international  VSAT  (Very  Small
Aperture  Terminal)  service.  IBS  offers  customers  high-speed,  digital
communications  for voice,  data,  facsimile and video  conferencing  using
on-premise  earth  stations that  eliminate  the need for costly  land-line
connections.  At year-end 1997,  approximately 95% of CWS's IBS traffic was
covered  by  long-term   commitments.   CWS's  customers  have  established

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international  VSAT  networks  in both  Latin  America  and  Europe.  Using
on-premise  antennas  as  small  as 1.8  meters  in  combination  with  the
high-power satellites in the INTELSAT network,  corporations doing business
internationally   can  deliver   communications  to  multiple  sites.  Used
primarily  for data  transmissions,  VSATs can also  accommodate  voice and
video communications.

     To the growing international broadcasting community, CWS provides both
digital and analog  transmission  services on a  long-term,  short-term  or
occasional as-needed basis. With the introduction of the INTELSAT VII, VIIA
and VIII satellites (see "Item 2. Properties -- INTELSAT Satellites"),  CWS
has  expanded  the  availability  of  high-power,   flexible  capacity  for
broadcasters and satellite news gatherers.

     To  maintain  the  quality  of  the  INTELSAT  network,  CWS  provides
tracking,  telemetry,  control and  monitoring  services  to  INTELSAT  and
engages  in a program  of  research  and  development  to  ensure  that the
satellite  system  accommodates  the  latest  communications  technologies,
including  broadband,  integrated  services digital  networks  (ISDN),  and
asynchronous transfer mode (ATM).

     INTELSAT.  INTELSAT  is a  142-nation  organization  headquartered  in
Washington,   D.C.   It   operates   under   three   agreements:   (1)   an
intergovernmental  agreement;  (2) a  headquarters  agreement with the U.S.
Government;  and  (3)  an  operating  agreement  signed  by  each  nation's
government or designated telecommunications entity (a signatory). COMSAT is
the U.S. signatory. It represents the United States in INTELSAT, subject to
instructions  from the  Department of State (in concert with the Department
of Commerce and the FCC) on matters  that may affect the national  interest
and foreign policy of the United States.

     Each  signatory has rights and  obligations  in INTELSAT  analogous to
those of a partner.  Each owns an  investment  share,  makes  proportionate
contributions  to  INTELSAT's  capital  costs,  and receives  proportionate
distributions  of INTELSAT's  net revenues  after  deductions for operating
expenses.  The investment  shares are readjusted as of March 1 of each year
to approximate the Signatories' respective portions of the total use of the
INTELSAT  space  segment for the previous six months.  COMSAT's  investment
share, the largest in INTELSAT, was 18.0% as of December 31, 1997 and 19.1%
as of December 31, 1996.

     Signatories  also pay INTELSAT for their use of the satellite  system.
In 1997, INTELSAT  established a range of 17-21% for the pretax target rate
of return on signatory capital used by another signatory or from non-owners
who use the  satellite  system.  The actual  rate of return on  signatory's
capital was 18.3% in 1997. In 1998, COMSAT expects to receive a pretax rate
of return of between 15% to 19% on its capital investment after appropriate
accounting  adjustments.  CWS realized revenue from its INTELSAT ownership,
net of use charges paid, of $35.4 million in 1997.

     At December 31, 1997, total INTELSAT Owners' Equity was  approximately
$2.04 billion.

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     At year end 1997,  approximately  78% of CWS's IDR, IBS and FM traffic
was  under  long  term  commitments  with  INTELSAT.   CWS  has  short-term
commitments with INTELSAT for the remaining  portion of its FM, IDR and IBS
traffic.  CWS also enters into commitments with INTELSAT for video traffic,
which  vary in length  depending  on the length of  commitments  from CWS's
customers.

     Under the  INTELSAT  agreements,  the member  nations  that  authorize
international  satellite  systems  separate  from  INTELSAT are required to
ensure  that such  systems are  technically  compatible  with the  INTELSAT
system and will not cause significant economic harm to the INTELSAT system.
Beginning in 1990,  INTELSAT  initiated  certain reforms to its process for
coordinating  with  these  separate   satellite   systems.   These  reforms
culminated in 1997,  when  INTELSAT  decided to  effectively  eliminate the
economic harm test.  As a result,  there is no longer a limit on the number
of circuits  that a separate  system can provide  beyond  which it would be
deemed  to cause  significant  economic  harm to the  INTELSAT  system.  In
addition, the submission of non-technical information is no longer required
in connection with INTELSAT  coordination  procedures.  For a discussion of
separate satellite systems competition to CWS, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Outlook"  and
Note 9 to the financial statements.

     The  corporation  continues  to  promote  efforts to  restructure  the
INTELSAT  satellite  system.  For a  discussion  of the  current  status of
INTELSAT  restructuring,  see  "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations-Outlook."

     INTELSAT  generally  procures  spacecraft  and launch  services  under
long-term, multi-satellite contracts which provide for payments by INTELSAT
over the contract  periods.  Under the  satellite  construction  contracts,
approximately  60% of spacecraft cost is typically paid to the manufacturer
during  construction prior to spacecraft  delivery and satellite launch. In
addition,  approximately 20% typically is paid after the satellite has been
placed in orbit and has  satisfactorily  completed  in-orbit  testing.  The
remaining  portion  of the  spacecraft  cost  is  payable  periodically  as
performance  incentives  over the  designated  design life of the satellite
contingent upon continued  successful operation of the satellite during the
respective periods.

     Under  the  launch  service  contracts,   launch  services  costs  are
typically paid in quarterly  installments with the final payment due at the
end of the  planned  launch  period.  Launch  payments  are payable in full
whether or not the launch has resulted in launch success.

     INTELSAT has purchased launch and  post-separation  insurance coverage
for  possible  losses that may occur during the launch and  subsequent  one
year periods for satellites  scheduled for launch during 1998. The coverage
includes the cost of the satellite and launch services, as well as the cost
of  the  insurance  itself.  The  corporation   typically  buys  additional
insurance to cover its capitalized interest associated with the satellites.
Neither the  corporation  nor  INTELSAT  has  procured  insurance  to cover
in-orbit  failures beyond one year after launch.  While the corporation and
INTELSAT typically procure insurance coverage of the type described,  there
can  be  no  assurance  that  insurance   coverage  will  be  available  on
commercially  reasonable  terms or purchased by INTELSAT or the corporation
for future launches.

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     Effective  January 1, 1998,  the  corporation  changed its  accounting
policy with respect to the cost of series  satellites  lost at launch or in
orbit and its  accounting  policy  with  respect to  satellite  performance
incentives  paid  to  manufacturers.   See  ""Management's  Discussion  and
Analysis of Financial Condition and Results of Operations-Outlook."

     INTELSAT  generally offers its customers  (including COMSAT) long-term
commitments for transponder capacity of one, five, ten or fifteen years for
a range of services at tariff rates which are  progressively  lower for the
longer term commitment  periods. As of December 31, 1997, certain customers
of  INTELSAT,  including  COMSAT,  had  long-term  commitments  in  effect,
representing  approximately  70% and 74% of the total  analog  and  digital
services  traffic,  respectively.  Over  75%  of the  commitments  are fo a
fifteen year term.

     COMPETITION.  CWS competes with operators of high capacity fiber-optic
and other submarine cables in service along major traffic routes worldwide.
CWS's major carrier customers (including its three largest customers, AT&T,
MCI and Sprint) are co-owners of submarine cables.

     COMSAT  is   currently   the  only  U.S.   entity   that  may  provide
international  space segment to customers  using  INTELSAT  satellites.  In
connection with CWS's petition for non-dominant  status (discussed  below),
several of CWS's  customers have asked the FCC to allow some form of direct
access to the INTELSAT  system.  The corporation has opposed these requests
and believes that the Satellite Act requires U.S.  access to INTELSAT to be
obtained through COMSAT.

     In November 1997, the FCC issued an order in its "DISCO-II" rulemaking
proceeding addressing,  among other matters, COMSAT's provision of INTELSAT
services  within the United States.  The FCC ruled that,  before COMSAT may
provide such  service,  it must first waive the limited  immunity from suit
which it has with  respect to its actions as U.S.  Signatory  to  INTELSAT.
COMSAT has  appealed  that ruling on the ground  that its limited  immunity
arises from international agreements entered into by the U.S. which may not
be abrogated by the FCC.

     TARIFFS AND REVENUES.  Under the Satellite Act and the  Communications
Act,  COMSAT is  subject  to  regulation  by the FCC with  respect to CWS's
communications  services  and the rates  charged  for those  services.  CWS
provides  its  services  on a  non-discriminatory  basis to all  customers,
either under  tariffs  filed with the FCC or on the basis of  inter-carrier
contracts.

     CWS  filed  a   petition   for   rulemaking   with  the  FCC   seeking
incentive-based  regulation of its multi-year,  switched-voice services for
carriers in January 1992. In the absence of FCC action on the petition, CWS
filed a petition for partial relief in July 1994.  This petition  requested
expedited FCC action to approve  streamlined  tariff  procedures for all of
CWS's INTELSAT satellite services.  The petition was also accompanied by an
extensive  economic  study  which  concluded  that  CWS  faces  substantial
effective  competition in all  geographic and service market  segments from
existing and planned fiber optic cables, separate satellite facilities, and
regional and foreign satellite systems, and that its access to the INTELSAT
system  does not  confer  upon CWS any  market  power in the  provision  of
transoceanic  telecommunications facilities. The FCC has not acted on CWS's
1992  petition,  but in August 1996 the FCC issued an order  granting CWS's
1994 request for streamlined  tariffing for its  switched-voice and private
line  services.  The  FCC did  not  grant  CWS's  request  for  streamlined
tariffing  of its video  services,  but invited CWS to file a new  petition

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with updated data seeking such relief,  which CWS did in October 1996. That
petition  was  granted  by the FCC in  August  1997 with  respect  to CWS's
full-time video and audio services. Petitions for reconsideration or review
of the FCC's  August 1996 and August 1997 orders were filed by one of CWS's
separate system competitors and are now pending before the FCC.

     In  April  1997,  the  corporation  formally  petitioned  the  FCC  to
re-classify it as a  non-dominant  carrier or,  alternatively,  forbearance
from dominant carrier  regulation  pursuant to Section 10(c) of the Telecom
Act of 1996. The corporation  expects that the FCC will act on the petition
in 1998. See "Government Regulation," "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Outlook" and Note 9 to the
financial statements.

     CWS has entered into  inter-carrier  contracts  with each of its three
largest customers,  AT&T, MCI and Sprint. Pursuant to those contracts,  CWS
reduced its rates for 10- and 15-year IDR and TDMA digital "base"  circuits
activated prior to January 1, 1992, and also reduced its rates beginning in
1996 for 7-year and longer IDR and TDMA circuits activated after January 1,
1992. Additional rate reductions occurred on January 1, 1997.

     In 1997, COMSAT filed tariff rate reductions of between 8% and 10% for
IBS and VSAT  services.  In addition,  higher  speeds and larger  bandwidth
sizes were made  available to  accommodate  the growing  demand of Internet
services.

     Approximately 47% of the corporation's  consolidated  revenues in 1997
were  derived  from  CWS's  services  (compared  to 50% in 1996 and  1995).
Approximately 9% of the  corporation's  consolidated  revenues in 1997 were
derived  from CWS's  services to AT&T.  Also in 1997,  CWS's three  largest
customers,  AT&T, MCI and Sprint, were the source of approximately 20%, 19%
and 8%, respectively, of CWS's revenues.

COMSAT MOBILE COMMUNICATIONS

     COMSAT    Mobile     Communications     (CMC)    provides    satellite
telecommunications  services  for  maritime,  aeronautical  and land mobile
applications,  primarily using Inmarsat  satellites and COMSAT's land earth
stations  in  Connecticut  and  California,  which serve the  Atlantic  and
Pacific  Ocean  Regions,  respectively,  and in Malaysia and Turkey,  which
serve the Indian Ocean Region.  These  stations  enable CMC to offer global
coverage for its  services.  There are currently  more than 104,000  mobile
terminals  operating  in the  Inmarsat  system.  As  described  below,  CMC
provides a full range of voice, facsimile, data and telex services, as well
as certain value-added services.

     MARITIME SERVICES.  CMC provides satellite services for communications
to and from ships and other vessels.  Customers for these services  include
transport ship operators, cruise ships and their passengers, fishing vessel
operators,  oil and mining  interests,  pleasure boat operators,  U.S. Navy
ships and foreign telecommunications administrations.

                                     9

<PAGE>


     In addition to standard  telephony  services,  CMC's services  include
group call  messaging  to a fleet of ships,  electronic  mail  services,  a
direct-dial  telephone  service for  passengers  and crew on board ships, a
news summary  distribution  service,  access to data bases through personal
computers,   and  other  office   communications   services  for  facsimile
transmissions,   worldwide  teleconferencing  and  current  financial  news
reports.

     In 1997,  COMSAT entered into a memorandum of  understanding  with the
U.S.  Coast  Guard  (USCG)  and  the  National   Oceanic  and   Atmospheric
Administration (NOAA) to provide Inmarsat standard-C services in support of
USCG position reporting and NOAA survey programs.

     CMC offers two digital  services,  Inmarsat-B and  Inmarsat-M,  in the
Atlantic,  Pacific and Indian Ocean Regions.  These  services  provide more
efficient use of the Inmarsat  satellite  capacity,  help to  significantly
lower the cost of using satellite communications,  and expand the potential
customer  base for  maritime  and land mobile  services.  CMC also offers a
multi-channel  version of  Inmarsat-M  service that allows cruise ships and
other  high-volume users to increase their channel capacity and offer lower
rates to their customers.

     In 1997,  CMC  entered  into a five year  marketing  and  distribution
agreement with  Morsviazsputnik  to expand  distribution of CMC services to
Russian-flagged  vessels. In addition, CMC has entered into agreements with
Telecom Italia, Videsh Sanchar Nigam Limited (VSNL), OTE and other Inmarsat
signatories  to permit  those  entities  to  resell  CMC  services  through
"hosting"   arrangements,   pursuant   to   which   the   unique   Inmarsat
identification  code of  each  entity  is  "hosted"  at  CMC's  land  earth
stations,  allowing their customers to use CMC services in other regions in
which such  entities  do no have  their own  facilities.  CMC is  currently
examining similar arrangements with resellers in other markets.

     In 1997, CMC entered into a teaming  arrangement  with AT&T to provide
satellite communications for "Afloat Personnel Telecommunications Services"
on board U.S. Navy  vessels.  CMC has provided  leased  services to AT&T to
support this service offering.

     AERONAUTICAL  SERVICES.  CMC  provides  satellite   telecommunications
services for aeronautical  applications,  including airline operational and
administrative    communications,    passenger   telephone   service   and,
prospectively,  air traffic  control.  Customers  of CMC for  international
aeronautical   services  include  airline  service  providers,   commercial
airlines, government aircraft and corporate aircraft.

     By an FCC Report and Order issued in 1989, COMSAT was authorized:  (i)
to be the sole  U.S.  provider  of  Inmarsat  space  segment  capacity  for
aeronautical services; (ii) to provide ground segment aeronautical services
in connection with the Inmarsat space segment on a non-exclusive basis; and
(iii) to provide such  aeronautical  services  only to aircraft  engaged in
international flights,  including international flights over U.S. airspace.
Another  entity,  the American Mobile  Satellite  Corporation  (AMSC),  was
designated to be the sole  provider of certain  domestic  aeronautical  and
land  mobile  satellite  services.  In  1995,  CMC  applied  to the FCC for
authority to offer domestic aeronautical services. CMC's request is pending
before the FCC. In 1996, CMC began offering domestic  aeronautical services
on an interim  basis  pursuant to temporary  authority  granted by the FCC,
pending completion of an FCC rulemaking proceeding, which is still ongoing.

                                    10

<PAGE>

     CMC  provides  aeronautical  services  with a data service for cockpit
communications  on commercial  flights under an agreement with Aeronautical
Radio,  Inc.,  an  airline-owned  service  organization.  CMC also provides
aeronautical  voice  services in the  Atlantic  and Pacific  Ocean  Regions
through  its earth  stations at  Southbury,  Connecticut  and Santa  Paula,
California.  There are currently more than 1,400  aircraft  equipped to use
the Inmarsat  aeronautical  system,  equally  split  between voice and data
services.

     A service  agreement with Kokusai Denshin Denwa Co., Ltd.  (KDD),  the
Japanese  signatory  to  Inmarsat,  provides  that CMC may use KDD's ground
earth station  serving the Indian Ocean Region to serve CMC's  aeronautical
customers,  and CMC may serve KDD's customers  flying in the Atlantic Ocean
Region.  Under the  agreement,  CMC and KDD provide  mutual  back-up in the
Pacific Ocean Region for aeronautical customers of both companies.

     A service  agreement  with GTE  Airfone,  Incorporated,  a provider of
air-to-ground  passenger  telephone service using  terrestrial  facilities,
enables  it to extend  its  current  service  to  transoceanic  flights  by
acquiring satellite and ground earth station services from CMC.

     COMSAT has been  selected  by United  Airlines  to  provide  satellite
communications  services for passengers (including telephone,  fax and data
transmission) on approximately 74 United Airlines aircraft, in exchange for
making  available  to United  Airlines  a  financing  facility  of up to $7
million to promote the use of satellite phones on United Airlines aircraft.
The $7  million  facility  will be drawn upon as United  Airlines  installs
seat-back phones on those aircraft.

     CMC also  was  selected  in 1997 to  provide  satellite  communication
services to the  international  fleet of Delta Airlines  (approximately  48
aircraft).  CMC entered into agreements with AT&T Wireless, Inc. to provide
satellite communications to the passenger cabins and with DeltaTel, Inc. to
provide cockpit  communications.  CMC also concluded an agreement with AT&T
to  accept  the use of the  AT&T  calling  card  to  support  this  service
offering.  In  addition,  COMSAT  provides  voice  service  to  Air  Canada
passengers  on 20  aircraft  pursuant  to  an  existing  arrangement  which
commenced in 1994.

     In late 1996, the Federal Aviation  Administration  (FAA) selected CMC
to provide  satellite  and uplink  services for the Wide Area  Augmentation
System  (WAAS).  For  a  further  discussion  of  the  WAAS  contract,  see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Outlook."

     LAND MOBILE  SERVICES.  CMC provides  telecommunications  services for
international land mobile applications, using mobile and portable terminals
located outside of the United States.  Customers for these services include
broadcasters,  foreign telecommunications  authorities and U.S. and foreign
corporations and government agencies.


                                    11

<PAGE>


     CMC's land mobile services are currently available using transportable
versions of Inmarsat's  Inmarsat-A  and  Inmarsat-B  mobile earth  stations
(telephone,  facsimile,  data,  and  telex),  a  briefcase-size  Inmarsat-M
terminal and a smaller data-only  Inmarsat-C  terminal through CMC's C-Link
service.  C-Link service is a low-cost text messaging  service that permits
smaller vessels and land mobile units to use the global satellite  network.
The  briefcase-size  Inmarsat-M  terminals provide a more portable and less
expensive  telephone service for international  travelers,  the news media,
government  officials  and others  who travel to remote  parts of the world
where reliable communications services are often not available.

     The corporation commenced commercial Planet 1 service in January 1997.
The  Planet 1  terminal  is a six pound,  laptop  computer-sized  satellite
terminal which utilizes the Inmarsat-3  satellites.  This product addresses
the demand for global personal  communications ahead of the availability of
hand-held  satellite services.  All five of the Inmarsat-3  satellites have
been  launched  and placed in  service.  In 1997,  COMSAT  entered  into an
agreement with Embratel permitting Embratel to resell CMC mini-M service in
Brazil. Similar arrangements are being pursued in other countries.

     COMSAT is not  generally  authorized  to provide  U.S.  domestic  land
mobile services.  However, it is providing U.S. domestic service to certain
individual end users under special  temporary  authorities from the FCC. In
1995,  COMSAT applied to the FCC for regular authority to offer land mobile
services  domestically.  In 1996,  COMSAT  applied  to the FCC for  blanket
authority  to  construct  and operate up to 5,000 Planet 1 terminals in the
United States. The FCC has not yet ruled on those applications.

     In November 1997, the FCC issued an order in its "DISCO II" rulemaking
proceeding  addressing,  along with other  issues,  COMSAT's  provision  of
Inmarsat  services  within the United  States.  The FCC ruled that,  before
COMSAT may provide  domestic service within the United States via Inmarsat,
it must first waive its immunity from suit,  including  suit under the U.S.
antitrust  laws,  stemming  from its role as U.S.  signatory  to  Inmarsat.
COMSAT has appealed that ruling. Based in part on this DISCO II policy, the
FCC staff has since denied a COMSAT  request for authority to operate up to
50 Planet 1 terminals domestically. COMSAT has since sought reconsideration
of the staff  decision by the full  Commission  and a partial waiver of the
DISCO II policy.

     In its DISCO II order,  the FCC also stated that it will allow  COMSAT
to provide  international service to and from Inmarsat terminals within the
U.S.,  but  ruled  in  January  1998,  with  regard  to a  COMSAT  Planet 1
application, that COMSAT must first show that the service can be restricted
to calls  originating or terminating  outside of the U.S.  COMSAT has since
filed  an  amendment  to its  underlying  Planet 1  application  containing
proposed  means of providing  such  assurance.  The FCC has not yet ruled o
COMSAT's application as amended.

     INMARSAT.  Inmarsat  is an  81-nation  organization  headquartered  in
London,   England.   It   operates   under   three   agreements:   (1)   an
intergovernmental  convention;  (2) a headquarters  agreement with the U.K.
Government;  and  (3)  an  operating  agreement  signed  by  each  nation's
government or designated  telecommunications entity (signatory).  COMSAT is
the U.S. signatory. It represents the United States in Inmarsat, subject to
instructions  from the  Department of State (in concert with the Department
of Commerce and the FCC) on matters  that may affect the national  interest
and foreign policy of the United States.

                                    12

<PAGE>


     Each  signatory has rights and  obligations  in Inmarsat  analogous to
those of a partner.  Each owns an  investment  share,  makes  proportionate
contributions  to  Inmarsat's  capital  costs,  and receives  proportionate
distributions  of Inmarsat's  space segment  charges after  deductions  for
operating  expenses.  The investment shares are readjusted as of February 1
of each year to approximate  the  Signatories'  respective  portions of the
total  utilization  of the Inmarsat  space  segment for the previous  year.
COMSAT's  investment  share,  the  largest  in  Inmarsat,  was  23.0% as of
December 31, 1997,  which is unchanged  from December 31, 1996. On February
1, 1998, COMSAT's share was reduced to 22.3%.

     At December 31, 1997, total Inmarsat Owners' Equity was  approximately
$978  million.

     The corporation  continues to promote efforts for the privatization of
Inmarsat. For a discussion of the current status of INTELSAT restructuring,
see  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations-Outlook."

     The  Inmarsat-3   satellites  are  the  primary  operational  Inmarsat
spacecraft  and are used for  on-demand  services such as Inmarsat A, B, M,
Mini-M,  C, and  Aeronautical.  Some services such as Mini-M and Aero-I are
spot  beam  only  services  and can  only be  supported  on the  Inmarsat-3
satellites. Four Inmarsat-3 satellites are operational (two in the Atlantic
Ocean Region and one in each of the Pacific and Indian  Ocean  Regions) and
one serves as an in orbit spare.

     The   Inmarsat-2   satellites   are  expected  to  provide  full  time
pre-emptible  lease  services  and backup for global  beam  services on the
Inmarsat-3 satellites. Four Inmarsat-2 satellites are in orbit.

     Inmarsat procured the Inmarsat-2 and Inmarsat-3  satellites and launch
services  under  long-term,  multi-satellite  contracts  which provided for
payments by Inmarsat  over the  contract  periods.  The  contracts  for the
construction  of  the  Inmarsat-3  satellites  required   performance-based
incentive payments for each satellite after 60 days of successful  in-orbit
testing and after  successful  emergence of the  spacecraft  from the first
eclipse season.  Additional  incentive payments are made quarterly based on
continuous  satisfactory  operation of the satellite through the end of its
orbital  life.  Incentive  payments were not paid by Inmarsat in connection
with the procurement of the Inmarsat-2 satellites.

     As of  December  31,  1997,  Inmarsat  did not have any  contracts  to
procure additional  satellites.  Inmarsat has purchased an insurance policy
which provides  insurance  coverage after one satellite failure for certain
in-orbit failures for the Inmarsat-3  satellites for 365 days after launch.
Neither Inmarsat nor COMSAT carries  insurance for in-orbit failures beyond
365 days after launch for the Inmarsat-3 satellites. Similarly, there is no
insurance in place for in-orbit failure for the Inmarsat-2 satellites.

     Effective  January 1, 1998,  the  corporation  changed its  accounting
policy with respect to the cost of series  satellites  lost at launch or in
orbit and its  accounting  policy  with  respect to  satellite  performance
incentives  paid  to  manufacturers.   See  ""Management's  Discussion  and
Analysis of Financial Condition and Results of Operations-Outlook."


                                    13

<PAGE>


     Inmarsat  generally offers its customers  (including COMSAT) satellite
capacity on demand  generally  under terms that  require  payments on a per
minute  basis.  In  contrast  to  INTELSAT,  Inmarsat  has  relatively  few
long-term commitments for satellite capacity.

     ICO. In late 1996 and early 1997, the  corporation  reduced its direct
investment  in ICO  Global  Communications  (Holdings)  Limited  (ICO)  and
presently  owns  1.7%.  See  Note  5  to  the  financial  statements.   The
corporation  also  continues  to hold an indirect  share of ICO through its
ownership  interest  in  Inmarsat,  which is also an ICO  shareholder.  The
corporation  is evaluating  its plans with respect to  distribution  of ICO
products  and  services  and will  continue  to assess  whether  its direct
ownership i properly aligned with those plans.

     ICO was formed to provide hand-held satellite  communications services
outside of the Inmarsat  organization to allow a more commercial focus than
the current  Inmarsat  system.  The other current  major  investors in ICO,
besides the  Corporation  and Inmarsat,  include  Inmarsat  signatories and
Hughes  Communications,  Inc. (Hughes) and TRW, Inc., which are expected to
compete  with the  corporation  as service  providers in the U.S. and other
markets.  For a discussion  of the proposed  ICO  satellite  system and the
corporation's  investment in ICO, see "Management's Discussion and Analysis
of Financial Condition and Results of  Operations-Outlook"  and Notes 8 and
10 to the financial statements.

     On May 1, 1995, COMSAT filed an application with the FCC for authority
to  participate  in  Inmarsat's  procurement  of space segment from ICO for
specialized  (non-handheld)  communications  services. In that application,
COMSAT also sought an FCC ruling that ICO had been structured in compliance
with the requirements for COMSAT's  participation in ICO set out in a prior
FCC  ruling.   The   application   is  being  opposed  by  certain  of  the
corporation's competitors. The FCC has not acted on that application.

     In 1997,  COMSAT concluded  agreements with ICO to construct,  operate
and interconnect a "satellite  access node" (SAN) in Brewster,  Washington.
It is contemplated that the Brewster SAN will become part of ICO's backbone
network.

     COMPETITION.  Under the Inmarsat Act,  COMSAT is the  designated  U.S.
signatory  to the  Inmarsat  Operating  Agreement,  and is  the  sole  U.S.
operating  entity and  investor in the  Inmarsat  system.  CMC competes for
maritime,  land mobile and aeronautical  communications business with other
Inmarsat  Signatories  operating  land earth  stations  and with IDB Mobile
Communications,  Inc. (IDB), another U.S. land earth station operator.  IDB
provides  maritime,  land mobile and aeronautical  services through its own
U.S. land earth stations,  using Inmarsat  satellite capacity obtained from
CMC, as well as through certain foreign earth stations.

     In October 1997, IDB informed COMSAT that it was no longer  purchasing
Inmarsat  satellite  capacity  used by its U.S.  land earth  stations  from
COMSAT,  but was instead  purchasing that capacity from another  signatory.
COMSAT  believes  that IDB is  required,  under  the  terms of its  service
contract with COMSAT,  U.S. law and the Inmarsat  Operating  Agreement,  to
purchase that capacity  from COMSAT.  After  attempts to resolve this issue
failed,  COMSAT in January 1998 filed a lawsuit against IDB seeking damages
for breach of contract in the United States District Court for the Southern
District  of  Maryland.  In  February  1998,  IDB  filed a  petition  for a


                                    14
<PAGE>


declaratory  ruling asking the FCC to rule that operators of U.S.  Inmarsat
Land earth stations may purchase Inmarsat  satellite  capacity from foreign
signatories and a motion to dismiss or stay COMSAT's  lawsuit until the FCC
rules.  COMSAT has filed an opposition to both aspects of IDB's motion. The
court has not yet ruled.

     In addition,  CMC competes with American Mobile Satellite  Corporation
(AMSC), which launched its own satellite in 1995 to offer U.S. domestic and
international  mobile  satellite  services.  CMC also competes for maritime
communications  business  with  domestic  and  international  operators  of
cellular radio services,  high frequency radio services,  mobile satellites
and C-band and Ku-band satellites, and in the future is expected to compete
with the  FCC-licensed  low-earth-orbit  ("Big Leo")  satellite  systems of
Iridium and GlobalStar and the medium-earth-orbit  satellite system of ICO.
Operators  of  C-band  satellites  have  been  successful  in  capturing  a
significant portion of the maritime  communications  business with the U.S.
Navy and cruise ships.  These  competitive  forces have and are expected to
continue to exert downward  pressure on CMC's pricing for services provided
through the Inmarsat system.

     FCC  decisions  also may  significantly  affect  the  competition  for
products and services  offered by CMC. In November 1993, the FCC authorized
AT&T to provide shore-to-ship Inmarsat service under an agreement with CMC.
In  December  1993,  AT&T  filed  a new  application  to  provide  "branded
end-to-end"  Standard-A  mobile  satellite  service  in  the  ship-to-shore
direction,  which  COMSAT  opposed.  In early  1996,  AT&T was  granted FCC
authorization  to offer such service.  In June 1996, CMC and AT&T concluded
an  Interconnection  and Service  Agreement to address  interconnection  of
facilities and settlement issues.

     In December  1994,  IDB filed two  applications  seeking  authority to
provide  Inmarsat-M  and  Inmarsat-B  services to maritime  and land mobile
users through foreign land earth stations in the shore-to-ship direction in
the Atlantic and Pacific Ocean regions.  In that proceeding,  IDB contended
that the  Inmarsat  Act allows  U.S.  carriers to use  Inmarsat  land earth
stations and space segment obtained from foreign  Inmarsat  Signatories for
U.S.-originating  traffic,  a position  COMSAT  opposes.  IDB  withdrew  it
applications  in July 1995.  In August  1995,  however,  Cruisephone  filed
applications, which are being opposed by COMSAT, that raise similar issues.
In January 1997, IDB filed another  application,  which COMSAT has opposed,
seeking authority to provide Inmarsat-M and -B services (including carriage
of  U.S.-originating  fixed-to-mobile  traffic)  through foreign land earth
stations  using   Inmarsat   satellite   capacity   procured  from  foreign
signatories. The FCC has not yet ruled on these applications.

     In March 1993, the FCC granted COMSAT a waiver that would allow COMSAT
to provide  equipment,  software  and  value-added  services  to  customers
directly  through CMC, rather than through a separate  subsidiary,  thereby
avoiding  substantial  duplication of personnel and other costs, subject to
COMSAT's  establishing certain  non-structural  safeguards.  To satisfy the
FCC's conditions, COMSAT filed a proposed cost allocation manual and a plan
for implementing  certain  non-accounting  safeguards requested by the FCC.
The FCC approved  cost  allocation  manual in July 1995.  The FCC has since
approved the second  compliance  filing,  but has  conditioned the waiver's
effectiveness on COMSAT's submission,  and the FCC's approval, of a revised
cost allocation manual. COMSAT submitted the revised cost allocation manual
in January 1998. The FCC has not yet acted on that filing.

                                    15

<PAGE>


     In 1995,  COMSAT  petitioned the FCC for  authorization to provide the
same kinds of  value-added  services  to its  aeronautical  and land mobile
customers.  The FCC granted this petition in 1996,  subject to FCC approval
of non-structural safeguards -- which approval was granted in 1997. The FCC
has made the effectiveness of this waiver  conditional upon its approval of
COMSAT's revised cost allocation manual.

     REVENUES. Approximately 30% of the corporation's consolidated revenues
in 1997 were derived from CMC (compared to 30% in 1996 and 36% in 1995). No
single  customer  of CMC  provided  more  than  10%  of  the  corporation's
consolidated revenues in 1997.


                             NETWORK SERVICES

COMSAT INTERNATIONAL

     COMSAT   International   (CI)   operates   an   integrated   group  of
telecommunications  companies  that are engaged  principally  in  providing
individualized  digital network  solutions to business clients and carriers
in selected  markets.  CI also is actively  engaged in the  development  of
prospective   international   telecommunications   opportunities  that  are
consistent  with  its  digital  networking  strategy.   CI's  existing  and
prospective  companies  typically  are and will be located in those rapidly
growing  markets  where a  significant  number of CI's existing or targeted
clients are located (or where they intend to locate).

     As of December 31, 1997,  CI operated 15  companies  worldwide.  These
companies are located in Latin  America,  Asia and Europe.  CI's  companies
generally are wholly- or  majority-owned,  with the exception of COMSAT Max
Limited,  CI's company operating in India, and Viatel,  Inc. (Viatel),  the
European  facilities-based  carrier and call-back company.  At December 31,
1997,  CI  beneficially  owned 50% and 9.5%,  respectively,  of COMSAT  Max
Limited  and  Viatel,  respectively.  CI's  clients  are  typically  local,
indigenous  large  and  medium-sized  corporations,  national  branches  of
multinational  corporations  and  major  telecommunications   carriers  and
consortia.

     CI continued to develop new opportunities around the world in 1997. In
particular,  CI  expanded  its  activities  in Latin  America  through  the
acquisition  of  IntelComRed  S.A. de C.V.,  a Mexican  satellite  services
company,  and renamed it COMSAT Mexico S.A. de C.V.  Primarily  through the
completion of a statutory  merger under Delaware law, CI also increased its
ownership interest and operating control of BelCom,  Inc. (BelCom) to 100%.
BelCom  currently  provides  telecommunications  services  in  the  Russian
Federation  and certain  countries of the Newly  Independent  States (NIS),
including Kazakhstan, Uzbekistan and Turkmenistan. In addition, CI sold its
19.66% interest in Philippine Global  Communications,  Inc.  (PhilCom) (see
Notes 3 and 5 to the financial statements) in January 1997.

     CI's companies  operate in numerous and diverse markets,  as reflected
in the table set forth below.  Consequently,  the level of  competition  in
these  countries  varies  considerably.  In some  countries  there  is full
competition,  and in others  competition is limited by law. The competitive
conditions  faced by each company are the result of differing  and changing
regulatory policies and economic  conditions.  In those countries that have
not yet undergone a substantial  liberalization of their telecommunications

                                    16

<PAGE>


laws,  CI's principal  competitor is typically the local Postal,  Telegraph
and  Telephone  administration  (PTT),  together  with a limited  number of
companies that provide telecommunications services similar to those offered
by CI. In countries that have liberalized their telecommunications laws, CI
typically faces greater competition than in less liberalized markets.

<TABLE>
<CAPTION>
<S>                                        <C>                                 <C>

CI COMPANY                                  COUNTRY                             CI OWNERSHIP PERCENTAGE
----------                                  -------                             -----------------------

BelCom, Inc.                                Russian Federation and NIS                   100 %
COMSAT Argentina, S.A.                      Argentina                                    100
COMSAT Asia (L)                             China                                         55
  Incorporated
COMSAT de Colombia, S.A.                    Colombia                                     100
Communicaciones Satelitales de              Colombia                                      94
  Colombia
COMSAT de Bolivia S.R.I.                    Bolivia                                      100
COMSAT Brasil Ltda.                         Brazil                                       100
COMSAT de Guatemala, S.A.                   Guatemala                                    100
COMSAT Max Limited                          India                                         50
COMSAT Mexico S.A. de C.V.                  Mexico                                       100
COMSAT Peru, S.A.                           Peru                                          65
COMSAT Digital Services                     Turkey                                        85
COMSAT Telecommunications                   Turkey                                        51
  Services
COMSAT Venezuela,                           Venezuela                                    100
COMSATVEN, C.A                              Venezuela                                    100
Viatel, Inc.                                U.S., Europe, Latin America                    9.5
                                               and Asia
</TABLE>

COMSAT LABORATORIES

     COMSAT Laboratories consists of two main business segments:  technical
consulting and communications  products.  Technical  consulting  activities
include  the design and  development  of  advanced  digital  communications
technologies, systems and networking solutions to commercial and government
customers  worldwide.   COMSAT  Laboratories  also  designs,  develops  and
licenses  communications  products for access,  compression  and networking
applications  as  well  as  software  for  satellite  system  planning  and
management. COMSAT Laboratories also licenses new technology it develops to
other companies for commercialization.

     Customers  include U.S. and foreign  government  agencies,  commercial
entities,  INTELSAT and Inmarsat. In addition, COMSAT Laboratories conducts
research and  development on a broad range of  telecommunications  devices,
subsystems, transmission systems, technologies and techniques in support of
other COMSAT businesses.

                                    17

<PAGE>


     On-going  contracts  being  performed in 1997  include:  a contract to
design,  manufacture  and deliver  S-band mobile  satellite  communications
equipment;   a  contract  with  AT&T  to  deliver  second  generation  TDMA
terminals;  a contract  with  Ericsson to design and develop the HPN ICONET
ground facilities subsystems; contracts with INTELSAT to design STRIP 7 and
develop a software system for generating  INTELSAT TDMA burst time plans; a
contract  with NASA to provide  operation and  maintenance  support for the
ACTS (Advanced Communications  Technology Satellite) program; and a variety
of  technical  consulting  contracts  for  INTELSAT,   Inmarsat  and  other
governmental and private industry customers.

     COMSAT Laboratories won external contracts with a total value of $29.7
million in 1997.  Major new contracts  awarded or begun in 1997 include:  a
contract  with  Ericsson  to  design  and  develop  the HPN  ICONET  ground
facilities  subsystem for ICO; a contract with Lockheed Martin for the ACES
In-Orbit-Test  System;  a contract  with Iridium for its second  generation
system;  a contract with  Raytheon for ATM  satellite  link adapter for the
Midas program.

     Revenue from  external  customers  was $24.6 million in 1997 and $32.3
million in 1996.  COMSAT  Laboratories  support of other  COMSAT  divisions
totaled  $11.8  million in 1997 and $11.4  million in 1996. At December 31,
1997,  COMSAT  Laboratories'  backlog of orders totaled $28.3  million,  as
compared to $21.3 million at December 31, 1996.

     COMSAT Laboratories incurred research and development  expenditures of
$3.7  million  in  1997,  a  decrease  of $2.6  million  from  1996.  These
expenditures  were  largely  attributed  to the  development  of its  video
compression, asynchronous transfer mode (ATM) and software products. COMSAT
Laboratories  expects R&D  expenses to increase in the future as it pursues
additional commercial activities.

GOVERNMENT PROGRAMS

     Network  Services'   government  and  commercial  programs  businesses
consist of the operations of COMSAT  Government  Services,  Inc. (CGSI) and
COMSAT General Corporation,  both of which are wholly-owned subsidiaries of
the corporation.

     CGSI was incorporated in 1997 to focus more directly on the government
satellite market and develop other  government  service  applications.  The
core  business  for  CGSI  is  the  Commercial   Satellite   Communications
Initiative (CSCI) program which is a contract with the Defense  Information
Systems  Agency  (DISA) to  provide  commercial  satellite  services.  CGSI
provides  satellite  bandwidth,  operates two bandwidth  management centers
currently,  and  provides  satellite  engineering  services  under the CSCI
contract.

     COMSAT  General  provides  satellite  earth  station  service  through
facilities  located in Clarksburg,  Maryland,  Santa Paula,  California and
Southbury,  Connecticut.  COMSAT  General  operates  antennas,  a satellite
control facility,  and high speed fiber interconnects to telecommunications
carriers and Internet  service  providers.  COMSAT General services include
transmission  and  reception   capability  to  INTELSAT  and  non  INTELSAT
satellites for voice, data, Internet and video broadcasts.

                                    18

<PAGE>


     COMSAT  General  also  provides  satellite  operation  service for the
Marisat  and  Comstar  satellites,  which  includes  tracking,   telemetry,
command,  and  maintenance of these assets.  In addition to operating these
satellites,  COMSAT  General  also  leases  transponder  capacity  on those
satellites.  COMSAT  General  provides  services  to  both  commercial  and
government customers.

                          DISCONTINUED OPERATIONS

ASCENT

     During 1995, the corporation  incorporated  and transferred all of its
entertainment  assets  to  COMSAT  Entertainment  Group,  Inc.,  which  was
subsequently renamed Ascent Entertainment Group, Inc. (Ascent).  An initial
public  offering of Ascent's  common stock was completed in December  1995.
Ascent's  common  stock is traded on the Nasdaq  National  Market under the
symbol  "GOAL."  Following the offering,  the  corporation  owned 80.67% of
Ascent's  common stock.  During the second quarter of 1997, the corporation
began  accounting  for  the  operations  of  substantially  all of  CRSI as
discontinued  operations  See  Note  2 to  the  financial  statements.  The
corporation   distributed  its  80.67%  ownership  interest  in  Ascent  to
shareholders on June 27, 1997.

     Ascent's  principal business is providing  pay-per-view  entertainment
and information services through its 57 percent-owned subsidiary On Command
Corporation. In addition, Ascent is involved in other entertainment-related
businesses  including ownership and operation of the NBA Denver Nuggets and
NHL Colorado  Avalanche,  development  and  management  of The Pepsi Center
through Ascent Arena Company, and Beacon  Communications,  a motion picture
and television production company.

COMSAT RSI

     COMSAT  RSI,  Inc.  (CRSI) was formed in 1994 in  connection  with the
acquisition  by the  corporation  of Radiation  Systems,  Inc.  (RSI).  The
corporation  combined  RSI with  certain of its then  existing  antenna and
wireless networks product and system  integration  operations to form CRSI.
During the second quarter of 1997, the corporation began accounting for the
operations of  substantially  all of CRSI as discontinued  operations.  See
Note 2 to the financial statements.

     In March 1998, the corporation entered into a stock purchase agreement
to  sell  substantially  all of  CRSI.  See  "Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations-Outlook."  The
sale of  substantially  all of the assets and  liabilities of JEFA Wireless
Systems,  a subsidiary of CRSI, was completed in a separate  transaction in
February  1998.  Also  included  as  part  of  discontinued  operations  is
Electromechanical  System,  Inc. (EMS), a wholly-owned  subsidiary of CRSI,
and an equity  ownership  interest  in  Plexsys  International  Corporation
(Plexsys),  which are being  retained  by COMSAT per the terms of the stock
purchase  agreement,  pending  evaluation  of available  alternatives.  The
long-term contract for construction of a radio telescope in Greenbank, West
Virginia also is to be retained by the  corporation in connection  with the
stock purchase  agreement.  The Labs sector of the Network Services segment
and the  Government  Programs  sector of  Satellite  Services  now includes
certain non-manufacturing, telecommunications contracts and businesses that
were  previously  reported  as  part of  CRSI  in the  Technology  Services
segment.

                                    19

<PAGE>


     CRSI designs,  manufactures and integrates earth stations,  as well as
wireless and advanced  antenna  systems.  CRSI has three operating  groups:
Advanced Systems, Communication Systems and Wireless Networks. These groups
include 10 business  units, 9 of which are  vertically  integrated to serve
global  telecommunications  markets.  The remaining  unit serves the global
machine tool market.  CRSI's customers  include the U.S.  Government,  U.S.
Government prime  contractors,  foreign  governments,  domestic and foreign
telecommunication   service  providers,   broadcast  and  cable  television
operators, and a wide variety of other commercial customers.

     CRSI's  manufactured  products  include  a broad  range  of  parabolic
antennas  and  line-of-sight  microwave  antennas,  cellular  and  personal
communication  system  (PCS)  antennas,   satellite  frequency  converters,
microwave  components,   Ultra-Small  Aperture  Terminal  (USAT)  and  VSAT
equipment,  cellular switch and base station radio equipment, servo control
systems, vehicle-mounted mobile antennas, multiplexers, antenna monitor and
control systems,  antenna positioning systems,  tactical military antennas,
air traffic control  antennas,  radar antennas,  radio telescope  antennas,
tactical masts,  monopoles,  towers,  and optical measuring  devices.  CRSI
designs, integrates,  installs and tests large-scale wireless and satellite
ground systems,  private VSAT networks,  video distribution  networks,  and
network  control  systems.  In  addition,  CRSI  provides  turnkey  gateway
antennas  and network  control  systems for  regional  and global fixed and
mobile satellite systems.

     CRSI  competes  with  major  companies  around  the  world in  several
telecommunications markets. Major competitors in the communications systems
market  include  Scientific  Atlanta,  Inc.;  California  Microwave,  Inc.;
Globecomm Systems,  Inc.;  Alcatel N.V.; Miteq,  Inc.; LNR  Communications,
Inc.; SSE Telecom,  Inc.; NEC; Harris Corporation;  and Mitsubishi.  In the
wireless  networks  market,   competitors  include  GM  Hughes  Electronics
Corporation;   Gilat  Satellite   Networks  Ltd.;   ViaSat,   Inc.;  Andrew
Corporation;   Kathrein;  Cellwave;  Allgon;  Gabriel  Electronics,   Inc.;
Ericsson Radio Systems AB; Northern  Telecom  Limited;  Stanilite;  Celcore
(recently acquired by DSC Communications  Corp.); Alcatel NV; STM Wireless,
Inc.; EMS Technologies,  Inc.; and Allen Telecom, Inc. The advanced systems
markets  competition  includes  Datron  Systems,  Inc.; TIW Systems,  Inc.;
Electrospace Systems, Inc.; Signal Processors,  Ltd.; Marconi Radar Systems
Limited; Cosser Electronics Limited (Raytheon);  Tech-Sym Corporation;  and
Vertex   Communications   Corporation.   Certain   companies  like  Hughes,
Scientific  Atlanta,  California  Microwave,  Harris,  Alcatel  and  Andrew
Corporation compete in most of CRSI's markets.  Many of these companies are
considerably  larger and have greater financial resources than CRSI. In all
market  areas,  CRSI competes on the basis of price,  performance,  on-time
delivery, reliability and customer support.

     As part of the stock purchase agreement, the corporation has agreed to
retain the  long-term  contract for the  completion  of the 100 meter radio
telescope at Green Bank,  West Virginia.  COMSAT or a subsidiary  also will
retain the CRSI  employees  at the site and assume the  contracts  with two
unions that provide on-site labor. CRSI will provide the surface panels and
certain other services related to completion of the servo-drive  system for
the telescope under a separate  subcontract.  COMSAT is in negotiation with
Associated  Universities  Incorporated,  which  operates the National Radio
Astronomy Observatory at Green Bank under a Co-operative Agreement with the
National  Science  Foundation,  for novating of the  original  contract for
construction  of  the  telescope  from  CRSI  to  COMSAT.  Novation  of the
Greenbank  contract is a condition to the  purchaser's  obligation to close
under the stock  purchase  agreement.  CRSI's  $29  million  claim for work

                                    20

<PAGE>


performed under and relating to the Greenbank contract,  which is currently
in  arbitration,  also will be assigned to COMSAT in connection  with stock
purchase agreement.  There can be no assurance that the corporation will be
successful in collecting all or any portion of the claim.

     Electromechanical  Systems,  Inc.  (EMS)  designs,   manufactures  and
installs  multi-axis  positioning  control units  (pedestals) for precision
tracking   and   pointing  for  air  traffic   control,   weather,   radar,
communication  and  surveillance  equipment.  EMS also provides  repair and
restoration  service for various antenna pedestals for its customers.  More
than  90% of  EMS's  current  business  is  with  military  and  government
customers, nearly all in the U.S.

     CRSI also owns  approximately 53% of the outstanding equity securities
of Plexsys International  Corporation (Plexsys).  Plexsys provides turn-key
cellular and wireless local loop systems  primarily  targeted at thin-route
applications in rural or developing markets and manufactures  switching and
base  station  equipment.  Most of Plexsys'  business  is in  international
markets.  In February  and March 1998,  Plexsys  substantially  reduced its
operations  and  laid  off  most  of its  staff.  The  corporation  doe not
anticipate  that it will  recover  its  investment  in  Plexsys  or certain
amounts owed it by Plexsys.  The corporation  believes that the reserves it
has  established  for the  disposition  of CRSI  generally  are adequate to
absorb  any  losses  that are  likely to be  incurred  in  connection  with
Plexsys. There can be no assurance,  however, that additional reserves will
not be required.

                                INVESTMENTS

         The  corporation's  investments  are  discussed  at  Note 5 to the
financial statements.

ITEM 2.   PROPERTIES

COMSAT PROPERTIES

     At  year  end  1997,  the  headquarters  of the  corporation  and  the
headquarters  of the  Satellite  Services  segment and CI were located in a
building in Bethesda, Maryland, which the corporation leases from a limited
partnership  in which  it  holds a 50%  interest,  primarily  as a  limited
partner.  The  managing  general  partner  also owns a 50%  interest in the
partnership. An affiliate of the managing general partner owns the building
site and has  leased  this site to the  partnership.  The  corporation  has
entered into a 15-year lease with the partnership for the new building (see
Note 8 to the financial statements).

     In  1997,  the  corporation  sold  the  office  buildings  and land at
Clarksburg, Maryland that serve as the headquarters of COMSAT Laboratories,
as well as offices for certain  operations of CRSI. The corporation  leased
back the office  buildings  for a ten-year  lease  term.  See Note 4 to the
financial statements.

                                    21

<PAGE>


     The  corporation  also owns two  manufacturing  facilities  in Dulles,
Virginia, one of which serves as the headquarters of CRSI, and land located
nearby  that is  used as an  antenna  test  range  by  CRSI.  Further,  the
corporation owns or leases 10 other properties in the United States, leases
two  properties  in  England  and a sales  office in  Beijing,  China.  The
properties  owned by CRSI are to be transferred  upon  consummation  of the
proposed sale of CRSI and the purchaser  will assume the leases for the CRS
leased  properties  in  accordance  with the  terms of the  stock  purchase
agreement.

     COMSAT  General owns 86.3% of the MARISAT Joint  Venture,  which still
operates  the MARISAT F-2,  one of the three  satellites  launched in 1976,
with  capacity  leased  to the U.S.  Navy and  Fugro  N.V.,  a  Netherlands
company.  The MARISAT  F-1 and F-3 ceased  commercial  operations  in 1996.
COMSAT  General  owns the COMSTAR  D-4  satellite  (launched  in 1981) with
capacity leased to CMC and the U.S. Navy.

     The corporation leases earth stations in Turkey and Malaysia, and owns
earth stations at Santa Paula,  California and Southbury,  Connecticut that
are used by CMC to provide mobile  communications  services. A leased earth
station in Fucino,  Italy along with the California and  Connecticut  earth
stations are used by CRSI to provide TT&C services.  The  corporation  owns
earth stations at Clarksburg, Maryland and Paumalu, Hawaii that are used by
CWS  to  provide  TT&C  services  to  INTELSAT.  The  corporation  owns  an
additional  earth station at Clarksburg,  Maryland which is used by Network
Services'  Government  Programs to house its Satellite Control and Teleport
Facilities  as  well  as the  Bandwidth  Management  Center  for  the  U.S.
Government CSCI Program.

     CI leases  facilities  in each of the  countries in which it operates.
See "General  Information - Network Services - COMSAT  International" above
for a listing of the countries in which CI operates.

     The corporation's  properties are believed to be suitable and adequate
for the corporation's business operations.

INTELSAT SATELLITES

     The  corporation's  property  accounts include CWS's pro-rata share of
INTELSAT  satellites.  The  INTELSAT  satellites  currently  used and under
construction are described  below.  Some of these satellites are planned to
be transferred to a separate entity as a result of INTELSAT  restructuring.
For a  discussion  of the  current  status of INTELSAT  restructuring,  see
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Outlook."

     There are seven INTELSAT V and VA satellites  continuing to operate in
the INTELSAT  system.  All these  satellites  have reached the end of their
design lives and are operating in an inclined orbit. Their capacities range
from 15,000 to 17,000 voice  circuits or 51 to 57  television  channels (or
some combination of each depending on the  configuration of the satellite).
The satellites were built by a predecessor to Space Systems/Loral.

                                    22

<PAGE>


     The INTELSAT VI series  consists of five  satellites,  constructed  by
Hughes Aircraft Company, a subsidiary of General Motors Corporation.  These
satellites  have an average  capacity of at least 24,000 bearer circuits or
87 television channels.  The INTELSAT VI satellites,  the last of which was
launched on October  1991,  currently  provide  primarily  backbone  public
switched network (PSN) services in the Atlantic and Indian Ocean regions.

     The INTELSAT-K  satellite,  constructed by General Electric  Technical
Services Company,  Inc., which was subsequently acquired by Lockheed Martin
Corporation  and launched in 1992, has an average  capacity of 7,000 bearer
circuits or 32 television channels. The INTELSAT-K satellite provides video
transponder leases to European and North American customers.

     The  INTELSAT VII series  consists of six  satellites  constructed  by
Space Systems/Loral.  These satellites have an average capacity of at least
17,050 bearer circuits or 62 television channels (or a capacity of 62 36MHz
units with a typical minimum power range of 29 to 34.5 decibels relative to
one watt (DBW) at C-band and 44 DBW at Ku-band  depending on the beam). The
last  INTELSAT VII satellite  was launched in June 1996.  These  satellites
were  designed  to  replace  the V/VA  satellites.  They  provide  improved
utilization and flexibility,  with improved radio frequency power, enhanced
Ku-band  coverage and increased  C-band  connectivity  compared to the V/VA
satellites.

     The INTELSAT VIIA series,  also  constructed  by Space  Systems/Loral,
consists of two  satellites  having an average  capacity of at least 19,250
bearer circuits or 70 television  channels (or a capacity of 70 36MHz units
with a typical minimum power range of 29 to 36 DBW at C-band and 42.7 to 45
DBW  at  Ku-band  depending  on  the  beam).  Of the  three  INTELSAT  VIIA
satellites constructed,  the first INTELSAT VIIA satellite was successfully
launched in May 1995; the launch of the second VIIA, in February 1996 was a
failure (see Note 4 to the  financial  statements);  and the third VIIA was
successfully   launched  in  March  1996.  These   satellites   provide  an
enhancement over the VII satellites to meet increased demand for high power
Ku-band capacity.  New  cross-strapped  connectivity from Ku-band to C-band
allows the  provision of satellite  news  gathering  (SNG)  service using a
roving Ku-band Spot Beam in the uplink.

     The INTELSAT VIII series  consists of four  satellites  constructed by
Lockheed Martin  Corporation.  These satellites have an average capacity of
21,000 bearer circuits or 76 television channels (or a capacity of 76 36MHz
units with a typical  power range of 29 to 34.5 DBW at C-band and 44 DBW at
Ku-band  depending on the beam).  All four  INTELSAT VIII  satellites  were
successfully  launched in 1997. They were designed  primarily to complement
the INTELSAT VI satellites and meet growing demand for C-band services. The
INTELSAT  VIII series  satellites  provide new  television  broadcast  mode
capability with  simultaneous up link from the Northeast zone beam and down
link from three West zone beams.  The INTELSAT VIII series  satellites also
provide  expanded SNG service with the  capability  to cross connect any of
the Ku-band spot beams to any of the global beams in certain transponders.

     The INTELSAT VIIIA series  consists of two  satellites  constructed by
Lockheed Martin  Corporation.  These satellites have an average capacity of
at least 11,600 bearer circuits or 38 television channels (or a capacity of
42 36MHz  units with a power  range of 39.7 to 42 DBW at C-band and 50.4 to
51.7 DBW at Ku-band  depending on the bean).  The INTELSAT  VIIIA (F-6) was
successfully  launched  in  February  1998.  The  INTELSAT  VIIIA  (F-5) is
scheduled  for launch later in 1998.  The  INTELSAT  VIIIA  satellites  are

                                    23

<PAGE>


designed for users requiring high power together with a wide coverage areas
in C-band for the  provision of services such as video,  VSAT  applications
and PSN. They use complex  state-of-the-art  antenna  technology to provide
improved coverage of land areas of North and South America.

     COMSAT has applied to the FCC for  authorization to participate in the
procurement of the K-TV satellite.  This spacecraft is being constructed by
Matra  Marconi  Space and has a capacity  of 30 36MHz  transponders  with a
typical minimum range of 36 to 52 DBW depending on the beam. It is expected
that the  satellite  will be  launched  in the first  quarter of 1999.  The
satellite was designed to provide high power Ku-band capacity  specifically
for direct-to-home television service, and VSAT network applications,  such
as  data   distribution  and  contribution,   including   INTERNET/INTRANET
networks.  The K-TV  satellite  will provide  coverage over areas of India,
China and Indonesia/Malaysia.

     COMSAT has applied to the FCC for  authorization to participate in the
procurement of up to five INTELSAT IX satellites.  As of December 31, 1997,
procurement  of four  satellites had been approved by the INTELSAT Board of
Governors.  These spacecraft are to be built by Space Systems/Loral and are
intended to replace the INTELSAT VI  satellites in the years 2000 and 2001.
The INTELSAT IX satellites  are expected to have an average  capacity of 98
36MHz  transponders  with a  typical  minimum  power  range of 31 to 47 DBW
depending  on  the  beam.  The  satellites  will  provide   primarily  high
connectivity  backbone  PSN  services  in the  Atlantic  and  Indian  Ocean
regions.  The INTELSAT IX satellites  will be INTELSAT's  largest  capacity
satellite with advanced communications and RF performance.


     The  corporation  has  purchased  insurance  to cover the  launch  and
subsequent  in-orbit  testing of the  INTELSAT  VIII and VIIIA  satellites.
Partial loss in-orbit  insurance  for the remaining  four INTELSAT VIII and
VIIIA  satellites  was  purchased  for the  first  365 days  after  launch.
Effective  January 1, 1998, the corporation  changed its accounting  policy
with  respect to the cost of series  satellites  lost at launch or in orbit
and its accounting policy with respect to satellite performance  incentives
paid to  manufacturers.  See  ""Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations-Outlook."

INMARSAT SATELLITES

     The  corporation's  property  accounts include CMC's PRO-RATA share of
Inmarsat  satellites.  The  Inmarsat  satellites  currently  used and under
construction are described below.

     The   second-generation   Inmarsat  satellite  system,  known  as  the
Inmarsat-2   series,   consists  of  four  satellites   constructed  by  an
international  consortium led by British  Aerospace  Dynamics  Corporation.
These satellites are now used primarily for leases and backup capacity. The
Inmarsat-2  satellites  are  expected  to be moved,  depending  on  traffic
demand,  to new  orbital  locations  where  they  will  provide  full  time
pre-emptible lease services.  The Inmarsat-2 series satellites also provide
backup for global beam services on the Inmarsat-3 satellites. Some services
such as Mini-M  and  Aero-I  are spot beam  only  services  and can only be
supported on the Inmarsat-3 satellites.


                                    24

<PAGE>


     The   third-generation   Inmarsat  satellite  system,   known  as  the
Inmarsat-3  series,  consists of five  satellites  constructed  by Lockheed
Martin Astro Space. These satellites use spot-beam technology, which allows
reuse of the scarce  frequency  resources  allocated  for mobile  satellite
communications.  The  Inmarsat-3s  are about eight times more powerful than
the  Inmarsat-2   series.  All  five  of  these  satellites  were  launched
successfully. Four of the Inmarsat-3 satellites are the primary operational
Inmarsat spacecraft and are used for on-demand services such as Inmarsat A,
B, M, Mini-M, C, and Aero. The fifth Inmarsat-3  satellite is planned to be
used  primarily for leases and backup  capacity.  Inmarsat has purchased an
insurance  policy  for  365  day  in-orbit  coverage  after  launch.  For a
discussion  of  financing  arrangements  related to the  Inmarsat-2  and -3
satellites,  see Note 6 to the financial  statements.  Effective January 1,
1998, the  corporation  changed its  accounting  policy with respect to the
cost of series  satellites  lost at  launch or in orbit and its  accounting
policy  with  respect  to   satellite   performance   incentives   paid  to
manufacturers.  See  ""Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations-Outlook."

ITEM 3.   LEGAL PROCEEDINGS

     Neither COMSAT nor any of its  subsidiaries is a party to, and none of
their property is the subject of, material pending legal  proceedings,  and
no  such   proceedings   are  known  to  be  contemplated  by  governmental
authorities,  except  for the  matters  described  in  Notes 8 and 9 to the
financial statements and as discussed below.

     In 1995, the corporation  entered into a five-year agreement with News
Corporation to provide satellite services beginning in 1996. In March 1996,
News Corporation rescinded this agreement.  The corporation has commenced a
lawsuit  against  News  Corporation  and other  parties to recover  damages
arising out of News  Corporation's  breach of  obligation  to COMSAT.  News
Corporation  has  asserted  a counter  claim for  return of the  deposit it
originally paid.

     In October 1997, IDB informed COMSAT that it was no longer  purchasing
Inmarsat  satellite  capacity  used by its U.S.  land earth  stations  from
COMSAT,  but was instead  purchasing that capacity from another  signatory.
COMSAT  believes  that IDB is  required,  under  the  terms of its  service
contract with COMSAT,  U.S. law and the Inmarsat  Operating  Agreement,  to
purchase that capacity  from COMSAT.  After  attempts to resolve this issue
failed,  COMSAT in January 1998 filed a lawsuit against IDB seeking damages
for breach of contract in the United States District Court for the Southern
District  of  Maryland.  In  February  1998,  IDB  filed a  petition  for a
declaratory  ruling asking the FCC to rule that operators of U.S.  Inmarsat
land earth stations may purchase Inmarsat  satellite  capacity from foreign
signatories and a motion to dismiss or stay COMSAT's  lawsuit until the FCC
rules.  COMSAT has filed an opposition to both aspects of IDB's motion. The
court has not yet ruled.

     COMSAT  and its  subsidiaries  are a party  to  various  lawsuits  and
arbitration  proceedings  and are subject to various  claims and inquiries,
which generally are incidental to the ordinary course of its business.  The
outcome of legal proceedings  cannot be predicted with certainty.  Based on
currently available information,  however, management does not believe that
the  outcome  of  any  matter  which  is  pending  or  threatened,   either
individually or in the aggregate,  will have a materially  adverse effect o
the  consolidated   financial   condition  of  the  corporation  but  could
materially  affect  consolidated  results of  operations in a given year or
quarter.

                                    25

<PAGE>

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  None.

<TABLE>
<CAPTION>
<S>                                          <C>                                             <C>

EXECUTIVE OFFICERS OF THE REGISTRANT
                                                                                                 AGE AS OF
         NAME                                         OFFICER                                 MARCH 1, 1998
         ----                                         -------                                 --------------

Betty C. Alewine                             President and Chief Executive Officer                    49
Allen E. Flower                              Vice President and Chief Financial Officer               54
Dwight Jasmann*                              President and General Manager,                           61
                                             COMSAT International
Alan G. Korobov                              Controller                                               49
John H. Mattingly                            President, COMSAT Satellite Services                     47
Benjamin A. Pontano                          President, COMSAT Laboratories                           54
Raymond D. Thomas                            President, COMSAT RSI, Inc.                              47
Warren Y. Zeger                              Vice President, General Counsel and Secretary            50

-------------
*Mr. Jasmann resigned as an executive officer effective as of February 2, 1998.
</TABLE>

     Normally, the officers are elected annually by the Board of Directors,
at its first meeting following the Annual Meeting of Shareholders, to serve
until their successors are elected and qualified.

     There is no  family  relationship  between  an  officer  and any other
officer or director and no arrangement or understanding  between an officer
and any  other  person  pursuant  to  which  he or she was  selected  as an
officer.

     The  following  is  a  brief  account  of  each  executive   officer's
experience for the past five years:

     Mrs. Alewine has been President and Chief Executive Officer since July
1996. She was President,  COMSAT International  Communications from January
1995 to July 1996, and was  President,  CWS, from May 1991 to January 1995.
She is also a member of the Board of Directors of the Corporation.

     Mr. Flower has been Vice President and Chief  Financial  Officer since
November  1995.  From November  1995 to September  1996, he was also Acting
Treasurer.  He was Controller and Acting Chief Financial Officer from April
1995 through November 1995 and Controller from June 1992 to May 1995. He is
a director of Calian  Technology  Ltd.,  in which the  corporation  holds a
minority equity investment.

     Mr.   Jasmann  served  as  President  and  General   Manager,   COMSAT
International from August, 1996 to February, 1998. He previously worked for
AirTouch  Communications as Vice President of Human Resources and Corporate
Services and for AT&T, where in his last position he was Managing President
and Managing  Director of AT&T  Asia/Pacific.  He is a director of Elcotel,
Inc.

                                    26

<PAGE>


     Mr.  Korobov has been  Controller  since  November  1995.  He was Vice
President, Finance for CMC from January 1993 to September 1995.

     Mr.  Mattingly has been  President,  COMSAT  Satellite  Services since
September  1997.  He was  President,  COMSAT World Systems from May 1997 to
September 1997 and Vice President and General Manager, COMSAT World Systems
from March 1995 to September 1997. He previously  served as Vice President,
European Ventures,  COMSAT International Ventures. Before joining COMSAT in
November  1994,  he was  Senior  Vice  President  and  General  Manager  of
OrionNet, Inc.

     Mr. Pontano has been President,  COMSAT Laboratories since March 1997,
having served as acting President, COMSAT Laboratories from August 1996. He
was Vice President, Network Technology Division of COMSAT Laboratories from
February 1995 to August 1996. He joined COMSAT Laboratories in 1984 and has
held various management positions during that period.

     Mr. Thomas has been  President of COMSAT RSI, Inc. since January 1997,
having served as acting  President  from  September  1996.  From 1994 until
September 1996, he was Group Vice President of CRSI's Communication Systems
Group. In 1993, he was appointed President of Fixed Earth Station Systems.

     Mr. Zeger has been Vice President, General Counsel and Secretary since
August 1994. He was Vice  President and General  Counsel from March 1992 to
August 1994.

                                  PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
          MATTERS

     As of December 31, 1997, there were 50,055,871 shares of common stock,
without par value,  of the corporation  (COMSAT Common Stock)  outstanding:
50,036,887 were Series I shares,  held by  approximately  35,000 holders of
record other than communications common carriers; and 18,984 were Series II
shares, held by 35 common carriers.

     The  principal  market for COMSAT  Common  Stock is the New York Stock
Exchange,  where it is traded under the symbol "CQ." COMSAT Common Stock is
also listed on the Chicago Stock Exchange and the Pacific Stock Exchange in
the United States and on the Swiss Exchange.

     The corporation's  Transfer Agent,  Registrar and Dividend  Disbursing
Agent is The Bank of New York, 101 Barclay Street, New York, New York.

                                    27

<PAGE>

     The high and low sales prices of, and the dividends  declared on, each
share of COMSAT Common Stock for the last two years are as follows:

<TABLE>
<CAPTION>
<S>                                        <C>                 <C>             <C>
                                                        COMSAT COMMON STOCK
                                            --------------------------------------------

CALENDAR YEAR 1997                           HIGH               LOW             DIVIDEND
------------------                          --------          ----------        --------

First Quarter                               28 1/2              23               .195
Second Quarter                              26 11/16            19 5/8           .05
Third Quarter                               24 5/16             20 13/16         .05
Fourth Quarter                              25 3/4              20 5/16          .05

CALENDAR YEAR 1996                           HIGH               LOW             DIVIDEND
------------------                          --------          ----------        --------

First Quarter                               25 5/8              16 3/4           .195
Second Quarter                              33 1/8              23 3/8           .195
Third Quarter                               26 1/2              18 3/4           .195
Fourth Quarter                              26 3/4              21 1/2           .195

</TABLE>



ITEM 6:   SELECTED FINANCIAL DATA FOR THE REGISTRANT FOR EACH OF THE LAST FIVE
          FISCAL YEARS
<TABLE>
<CAPTION>
<S>                                   <C>             <C>             <C>             <C>             <C>


In thousands, except per share amounts         1997            1996            1995            1994            1993
-------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Revenues                               $    562,651    $    545,100    $    507,687    $    500,687    $    488,876
Operating expenses                          480,683         437,875         387,873         367,324         359,351
Operating income                             81,968         107,225         119,814         133,363         129,525
Income from continuing operations            28,568          36,197          43,507          69,245          70,011
Net income (loss)                           (64,446)          8,622          37,817          77,642          84,394

Earnings (loss) per share - assuming
   dilution:
   Income from continuing operations           0.57            0.74            0.91            1.47            1.49
   Net income (loss)                          (1.29)           0.18            0.79            1.65            1.80

BALANCE SHEET DATA
Total assets                              1,894,775       2,097,286       2,022,247       1,851,351       1,651,792
Long-term debt                              461,960         578,379         590,378         511,474         401,154
Stockholders' equity                        586,271         841,817         839,433         826,916         763,440

DIVIDENDS
Dividends paid                               16,975          37,698          36,874          33,547          30,410
Dividends paid per share                      0.345            0.78            0.78            0.76            0.74
Distribution of Ascent Entertainment
   Group, Inc. shares                       194,633               -               -               -               -

</TABLE>

Notes:

(1)      As  discussed  in  Note  2  to  the  financial   statements,   the
         corporation began accounting for Ascent  Entertainment Group, Inc.
         and substantially all of COMSAT RSI as discontinued  operations in
         1997. Accordingly, all prior periods have been restated to present
         Ascent and CRSI as discontinued operations.
(2)      The corporation adopted SFAS No. 128, "Earnings per Share" in 1997
         and, accordingly,  has restated earnings (loss) per share amounts,
         for all prior periods presented.

                                     28

<PAGE>



ITEM 7:     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

                           ANALYSIS OF OPERATIONS

CONSOLIDATED OPERATIONS

     During the second quarter of 1997, the  corporation  began  accounting
for the operations of both Ascent  Entertainment  Group,  Inc. (Ascent) and
substantially  all of COMSAT RSI, Inc. (CRSI) as  discontinued  operations.
The  consolidated  financial  statements have been restated for all periods
presented to reflect the results of operations and net assets of Ascent and
CRSI as discontinued operations.

CONTINUING OPERATIONS

     Consolidated  revenues  from  continuing  operations in 1997 were $563
million,  $18 million higher than the previous year.  This  improvement was
the result of a 19% increase in Network  Services  segment  revenues  which
was,  in part,  offset  by a 1%  decrease  in  Satellite  Services  segment
revenues.  Consolidated revenues for 1996 were $545 million, an increase of
$37 million as compared to 1995.  Network Services segment revenues in 1996
were 58% higher than 1995, while Satellite  Services revenues were slightly
below the previous year.

     Operating income from continuing  operations for 1997 was $82 million,
as  compared  to $107  million  for 1996.  The lower  operating  income was
primarily the result of lower  operating  income in the Satellite  Services
segment and a larger  operating loss in the Network Services  segment.  The
decrease in the  Satellite  Services  segment was primarily the result of a
lower  investment  base in  COMSAT  World  Systems  (CWS)  upon  which  the
regulated rate of return is calculated and increased  depreciation from new
satellites in COMSAT Mobile Communications (CMC). The increased loss in the
Network  Services  segment resulted from the positive impact in 1996 from a
licensing agreement that resolved patent-infringement disputes with certain
manufacturers of television  encryption and decryption  equipment at COMSAT
Laboratories  which did not reoccur in 1997.  Also affecting 1997 operating
income  were  expenses  of $4  million  for a  proxy  contest  and  related
litigation  brought to enforce  certain  provisions  of the  Communications
Satellite  Act of 1962,  which were settled in the second  quarter of 1997.
Operating income in 1996 was $107 million, $13 million below 1995.

     Other income  (expense)  for 1997 was a net expense of $3 million,  $4
million lower than 1996. This was primarily attributable to improvements in
the results of COMSAT International's (CI) equity investments. Other income
(expense) for 1996 was a net expense of $7 million,  $5 million higher than
1995.  This  was due to a full  year of  dividend  payments  in 1996 on the
Monthly Income Preferred  Securities (MIPS), which were issued in July 1995
(see Note 7 to the  financial  statements),  offset by a $3 million gain on
the sale of ICO Global Communications  (Holdings) Limited (ICO) shares. See
Note 5 to the financial statements.



                                     29

<PAGE>



     Interest  expense,  net of  amounts  capitalized  for  1997,  was  $42
million,  $7 million  higher than 1996.  The  increase  primarily  reflects
reduced  interest  capitalized  due to the completion of several  satellite
projects.  For 1996,  interest  expense net of amounts  capitalized was $35
million,  $4 million  below the previous  year.  This  improvement  was the
result of lower  interest  expense,  offset by a decrease  in the amount of
interest capitalized.

     In 1997, the corporation  sold its Clarksburg,  Maryland  property and
recognized a pre-tax gain of $7 million on the sale of the land. See Note 4
to the financial statements.

     The consolidated tax rate on income from continuing  operations before
taxes  and the  extraordinary  item  for  1997  has  improved  over  1996's
effective tax rate  principally  because of a reduction in state income tax
expense.

     Income from continuing  operations before  extraordinary item for 1997
was $29  million,  $7  million  below  last  year.  Income  for  1996  from
continuing operations before extraordinary item was $36 million, $7 million
below 1995.

     Basic  earnings  per share  for  continuing  operations  for 1997 were
$0.58,  $0.18 below 1996. For 1996, basic earnings per share were $0.76, as
compared  to $0.93  for 1995.  Diluted  earnings  per share for  continuing
operations  for 1997  were  $0.57,  a $0.17  decrease  from  1996.  Diluted
earnings per share for  continuing  operations for 1996 and 1995 were $0.74
and $0.91, respectively. See Note 10 to the financial statements.

     Extraordinary loss from early  extinguishment of debt, net of tax, for
1997 was $4 million ($0.08 per share).  This  represents the costs incurred
in 1997 from the  corporation's  repurchase  of $90  million  of its 8.125%
notes and $10  million  of its 7.7%  medium-term  notes.  See Note 6 to the
financial statements.

DISCONTINUED OPERATIONS

     The loss in 1997 from  discontinued  operations,  net of tax,  was $89
million ($1.78 per share,  fully diluted) compared to losses of $28 million
($0.56  per  share)  for 1996 and $6  million  ($0.12  per share) for 1995.
Discontinued   operations   include  the  operations  of  both  Ascent  and
substantially all of CRSI.

     COMSAT  began   accounting  for   substantially   all  of  CRSI  as  a
discontinued  operation on June 30, 1997.  During the fourth  quarter,  the
corporation  recognized an additional charge to discontinued  operations of
$30 million, after tax, related to the sale of CRSI. This additional charge
is primarily  attributable to losses now anticipated on the sale of CRSI as
well as  adjustments in the estimated  cost to complete  certain  long-term
contracts.  The total loss in discontinued operations for CRSI for 1997 was
$60  million,  after  tax.  See  Note 2 to  the  financial  statements  and
Management's Discussion and Analysis - Outlook.



                                     30

<PAGE>



     COMSAT began accounting for Ascent as a discontinued  operation on May
16, 1997,  when  COMSAT's  board of  directors  decided to  distribute  the
corporation's 80.67% interest in Ascent to COMSAT's  shareholders.  On June
27, 1997,  COMSAT completed the spinoff of Ascent as a tax-free dividend to
COMSAT's  shareholders.  The 1997 loss  from  discontinued  operations  for
Ascent was $29 million, net of tax. See Note 2 to the financial statements.

CONSOLIDATED RESULTS

     On a consolidated  basis,  including  discontinued  operations and the
extraordinary  item,  the net loss for 1997 was $64 million versus 1996 net
income of $9  million.  For  1995,  the  consolidated  net  income  was $38
million.

     Basic  losses  per share  for 1997 were  $1.32,  as  compared  to 1996
earnings per share of $0.18.  Basic earnings per share for 1995 were $0.81.
Diluted  losses  per share for 1997 were  $1.29,  as  compared  to  diluted
earnings per share for 1996 and 1995 of $0.18 and $0.79, respectively.  See
Note 10 to the financial statements.


                                     31

<PAGE>



SEGMENT OPERATING RESULTS

     The  corporation  has  reported  operating  results in two segments --
Satellite  Services  and  Network  Services  (see Note 15 to the  financial
statements).  The  Satellite  Services  segment  includes both COMSAT World
Systems (CWS) and COMSAT Mobile  Communications (CMC). The Network Services
segment  includes  COMSAT   International  (CI),  COMSAT  Laboratories  and
Government  Programs.  COMSAT  Laboratories and Government Programs results
now include  certain  non-manufacturing,  telecommunications  contracts and
businesses that were previously reported as part of CRSI.

<TABLE>
<CAPTION>
<S>                                                         <C>                  <C>                  <C>

In millions                                                            1997                 1996                 1995
---------------------------------------------------------------------------------------------------------------------

REVENUES
--------
Satellite Services:
     World Systems                                          $        262.9       $        273.0       $        254.7
     Mobile Communications                                           167.8                160.9                180.4
                                                            ---------------      ---------------      ---------------
     Total Satellite Services                                        430.7                433.9                435.1
                                                            ---------------      ---------------      ---------------

Network Services:
     International                                                    89.7                 58.1                 37.7
     Laboratories                                                     36.3                 43.7                 25.9
     Government Programs                                              44.0                 40.7                 26.8
                                                            ---------------      ---------------      ---------------
     Total Network Services                                          170.0                142.5                 90.4
                                                            ---------------      ---------------      ---------------

Eliminations and other                                               (38.1)               (31.3)               (17.8)
                                                            ---------------      ---------------      ---------------
     Total                                                  $        562.6       $        545.1       $        507.7
                                                            ===============      ===============      ===============

OPERATING INCOME (LOSS)
-----------------------
Satellite Services:
     World Systems                                          $        100.4       $        104.6       $        109.8
     Mobile Communications                                            23.1                 31.9                 54.9
                                                            ---------------      ---------------      ---------------
     Total Satellite Services                                        123.5                136.5                164.7
                                                            ---------------      ---------------      ---------------

Network Services:
     International                                                   (14.0)               (17.3)               (20.7)
     Laboratories                                                     (2.0)                 7.1                 (4.0)
     Government Programs                                              (0.4)                 5.1                  6.6
                                                            ---------------      ---------------      ---------------
     Total Network Services                                          (16.4)                (5.1)               (18.1)
                                                            ---------------      ---------------      ---------------

     Total segment operating income                                  107.1                131.4                146.6
Provision for restructuring                                              -                    -                 (3.9)
General and administrative expense                                   (23.2)               (24.0)               (19.9)
Other                                                                 (1.9)                (0.2)                (3.0)
                                                            ---------------      ---------------      ---------------
     Total                                                  $         82.0       $        107.2       $        119.8
                                                            ===============      ===============      ===============
</TABLE>


                                     32

<PAGE>



SATELLITE SERVICES

     Satellite  Services  includes  the Federal  Communications  Commission
(FCC) regulated and  non-regulated  businesses of CWS and CMC. CWS provides
international   voice,   data,  video  and  audio   communications  as  the
statutorily  designated U.S.  participant in the global satellite system of
the International Telecommunications Satellite Organization (INTELSAT). CMC
provides maritime,  aeronautical and land mobile communications services as
the statutorily  designated U.S. participant in the global satellite system
of the International Mobile Satellite Organization (Inmarsat).

     Revenues in the Satellite  Services segment in 1997 were $431 million,
1% below last year.  Revenues in 1996 were $434  million,  $1 million below
1995.  Operating income in the Satellite  Services segment in 1997 was $124
million, a decline of $12 million as compared to 1996.  Operating income in
1996 was $137 million, $28 million below the previous year.

     CWS  revenues  for 1997 were $263  million,  4% below 1996.  Increased
revenues from Very Small Aperture  Terminal (VSAT) leases and International
Business  Service  (IBS)  traffic were offset by  contracted  reductions in
full-time voice revenues and lower fiber-optic cable restoration  revenues.
The lower voice revenues  stemmed  primarily from scheduled rate reductions
in  long-term  carrier  contracts  with AT&T,  MCI and Sprint,  CWS's three
largest  international  carrier  customers.  CWS's 1996  revenues were $273
million,  which  reflects a 7%  increase  over  1995.  The  improvement  in
revenues  came  primarily  from  increases in VSAT leases,  IBS traffic and
CWS's share of revenues  from the INTELSAT  system.  These  increases  were
partially  offset by reduced  revenues from  scheduled  rate  reductions in
long-term carrier contracts.

     Operating income for CWS in 1997 was $100 million, 4% below last year.
The 1997 results  reflect  increased  depreciation  from placing in service
three  INTELSAT  satellites  during the past 12  months,  offset in part by
improved earnings realized on carrier-to-carrier contracts and the recovery
of  certain  litigation  costs.  Operating  income  in 1996 in CWS was $105
million, a 5% decrease from the prior year. The decline in operating income
was the result of a lower  investment base upon which the regulated rate of
return is calculated.  This was the result of insurance  proceeds  received
from the February 1996 launch  failure of the INTELSAT 708  satellite.  See
Note 4 to the financial statements.

     Revenues in CMC for 1997 were $168 million, an increase of 4% compared
to the prior year.  The higher  revenues were primarily the result of sales
of Planet 1 terminals and service, and increases in CMC's share of revenues
from the  Inmarsat  system.  Offsetting  this  increase  in  revenues  were
decreases in analog  telephone  transmissions  and lower volume in the bulk
service contract with IDB Mobile  Communications (IDB). CMC's 1996 revenues
were  $161  million,  a  decrease  of 11% as  compared  to 1995.  The lower
revenues  were  primarily  the result of decreases in analog  telephone and
telex  revenues,  expiration of the American Mobile  Satellite  Corporation
(AMSC)  service  contract  in  December  1995 and lower  volume in the bulk
service contract with IDB.



                                     33

<PAGE>



     CMC's  operating  income for 1997 was $23  million,  $9 million  below
1996.  The decrease  was  primarily  the result of  increased  depreciation
associated  with two Inmarsat-3  satellites  placed in service during 1997,
and lower revenues and increased  costs related to Planet 1 service,  which
began  commercial  operation in 1997.  Operating income in CMC for 1996 was
$32  million,  or 42%  lower  than  1995 due to lower  revenues,  increased
depreciation  expense  associated with two Inmarsat-3  satellites placed in
service during 1996 and increased costs related to the start up of Planet 1
service.

NETWORK SERVICES

     Network  Services  includes CI,  COMSAT  Laboratories  and  Government
Programs. CI operates an integrated group of telecommunications  businesses
in countries with rapidly growing  telecommunications  markets and provides
individualized  digital  network  solutions to  customers  located in these
markets.  COMSAT Laboratories  consists of two main businesses -- technical
consulting and communications  products.  Government  Programs includes the
Commercial Satellite Communications  Initiative (CSCI) contract,  Satellite
Control Facility and Special Program Office.

     Network  Services  segment  revenues  in 1997 were $170  million,  $28
million, or 19% higher than 1996. Included in revenues and operating income
during 1996 was $8 million  related to a licensing  agreement that resolved
patent  infringement  disputes  with certain  manufacturers  of  television
encryption and decryption  equipment at COMSAT  Laboratories.  Revenues for
the Network Services  segment in 1996 were $143 million,  a 58% improvement
over  1995.  The  1997  Network  Services  segment  operating  loss was $16
million, compared to an operating loss of $5 million in the prior year. The
1996 loss was lower  primarily due to the positive  impact of the licensing
agreement  noted above.  The  operating  loss in 1996 was $13 million lower
than 1995.

     CI's  revenues  in 1997 and 1996  were $90  million  and $58  million,
respectively, 54% better than each of their comparative years. The increase
in revenues in CI was driven  primarily by  improvements in CI's operations
in Brazil,  Argentina and Venezuela.  Partially  offsetting the increase in
1996 as compared to 1995 was a decline in revenues in BelCom,  CI's company
operating in Russia and in the Newly Independent States (NIS).

     CI's  operating  loss in 1997 was $14 million,  $3 million  lower than
1996. The  improvement  was primarily the result of a decrease in losses at
BelCom.  Revenue  commitments under long-term  contracts  increased to $323
million at December  31,  1997,  as compared to $220  million at the end of
1996.  CI's  operating  loss in 1996 was $17  million,  16%  less  than the
previous  year's loss of $21 million.  This  improvement  was primarily the
result  of the  increase  in  revenues  in  Brazil  and a  decrease  in the
operating losses at BelCom.  Partially  offsetting these  improvements were
start-up costs associated with CI's newer companies in China,  Colombia and
Venezuela.

     In May 1997,  CI acquired  full  ownership of the Mexican  corporation
IntelCom Red S.A. de C.V.,  which was previously a wholly owned  subsidiary
of ICG Satellite Services,  Inc., and renamed it COMSAT Mexico S.A. de C.V.
(COMSAT Mexico). COMSAT Mexico offers business customers digital,  domestic
and  international  private-line  services to support voice, data and image
applications. In January 1997, CI sold its remaining interest in Philippine
Global  Communications,  Inc. (PhilCom) at book value for $34 million.  See
Notes 3 and 5 to the financial statements.


                                     34

<PAGE>


     COMSAT  Laboratories'  revenues for 1997 were $36 million, as compared
to $44 million for 1996. Exclusive of the $8 million of revenues related to
the 1996 agreement that resolved patent disputes, COMSAT Laboratories' 1997
revenues were at  approximately  the same level as 1996,  and 1996 revenues
were 39% higher than 1995.

     The operating  loss for COMSAT  Laboratories  for 1997 was $2 million,
compared  to  operating  income of $7 million  for 1996.  Exclusive  of the
income related to the agreement on patent disputes, the 1997 operating loss
was $1 million more than 1996,  and the 1996  operating loss was $3 million
lower than 1995.  The  Laboratories'  backlog at December 31, 1997, was $28
million, 33% higher than at the end of 1996.

     Government Programs' revenues in 1997 were $44 million, an increase of
$3 million over the previous year.  The increased  revenues were related to
the CSCI  contract  and were  offset  by lower  revenues  from two  Marisat
satellites  that  ceased  operating  in 1996  after 20  years  of  service.
Revenues  in  Government  Programs  in 1996 were $41  million,  $14 million
higher than 1995.  This increase was  primarily  due to increased  revenues
associated  with the CSCI contract,  which started in the fourth quarter of
1995.

     The  operating  loss for  Government  Programs  in 1997 was  $400,000,
compared to operating income of $5 million for 1996. This was the result of
lower revenues from the loss of the Marisat  satellites and increased costs
associated  with the CSCI  contract.  Government  Programs  1996  operating
income was $2 million below 1995.

OUTLOOK

     MANY OF THE STATEMENTS THAT FOLLOW ARE  FORWARD-LOOKING  AND RELATE TO
ANTICIPATED  FUTURE  EVENTS AND  OPERATING  RESULTS.  STATEMENTS  THAT LOOK
FORWARD  IN  TIME  ARE  BASED  ON  MANAGEMENT'S  CURRENT  EXPECTATIONS  AND
ASSUMPTIONS,  WHICH MAY BE AFFECTED BY SUBSEQUENT DEVELOPMENTS AND BUSINESS
CONDITIONS,   AND  NECESSARILY  INVOLVE  RISKS  AND  UNCERTAINTIES.   THESE
STATEMENTS AND THE  CORPORATION'S  FUTURE OPERATING RESULTS MAY BE AFFECTED
BY THE TIMING AND OUTCOME OF PENDING  REGULATORY AND  LEGISLATIVE  ACTIONS,
INCLUDING THE CORPORATION'S PETITION BEFORE THE FCC FOR CLASSIFICATION AS A
NON-DOMINANT  CARRIER AND A BILL INTRODUCED IN CONGRESS WHICH CALLS FOR THE
PRIVATIZATION OF INTELSAT AND INMARSAT; EFFORTS TO RESTRUCTURE INTELSAT AND
INMARSAT;  COMPETITIVE BUSINESS CONDITIONS; THE DISPOSITION OF DISCONTINUED
OPERATIONS;  AND OTHER FACTORS.  THEREFORE,  THERE CAN BE NO ASSURANCE THAT
ACTUAL FUTURE RESULTS WILL NOT DIFFER MATERIALLY FROM ANTICIPATED  RESULTS.
ALTHOUGH THE  CORPORATION  HAS  ATTEMPTED TO IDENTIFY SOME OF THE IMPORTANT
FACTORS  THAT MAY CAUSE  ACTUAL  RESULTS  TO DIFFER  MATERIALLY  FROM THOSE
ANTICIPATED,  THOSE FACTORS  SHOULD NOT BE VIEWED AS THE ONLY FACTORS WHICH
MAY AFFECT FUTURE OPERATING RESULTS.

     In March 1997,  COMSAT's board of directors  approved a strategic plan
to refocus the corporation on international  satellite services and digital
networking  services and technology as discussed in the corporation's  1996
Annual  Report  on  Form  10-K.  As a  part  of  the  strategic  plan,  the
corporation  decided to divest its  ownership  interest  in Ascent and sell
substantially  all of the  assets and  operations  of CRSI as well as other
non-core  assets.  On  June  27,  1997,  the  corporation  distributed  its
ownership  interest  in  Ascent  to its  shareholders  through  a  tax-free
dividend.

                                     35

<PAGE>

     In March 1998, the  corporation  signed a stock purchase  agreement to
sell  substantially  all of CRSI for  $116.5  million.  The  sale  price is
subject to adjustment  based on  inter-company  loans and advances  between
COMSAT  and  CRSI  at the  time of the  closing.  Closing  for the  sale is
expected  to occur  on or  before  June 30,  1998,  and is  dependent  upon
completion  of certain  conditions  agreed to by the  parties,  third party
consents and regulatory  filings.  The financial  impact of the transaction
was included in the corporation's  1997 loss from discontinued  operations.
As part of the agreement,  the  corporation is retaining  Electromechanical
Systems, Inc. and Plexsys International Corporation,  pending evaluation of
available  alternatives.  COMSAT also will retain and  complete a long-term
construction  contract for a radio  telescope in Green Bank, West Virginia.
JEFA  Wireless  Systems,  a wholly owned  subsidiary,  was disposed of in a
separate transaction in February 1998.

     The corporation's 1998 operating income from continuing  operations is
expected  to be better  than  1997,  while the net income  from  continuing
operations  is  expected  to be at  approximately  the same  level as 1997.
Following is a discussion of COMSAT's two business segments.

SATELLITE SERVICES

     In the  first  quarter  of 1998,  continued  progress  was made in the
corporation's ongoing efforts to restructure INTELSAT and Inmarsat.

     The INTELSAT  Board of Governors  and an internal  working  group have
approved a restructuring  plan that involves  creation of a separate entity
(referred to as "INC") to which six  satellites  would be  transferred.  An
Assembly of Parties  (meeting of  governments)  is now  scheduled for March
1998 at which final  approval  for an overall  restructuring  plan is to be
considered.  Assuming  that schedule is  maintained,  INC would be formally
established  as a separate  business  entity in the second quarter of 1998,
and an initial public  offering for INC would be expected to occur sometime
during the first half of 1999. The  restructuring  plan to be considered by
the  Assembly of Parties  includes  recommendations  on several key issues,
including  INC's  ownership  structure  and  competitive   safeguards.   As
currently proposed,  INTELSAT's direct ownership in INC would be limited to
10%, and individual ownership levels would be limited to 17%. The proposal,
however,  would  grandfather  the  corporation's  direct  ownership  in INC
pending  completion of the initial  public  offering to the extent that the
corporation's   direct   ownership   would  exceed  the  limit   ultimately
established.

     At its March 1998  meeting,  the Inmarsat  Council  approved a plan to
transfer the  operating  assets of the current  Inmarsat  intergovernmental
organization  to a new company.  The Council will present its proposed plan
to the  Inmarsat  Assembly  of Parties for  consideration  at a meeting now
scheduled  for  April  1998.  Under  the  proposal,  the  target  date  for
completing  the transition to a private  company is January 1, 1999.  While
the new company initially would not be publicly traded, it is expected that
the company would proceed with an initial public  offering within 24 months
after its creation. As currently proposed,  individual ownership in the new
company would be capped at 15%,  although COMSAT's current 22% ownership in
Inmarsat would be grandfathered. Prior to the public offering, owners would
be able to trade shares, and strategic investors would be able to invest up
to $500 million in equity in the new company.



                                     36

<PAGE>

     Approval  of  the  restructuring   proposals  under  consideration  at
INTELSAT  and  Inmarsat  will  require a vote of  two-thirds  of the member
governments  that are present and voting (up to 142 in the case of INTELSAT
and 81 in the case of Inmarsat,  with each having one vote) at the Assembly
of Parties at which approval is sought. The Inmarsat restructure  timetable
is contingent on Inmarsat  member  governments  reaching broad consensus on
implementing  the proposed  amendments to the Inmarsat  Convention prior to
formal  ratification.  If such consensus is not achieved,  the ratification
process could take longer. The corporation,  as a minority  shareholder and
the  U.S.   signatory   to  both   organizations,   lacks  the  ability  to
independently  effect a restructuring  of either INTELSAT or Inmarsat.  The
success  and  timing of the  corporation's  privatization  efforts  will be
dependent upon the corporation's ability to achieve a consensus among other
signatories and participating member governments.

     In April 1997, the corporation  petitioned the FCC for  classification
as a  non-dominant  carrier and for  regulatory  forbearance.  The petition
requests  that  limits  on the  company's  rate of  return  and  structural
separation  requirements  be removed  and that CWS be allowed to change its
tariff rates and introduce new services over the INTELSAT  satellite system
on  one-day  notice.  The  petition  has been  opposed  by  certain  of the
corporation's  competitors and customers.  The corporation expects that the
FCC will act on the petition in 1998,  but cannot predict with accuracy the
outcome and timing of FCC regulatory  action nor whether the FCC may impose
conditions  on a grant  of the  corporation's  petition,  such as  allowing
customers  some form of direct  access to the INTELSAT  system,  abrogating
certain provisions of the corporation's  inter-carrier  agreements with its
largest  carrier  customers,  or  requiring  the  corporation  to waive its
privileges and immunities as a INTELSAT signatory.

     The U.S. House of  Representatives  Commerce  Committee has approved a
bill entitled the "Communications  Satellite  Competition and Privatization
Act  of  1997"  (H.R.   1872)  over  strong   bipartisan   opposition   for
consideration by the House of Representatives. To become law, the bill will
have to be approved by the full  House,  considered  and passed by the U.S.
Senate and signed by the  President.  While the  corporation  supports  the
bill's  stated  objective  of  privatizing   INTELSAT  and  Inmarsat  in  a
pro-competitive manner, COMSAT is strongly opposed to the bill as proposed,
since  it  would  have an  extremely  punitive  effect  on  COMSAT  and its
shareholders.  However,  the bill is in an early  stage of the  legislative
process,  and the corporation expects that the objectionable  provisions of
the bill will be addressed and resolved in the later stages of the process.

     As proposed,  H.R. 1872 could  restrict  COMSAT from offering  certain
existing  and future  services  via the  INTELSAT  and  Inmarsat  satellite
systems and might relieve major customers from existing  traffic  contracts
with the corporation. The bill could impair COMSAT's investment in INTELSAT
and Inmarsat  by, among other  actions,  possibly  requiring  the return of
orbital positions and spectrum needed in INTELSAT and Inmarsat  operations.
The bill also would  direct the FCC to permit  other  companies to directly
access the  INTELSAT  and  Inmarsat  satellite  systems  in the U.S.,  thus
discontinuing   COMSAT's   exclusive  provider  role,  subject  to  certain
safeguards that would insure fair compensation to COMSAT. On the plus side,
the  bill  would  no  longer  require  the  FCC  to  defer  action  on  the
corporation's petition for non-dominant carrier classification until direct
access is  granted.  The  bill,  however,  would  link the  removal  of the
existing  10%  ownership  limitation  on  COMSAT's  common  stock under the
Satellite Act to the point in time when direct access is granted.  The bill
also specifies criteria for the privatization and proposed restructuring of
INTELSAT  that,  if not agreed to by the other member  nations of INTELSAT,
might  restrict  INTELSAT's  proposed new commercial  affiliate,  INC, from

                                    37

<PAGE>


accessing the U.S. market.  In addition,  if the  privatization of INTELSAT
and Inmarsat is not completed by a mandatory  timetable in accordance  with
the criteria,  non-core  INTELSAT and Inmarsat services might be foreclosed
from U.S. markets.

     The corporation is, and will continue, opposing the bill, unless it is
modified in an acceptable,  pro-competitive manner that would not adversely
affect  the  corporation's  business  and the  value  of its  shareholders'
investments in the INTELSAT and Inmarsat satellite systems.

     Effective  January 1, 1998,  the  corporation  changed its  accounting
policy with respect to the cost of series  satellites  lost at launch or in
orbit.  Such costs will be expensed in the period in which the satellite is
lost at launch or  experiences  a total failure in orbit.  Previously,  the
costs of such failed series  satellites  were amortized over their original
useful lives.  Partial  in-orbit  failures will be evaluated for impairment
according to the provisions of Statement of Financial  Accounting Standards
No.  121,  "Accounting  for the  Impairment  of  Long-lived  Assets and for
Long-lived  Assets to be  Disposed  of."  Effective  January 1,  1998,  the
corporation  also changed its  accounting  policy with respect to satellite
performance  incentives paid to manufacturers to capitalize the net present
value  of such  payments  as a  component  of the  cost  of the  satellite.
Previously,  certain of these payments were expensed as paid. These changes
will not have a material effect on the corporation's financial statements.

     COMSAT World Systems (CWS)  continues to be well positioned with major
international    carriers   through   long-term   agreements   to   provide
cost-competitive services for bulk usage beyond the year 2000. In addition,
CWS expects  growth  from the  provision  of services in emerging  markets,
including international VSAT and Asynchronous Transfer Mode (ATM) services.
CWS is expected to face increasing competition over the longer term.

     In addition  to seven  satellites  currently  on order,  INTELSAT  has
signed  a  lease  for  capacity  aboard  the  INSAT-2E   satellite  in  the
Asia-Pacific  region,  planned  for  launch  in the  second  half of  1998.
INTELSAT  launched  four VIII series  satellites  successfully  in 1997 and
plans for two  launches in 1998.  The new INTELSAT  VIII series  satellites
offer higher-power C-band capabilities to address various markets.

     COMSAT  Mobile  Communications  (CMC)  plans to continue to expand its
service  offerings and value-added  products to meet anticipated  growth in
customers'  needs. The increasing number of digital terminals with improved
operating  efficiency and reduced  service charges are expected to continue
to provide  traffic  growth in land mobile,  small  commercial and pleasure
boat,  and  business  traveler  markets.  CMC  expects to  continue to face
increasing  competition  from existing  Inmarsat service  providers,  other
wireless  communications  services  (including  C-band) and other potential
market entrants.

     In late 1996, the Federal Aviation  Administration  (FAA) selected CMC
to provide  satellite  and uplink  services for the Wide Area  Augmentation
System (WAAS). The initial contract is expected to generate revenues of $57
million  through 2001 and could generate  revenues of up to $100 million if
all options are exercised through 2006.

                                    38

<PAGE>


     In late  1996 and early  1997,  the  corporation  reduced  its  direct
ownership in ICO and presently owns 1.7%. The corporation also continues to
hold an indirect  share of ICO through its ownership in Inmarsat,  which is
also an ICO  shareholder.  The  corporation  is  evaluating  its plans with
respect to  distribution  of ICO products and services and will continue to
assess whether its direct ownership is properly aligned with those plans.

     As with any new product, there are a number of factors that may affect
the  corporation's  ability  to  offer  Planet  1  and  ICO  services  on a
profitable basis. Such factors include the level of consumer acceptance and
demand,  the  quality  and  pricing  of  competitive   services,   and  the
performance of ground and space systems and customer terminals. In order to
offer  Planet 1 and ICO  services,  the  corporation  must  obtain  certain
regulatory  approvals.  See Notes 8 and 9 to the financial  statements.  In
addition,  ICO must receive the funding  required to complete its satellite
system.

NETWORK SERVICES

     COMSAT International (CI) will continue to operate an integrated group
of  telecommunications  companies that are engaged principally in providing
individualized  digital network  solutions to business clients and carriers
in selected  markets.  CI also plans to develop  prospective  international
telecommunications  opportunities  that are  consistent  with  its  digital
networking  strategy.  In this  regard,  CI will  continue to target  those
rapidly  growing  markets  where a  significant  number of CI's existing or
targeted clients are located (or in which they intend to locate).

     CI's  general  financial   performance  benchmark  is  for  individual
companies to be  operationally  cash-flow  positive  within three years and
profitable after five years of operation absent unforeseen circumstances or
problems.  As  part of its  integrated  approach  to  management  of  those
companies,  CI evaluates operating  performance,  strategic fit and overall
effectiveness  of  managerial  control to determine  whether to continue to
increase or reduce its investment in individual companies.  CI is currently
reviewing its investment in BelCom.

     In  early  1997,   the   Communications   Secretariat   of   Argentina
(Secretariat) issued resolutions which reserve for Nahuelsat,  the domestic
Argentine  satellite  operator,  certain  exclusive  rights for the sale of
domestic  Ku-band  satellite  services in Argentina.  COMSAT  Argentina has
reserved  sufficient  Ku-band  capacity  to address  its current and future
business  requirements  through  1998.  Following  1998,  however,   COMSAT
Argentina will be required to secure additional capacity from Nahuelsat for
new business. There can be no assurance that adequate Ku-band space segment
will be  available  at that  time,  or that  Nahuelsat  will have  adequate
back-up  capacity  in the event of a  satellite  failure,  or that if space
segment is available, it will be priced competitively.

     In September  1997, the  Secretariat  issued a resolution that permits
Telintar,  the exclusive provider of international voice telephony and data
services in  Argentina,  to provide  switched  domestic  Internet  services
within Argentina. The resolution is drafted broadly enough that it also may
be construed to permit Telintar to provide switched domestic data services.
Presently it is unclear,  however,  whether the Secretariat  will interpret
the  resolution  to apply  to  domestic  data  services.  COMSAT  Argentina
challenged the resolution on the ground that domestic switching of Internet
and/or data services by Telintar is not permitted  under its franchise.  In
November  1997,   COMSAT  Argentina   received  a  preliminary   injunction

                                    39

<PAGE>


suspending the  resolution.  The injunction will remain in effect until the
Secretariat rules on COMSAT Argentina's  request for administrative  relief
from the  resolution.  The  Secretariat has also appealed the imposition of
the  preliminary  injunction.  The  resolution,  together with other recent
actions of the Secretariat,  including its resolutions  awarding  Nahuelsat
the exclusive right to sell domestic Ku-band capacity in Argentina, appears
to indicate a willingness  of the  Secretariat  to adopt  initiatives  that
benefit large, domestic and incumbent  telecommunications service providers
to the  detriment  of  competitors,  such as  COMSAT  Argentina,  which are
smaller than the domestic  incumbents.  The corporation  intends to monitor
regulatory  developments in Argentina  closely.  There can be no assurance,
however,  that the recent actions of the  Secretariat  or other  regulatory
developments  in respect to those  actions  will be  resolved  without  any
material affect on COMSAT Argentina's future business prospects.

YEAR 2000 ISSUE

     The year 2000 issue is the result of computer  programs  being written
using two digits  rather  than four  digits to define the  applicable  year
(i.e. "97" for 1997).  Certain of the corporation's  computer programs that
have  date-sensitive  software may not operate  properly  when the last two
digits  become "00",  as will occur on January 1, 2000.  To the extent that
this situation may exist,  there is a potential for computer system failure
or miscalculations, which could cause disruption of operations. The problem
is not limited to computer programs, as some of the corporation's equipment
that has  date-sensitive  processors may not be able to process dates after
December 31, 1999.

     In the second  half of 1996,  the  corporation  initiated a program to
identify and properly address issues  associated with the year 2000 problem
in order to avoid interruption to the corporation's  operations at the turn
of the century.  The corporation has made substantial progress in assessing
how it will be impacted by the year 2000 issue. Currently,  the corporation
is in the process of  modifying  or  replacing  computer  systems and other
date-sensitive  equipment,  so that the  corporation's  key systems will be
year 2000 compliant.  The corporation  presently believes that such changes
to the corporation's key systems and equipment will be completed and tested
by the end of the second quarter of 1999.

     The  corporation's  current  estimate is that it will cost  between $3
million  and $5 million  prior to January 1, 2000,  to modify its  in-house
management  information systems,  customer products,  and other systems and
equipment  impacted by the year 2000 issue. The corporation does not expect
the costs directly  attributable  to the year 2000 issue to have a material
effect on its consolidated results from operations in a given year.

     Year 2000  modifications  and  replacements  are based on management's
best  estimates,  which were derived using  assumptions  of future  events,
including the continued  availability  of resources and the  reliability of
third party modification plans.  Specific factors that might cause material
differences  in  the  estimates  include,  but  are  not  limited  to,  the
availability and cost of personnel with appropriate  necessary skills,  the
ability  to locate and  correct  all  relevant  computer  code and  similar
uncertainties.

                                    40

<PAGE>


                  ANALYSIS OF CONSOLIDATED BALANCE SHEETS

ASSETS

     The corporation ended 1997 with $1.9 billion of assets, as compared to
$2.1 billion at December 31,  1996.  Included in current  assets in each of
their respective periods were $142 million and $378 million associated with
the net assets of discontinued operations.

     Current assets  decreased  during 1997 by $220 million,  of which $209
million was related to the spinoff of Ascent  which  occurred in June 1997.
See Note 2 to the financial statements.

     Property and  equipment  additions  amounted to $259 million for 1997.
The  increase  in  property  and  equipment  was  primarily  related to the
investment in new communication  property and equipment at CI and additions
related  to CWS's  and  CMC's  share of  INTELSAT  and  Inmarsat  satellite
programs.

     Investments  decreased $33 million during 1997 as the corporation sold
its  remaining  interest  in PhilCom  in January  1997 at book value of $34
million. See Notes 3 and 5 to the financial statements.

LIABILITIES

     The  corporation's  total  liabilities  increased  during  1997 by $53
million.  This was  primarily  the  result  of a $15  million  increase  in
borrowings  and an  increase  of $36  million  related  to the  Clarksburg,
Maryland  building  financing  transaction.  See  Note 4 to  the  financial
statements.

          ANALYSIS OF CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

     Cash from operating  activities  for 1997 was $169 million,  14% below
1996.  The  Satellite  Services  segment  generated  the  majority  of  the
corporation's cash from operations. The corporation made interest payments,
net of amounts capitalized, of $40 million and tax payments of $11 million.

     During  1997,   the   corporation   used  $221  million  in  investing
activities,  a 5% decrease  from 1996.  The 1997  purchases of property and
equipment  occurred in both the  Satellite  Services  and Network  Services
segments, as the corporation continued to make capital investments equal to
its related  shares of INTELSAT's  and  Inmarsat's  satellite  programs and
purchased  communications  plant and equipment  predominantly in CI's Latin
American companies.  The corporation expects to make additional investments
in property and equipment in 1998 at approximately the same level as 1997.

     Cash  proceeds  from  financing  activities  in  1997  were a net  $50
million,  as the  corporation  received  $34  million  as a  result  of the
Clarksburg financing  transaction.  See Note 4 to the financial statements.
Of the total  increase in short-term  borrowings,  $106 million was used to
repurchase  $100 million of  long-term  debt.  See Note 6 to the  financial
statements. The quarterly dividend throughout 1996 and the first quarter of
1997 was $0.195 per share and for the last three quarters of 1997 was $0.05
per share.

                                    41

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     The  corporation's  working  capital at  December  31,  1997,  was $22
million,  $354 million  lower than at December  31,  1996.  The decrease in
working  capital  during 1997 was  primarily the result of the reduction in
current  assets of $209  million  due to the  spinoff of Ascent on June 27,
1997 (see Note 2 to the financial statements),  and the use of $106 million
of  commercial  paper  to  repurchase  long-term  debt  (see  Note 6 to the
financial  statements).  Cash  from  operating  activities  and  short-term
borrowings  will be used for the near term to fund  growth  and to  finance
working capital needs.

     The  corporation  has access to short-term and long-term  financing at
favorable rates. The  corporation's  current  long-term debt ratings are A-
from Standard and Poor's and A3 from  Moody's.  The  corporation's  current
commercial  paper  ratings  are A2 from  Standard  and  Poor's  and P2 from
Moody's.  The corporation's  $200 million commercial paper program had $150
million in  borrowings  outstanding  at December  31,  1997. A $200 million
credit agreement,  expiring in 1999, backs up the corporation's  commercial
paper program.  The  corporation  plans to reduce  short-term debt with the
proceeds from the sale of substantially all of the assets and operations of
CRSI. Consummation of the sale of CRSI, however, remains subject to certain
conditions. See Management's Discussion and Analysis - Outlook.

     During 1997, the corporation repurchased a total of $90 million of its
8.125% notes due 2004 using proceeds from short-term debt. This reduced the
total  outstanding  of the 8.125%  notes from $160  million at December 31,
1996,  to $70 million at December 31, 1997.  In addition,  the  corporation
repurchased $10 million of its 7.7%  medium-term  notes using proceeds from
short-term  debt.  This  reduced  the   corporation's   total   outstanding
medium-term  notes from $74 million at December 31, 1996, to $64 million at
December 31, 1997. The corporation  had $36 million  remaining under a $100
million medium-term note program at December 31, 1997. The medium-term note
program  is part  of a $200  million  debt  securities  shelf  registration
program initiated in 1994.

     The corporation's capital structure and debt-financing  activities are
regulated   by  the  FCC.   The   corporation   is  required  to  submit  a
capitalization plan to the FCC for review annually. In August 1997, the FCC
approved the corporation's 1997 capitalization plan. Under the approved FCC
guidelines,  the  corporation  is  subject  to a limit of $200  million  in
short-term debt, a maximum  long-term,  debt-to-total-capital  ratio of 45%
and an interest  coverage  ratio of 2.3 to 1. The latter two guidelines are
measured at year end. The corporation was in compliance with the guidelines
at December 31,  1997,  with a  long-term,  debt-to-total-capital  ratio of
44.1%, $163 million in short-term debt outstanding and an interest coverage
ratio of 2.6 to 1.

     If the  corporation  were to fail  to  satisfy  one or more of the FCC
guidelines as of an applicable  measurement  date, the corporation would be
required to seek advance FCC approval of future  financing  activities on a
case-by-case  basis.  If such  approval were not granted,  the  corporation
could be  required to reduce or  reschedule  planned  capital  investments,
reduce cash outlays, reduce debt or sell assets.


                                     42

<PAGE>


ITEM 8:     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS


To the Shareholders of
COMSAT Corporation:

We have  audited the  accompanying  consolidated  balance  sheets of COMSAT
Corporation and its  subsidiaries as of December 31, 1997 and 1996, and the
related  consolidated  statements of income,  stockholders' equity and cash
flow for each of the three years in the period ended December 31, 1997. Our
audit also included the financial statement schedule listed in the index at
Item  14(a)2.  These  financial  statements  and  the  financial  statement
schedule  are  the  responsibility  of the  corporation'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.  Those  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   disclosures  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 such consolidated  financial  statements  present fairly, in
all material  respects,  the financial  position of the corporation and its
subsidiaries  at  December  31,  1997 and 1996,  and the  results  of their
operations  and their cash flows for each of the three  years in the period
ended December 31, 1997, in conformity with generally  accepted  accounting
principles.  Also, in our opinion, such financial statement schedule,  when
considered in relation to the basic consolidated financial statements taken
as a whole,  presents fairly in all material respects,  the information set
forth therein.




Deloitte & Touche LLP
Washington, D.C.
February 12, 1998
(March 16, 1998 as to the tenth paragraph of Note 2)

                                     43

<PAGE>



                    COMSAT CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED INCOME STATEMENTS
            For the Years Ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
<S>                                                                    <C>             <C>             <C>

In thousands, except per share amounts                                         1997            1996            1995
--------------------------------------------------------------------------------------------------------------------
REVENUES                                                                $   562,651     $   545,100     $   507,687
                                                                        ------------    ------------    ------------

OPERATING EXPENSES:
   Cost of services                                                         263,934         247,120         214,244
   Depreciation and amortization                                            184,206         155,296         140,757
   Research and development                                                   9,296          11,518           9,114
   General and administrative                                                23,247          23,941          19,856
   Provision for restructuring                                                    -               -           3,902
                                                                        ------------    ------------    ------------
   Total operating expenses                                                 480,683         437,875         387,873
                                                                        ------------    ------------    ------------

OPERATING INCOME                                                             81,968         107,225         119,814

Other income (expense), net                                                  (3,016)         (7,409)         (2,166)
Interest cost                                                               (51,426)        (50,455)        (59,215)
Interest capitalized                                                          9,394          15,760          20,355
Gain on sale of land                                                          7,261               -               -
                                                                        ------------    ------------    ------------

Income from continuing operations before taxes and extraordinary item        44,181          65,121          78,788

Income tax expense                                                           15,613          28,924          35,281
                                                                        ------------    ------------    ------------

INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM                  28,568          36,197          43,507

DISCONTINUED OPERATIONS, NET TAX:
   Loss from operations                                                     (17,572)        (27,575)         (5,690)
   Loss on disposal                                                         (71,496)              -               -
                                                                        ------------    ------------    ------------
   Loss from discontinued operations                                        (89,068)        (27,575)         (5,690)
                                                                        ------------    ------------    ------------

Income (loss) before extraordinary item                                     (60,500)          8,622          37,817

Extraordinary loss from early extinguishment of debt (net of tax)            (3,946)              -               -
                                                                        ------------    ------------    ------------

NET INCOME (LOSS)                                                       $   (64,446)    $     8,622     $    37,817
                                                                        ============    ============    ============

EARNINGS (LOSS) PER COMMON SHARE - BASIC:
   Income from continuing operations before extraordinary item          $      0.58     $      0.76     $      0.93
   Discontinued operations                                                    (1.82)          (0.58)          (0.12)
   Extraordinary item                                                         (0.08)              -               -
                                                                        ------------    ------------    ------------
   Net income (loss)                                                    $     (1.32)    $      0.18     $      0.81
                                                                        ============    ============    ============

EARNINGS (LOSS) PER COMMON SHARE-ASSUMING DILUTION:
   Income from continuing operations before extraordinary item          $      0.57     $      0.74     $      0.91
   Discontinued operations                                                    (1.78)          (0.56)          (0.12)
   Extraordinary item                                                         (0.08)              -               -
                                                                        ------------    ------------    ------------
   Net income (loss)                                                    $     (1.29)    $      0.18     $      0.79
                                                                        ============    ============    ============

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                     44

<PAGE>



                    COMSAT CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                         December 31, 1997 and 1996

<TABLE>
<CAPTION>
<S>                                                                             <C>              <C>

In thousands                                                                              1997            1996
---------------------------------------------------------------------------------------------------------------
ASSETS
------
CURRENT ASSETS:
   Cash and cash equivalents                                                      $      5,757    $      7,659
   Receivables                                                                         147,621         133,952
   Deferred income taxes                                                                 7,469           6,050
   Other                                                                                14,918          12,348
   Net assets of discontinued operations                                               142,484         378,175
                                                                                  -------------   -------------
   Total current assets                                                                318,249         538,184
                                                                                  -------------   -------------

Property and equipment                                                               1,359,293       1,322,985
Investments                                                                             91,543         124,442
Goodwill                                                                                12,722          13,189
Other assets                                                                           112,968          98,486
                                                                                  -------------   -------------
   TOTAL ASSETS                                                                   $  1,894,775    $  2,097,286
                                                                                  =============   =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
   Current maturities of long-term debt                                           $     13,785    $     13,802
   Commercial paper                                                                    149,506          17,993
   Accounts payable and accrued liabilities                                             89,772          73,426
   Due to related parties                                                               34,664          42,263
   Accrued income taxes                                                                  5,743           9,741
   Accrued interest                                                                      3,176           5,377
                                                                                  -------------   -------------
   Total current liabilities                                                           296,646         162,602
                                                                                  -------------   -------------

Long-term debt                                                                         461,960         578,379
Deferred income taxes                                                                  112,226         112,894
Deferred investment tax credits                                                          9,523          12,350
Accrued post-retirement benefit costs                                                   49,246          50,423
Other long-term liabilities                                                            178,903         138,821
Commitments and contingencies (notes 8, 9 & 14)                                              -               -
Preferred securities issued by subsidiary                                              200,000         200,000

STOCKHOLDERS' EQUITY:
   Common stock, without par value, 100,000 shares authorized,
       50,197 shares issued in 1997 and 49,090 in 1996                                 366,901         340,691
   Preferred stock, 5,000 shares authorized, no shares issued or outstanding                 -               -
   Retained earnings                                                                   226,785         502,839
   Treasury stock, at cost, 141 shares in 1997 and 269 in 1996                          (1,758)         (3,006)
   Unearned compensation                                                                (4,739)         (3,757)
   Other                                                                                  (918)           5,050
                                                                                  -------------   -------------
   Total stockholders' equity                                                          586,271         841,817
                                                                                  -------------   -------------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $  1,894,775    $  2,097,286
                                                                                  =============   =============
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                     45

<PAGE>



                    COMSAT CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED CASH FLOW STATEMENTS
                For the Years Ended December 31, 1997, 1996
                                  and 1995

<TABLE>
<CAPTION>
<S>                                                              <C>            <C>            <C>

In thousands                                                              1997            1996            1995
---------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss)                                                  $   (64,446)   $      8,622   $     37,817
Adjustments to reconcile net income (loss) to net cash
   provided by continuing operations:
   Depreciation and amortization                                       184,206         155,296         140,757
   Loss from discontinued operations                                    89,068          27,575           5,690
   Provision for restructuring                                               -               -           3,902
   Gain on sale of land                                                 (7,261)              -               -
   Extraordinary loss from early extinguishment of debt                  3,946               -               -
Changes in assets and liabilities:
   Receivables and other current assets                                  3,953         (12,539)          4,623
   Current liabilities                                                  (4,709)         34,935         (27,973)
   Non-current liabilities                                               1,665          15,770          18,676
Other                                                                     (822)          2,092          27,260
                                                                   ------------   -------------   -------------
Net cash provided by operating activities of continuing operations     205,600         231,751         210,752
Net cash provided (used) by discontinued operations                    (36,865)        (35,009)          3,691
                                                                   ------------   -------------   -------------
Net cash provided by operating activities                              168,735         196,742         214,443
                                                                   ------------   -------------   -------------

INVESTING ACTIVITIES:
Purchase of property and equipment                                    (254,291)       (267,279)       (212,754)
Investments in unconsolidated businesses                               (19,950)        (59,923)        (30,591)
Proceeds from sale of property                                           9,293               -               -
Proceeds from note on sale of investments                               19,097               -               -
Proceeds from sale of investments                                        9,060          26,076               -
Insurance proceeds from satellite launch failure                             -          54,443               -
Decrease (increase) in INTELSAT ownership                               23,232          (1,238)         17,919
Decrease (increase) in Inmarsat ownership                                  213           5,746          (6,978)
Other                                                                   (7,704)          8,328          (1,132)
                                                                   ------------   -------------   -------------
Net cash used in investing activities                                 (221,050)       (233,847)       (233,536)
                                                                   ------------   -------------   -------------

FINANCING ACTIVITIES:
Net short-term borrowings (repayments)                                 131,513          17,993        (121,356)
Borrowings (repayments) against company-owned
   life insurance policies                                              (3,962)        (51,443)          2,542
Common stock issued                                                     20,398          13,837          10,834
Proceeds from issuance of preferred securities of subsidiary                 -               -         200,000
Repayment of long-term debt                                           (114,903)         (9,848)         (2,975)
Proceeds from issuance of long-term debt                                     -               -          81,986
Cash dividends paid                                                    (16,975)        (37,698)        (36,874)
Proceeds from Clarksburg financing                                      34,342               -               -
Other                                                                        -               -         (12,617)
                                                                   ------------   -------------   -------------
Net cash provided (used) by financing activities                        50,413         (67,159)        121,540
                                                                   ------------   -------------   -------------

Net increase (decrease) in cash and cash equivalents                    (1,902)       (104,264)        102,447
Cash and cash equivalents, beginning of year                             7,659         111,923           9,476
                                                                   ------------   -------------   -------------
Cash and cash equivalents, end of year                             $     5,757    $      7,659    $    111,923
                                                                   ============   =============   =============

SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid, net of amount capitalized                        $    39,732    $     29,519    $     36,438
   Income taxes paid                                                    11,404           1,945          19,209
   Non-cash financing of Inmarsat satellites                             5,403           5,602           7,551
   Distribution of Ascent Entertainment Group, Inc. shares             194,633               -               -

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                     46

<PAGE>



                    COMSAT CORPORATION AND SUBSIDIARIES
         STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
            For the Years Ended December 31, 1997, 1996 and 1995


<TABLE>
<CAPTION>
<S>                                                 <C>     <C>          <C>       <C>       <C>         <C>         <C>
                                                     Shares    Shares     Common    Retained  Treasury    Unearned
In thousands                                         Issued  Outstanding   Stock    Earnings    Stock   Compensation  Other
----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994                         48,054      46,811 $312,143    $532,229  $(12,502)     $(7,249) $2,295
Net income                                                                            37,817
Cash dividends                                                                       (36,874)
Stock awards and options, 401(k) and employee
  stock purchase plan activity                          413         799    8,905                 3,482        1,147
Investors' Plus plan                                    145         145    3,026
Minimum pension liability adjustment                                                                                 (2,006)
Translation adjustment                                                                                               (3,664)
Other                                                                                     66                    618
                                                     -----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995                         48,612      47,755  324,074     533,238    (9,020)      (5,484) (3,375)
Net income                                                                             8,622
Cash dividends                                                                       (37,698)
Stock awards and options, 401(k) and employee
  stock purchase plan activity                          398         986   12,862                 6,014          468
Investors' Plus plan                                     80          80    1,777
Minimum pension liability adjustment                                                                                    383
Translation adjustment                                                                                                  924
Unrealized gain on available for sale securities,
  net of taxes                                                                                                        8,624
Other                                                                      1,978      (1,323)                 1,259  (1,506)
                                                     -----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996                         49,090      48,821  340,691     502,839    (3,006)      (3,757)  5,050
Net loss                                                                             (64,446)
Cash dividends                                                                       (16,975)
Distribution of Ascent Entertainment Group, Inc. shares                             (194,633)
Stock awards and options, 401(k) and employee
  stock purchase plan activity                        1,027       1,155   24,296                 1,248         (982)
Investors' Plus plan                                     80          80    1,914
Minimum pension liability adjustment                                                                                     958
Translation adjustment                                                                                                (1,515)
Unrealized loss on available for sale securities,
  net of taxes                                                                                                        (5,565)
Other                                                                                                                    154
                                                     ------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997                         50,197      50,056 $366,901    $226,785  $ (1,758)     $(4,739) $  (918)
                                                     ========================================================================

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                     47

<PAGE>



                    COMSAT CORPORATION AND SUBSIDIARIES
                      NOTES TO CONSOLIDATED FINANCIAL
                STATEMENTS For the Years Ended December 31,
                            1997, 1996 and 1995

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF  CONSOLIDATION.  Accounts of COMSAT  Corporation and its
     majority-owned  subsidiaries  (COMSAT  or the  corporation)  have been
     consolidated.   Significant   intercompany   transactions   have  been
     eliminated.  Ascent  Entertainment  Group,  Inc.  and  COMSAT  RSI are
     accounted for as discontinued operations (see Note 2).

     The  corporation  has  consolidated  its shares of the accounts of the
     International Telecommunications Satellite Organization (INTELSAT) and
     the  International  Mobile  Satellite  Organization  (Inmarsat).   The
     corporation's  ownership  interests in INTELSAT and Inmarsat are based
     primarily on the corporation's  usage of these systems. As of December
     31,  1997,  the  corporation  owned  18.0% of  INTELSAT  and  23.0% of
     Inmarsat.

     USE  OF  ESTIMATES.   The  preparation  of  financial   statements  in
     conformity  with generally  accepted  accounting  principles  requires
     estimates and  assumptions  that directly affect the 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 may
     differ from those  estimates.  Estimates are used in  determining  the
     loss on disposal of  discontinued  operations  and in  accounting  for
     long-term contracts, allowance for doubtful accounts, depreciation and
     amortization, employee benefit plans, taxes and contingencies.

     REVENUE  RECOGNITION.  Revenue from  satellite  services is recognized
     over the period  during which the  satellite  services  are  provided.
     Revenue  from  long-term  product,   system  integration  and  related
     services contracts is accounted for using the percentage-of-completion
     (cost-to-cost)  method.  Revenue  from other  services  is recorded as
     services are provided.

     INCOME TAXES AND  INVESTMENT  TAX CREDITS.  The  provision  for income
     taxes includes taxes currently  payable and those deferred  because of
     differences  between the  financial  statement and tax bases of assets
     and liabilities.  The corporation has earned investment tax credits on
     certain INTELSAT and Inmarsat  satellite costs. These tax credits have
     been  deferred  and are  being  recognized  as  reductions  to the tax
     provision over the estimated service lives of the related assets.

     EVALUATION  OF LONG-LIVED  ASSETS.  In  accordance  with  Statement of
     Financial  Accounting  Standards  (SFAS) No. 121,  "Accounting for the
     Impairment  of  Long-Lived  Assets  and for  Long-Lived  Assets  to be
     Disposed of," the  corporation  evaluates the potential  impairment of
     long-lived  assets,  including  goodwill,  based upon  projections  of
     undiscounted  cash flows whenever  events or changes in  circumstances
     indicate  that  the  carrying  amount  of an  asset  may not be  fully
     recoverable.  Management  believes  no  material  impairment  of these
     assets exists at December 31, 1997.

                                     48

<PAGE>



     MARKETABLE  SECURITIES.  The corporation's  marketable  securities are
     categorized as available for sale  securities,  as defined in SFAS No.
     115,   "Accounting   for  Certain   Investments  in  Debt  and  Equity
     Securities." Unrealized holding gains and losses are reflected, net of
     tax, as a separate  component of stockholders'  equity until realized.
     For the  purpose  of  computing  realized  gains and  losses,  cost is
     identified  on a specific  identification  basis.  Realized  gains and
     losses are  reported in "Other  income  (expense),  net" on the income
     statement.

     GOODWILL.  Goodwill  is  amortized  over 10 to 25  years.  Accumulated
     goodwill  amortization  was  $2,077,000 and $1,276,000 at December 31,
     1997 and 1996, respectively.

     OTHER ASSETS.  The cash surrender  values of life  insurance  policies
     (net of loans)  totaling  $86,597,000  and $71,724,000 at December 31,
     1997 and 1996,  respectively,  are included in "Other  assets." "Other
     income (expense),  net" on the income statement includes the increases
     in the cash surrender values of these policies.

     STOCK-BASED  COMPENSATION.  SFAS No. 123,  "Accounting for Stock-Based
     Compensation,"    requires   expanded   disclosures   of   stock-based
     compensation  arrangements with employees and encourages (but does not
     require)  compensation  cost to be measured based on fair value of the
     equity instrument awarded (see Note 10). The corporation has chosen to
     continue to account for employee  stock-based  compensation  using the
     intrinsic  value method  prescribed  in  Accounting  Principles  Board
     Opinion  No.  25,  "Accounting  for Stock  Issued to  Employees,"  and
     related  interpretations.  Accordingly,  compensation  costs for stock
     options are measured as the excess, if any, of the quoted market price
     of the corporation's stock at the date of the grant over the amount an
     employee must pay to acquire the stock.

     CASH  FLOW  INFORMATION.   The  corporation  considers  highly  liquid
     investments  with a  maturity  of three  months or less at the time of
     purchase to be cash equivalents.

     STATEMENT  PRESENTATION.   Certain  prior  period  amounts  have  been
     reclassified  to conform with the current  year's  presentation.  Most
     notably,  costs that are passed through to customers in the Government
     Programs  segment are now netted against the associated  revenues.  In
     addition,  the corporation's  share of Inmarsat  revenues,  net of the
     amount paid for using the Inmarsat  satellite  system, is presented in
     revenues. These reclassifications had no impact on previously reported
     results of operations or stockholders' equity.

     NEW ACCOUNTING PRONOUNCEMENTS.  In June 1997, the Financial Accounting
     Standards Board (FASB) issued SFAS No. 130,  "Reporting  Comprehensive
     Income,"  and  SFAS  No.  131,   "Disclosures  about  Segments  of  an
     Enterprise  and  Related   Information."   SFAS  No.  130  establishes
     standards for reporting  and display of  comprehensive  income and its
     components  (revenues,  expenses,  gains and  losses) in a full set of
     general-purpose  financial  statements.  SFAS No. 130 will require the
     corporation  to display  its  minimum  pension  liability  adjustment,
     foreign currency translation  adjustment and unrealized gain (loss) on
     available for sale securities as a component of  comprehensive  income
     rather than a component of changes in stockholders'  equity.  SFAS No.
     131  establishes  standards  for the way public  business  enterprises
     report   information   about   operating   segments  and  the  related
     disclosures

                                     49

<PAGE>



     about  products and services,  geographic  areas and major  customers.
     Adoption  of SFAS  No.  131 will not  have a  material  effect  on the
     corporation's   presentation   of   operating   segments  and  related
     disclosures.  Both  statements are effective for financial  statements
     issued for fiscal years beginning after December 15, 1997.

2.   DISCONTINUED OPERATIONS

     The corporation began accounting for Ascent  Entertainment Group, Inc.
     (Ascent), its entertainment  subsidiary,  and substantially all of the
     assets and operations of COMSAT RSI, Inc.  (CRSI),  its  manufacturing
     subsidiary,  as discontinued operations in the second quarter of 1997.
     The consolidated financial statements have been restated for all prior
     periods  presented to reflect the results of operations and net assets
     of Ascent and CRSI as discontinued operations.

     The income (loss) from discontinued operations, net of tax, for Ascent
     and CRSI for the three years ended  December 31, 1997,  is  summarized
     below:

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>

     In thousands                                                       1997           1996            1995
     -------------------------------------------------------------------------------------------------------
     Ascent                                                     $    (29,068)   $   (28,148)    $    (6,360)
     CRSI                                                            (60,000)           573             670
                                                                -------------   ------------    ------------
     Total                                                      $    (89,068)   $   (27,575)    $    (5,690)
                                                                =============   ============    ============
</TABLE>

     ASCENT ENTERTAINMENT GROUP, INC.
     --------------------------------

     The  corporation  distributed  its 80.67% interest in Ascent through a
     tax-free   dividend  to   shareholders   on  June  27,  1997.   COMSAT
     shareholders  of record on June 19, 1997 received 0.4888 of a share of
     Ascent  common  stock for each  share of COMSAT  common  stock  owned.
     Ascent was accounted for as a discontinued  operation beginning on May
     16,  1997,  the date on which  the  corporation's  Board of  Directors
     adopted a formal plan to effect the distribution.

     The loss  from the  discontinued  Ascent  operations,  net of tax,  is
     composed of :

<TABLE>
<CAPTION>
<S>                                                             <C>            <C>             <C>

     In thousands                                                       1997           1996            1995
     -------------------------------------------------------------------------------------------------------

     Revenues                                                   $    177,481    $   258,120     $   202,332
                                                                =============   ============    ============

     Loss from operations before taxes                          $    (22,826)   $   (38,785)    $    (8,137)
     Income tax benefit                                                5,047         10,637           1,777
                                                                -------------   ------------    ------------
     Loss from operations                                            (17,779)       (28,148)         (6,360)
     Loss on disposal before taxes                                    (9,095)
     Income tax expense                                               (2,194)
                                                                -------------
     Loss on disposal                                                (11,289)
                                                                -------------   ------------    ------------
     Loss from discontinued operations                          $    (29,068)   $   (28,148)    $    (6,360)
                                                                =============   ============    ============

</TABLE>

                                     50

<PAGE>


     The  loss  on  disposal  includes  an  operating  loss  of  $5,020,000
     ($3,861,000 net of tax) for the period May 17, 1997,  through June 27,
     1997,  and costs of $4,075,000  incurred by COMSAT to  facilitate  the
     distribution.  The tax  expense  associated  with the loss on disposal
     includes   $4,421,000  to  recognize   additional  taxes  on  deferred
     intercompany gains while Ascent was included in COMSAT's  consolidated
     tax return.  The operating results are net of minority interest in net
     losses of consolidated subsidiaries.

     In December  1995,  Ascent  completed a public  offering of  5,750,000
     shares of its  common  stock.  COMSAT  retained  24,000,000  shares or
     80.67% of Ascent. Concurrent with the public offering, Ascent repaid a
     $140,000,000 intercompany note payable to COMSAT. Included in the 1995
     loss from  operations is a pre-tax gain of  $19,286,000 as a result of
     the public offering.

     The  tax-free  dividend  of  Ascent  common  stock was  recorded  as a
     reduction  of COMSAT's  consolidated  retained  earnings.  At June 27,
     1997, the book value of the net assets of Ascent totaled  $194,633,000
     and consisted of the following:

<TABLE>
<CAPTION>
<S>                                                                                            <C>

     In thousands                                                                                      1997
     -------------------------------------------------------------------------------------------------------
     Current assets                                                                             $    89,170
     Fixed assets, net                                                                              308,174
     Intangible and other assets                                                                    343,330
     Short-term debt                                                                                176,000
     Other current liabilities                                                                      151,317
     Long-term debt                                                                                  50,000
     Other non-current liabilities                                                                  168,724
                                                                                                ------------
     Net assets                                                                                 $   194,633
                                                                                                ============
</TABLE>

     COMSAT RSI, INC
     ---------------

     Substantially all of CRSI was accounted for as discontinued operations
     beginning on June 30,1997.  CRSI designs,  manufactures and integrates
     earth stations as well as wireless and advanced antenna systems.

     In February 1998, the corporation sold substantially all of the assets
     of JEFA Wireless  Systems  (JEFA),  a wholly owned  subsidiary of CRSI
     engaged in the wireless  communications  integration  and  intelligent
     transportation systems business in a separate transaction. Pursuant to
     the sale agreement,  the corporation  assigned to the buyer its rights
     in  certain  contracts  and made a  payment  of  $4,663,000,  net of a
     working capital adjustment at closing, to complete the transaction.


                                     51

<PAGE>



     On March 16,  1998,  the  corporation  entered  into a stock  purchase
     agreement  to  sell  substantially  all of  the  remainder  of  CRSI's
     businesses for cash of $116,500,000, subject to an adjustment based on
     intercompany  loans and advances  between the  corporation and CRSI at
     closing.  Closing  for the CRSI sale is expected to occur on or before
     June 30, 1998, and is dependent upon completion of certain  conditions
     agreed to by the parties, third party consents and regulatory filings.

     As   part   of   the   agreement,   the   corporation   is   retaining
     Electromechanical Systems, Inc. and Plexsys International Corporation,
     pending evaluation of available alternatives.  COMSAT will also retain
     and complete a long-term  construction  contract for a radio telescope
     in Green Bank, West Virginia.

     Discontinued  operations  include  management's  best estimates of the
     amounts  expected to be realized on the sale of net assets,  operating
     losses through anticipated disposal dates,  facility closure costs and
     the estimated costs to complete the long-term contract retained by the
     corporation.  These  estimates  could change as  additional  costs are
     incurred to complete the disposal and the long-term contract.

     The income (loss) from the discontinued  CRSI operations,  net of tax,
     is composed of:

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>

     In thousands                                                       1997           1996            1995
     -------------------------------------------------------------------------------------------------------

     Revenues                                                   $    121,291    $   217,183     $   161,823
                                                                =============   ============    ============

     Income from operations before taxes                        $        253    $       805     $     2,097
     Income tax expense                                                  (46)          (232)         (1,427)
                                                                -------------   ------------    ------------
     Income from operations                                              207            573             670
                                                                -------------
     Estimated loss on disposal before taxes                         (80,133)
     Income tax benefit                                               19,926
                                                                -------------
     Estimated loss on disposal                                      (60,207)
                                                                -------------   ------------    ------------
     Income (loss) from discontinued operations                 $    (60,000)   $       573     $       670
                                                                =============   ============    ============
</TABLE>

     The  estimated  loss on disposal  includes a provision of  $50,296,000
     ($39,603,000  net of tax) to  writedown  CRSI's and  JEFA's  assets to
     their net  realizable  value.  The  estimated  loss on  disposal  also
     includes the estimated loss from CRSI and JEFA operations  through the
     anticipated  disposal dates of $29,837,000  ($20,604,000  net of tax).
     The estimated loss from operations of CRSI and JEFA includes operating
     losses,  facility closure costs and the estimated cost to complete the
     long-term  contract to be retained and  completed  by the  corporation
     pursuant to the sale terms.  Certain of the losses are not deductible,
     causing the  effective tax benefit to be lower than the benefit at the
     federal statutory rate of 35%.



                                     52

<PAGE>



     The  net  assets  of  the  discontinued  operations  included  in  the
     consolidated  balance  sheets as of December 31, 1997 and 1996, are as
     follows:

<TABLE>
<CAPTION>
<S>                                                 <C>              <C>             <C>              <C>

                                                        1997                              1996
                                                     ----------       -------------------------------------------
     In thousands                                       CRSI             Ascent           CRSI           Total
     ------------------------------------------------------------------------------------------------------------

     Current assets                                  $ 181,456        $  76,809       $ 173,021        $ 249,830
     Fixed assets, net                                  33,871          301,498          32,280          333,778
     Intangible and other assets                        12,989          351,364          11,720          363,084
     Short-term debt                                     4,422          145,500             417          145,917
     Other current liabilities                          28,790          136,789          39,775          176,564
     Provision for estimated loss on disposal           49,504                -               -                -
     Long-term debt                                      1,540           52,000           5,095           57,095
     Other non-current liabilities                       1,576          186,182           2,759          188,941
                                                     ----------       ----------      ----------       ----------
     Net assets of discontinued operations           $ 142,484        $ 209,200       $ 168,975        $ 378,175
                                                     ==========       ==========      ==========       ==========
</TABLE>

3.   RECEIVABLES

     Receivables are composed of:

<TABLE>
<CAPTION>
<S>                                                                                  <C>              <C>

     In thousands                                                                          1997             1996
     ------------------------------------------------------------------------------------------------------------
     Commercial receivables                                                           $ 120,320        $ 112,376
     Receivables under long-term contracts:
       U.S. Government:
         Amounts billed                                                                   5,991            6,499
         Unbilled costs and accrued profits                                               9,577            7,695
       Commercial customers:
         Amounts billed                                                                   4,197            1,442
         Unbilled costs and accrued profits                                                 239            2,151
     Related party receivables                                                            6,422            2,825
     Other                                                                               15,610           12,123
                                                                                      ----------       ----------
     Total                                                                              162,356          145,111
     Less allowance for doubtful accounts                                               (14,735)         (11,159)
                                                                                      ----------       ----------
     Net                                                                              $ 147,621        $ 133,952
                                                                                      ==========       ==========
</TABLE>

     Unbilled amounts represent  accumulated costs and accrued profits that
     will be billed at future dates in accordance  with contract  terms and
     delivery  schedules.  All of  the  1997  amounts  are  expected  to be
     collected within one year.

     In January 1997, the corporation sold its remaining 19.66% interest in
     Philippine  Global  Communications,  Inc.  (PhilCom) at book value for
     $34,292,000.  At closing,  the corporation received $1,702,000 in cash
     and the  balance  in the form of notes  and  contractual  rights  that
     provide for payments,  including interest,  through December 31, 1998.
     The  corporation  received  payments  amounting to $22,021,000  during
     1997.  At December 31, 1997,  the balance of  $12,731,000  is recorded
     above in other receivables and is due in two payments during 1998 (see
     Note 5).


                                     53

<PAGE>



4.   PROPERTY AND EQUIPMENT

     Property and equipment  include the  corporation's  shares of INTELSAT
     and Inmarsat property and equipment.

<TABLE>
<CAPTION>
<S>                                                                            <C>             <C>

     In thousands                                                                      1997            1996
     -------------------------------------------------------------------------------------------------------
     Property and equipment at cost:
       Satellites                                                               $ 1,695,352     $ 1,546,891
       Furniture, fixtures and equipment                                            595,812         463,593
       Buildings and improvements                                                   108,635         106,270
       Land                                                                           3,244           5,219
                                                                                ------------    ------------
       Total                                                                      2,403,043       2,121,973
       Less accumulated depreciation                                             (1,161,242)     (1,027,437)
                                                                                ------------    ------------
       Net property and equipment in service                                      1,241,801       1,094,536

     Property and equipment under construction:
       INTELSAT satellites                                                           88,540         111,222
       Inmarsat third-generation satellites                                           5,353          53,323
       Other                                                                         23,599          63,904
                                                                                ------------    ------------
       Total                                                                    $ 1,359,293     $ 1,322,985
                                                                                ============    ============

</TABLE>

     Depreciation  is calculated  using the  straight-line  method over the
     estimated  service life of each asset.  The service lives for property
     and equipment are: satellites, 10 to 13 years; furniture, fixtures and
     equipment, 3 to 15 years; buildings and improvements, 3 to 40 years.

     Satellites   include   construction   costs,   launch  costs,   direct
     development costs, insurance costs and capitalized interest.  Costs of
     series  satellites  that are lost at  launch or that fail in orbit are
     carried, net of any insurance proceeds, in the property accounts.  The
     remaining net amounts are depreciated over the estimated  service life
     of a satellite of the same series.  At December 31, 1997 and 1996,  no
     failed  series  satellites  were  included  in  property.   Non-series
     satellites  that are lost at launch or fail in orbit  are  charged  to
     operations.

     On February 14, 1996, the launch of the INTELSAT 708 satellite failed.
     The  corporation's  share of the satellite's  costs was fully insured.
     Insurance  proceeds  totaling  $54,443,000 were received in the second
     quarter of 1996.

     SALE OF LAND. In September 1997, COMSAT sold its Clarksburg,  Maryland
     office  building  and  the  surrounding  land  for  $45,750,000  in an
     all-cash transaction. A gain of $7,261,000 ($4,211,000 net of tax) was
     recognized on the sale of land.  The  corporation  also entered into a
     10-year lease  agreement with the new owner to continue  occupying the
     office  building,  that  principally  houses COMSAT  Laboratories.  In
     addition to lease payments,  the corporation is responsible for taxes,
     insurance and maintenance of the building.  The  sale-leaseback of the
     office  building has been accounted for as a financing due to COMSAT's
     continuing involvement as the lessor of floor space in the building to
     non-COMSAT  tenants.  As a result, the historical cost of the building
     remains in property  and will be  depreciated  over the 10-year  lease
     term.

                                     54

<PAGE>



     A financing  obligation  of  $36,219,000,  representing  the  proceeds
     received  for the  building,  was  recorded at the time of sale.  This
     obligation  is being  amortized  at an  interest  rate of 8.50% as the
     lease  payments are made.  The net present value at December 31, 1997,
     totals $35,645,000,  of which $2,042,000 is reflected in other current
     liabilities and the remainder in other long-term liabilities.

     At  December  31,  1997,  the future  lease  payments  pursuant to the
     sale-leaseback are $4,994,000 in 1998,  $5,131,000 in 1999, $5,273,000
     in 2000,  $5,418,000  in  2001,  $5,567,000  in 2002  and  $28,488,000
     thereafter.   Rental   income   expected   to  be   received   through
     non-cancellable  sub-leases is  $1,254,000 in 1998,  $869,000 in 1999,
     $236,000  in  2000,  $81,000  in  2001,  $3,000  in 2002  and  $74,000
     thereafter.

5.   INVESTMENTS

     ICO.  At  December  31,  1997  and  1996,  the  corporation's   direct
     investment  in ICO  Global  Communications  (Holdings)  Limited  (ICO)
     amounted   to   $35,985,000   and   $30,794,000,   respectively.   The
     accompanying balance sheet also includes the corporation's $35,800,000
     and $30,713,000  share of Inmarsat's  investment in ICO as of December
     31, 1997 and 1996, respectively (See Note 8).

     In December 1996, the corporation reduced its direct investment in ICO
     by  selling  777,701  of its  shares  to other  ICO  shareholders  for
     $29,941,000.  The corporation  recognized a gain of $2,722,000 that is
     included in "Other income (expense), net" on the income statement.

     PHILCOM.  In June  1994,  the  corporation  acquired  an  interest  of
     approximately   17%  in   PhilCom,   a   provider   of   international
     communications  services  in the  Philippines,  for  $42,141,000.  The
     corporation's  share of PhilCom's  income or losses was recorded using
     the "equity  method" of  accounting  through the third quarter of 1996
     and is  included  in  "Other  income  (expense),  net"  on the  income
     statement.  In the fourth  quarter  of 1996,  the  corporation  sold a
     portion of its interest in PhilCom at book value for  $3,517,000.  The
     remainder  of its  investment  in PhilCom was sold in January  1997 at
     book value (see Note 3).

     MARKETABLE  SECURITIES.  Marketable  equity  securities  classified as
     available for sale are summarized as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>          <C>           <C>

                                                                                            Unrealized
     In thousands                                                  Cost      Fair Value    Holding Gain
     ---------------------------------------------------------------------------------------------------

     December 31, 1997                                          $10,583         $13,209         $ 2,626

     December 31, 1996                                           11,592          22,780          11,188

</TABLE>



                                     55

<PAGE>



     The  corporation  realized  a gain  of  $1,987,000  from  the  sale of
     marketable equity  securities during 1997. The corporation  recognized
     losses  of   $1,008,000   and   $1,105,000   during   1997  and  1996,
     respectively,  for a decline in value of a marketable  equity security
     that was  deemed  other  than  temporary.  The  gains and  losses  are
     recorded in "Other income (expense), net" on the income statement.

6.   DEBT

     The corporation's capital and debt-financing  activities are regulated
     by the Federal  Communications  Commission  (FCC).  The corporation is
     required  to submit a financial  plan to the FCC for review  annually.
     Under existing FCC  guidelines,  the corporation is subject to a limit
     of $200,000,000 in short-term borrowings,  a maximum long-term,  debt-
     to-total-capital  ratio  of 45% and an  interest  coverage  ratio,  as
     defined,  of 2.3 to 1. At December 31, 1997,  the  corporation  was in
     compliance with those guidelines.

     COMMERCIAL PAPER. The corporation  issues short-term  commercial paper
     as needed with repayment terms of 90 days or less under a $200,000,000
     program. The corporation had outstanding borrowings of $149,506,000 at
     December 31, 1997 and  $17,993,000  at December 31, 1996. The weighted
     average  interest  rate on these  borrowings  was  6.51%  and 7.25% at
     December 31, 1997 and 1996, respectively.

     CREDIT FACILITIES. The corporation has a $200,000,000 revolving credit
     agreement,  which  expires  in  December  1999,  as a  backup  to  the
     commercial  paper  program.  There have been no borrowings  under this
     agreement.

     LONG-TERM DEBT.  Long-term debt,  including the corporation's share of
     INTELSAT and Inmarsat debt, at each year end consists of:

<TABLE>
<CAPTION>
<S>                                                                            <C>             <C>

     In thousands                                                                     1997           1996
     -----------------------------------------------------------------------------------------------------
     8.125% notes due 2004                                                      $   70,475      $ 160,000
     8.95% notes due 2001                                                           75,000         75,000
     6.75% INTELSAT Eurobonds due 2000                                              26,932         28,693
     7.375% INTELSAT Eurobonds due 2002                                             35,910         38,258
     8.375% INTELSAT Eurobonds due 2004                                             35,910         38,258
     6.625% INTELSAT Asian bonds due 2004                                           35,910         38,258
     8.125% INTELSAT Eurobonds due 2005                                             35,910         38,258
     Inmarsat lease financing obligations                                           96,504        103,186
     Medium-term notes, 7.7% - 8.66%, due 2006 - 2007                               64,000         74,000
     Discounts on notes payable                                                       (806)        (1,730)
                                                                                -----------     ----------
     Total                                                                         475,745        592,181
     Less current maturities                                                       (13,785)       (13,802)
                                                                                -----------     ----------
     Total long-term debt                                                       $  461,960      $ 578,379
                                                                                ===========     ==========

</TABLE>

     The principal  amount of debt  (excluding the Inmarsat lease financing
     obligations) maturing over the next five years is $0 in 1998 and 1999,
     $26,932,000 in 2000, $75,000,000 in 2001 and $35,910,000 in 2002.


                                     56

<PAGE>



     EARLY  EXTINGUISHMENT  OF DEBT.  During  the  period  March 25,  1997,
     through April 9, 1997,  the  corporation  offered to purchase for cash
     its 8.125% notes due April 1, 2004, in a  fixed-spread  offering.  The
     corporation  repurchased  $89,525,000  of the  8.125%  notes  and also
     $10,000,000  of  its  7.7%  medium-term   notes  using  proceeds  from
     short-term  debt.  The early  extinguishment  of debt  resulted  in an
     extraordinary loss of $6,231,000 ($3,946,000 net of tax).

     INMARSAT    LEASE    FINANCING    OBLIGATIONS.    Inmarsat    borrowed
     (pound)140,400,000 sterling under a capital lease agreement to finance
     the construction of second-generation  Inmarsat  satellites.  Inmarsat
     also entered into another  capital  lease  arrangement  to finance the
     construction costs of its third-generation  satellites. As of December
     31,  1997,   (pound)131,800,000  sterling  of  the  (pound)197,000,000
     sterling   available   for  this  purpose  has  been   borrowed.   The
     corporation's   share  of  these  lease  obligations  is  included  in
     long-term debt.  Inmarsat has hedged its  obligations  through various
     foreign  exchange  transactions  to minimize the effect of fluctuating
     interest and exchange rates (see Note 14).

     The corporation's  share of the payments under these lease obligations
     for each of the next five years is $19,130,000 in 1998, $19,616,000 in
     1999,  $20,765,000 in 2000,  $21,450,000 in 2001,  $12,222,000 in 2002
     and $29,402,000  thereafter.  These payments include interest totaling
     $26,081,000 and a current maturity of $13,785,000.

7.   MONTHLY INCOME PREFERRED SECURITIES

     In  July  1995,   COMSAT  Capital  I,  L.P.  (COMSAT  Capital)  issued
     $200,000,000 of Monthly Income  Preferred  Securities  (MIPS).  COMSAT
     Capital  is a  limited  partnership  formed  for the sole  purpose  of
     issuing  the MIPS and loaning the  proceeds  to COMSAT,  the  managing
     general partner. The MIPS were issued at a par value of $25 per share,
     and  dividends  are payable  monthly at an annual rate of 8.125%.  The
     MIPS are callable by the issuer after July 2000 at par value.

     The  proceeds of the MIPS were  loaned to COMSAT  under the terms of a
     8.125%,  30-year  subordinated  debenture  agreement.  This  agreement
     allows  COMSAT to extend the  maturity of the  debentures  until 2044,
     provided that COMSAT satisfies  certain  financial  covenants.  COMSAT
     Capital  has been  consolidated  in the  financial  statements  of the
     corporation  since the third  quarter of 1995.  The loan  between  the
     partnership  and  COMSAT has been  eliminated  in  consolidation.  The
     $200,000,000  of  MIPS  is  shown  on the  corporation's  consolidated
     balance  sheet as "preferred  securities  issued by  subsidiary."  The
     dividends  on these  securities  are  recorded  as  minority  interest
     expense of  $16,250,000,  $16,250,000 and $7,358,000 in 1997, 1996 and
     1995, respectively,  and are included in "Other income (expense), net"
     on the income statement.


                                     57

<PAGE>



8.   COMMITMENTS AND CONTINGENCIES

     PROPERTY AND EQUIPMENT.  As of December 31, 1997, the  corporation had
     commitments to acquire property and equipment  totaling  $194,543,000.
     Of this  total,  $166,957,000  is payable  over the next three  years.
     These commitments are related  principally to the corporation's  share
     of INTELSAT and Inmarsat satellite acquisition programs.

     LEASES.  The  corporation  leases  its  headquarters  building  from a
     partnership in which the corporation owns a 50% interest.  The initial
     term of the lease expires in 2008. In addition to lease payments,  the
     corporation is responsible for taxes, insurance and maintenance of the
     building.  The  corporation  also has  leases  of other  property  and
     equipment.  Rental expense under  operating  leases was $10,242,000 in
     1997,  $5,179,000 in 1996 and  $5,096,000  in 1995.  The future rental
     payments under operating  leases are $17,677,000 in 1998,  $19,858,000
     in 1999, $21,874,000 in 2000, $13,607,000 in 2001, $13,645,000 in 2002
     and $55,317,000 thereafter.

     GOVERNMENT CONTRACTS. The corporation and its subsidiaries are subject
     to, and are currently a party to, audits and investigations by various
     agencies which oversee  contract  performance  in connection  with the
     corporation's  contracts with the U.S. Government.  If the corporation
     is  found  liable  for  wrongdoing  as a  result  of such an  audit or
     investigation,  the  corporation  could be fined or subjected to other
     punitive actions.

     ENVIRONMENTAL  ISSUES. The corporation  reviews, on a quarterly basis,
     its estimates of costs of compliance with  environmental  laws and the
     cleanup of various sites,  including sites which governmental agencies
     have  designated the corporation as a potentially  responsible  party.
     When it is probable  that  obligations  have been incurred and where a
     minimum cost or a  reasonable  estimate of the cost of  compliance  or
     remediation  can be  determined,  the  applicable  amount is  accrued.
     Because of the uncertainties  associated with environmental assessment
     and  remediation  activities,  future  expense to remediate  currently
     identified sites could be higher than the liability currently accrued.
     Based on currently available information, however, management does not
     believe that any costs incurred in excess of those  currently  accrued
     will have a materially  adverse  effect on the financial  condition of
     the corporation.

     INVESTMENT IN ICO. In 1994, the corporation and Inmarsat  committed to
     invest in ICO (see Note 5). ICO plans to build and operate  spacecraft
     and related  terrestrial  facilities  for the  provision  of worldwide
     mobile  communications via handheld devices.  As of December 31, 1997,
     the   corporation's   investment   totaled   $35,985,000,    and   the
     corporation's share of Inmarsat's  investment totaled $35,800,000.  As
     of December 31, 1997,  the  corporation  had fulfilled its direct and,
     through Inmarsat, its indirect investment commitments to ICO.



                                     58

<PAGE>



     The corporation has applied to the FCC for authority to participate as
     an investor and service provider in ICO. In acting on the application,
     which is being opposed by ICO's  competitors,  the FCC will  determine
     whether  the  corporation  satisfies  the  requisite  legal and policy
     criteria to  participate  in ICO. The  corporation  believes  that all
     necessary  operating  authorizations  with  respect  to  ICO  will  be
     obtained,  although the FCC may condition the use of ICO telephones in
     the U.S. on  reciprocal  access by ICO's U.S.  competitors  to foreign
     markets. In addition,  the provision of ICO service in the U.S. may be
     subject to the availability of adequate spectrum on an economic basis.

     In May 1996 TRW,  Inc.  (TRW) filed a lawsuit  against ICO in the U.S.
     District  Court  for  the  Central  District  of  California   seeking
     injunctive relief and unspecified  monetary damages.  The lawsuit,  as
     amended, alleged that the proposed ICO satellite system would infringe
     two  patents  held by TRW. In  December  1997,  TRW and ICO reached an
     agreement that settled this dispute.

9.   REGULATORY ENVIRONMENT AND LITIGATION

     REGULATORY  ENVIRONMENT.  Under the Communications Act of 1934 and the
     Communications  Satellite Act of 1962, as amended,  the corporation is
     subject  to  regulation  by the FCC  with  respect  to  communications
     facilities  and  services  provided  through the INTELSAT and Inmarsat
     systems and to the rates charged for those services. In addition,  the
     telecommunications companies which the corporation operates in various
     developing countries are subject to regulation by the local regulatory
     bodies in those countries. Because the regulatory environment in those
     countries is rapidly  evolving as the local  economies are developing,
     these companies face  increasing  business  uncertainties  which could
     have an adverse effect on their operations in those countries.

     Until 1985, the corporation was, with minor exceptions,  the sole U.S.
     provider of  international  fixed satellite  communications  services.
     Since then, the FCC has  authorized  several  international  satellite
     systems separate from INTELSAT.  These separate U.S. systems currently
     compete against the corporation for voice, video and data traffic.  In
     1993,  the FCC  substantially  eliminated  prior  restrictions  on the
     ability  of  separate  systems  to  offer  public  switched  telephony
     services,  thereby  increasing  competition to the  corporation in the
     voice market.  The remaining FCC  restrictions on competitive  systems
     expired on December 31, 1996.

     In April 1997, the corporation  petitioned the FCC for  classification
     as a non-dominant carrier and for regulatory forbearance. The petition
     requests  that  limits  on  the  corporation's   rate  of  return  and
     structural separation requirements be removed and that the corporation
     be allowed to change its tariff rates and  introduce new services over
     the INTELSAT satellite system on one-day notice. The petition has been
     opposed by certain of the corporation's competitors and customers. The
     corporation expects that the FCC will act on the petition in 1998, but
     cannot  predict with accuracy the outcome and timing of FCC regulatory
     action nor  whether  the FCC may impose  conditions  on a grant of the
     corporation's petition, such as allowing customers some form of direct
     access to the INTELSAT system,  abrogating  certain  provisions of the
     corporation's   inter-carrier  agreements  with  its  largest  carrier
     customers or requiring the  corporation  to waive its  privileges  and
     immunities as an INTELSAT signatory.

                                     59

<PAGE>

     In  May  1996,   the   corporation   received   authority  to  provide
     communication  services,  including  Planet 1 and  other  land  mobile
     services outside of North America, over the Inmarsat-3 satellites. The
     corporation has applied to the FCC for authorization to offer Planet 1
     and other mobile services in the U.S. Those  applications,  which have
     been opposed by certain of the corporation's competitors,  are pending
     before the FCC.

     LITIGATION.  The  corporation  and its  subsidiaries  are a  party  to
     various  lawsuits  and  arbitration  proceedings  and are  subject  to
     various  claims and inquiries,  which  generally are incidental to the
     ordinary  course of its  business.  The  outcome of legal  proceedings
     cannot be  predicted  with  certainty.  Based on  currently  available
     information,  however, management does not believe that the outcome of
     any matter which is pending or threatened,  either  individually or in
     the  aggregate,   will  have  a  materially   adverse  effect  on  the
     consolidated   financial   condition  of  the  corporation  but  could
     materially affect  consolidated  results of operations in a given year
     or quarter.

     The FCC has adopted a rule  requiring any common carrier that provides
     interstate  service in the U.S. to contribute  to a universal  service
     fund  based  on  the  carrier's  total  interstate  and  international
     revenues. In addition to its international  services,  the corporation
     provides a small amount of interstate services which the FCC has ruled
     makes the corporation  subject to the full contribution  requirements.
     The  corporation  has appealed  the FCC's ruling to the U.S.  Court of
     Appeals for the Fifth  Circuit and has also  petitioned  the FCC for a
     partial waiver of the  contribution  requirement.  If the  corporation
     were to lose both  proceedings,  the corporation  would be required to
     make contributions  estimated at between $4,000,000 and $5,000,000 per
     year, based on its 1997 interstate and international  revenues,  which
     is more than its annual interstate revenues.

10.  COMMON STOCK

     EARNINGS PER SHARE.  The  corporation  has  implemented  SFAS No. 128,
     "Earnings  Per Share," which is effective  for fiscal  periods  ending
     after December 15, 1997.  Accordingly,  the  corporation  has restated
     earnings (loss) per share amounts for all prior periods reported. SFAS
     No. 128 requires the  presentation  of basic  earnings per share (EPS)
     and  diluted  earnings  per share,  instead of the  primary  and fully
     diluted EPS that was required by Accounting Principles Board No. 15.

                                     60

<PAGE>



     The  following  reconciliation  illustrates  the  calculation  of  the
     corporation's basic and diluted earnings per share amounts:

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>

     In thousands, except per share amounts                            1997            1996            1995
     -------------------------------------------------------------------------------------------------------
     Income from continuing operations before
       extraordinary item                                       $    28,568     $    36,197     $    43,507
                                                                ============    ============    ============

     Basic:
       Weighted average shares                                       48,924          47,870          46,848
                                                                ============    ============    ============
         Per share                                              $      0.58     $      0.76     $      0.93
                                                                ============    ============    ============

     Assuming dilution:
       Weighted average shares                                       48,924          47,870          46,848
       Stock options                                                    766             647             410
       Restricted stock awards and units                                313             402             539
                                                                ------------    ------------    ------------
       Total                                                         50,003          48,919          47,797
                                                                ============    ============    ============
         Per share                                              $      0.57     $      0.74     $      0.91
                                                                ============    ============    ============

</TABLE>

     STOCK INCENTIVE  PLANS. The corporation has stock incentive plans that
     provide for the issuance of stock  options,  restricted  stock awards,
     stock  appreciation  rights and  restricted  stock  units.  A total of
     6,441,000  shares of common  stock may be  granted  under the  current
     plans.  As of December 31, 1997,  133,000 shares of the  corporation's
     treasury stock and 6,308,000  unissued common shares were reserved for
     these plans.  As of December 31, 1997,  no stock  appreciation  rights
     were outstanding.

     Adjustments  were made to equitably  increase the number of shares and
     decrease the exercise  price for all  outstanding  stock  options as a
     result of the tax-free spinoff of Ascent. Vested stock options held by
     Ascent  employees  generally  expired  90 days  after  the date of the
     spinoff.  Unvested stock options held by Ascent employees  continue to
     vest as long as the  employee is employed by Ascent and then expire 90
     days after vesting.

     Adjustments  were also made to increase the number of restricted stock
     awards and restricted  stock units  outstanding  for the effect of the
     Ascent spinoff.

     STOCK OPTIONS.  Under the current plans,  the exercise price for stock
     options may not be less than the fair  market  value of the stock when
     granted.  Options  vest over  three  years and  expire  after 10 to 15
     years.  The exercise price of certain  options  granted prior to 1993,
     pursuant to an expired  plan,  is equal to 50% of the market  price on
     the grant date. The cost of these awards, which is the 50% discount to
     market  when  granted,  was  recorded  as  unearned   compensation  in
     stockholders' equity. This unearned compensation has been amortized to
     expense over the three-year vesting period.



                                     61

<PAGE>



     Stock option activity was as follows:
<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>


     In thousands                                                1997            1996            1995
     -------------------------------------------------------------------------------------------------
     Outstanding at January 1                                   4,478           4,415           3,742
       Granted                                                    655             899           1,204
       Exercised                                                 (848)           (481)           (327)
       Canceled                                                  (283)           (355)           (204)
       Adjustment due to Ascent spinoff                         1,150               -               -
                                                                ------          ------          ------
     Outstanding at December 31                                 5,152           4,478           4,415
                                                                ======          ======          ======

     Exercisable at December 31                                 3,300           2,270           1,792
                                                                ======          ======          ======

     Weighted average option exercise price information is as follows:


     Per share                                                   1997            1996             1995
     --------------------------------------------------------------------------------------------------
     Outstanding at January 1                                   $22.20          $22.08          $22.31
       Granted                                                   25.01           19.44           19.31
       Exercised                                                 18.26           17.24           12.80
       Canceled                                                  18.68           20.37           24.00
       Adjustment due to Ascent spinoff                          17.84               -               -
     Outstanding at December 31                                  18.33           22.20           22.08
     Exercisable at December 31                                  18.92           23.00           20.19

     The weighted  average fair value at date of grant for options  granted
     during 1997, 1996 and 1995 was $6.89,  $5.59 and $6.04,  respectively.
     The fair  value of options  at date of grant was  estimated  using the
     Black-Scholes  model  assuming an expected  option life of seven years
     and the following weighted average assumptions:


     Per share                                                   1997            1996            1995
     -------------------------------------------------------------------------------------------------
     Dividend yield                                              3.29%           3.37%           3.29%
     Interest rate                                               6.47            5.70            7.30
     Volatility                                                 37.21           29.47           28.82

</TABLE>

     Stock options outstanding and exercisable at December 31, 1997, are as
     follows:

<TABLE>
<CAPTION>
<S>     <C>                   <C>             <C>                <C>            <C>            <C>

     In thousands, except per share amounts and years
     -----------------------------------------------------------------------------------------------------------

                                  Options Outstanding                       Options Exercisable
                      --------------------------------------------    -------------------------------
                                            Weighted Average
                                      ----------------------------
            Exercise Price         Number         Remaining        Exercise         Number      Weighted Average
                Range           Outstanding     Term in Years       Price        Exercisable     Exercise Price
          ------------------    ------------    -------------    ------------    -----------    ----------------
            $ 4.81 - $ 8.59             211        3.37             $ 6.93               211        $ 6.93
             10.94 -  14.51             829        3.44              14.09               324         13.44
             15.02 -  18.85           1,310        7.52              16.36               670         16.59
             20.06 -  24.44           2,802        7.64              21.37             2,095         21.72
                                ------------                                     -----------
            $ 4.81 - $24.44           5,152        6.24             $18.33             3,300        $18.92
                                ============                                     ===========


</TABLE>

                                     62

<PAGE>



     RESTRICTED  STOCK AWARDS.  Restricted stock awards are shares of stock
     that are subject to restrictions  on their sale or transfer.  In 1997,
     1996  and  1995,  152,470,   66,000  and  91,000   "performance-based"
     restricted  stock awards were granted,  respectively.  The 1997 amount
     includes  an  adjustment  of  outstanding  awards  due to  the  Ascent
     spinoff.  Grantees have record ownership of the underlying securities,
     however all such  securities are subject to forfeiture at the end of a
     two-year  performance period. In addition to the two-year  performance
     period,  the  awards  are  further  subject  to a  three-year  vesting
     schedule.  The  weighted  average  fair  value  at date of  grant  for
     restricted stock awards granted during 1997, 1996 and 1995 was $23.71,
     $18.00  and $19.69  per  share,  respectively,  which in each case was
     equal to the market value of the common stock at the date of grant.

     At the end of the two-year performance period with respect to the 1996
     and 1995 grants,  37,250 and 76,000 shares,  net of amounts forfeited,
     had met the performance  criteria.  The expected cost of all grants is
     amortized over the performance and vesting period. The expense for all
     outstanding  grants  was  $870,000  in  1997,  $1,296,000  in 1996 and
     $939,000 in 1995.

     RESTRICTED  STOCK UNITS.  Restricted stock units entitle the holder to
     receive a  combination  of stock and cash equal to the market price of
     common stock for each unit,  when vested.  These units vest over three
     years. During 1997, 1996 and 1995,  respectively,  54,360,  34,000 and
     71,000  restricted stock units were granted . The 1997 amount includes
     an  adjustment of  outstanding  units due to the Ascent  spinoff.  The
     weighted  average fair value for the units granted  during 1997,  1996
     and 1995 was $25.50, $18.99 and $19.67 per unit,  respectively,  which
     in each case was equal to the market  value of the common stock at the
     date of grant.  Partially vested  restricted  stock units  outstanding
     totaled  110,200 at December  31,  1997,  and 197,000 at December  31,
     1996.  The cost of these  awards  is  amortized  to  expense  over the
     three-year  vesting  period.  The  expense in 1997,  1996 and 1995 was
     $575,000, $924,000 and $679,000, respectively.

     EMPLOYEE  STOCK  PURCHASE  PLAN.  Employees  may  purchase  stock at a
     discount through the  corporation's  Employee Stock Purchase Plan. The
     purchase  price of the  shares is the lower of 85% of the fair  market
     value of the stock on the  offering  date,  or 85% of the fair  market
     value of the stock on the last  business day of each month  throughout
     the one-year  offering  period.  The purchase  price on the respective
     offering dates for 1997, 1996 and 1995, was $21.36 (adjusted to $17.22
     subsequent to Ascent spinoff), $16.04 and $16.74, respectively.

     There were 181,000  shares,  254,000  shares and 236,000 shares issued
     under  this plan at  weighted  average  prices of  $18.26,  $16.03 and
     $16.37  for  the  years  ended  December  31,  1997,  1996  and  1995,
     respectively.  As of December 31, 1997, a total of 1,578,000 shares of
     the  corporation's  unissued  common stock has been  reserved for this
     plan.



                                     63

<PAGE>



     The  weighted  average  fair  value  of the  purchase  rights  granted
     pursuant  to this  plan in 1997,  1996 and 1995 was  $5.95,  $4.07 and
     $4.56,  respectively.  The  fair  value  of each  purchase  right  was
     estimated using the  Black-Scholes  model as of January 1 of each year
     assuming each plan year consisted of 12,  one-month  options,  and the
     following weighted average assumptions:

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>


     Per share                                                   1997            1996            1995
     -------------------------------------------------------------------------------------------------
     Dividend yield                                              3.30%           3.89%           3.15%
     Interest rate                                               5.39            5.11            6.40
     Volatility                                                 35.79           27.33           32.15

</TABLE>


     PRO  FORMA  DISCLOSURES.  Had  stock-based  compensation  cost for the
     corporation's  stock incentive plans been determined based on the fair
     value  at  the  grant  dates  for  awards  under  those   plans,   the
     corporation's  income from continuing  operations before extraordinary
     item  would  have  been  decreased  by   $2,544,000,   $1,928,000  and
     $1,451,000 in 1997, 1996 and 1995,  respectively.  Assuming  dilution,
     the earnings per share for income from  continuing  operations  before
     extraordinary  item would have decreased by $0.05,  $0.04 and $0.03 in
     1997, 1996 and 1995, respectively. The pro forma effect on income from
     continuing  operations  before  extraordinary  item for 1997, 1996 and
     1995 is not  representative  of the pro forma  effect  on income  from
     continuing  operations  before  extraordinary  item  in  future  years
     because  it does not take into  consideration  pro forma  compensation
     expense related to grants made prior to 1995.

11.  PENSION AND OTHER BENEFIT PLANS

     The corporation has a  non-contributory,  defined benefit pension plan
     for  qualifying  employees.  Pension  benefits  are  based on years of
     service and compensation prior to retirement.

     The components of net pension expense (benefit) for each year are:

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>

     In thousands                                                    1997            1996            1995
     ----------------------------------------------------------------------------------------------------------
     Service cost for benefits earned during the year           $   2,205       $   2,590       $   2,606
     Interest cost on projected benefit obligation                  7,690           7,213           6,995
     Credit for actual return on pension plan assets              (28,627)        (15,323)        (23,924)
     Net amortization and deferral                                 18,566           5,981          15,197
                                                                ----------      ----------      ----------
     Net pension expense (benefit)                              $    (166)      $     461       $     874
                                                                ==========      ==========      ==========

</TABLE>

     The corporation recognized a $1,380,000 curtailment gain in the second
     quarter of 1995 which arose from the reduction of pension benefits for
     a group of employees.

                                     64

<PAGE>



     The following table shows the pension plan's obligations and assets as
     well as the liability  recorded in the corporation's  balance sheet at
     each year end:

<TABLE>
<CAPTION>
<S>                                                                            <C>             <C>

     In thousands                                                                      1997            1996
     -------------------------------------------------------------------------------------------------------
     Actuarial present value of benefit obligations:
       Vested benefit obligation                                                $   105,726     $    89,773
                                                                                ============    ============
       Accumulated benefit obligation                                           $   108,108     $    92,095
                                                                                ============    ============

     Actuarial present value of projected benefit obligation for
       service rendered to date                                                 $   119,826     $   103,608
     Pension plan assets at fair value                                              150,874         126,936
                                                                                ------------    ------------
     Plan assets greater than projected benefit obligation                           31,048          23,328
     Unrecognized net gain                                                          (34,273)        (25,512)
     Unrecognized transition asset at January 1, 1986, being
       amortized over 13 years                                                       (1,195)         (2,402)
                                                                                ------------    ------------
     Net pension liability                                                      $    (4,420)    $    (4,586)
                                                                                ============    ============

     Assumed discount rate                                                             7.00%           7.50%
     Assumed rate of compensation increase                                             5.00%           5.00%
     Expected rate of return on pension plan assets                                    9.00%           9.00%


</TABLE>

     The plan's assets consist  primarily of common  stocks,  corporate and
     government bonds and short-term investments.  The corporation's policy
     is to fund the minimum actuarially computed  contributions required by
     law. The corporation  made a $1,065,000 cash  contribution to the plan
     in 1996. No contribution was required for 1997.

     SUPPLEMENTAL   EXECUTIVE  RETIREMENT  PLAN.  The  corporation  has  an
     unfunded  supplemental  pension plan for  executives.  The expense for
     this plan was $2,163,000, $2,817,000 and $2,505,000 for 1997, 1996 and
     1995, respectively.

     The  corporation  recorded a minimum plan  liability for the excess of
     the  accumulated  benefit  obligation over the accrued plan liability.
     This was reported as a reduction to stockholders' equity of $2,222,000
     as of December 31, 1997 and $3,180,000 as of December 31, 1996.  These
     amounts  are net of  deferred  income  taxes and an  intangible  asset
     recorded for the unrecognized transition obligation.



                                     65

<PAGE>



     The  following  table  shows  the  plan's  obligations  as well as the
     liability  recorded in the  corporation's  balance  sheet at each year
     end:

<TABLE>
<CAPTION>
<S>                                                                            <C>             <C>

     In thousands                                                                      1997            1996
     -------------------------------------------------------------------------------------------------------
     Actuarial present value of benefit obligations:
       Accumulated benefit obligation                                           $    19,941     $    20,913
                                                                                ============    ============
       Projected benefit obligation                                             $    21,193     $    22,136
                                                                                ============    ============
     Accrued liability                                                          $    19,941     $    20,913
                                                                                ============    ============

     Assumed discount rate                                                             7.00%           7.50%
     Assumed rate of compensation increase                                             5.00%           5.00%


</TABLE>

     401(K)  PLAN.  The  corporation  has  a  401(k)  plan  for  qualifying
     employees.  A portion  of  employee  contributions  is  matched by the
     corporation  with  shares of its  common  stock.  The number of shares
     contributed  to the plan and the  respective  market  values each year
     were as follows:  1997 - 108,000 shares  ($2,433,000),  1996 - 140,000
     shares ($3,035,000) and 1995 - 177,000 shares ($3,386,000).

     POST-RETIREMENT  BENEFITS.  The  corporation  provides health and life
     insurance benefits to qualifying retirees.  The expected cost of these
     benefits  is  recognized  during the years in which  employees  render
     service.

     The  components of the net  post-retirement  benefit  expense for each
     year were:

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>


     In thousands                                                   1997            1996            1995
     ----------------------------------------------------------------------------------------------------
     Service cost for benefits earned during the year           $    666        $  1,019        $  1,128
     Interest cost on accumulated post-retirement
       benefit obligation                                          1,877           2,496           2,778
     Net amortization and deferral                                (2,360)         (1,219)         (1,241)
                                                                ---------       ---------       ---------
     Net post-retirement benefit expense                        $    183        $  2,296        $  2,665
                                                                =========       =========       =========


</TABLE>

     The corporation recognized a $1,300,000 curtailment gain in the second
     quarter of 1995 which arose from the  elimination  of  post-retirement
     health care benefits for a group of employees.



                                     66

<PAGE>



     The  following  table  shows  the  plan's  obligations  as well as the
     liability  recorded in the  corporation's  balance  sheet at each year
     end.

<TABLE>
<CAPTION>
<S>                                                                            <C>             <C>


     In thousands                                                                    1997            1996
     -----------------------------------------------------------------------------------------------------
     Accumulated post-retirement benefit obligation:
       Retirees                                                                 $  17,022       $  16,792
       Fully eligible active participants                                           4,158           4,038
       Other active participants                                                    7,710           8,630
                                                                                ----------      ----------
       Total                                                                       28,890          29,460
     Unrecognized gain from plan changes                                           13,527          15,368
     Unrecognized net gain                                                          6,829           5,595
                                                                                ----------      ----------
     Net post-retirement benefit liability                                      $  49,246       $  50,423
                                                                                ==========      ==========

     Assumed discount rate                                                           7.00%           7.50%
     Assumed rate of compensation increase                                           5.00%           5.00%

</TABLE>

     An 8.50%  increase  in health care costs was assumed for 1997 with the
     rate  decreasing  0.5%  each  year  to  an  ultimate  rate  of  5.50%.
     Increasing  the  assumed  trend  rate by 1.0%  each  year  would  have
     increased the  accumulated  post-retirement  benefit  obligation as of
     December 31, 1997, by $3,200,000  and the benefit  expense for 1997 by
     $299,200.

12.  INCOME TAXES

     Income   (loss)   from   continuing   operations   before   taxes  and
     extraordinary item consisted of:

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>

     In thousands                                                      1997            1996            1995
     -------------------------------------------------------------------------------------------------------
     United States                                              $    47,927     $    73,707     $    89,724
     Foreign                                                         (3,746)         (8,586)        (10,936)
                                                                ------------    ------------    ------------
     Total                                                      $    44,181     $    65,121     $    78,788
                                                                ============    ============    ============

     The components of income tax expense on continuing operations are:

     In thousands                                                      1997            1996            1995
     -------------------------------------------------------------------------------------------------------
     Federal:
       Current                                                  $    15,783     $    22,910     $    18,301
       Deferred                                                      (2,162)         (1,076)         15,031
       Investment tax credits (net)                                  (1,837)         (1,844)         (2,150)
     State and local                                                  1,487           6,779           4,282
     Foreign                                                          2,342           2,155            (183)
                                                                ------------    ------------    ------------
     Total                                                      $    15,613     $    28,924     $    35,281
                                                                ============    ============    ============


</TABLE>

                                     67

<PAGE>



     The difference  between  income tax expense  computed at the statutory
     Federal tax rate and the corporation's effective tax rate is:

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>

     In thousands                                                      1997            1996            1995
     -------------------------------------------------------------------------------------------------------
     Federal income taxes computed at the statutory rate        $    15,463     $    22,792     $    27,576
     Foreign losses                                                   3,654           4,335           3,951
     Investment tax credits (net)                                    (1,837)         (1,844)         (2,150)
     Losses (income) with no tax benefit                               (839)           (506)          3,833
     State income taxes, net of Federal income tax benefit              972           4,408           2,777
     Life insurance (net)                                            (1,183)         (1,173)           (842)
     Other                                                             (617)            912             136
                                                                ------------    ------------    ------------
     Income tax expense                                         $    15,613     $    28,924     $    35,281
                                                                ============    ============    ============
</TABLE>

     The current and net non-current components of deferred tax accounts as
     shown on the balance sheet at December 31, 1997 and 1996 are:

<TABLE>
<CAPTION>
<S>                                                                            <C>             <C>

     In thousands                                                                      1997            1996
     -------------------------------------------------------------------------------------------------------
     Current deferred tax asset                                                 $     7,469     $     6,050
     Non-current deferred tax liability                                            (112,226)       (112,894)
                                                                                ------------    ------------
     Net liability                                                              $  (104,757)    $  (106,844)
                                                                                ============    ============
</TABLE>

     The deferred tax assets and  liabilities at December 31, 1997 and 1996
     are:

<TABLE>
<CAPTION>
<S>                                                                           <C>              <C>

     In thousands                                                                      1997            1996
     -------------------------------------------------------------------------------------------------------
     Assets:
       Post-retirement benefits                                                 $    22,042     $    22,267
       Accrued expenses                                                              45,803          45,655
       Alternative minimum tax credit                                                30,476          26,887
       Long-term contract revenues                                                    7,946           7,915
       Other                                                                          3,181           3,820
                                                                                ------------    ------------
     Total deferred tax assets                                                      109,448         106,544
                                                                                ------------    ------------
     Liabilities:
       Property and equipment                                                      (214,025)       (209,717)
       Investments - unrealized gains                                                  (180)         (3,501)
       Other                                                                              -            (170)
                                                                                ------------    ------------
     Total deferred tax liabilities                                                (214,205)       (213,388)
                                                                                ------------    ------------
     Net liability                                                              $  (104,757)    $  (106,844)
                                                                                ============    ============

</TABLE>

     The Internal  Revenue Service (IRS) has completed  examinations of the
     Federal income tax returns of the corporation through 1989. The IRS is
     currently   in  the  process  of   completing   examinations   of  the
     corporation's  Federal  income tax returns for 1990 through 1994.  The
     corporation  has also amended its returns and filed claims for refunds
     for 1979 through 1987,  which the IRS has denied.  The  corporation is
     contesting  the  IRS's  denial.  In the  opinion  of the  corporation,
     adequate  provision  has been made for  income  taxes for all  periods
     through 1997.

                                     68

<PAGE>



13.  PROVISION FOR RESTRUCTURING

     In the third  quarter  of 1995,  the  corporation  recorded  a pre-tax
     charge of $3,902,000, net of discontinued operations, to strategically
     restructure  elements of the  business  units  included in  continuing
     operations.  About  110  employees  were  severed  as  part  of  these
     activities.  The provision included  $1,858,000 for employee severance
     costs in COMSAT World  Systems  (CWS),  COMSAT  Mobile  Communications
     (CMC) and COMSAT International (CI), and $2,044,000 to downsize one of
     its divisions at COMSAT Laboratories. The actions taken in CWS and CMC
     were  associated  with  the   consolidation   of  the  management  and
     administration  of these two  businesses  into one business unit. As a
     result,  various  administrative,  marketing and other  positions were
     eliminated.  All  of  the  restructuring  actions  were  substantially
     completed at the end of 1995.

14.  FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISKS

     The  corporation  owns a 50% interest in a partnership  which owns the
     headquarters  building  leased by the  corporation  (see Note 8).  The
     corporation has guaranteed repayment of a portion of the partnership's
     mortgage on the building.  The balance of the guarantee was $1,745,000
     as of December 31, 1997.  The guarantee  will be reduced as the loan's
     principal  balance is repaid.  The corporation  was also  contingently
     liable  to  banks  for  $12,889,000  as  of  December  31,  1997,  for
     outstanding   letters  of  credit  securing   performance  of  certain
     contracts.  The  estimated  fair  value  of these  instruments  is not
     significant.

     Inmarsat  has entered  into  foreign  currency  contracts  designed to
     minimize  exposure to exchange rate  fluctuations  on fixed  operating
     expenses denominated primarily in British pounds sterling. At December
     31, 1997, Inmarsat had several contracts maturing primarily in 1998 to
     purchase   foreign   currency  for  a  total  of   $119,714,000.   The
     corporation's share of the estimated fair value of these contracts, as
     determined  by  a  bank,  is  an  unrealized  gain  of   approximately
     $1,319,000 at December 31, 1997.

     Inmarsat  has entered into  interest  rate and foreign  currency  swap
     arrangements  to minimize  the  exposure to interest  rate and foreign
     currency  exchange  fluctuations  related to its  satellite  financing
     obligations.  Inmarsat  borrowed  and is  obligated  to  repay  pounds
     sterling.  The pounds sterling  borrowed were swapped for U.S. dollars
     with an agreement to exchange the dollars for pounds sterling in order
     to meet the future  lease  payments.  Inmarsat  pays  interest  on the
     dollars at an average  fixed rate of 8.8%,  and it  receives  variable
     interest on the sterling  amounts based on short-term LIBOR rates. The
     differential  to be paid or  received  is  accrued as  interest  rates
     change and is recognized over the life of the agreements. The currency
     swap  arrangements  have been  designated as hedges,  and any gains or
     losses are  included  in the  measurement  of the debt.  The effect of
     these  swaps  is  to  change  the  sterling  lease   obligation   into
     fixed-interest-rate dollar debt. As of December 31, 1997, Inmarsat had
     $367,060,000 of swaps to be exchanged for (pound)233,615,000  sterling
     at various dates  through 2007.  Inmarsat is exposed to loss if one or
     more of the  counter  parties  defaults.  However,  Inmarsat  does not
     anticipate  non-performance  by the  counter  parties as all are major
     financial institutions.  The corporation's share of the estimated fair
     value of these swaps is an unrealized loss of

                                     69

<PAGE>



     $8,427,000  at December  31,  1997.  The fair value was  estimated  by
     computing  the present value of the dollar  obligations  using current
     rates  available  for  issuance  of debt  with  similar  terms and the
     current value of the sterling at year-end exchange rates.

     The fair value of long-term debt (excluding  capitalized leases) shown
     below was estimated by obtaining a yield-adjusted price as of December
     31, 1997, for each obligation from an investment banker.

<TABLE>
<CAPTION>
<S>                                                                            <C>             <C>

                                                                                      Book            Fair
     In thousands                                                                    Amount          Value
     -----------------------------------------------------------------------------------------------------
     8.125% notes due 2004                                                      $    70,475    $    74,971
     8.95% notes due 2001                                                            75,000         80,123
     INTELSAT bonds                                                                 170,572        180,425
     Medium-term notes                                                               64,000         69,035

</TABLE>

     The fair values of the remaining long-term debt not itemized above and
     the corporation's other financial  instruments are approximately equal
     to their carrying values.

15.  BUSINESS SEGMENT INFORMATION

     The corporation  reports  operating  results and financial data in two
     business  segments:  Satellite  Services  and  Network  Services.  The
     Satellite  Services segment  consists of activities  undertaken by the
     corporation  in its  COMSAT  World  Systems  (CWS) and  COMSAT  Mobile
     Communications  (CMC) businesses.  CWS provides voice, data, video and
     audio  communications  services  between the U.S. and other  countries
     using the INTELSAT satellite  network.  CMC provides voice, data, fax,
     telex and  information  services  for ships,  aircraft and land mobile
     applications throughout the world using the Inmarsat satellite system.

     The Network Services segment consists of activities  undertaken by the
     corporation  in its COMSAT  International  (CI),  COMSAT  Laboratories
     (Labs) and  Government  Programs  business.  CI operates an integrated
     group of telecommunications  companies that are engaged principally in
     providing individualized digital network solutions to business clients
     and carriers in high-growth  emerging markets overseas.  Labs provides
     technical consulting in the design and development of advanced digital
     communication  technologies  and also  designs,  develops and licenses
     communication   products  for  satellite   access,   compression   and
     networking  applications.  Government Programs includes the Commercial
     Satellite Communications Initiative (CSCI) contract, Satellite Control
     Facility and Special  Program  Office.  Labs and  Government  Programs
     results  now  include  certain  non-manufacturing,  telecommunications
     contracts and businesses that were previously reported as part of CRSI
     in the Technology Services segment.


                                     70

<PAGE>

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>


     SEGMENT INFORMATION


     In thousands                                                       1997            1996           1995
     -------------------------------------------------------------------------------------------------------

     REVENUES (1)
     ------------
     Satellite Services:
         World Systems                                          $    262,906    $    272,969    $   254,683
         Mobile Communications                                       167,850         160,922        180,384
                                                                -------------   -------------   ------------
         Total Satellite Services                                    430,756         433,891        435,067
                                                                -------------   -------------   ------------

     Network Services:
         International                                                89,661          58,084         37,708
         Laboratories                                                 36,371          43,686         25,924
         Government Programs                                          44,048          40,716         26,761
                                                                -------------   -------------   ------------
         Total Network Services                                      170,080         142,486         90,393

     Eliminations and other                                          (38,185)        (31,277)       (17,773)
                                                                -------------   -------------   ------------
         Total                                                  $    562,651    $    545,100    $   507,687
                                                                =============   =============   ============

     OPERATING INCOME (LOSS) (2)
     ---------------------------
     Satellite Services:
         World Systems                                          $    100,408    $    104,593    $   109,815
         Mobile Communications                                        23,114          31,872         54,864
                                                                -------------   -------------   ------------
         Total Satellite Services                                    123,522         136,465        164,679
                                                                -------------   -------------   ------------
    Network Services:
         International                                               (13,975)        (17,281)       (20,708)
         Laboratories                                                 (2,043)          7,098         (4,004)
         Government Programs                                            (434)          5,126          6,586
                                                                -------------   -------------   ------------
         Total Network Services                                      (16,452)         (5,057)       (18,126)
                                                                -------------   -------------   ------------

         Total segment operating income                              107,070         131,408        146,553
     Provision for restructuring (3)                                       -               -         (3,902)
     General and administrative expenses                             (23,247)        (23,941)       (19,856)
     Other                                                            (1,855)           (242)        (2,981)
                                                                -------------   -------------   ------------
         Total                                                  $     81,968    $    107,225    $   119,814
                                                                =============   =============   ============


</TABLE>


                                     71

<PAGE>



     SEGMENT INFORMATION (CONTINUED)


<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>

     In thousands                                                       1997            1996           1995
     -------------------------------------------------------------------------------------------------------

     IDENTIFIABLE ASSETS AS OF DECEMBER 31:
     Satellite Services:
         World Systems                                          $    742,908    $    791,497    $   832,823
         Mobile Communications                                       436,886         440,856        418,878
                                                                -------------   -------------   ------------
         Total Satellite Services                                  1,179,794       1,232,353      1,251,701
                                                                -------------   -------------   ------------

     Network Services:
         International                                               308,148         199,510        116,861
         Laboratories                                                 12,183          14,643          8,895
         Government Programs                                          18,430          17,149         11,597
                                                                -------------   -------------   ------------
         Total Network Services                                      338,761         231,302        137,353

     Corporate and other assets (4)                                  376,220         633,631        633,193
                                                                -------------   -------------   ------------
         Total                                                  $  1,894,775    $  2,097,286    $ 2,022,247
                                                                =============   =============   ============

     PROPERTY AND EQUIPMENT ADDITIONS:
     Satellite Services:
         World Systems                                          $     87,939    $    110,231    $   137,762
         Mobile Communications                                        54,457          70,616         39,795
                                                                -------------   -------------   ------------
         Total Satellite Services                                    142,396         180,847        177,557
                                                                -------------   -------------   ------------

     Network Services:
         International                                               114,110          89,857         41,025
         Laboratories                                                  1,173           1,009          1,439
         Government Programs                                             181               -              -
                                                                -------------   -------------   ------------
         Total Network Services                                      115,464          90,866         42,464

     Corporate and other assets                                        1,639           1,193            717
                                                                -------------   -------------   ------------
         Total                                                  $    259,499    $    272,906    $   220,738
                                                                =============   =============   ============

     DEPRECIATION AND AMORTIZATION:
     Satellite Services:
         World Systems                                          $     97,379    $     91,729    $    87,980
         Mobile Communications                                        57,204          45,207         40,096
                                                                -------------   -------------   ------------
         Total Satellite Services                                    154,583         136,936        128,076
                                                                -------------   -------------   ------------

     Network Services:
         International                                                25,623          14,814          8,244
         Laboratories                                                    991             956          1,242
         Government Programs                                             442             456            910
                                                                -------------   -------------   ------------
         Total Network Services                                       27,056          16,226         10,396

     Corporate and other assets                                        2,567           2,134          2,285
                                                                -------------   -------------   ------------
         Total                                                  $    184,206    $    155,296    $   140,757
                                                                =============   =============   ============

</TABLE>

                                     72

<PAGE>



     (1)  World  Systems'  revenues  include  intersegment  sales  totaling
          $20,773,000 in 1997,  $15,931,000 in 1996 and $7,124,000 in 1995.
          The  Laboratories  revenues include  intersegment  sales totaling
          $11,820,000 in 1997,  $11,368,000 in 1996 and $8,596,000 in 1995.
          Intersegment sales for other segments are not significant.

     (2)  The method of allocating  certain research and development  costs
          was changed in 1997, and prior years'  segment  results have been
          restated for this change.

     (3)  If the 1995  provision for  restructuring  (see Note 13) had been
          charged to segment  operating  income,  the amounts  allocated to
          each segment  would have been:  World  Systems  $315,000,  Mobile
          Communications    $1,343,000,    International    $200,000    and
          Laboratories $2,044,000.

     (4)  The  corporation's  net  assets of  discontinued  operations  and
          investments   in   unconsolidated   businesses  are  included  in
          Corporate and other assets.

     GEOGRAPHIC INFORMATION. COMSAT International operations are located in
     Latin America,  India, China, Russia and Turkey.  Revenues,  operating
     income  and  identifiable  assets  for  COMSAT  International's  Latin
     American operations are as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>             <C>             <C>

     In thousands                                                    1997            1996            1995
     ----------------------------------------------------------------------------------------------------
     Revenues                                                   $  80,217       $  50,464       $  26,701
     Operating income                                               2,947           3,064             902
     Identifiable assets at December 31                           252,764         160,615          76,163

</TABLE>

     RELATED PARTY TRANSACTIONS.  The corporation provides support services
     to INTELSAT and support  services and satellite  capacity to Inmarsat.
     The revenues from these services were $16,364,000 in 1997, $17,996,000
     in  1996  and  $22,208,000  in  1995.  These  revenues  were  recorded
     primarily in World Systems, Mobile Communications and Laboratories.

     SIGNIFICANT CUSTOMERS.  Revenues in 1997, 1996 and 1995 included sales
     to the U.S. Government of $88,917,000, $70,502,000 and $55,855,000, to
     AT&T  of  $61,044,000,  $69,197,000  and  $81,866,000,  and  to MCI of
     $59,634,000, $57,261,000 and $59,001,000, respectively.  Substantially
     all of the U.S. Government sales are reported in Mobile Communications
     and Government  Programs.  Substantially  all of the sales to AT&T and
     MCI are reported in World Systems and Mobile Communications.


                                     73

<PAGE>


<TABLE>
<CAPTION>
<S>                                               <C>            <C>            <C>            <C>            <C>

16.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)


     In thousands, except per share amounts       1st Quarter   2nd Quarter    3rd Quarter     4th Quarter    Total Year
     -----------------------------------------------------------------------------------------------------------------------
     1997:
     Revenues                                     $  133,531    $  142,437     $  145,332      $  141,351     $  562,651
     Operating income                                 23,151        23,412         17,653          17,752         81,968
     Income from continuing operations
       before extraordinary item                       8,099         9,098 (1)      9,395 (2)       1,976 (1)     28,568
     Loss from discontinued operations               (12,380)      (16,481)       (30,207)        (30,000)       (89,068)
     Extraordinary loss                               (1,010)       (2,936)             -               -         (3,946)
     Net income (loss)                                (5,291)      (10,319)       (20,812)        (28,024)       (64,446)
     Earnings (loss) per share:
       Basic:
         Income from continuing operations
           before extraordinary item                    0.17          0.19           0.19            0.04           0.58
         Loss from discontinued operations             (0.26)        (0.34)         (0.62)          (0.61)         (1.82)
         Extraordinary item                            (0.02)        (0.06)             -               -          (0.08)
         Net income (loss)                             (0.11)        (0.21)         (0.42)          (0.57)         (1.32)
       Assuming Dilution:
         Income from continuing operations
           before extraordinary item                    0.16          0.18           0.19            0.04           0.57
         Loss from discontinued operations             (0.25)        (0.33)         (0.60)          (0.59)         (1.78)
         Extraordinary item                            (0.02)        (0.06)             -               -          (0.08)
         Net income (loss)                             (0.11)        (0.21)         (0.41)          (0.55)         (1.29)
     Dividends per share                               0.195          0.05           0.05            0.05          0.345
     Stock price:
       High                                               28 1/2        26 11/16       24 5/16         25 3/4         28 1/2
       Low                                                23            19 5/8         20 13/16        20 5/16        19 5/8
       Close                                              24 3/8        23 13/16       23 13/16        24 1/4         24 1/4
     -----------------------------------------------------------------------------------------------------------------------
     1996:
     Revenues                                     $  128,192    $  132,718     $  141,914 (3)  $  142,276     $  545,100
     Operating income                                 27,386        26,217         30,912          22,710        107,225
     Income from continuing operations                11,142         8,332          8,208           8,515 (4)     36,197
     Loss from discontinued operations                (1,815)       (2,550)        (3,171)        (20,039)       (27,575)
     Net income (loss)                                 9,327         5,782          5,037         (11,524)         8,622
     Earnings (loss) per share:
       Basic:
         Income from continuing operations              0.23          0.17           0.17            0.18           0.76
         Loss from discontinued operations             (0.04)        (0.05)         (0.07)          (0.42)         (0.58)
         Net income (loss)                              0.20          0.12           0.10           (0.24)          0.18
       Assuming Dilution:
         Income from continuing operations              0.23          0.17           0.17            0.17           0.74
         Loss from discontinued operations             (0.04)        (0.05)         (0.07)          (0.41)         (0.56)
         Net income (loss)                              0.19          0.12           0.10           (0.24)          0.18
     Dividends per share                               0.195         0.195          0.195           0.195           0.78
     Stock price:
       High                                               25 5/8        33 1/8         26 1/2          26 3/4         33 1/8
       Low                                                16 3/4        23 3/8         18 3/4          21 1/2         16 3/4
       Close                                              23 3/8        26             22 5/8          24 5/8         24 5/8

</TABLE>

     (1)  The second and fourth  quarters of 1997 include a pre-tax gain of
          $1,987,000  from the sale of marketable  securities and a pre-tax
          loss  of  $1,008,000  for a  decline  in  value  of a  marketable
          security, respectively.
     (2)  The third  quarter of 1997  includes a pre-tax gain of $7,261,000
          from a sale of land.
     (3)  Revenues  in the third  quarter  of 1996  include  $7,800,000  in
          royalties  related to a licensing  agreement that resolved patent
          infringement disputes.
     (4)  The fourth  quarter of 1996 includes a pre-tax gain of $2,722,000
          from the  corporation's  sale of ICO shares and a pre-tax loss of
          $1,105,000 for a decline in value of a marketable security.

                                     74

<PAGE>




ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.  None.

                                  PART III

     Except for the portion of Item 10 relating to Executive Officers which
is included in Part I of this Report,  the information  called for by Items
10-13 is incorporated by reference from the COMSAT - 1998 Annual Meeting of
Shareholders  - Notice  and  Proxy  Statement  - (to be filed  pursuant  to
Regulation  14A not later than 120 days after the close of the fiscal year)
which  meeting  involves  the election of  directors,  in  accordance  with
General Instruction G to the Annual Report on Form 10-K.

ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT
ITEM 11.  EXECUTIVE COMPENSATION
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


                                  PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

          (a)  Documents filed as part of this Report

               1.     Consolidated  Financial  Statements and Supplementary
                      Data of Registrant

                      a.     Independent  Auditors' Report

                      b.     Consolidated  Financial  Statements  of COMSAT
                             Corporation and Subsidiaries

                             (i)     Consolidated Income Statements for the
                                     Years Ended  December 31,  1997,  1996
                                     and 1995

                             (ii)    Consolidated   Balance  Sheets  as  of
                                     December 31, 1997 and 1996

                             (iii)   Consolidated  Cash Flow Statements for
                                     the Years  Ended  December  31,  1997,
                                     1996 and 1995

                             (iv)    Statements of Changes in  Consolidated
                                     Stockholders'  Equity  for  the  Years
                                     Ended December 31, 1997, 1996 and 1995

                             (v)     Notes   to   Consolidated    Financial
                                     Statements   for   the   Years   Ended
                                     December 31, 1997, 1996 and 1995


                                       75

<PAGE>


               2.     Financial   Statement   Schedule   Relating   to  the
                      Consolidated    Financial    Statements   of   COMSAT
                      Corporation for Each of the Three Years in the Period
                      Ended December 31, 1997

                      a.     Schedule  II  --  Valuation   and   Qualifying
                             Accounts

                      All  Schedules  (except  as listed  above)  have been
                      omitted,  because  they  are  not  applicable  or not
                      required  or  because  the  required  information  is
                      included  elsewhere in the  financial  statements  in
                      this filing.

          (b)  Reports on Form 8-K

                      The  corporation  filed a Report  on Form  8-K  dated
                      October  22,  1997  related  to  the  release  of the
                      corporation's   financial  results  for  the  quarter
                      ending September 30, 1997.

          (c)  Exhibits  (listed  according  to the number  assigned in the
               table in Item 601 of Regulation S-K)

EXHIBIT NO. 3 - ARTICLES OF INCORPORATION AND BY-LAWS

          3.1         Articles of  Incorporation  of Registrant,  composite
                      copy, as amended  through June 1, 1993  (Incorporated
                      by reference  from  Exhibit No. 4(a) to  Registrant's
                      Registration  Statement  on Form S-3  (No.  33-51661)
                      filed on December 22, 1993)

          3.2         By-laws of Registrant,  as amended  through  February
                      16, 1996  (Incorporated by reference from Exhibit No.
                      3.2 to  Registrant's  Report  on  Form  10-K  for the
                      fiscal year ended 1995)

          3.3         Regulations   adopted   by   Registrant's   Board  of
                      Directors pursuant to Section 5.02(c) of Registrant's
                      Articles of Incorporation  (Incorporated by reference
                      from Exhibit No. 3(c) to Registrant's  Report on Form
                      10-K for the fiscal year ended 1992)

EXHIBIT NO. 4 - INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
  INCLUDING INDENTURES

          4.1         Specimen  of  a  certificate  representing  Series  I
                      shares of COMSAT  Common  Stock,  without  par value,
                      which  are  held by  citizens  of the  United  States
                      (Incorporated  by reference  from Exhibit No. 4(a) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1993)

          4.2         Specimen  of  a  certificate  representing  Series  I
                      shares of COMSAT  Common  Stock,  without  par value,
                      which are held by aliens  (Incorporated  by reference
                      from Exhibit No. 4(b) to Registrant's  Report on Form
                      10-K for the fiscal year ended December 31, 1982)


                                     76

<PAGE>



          4.3         Specimen  of a  certificate  representing  Series  II
                      shares  of COMSAT  Common  Stock,  without  par value
                      (Incorporated  by reference  from Exhibit No. 4(c) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1982)

          4.4         Standard  Multiple-Series  Indenture Provisions dated
                      March  15,  1991   (Incorporated  by  reference  from
                      Exhibit   No.  4(a)  to   Registrant's   Registration
                      Statement on Form S-3 (No.  33-39472)  filed on March
                      15, 1991)

          4.5         Indenture   dated  as  of  March  15,  1991   between
                      Registrant  and  The  Chase   Manhattan   Bank,  N.A.
                      (Incorporated  by reference  from Exhibit No. 4(b) to
                      Registrant's  Registration Statement on Form S-3 (No.
                      33-39472) filed on March 15, 1991)

          4.6         Supplemental  Indenture,  dated as of June 29,  1994,
                      from the Registrant to The Chase  Manhattan  Bank, N.
                      A.  (Incorporated  by reference from Exhibit No. 4(c)
                      to  Registrant's  Registration  Statement on Form S-3
                      (No. 33-54369) filed on June 30, 1994)

          4.7         Officers' Certificate pursuant to Section 3.01 of the
                      Indenture,  dated  as of  March  15,  1991,  from the
                      Registrant  to The Chase  Manhattan  Bank,  N.A.,  as
                      Trustee, relating to the authorization of $75,000,000
                      aggregate  principal  amount  of  Registrant's  8.95%
                      Notes  Due  2001   (with   form  of  Note   attached)
                      (Incorporated  by  reference  from  Exhibit  No. 4 to
                      Registrant's  Current Report on Form 8-K filed on May
                      15, 1991)

          4.8         Officers' Certificate pursuant to Section 3.01 of the
                      Indenture,  dated  as of  March  15,  1991,  from the
                      Registrant  to The Chase  Manhattan  Bank,  N.A.,  as
                      Trustee,    relating   to   the    authorization   of
                      $160,000,000    aggregate    principal    amount   of
                      Registrant's 8.125% Debentures Due 2004 (with form of
                      Debenture  attached)  (Incorporated by reference from
                      Exhibit No. 4 to Registrant's  Current Report on Form
                      8-K filed on April 9, 1992)

          4.9         Officers' Certificate pursuant to Section 3.01 of the
                      Indenture,   dated  as  of   March   15,   1991,   as
                      supplemented by the Supplemental Indenture,  dated as
                      of June 29, 1994,  from the  Registrant  to The Chase
                      Manhattan  Bank,  N.A.,  as Trustee,  relating to the
                      authorization  of  $100,000,000  aggregate  principal
                      amount of  Registrant's  Medium Term Notes,  Series A
                      (with  forms  of  Notes  attached)  (Incorporated  by
                      reference  from  Exhibit  No.  4(i)  to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1994)

          4.10        Limited  Partnership  Agreement of COMSAT  Capital I,
                      L.P., dated as of July 18, 1995, relating to issuance
                      of monthly income preferred securities  (Incorporated
                      by reference  from  Exhibit No. 4(a) to  Registrant's
                      Report on Form 10-Q for the  quarter  ended  June 30,
                      1995)


                                     77

<PAGE>



          4.11        Guarantee  Agreement  for  Preferred   Securities  of
                      COMSAT  Capital  I, L.P.,  dated as of July 18,  1995
                      (Incorporated  by reference  from Exhibit No. 4(b) to
                      Registrant's  Report  on Form  10-Q  for the  quarter
                      ended June 30, 1995)

          4.12        Indenture  between  Registrant and the First National
                      Bank of  Chicago,  as  Trustee,  dated as of July 18,
                      1995 (Incorporated by reference from Exhibit No. 4(c)
                      to  Registrant's  Report on Form 10-Q for the quarter
                      ended June 30, 1995)

EXHIBIT NO. 10 - MATERIAL CONTRACTS

          10.1        Agreement     relating    to    the     International
                      Telecommunications  Satellite Organization (INTELSAT)
                      by Governments,  which entered into force on February
                      12, 1973  (Incorporated by reference from Exhibit No.
                      10(a) to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1980)

          10.2        Operating   Agreement   relating   to   INTELSAT   by
                      Governments  which entered into force on February 12,
                      1973  (Incorporated  by  reference  from  Exhibit No.
                      10(b) to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1980)

          10.3        Agreement dated August 15, 1975, among COMSAT General
                      Corporation, RCA Global Communications, Inc., Western
                      Union    International,    Inc.    and   ITT    World
                      Communications, Inc. relating to the establishment of
                      a joint venture for the purpose of  participating  in
                      the   ownership   and   operation   of   a   maritime
                      communications  satellite  system and Amendment  Nos.
                      1-4  and   Amendment  No.  5  dated  March  24,  1980
                      (Incorporated  by reference from Exhibit No. 10(p) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1980)

          10.4        Amendment  No. 6 to Exhibit  10.3 dated  September 1,
                      1981  (Incorporated  by  reference  from  Exhibit No.
                      10(p)(ii) to Registrant's Report on Form 10-K for the
                      fiscal year ended December 31, 1981)

          10.5        Convention on the  International  Maritime  Satellite
                      Organization   (INMARSAT)  dated  September  3,  1976
                      (Incorporated  by  reference  from  Exhibit No. 11 to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1978)

          10.6        Operating  Agreement on INMARSAT  dated  September 3,
                      1976  (Incorporated  by reference from Exhibit No. 12
                      to  Registrant's  Report on Form 10-K for the  fiscal
                      year ended December 31, 1978)

          10.7*       Registrant's 1982 Stock Option Plan  (Incorporated by
                      reference  from  Exhibit  No.  10(x) to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1981)

          10.8*       Registrant's   Insurance  and  Retirement   Plan  for
                      Executives, as amended and restated effective January
                      1, 1997  (Incorporated  by reference from Exhibit No.

                                     78

<PAGE>


                      10.10  to  Registrant'sReport  on Form  10-K  for the
                      fiscal year ended December 31, 1997)

          10.9*       Registrant's   Non-Employee   Directors   Stock  Plan
                      (Incorporated  by reference from Exhibit No. 10.11 to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1996)

          10.10       Agreement  to  Acquire  and Lease  (and  Supplemental
                      Agreements  thereto)  dated  September 28 and October
                      10,  1988,  respectively,   among  the  International
                      Maritime Satellite Organization (Inmarsat), the North
                      Sea Marine Leasing Company,  British Aerospace Public
                      Limited  Company,   the  European   Investment  Bank,
                      Kreditanstalt Fuer Wiederaufbau,  European Investment
                      Bank (as Agent and as Trustee),  Instituto  Mobiliare
                      Italiano,   Credit  National,   Hellenic   Industrial
                      Development  Bank, and Society  Nationale de Credit a
                      L'Industrie   relating  to  the  financing  of  three
                      Inmarsat  spacecraft  (Incorporated by Reference from
                      Exhibit No. 3(a) to Registrant's  Report on Form 10-K
                      for the fiscal year ended December 31, 1988)

          10.11*      Registrant's    1990   Key   Employee    Stock   Plan
                      (Incorporated by reference from Exhibit No. 10 (p) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1989)

          10.12       Amended and Restated  Agreement,  dated  November 14,
                      1990,  of  Limited  Partnership  of  Rock  Spring  II
                      Limited  Partnership  (Incorporated by reference from
                      Exhibit No. 10(a) to  Registrant's  Current Report on
                      Form 8-K filed on February 24, 1992)

          10.13       Amended and Restated Lease Agreement,  dated November
                      14, 1990,  of Limited  Partnership  of Rock Spring II
                      Limited  Partnership  (Incorporated by reference from
                      Exhibit No. 10(b) to  Registrant's  Current Report on
                      Form 8-K filed on February 24, 1992)

          10.14       Amended and Restated  Ground Lease  Indenture,  dated
                      November   14,  1990,   between   Anne  D.   Camalier
                      (Landlord)  and Rock  Spring II  Limited  Partnership
                      (Tenant)  (Incorporated by reference from Exhibit No.
                      10(c)  to  Registrant's  Current  Report  on Form 8-K
                      filed on February 24, 1992)

          10.15       Finance   Facility    Contract   (and    Supplemental
                      Agreements  thereto),  dated December 20, 1991, among
                      the  International  Maritime  Satellite  Organization
                      (Inmarsat),  Abbey  National  plc,  General  Electric
                      Technical Services Company, Inc., European Investment
                      Bank,  Kreditanstalt  Fuer  Wiederaufbau,   Instituto
                      Mobiliare Italiano S.p.A.,  Credit National,  Societe
                      Nationale      de      Credit     a      L'Industrie,
                      Finansieringsinstituttet  for Industri OG  Haandvaerk
                      A/S,   De   Nationale    Investeringsbank   NV,   and
                      Osterreichische Investitionkredit  Aktiengesellschaft
                      relating   to  the   financing   of  three   Inmarsat
                      spacecraft  (Incorporated  by reference  from Exhibit
                      No. 10 (dd) to  Registrant's  Report on Form 10-K for
                      the fiscal year ended December 31, 1991)

                                     79

<PAGE>

          10.16*      Registrant's   Directors  and   Executives   Deferred
                      Compensation   Plan,  as  amended  by  the  Board  of
                      Directors on July 15, 1993 (Incorporated by reference
                      from Exhibit No. 10.24 to the Registrant's  Report on
                      Form 10-K for the  fiscal  year  ended  December  31,
                      1996)

          10.17       Fiscal Agency Agreement,  dated as of August 6, 1992,
                      between  International  Telecommunications  Satellite
                      Organization and Morgan Guaranty Trust Company of New
                      York  (Incorporated  by reference from Exhibit No. 10
                      (dd) to  Registrant's  Report  on Form  10-K  for the
                      fiscal year ended December 31, 1992)

          10.18       Fiscal  Agency  Agreement,  dated as of  January  19,
                      1993,   between   International    Telecommunications
                      Satellite  Organization  and  Morgan  Guaranty  Trust
                      Company of New York  (Incorporated  by reference from
                      Exhibit  No. 10 (ee) to  Registrant's  Report on Form
                      10-K for the fiscal year ended December 31, 1992)

          10.19       Agreement dated July 1, 1993,  between Registrant and
                      AT&T Easylink  Services relating to exchange of telex
                      traffic  (Incorporated  by reference from Exhibit No.
                      10(bb)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1993)

          10.20       Agreement dated July 27, 1993, between the Registrant
                      and American  Telephone & Telegraph  Company relating
                      to  utilization  of space  segment  (Incorporated  by
                      reference  from  Exhibit No.  10(cc) to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1993)

          10.21       Amendment  to Exhibit  10.20  dated as of December 1,
                      1995  (Incorporated  by  reference  from  Exhibit No.
                      10.34 to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1995)

          10.22       Amendment  to  Exhibit  10.20  dated as of January 8,
                      1997  (Incorporated  by  reference  from  Exhibit No.
                      10.32 to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1996)

          10.23       Agreement dated September 1, 1993, between Registrant
                      and MCI  International,  Inc. relating to exchange of
                      traffic  (Incorporated  by reference from Exhibit No.
                      10(dd)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1993)

          10.24       Agreement  dated  November  30,  1993,   between  the
                      Registrant  and Sprint  Communications  Company  L.P.
                      relating   to    utilization    of   space    segment
                      (Incorporated by reference from Exhibit No. 10(ee) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1993)

          10.25       Amendment  to  Exhibit  10.24  dated  April  7,  1995
                      (Incorporated  by reference from Exhibit No. 10(a)(i)
                      to Registrant's Report on Form 10-Q/A Amendment No. 2
                      dated June 29, 1995 for the  quarter  ended March 31,
                      1995)


                                     80

<PAGE>


          10.26       Agreement dated December 10, 1993, between Registrant
                      and Sprint International  relating to the exchange of
                      traffic  (Incorporated  by reference from Exhibit No.
                      10(ff)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1993)

          10.27       Credit  Agreement dated as of December 17, 1993 among
                      Registrant, NationsBank of North Carolina, N.A., Bank
                      of America  National  Trust and Savings  Association,
                      The  First  National  Bank  of  Chicago,   The  Chase
                      Manhattan Bank, N.A., The Sumitomo Bank, Limited, New
                      York Branch, Swiss Bank Corporation, New York Branch,
                      as lenders, and NationsBank of North Carolina,  N.A.,
                      as agent  (Incorporated by reference from Exhibit No.
                      10(gg)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1993)

          10.28       Amendment No. 1 to Exhibit 10.27 dated as of December
                      17, 1994  (Incorporated by reference from Exhibit No.
                      10(cc)(i) to Registrant's Report on Form 10-K for the
                      fiscal year ended December 31, 1994)

          10.29       Agreement   dated  January  24,  1994,   between  MCI
                      International,   Inc.  and  Registrant   relating  to
                      utilization   of  space  segment   (Incorporated   by
                      reference  from  Exhibit No.  10(ii) to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1993)

          10.30       Amendment  to Exhibit  10.29 dated as of July 1, 1995
                      (Incorporated  by reference from Exhibit No. 10.42 to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1995)

          10.31       Amendment to Exhibit  10.29 dated as of September 17,
                      1996  (Incorporated  by  reference  from  Exhibit No.
                      10.41 to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1996).

          10.32       Agreement dated February 18, 1994, between Registrant
                      and   AT&T    relating   to   exchange   of   traffic
                      (Incorporated by reference from Exhibit No. 10(jj) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1993)

          10.33       Fiscal   Agency   Agreement   between   International
                      Telecommunications  Satellite  Organization,  Issuer,
                      and Bankers Trust Company, Fiscal Agent and Principal
                      Paying   Agent,   dated   as  of   March   22,   1994
                      (Incorporated by reference from Exhibit No. 10(kk) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1993)

          10.34       Distribution  Agreement  dated July 11, 1994  between
                      Registrant and CS First Boston  Corporation,  Salomon
                      Brothers Inc and Nationsbanc  Capital Markets,  Inc.,
                      as Distributors,  of Registrant's  Medium-Term Notes,
                      Series A (Incorporated  by reference from Exhibit No.
                      10(ff)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1994)


                                     81

<PAGE>



          10.35       Fiscal   Agency   Agreement   between   International
                      Telecommunications  Satellite  Organization,  Issuer,
                      and Morgan  Guaranty Trust Company,  Fiscal Agent and
                      Principal Paying Agent,  dated as of October 14, 1994
                      (Incorporated by reference from Exhibit No. 10(gg) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1994)

          10.36*      Registrant's  Annual Incentive Plan  (Incorporated by
                      reference  from  Exhibit No.  10(hh) to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1994)

          10.37       Fiscal   Agency   Agreement   between   International
                      Telecommunications  Satellite  Organization,  Issuer,
                      and Morgan  Guaranty Trust Company,  Fiscal Agent and
                      Principal Paying Agent, dated as of February 28, 1995
                      (Incorporated by reference from Exhibit No. 10(ii) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1994)

          10.38*      Registrant's    1995   Key   Employee    Stock   Plan
                      (Incorporated  by reference from Exhibit No. 10.51 to
                      the  Registrant's  Report on Form 10-K for the fiscal
                      year ended December 31, 1996)

          10.39       Distribution  Agreement,  dated  as of June  3,  1997
                      between the  Registrant and Ascent  (Incorporated  by
                      reference  from  Exhibit  10.2  to  the  Registrant's
                      Report on Form 8-K dated June 18, 1997)

          10.40       Tax  Disaffiliation  Agreement,  dated  as of June 3,
                      1997, between the Registrant and Ascent (Incorporated
                      by reference  from  Exhibit 10.3 to the  Registrant's
                      Report on Form 8-K dated June 18, 1997)

          10.41       Amended and Restated Employment  Agreement,  dated as
                      of July 18, 1997, between the Registrant and Betty C.
                      Alewine

          10.42       Amended and Restated Employment  Agreement,  dated as
                      of July 18, 1997, between the Registrant and Allen E.
                      Flower

          10.43       Amended and Restated Employment  Agreement,  dated as
                      of July 18, 1997,  between the  Registrant and Warren
                      Y. Zeger

EXHIBIT NO. 21 - SUBSIDIARIES OF THE REGISTRANT AS OF MARCH 31, 1998

EXHIBIT NO. 23 - CONSENTS OF EXPERTS AND COUNSEL
                      Consent of Independent Auditors dated March 27, 1998.

EXHIBIT NO. 27 - FINANCIAL DATA SCHEDULE

*Compensatory plan or arrangement.

                                     82

<PAGE>



                                 SIGNATURES

     PURSUANT TO THE  REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE  ACT OF 1934,  THE  REGISTRANT  HAS DULY  CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                 COMSAT CORPORATION
                                    (Registrant)

Date:  March 31, 1998            By  /S/ ALAN G. KOROBOV
                                     -----------------------------
                                     (Alan G. Korobov, Controller)



     PURSUANT TO THE  REQUIREMENTS OF THE SECURITIES  EXCHANGE ACT OF 1934,
THIS  REPORT  HAS BEEN  SIGNED  BELOW BY EACH OF THE  FOLLOWING  PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITY AND AS OF MARCH 31, 1998. EACH
PERSON  WHOSE  SIGNATURE   APPEARS  BELOW   CONSTITUTES  AND  APPOINTS  THE
REGISTRANT'S VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, VICE PRESIDENT AND
GENERAL COUNSEL OR CONTROLLER HIS OR HER TRUE AND LAWFUL  ATTORNEY-IN-FACT,
WITH  FULL  POWER OF  SUBSTITUTION,  FOR HIM OR HER AND IN HIS OR HER NAME,
PLACE AND STEAD, IN ANY AND ALL CAPACITIES,  TO SIGN ANY AND ALL AMENDMENTS
TO THIS FORM 10-K,  AND TO FILE THE SAME,  WITH ALL EXHIBITS  THERETO,  AND
OTHER DOCUMENTS IN CONNECTION  THEREWITH,  WITH THE SECURITIES AND EXCHANGE
COMMISSION, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT,
OR HIS SUBSTITUTE, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.



                                 (1)     Principal executive officer
                                         By  /s/ Betty C. Alewine
                                         ------------------------------------
                                         (Betty C. Alewine, President and
                                         Chief Executive Officer and Director)

                                 (2)     Principal financial officer
                                         By  /s/ Allen E. Flower
                                         ------------------------------------
                                         (Allen E. Flower, Vice President and
                                         Chief Financial Officer)

                                 (3)     Principal accounting officer
                                         By  /s/ Alan G. Korobov
                                         ------------------------------------
                                         (Alan G. Korobov, Controller)

                                     83

<PAGE>



                                 (4)     Board of Directors

                                         By  /s/ Edwin I. Colodny
                                         ------------------------------------
                                         (Edwin I. Colodny, Chairman and
                                         Director)

                                         By /s/ Marcus C. Bennett
                                         ------------------------------------
                                         (Marcus C. Bennett, Director)

                                         By  /s/ Lucy Wilson Benson
                                         ------------------------------------
                                         (Lucy Wilson Benson, Director)

                                         By  /s/ Lawrence S. Eagleburger
                                         ------------------------------------
                                         (Lawrence S. Eagleburger, Director)

                                         By  /s/ Neal B. Freeman
                                         ------------------------------------
                                         (Neal B. Freeman, Director)

                                         By  /s/ Caleb B. Hurtt
                                         ------------------------------------
                                         (Caleb B. Hurtt, Director)

                                         By  /s/ Peter S. Knight
                                         ------------------------------------
                                         (Peter S. Knight, Director)

                                         By  /s/ Peter W. Likins
                                         ------------------------------------
                                         (Peter W. Likins, Director)

                                         By  /s/ Charles T. Manatt
                                         ------------------------------------
                                         (Charles T. Manatt, Director)


                                     84

<PAGE>



                                         By  /s/ Larry G. Schafran
                                         ------------------------------------
                                         (Larry G. Schafran, Director)

                                         By  /s/ Robert G. Schwartz
                                         ------------------------------------
                                         (Robert G. Schwartz)

                                         By  /s/ Kathryn C. Turner
                                         ------------------------------------
                                         (Kathryn C. Turner, Director)

                                         By /s/ Guy P. Wyser-Pratte, Director
                                         ------------------------------------
                                         (Guy P. Wyser-Pratte, Director)


                                     85

<PAGE>



                               EXHIBIT INDEX

Exhibit
NO.                                              DESCRIPTION
---                                              -----------


          3.1         Articles of  Incorporation  of Registrant,  composite
                      copy, as amended  through June 1, 1993  (Incorporated
                      by reference  from  Exhibit No. 4(a) to  Registrant's
                      Registration  Statement  on Form S-3  (No.  33-51661)
                      filed on December 22, 1993)

          3.2         By-laws of Registrant,  as amended  through  February
                      16, 1996  (Incorporated by reference from Exhibit No.
                      3.2 to  Registrant's  Report  on  Form  10-K  for the
                      fiscal year ended 1995)

          3.3         Regulations   adopted   by   Registrant's   Board  of
                      Directors pursuant to Section 5.02(c) of Registrant's
                      Articles of Incorporation  (Incorporated by reference
                      from Exhibit No. 3(c) to Registrant's  Report on Form
                      10-K for the fiscal year ended 1992)

          4.1         Specimen  of  a  certificate  representing  Series  I
                      shares of COMSAT  Common  Stock,  without  par value,
                      which  are  held by  citizens  of the  United  States
                      (Incorporated  by reference  from Exhibit No. 4(a) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1993)

          4.2         Specimen  of  a  certificate  representing  Series  I
                      shares of COMSAT  Common  Stock,  without  par value,
                      which are held by aliens  (Incorporated  by reference
                      from Exhibit No. 4(b) to Registrant's  Report on Form
                      10-K for the fiscal year ended December 31, 1982)

          4.3         Specimen  of a  certificate  representing  Series  II
                      shares  of COMSAT  Common  Stock,  without  par value
                      (Incorporated  by reference  from Exhibit No. 4(c) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1982)

          4.4         Standard  Multiple-Series  Indenture Provisions dated
                      March  15,  1991   (Incorporated  by  reference  from
                      Exhibit   No.  4(a)  to   Registrant's   Registration
                      Statement on Form S-3 (No.  33-39472)  filed on March
                      15, 1991)

          4.5         Indenture   dated  as  of  March  15,  1991   between
                      Registrant  and  The  Chase   Manhattan   Bank,  N.A.
                      (Incorporated  by reference  from Exhibit No. 4(b) to
                      Registrant's  Registration Statement on Form S-3 (No.
                      33-39472) filed on March 15, 1991)

          4.6         Supplemental  Indenture,  dated as of June 29,  1994,
                      from the Registrant to The Chase  Manhattan  Bank, N.
                      A.  (Incorporated  by reference from Exhibit No. 4(c)
                      to  Registrant's  Registration  Statement on Form S-3
                      (No. 33-54369) filed on June 30, 1994)


                                     86

<PAGE>



          4.7         Officers' Certificate pursuant to Section 3.01 of the
                      Indenture,  dated  as of  March  15,  1991,  from the
                      Registrant  to The Chase  Manhattan  Bank,  N.A.,  as
                      Trustee, relating to the authorization of $75,000,000
                      aggregate  principal  amount  of  Registrant's  8.95%
                      Notes  Due  2001   (with   form  of  Note   attached)
                      (Incorporated  by  reference  from  Exhibit  No. 4 to
                      Registrant's  Current Report on Form 8-K filed on May
                      15, 1991)

          4.8         Officers' Certificate pursuant to Section 3.01 of the
                      Indenture,  dated  as of  March  15,  1991,  from the
                      Registrant  to The Chase  Manhattan  Bank,  N.A.,  as
                      Trustee,    relating   to   the    authorization   of
                      $160,000,000    aggregate    principal    amount   of
                      Registrant's 8.125% Debentures Due 2004 (with form of
                      Debenture  attached)  (Incorporated by reference from
                      Exhibit No. 4 to Registrant's  Current Report on Form
                      8-K filed on April 9, 1992)

          4.9         Officers' Certificate pursuant to Section 3.01 of the
                      Indenture,   dated  as  of   March   15,   1991,   as
                      supplemented by the Supplemental Indenture,  dated as
                      of June 29, 1994,  from the  Registrant  to The Chase
                      Manhattan  Bank,  N.A.,  as Trustee,  relating to the
                      authorization  of  $100,000,000  aggregate  principal
                      amount of  Registrant's  Medium Term Notes,  Series A
                      (with  forms  of  Notes  attached)  (Incorporated  by
                      reference  from  Exhibit  No.  4(i)  to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1994)

          4.10        Limited  Partnership  Agreement of COMSAT  Capital I,
                      L.P., dated as of July 18, 1995, relating to issuance
                      of monthly income preferred securities  (Incorporated
                      by reference  from  Exhibit No. 4(a) to  Registrant's
                      Report on Form 10-Q for the  quarter  ended  June 30,
                      1995)

          4.11        Guarantee  Agreement  for  Preferred   Securities  of
                      COMSAT  Capital  I, L.P.,  dated as of July 18,  1995
                      (Incorporated  by reference  from Exhibit No. 4(b) to
                      Registrant's  Report  on Form  10-Q  for the  quarter
                      ended June 30, 1995)

          4.12        Indenture  between  Registrant and the First National
                      Bank of  Chicago,  as  Trustee,  dated as of July 18,
                      1995 (Incorporated by reference from Exhibit No. 4(c)
                      to  Registrant's  Report on Form 10-Q for the quarter
                      ended June 30, 1995)

          10.1        Agreement     relating    to    the     International
                      Telecommunications  Satellite Organization (INTELSAT)
                      by Governments,  which entered into force on February
                      12, 1973  (Incorporated by reference from Exhibit No.
                      10(a) to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1980)

          10.2        Operating   Agreement   relating   to   INTELSAT   by
                      Governments  which entered into force on February 12,
                      1973  (Incorporated  by  reference  from  Exhibit No.
                      10(b) to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1980)


                                     87

<PAGE>



          10.3        Agreement dated August 15, 1975, among COMSAT General
                      Corporation, RCA Global Communications, Inc., Western
                      Union    International,    Inc.    and   ITT    World
                      Communications, Inc. relating to the establishment of
                      a joint venture for the purpose of  participating  in
                      the   ownership   and   operation   of   a   maritime
                      communications  satellite  system and Amendment  Nos.
                      1-4  and   Amendment  No.  5  dated  March  24,  1980
                      (Incorporated  by reference from Exhibit No. 10(p) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1980)

          10.4        Amendment  No. 6 to Exhibit  10.3 dated  September 1,
                      1981  (Incorporated  by  reference  from  Exhibit No.
                      10(p)(ii) to Registrant's Report on Form 10-K for the
                      fiscal year ended December 31, 1981)

          10.5        Convention on the  International  Maritime  Satellite
                      Organization   (INMARSAT)  dated  September  3,  1976
                      (Incorporated  by  reference  from  Exhibit No. 11 to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1978)

          10.6        Operating  Agreement on INMARSAT  dated  September 3,
                      1976  (Incorporated  by reference from Exhibit No. 12
                      to  Registrant's  Report on Form 10-K for the  fiscal
                      year ended December 31, 1978)

          10.7*       Registrant's 1982 Stock Option Plan  (Incorporated by
                      reference  from  Exhibit  No.  10(x) to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1981)

          10.8*       Registrant's   Insurance  and  Retirement   Plan  for
                      Executives, as amended and restated effective January
                      1, 1997  (Incorporated  by reference from Exhibit No.
                      10.10 to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1997)

          10.9*       Registrant's   Non-Employee   Directors   Stock  Plan
                      (Incorporated  by reference from Exhibit No. 10.11 to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1996)

          10.10       Agreement  to  Acquire  and Lease  (and  Supplemental
                      Agreements  thereto)  dated  September 28 and October
                      10,  1988,  respectively,   among  the  International
                      Maritime Satellite Organization (Inmarsat), the North
                      Sea Marine Leasing Company,  British Aerospace Public
                      Limited  Company,   the  European   Investment  Bank,
                      Kreditanstalt Fuer Wiederaufbau,  European Investment
                      Bank (as Agent and as Trustee),  Instituto  Mobiliare
                      Italiano,   Credit  National,   Hellenic   Industrial
                      Development  Bank, and Society  Nationale de Credit a
                      L'Industrie   relating  to  the  financing  of  three
                      Inmarsat  spacecraft  (Incorporated by Reference from
                      Exhibit No. 3(a) to Registrant's  Report on Form 10-K
                      for the fiscal year ended December 31, 1988)

          10.11*      Registrant's    1990   Key   Employee    Stock   Plan
                      (Incorporated by reference from Exhibit No. 10 (p) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1989)

                                     88

<PAGE>



          10.12       Amended and Restated  Agreement,  dated  November 14,
                      1990,  of  Limited  Partnership  of  Rock  Spring  II
                      Limited  Partnership  (Incorporated by reference from
                      Exhibit No. 10(a) to  Registrant's  Current Report on
                      Form 8-K filed on February 24, 1992)

          10.13       Amended and Restated Lease Agreement,  dated November
                      14, 1990,  of Limited  Partnership  of Rock Spring II
                      Limited  Partnership  (Incorporated by reference from
                      Exhibit No. 10(b) to  Registrant's  Current Report on
                      Form 8-K filed on February 24, 1992)

          10.14       Amended and Restated  Ground Lease  Indenture,  dated
                      November   14,  1990,   between   Anne  D.   Camalier
                      (Landlord)  and Rock  Spring II  Limited  Partnership
                      (Tenant)  (Incorporated by reference from Exhibit No.
                      10(c)  to  Registrant's  Current  Report  on Form 8-K
                      filed on February 24, 1992)

          10.15       Finance   Facility    Contract   (and    Supplemental
                      Agreements  thereto),  dated December 20, 1991, among
                      the  International  Maritime  Satellite  Organization
                      (Inmarsat),  Abbey  National  plc,  General  Electric
                      Technical Services Company, Inc., European Investment
                      Bank,  Kreditanstalt  Fuer  Wiederaufbau,   Instituto
                      Mobiliare Italiano S.p.A.,  Credit National,  Societe
                      Nationale      de      Credit     a      L'Industrie,
                      Finansieringsinstituttet  for Industri OG  Haandvaerk
                      A/S,   De   Nationale    Investeringsbank   NV,   and
                      Osterreichische Investitionkredit  Aktiengesellschaft
                      relating   to  the   financing   of  three   Inmarsat
                      spacecraft  (Incorporated  by reference  from Exhibit
                      No. 10 (dd) to  Registrant's  Report on Form 10-K for
                      the fiscal year ended December 31, 1991)

          10.16*      Registrant's   Directors  and   Executives   Deferred
                      Compensation   Plan,  as  amended  by  the  Board  of
                      Directors on July 15, 1993 (Incorporated by reference
                      from Exhibit No. 10.24 to the Registrant's  Report on
                      Form 10-K for the  fiscal  year  ended  December  31,
                      1996)

          10.17       Fiscal Agency Agreement,  dated as of August 6, 1992,
                      between  International  Telecommunications  Satellite
                      Organization and Morgan Guaranty Trust Company of New
                      York  (Incorporated  by reference from Exhibit No. 10
                      (dd) to  Registrant's  Report  on Form  10-K  for the
                      fiscal year ended December 31, 1992)

          10.18       Fiscal  Agency  Agreement,  dated as of  January  19,
                      1993,   between   International    Telecommunications
                      Satellite  Organization  and  Morgan  Guaranty  Trust
                      Company of New York  (Incorporated  by reference from
                      Exhibit  No. 10 (ee) to  Registrant's  Report on Form
                      10-K for the fiscal year ended December 31, 1992)

          10.19       Agreement dated July 1, 1993,  between Registrant and
                      AT&T Easylink  Services relating to exchange of telex
                      traffic  (Incorporated  by reference from Exhibit No.
                      10(bb)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1993)

                                     89

<PAGE>



          10.20       Agreement dated July 27, 1993, between the Registrant
                      and American  Telephone & Telegraph  Company relating
                      to  utilization  of space  segment  (Incorporated  by
                      reference  from  Exhibit No.  10(cc) to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1993)

          10.21       Amendment  to Exhibit  10.20  dated as of December 1,
                      1995  (Incorporated  by  reference  from  Exhibit No.
                      10.34 to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1995)

          10.22       Amendment  to  Exhibit  10.20  dated as of January 8,
                      1997  (Incorporated  by  reference  from  Exhibit No.
                      10.32 to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1996)

          10.23       Agreement dated September 1, 1993, between Registrant
                      and MCI  International,  Inc. relating to exchange of
                      traffic  (Incorporated  by reference from Exhibit No.
                      10(dd)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1993)

          10.24       Agreement  dated  November  30,  1993,   between  the
                      Registrant  and Sprint  Communications  Company  L.P.
                      relating   to    utilization    of   space    segment
                      (Incorporated by reference from Exhibit No. 10(ee) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1993)

          10.25       Amendment  to  Exhibit  10.24  dated  April  7,  1995
                      (Incorporated  by reference from Exhibit No. 10(a)(i)
                      to Registrant's Report on Form 10-Q/A Amendment No. 2
                      dated June 29, 1995 for the  quarter  ended March 31,
                      1995)

          10.26       Agreement dated December 10, 1993, between Registrant
                      and Sprint International  relating to the exchange of
                      traffic  (Incorporated  by reference from Exhibit No.
                      10(ff)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1993)

          10.27       Credit  Agreement dated as of December 17, 1993 among
                      Registrant, NationsBank of North Carolina, N.A., Bank
                      of America  National  Trust and Savings  Association,
                      The  First  National  Bank  of  Chicago,   The  Chase
                      Manhattan Bank, N.A., The Sumitomo Bank, Limited, New
                      York Branch, Swiss Bank Corporation, New York Branch,
                      as lenders, and NationsBank of North Carolina,  N.A.,
                      as agent  (Incorporated by reference from Exhibit No.
                      10(gg)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1993)

          10.28       Amendment No. 1 to Exhibit 10.27 dated as of December
                      17, 1994  (Incorporated by reference from Exhibit No.
                      10(cc)(i) to Registrant's Report on Form 10-K for the
                      fiscal year ended December 31, 1994)


                                     90

<PAGE>



          10.29       Agreement   dated  January  24,  1994,   between  MCI
                      International,   Inc.  and  Registrant   relating  to
                      utilization   of  space  segment   (Incorporated   by
                      reference  from  Exhibit No.  10(ii) to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1993)

          10.30       Amendment  to Exhibit  10.29 dated as of July 1, 1995
                      (Incorporated  by reference from Exhibit No. 10.42 to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1995)

          10.31       Amendment to Exhibit  10.29 dated as of September 17,
                      1996  (Incorporated  by  reference  from  Exhibit No.
                      10.41 to  Registrant's  Report  on Form  10-K for the
                      fiscal year ended December 31, 1996).

          10.32       Agreement dated February 18, 1994, between Registrant
                      and   AT&T    relating   to   exchange   of   traffic
                      (Incorporated by reference from Exhibit No. 10(jj) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1993)

          10.33       Fiscal   Agency   Agreement   between   International
                      Telecommunications  Satellite  Organization,  Issuer,
                      and Bankers Trust Company, Fiscal Agent and Principal
                      Paying   Agent,   dated   as  of   March   22,   1994
                      (Incorporated by reference from Exhibit No. 10(kk) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1993)

          10.34       Distribution  Agreement  dated July 11, 1994  between
                      Registrant and CS First Boston  Corporation,  Salomon
                      Brothers Inc and Nationsbanc  Capital Markets,  Inc.,
                      as Distributors,  of Registrant's  Medium-Term Notes,
                      Series A (Incorporated  by reference from Exhibit No.
                      10(ff)  to  Registrant's  Report on Form 10-K for the
                      fiscal year ended December 31, 1994)

          10.35       Fiscal   Agency   Agreement   between   International
                      Telecommunications  Satellite  Organization,  Issuer,
                      and Morgan  Guaranty Trust Company,  Fiscal Agent and
                      Principal Paying Agent,  dated as of October 14, 1994
                      (Incorporated by reference from Exhibit No. 10(gg) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1994)

          10.36*      Registrant's  Annual Incentive Plan  (Incorporated by
                      reference  from  Exhibit No.  10(hh) to  Registrant's
                      Report  on  Form  10-K  for  the  fiscal  year  ended
                      December 31, 1994)

          10.37       Fiscal   Agency   Agreement   between   International
                      Telecommunications  Satellite  Organization,  Issuer,
                      and Morgan  Guaranty Trust Company,  Fiscal Agent and
                      Principal Paying Agent, dated as of February 28, 1995
                      (Incorporated by reference from Exhibit No. 10(ii) to
                      Registrant's  Report on Form 10-K for the fiscal year
                      ended December 31, 1994)


                                     91

<PAGE>



          10.38*      Registrant's    1995   Key   Employee    Stock   Plan
                      (Incorporated  by reference from Exhibit No. 10.51 to
                      the  Registrant's  Report on Form 10-K for the fiscal
                      year ended December 31, 1996)

          10.39       Distribution  Agreement,  dated  as of June  3,  1997
                      between the  Registrant and Ascent  (Incorporated  by
                      reference  from  Exhibit  10.2  to  the  Registrant's
                      Report on Form 8-K dated June 18, 1997)

          10.40       Tax  Disaffiliation  Agreement,  dated  as of June 3,
                      1997, between the Registrant and Ascent (Incorporated
                      by reference  from  Exhibit 10.3 to the  Registrant's
                      Report on Form 8-K dated June 18, 1997)

          10.41       Amended and Restated Employment  Agreement,  dated as
                      of July 18, 1997, between the Registrant and Betty C.
                      Alewine

          10.42       Amended and Restated Employment  Agreement,  dated as
                      of July 18, 1997, between the Registrant and Allen E.
                      Flower

          10.43       Amended and Restated Employment  Agreement,  dated as
                      of July 18, 1997,  between the  Registrant and Warren
                      Y. Zeger

          21          Subsidiaries of the Registrant as of March 31, 1998

          23          Consent of Independent Auditors dated March 27, 1998.

          27          Financial Data Schedule

*Compensatory plan or arrangement.

                                    92

<PAGE>

                    COMSAT CORPORATION AND SUBSIDIARIES
                   SCHEDULE II - VALUATION AND QUALIFYING
                 ACCOUNTS For the Years Ended December 31,
                            1997, 1996 and 1995

<TABLE>
<CAPTION>
<S>                                                       <C>               <C>           <C>               <C>

                                                             Balance at
                                                           Beginning of      Charged to                       Balance at
     In thousands                                                  Year        Expenses    Deductions(a)     End of Year
     -------------------------------------------------------------------------------------------------------------------
     1995:
     Allowance for loss on accounts receivable                  $ 4,419         $ 3,846         $     14        $ 8,251

     1996:
     Allowance for loss on accounts receivable                  $ 8,251         $ 3,847         $    939        $11,159
     Allowance for loss on investments                                -         $ 1,105                -        $ 1,105

     1997:
     Allowance for loss on accounts receivable                  $11,159         $ 6,306         $  2,730        $14,735
     Allowance for loss on investments                          $ 1,105         $ 1,008                -        $ 2,113


</TABLE>

     (a)  As  discussed  in  Note  2  to  the  financial  statements,   the
          corporation began accounting for Ascent Entertainment Group, Inc.
          and substantially all of COMSAT RSI as discontinued operations in
          1997.  Accordingly,  all  prior  periods  have been  restated  to
          present Ascent and CRSI as discontinued operations.

     (b)  Uncollectible   amounts   written  off,   recoveries  of  amounts
          previously reserved, and other adjustments.