SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549


                                 FORM 10-Q


                 Quarterly Report Under Section 13 or 15(d)
                   of the Securities Exchange Act of 1934


                      For Quarter Ended June 30, 1998
                       Commission File Number 1-4929




                             COMSAT CORPORATION
                           6560 Rock Spring Drive
                             Bethesda, MD 20817
                               (301) 214-3000



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





     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
Exchange Act of 1934 during the  preceding  twelve (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 ninety (90)
days. Yes [X] No [ ]

52,416,412  shares of the Registrant's  common stock were outstanding as of
June 30, 1998.



<PAGE>


PART I.     FINANCIAL INFORMATION

ITEM 1.     INTERIM FINANCIAL STATEMENTS FOR THE CORPORATION (UNAUDITED)

                    COMSAT CORPORATION AND SUBSIDIARIES
                  Condensed Consolidated Income Statements

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

                                                                          Three Months Ended June 30,  Six Months Ended June 30,
                                                                          ---------------------------  -------------------------
In thousands, except per share amounts                                           1998          1997          1998          1997
--------------------------------------------------------------------------------------------------------------------------------

REVENUES                                                                   $  151,045    $  142,437    $  295,762    $  275,968
                                                                           -----------   -----------   -----------   -----------

Operating expenses:
      Cost of services                                                         65,929        65,082       131,874       124,705
      Depreciation and amortization                                            55,556        44,846       107,051        88,309
      Research and development                                                  2,549         2,304         4,347         3,794
      General and administrative                                                6,049         6,793        11,852        12,597
                                                                           -----------   -----------   -----------   -----------
      Total operating expenses                                                130,083       119,025       255,124       229,405
                                                                           -----------   -----------   -----------   -----------

OPERATING INCOME                                                               20,962        23,412        40,638        46,563

Other income (expense), net                                                    (1,015)        1,345        (3,840)          726
Interest expense, net of amounts capitalized                                  (12,724)      (10,176)      (24,056)      (19,838)
                                                                           -----------   -----------   -----------   -----------
Income from continuing operations before taxes and extraordinary item           7,223        14,581        12,742        27,451
Income tax expense                                                             (3,149)       (5,483)       (4,818)      (10,254)
                                                                           -----------   -----------   -----------   -----------

INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM                     4,074         9,098         7,924        17,197

Loss from discontinued operations, net of tax                                       -       (16,481)            -       (28,861)
                                                                           -----------   -----------   -----------   -----------
Income (loss) before extraordinary item                                         4,074        (7,383)        7,924       (11,664)
Extraordinary loss from early extinguishment of debt (net of tax)                   -        (2,936)            -        (3,946)
                                                                           -----------   -----------   -----------   -----------

NET INCOME (LOSS)                                                          $    4,074    $  (10,319)   $    7,924    $  (15,610)
                                                                           ===========   ===========   ===========   ===========

EARNINGS (LOSS) PER COMMON SHARE - BASIC:
      Income from continuing operations before extraordinary item          $     0.08    $     0.19    $     0.15    $     0.35
      Loss from discontinued operations                                             -         (0.34)            -         (0.59)
      Extraordinary loss                                                            -         (0.06)            -         (0.08)
                                                                           -----------   -----------   -----------   -----------
      Net income (loss)                                                    $     0.08    $    (0.21)   $     0.15    $    (0.32)
                                                                           ===========   ===========   ===========   ===========

EARNINGS (LOSS) PER COMMON SHARE - ASSUMING DILUTION:
      Income from continuing operations before extraordinary item          $     0.08    $     0.18    $     0.15    $     0.35
      Loss from discontinued operations                                             -         (0.33)            -         (0.58)
      Extraordinary loss                                                            -         (0.06)            -         (0.08)
                                                                           -----------   -----------   -----------   -----------
      Net income (loss)                                                    $      0.08   $    (0.21)   $     0.15    $    (0.31)
                                                                           ===========   ===========   ===========   ===========
</TABLE>

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

                                     2

<PAGE>



                    COMSAT CORPORATION AND SUBSIDIARIES
                   Condensed Consolidated Balance Sheets

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

                                                                                        June 30,   December 31,
In thousands                                                                                1998           1997
----------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
      Cash and cash equivalents                                                     $      9,335    $     5,757
      Receivables                                                                        132,380        147,621
      Other                                                                               40,348         22,387
      Net assets of discontinued operations                                               18,403        142,484
                                                                                    -------------   ------------
         Total current assets                                                            200,466        318,249
                                                                                    -------------   ------------

Property and equipment (net of accumulated depreciation
      of $1,262,996 in 1998 and $1,161,242 in 1997)                                    1,397,507      1,359,293
Investments                                                                              118,933         91,543
Goodwill                                                                                  13,557         12,722
Other assets                                                                             124,671        112,968
                                                                                    -------------   ------------
      TOTAL ASSETS                                                                  $  1,855,134    $ 1,894,775
                                                                                    =============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
      Current maturities of long-term debt                                          $     13,785    $    13,785
      Commercial paper                                                                    19,998        149,506
      Accounts payable and accrued liabilities                                            84,120         89,772
      Due to related parties                                                              40,515         34,664
      Other                                                                                3,206          8,919
                                                                                    -------------   ------------
         Total current liabilities                                                       161,624        296,646
                                                                                    -------------   ------------

Long-term debt                                                                           454,478        461,960
Deferred income taxes and investment tax credits                                         126,351        121,749
Accrued post-retirement benefit costs                                                     49,549         49,246
Other long-term liabilities                                                              207,425        178,903
Preferred securities issued by subsidiary                                                200,000        200,000

STOCKHOLDERS' EQUITY:
      Common stock                                                                       428,137        366,901
      Retained earnings                                                                  229,564        226,785
      Treasury stock                                                                      (7,223)        (1,758)
      Unearned compensation                                                               (5,502)        (4,739)
      Accumulated other comprehensive income (loss)                                       10,731           (918)
                                                                                    -------------   ------------
         Total stockholders' equity                                                      655,707        586,271
                                                                                    -------------   ------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $  1,855,134    $ 1,894,775
                                                                                    =============   ============
</TABLE>

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

                                     3

<PAGE>



                    COMSAT CORPORATION AND SUBSIDIARIES
                Condensed Consolidated Cash Flow Statements

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

                                                                                          Six Months Ended June 30,
                                                                                       -----------------------------
In thousands                                                                                  1998             1997
--------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income (loss)                                                                 $    7,924       $  (15,610)
      Adjustments to reconcile net income (loss) to cash flow of
      continuing operations:
         Depreciation and amortization                                                     107,051           88,309
         Write-off of investment                                                             1,950                -
         Extraordinary loss from early extinguishment of debt                                    -            3,946
         Loss from discontinued operations                                                       -           28,861
      Changes in operating assets and liabilities                                           (1,611)         (19,346)
      Other                                                                                 (3,469)          (3,741)
                                                                                        -----------     ------------
         Net cash provided by continuing operations                                        111,845           82,419
         Net cash provided (used) by discontinued operations                               113,752           (5,442)
                                                                                        -----------     ------------
      Net cash provided by operating activities                                            225,597           76,977
                                                                                        -----------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of property and equipment                                                  (119,435)        (120,757)
      Investments in unconsolidated businesses                                              (7,121)         (10,092)
      Proceeds from sale of investments                                                      1,200            9,060
      Proceeds from note on sale of investment                                                   -            6,809
      Decrease in INTELSAT ownership                                                             -           20,986
      Decrease in Inmarsat ownership                                                         6,101                -
      Other                                                                                  1,158           (4,425)
                                                                                        -----------     ------------
      Net cash used in investing activities                                               (118,097)         (98,419)
                                                                                        -----------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Common stock issued                                                                   42,366            5,792
      Cash dividends paid                                                                   (5,145)         (12,000)
      Repayment/extinguishment of long-term debt                                           (11,635)        (112,710)
      Net short-term borrowings (repayments)                                              (129,508)         143,021
      Other                                                                                      -           (3,736)
                                                                                        -----------     ------------
      Net cash provided (used) by financing activities                                    (103,922)           20,367
                                                                                        -----------     ------------

Net decrease in cash and cash equivalents                                                    3,578           (1,075)
Cash and cash equivalents, beginning of period                                               5,757            7,659
                                                                                        -----------     ------------

Cash and cash equivalents, end of period                                                $    9,335      $     6,584
                                                                                        ===========     ============
</TABLE>

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


                                     4

<PAGE>





                    COMSAT CORPORATION AND SUBSIDIARIES
      Notes to Condensed Consolidated Financial Statements (Unaudited)

1.   FINANCIAL STATEMENT PRESENTATION

     The accompanying unaudited condensed consolidated financial statements
     have been prepared by COMSAT  Corporation  (COMSAT or the corporation)
     pursuant to the rules and  regulations  of the Securities and Exchange
     Commission (the SEC). These financial statements should be read in the
     context of the financial  statements  and notes thereto filed with the
     SEC in the  corporation's  1997  Annual  Report on Form 10-K.  Certain
     information and footnote  disclosures  normally  included in financial
     statements  prepared in accordance with generally accepted  accounting
     principles have been condensed or omitted. The accompanying  condensed
     consolidated   financial   statements   reflect  all  adjustments  and
     disclosures  which, in the opinion of management,  are necessary for a
     fair  presentation.  All such  adjustments  are of a normal  recurring
     nature.  The results of  operations  for the  interim  periods are not
     necessarily indicative of the results of the entire year.

2.   DISCONTINUED OPERATIONS

     The corporation began accounting for Ascent  Entertainment Group, Inc.
     (Ascent), its former 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 income (loss) from discontinued operations, net of tax, for Ascent
     and CRSI  for the  three  and six  months  ended  June  30,  1997,  is
     summarized below:


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

                                                                    Period Ended June 30, 1997
                                                              ----------------------------------
     In millions                                                   Three Months       Six Months
     -------------------------------------------------------------------------------------------
     Ascent                                                         $    (15.1)     $     (29.1)
     CRSI                                                                 (1.3)             0.2
                                                                    -----------     ------------
     Total                                                          $    (16.4)     $     (28.9)
                                                                    ===========     ============

</TABLE>



     COMSAT RSI, INC.

     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 $4.7 million, net of
     a working capital adjustment at closing, to complete the transaction.


                                     5

<PAGE>



     On June 25, 1998, the corporation  completed the sale of substantially
     all of  CRSI  to a  subsidiary  of TBG  Industries,  Inc.  for  $116.5
     million.  After  adjusting  for  changes  in  inter-company  loans and
     advances, COMSAT received cash proceeds of $111.9 million.

     Certain  of CRSI's  assets  were  excluded  from the  sale,  including
     Electromechanical   Systems,  Inc.  (EMS)  and  CRSI's  53%  ownership
     interest  in  Plexsys  International  Corporation  (Plexsys).  Plexsys
     ceased doing business on July 1, 1998. The corporation has written-off
     its  investment in Plexsys and certain  amounts owed to it by Plexsys.
     Such  amounts  were  included  in the  corporation's  1997  loss  from
     discontinued  operations.  COMSAT  also will  retain  and  complete  a
     long-term  construction  contract for a radio  astronomy  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
     results through anticipated disposal dates, facility closure costs and
     the estimated costs to complete the long-term contract retained by the
     corporation.  The net assets of CRSI's discontinued operations include
     management's  estimate of the amount to be realized from a $29 million
     claim,  which is currently in  arbitration  for work  performed on the
     long-term  contract.  These estimates could change as additional costs
     are incurred to complete the disposals and the long-term  contract and
     upon resolution of the arbitration.

     The net  assets  of CRSI's  discontinued  operations  included  in the
     condensed  consolidated  balance  sheets  as of  June  30,  1998,  and
     December 31, 1997, are as follows:

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

                                                                     June 30,        December 31,
     In millions                                                         1998                1997
     ---------------------------------------------------------------------------------------------
     Current assets                                                $     42.3          $    181.5
     Fixed assets, net                                                    3.6                33.8
     Intangible and other assets                                          1.0                13.0
     Short-term debt                                                        -                 4.4
     Other current liabilities                                            7.1                28.8
     Provision for estimated loss on disposal                            21.4                49.5
     Long-term debt                                                         -                 1.5
     Other non-current liabilities                                          -                 1.6
                                                                   -----------         -----------
     Net assets of discontinued operations                         $     18.4          $    142.5
                                                                   ===========         ===========
</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
     15,  1997,  the date on which  the  corporation's  Board of  Directors
     adopted  a  formal  plan to  effect  the  distribution.  The  tax-free
     dividend of approximately  $195 million was recorded as a reduction of
     COMSAT's consolidated retained earnings.



                                                       6

<PAGE>



3.   CHANGE IN SATELLITE ACCOUNTING POLICIES

     Effective  January 1, 1998,  the  corporation  changed its  accounting
     policy  with  respect to the cost of  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 failed  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 (SFAS) No. 121, "Accounting for the Impairment of
     Long-lived  Assets to be Disposed of." Also effective January 1, 1998,
     the  corporation   changed  its  accounting  policy  with  respect  to
     satellite  performance  incentive  payments paid to  manufacturers  to
     capitalize  the net present  value of such costs as a component of the
     cost of the  satellite.  Previously,  certain of these  payments  were
     expensed as paid.  These changes did not have a material effect on the
     corporation's financial statements.

4.   COMPREHENSIVE INCOME

     In January  1998,  the  corporation  adopted SFAS No. 130,  "Reporting
     Comprehensive   Income."  SFAS  No.  130  establishes   standards  for
     reporting and the display of  comprehensive  income and its components
     in the corporation's  financial  statements;  however, the adoption of
     this  statement  had  no  impact  on  the  corporation's   results  of
     operations  or  stockholders'  equity.  SFAS No. 130 requires  minimum
     pension  liability  adjustments,  unrealized  gains and  losses on the
     corporation's   available-for-sale  securities  and  foreign  currency
     translation  adjustments,   which  prior  to  adoption  were  reported
     separately  in   stockholders'   equity,   to  be  included  in  other
     comprehensive  income. Total comprehensive income (loss) for the three
     and six months ended June 30, 1998 and 1997 were:

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

                                               Three Months Ended June 30      Six Months Ended June 30
                                               --------------------------     ---------------------------
In millions                                         1998             1997            1998            1997
---------------------------------------------------------------------------------------------------------
Net income (loss)                                $   4.1        $   (10.3)      $     7.9      $   (15.6)
Other comprehensive income (loss)                   (1.0)             0.2            11.6           (4.2)
                                                 ---------      ----------      ----------     ----------
Total comprehensive income (loss)                $   3.1        $   (10.1)      $    19.5      $   (19.8)
                                                 =========      ==========      ==========     ==========
</TABLE>

     Other  comprehensive  income (loss) includes changes in the unrealized
     gain  (loss) of  available-for-sale  securities,  net of tax,  of $4.5
     million, $16.7 million,  $200,000 and $(3.1) million for the three and
     six month  periods  ended June 30,  1998 and 1997,  respectively.  The
     three months ended June 30, 1998,  also includes the foreign  currency
     translation loss from COMSAT's Brazil  subsidiary,  which is no longer
     accounted for as a highly inflationary economy.


                                     7

<PAGE>



5.   INTELSAT AND INMARSAT SHARE CHANGES

     The corporation's  18.0% ownership share of INTELSAT is unchanged from
     December 31, 1997.

     The corporation's  ownership share of Inmarsat decreased from 23.0% at
     December  31, 1997,  to 22.2% as of June 30, 1998.  As a result of the
     change in ownership,  the corporation received a total of $6.1 million
     during the six months ended June 30, 1998.

6.   INVESTMENTS

     In March  1998,  the  corporation  wrote  off its $2.0  million  ($1.3
     million net of tax) investment in  Superconducting  Core Technologies,
     Inc. (SCT). The non-cash charge is reported in Other income (expense),
     net, on the condensed consolidated income statement.

7.   REGULATORY ENVIRONMENT AND LITIGATION

     REGULATORY ENVIRONMENT. Under the Communications Satellite Act of 1962
     (the Satellite Act), the International  Maritime Satellite Act of 1978
     (the Inmarsat Act) and the Communications Act of 1934, as amended (the
     Communications  Act),  COMSAT is subject to  regulation by the Federal
     Communications  Commission  (FCC)  with  respect  to its  capital  and
     organizational  structure,  as well as COMSAT World  Systems (CWS) and
     COMSAT Mobile  Communications  (CMC).  FCC decisions and policies have
     had and will continue to have a significant impact on the corporation.

     In April  1998,  the FCC  granted  the  corporation's  petition  to be
     deregulated and  reclassified as a  "non-dominant"  telecommunications
     carrier in the major  markets of CWS.  The FCC's  decision  eliminates
     rate-of-return  restrictions,  structural  separation  regulation  and
     14-day advance tariff  notification in regard to approximately  90% of
     COMSAT's  INTELSAT  business.  It also allows CWS to  integrate  earth
     station and space segment  services,  requiring  only that COMSAT list
     those  offerings  separately  in tariff  filings  at the FCC.  The FCC
     denied  requests by major  INTELSAT  users to  condition  non-dominant
     carrier  status on the grant of direct  access  for users to  INTELSAT
     satellite capacity.  The FCC concluded that COMSAT's long-term carrier
     contracts do not impede competition; thus, such contracts would not be
     subject to regulatory  abrogation  based on the so called "fresh look"
     doctrine.  The FCC  indicated,  however,  that it would begin a future
     proceeding to consider direct access implications. For a discussion of
     these  matters  refer  to   "Management's   Discussion   and  Analysis
     --Outlook"  section  of the  Form  10-Q  and  the  description  of the
     corporation's  "Business" and Notes 8 and 9 to the corporation's  1997
     financial  statements  included as part of the corporation's 1997 Form
     10-K.


                                     8

<PAGE>



     LITIGATION.  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  on  the  consolidated  financial
     condition of the corporation but could materially effect  consolidated
     results of  operations  in a given year or  quarter.  Certain of those
     matters  are  discussed  in  Notes 8 and 9 to the  corporation's  1997
     financial  statements  included as part of the corporation's 1997 Form
     10-K and "Item 1 - Legal Proceedings" of Part II of the March 31, 1998
     Form 10-Q.

8.   EARNINGS PER SHARE

     The  following  reconciliation  illustrates  the  calculation  of  the
     corporation's  basic and diluted  earnings  per share  amounts for the
     three and six month periods ended June 30, 1998 and 1997:

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

                                             Three Months Ended June 30,      Six Months Ended June 30,
                                             ----------------------------   ----------------------------
In millions, except per share amounts              1998            1997            1998            1997
--------------------------------------------------------------------------------------------------------
Income from continuing operations
  before extraordinary item                  $      4.1     $       9.1     $       7.9     $      17.2
                                             ===========    ============    ============    ============

Basic:
     Weighted average shares                       51.9            48.7            51.1            48.6
                                             ===========    ============    ============    ============
            Per share                        $     0.08     $      0.19     $      0.15     $      0.35
                                             ===========    ============    ============    ============

Assuming dilution:
            Weighted average shares                51.9            48.7            51.1            48.7
            Stock options                           1.6             0.4             1.6             0.5
            Restricted stock awards and units       0.2             0.3             0.2             0.3
                                             -----------    ------------    ------------    ------------
            Total                                  53.7            49.4            52.9            49.5
                                             ===========    ============    ============    ============
                 Per share                   $     0.08     $      0.18     $      0.15     $      0.35
                                             ============   ============    ============    ============
</TABLE>

9.   NEW ACCOUNTING PRONOUNCEMENTS

     In June 1997, the Financial  Accounting  Standards Board (FASB) issued
     SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
     Information"  and in February 1998,  issued SFAS No. 132,  "Employers'
     Disclosures  about Pensions and Other  Postretirement  Benefits." SFAS
     No. 131 establishes  standards for the way public business enterprises
     report   information   about   operating   segments  and  the  related
     disclosures  about products and services,  geographic  areas and major
     customers. SFAS No. 132 requires revised disclosures about pension and
     post-retirement  benefit plans. Adoption of SFAS No. 132 will not have
     a material  effect on the  corporation's  presentation  of pension and
     post-retirement   benefit   disclosures.   In  light  of  the   recent
     developments in the

                                     9

<PAGE>



     corporation's regulatory environment (see Note 7 and the "Management's
     Discussion  and  Analysis -- Outlook"  section of the Form 10-Q),  the
     corporation is evaluating the effect of  implementing  SFAS No. 131 on
     its presentation of operating  segments and related  disclosures.  The
     corporation  will adopt SFAS Nos. 131 and 132 in the fourth quarter of
     1998.

     In June 1998, the Financial Accounting Standards Board issued SFAS No.
     133,  "Accounting for Derivative  Instruments and Hedging Activities."
     The  statement  requires  companies to recognize  all  derivatives  as
     either assets or liabilities,  with the  instruments  measured at fair
     value.  The  accounting  for changes in fair  value,  gains or losses,
     depends  on the  intended  use of the  derivative  and  its  resulting
     designation.  The  statement is effective  for fiscal years  beginning
     after June 15, 1999.  The  corporation  will adopt SFAS No. 133 in the
     first  quarter  of 2000.  The  corporation  is  evaluating  the impact
     implementation of SFAS No. 133 will have on its consolidated financial
     statements.

10.  NOTE RECEIVABLE

     In  January  1997,  the  corporation   sold  its  19.66%  interest  in
     Philippine  Global  Communications,  Inc.  (PhilCom)  for  cash  and a
     collaterized note receivable  totaling $32.6 million.  At December 31,
     1997, the remaining note receivable balance of $12.7 million was to be
     paid in two payments  during 1998.  Subsequent  to June 30, 1998,  the
     note was  amended so that the balance  would be paid in  installments,
     with interest,  through June 2000. The corporation  received a payment
     of $1.0  million  in August  1998.  The  non-current  portion  of $7.5
     million was reclassified to other assets at June 30, 1998.


                                     10

<PAGE>



ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998

                           ANALYSIS OF OPERATIONS

CONSOLIDATED OPERATIONS

CONTINUING OPERATIONS

     Consolidated revenues from continuing operations in the second quarter
and  first six  months of 1998 were  $151.1  million  and  $295.8  million,
respectively,  which were $8.7 million and $19.8 million  better than their
comparative  periods in 1997. The higher revenues were primarily the result
of improvements in Network Services segment revenues.

     Operating  income for the second  quarter and  year-to-date  was $20.9
million and $40.6  million,  respectively,  which was $2.5 million and $6.0
million below the same periods last year. The decrease in operating  income
was  primarily  the result of an increase in  depreciation  expense in both
Satellite   Services   and   Network   Services  as  new   satellites   and
communications equipment were placed in service.

     Other income (expense),  net, for the second quarter was a net expense
of $1.0  million,  compared with a net income of $1.4 million in the second
quarter last year.  Second quarter of 1997 results included a non-recurring
gain from the sale of an  equity  investment.  For the first six  months of
1998,  other  income  (expense)  was a net expense of $3.8  million  versus
income of $700,000 for the same period last year. The year-to-date  results
included the first  quarter 1998  non-cash  write-off of the  corporation's
$2.0 million  investment  in  Superconducting  Core  Technologies,  Inc. In
addition,  the 1997 results  included a currency gain recorded in the first
quarter  related to the sale of an equity  investment as well as the second
quarter gain noted above.

     Interest  expense,  net of amounts  capitalized for the second quarter
and  first six  months  of 1998,  was  $12.7  million  and  $24.1  million,
respectively,  compared  to $10.2  million  and $19.8  million for the same
periods  of 1997.  The  increase  was  primarily  the  result of  increased
interest expense and a reduction in the amount of interest  capitalized due
to the completion of several satellite projects.

     Income tax expense for the second quarter was $3.1 million and for the
first six months of 1998 was $4.8 million.  These amounts were $2.2 million
and $5.5 million  below the  comparative  periods of 1997.  The decline was
primarily the result of lower income on which tax expense is calculated.

     Income from continuing  operations before  extraordinary  item for the
second  quarter  and  year-to-date  was  $4.1  million  and  $7.9  million,
respectively,  $5.0 million and $9.3 million below the same periods of last
year.


                                     11

<PAGE>



     Basic  earnings  per share for  continuing  operations  for the second
quarter was $0.08 and for the first six months of 1998 was $0.15, $0.11 and
$0.20 below the comparative periods of 1997. Diluted earnings per share for
continuing   operations   was  $0.08  for  the  second  quarter  and  $0.15
year-to-date,  which  were $0.10 and $0.20  below the same  periods of last
year.

     During  the  first  half of 1997,  the  corporation  repurchased  $100
million of its long-term debt. This early  extinguishment  of debt resulted
in an  extraordinary  loss in 1997 of $3.9  million.  The  portion  of this
extraordinary loss that was recorded in the second quarter of 1997 was $2.9
million.

DISCONTINUED 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.
See Note 2 to the financial statements.

CONSOLIDATED RESULTS

     On a  consolidated  basis,  the net income for the second  quarter and
first six months of 1998 was $4.1 million and $7.9  million,  respectively,
compared  to net  losses of $10.3  million  and $15.6  million  in the same
periods of 1997.

     Basic earnings per share for the second quarter were $0.08 and for the
first six months was $0.15, compared to losses per share of $0.21 and $0.32
for the same periods of 1997. Diluted earnings per share were $0.08 for the
second quarter and $0.15 year-to-date, versus losses per share of $0.21 and
$0.31 for the same periods of last year.

SEGMENT OPERATING RESULTS

     The corporation  reports operating results in two segments - Satellite
Services and Network Services. 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.

                                     12

<PAGE>


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

RESULTS BY SEGMENT:


                                                 Quarter Ended June 30,                      Six Months Ended June 30,
                                            ---------------------------------        ---------------------------------
In millions                                        1998                 1997                1998                 1997
----------------------------------------------------------------------------------------------------------------------

REVENUES
Satellite Services:
     World Systems                          $      69.1         $       66.5         $     135.0         $      133.3
     Mobile Communications                         40.1                 43.3                80.9                 81.9
                                            ------------        -------------        ------------        -------------
     Total Satellite Services                     109.2                109.8               215.9                215.2
                                            ------------        -------------        ------------        -------------

Network Services:
     International                                 27.1                 21.0                52.2                 37.4
     Laboratories                                  11.5                  9.7                20.5                 17.8
     Government Programs                           13.7                 11.3                28.0                 22.3
                                            ------------        -------------        ------------        -------------
     Total Network Services                        52.3                 42.0               100.7                 77.5
                                            ------------        -------------        ------------        -------------

Eliminations and other                            (10.4)                (9.4)              (20.8)               (16.8)
                                            ------------        -------------        ------------        -------------
     Total revenues                         $     151.1         $      142.4         $     295.8         $      275.9
                                            ============        =============        ============        =============

OPERATING INCOME
(LOSS)
Satellite Services:
     World Systems                          $      25.0         $       27.2         $      49.8         $       55.3
     Mobile Communications                          7.2                  5.4                15.0                 10.9
                                            ------------        -------------        ------------        -------------
     Total Satellite Services                      32.2                 32.6                64.8                 66.2
                                            ------------        -------------        ------------        -------------

Network Services:
     International                                 (5.0)                (2.1)              (10.6)                (6.6)
     Laboratories                                     -                 (0.2)               (0.6)                (0.3)
     Government Programs                            0.6                  0.5                 1.5                  0.8
                                            ------------        -------------        ------------        -------------
     Total Network Services                        (4.4)                (1.8)               (9.7)                (6.1)
                                            ------------        -------------        ------------        -------------

     Total segment operating
     income                                        27.8                 30.8                55.1                 60.1
General and administrative
expense                                            (6.1)                (6.8)              (11.9)               (12.6)
Other                                              (0.8)                (0.6)               (2.6)                (0.9)
                                            ------------        -------------        ------------        -------------
     Total operating income                 $      20.9         $       23.4         $      40.6         $       46.6
                                            ============        =============        ============        =============
</TABLE>

SATELLITE SERVICES

     Revenues in the Satellite  Services segment in the second quarter were
$109.2  million,  which were $600,000 below the second quarter of 1997. For
the first six months of 1998,  revenues  were  $215.9  million,  which were
$700,000 above the comparative period of last year. Operating income in the
second  quarter  and  year-to-date  was $32.2  million  and $64.8  million,
respectively,  which was $400,000  and $1.4 million  below the same periods
last year.

     CWS's revenues in the second quarter of 1998 were $69.1 million, which
were $2.6  million  above the same  period of 1997.  For the first  half of
1998,  revenues  of  $135.0  million  were  $1.7  million  better  than the
comparative period of last year. The increase in revenues was primarily the
result of improvements in International  Business Service (IBS) traffic and
wide-band  mobile  services,  offset  in  part  by  lower  full-time  voice
revenues.  The  improvement  in IBS  was  due  primarily  to  increases  in
high-speed  data and  Internet  services.  CWS's  operating  income for the
second  quarter  of 1998 and  year-to-date  was  $25.0  million  and  $49.8
million,  respectively,  which was $2.2 million and $5.5 million lower than
the same periods last year. The

                                     13

<PAGE>



decline in operating income was due to increased  depreciation from placing
in service four INTELSAT satellites during the past year.

     Revenues in CMC during the second quarter and first six months of 1998
were $40.1  million and $80.9  million,  respectively,  or $3.2 million and
$1.0 million below the comparative periods of last year. Increases in voice
traffic  revenue  were more than  offset by a decline  in sales of Planet 1
terminals,  which were introduced to market in January 1997. The results in
both periods also reflect improved  revenues from services  provided to the
Federal  Aviation  Administration's  (FAA)  Wide Area  Augmentation  System
(WAAS). CMC's operating income for the quarter was $7.2 million,  which was
$1.8 million  better than the second quarter of 1997. For the first half of
1998,  operating  income was $15.0  million,  which was $4.1 million higher
than the same period last year.  The  improvement  in operating  income was
primarily  the  result  of  lower  operating  costs,  partially  offset  by
increased  depreciation  from two  Inmarsat  satellites  placed in  service
during the last 12 months.  The operating costs in 1997 included  marketing
costs associated with the launch of Planet 1 service.

NETWORK SERVICES

     Network  Services   revenues  for  the  second  quarter  of  1998  and
year-to-date  were $52.3 million and $100.7  million,  respectively,  which
were $10.3  million and $23.2  million  higher than the same  periods  last
year.  The operating  loss in the second quarter and first half of 1998 was
$4.4 million and $9.7 million, compared to operating losses of $1.8 million
and $6.1 million for the comparative periods of 1997.

     Revenues in CI during the second  quarter  were $27.1  million,  which
were $6.1  million or 29% higher than the same  period  last year.  For the
first six months  revenues were $52.2 million,  which were $14.8 million or
40% above the first half of 1997.  The  improvement  in revenues was driven
primarily by increases in Brazil,  Argentina,  Colombia and Venezuela. CI's
operating loss in the second quarter of 1998 was $5.0 million,  compared to
an operating loss of $2.1 million in the  comparative  quarter of 1997. The
year-to-date  operating loss was $10.6 million, or $4.0 million higher than
the same period last year.  The increased  operating  losses were primarily
due to  increased  depreciation,  higher  operating  costs in  Brazil,  and
start-up costs in Mexico.  Revenue  commitments  under long-term  contracts
increased  to $343  million at June 30,  1998,  compared to $323 million at
December 31, 1997 and $254 million at June 30, 1997.

     COMSAT  Laboratories  revenues in the second quarter and for the first
six months of 1998 were $11.5 million and $20.5 million,  respectively,  or
$1.8  million  and $2.7  million  higher  than the same  periods  last year
because of increases  in technical  consulting  and  communication  product
revenues.  The  Laboratories'  operating  income for the second quarter was
break-even,  versus a loss of $200,000 in the same quarter  last year.  For
the first half of 1998, the  Laboratories  operating loss was $600,000,  or
$300,000 higher than the same period of 1997. The Laboratories'  backlog at
June 30, 1998 was $29  million,  as compared to $28 million at December 31,
1997 and $24 million at June 30, 1997.



                                     14

<PAGE>



     Government Programs revenues for the second quarter of 1998 were $13.7
million,  which was $2.4 million  higher than the second quarter last year.
For the year-to-date,  revenues were $28.0 million,  or $5.7 million better
than last year. The improvement  over last year was primarily the result of
increased revenues from the Commercial Satellite Communications  Initiative
(CSCI)  contract.  Operating  income in Government  Programs for the second
quarter and  year-to-date was $600,000 and $1.5 million,  respectively,  or
$100,000 and $700,000 better than the comparative periods of last year.

                                  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 A BILL PASSED BY THE U.S. HOUSE OF  REPRESENTATIVES  (WHICH CALLS
FOR MAJOR AMENDMENTS TO THE COMMUNICATIONS  SATELLITE ACT ADVERSE TO COMSAT
AND THE  PRIVATIZATION  OF INTELSAT AND  INMARSAT);  EFFORTS TO RESTRUCTURE
INTELSAT AND INMARSAT; FCC AND OTHER GOVERNMENTAL PROCEEDINGS;  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.

     During the first part of 1998,  significant  progress  was made in the
corporation's ongoing efforts to restructure INTELSAT and Inmarsat.

     The INTELSAT Assembly of Parties, at its March 1998 meeting,  approved
a restructuring plan to transfer six INTELSAT satellites (five currently in
orbit and one to be  launched  in 1999)  into a  separate,  new  commercial
company.  The  new  company,  incorporated  in the  Netherlands,  has  been
temporarily  named New Skies  Satellites  N.V. (New Skies).  It is expected
that the  transfer of assets from  INTELSAT to New Skies will occur  during
the second  half of 1998.  Additionally,  an  initial  public  offering  is
expected to occur  sometime  during 1999 to fund New Skies' future  capital
requirements.  New Skies will  operate  as an  entirely  separate  company,
independent of INTELSAT.  INTELSAT's  direct ownership in New Skies, set at
10%, will be held in a non-voting trust.  Individual  ownership levels will
be  limited  to  17%  and  it is  expected  that  COMSAT's  initial  direct
investment in New Skies will be  approximately  16.6%.  Competitors  of New
Skies are expected to initiate  regulatory  proceedings  at the FCC seeking
actions adverse to New Skies including challenges to U.S. market access.



                                     15

<PAGE>



     In June 1998,  the FCC issued a public  notice  requiring  U.S.  earth
stations  licensees  which  currently  use  INTELSAT  satellites  that will
transfer to New Skies to file license modification applications by July 17,
1998 in order to access the New Skies system. Several companies,  including
COMSAT,  filed  applications  in response to this notice.  The  corporation
anticipates  that  the  FCC  will  ultimately  grant  these   applications.
Competitors  of New  Skies,  however,  may  oppose  these  applications  or
initiate other proceedings at the FCC seeking actions adverse to New Skies,
including potentially denial of U.S. market access.

     COMSAT  currently  consolidates  its share of the accounts of INTELSAT
and  recognizes  its  portion  of  INTELSAT's  results of  operations  each
reporting  period.  COMSAT  anticipates  it will  use the  cost  method  of
accounting for its investment in New Skies.  Under the cost method,  COMSAT
would  only  recognize  income  at the time  dividends  from New  Skies are
received.  COMSAT does not anticipate that New Skies will declare dividends
during its first year of operations.  As a result, beginning at the time of
the transfer of assets to New Skies,  the  corporation's  pre-tax  earnings
from  its  investments  in both  INTELSAT  and New  Skies  will be lower by
approximately $1.5 million each quarter as compared to periods prior to the
transfer in the absence of other factors that may affect operating  results
in CWS.

     In March 1998,  the Inmarsat  Council  approved a plan to transfer the
operating assets of the current Inmarsat intergovernmental  organization to
a new  company.  This plan was  presented  at the  April  1998  meeting  of
Inmarsat's Assembly of Parties.  During its meeting,  the Assembly endorsed
the Council's plan for full  privatization.  At its next meeting,  which is
slated to occur in  September  1998,  the  Assembly is expected to finalize
outstanding  issues.  According to current  plans,  Inmarsat will become an
independent  commercial company in the first quarter of 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  ownership in Inmarsat at
the time of privatization  would be grandfathered.  COMSAT's voting rights,
however,  would be  capped at 15% with  respect  to votes  against  certain
shareholder resolutions.  Prior to the public offering, owners are expected
to be able to trade shares,  and strategic  investors may invest up to $500
million in equity in the new company.

     Approval of the final Inmarsat restructuring proposal will require (i)
a vote of two-thirds of the member  governments that are present and voting
(up to 84, with each  having one vote) at the  Assembly of Parties at which
approval  is sought and (ii) a further  vote by  Inmarsat  Council  members
representing  two-thirds of Inmarsat's total investment that all conditions
precedent to the transaction have been satisfied (or waived). The timetable
for  the  restructing  of  Inmarsat  is  contingent  upon  Inmarsat  member
governments   reaching  broad  consensus  on   implementing   the  proposed
amendments  to the Inmarsat  Convention  prior to formal  ratification.  If
consensus is not achieved,  the ratification process could take longer. The
corporation,  as a minority shareholder and the U.S. signatory to Inmarsat,
lacks the ability to independently effect a restructuring of 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.  Morever,  the issue of
whether legislation  authorizing U.S. approval of Inmarsat privatization is
required has yet to be resolved.



                                     16

<PAGE>



     As with INTELSAT,  COMSAT  consolidates  its shares of the accounts of
Inmarsat.  Assuming COMSAT continues to own at least 20% of the new company
at the time it is privatized and other details and  assumptions  related to
the restructuring do not change, the corporation  anticipates that it would
use the equity method of accounting  for its  investment in the  privatized
Inmarsat.  Under the equity  method,  the  corporation  would  continue  to
include its proportionate  share of the new company's  operating results as
part of the  corporation's  operating  results.  As such,  adoption  of the
equity  method  of  accounting  for  the  corporation's  investment  in the
privatized Inmarsat is not expected to affect the corporation's net income.
The accounting method used for this investment,  however, will be dependent
upon the terms and conditions of the final Inmarsat  restructuring  and the
corporation's then current ownership interest.

     On April 24,  1998,  the FCC granted the  corporation's  petition  for
reclassification as a non-dominant common carrier in markets that represent
approximately  90% of CWS's  revenues.  For those  markets,  rate-of-return
regulation  has  been  lifted  effective  immediately.   In  the  remaining
"thin-route" markets, which are expected to account for only 10% or less of
the CWS  business  in 1998,  the FCC  denied the  corporation's  request to
forbear from dominant carrier regulation.  The FCC, however, stated that it
would consider on an expedited basis a form of  incentive-based  regulation
to replace dominant rate-of-return  regulation for the thin-route business,
and  issued a Notice of  Proposed  Rulemaking  seeking  public  comment.  A
decision by the FCC in the  thin-route  regulation  proceeding  is expected
before the end of the year. The FCC's  non-dominant  order also granted the
corporation's   request  to  file  tariffs  on  one-day's   notice  with  a
presumption  of lawfulness  and granted the  corporation's  request for the
elimination of the CWS structural separation  requirements.  The order also
gave CWS authority to enter the earth station market on an unseparated  and
non-dominant  basis.  The  FCC  indicated  that  it  plans  to  initiate  a
proceeding  to explore the  implications  of enabling  users to have direct
access to the INTELSAT  system.  At this time,  no action has been taken to
initiate  that  proceeding.   Finally,  the  FCC  concluded  that  COMSAT's
long-term carrier contracts do not impede competition; thus, such contracts
would not be subject to regulatory abrogation based on the so called "fresh
look" doctrine.

     In May 1998, the U.S. House of Representatives  passed a bill entitled
the  "Communications  Satellite  Competition and Privatization Act of 1998"
(HR 1872).  While the  corporation  supports HR 1872's stated  objective of
privatizing  INTELSAT and Inmarsat in a pro-competitive  manner,  COMSAT is
opposed  to HR 1872 in its  current  form.  The  corporation  is,  and will
continue,  opposing  HR 1872,  unless it is modified in a manner that would
not  adversely  affect  the  corporation's  business  and the  value of its
shareholders'  investments in the INTELSAT and Inmarsat  satellite systems.
To become law, a companion  bill will have to be  considered  and passed by
the U.S. Senate, proceed through a House-Senate  conference,  and be signed
by the President.  An international satellite bill, S. 2365, was introduced
in the Senate on July 28, 1998. COMSAT believes that S. 2365, on the whole,
represents a more constructive  approach to privatization and international
satellite policy.  The proposed Senate bill excludes many of the provisions
of HR 1872 that could  impair  COMSAT's  investments  and  operations.  The
Senate bill,  however,  contains certain provisions  (including a provision
authorizing  direct  access to INTELSAT  and  Inmarsat on  so-called  "thin
routes" and another  provision  which  could lead to U.S.  withdrawal  from
INTELSAT  and  Inmarsat  if full  privatization  has not been  realized  by
January 1, 2003) which the corporation believes are not needed and could be
counterproductive.

                                     17

<PAGE>



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  exists,  there is the potential for computer system failure
or  miscalculations,  which could cause a  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 $6
million  and $8 million  prior to  January  1, 2000 to modify its  in-house
management  information systems,  customer products,  and other systems and
equipment  affected by the year 2000  issue.  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
and  necessary  skills,  the  ability to locate and  correct  all  relevant
computer code and similar uncertainties.

     While the  corporation  is devoting  substantial  resources to its own
year  2000  compliance  effort,  COMSAT,  as  well as  other  international
communications  carriers will be dependent, in part, upon foreign and other
third  party   telecommunication   carriers  being  year  2000   compliant.
International  communications  services,  such  as  those  provided  by the
Satellite  Services  segment,  depend on  interconnection  between U.S. and
foreign communication carriers. At this time, the corporation is evaluating
what, if any, effect year 2000 non-compliance by other carriers may have on
the corporation's financial performance.


                                     18

<PAGE>



                      LIQUIDITY AND CAPITAL RESOURCES

     The primary  sources of cash in the first six months of 1998 were cash
from operations,  proceeds from sale of CRSI and from the exercise of stock
options. Cash was used primarily for the purchase of property and equipment
and to reduce  short-term debt. The  corporation's  working capital at June
30, 1998 was $38.8 million, which was $17.2 million higher than at December
31, 1997.

     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 $20
million  in  borrowings  outstanding  at June 30,  1998.  During the second
quarter, the corporation reduced short-term debt with the proceeds from the
sale of  substantially  all of the assets and  operations  of CRSI.  A $200
million  credit  agreement,  expiring in 1999,  backs up the  corporation's
commercial paper program.

     The  corporation  had $36 million  remaining  at June 30, 1998 under a
$100 million  medium-term  note program,  which is unchanged  from year-end
1997.  The  medium-term  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 Federal  Communications  Commission (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. The corporation  submitted its 1998 capitalization plan to the FCC in
May 1998 and a response  from the FCC is expected  in the third  quarter of
1998.  Under the existing 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 $200 million  short-term  debt limit as of June 30,
1998 and expects to be in compliance with the other  guidelines at December
31, 1998.



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<PAGE>



PART II.     OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS
             See  Note  7 of  this  Form  10-Q,  Item 1 of  Part  II of the
             Corporation's  March  31,  1998  Form  10-Q  and Item 3 of the
             Corporation's 1997 Form 10-K, which are incorporated herein by
             reference.


ITEM 2.      CHANGE IN SECURITIES
             None

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES
             None

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
             At the  Corporation's  Annual Meeting of Shareholders  held on
             May  15,  1998  (the  "Annual  Meeting"),  all  twelve  of the
             Corporation's  nominees for director  were elected by the vote
             totals noted below:


             NOMINEE                            FOR                  WITHHELD
             -------                            ---                  --------
             Betty C. Alewine                   43,458,316           292,637
             Marcus C. Bennett                  42,682,818           289,059
             Lucy Wilson Benson                 42,657,117           314,760
             Edwin I. Colodny                   42,670,683           301,194
             Lawrence S. Eagleburger            42,403,027           568,850
             Neal B. Freeman                    42,674,222           297,655
             Caleb B. Hurtt                     42,680,497           291,380
             Peter W. Likins                    42,681,612           290,265
             Larry G. Schafran                  42,675,367           296,510
             Robert G. Schwartz                 42,655,530           316,347
             Kathryn C. Turner                  42,671,969           299,908
             Guy P. Wyser-Pratte                42,680,544           291,333

             The  Corporation  also has two directors,  Peter S. Knight and
             Charles T. Manatt, who are appointed by the President pursuant
             to the  Communications  Satellite  Act of 1962 and whose terms
             continued after the Annual Meeting.  A third director position
             is vacant pending appointment by the President.

             Shareholders approved the appointment of Deloitte & Touche LLP
             as independent  public accountants for the Corporation for the
             fiscal year ending  December  31, 1998 which  appointment  was
             approved  by a vote of  42,729,308  for,  224,552  against and
             82,940 abstentions.


                                     20

<PAGE>



             A shareholder  proposal  requiring the Corporation to reaffirm
             its  political  non-partisanship  and require the reporting of
             certain  practices  was defeated by a vote of  5,711,532  for,
             26,955,363  against  and  3,827,672  abstentions.  There  were
             6,542,233 broker non-votes.

ITEM 5.      OTHER INFORMATION
             None

ITEM 6.      (a)  EXHIBITS
                  27 - Financial Data Schedule

             (b)  REPORTS ON FORM 8-K
                  None

                                     21

<PAGE>


                                 SIGNATURES

     Pursuant to the  requirements of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.


                                         COMSAT CORPORATION


                                         By /s/ ALAN G. KOROBOV
                                            -------------------
                                                Alan G. Korobov
                                                Controller


Date: August 13, 1998

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