SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

 (Mark One)
[ X ]       ANNUAL  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
      EXCHANGE ACT OF 1934

  For the fiscal year ended December 31, 1997

                                      OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
      EXCHANGE ACT OF

For the transition period from         to

                          Commission file number 33-95298

                             GALAXY TELECOM, L.P.

            (Exact name of Registrant as specified in its charter)

                Delaware                                      43-1697125
 -----------------------------------                   ---------------------
(States of Other Jurisdictions of                           IRS Employer
 Incorporation or Organization)                          Identification No.)

              1220 North Main
           Sikeston, Missouri                                   63801
    -----------------------------------                -----------------------
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:  (573) 472-8200

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

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  Exchange 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 the  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 the voting equity  securities held by non-affiliates
of Galaxy Telecom, L.P.: $0

Aggregate market value of the voting equity  securities held by non-affiliates
of Galaxy Telecom Capital Corp.: $0

Number of shares of Galaxy Telecom  Capital Corp.  outstanding as of March 31,
1997: 100

DOCUMENTS  INCORPORATED BY REFERENCE: Not applicable.




<PAGE>

                                GALAXY TELECOM, L.P.
                                     FORM 10-K
                            Year Ended December 31, 1997


                                  TABLE OF CONTENTS

Item        Topic                                                   Page

                                       PART I

   1.   Business...................................................... 3
   2.   Properties....................................................25
   3.   Legal Proceedings.............................................25
   4.   Submission of Matters to a Vote of
        Security Holders..............................................25
  4a.   Executive Officers............................................25

                                     PART II

   5.   Market for the Registrant's Securities
        and Related Security Holder Matters...........................26
   6.   Selected Financial Data.......................................26
   7.   Management's Discussion and Analysis of
        Financial Condition and Results of Operations.................27
  7a.   Qualitative and Quantitative Disclosures about
        Market Risks..................................................35
   8.   Financial Statements and Supplementary Data..................F-1
   9.   Changes In and Disagreements with Accountants
        on Accounting and Financial Disclosure....................... 36

                                    PART III

  10.   Directors and Executive Officers of the Registrant............37
  11.   Executive Compensation....................................... 38
  12.   Security Ownership of Certain Beneficial
        Owners and Management.........................................39
  13.   Certain Relationships and Related Transactions................41

                                    PART IV

  14.   Exhibits, Financial Statement Schedules
        and Reports on Form 8-K.....................................  45

  Signatures........................................................  46



                                       2
<PAGE>
                                    PART I

      Item 1.     Business.

      General

      Galaxy Telecom,  L.P.  ("Galaxy")  owns,  operates and develops  classic
cable  television  systems (the "Systems")  primarily in small  communities in
the Midwest and Southeast United States.  As of December 31, 1997, the Systems
passed   approximately   300,000  homes  and  served   approximately   177,000
subscribers in sixteen states, predominantly including Mississippi,  Nebraska,
Kansas, Missouri, Illinois, Kentucky, Iowa, Alabama, Georgia and Florida.

      Galaxy  believes  there are  significant  advantages  to  acquiring  and
operating  classic  cable  television  systems.  Typically,  in classic  cable
television markets,  cable television service is necessary in order to receive
a   full   complement   of   over-the-air   television   stations   (including
network-affiliated  stations).  In addition,  these  markets  generally  offer
fewer  competing  entertainment  alternatives  than  larger  urban or suburban
markets.  As a result,  classic cable  television  systems usually have higher
basic  penetration  rates and lower churn rates than  systems  serving  larger
markets.  As compared with urban and suburban  systems,  classic  systems have
more  programming  flexibility for a given channel  capacity  because they are
generally in areas with fewer  over-the-air  broadcast  stations  that must be
carried and have fewer local  programming  obligations.  In  addition,  Galaxy
believes  that  it  and  other  classic  cable  system  operators  have  lower
capital costs per subscriber than urban and suburban  operators.  Based on the
generally  lower cost of living in its operating  areas,  Galaxy also believes
that classic  systems have lower labor and marketing costs than many urban and
suburban systems.

      Approximately  97% of the plant in the Systems has a channel capacity of
30 channels or more. In addition,  substantially  all of the Systems presently
have the  capacity to increase the number of channels  offered to  subscribers
without having to increase existing  bandwidth.  Galaxy intends to continue to
reduce the number of  headends  in the  Systems  by  interconnecting  adjacent
headend  locations   through  the  deployment  of  fiber  technology.   Galaxy
believes  that  attaching  these  systems onto one master  headend will reduce
maintenance costs, increase system reliability,  allow the redeployment of the
associated  electronic  equipment  to remaining  headends  within the existing
systems  and  create  additional  sources  of  revenue.   Galaxy  reduced  and
redeployed 34 of such headends in 1997.

      The five key individuals who manage Galaxy's day-to-day  operations (the
"Senior  Managers") have developed and refined the operating strategy utilized
by Galaxy to  efficiently  and  economically  provide  high  quality  customer
service to classic  cable  television  systems  spread over a wide  geographic
area. Galaxy's existing  infrastructure  includes two customer service centers
that receive  customer  calls  through a toll-free  telephone  number.  At the
service centers,  customer service  representatives  can address virtually any
request or problem a customer  may have  through an on-line  customer  support
computer system utilizing  advanced  software.  The central computer system is
integrated with the Qualcomm OmniTRACS  satellite-based dispatch system, which
has  been  installed  in  virtually  all of  Galaxy's  service  vehicles.  The
OmniTRACS  system provides the customer service  representatives  with direct,
real-time,  two-way interactive  communication with Galaxy's field technicians
and generates  comprehensive  customer service  information on a timely basis.
The integration of the OmniTRACS  system with the centralized  computer system
allows Galaxy to control costs,  better manage the customer  service  function
and  provide its  customers  with high  quality  service,  generally  within a
24-hour period.

                                       3
<PAGE>

      Galaxy  believes that  consistently  high quality  performance  from its
local  field   technicians   is  important  in   maintaining   good  community
relations.  Galaxy has an ongoing  program of training  its field  technicians
not  only  in  technical  areas  but  also  in  customer   service  and  sales
functions.  Galaxy  strives  to have its  local  field  technicians  represent
Galaxy in each of their respective service areas as well-trained,  responsible
and respected members of their communities.

      Galaxy  believes its real  opportunity  lies in the  development  of its
properties in Nebraska, Kansas, Illinois,  Kentucky and Mississippi (the "Core
Areas").  The Core Areas are  considered  such due to Galaxy's  opportunity to
be  the  dominant  operator  in  these  areas  and  the  ability  to  generate
additional   revenue   through  its  fiber   network  (see   "Technology   and
Engineering"  discussed below).  The properties that are not in the Core Areas
are currently in the process of being sold,  traded or  re-evaluated  as being
able to be converted to Core Areas.

      Background

      The Senior Managers,  Tommy L. Gleason,  Jr., James M. Gleason, J. Keith
Davidson,  Ronald  Voss,  and  Terry M.  Cordova  have  been  involved  in the
construction,  acquisition,  ownership,  management  and  operation of classic
cable television  systems as a team for more than a decade and have collective
experience in the cable  television  industry  exceeding 100 years.  From 1987
through 1994, the Senior  Managers  operated  approximately  100 classic cable
television  systems for Galaxy  Cablevision,  L.P. ("Galaxy  Cablevision"),  a
master  limited  partnership  traded on the  American  Stock  Exchange.  Prior
thereto,  between 1981 and 1987, the Senior Managers  constructed and operated
cable television systems in Alabama,  Illinois,  Indiana,  Tennessee and Texas
through a number of related entities.

      In response to changes in the federal tax laws regarding  master limited
partnerships,  Galaxy  Cablevision  commenced in 1994 the  liquidation  of its
cable  television   holdings.   Thereafter,   the  Senior  Managers  organized
Galaxy Systems  Management,  Inc.  ("Galaxy  Management") to acquire  selected
cable  television  properties.  Commencing  in  May  1994,  Galaxy  Management
entered  into  definitive  agreements  to acquire  selected  cable  television
systems from Galaxy  Cablevision,  Vantage Cable  Associates,  L.P.  ("Vantage
Cable"),    Vista   Communications    Limited    Partnership,    III   ("Vista
Communications")  and  Chartwell  Cable  of  Colorado,   Inc.   ("Chartwell"),
(collectively  the "Initial  Systems").  Each of these agreements was assigned
to,  and  assumed  by,  Galaxy  prior  to  the  consummation  of  each  of the
transactions.  In order to  facilitate  Galaxy's  acquisition  of the  Initial
Systems,  funds managed by TA Associates,  Spectrum Equity Investors and Fleet
Equity   Partners   (the  "Equity   Investors")   and  the  Senior   Managers,
collectively,  invested equity capital of approximately $30 million in Galaxy.
These   acquisitions   represented   223  cable   television   systems.   Upon
acquisition by Galaxy, the Initial Systems passed approximately  120,500 homes
with  approximately   3,038  miles  of  plant,   resulting  in  a  density  of
approximately  39.7  homes  per  mile,  served   approximately   77,230  basic
subscribers and had a basic penetration rate of approximately 64.1%.

      1995 Acquisitions

      Cameron  Acquisition.  On March 31,  1995,  Galaxy  acquired  all of the
operating assets comprising Galaxy  Cablevision's  eight Cameron,  Texas cable
television  systems (the "Cameron  Systems").  The Cameron Systems are located
northeast of Austin,  Texas.  The purchase  price for the Cameron  Systems was
approximately  $3.6 million.  Upon acquisition by Galaxy,  the Cameron Systems
passed  approximately  7,730  homes  with 143 miles of plant,  resulting  in a
density of  approximately  54.1  homes per mile,  served  approximately  3,500
basic subscribers and had a basic penetration rate of approximately 45.3%.

      Phoenix Cable  Acquisition.  On November 2, 1995, Galaxy acquired all of
the operating  assets  comprising the 3 cable  television  systems  located in
Mississippi  that were owned by Phoenix Cable (the "Phoenix  Cable  Systems").
The  purchase  price for the Phoenix  Cable  Systems was  approximately  $0.55
million.  Upon  acquisition  by  Galaxy,  the  Phoenix  Cable  Systems  passed
approximately  1,115 homes with 71 miles of plant,  resulting  in a density of
approximately 15.7 homes per mile, served  approximately 600 basic subscribers
and had a penetration rate of approximately 53.8%.

                                       4
<PAGE>

      Douglas  Communications   Acquisition.   On  December  1,  1995,  Galaxy
acquired  all of the  operating  assets  comprising  the 226 cable  television
systems located in Illinois,  Missouri, Nebraska and Kansas that were owned by
Douglas   Communications   (the   "Douglas   Communications   Systems").   The
purchase  price  for the  Douglas  Communications  Systems  was  approximately
$45.8 million. Upon acquisition by Galaxy, the Douglas  Communications Systems
passed approximately  72,945 homes, with 1,613 miles of plant,  resulting in a
density of  approximately  45.2 homes per mile,  served  approximately  43,000
basic subscribers, and had a basic penetration rate of approximately 59.0%.

      Friendship  Cable  Acquisition.  On December 29, 1995,  Galaxy  acquired
all  of the  operating  assets  comprising  the 35  cable  television  systems
located in Florida,  Georgia and South  Carolina that were owned by Friendship
Cable  (the  "Friendship   Cable   Systems").   The  purchase  price  for  the
Friendship Cable Systems was  approximately  $21 million.  Upon acquisition by
Galaxy, the Friendship Cable Systems passed  approximately  35,637 homes, with
1,676  miles  of  plant,  for  a  density  of  21.3  homes  per  mile,  served
approximately  17,500 basic  subscribers and had a basic  penetration  rate of
approximately 49.1%.

      Vista-Narragansett   Acquisition.   On   December   29,   1995,   Galaxy
acquired  all of the  operating  assets  comprising  the 18  cable  television
systems  located  in  Mississippi,   Alabama,  Louisiana  and  Tennessee  (the
"Vista-Narragansett  Systems").  The purchase price for the Vista-Narragansett
systems,   net  of  systems  sold,  was  approximately  $13.7  million.   Upon
acquisition by Galaxy,  the  Vista-Narragansett  systems passed  approximately
16,155   homes,   with  433  miles  of  plant,   resulting  in  a  density  of
approximately  37.3  homes  per  mile,  served   approximately   11,000  basic
subscribers and had a basic penetration rate of approximately 68.1%.

      Vista I Acquisition.  On December 29, 1995,  Galaxy  acquired all of the
operating  assets  comprising  the 18  cable  television  systems  located  in
Mississippi  and  Alabama of Vista I (the  "Vista I  Systems").  The  purchase
price  for  the  Vista  I  Systems  was  approximately   $7.6  million.   Upon
acquisition by Galaxy, the Vista I Systems passed  approximately  9,073 homes,
with 323  miles of  plant,  resulting  in a  density  of 28.1  homes per mile,
served  approximately 6,100 basic subscribers and had a basic penetration rate
of approximately 67.2%.

      1996 Acquisitions And Trades

      Galaxy  acquired  various assets  comprising  cable  television  systems
through purchase and trade  throughout  1996.  Following is a brief discussion
of each transaction.

      Cablevision  of  Texas  Systems.  On March  29,  1996,  Galaxy  acquired
certain assets comprising 31 cable television  systems of Cablevision of Texas
III,  Empire  Communications  and Empire Cable of Kansas (the  "Cablevision of
Texas  Systems") for a purchase price of  approximately  $10.2 million.  As of
the closing  date,  the  Cablevision  of Texas  Systems  passed  approximately
11,771  homes  located  in Kansas,  with 347 miles of plant,  for a density of
approximately  33.9 homes per mile.  The  Cablevision  of Texas Systems served
approximately  9,100 basic  subscribers  and had a basic  penetration  rate of
approximately 77.3%.

         High  Plains  Systems.  On April 1,  1996,  Galaxy  acquired  certain
systems  comprising eight cable  television  systems of High Plains Cable (the
"High Plains  Systems") for a purchase  price of  approximately  $0.3 million.
As of the closing  date,  the High Plains  Systems  passed  approximately  580
homes  located  in  Kansas,   with  20  miles  of  plant,  for  a  density  of
approximately   29  homes   per  mile.   The  High   Plains   Systems   served
approximately  270  basic  subscribers  and  had a basic  penetration  rate of
approximately 46.6%.

                                       5
<PAGE>

         Midcontinent  Systems.  On April 12, 1996,  Galaxy  acquired  certain
assets  comprising  six  cable  television   systems  of  Midcontinent   Cable
Systems (the  "Midcontinent  Systems") for a purchase  price of  approximately
$1.4  million.  As of  the  closing  date,  the  Midcontinent  Systems  passed
approximately  1,853 homes  located in Nebraska,  with 32 miles of plant,  for
a density of  approximately  57.9  homes per mile.  The  Midcontinent  Systems
served  1,328  basic   subscribers  and  had  a  basic   penetration  rate  of
approximately 71.7%.

         Five Rivers Systems.  On November 1, 1996,  Galaxy  acquired  certain
assets  comprising  one cable  television  system of Five Rivers Cable Company
(the  "Five  Rivers  System")  for a  purchase  price  of  approximately  $0.5
million.  As of the closing date, the Five Rivers System passed  approximately
730 homes  located  in  Tennessee,  with 24 miles of plant,  for a density  of
approximately  30.4 homes per mile.  The Five Rivers  System  served 588 basic
subscribers and had a basic penetration rate of approximately 80.5%.

      Hurst  Communications  Systems.  On  March  29,  1996,  Galaxy  acquired
certain   assets   comprising   eight  cable   television   systems  of  Hurst
Communications  (the "Hurst  Systems") for a purchase  price of  approximately
$1.1   million.   As  of  the  closing   date,   the  Hurst   Systems   passed
approximately  1,830 homes  located in Kansas,  with 50 miles of plant,  for a
density  of  approximately  36.6  homes per mile.  The  Hurst  Systems  served
1,371 basic subscribers and had a basic penetration rate of 74.9%.

      TCI Systems  Trade.  On June 14, 1996,  Galaxy traded assets  located in
Shawnee County and Jefferson County,  Kansas (the "Shawnee County System") for
assets comprising six cable television  systems of  Tele-Communications,  Inc.
(the "TCI Systems") located in northern  Mississippi.  At closing, the Shawnee
County Systems passed  approximately 9,500 homes, with approximately 315 miles
of plant,  resulting in a density of 30.2 homes per mile.  The Shawnee  County
System  served   approximately   7,000  basic  subscribers  and  had  a  basic
penetration  rate of  approximately  73.7% as of the closing  date.  As of the
closing date,  the TCI Systems  passed  approximately  16,900 homes,  with 729
miles of plant,  resulting in a density of approximately  23.2 homes per mile.
The TCI Systems served  approximately 10,363 basic subscribers and had a basic
penetration rate of approximately 61.3%.

      C-S  Cable.  On  October  30,  1996,   Galaxy  acquired  certain  assets
comprising the cable  television  systems of CS Cable Services,  Inc. (the "CS
Cable  Systems") for a purchase  price of  approximately  $2.3 million.  As of
the  closing  date,  the CS Cable  Systems  served  approximately  3,500 basic
equivalent subscribers.

      Mexia / Ranburn  Trade.  On  November  1,  1996,  Galaxy  traded  assets
comprising the Ranburn cable system in Ranburn,  Alabama serving approximately
110 subscribers for a similar system in Mexia,  Alabama serving  approximately
230  subscribers.  This trade allowed  Galaxy to trade a small system out of a
non-targeted  service  area for a similar  system in proximity to our targeted
service areas.

      1997 Acquisitions and Dispositions

      TCI Cable of the Midland - Sarpey County Systems.  On September 1, 1997,
Galaxy  acquired  certain assets  comprising the cable  television  systems of
TCI Cable of the Midland (the "Sarpey County Systems"),  located in Sarpey and
Douglas counties,  Nebraska for a purchase price of approximately $875,000. At
September 1, 1997, the Sarpey County Systems passed  approximately 3,000 homes
located in Nebraska,  with  approximately  80 miles of plant, for a density of
39 homes per mile.  The  Sarpey  County  Systems  served  approximately  1,613
basic subscribers and had a basic penetration rate of approximately 52%.

                                       6
<PAGE>

            On  April  7,  1997,  Galaxy  sold its  cable  television  system
located  in  Five  Points,   South   Carolina   (the  "Five  Points   Sale"),
representing  311 basic  subscribers for $372,645,  or  approximately  $1,200
per  subscriber.  Galaxy used most of the proceeds  from the Five Points Sale
to pay down principal of the revolving note.

      On August 1, 1997,  Galaxy sold its cable  television  systems  located
in Lake Murray,  South  Carolina (the "Lake Murray Sale"),  representing  587
subscribers   for  $587,000  or  $1,000  per   subscriber.   Galaxy  retained
ownership of all related  equipment  located in the two head-end  facilities.
Galaxy used the proceeds  from the Lake Murray Sale to pay down  principal of
the revolving note.

      On  December  31,  1997,  Galaxy  sold  its  cable  television  systems
located in Lauderdale  County,  Mississippi (the  "Lauderdale  County Sale"),
representing  833  subscribers  for $1.12  million or $1,350 per  subscriber.
Galaxy  used  the  proceeds  from  the  Lauderdale  County  Sale to pay  down
principal of the revolving note.

      On  December  31,  1997,  Galaxy  sold  its  cable  television  systems
located  in South  Kansas  (the  "South  Kansas  Sale"),  representing  1,346
subscribers  for  $1.25  million  or $932  per  subscriber.  Galaxy  used the
proceeds  from the South Kansas Sale to pay down  principal of the  revolving
note.

      Pending Disposition

      On January 15, 1998,  Galaxy sold its cable  television  systems located
in Wyoming and Idaho (the  "Wyoming  Sale"),  representing  4,000  subscribers
for $4.9 million or $1225 per  subscriber.  Galaxy used the proceeds  from the
Wyoming Sale to pay down principal of the revolving note.

      Service, Installation and Repair

      Galaxy  believes  that  providing  exceptional  customer  service  is  a
critical  element in  maximizing  the value of services  provided to customers
of  the  Systems.  Accordingly,  Galaxy  has  equipped  its  customer  service
centers with advanced  computer  technology  and  communications  systems that
allow Galaxy to  efficiently  manage classic cable  television  systems over a
large  geographic  area.  Centralizing  the customer  service function enables
Galaxy  to  employ  a  smaller  number  of  highly  trained  customer  service
representatives  than in a more decentralized  operational  structure.  Galaxy
invests   significant    resources   in   providing   its   customer   service
representatives with ongoing telephone,  computer and sales training to assure
that the customer  receives a consistently high level of service.

      Galaxy  utilizes  advanced  software  systems  to  facilitate  effective
interaction with its customers.  A potential or existing  customer can call at
any time Galaxy's  toll-free  telephone  number for  installation,  repairs or
other services.  The call is automatically  routed to one of Galaxy's customer
service  centers.  At the service centers,  customer  service  representatives
who receive the calls can address  virtually any request or problem a customer
may have  through  access  to an  on-line  customer  support  computer  system
utilizing  advanced  software.  If a customer is reporting a service  problem,
the  customer  service  representative  will enter a service call request into
the central  computer  system,  which  prioritizes  and  schedules the service
call. The computer  system  automatically  prioritizes the call based upon the
severity  of  the  problem  reported.   If,  for  example,   the  customer  is
experiencing a complete  disruption of service,  the call is given the highest
priority and is dispatched  immediately to the local field technician.  If the
customer   requests  new  or  additional   services,   the  customer   service
representative  will  enter  a work  order  into  the  computer  system  which
automatically  assigns  and  schedules  the  order for the  appropriate  field
technician.

                                       7
<PAGE>

      Virtually  all of  Galaxy's  service  vehicles  are  equipped  with  the
Qualcomm  OmniTRACS  satellite-based  dispatch  system,  and Galaxy intends to
install  the  OmniTRACS  system in all service  vehicles of acquired  systems.
Through  direct,  real-time  access  to the  field  technician  and  his  work
schedule  via  the  OmniTRACS  system,  the  customer  service  representative
transmits  the service  call  request or the work order  directly to the field
technician's service vehicle. The OmniTRACS system,  together with the central
computer  system,  enables Galaxy to provide the requested  service  generally
within 24 hours of the  customer's  call.  When the  technician  has completed
the service call or the work order,  the service or work order  information is
entered  into  the  OmniTRACS  unit  in the  field  technician's  vehicle  and
transmitted  back  to  the  central  computer  system.   The  computer  system
completes  and closes the service call or work order,  updates the  customer's
account,   posts  any  payments  received  from  the  customer  by  the  field
technician  and starts the  billing  for any new  services.  This  interactive
system helps Galaxy  control its costs and improve its service by avoiding the
inefficiencies  and  costs  associated  with  printing  service  calls or work
orders and using  pagers,  facsimile  machines,  two-way  radios and  cellular
phones to communicate  with its field  technicians.  The OmniTRACS system also
provides  regional managers the ability to determine the exact location of all
service  vehicles at any time and keeps a record of all  movements  of service
vehicles.

      Marketing, Rates and Collections

      Galaxy  aggressively  markets and promotes its cable television  systems
with  the  objective  of  increasing   penetration  and  average  revenue  per
subscriber.  Galaxy actively markets basic and premium  programming  primarily
through  door-to-door  selling  efforts  and  telemarketing,  and, to a lesser
degree,  through media  advertising and direct mail. Each of Galaxy's customer
service centers has a Marketing Director who coordinates  direct  door-to-door
campaigns  throughout the  geographic  areas of the Systems and is responsible
for internal  incentives for the customer service and technical  staffs.  Each
Marketing  Director  also insures that Galaxy is providing  high quality sales
and service by  supervising  and  training  direct sales  representatives  and
assessing   picture  and  service   quality  within  Galaxy's  cable  systems.
Customer  service  representatives  follow up by telephone  contact  within 35
days of the  installation  to assess the quality of the  installation  and the
overall   service  the   customer  is   receiving   and  to  assure   customer
satisfaction.  Customer  service  representatives  are also  trained to market
upgrades  in service to existing  customers.  Each  service  center also has a
Director of Training,  who works  closely  with the  Marketing  Department  to
ensure that all employees are informed of current rates,  programming packages
and promotions.

      Galaxy's  current monthly rates for full basic service range from $10.75
to $30.95 and rates for  traditional  premium  services  generally  range from
$6.95 to $13.00 per service.  Because the Systems have been owned and operated
by various other cable television operators,  differing strategies with regard
to channel  lineups,  pricing  and  security  for premium  services  have been
employed.  It is  Galaxy's  goal to attempt to  standardize  its  programming,
rates and premium security over all of the Systems within the next few years.

                                       8
<PAGE>

      In order to better  facilitate  efforts to maximize  quality  service to
its customers,  Galaxy converted its company billing system to Cincinnati Bell
Information  System's  ("CBIS")  Cablemaster  2000 in November 1996. This is a
system  developed  specifically  for  the  cable  television  industry.   CBIS
operates  the billing  system at its service  center in Florida,  and produces
statements  for customers on a monthly basis.  Billing  statements are printed
and mailed  directly to  customers,  who have 15 days from their cycle billing
date to remit  payment  to  Galaxy's  central  payment  processing  center  in
Sikeston,  Mo. If after the 15 days a  customer  has not made a  payment,  the
customer  is  charged  a  late  payment  fee.  Galaxy   aggressively   pursues
collection of past due amounts by  telephoning  the customer at  approximately
35 days past the due date. If these  measures  fail,  the customer is notified
and  then  disconnected.  A  final  statement  is  sent  within  a week  after
disconnection  and 30 days  thereafter the account is referred to a collection
agency.  Galaxy  has  contact  with the CBIS  center  via phone  and  computer
interface  and  has  immediate  access  to  all of our  billing  and  customer
information, as if the process was done "in-house."

      In  addition  to  monthly  billing  and  one-time  charges,   additional
potential  sources of revenue for cable operators are late fee charges and the
sale  of   local   spot   advertising   time   on   locally   originated   and
satellite-delivered  programming.  Cable systems also generate revenue through
commissions from sales of products  offered through home shopping  programming
and purchased from the systems' respective service areas.

      Other potential sources of revenue for cable television  systems include
the  sale of  programming,  featuring  movies  and  special  events  (such  as
concerts,  sports programming and other entertainment  features), to customers
on  a  pay-per-view   basis.  Galaxy  would  need  to  invest  in  addressable
converter equipment to provide  pay-per-view  services on its systems.  Galaxy
currently does not generate  significant  revenues from any of these areas but
believes that certain of these areas could become possible  sources of revenue
in the future.

      Programming

      Galaxy  typically  carries  a wide  array of  programming  on its  basic
service.  A few  systems  have  been  acquired  that  offer two tiers of basic
cable   television   programming   service:   a  broadcast   programming  tier
(consisting  generally  of network  and public  television  signals  available
over-the-air  in the franchise  community  and  superstation  signals);  and a
satellite  programming  tier  (consisting  primarily  of   satellite-delivered
programming  such  as  CNN,  USA,  ESPN  and  TNT).  Substantially  all of the
customers of these  systems  subscribed  to both tiers of basic  service as of
December 31, 1997. To enhance  value for its  customers,  Galaxy  analyzes and
selectively  modernizes  its cable  plant to  increase  the  number of channel
offerings  and to improve the quality of the signal  delivered to its systems.
Galaxy  regularly  evaluates  the  programming  offered  by  its  systems  and
continuously seeks to provide innovative  packages of premium service in order
to assure customer  satisfaction.  As an example,  Galaxy's  systems now carry
the  Disney  Channel  as  part  of  the  basic  subscription  service  without
charging a separate fee. From time to time,  Galaxy  enhances the value of its
basic service by adding additional programming to its basic tier.

      The  Systems  also  offer  premium  programming  services,   both  on  a
per-channel,  or a la  carte,  basis  and as  part  of a  variety  of  premium
programming  packages  designed to be  attractive to customers  while,  at the
same time,  enabling  Galaxy to enjoy the benefits of  programming  agreements
which offer  Galaxy  financial  incentives  based upon  premium  service  unit
growth.  Premium channels such as HBO,  Cinemax,  Showtime,  The Movie Channel
and Encore are offered  individually or in value packages designed to increase
premium  penetration.  These packages offer two or more premium services for a
discounted price as compared to the ala carte pricing of individual services.

                                       9
<PAGE>

       Galaxy has various  contracts to obtain  basic and premium  programming
from program  suppliers  whose  compensation is typically based on a fixed fee
per  subscriber.  Galaxy has negotiated  programming  agreements  with premium
service  suppliers  that offer cost  incentives  to Galaxy under which premium
unit prices  decline as certain  premium  service  growth  thresholds are met.
In  addition  to  volume  pricing  discounts,  some  program  suppliers  offer
marketing  support  to Galaxy in the form of  advertising  funds,  promotional
material,  rebates and other incentives.  Galaxy's  programming  contracts are
generally for a fixed period of time,  typically three to five years,  and are
subject to negotiated renewal.

      Galaxy is also a member of the  National  Cable  Television  Cooperative
the ("NCTC"),  a purchasing  cooperative  that negotiates  volume discounts on
behalf of its  members,  which serve in the  aggregate  nearly  three  million
cable  subscribers.  As an NCTC member,  Galaxy is able to obtain  programming
and cable system hardware discounts available to all members.

      Galaxy  has  various   retransmission   consents  with  many  commercial
broadcast  stations.  None of these  consents  require  direct payment of fees
for carriage;  however, in some cases, Galaxy has entered into agreements with
certain  stations  to carry  satellite-delivered  cable  programming  which is
affiliated  with the network carried by such stations.  In some cases,  Galaxy
has agreed to advertise with the broadcast  station over a three-year  period.
These agreements are in effect until December 31, 1999.

      Galaxy's cable  programming costs have increased in recent years and are
expected  to  continue  to  increase  due  to  additional   programming  being
provided  to  customers,   increased   costs  to  produce  or  purchase  cable
programming  and other  factors.  There has been a  significant  amount of new
cable  television  programming  becoming  available  and Galaxy  believes this
trend  will  continue  and  will be able to  identify  and take  advantage  of
available  incentives  associated with the additional channels and selectively
accommodate  such  expanding  programming.  Galaxy  expects it will be able to
recover programming cost increases through rate increases.

      Technology and Engineering

      Over 95% of the  plant in the  Systems  have a  channel  capacity  of 30
channels  or  more.  Substantially  all  of the  Systems  presently  have  the
capability to increase the number of channels  offered to  subscriber  without
having  to  increase  existing   bandwidth.   At  December  31,  1997,  Galaxy
maintained  over 7,500 miles of coaxial  plant that  passed more than  293,000
homes.  The  following  table sets forth  certain  information  with regard to
the channel capacities of the Systems as of December 31, 1997.

                                Up to 29    30 to 53    54 or more
                                Channels    Channels    Channels      Total
Systems:
   Number of systems                 14           420        23         457
   Percent of total systems        3.1%          91.9%      5.0%       100%
   Miles of plant                    60         7,755     1,147       8,962
   Percent of total plant miles     0.7%         86.5%     12.8%       100%

      Galaxy   continually    monitors   and   evaluates   new   technological
developments  to make optimal use of its existing assets and to anticipate the
introduction  of new services and program  delivery  capabilities.  The use of
fiber  optic  cable as a  transportation  medium is  playing  a major  role in
enhancing  channel  capacity and improving the  performance and reliability of
cable television  systems.  Galaxy has implemented fiber optic technology and,
to a lesser degree,  microwave technology to interconnect  headends throughout
its Systems.  By interconnecting  headends of adjacent systems with one master
headend facility,  Galaxy can reduce the number of headends, lower maintenance
costs  and add new  channels  more  efficiently.  Galaxy  generally  plans  to
continue to reduce the number of headends  through  consolidation  in order to
take  advantage  of  these  efficiencies.  Such  reduction  in the  number  of
headends  is  expected  to   increase   system   reliability   and  allow  the
redeployment  of the associated  electronic  equipment to remaining  headends,
thus enabling  Galaxy to expand the number of channels  offered on the Systems
to its customers and increase average revenue per subscriber.

                                       10
<PAGE>

      Galaxy  plans  to  deliver  distance  learning  and  teacher  in-service
type training  video to  Kindergarten  through  Grade 12 schools  primarily in
those  areas  where  Galaxy  has  implemented  fiber  optics  to  interconnect
adjacent headend  facilities from one master facility.  The distance  learning
will enable  classrooms of students at several  adjacent  school  districts to
receive real-time,  interactive  lectures via the fiber optic network from one
lecturer's   classroom.   The  in-service   teacher's  training  utilizes  the
same  concept  of  distance  learning  except its  programming  comes from one
in-service  training  facility.  Galaxy  is also  continuing  to  explore  the
possibility  of being  the  Internet  provider  to those  schools,  and to its
subscribers in those areas where fiber interconnects will be in place.

      Additionally,  Galaxy is exploring the business  opportunities  that may
be available by using its extensive  fiber network as a source of transport of
voice and high speed data for both long distance and local exchange  carriers.
Galaxy   currently  is  in  discussions  with  several   telephone   companies
concerning the use of the redundant facilities.

      Galaxy intends to explore the use of digital  compression  technology to
enhance the current channel  capacities of its cable systems.  This technology
is  expected  to allow up to 10  channels  to be  carried  in the space of one
analog  channel.  Digital  signals not only offer the  potential  for allowing
cable television  systems to carry more programming but also for improving the
quality and  reliability of the television  signals  carried.  This technology
may also  allow  cable  systems to offer  additional  products  and  services.
Galaxy  believes  that the use of digital  technology in the future offers the
potential  for Galaxy to increase  channel  capacity in a more cost  efficient
manner than  rebuilding  such systems with high capacity  distribution  plant.
There can be no  assurance as to whether or when such  technology  can or will
be  implemented  by  Galaxy  and,  if it  can  be  implemented,  whether  such
technology will result in significant  cost savings over  alternative  methods
of expanding channel  capacities of the Systems.  Galaxy implemented its first
digital system in Booneville, Mississippi in December, 1997.

      Community Relations

      Galaxy is  dedicated to  developing  strong  community  relations in the
locations  served by its  cable  television  systems  and  believes  that good
relations  with its local  franchising  authorities  are primarily a result of
effective  communications by Galaxy's field management with local authorities.
A  company  representative  is  assigned  to each  municipality  in which  the
Systems operate.  The same representative  calls the mayor, city clerk or city
manager by  telephone  to  determine  if any  problems  have  arisen or if any
customers have  complained to municipal  officials  about their cable service.
Galaxy  immediately  addresses  any problems  discovered  during these monthly
contacts.  Regional  managers  also  contact  the  state or local  franchising
authorities at least quarterly,  and Galaxy prepares a newsletter highlighting
any changes in operations or new  programming  offerings and  introducing  any
new  employees  which  it  sends  semiannually  to  each  of  its  franchising
authorities.

      Galaxy also believes that  consistent,  high quality  performance of its
local field  technicians  is important to maintain good  community  relations.
Due  to  Galaxy's  cable   television   systems  being  spread  over  a  large
geographic  area,  a local  field  technician  in many  cases  may be the only
company  representative a customer ever meets. To improve the effectiveness of
technician  interaction  with  Galaxy's  customers,   Galaxy  has  an  ongoing
program of training  its field  technicians  not only in  technical  areas but
also in  customer  service  and sales  functions.  Galaxy  strives to have its
local field technicians  represent Galaxy in each of their respective  service
areas  as   well-trained,   responsible   and   respected   members  of  their
communities.   Through  its  community  communications  and  field  technician
training programs,  Galaxy seeks to maintain good community relations in order
to position itself to address any problem in a timely manner.

                                       11
<PAGE>

      Centralized Management Functions

      Management   functions   such  as   payments   processing,   accounting,
engineering  and  marketing  are  centralized  at  Galaxy's  headquarters  and
regional   customer   service  centers.   Upon  acquiring  a  system,   Galaxy
consolidates  certain  management  functions at its  headquarters and regional
customer service centers at minimal incremental costs.

      Galaxy is able to process its service calls from  customers  through the
use of the IBM  AS/400  computer  system  owned  and  operated  by  CBIS.  The
computer  operates with advanced  software  which  provides  on-line access to
up-to-date  subscriber,  marketing and  accounting  information.  The computer
system also manages  information  flow to and from the field  technician staff
via the  OmniTRACS  system.  The system  software  also  allows for many other
applications   that   Galaxy   may   implement   in   the   future   including
video-on-demand, transactional billing services and telephony.

      The  computer  system  allows both the Senior  Managers and the regional
managers  to access  subscriber  information  as soon as it is  entered by the
customer service centers or the field  technicians.  The centralized nature of
the system  allows each of Galaxy's  customer  service  centers to back up the
other if there is an  interruption  of telephone  service to such center.  The
customer  service centers also can utilize the centralized  computer system to
communicate  with local  payment  offices,  headquarters,  the other  customer
service  centers and the field  technicians,  all of which have on-line access
through the  central  platform.  Finally,  the system  provides a  centralized
reporting  location for all subscriber  billing  information which enables the
accounting staff to prepare timely and accurate financial  information.  These
features of the central computer system,  along with the system's  integration
with the  OmniTRACS  system,  allow  Galaxy to  reduce  the  incremental  cost
associated with expanding its subscriber base while  consolidating many of the
management functions for newly acquired systems.

      Franchises

      Cable  television  systems are generally  constructed and operated under
non-exclusive  franchises  granted by local  governmental  authorities.  These
franchises  typically  contain many  conditions,  such as: time limitations on
commencement and completion of construction;  conditions of service, including
number of  channels,  types of  programming  and  provision of free service to
schools and certain other public  institutions;  and  maintenance of insurance
and  indemnity  bonds.  The  provisions  of local  franchises  are  subject to
federal  regulation  under the Cable  Communications  Policy  Act of 1984 (the
"1984 Cable Act"),  the Cable Television  Consumer  Protection and Competition
Act of 1992 (the "1992 Cable  Act"),  and the  Telecommunications  Act of 1996
(the "1996 Telecom Act").  See "--Legislation and Regulation - General."

      As of December 31, 1997, Galaxy held  approximately 664 franchises.  The
non-exclusive  franchises  provide  for the  payment  of  fees to the  issuing
authority.   The  1984  Cable  Act  prohibits  franchising   authorities  from
imposing  franchise  fees in excess of 5.0% of gross revenues and also permits
the cable system operator to seek  renegotiation and modification of franchise
requirements if warranted by changed  circumstances.  See  "--Legislation  and
Regulation - General."

                                       12
<PAGE>

      The table  below  illustrates  the  grouping  of the  franchises  of the
Systems by date of expiration.

              Year of                                           Percentages
              Franchise              Number of                    of Total
             Expiration              Franchises                 Franchises

             1998-2000                     70                      10.6%
              2001-2003                   135                      20.3%
             After 2003                   459                      69.1%

                Total                     664                     100.0%


       The 1984  Cable  Act  provides,  among  other  things,  for an  orderly
franchise  renewal process in which franchise renewal will not be unreasonably
withheld  or, if renewal is withheld,  the  franchise  authority  must pay the
operator the "fair  market  value" for the system  covered by such  franchise.
In addition,  the 1984 Cable Act establishes  comprehensive renewal procedures
that require that an incumbent  franchisee's  renewal  application be assessed
on its own  merit  and not as part of a  comparative  process  with  competing
applications. See "--Legislation and Regulation - General."

      Galaxy  believes  that it  generally  has  good  relationships  with its
franchising  communities.  As of December  31,  1997,  no  franchise of Galaxy
represented more than 5.0% of total  subscribers of the Systems.  Galaxy has a
minimal  amount  of  seasonal  subscribers,  the vast  majority  of which  are
located around Kentucky Lake,  Kentucky and Central  Florida.  As the Kentucky
seasonal  subscribers  are  disconnecting  about  the same  time  the  Florida
subscribers are connecting,  the effect on Galaxy's  monthly total  subscriber
count is minimal.

      Competition

      Cable  television  competes for  customers  in local  markets with other
providers of  entertainment,  news and  information.  The competitors in these
markets  include  broadcast  television and radio,  newspapers,  magazines and
other  printed   sources  of  information  and   entertainment,   as  well  as
satellite and wireless  video  distribution  systems and directly  competitive
cable  television  operations.  Federal law  prohibits  cities  from  granting
exclusive   cable   franchises  and  from   unreasonably   refusing  to  grant
additional,  competitive  franchises.  In addition,  an  increasing  number of
cities are  exploring  the  feasibility  of owning their own cable  systems in
a manner  similar to  city-provided  utility  services.  The 1996  Telecom Act
may initiate  more  competition  with cable  service,  because it allows local
exchange  carriers to provide  video  services in their local  service  areas,
in direct competition with local cable companies.

      Galaxy  has no  basis  upon  which  to  estimate  the  number  of  cable
television  companies  and  other  entities  with  which  it  competes  or may
potentially  compete.  There are a large  number of  individual  and  multiple
system cable  television  operators in the United  States.  The full extent to
which  other  media  or  home  delivery   services  will  compete  with  cable
television  systems  may not be  known  for some  time,  and  there  can be no
assurances  that existing,  proposed or as yet undeveloped  technologies  will
not become dominant in the future.

      There  are  alternative   multichannel  video  programming  distributors
("MVPDs")  that  distribute the same or similar video  programming  offered by
cable television  systems.  Further,  these  technologies have been encouraged
by Congress  and the Federal  Communications  Commission  (the "FCC") to offer
services in direct  competition  with existing cable  systems.  In addition to
broadcast  television  stations,  Galaxy  competes  in a variety of areas with
other  multichannel  programming  service  providers on a direct  over-the-air
basis.  Multichannel  programming  services are distributed by  communications
satellites  directly to home satellite  dishes  ("HSDs")  serving  residences,
private  businesses and various  nonprofit  organizations.  Cable  programmers
have developed marketing efforts directed to HSD owners.

                                       13
<PAGE>

      At  the  present  time  there  are  three  different   Direct  Broadcast
Satellite ("DBS") providers offering  comparable  service.  DBS services could
become a more  substantial  competitor as developments in technology  continue
to increase  satellite  transmitter  power and  decrease  the cost and size of
equipment needed to receive these transmissions.

      A recent  development  is the  announced  intention  of one of these DBS
providers  to develop  the  technology  to  transmit  local  channels on their
services  for  certain  areas  of  the  country.  If  this  happens,  assuming
technology  advances,   and  the  government  allows  it,  this  would  effect
approximately 15% of Galaxy's service area.

      DBS  has  advantages  and  disadvantages  as  an  alternative  means  of
distributing  video signals to the home.  Among the  advantages  are: that the
capital   investment   (although   initially   high)  for  the  satellite  and
uplinking  segment  of a DBS  system is fixed and does not  increase  with the
number  of  subscribers  receiving  satellite  transmission;  that  DBS is not
currently  subject to local regulation of service or required to pay franchise
fees;  and that the capital costs for the ground  segment of a DBS system (the
reception  equipment)  are  directly  related to and  limited by the number of
service  subscribers.  Among the disadvantages  are: limited ability to tailor
the  programming  package to the  interests of different  geographic  markets,
such as  providing  local news,  other local  origination  services  and local
broadcast  stations;  signal  reception being subject to line of sight angles;
and intermittent  interference  from atmospheric  conditions and terrestrially
generated  radio  frequency  noise.  The  effect  of  competition  from  these
services   cannot  be  predicted.   Galaxy   nonetheless   assumes  that  such
competition could be substantial in the near future.

      Prior to  enactment of the 1996 Telecom  Act,  local  exchange  carriers
("LECs")  were  prohibited  from  offering  video   programming   directly  to
subscribers in their telephone service areas (except in limited  circumstances
in rural areas or as  "video-dialtone"  providers,  which could  deliver video
services  to  the  home  over  telephone-provided  circuits  without  a  local
franchise).  Elimination of the former  restrictions on LECs means that Galaxy
may face increased  competition from local telephone  companies which, in most
cases,  have greater  financial  resources  than  Galaxy.  All major LECs have
announced plans to acquire cable television  systems or provide video services
to the home through fiber optic technology.

      The 1996 Telecom Act eliminates the FCC's  video-dialtone  rules, except
where a video  dial-tone  service is currently in  operation.  In place of the
video-dialtone  model,  the 1996 Telecom Act  provides  LECs with four options
for providing video programming  directly to customers in their local exchange
areas.  Telephone  companies  may provide  video  programming  by  radio-based
systems,  common carrier  systems,  "open video" systems,  or "cable systems."
LECs that elect to provide  "open  video"  systems must allow others to use up
to two-thirds of their activated  channel  capacity.  They will be relieved of
regulation  as  "common  carriers,"  and  are not  required  to  obtain  local
franchises,  but are still  subject to many other  regulations  applicable  to
cable  systems.  LECs  operating  as "cable  systems" are subject to all rules
governing cable systems,  including  franchising  requirements.  It is unclear
which model LECs will ultimately choose,  but the video distribution  services
developed  by local  telephone  companies  are  likely to  represent  a direct
competitive threat to Galaxy.

      The  ability of local  telephone  companies  to compete  with  Galaxy by
acquiring  an  existing  cable  system  is  limited.   The  1996  Telecom  Act
prohibits  a LEC  or its  affiliate  from  acquiring  more  than a 10  percent
financial  or  management  interest  in any  cable  operator  providing  cable
service in its telephone  service area. It further  prohibits a cable operator
or  its  affiliate  from  acquiring  more  than  a  10  percent  financial  or
management  interest in any LEC providing  telephone  exchange  service in its
franchise  area. A LEC and cable  operator that have a telephone  service area
and  cable  franchise  area in the  same  market  may not  enter  into a joint
venture to provide  telecommunications  services or video  programming.  There
are exceptions to these  limitations  for rural  facilities,  very small cable
systems, and small LECs in non-urban areas.

                                       14
<PAGE>

      Another  alternative  method of video  distribution  is through  the use
of  multichannel  multipoint  distribution  systems  ("MMDS"),  which  deliver
programming  services over microwave  channels  received by subscribers with a
special  antenna.  MMDS systems are less capital  intensive,  are not required
to obtain local  franchises  or pay franchise  fees,  and are subject to fewer
regulatory  requirements  than cable  television  systems.  Although there are
relatively  few MMDS  systems  in the  United  States  that are  currently  in
operation  or  under   construction,   many  markets  have  been  licensed  or
tentatively  licensed.  The FCC has  taken a series  of  actions  intended  to
facilitate the  development of these  "wireless  cable systems" as alternative
means of distributing  video  programming,  including  reallocating the use of
certain  frequencies  to these services and expanding the  permissible  use of
certain  channels  reserved  for  educational  purposes.   The  FCC's  actions
enable a single  entity to develop an MMDS system with a potential of up to 35
channels,   and  thus  compete  more   effectively   with  cable   television.
Developments  in  compression  technology  have  significantly  increased  the
number  of  channels  that  can be  made  available  from  other  over-the-air
technologies.  Subscribership  to MMDS  services is projected to continue over
the next several years.

      Galaxy also competes with master  antenna  television  ("MATV")  systems
and satellite  master  antenna  television  ("SMATV")  systems,  which provide
multi-channel   program  services   directly  to  hotel,   motel,   apartment,
condominium  and  similar  multi-unit  complexes  within  a  cable  television
system's  franchise area,  generally free of any regulation by state and local
governmental  authorities.  The 1996 Telecom Act changes the  definition  of a
"cable  system" to include  only  systems  that  cross  public  rights-of-way.
Therefore,  SMATV systems that serve  buildings that are not commonly owned or
managed,  but  which  do not  cross  public  rights  of  way,  are  no  longer
considered "cable systems" and no longer require a franchise to operate.

      Legislation and Regulation

      The cable  television  industry  currently is regulated by the FCC, some
state  governments and most local  governments.  In addition,  legislative and
regulatory   proposals  under   consideration  by  the  Congress  and  federal
agencies may materially  affect the cable television  industry.  The following
is a  summary  of  federal  laws and  regulations  affecting  the  growth  and
operation of the cable television  industry and a description of certain state
and local laws.

      Cable  Communications  Policy Act of 1984.  The 1984  Cable  Act,  which
amended  the   Communications   Act  of  1934  (the   "Communications   Act"),
established   comprehensive   national   standards  and   guidelines  for  the
regulation  of cable  television  systems and  identified  the  boundaries  of
permissible  federal,  state  and  local  government  regulation.  The FCC was
charged with  responsibility  for adopting  rules to implement  the 1984 Cable
Act.   Among  other  things,   the  1984  Cable  Act  affirmed  the  right  of
franchising  authorities  (state  or  local,  depending  on  the  practice  in
individual   states)   to  award   one  or  more   franchises   within   their
jurisdictions.  It also prohibited  non-grandfathered cable television systems
from operating without a franchise in such  jurisdictions.  The 1984 Cable Act
provides that in granting or renewing franchises,  franchising authorities may
establish  requirements for  cable-related  facilities and equipment,  but may
not establish or enforce  requirements  for video  programming  or information
services other than in broad categories.

                                       15
<PAGE>

      The  Cable  Television   Consumer  Protection  and  Competition  Act  of
1992.  In October  1992,  Congress  enacted the 1992 Cable Act. The 1992 Cable
Act  permitted  a greater  degree of  regulation  of the cable  industry  with
respect to,  among other  things;  (i) cable  system  rates for both basic and
certain cable programming  services;  (ii) programming  access and exclusivity
arrangements;  (iii)  access to cable  channels  by  unaffiliated  programming
services;  (iv)  leased  access  terms  and  conditions;  (v)  horizontal  and
vertical   ownership   of   cable   systems;   (vi)   customer   and   service
requirements;  (vii) television  broadcast signal carriage and  retransmission
consent; (viii) technical standards;  and (ix) cable equipment  compatibility.
Additionally,  the  legislation  encouraged  competition  with existing  cable
television  systems by allowing  municipalities  to own and operate  their own
cable  television   systems  without  a  franchise,   preventing   franchising
authorities  from granting  exclusive  franchises or unreasonably  refusing to
award  additional  franchises  covering an  existing  cable  system's  service
area,  and  prohibiting  the common  ownership of cable systems and co-located
MMDS  or  SMATV   systems.   The  1992   Cable   Act  also   precluded   video
programmers  affiliated  with cable  television  companies from favoring cable
operators  over  competitors  and  required  such  programmers  to sell  their
programming  to  other  multichannel  video   distributors.   The  legislation
required the FCC to initiate a number of rule-making  proceedings to implement
various provisions of the statute, the majority of which have been completed.

      On June 28, 1996, the Supreme Court upheld cable  operators'  ability to
enforce  prospective  written  policies  against  carrying   programming  that
depicts sexual or excretory  activities on commercial  leased access channels.
The Court  also  ruled  that cable  operators  may not be  required  to block,
scramble and segregate indecent commercial leased access programming,  finding
that this  statutory  provision  violated  cable  operators'  First  Amendment
rights.  The Court also struck down on First  Amendment  grounds the statutory
provision that enabled cable operators to prohibit obscene material,  sexually
explicit conduct or material  soliciting  unlawful on Public,  Educational and
Government ("PEG") channels.

      Telecommunications  Act of 1996.  On February 8, 1996,  the 1996 Telecom
Act was  enacted.  Some of the  provisions  of the  1996  Telecom  Act  became
effective  immediately,  but other  provisions will not take effect until they
are  implemented  by the FCC.  This  legislation  reverses  much of the  cable
rate  regulation  established by the 1992 Cable Act over a three-year  period.
The rates for cable programming  service ("CPS" or "non-basic")  tiers offered
by small cable operators in small cable systems are  deregulated  immediately.
The  FCC's  authority  to  regulate  the CPS  tier  rates of all  other  cable
operators  will  expire  on  March  31,  1999.  The   legislation   also:  (i)
eliminates  the  uniform  rate  requirements  of  the  1992  Cable  Act  where
effective    competition   exists;    (ii)   repeals   the    anti-trafficking
provisions  of the 1992 Cable  Act;  (iii)  limits  the rights of  franchising
authorities  to require  certain  technology  and  prohibit or  condition  the
provision  of  telecommunications   services  by  the  cable  operator;   (iv)
requires  cable  operators to fully block or scramble both the audio and video
on  sexually-explicit  or indecent programming or channels primarily dedicated
to  sexually-oriented  programming;  (v) allows  cable  operators to refuse to
carry  access  programs  containing  "obscenity,  indecency  or nudity";  (vi)
adjusts the pole  attachment  laws; and (vii) allows cable  operators to enter
telecommunications  markets which historically have been closed to them, while
also   allowing   some   telecommunications   providers  to  begin   providing
competitive cable service in their local service areas.

      Cable   programmers  have  challenged  the   constitutionality   of  the
provision  of the 1996  Telecom  Act  requiring  cable  operators  to scramble
sexually-explicit  or indecent adult programming in the United States District
Court of the  District  of  Delaware.  On March 7,  1996,  the Court  issued a
temporary  restraining  order against  enforcement of the provisions until the
challenge  can  be  heard  by  a  three-judge  panel.  The  three-judge  court
subsequently  denied a request for a preliminary  injunction,  and the Supreme
Court affirmed this decision.  The scrambling  provisions  became effective in
May 1997.  The matter is still  subject to a  constitution  challenge,  and is
currently pending before the three-judge panel.

                                       16
<PAGE>

      Federal Regulation

      The FCC is the principal  federal  regulatory  agency with  jurisdiction
over cable television.  The FCC has promulgated  regulations  covering a broad
variety of areas,  and is required to adopt  additional  regulations or repeal
or modify  existing  regulations  to  implement  the 1996 Telecom Act. The FCC
may enforce its regulations  through the imposition of fines,  the issuance of
cease  and  desist  orders  and/or  the  imposition  of  other  administrative
sanctions,  such as the revocation of FCC licenses  needed to operate  certain
transmission  facilities  often used in connection  with cable  operations.  A
brief summary of certain federal regulations follows.

      Rate  Regulation.  Prior to  implementation  of the 1992 Cable Act, most
cable  systems  were  largely  free to  adjust  cable  service  rates  without
governmental  approval.  The 1992 Cable Act  authorized  rate  regulation  for
certain cable  communications  services and equipment in communities  that are
not subject to  "effective  competition."  The 1992 Cable Act requires the FCC
to resolve  complaints  about rates for non-basic cable  programming  services
and to reduce  any such rates  found to be  unreasonable.  It also  limits the
ability of many cable  systems to raise rates for basic and certain  non-basic
cable programming services  (collectively,  the "Regulated  Services").  Cable
services  offered  on a  per  channel  or  on a  per  program  basis  are  not
subject  to rate  regulation  by either  franchising  authorities  or the FCC.
Notwithstanding  the above,  the 1996 Telecom Act immediately  deregulates the
CPS rates of "small cable  operators" and will deregulate the CPS rates of all
other cable operators by March 31, 1999.

      The 1992 Cable Act requires  communities  to certify with the FCC before
regulating  basic  cable  rates.  Upon  certification,   the  local  community
obtains the right to approve basic rates.  Certified  franchising  authorities
are also empowered to regulate  rates charged for  additional  outlets and for
the  installation,  lease and sale of  equipment  used by customers to receive
the basic service tier,  such as converters and remote  control  units.  These
equipment  rates must be based on actual  cost plus a  reasonable  profit,  as
defined by the FCC.  Cable  operators  may be required  to refund  overcharges
with  interest.  The 1992  Cable Act  permits  communities  to  certify at any
time, so it is possible that Galaxy's  franchising  authorities  may choose in
the future to certify to  regulate  Galaxy's  basic  rates.  FCC review of CPS
rates is triggered by franchising  authority  complaints filed within 180 days
of a rate increase.

      The  FCC's  rate  regulations  do  not  apply  where  a  cable  operator
demonstrates  that it is subject to  "effective  competition."  Under the 1992
Cable  Act,  a system is subject to  effective  competition  where:  (i) fewer
than 30% of the  households  in the  franchise  area  subscribe  to the  cable
service of a cable system;  (ii) the franchise  area is served by at least two
unaffiliated  comparable  video  programming to at least 50% of the households
in the franchise area and the number of households  subscribing to programming
services  offered by the MVPDs,  other than the largest  MVPD,  exceeds 15% of
the  households  in the  franchise  area;  or  (iii)  a MVPD  operated  by the
franchising  authority  offers  video  programming  to at  least  50%  of  the
households  in the  franchise  area.  The 1996 Telecom Act also  provides that
effective  competition  exists  if a local  exchange  carrier  provides  video
programming in the franchise area.

      In  implementing  the  1992  Cable  Act,  the FCC  adopted  a  benchmark
methodology as the principal  method of  establishing  the  reasonableness  of
rates for Regulated  Services.  Cable operators with rates above the allowable
level under the FCC's benchmark  methodology may attempt to justify such rates
using a  cost-of-service  methodology.  The FCC has instituted rate relief for
small cable  operators.  Cable  operators  with fewer than 400,000  nationwide
subscribers  are eligible to file a streamlined  cost-of  service  analysis to
justify  their  per-channel  rates in those  systems  serving  15,000 or fewer
subscribers.  Per-channel  rates that fall below a  prescribed  benchmark  are
presumed reasonable.

                                       17
<PAGE>

      The 1992 Cable Act also requires  cable  systems to permit  customers to
purchase  video  programming  offered by the  operator  on a per  channel or a
per  program  basis  without  the  necessity  of  subscribing  to any  tier of
service,  other  than the basic  service  tier,  unless the  system's  lack of
addressable  converter  boxes  or  other  technological  limitations  does not
permit  it to do so.  The  statutory  exemption  for  cable  systems  that  do
not  have  the   technological   capability  to  offer   programming   in  the
manner  required  by the  statute is  available  until a system  obtains  such
capability,  but not  later  than  December  2002.  Systems  facing  effective
competition  are  not  subject  to  the  tier buy-through prohibition.

      The 1996 Telecom Act  deregulates  immediately CPS rates for small cable
operators  that have less than 50,000  subscribers  in the  franchise  area. A
"small  operator" is an operator that, with its  affiliates,  serves less than
1% of all  subscribers  in  the  United  States  (about  600,000  subscribers)
and is not affiliated  with entities with annual  aggregate  gross revenues of
more than $250  million.  Rates for basic  service  continue to be  regulated,
however,  unless the system had a single  regulated  tier as of  December  31,
1994.  For all other  cable  systems,  the  FCC's  rate  regulation  authority
for CPS tiers expires  March 31, 1999.  Rates for basic tiers will continue to
be subject to regulation.

      The 1996  Telecom Act allows cable  operators to pass through  franchise
fees and  regulatory  fees to  subscribers  without any prior notice.  Notices
of other rate changes may be given by any  reasonable  written  means,  at the
cable operator's "sole  discretion." Bulk discounts for  multi-dwelling  units
no longer  must meet any  uniform  rate  requirement.  A cable  operator  need
not  maintain  uniform  rates  throughout  a  franchise  area  where  there is
effective  competition.  In  addition,  franchising  authorities  may not file
complaints  with  the  FCC  unless  they  have  actually  received  subscriber
complaints.

      Carriage  of   Broadcast   Television   Signals.   The  1992  Cable  Act
established  new  signal  carriage  requirements.   These  requirements  allow
commercial  television broadcast stations which are "local" to a cable system,
to elect every three  years  whether to require the cable  system to carry the
station,  subject to  certain  exceptions,  or  whether  to require  the cable
system to negotiate  for  "retransmission  consent" to carry the station.  The
first must-carry/retransmission  consent elections were made in June 1993, and
the second  elections  were made in October  1996.  The next  election will be
made in October  1999.  Stations  are  generally  considered  local to a cable
system  where the  system is located in the  station's  1992 Area of  Dominant
Influence  ("ADI"),  as  determined by Arbitron.  This method for  determining
whether a station is local to a cable  system may change  because  Arbitron no
longer  updates  ADIs  and  the  1996  Telecom  Act  requires  the  FCC to use
commercial  publications  which delineate  markets based on viewing  patterns.
Cable  systems  must obtain  retransmission  consent  for the  carriage of all
"distant"  commercial broadcast stations,  except for certain  "superstations"
(i.e., commercial  satellite-delivered  independent stations such as WGN). All
commercial  stations  entitled to carriage  were to have been  carried by June
1993, and any  non-must-carry  stations (other than  superstations)  for which
retransmission  consent had not been obtained could no longer be carried after
October 5, 1993.  The  retransmission/must-carry  consent  elections were made
for a second  three-year  period beginning  December 31, 1996.  Galaxy carries
some stations  pursuant to must-carry  and others  pursuant to  retransmission
consent  agreements.   In  some  cases,  Galaxy  agreed  to  carry  additional
services, like FX, pursuant to retransmission consent agreements.

                                       18
<PAGE>

      Local  non-commercial  television  stations  are  also  given  mandatory
carriage rights,  subject to certain  exceptions,  within the larger of: (i) a
50-mile radius of the station's city of license;  or (ii) the station's  Grade
B  contour(a  measure of signal  strength).  Non-commercial  stations  are not
given the option to negotiate for retransmission  consent.  All non-commercial
stations entitled to carriage were to have been carried by December 1992.

      Non-duplication  of  Network   Programming.   Cable  television  systems
that have  1,000 or more  customers  must,  upon the  appropriate  request  of
a local  television  station,  delete  or  "black  out"  the  simultaneous  or
nonsimultaneous  network  programming  of a  distant  station  when the  local
station  also has contracted for such programming on an exclusive basis.

      Deletion of Syndicated  Programming.  Cable television systems that have
1,000 or more  subscribers  must,  upon  the  appropriate  request  of a local
television   station,    delete   or   "black   out"   the   simultaneous   or
nonsimultaneous   syndicated   programming  of  a  distant  station  when  the
local  station also has contracted for such programming on an exclusive basis.

      Registration   Procedures   and   Reporting   Requirements.   Prior   to
commencing operation in a particular  community,  all cable television systems
must  file a  registration  statement  with  the  FCC  listing  the  broadcast
signals they will carry and certain  other  information.  Additionally,  cable
operators  periodically  are  required to file various  informational  reports
with the FCC.  Cable  operators  that operate in certain  frequency  bands are
required on an annual basis to file the results of their  periodic  cumulative
leakage testing  measurements.  Operators that fail to make this filing or who
exceed the FCC's  allowable  cumulative  leakage  index risk being  prohibited
from operating in those frequency bands in addition to other sanctions.

      Technical  Requirements.  Historically,  the FCC has  imposed  technical
standards  applicable to the cable  channels on which  broadcast  stations are
carried,  and has prohibited  franchising  authorities from adopting standards
which were in conflict  with or more  restrictive  than those  established  by
the FCC. The FCC has applied its  standards  to all classes of channels  which
carry  downstream   National   Television  System  Committee   ("NTSC")  video
programming.   The  FCC  also  has  adopted  standards   applicable  to  cable
television  systems  using  frequencies  in the  108-137  MHZ and  225-400 MHZ
bands in order to  prevent  harmful  interference  with  cable  system  signal
leakage.  The 1992  Cable  Act  requires  the FCC to update  periodically  its
technical  standards.  The 1996  Telecom Act  requires  regulations  to assure
compatibility  among  televisions,   VCRs  and  cable  systems,   leaving  all
features,  functions,  protocols  and other  product and  service  options for
selection  through open  competition in the market.  The 1996 Telecom Act also
prohibits States or franchising authorities from prohibiting,  conditioning or
restricting  a cable  system's  use of any  type of  subscriber  equipment  or
transmission technology.

      Franchise   Authority.   The  1984  Cable  Act  affirmed  the  right  of
franchising  authorities  (the  jurisdictions  in which Galaxy  provides cable
service)  to award  one or more  franchises  within  their  jurisdictions  and
prohibited  non-grandfathered cable systems from operating without a franchise
in such  jurisdictions.  Galaxy has cable  franchises in all areas in which it
provides  service  where cable  franchises  are  required.  The 1992 Cable Act
encouraged   competition   with   existing   cable  systems  by  (i)  allowing
municipalities  to operate their own cable systems  without  franchises;  (ii)
preventing franchising  authorities from granting exclusive franchises or from
unreasonably  refusing  to award  additional  franchises  covering an existing
cable system's service area; and (iii) prohibiting  (with limited  exceptions)
the common  ownership of cable systems and co-located MMDS or SMATV systems (a
prohibition  which is  limited by the 1996  Telecom  Act to cases in which the
cable operator is not subject to effective competition).

      The  1996  Telecom  Act  exempts  from  franchise   requirements   those
telecommunications   services   provided   by  a   cable   operator   or   its
affiliate.  Franchise  authorities may not require a cable operator to provide
telecommunications  service or facilities,  other than institutional networks,
as a condition of franchise grant, renewal or transfer.  Similarly,  franchise
authorities may not impose any conditions on the provision of such service.

                                       19
<PAGE>

      Franchise Fees.  Although  franchising  authorities may impose franchise
fees under the 1984 Cable Act,  as  modified  by the 1996  Telecom  Act,  such
payments  cannot exceed 5% of a cable system's  annual gross revenues  derived
from the  operation of the cable system to provide cable  services.  Franchise
fees apply only to revenues for cable  services.  Franchising  authorities are
permitted to charge a fee for any telecommunications  providers' use of public
right-of-way.

      Franchise  Renewal.  The 1984 Cable Act established  renewal  procedures
and  criteria  designed  to protect  incumbent  franchises  against  arbitrary
denials of renewal.  These  formal  procedures  are  mandatory  only if timely
invoked  by either  the cable  operator  or the  franchising  authority.  Even
after the formal  renewal  procedures  are  invoked,  franchising  authorities
and cable  operators  remain free to  negotiate  a renewal  outside the formal
process.  Although the procedures provide substantial  protection to incumbent
franchisees,  renewal  is by no means  assured,  as the  franchisee  must meet
certain  statutory  standards.  Even if a franchise is renewed,  a franchising
authority  may  impose new and more  onerous  requirements  such as  upgrading
facilities and  equipment,  although the  municipality  must take into account
the cost of meeting such requirements.

      The 1992 Cable Act made  several  changes to the process  which may make
it easier in some  cases for a  franchising  authority  to deny  renewal.  The
cable  operator's  timely request to commence  renewal  proceedings must be in
writing and the franchising  authority must commence  renewal  proceedings not
later  than six  months  after  receipt of such  notice.  Within a  four-month
period beginning with the submission of the renewal proposal,  the franchising
authority  must  grant  or  deny  the  renewal.  Franchising  authorities  may
consider the "level" of  programming  service  provided by a cable operator in
deciding  whether to renew.  Franchising  authorities are no longer  precluded
from  denying  renewal  based on  failure  to  substantially  comply  with the
material  terms  of  the  franchise  where  the   franchising   authority  has
"effectively  acquiesced" to such past  violations.  Rather,  the  franchising
authority  is estopped  only if, after  giving the cable  operator  notice and
opportunity to cure,  the authority  fails to respond to a written notice from
the cable  operator  of its  failure  or  inability  to cure.  Courts  may not
reverse  a denial  of  renewal  based  on  procedural  violations  found to be
"harmless error."

      Channel  Set-Asides.  The  1984  Cable  Act  permits  local  franchising
authorities  to require  cable  operators  to set aside  certain  channels for
public,  educational  and  governmental  access  programming.  The 1984  Cable
Act   further   requires   cable   television   systems   with   36  or   more
activated  channels  to  designate  a portion of their  channel  capacity  for
commercial  leased access by  unaffiliated  third parties.  The 1992 Cable Act
requires  leased  access  rates  to be  set  according  to  an  FCC-prescribed
formula.  The 1996  Telecom Act  explicitly  gives cable  operators  the right
to refuse to carry any  public  access  or leased  access  program  containing
"obscenity, indecency or nudity."

      Ownership.   The  1996  Telecom  Act   eliminates  the  1984  Cable  Act
provisions   prohibiting  local  exchange  carriers  ("LECs")  from  providing
video   programming   directly  to  customers   within  their  local  exchange
telephone  service areas,  except in rural areas or by specific waiver.  Under
the 1996  Telecom  Act,  LECs may provide  video  programming  by  radio-based
systems,  common carrier  systems,  "open video"  systems or "cable  systems."
LECs  that  elect to  provide  "open  video"  systems  must  allow  others  to
use  up  to  two-thirds  of  their  activated  channel  capacity.  These  LECs
are  relieved of  regulation  as "common  carriers,"  and are not  required to
obtain  local  franchises,  but are still  subject to many  other  regulations
applicable to cable  systems.  LECs  operating as "cable  systems" are subject
to all rules  governing  cable  systems,  including franchising requirements.

                                       20
<PAGE>

      The 1996 Telecom Act  prohibits a LEC or its  affiliate  from  acquiring
more  than  a 10  percent  financial  or  management  interest  in  any  cable
operator  providing  cable  service in its  telephone  service  area.  It also
prohibits a cable  operator or its  affiliate  from  acquiring  more than a 10
percent  financial  or  management  interest  in any LEC  providing  telephone
exchange  service  in its  franchise  area.  A LEC and  cable  operator  whose
telephone  service  area and cable  franchise  area are in the same market may
not enter  into a joint  venture  to provide  telecommunications  services  or
video  programming.  There  are  exceptions  to these  limitations  for  rural
facilities, very small cable systems, and small LECs in non-urban areas.

      The 1984 Cable Act and the FCC's rules  prohibit  the common  ownership,
operation,  control  or  interest  in a cable  system  and a local  television
broadcast  station whose  predicted  Grade B contour covers any portion of the
community   served  by  the  cable  system.   The  1996  Telecom  Act  repeals
this statutory  restriction on broadcast-cable  cross-ownership,  but does not
require  the FCC to repeal its  cross-ownership  rule.  The 1996  Telecom  Act
also  eliminates  the FCC's  restriction  against the  ownership or control of
both a broadcast network and cable system,  but it authorizes the FCC to adopt
regulations   which   will   ensure   carriage,    channel   positioning   and
nondiscriminatory  treatment  of  non-affiliated  broadcast  stations by cable
systems which are owned by a broadcast network.

      The 1992 Cable Act prohibits the common ownership,  affiliation, control
or  interest  in  cable  television  systems  and  MMDS  facilities  or  SMATV
systems with overlapping service areas.  However, a cable system may acquire a
co-located  SMATV system if it provides  cable  service to the SMATV system in
accordance  with  the  terms  of its  cable  television  franchise.  The  1996
Telecom  Act  provides  that  these  rules  shall  not  apply  where the cable
operator is subject to  effective competition.

      Pursuant  to the 1992  Cable  Act,  the FCC has  imposed  limits  on the
number of cable  systems a single  cable  operator  may own.  In  general,  no
cable operator may hold an  attributable  interest in cable systems which pass
more  than 30% of all  homes  nationwide.  Attributable  interests  for  these
purposes  include  voting  interests  of 5% or more  (unless  there is another
single  holder  of  more  than  50%  of  the  voting   stock),   officerships,
directorships  and  general partnership interests.

      Equal Employment Opportunity.  The 1984 Cable Act includes provisions to
ensure   that   minorities   and   women   are   provided   Equal   Employment
Opportunities  ("EEO")  within  the  cable  television  industry.  The FCC has
adopted  reporting  and  certification  rules that  apply to all cable  system
operators  with more than five  full-time  employees.  Failure to comply  with
the EEO  requirements  can  result in the  imposition  of fines  and/or  other
administrative  sanctions,  or may,  in certain  circumstances,  be cited by a
franchising   authority  as  a  reason  for  denying  a  franchisee's  renewal
request.

      Privacy.  The 1984  Cable Act  imposes a number of  restrictions  on the
manner in which cable system  operators  can collect and  disclose  data about
individual  system  customers.  The  statute  also  requires  that the  system
operator  periodically  provide all customers with written  information  about
its   policies   regarding   the   collection   and  handling  of  data  about
customers,  their  privacy  rights  under  federal  law and their  enforcement
rights.  In the event  that a cable  operator  is found to have  violated  the
customer  privacy  provisions  of the 1984 Cable Act,  it could be required to
pay damages,  attorneys'  fees and other costs.  Under the 1992 Cable Act, the
privacy  requirements  are  strengthened  to require that cable operators take
such actions as are  necessary to prevent  unauthorized  access to  personally
identifiable information.

                                       21
<PAGE>

      Anti-Trafficking.   The   1996   Telecom   Act   repeals   most  of  the
anti-trafficking   restrictions   imposed  by  the  1992   Cable  Act,   which
prevented  a cable  operator  from  selling  or  transferring  ownership  of a
cable  system  within 36 months of  acquisition.  However,  a local  franchise
may still  require  prior  approval  of a  transfer  or sale.  The 1992  Cable
Act requires  franchising  authorities to act on a franchise  transfer request
within  120  days  after   receipt  of  all   information   required   by  FCC
regulations  and the  franchising  authority.  Approval  is deemed  granted if
the franchising authority fails to act within such period.

      Copyright.  Cable  television  systems are subject to federal  copyright
licensing   covering   carriage  of   broadcast   signals.   In  exchange  for
making   semi-annual   payments  to  a  federal  copyright  royalty  pool  and
meeting  certain  other  obligations,   cable  operators  obtain  a  statutory
license to retransmit  broadcast  signals.  The amount of the royalty  payment
varies,  depending  on the amount of system  revenues  from  certain  sources,
the  number  of  distant  signals  carried,  and  the  location  of the  cable
system with  respect to  over-the-air  television  stations.  Cable  operators
are liable for  interest on underpaid  and unpaid  royalty  fees,  but are not
entitled  to  collect   interest  on  refunds   received  for  overpayment  of
copyright  fees.   Adjustments  in  copyright   royalty  rates  are  now  made
through  an  arbitration  process  supervised  by the U.S. Copyright Office.

      Various  bills have been  introduced  in  Congress  in the past  several
years  that  would  eliminate  or  modify  the  cable  television   compulsory
license.  Without  the  compulsory  license,  cable  operators  might  need to
negotiate  rights from the copyright  owners for each program  carried on each
broadcast  station in the channel line-up.

       Copyright   music   performed   in   programming   supplied   to  cable
television  systems by pay cable networks (such as HBO) and cable  programming
networks  (such as USA Network) has  generally  been  licensed by the networks
through  private  agreements  with  the  American  Society  of  Composers  and
Publishers  ("ASCAP") and BMI, Inc.  ("BMI"),  the two major performing rights
organizations  in the  United  States.  ASCAP  and BMI offer  "through  to the
viewer"  licenses  to the cable  networks  which cover the  retransmission  of
the  cable  networks'   programming  by  cable  television  systems  to  their
subscribers.

      Television  Violence.  The Telecom Act of 1996  directed  the  broadcast
and cable  television  industries to develop and transmit an encrypted  rating
in all  video  programming  that,  when  used in  conjunction  with  so-called
"V-Chip"  technology,  would  permit the  blocking of  programs  with a common
rating.  On March 12,  1988,  the FCC voted to  accept  an  industry  proposal
providing for a voluntary  ratings  system of "TV Parental  Guidelines"  under
which all video  programming  will be designated  in one of six  categories in
order to permit the  electronic  blocking of selected video  programming.  The
FCC has begun a separate  proceeding to address  technical  issues  related to
the "V-Chip".  The FCC has directed that all television  receiver  models with
picture  screens 13 inches or greater be  equipped  with  "V-Chip"  technology
under a phased  implementation  beginning July 1, 1999.  Galaxy cannot predict
how  changes  in  the  implementation  of  the  ratings  system  and  "V-Chip"
technology will affect Galaxy's business.

      Regulatory  Fees and Other Matters.  The FCC requires  payment of annual
"regulatory  fees" by the  various  industries  it  regulates,  including  the
cable  television   industry.   In  1997,   cable   television   systems  were
required  to pay  regulatory  fees of  $0.59  per  subscriber.  Per-subscriber
regulatory   fees  may  be  passed  on  to  subscribers  as  "external   cost"
adjustments  to rates for basic  cable  service.  Fees are also  assessed  for
other  FCC   licenses,   including   licenses   for  business   radio,   cable
television   relay   systems   ("CARS")  and  earth   stations.   These  fees,
however,  may not be collected  directly from subscribers as long as the FCC's
rate regulations remain applicable to the cable system.

                                       22
<PAGE>

      In December  1994,  the FCC adopted new cable  television  and broadcast
technical   standards  to  support  a  new  Emergency   Alert  System.   Cable
operators  were  required  to install  and  activate  equipment  necessary  to
implement the new Emergency  Broadcast  System by July 1, 1997. At the present
time, the FCC has delayed this requirement for small operators.

      FCC regulations also address:  the carriage of local sports programming;
restrictions  on  origination  and  cablecasting  by cable  system  operators;
application of the rules  governing  political  broadcasts;  customer  service
standards;   home  wiring;   and  limitations  on  advertising   contained  in
nonbroadcast children's programming.

      Telecommunications   Regulation.  The  1996  Telecom  Act  substantially
revised  communications  regulation  in the  United  States.  The  legislation
was  intended to allow  providers  to enter  communications  markets that have
historically  been closed to them as a result of legal  restrictions,  as well
as practical  and economic  considerations.  At the same time,  implementation
of the 1996 Telecom Act may leave  incumbent  providers in  previously  closed
markets  sufficiently  free from  regulation  that they will be able to defend
their  markets  aggressively.  Galaxy is unable to predict  the outcome of the
proceedings that will implement the legislation.

      For  example,   the  1996  Telecom  Act   establishes   local   exchange
competition as a national policy by preempting laws that prohibit  competition
in  the  local  exchange  and  by  establishing   uniform   requirements   and
standards for  interconnection,  unbundling and resale.  These  standards will
be developed  and  implemented  by the FCC in  conjunction  with the states in
numerous  proceedings  and through a process of negotiation  and  arbitration.
By  establishing  national  standards  for  interconnection,  unbundling,  and
resale  of  competitive  local  exchange   services,   the  1996  Telecom  Act
significantly enhances Galaxy's opportunity to enter this market.

      At the same  time,  Galaxy's  ability to  compete  in  offering  certain
services  may  be  adversely  affected,  depending  on  the  degree  and  form
of  regulatory  flexibility  ultimately  afforded  LECs  by the  FCC  and  the
states,   as  well  as  on  the  pricing  scope  and  applicability  of  these
interconnection  requirements.  In addition,  if Galaxy offers local  exchange
services  within the meaning of the 1996 Telecom Act, other service  providers
may take  advantage of the  interconnection  duty to require Galaxy to use its
local  exchange facilities to carry their customer traffic.

      The 1996  Telecom  Act also opens the way for Bell  operating  companies
("BOCs")  and their  affiliates  to provide long  distance  telecommunications
services  between a local access and  transport  area and points  outside that
area.  Prior to the 1996  Telecom Act,  BOCs were  generally  prohibited  from
offering such "interLATA"  services.  Under the 1996 Telecom Act such services
may be offered  outside of a BOC's local  exchange  service area  immediately.
BOCs may offer  interLATA  services  inside their local exchange  service area
(in-region)  when the FCC determines  either that the BOC is providing  access
and   interconnection  to  a  competent  exchange  service  provider  under  a
state-approved  agreement or that no such provider has  requested  such access
and  interconnection  within ten  months  after  enactment,  and the state has
approved   the  BOC's   general   terms  for   providing   such   access   and
interconnection.  In either case,  the FCC also must conclude that the BOC has
satisfied   a   "competitive   checklist"   of   interconnection   and   other
requirements  specified in the 1996 Telecom Act. If Galaxy  decides  itself to
provide interLATA service,  it will likely face vigorous  competition from BOC
entrants, as well as from existing long distance carriers.

                                       23
<PAGE>

      Telecommunications  common carriers  subject to the  jurisdiction of the
FCC generally must file tariffs  detailing the prices and terms and conditions
of  services,  and  whether  the  terms  offered  by  the  carrier  are  just,
reasonable  and  nondiscriminatory.  The FCC has  eliminated the tariff filing
requirement for domestic nondominant carriers,  but that order has been stayed
pending  judicial  review.  The 1996  Telecom  Act  provides  that the FCC, in
response  to  a  petition  from  a  carrier,   shall  forbear  from  enforcing
regulations,  including those requiring  tariffs,  if the FCC determines that:
(1)  enforcement of the  regulations is not necessary to ensure that carriers'
terms  are  reasonable   and   nondiscriminatory;   (2)   enforcement  of  the
regulations  is not  necessary  for  the  protection  of  consumers;  and  (3)
forbearance  from  applying  the  regulations  is  consistent  with the public
interest and, in particular,  that such forbearance would promote competition.
The FCC may  take  action  under  these  provisions  of the Act to  reduce  or
eliminate  tariff  filing  and other  requirements.  Such  actions  could free
Galaxy  from  regulatory   burdens,   but  might  also  increase  the  pricing
flexibility of its competitors.

      Additional  Requirements.   The  FCC  imposes  a  number  of  additional
obligations on all telecommunications  carriers,  including the obligation to:
(1)interconnect  with other carriers and not to install  equipment that cannot
be connected  with the  facilities  of other  carriers;  (2) ensure that their
services are accessible and usable by persons with  disabilities;  (3) provide
Telecommunications   Relay  Service   ("TRS"),   either  directly  or  through
arrangements  with other carriers or service  providers  (TRS enables  hearing
impaired  individuals to  communicate  by telephone  with hearing  individuals
through  on  operator  at  a  relay  center);  (4)  comply  with  verification
procedures  in  connection  with  changing  the  presubscribed   interexchange
carrier  of a  customer  so as to prevent  "slamming,"  a practice  by which a
customer's  chosen long distance  carrier is switched  without the  customer's
knowledge;   (5)  protect  the  confidentiality  of  proprietary   information
obtained from other  carriers,  manufacturers  and  customers;  (6) pay annual
regulatory  fees to the  FCC;  and (7)  contribute  to the  Telecommunications
Relay Services Fund

      State and Local  Regulation.  Cable  systems  are  subject  to state and
local regulation,  typically  imposed through the franchising  process because
a  cable   television   system   uses   local   streets   and   rights-of-way.
Regulatory   responsibility   for  essentially  local  aspects  of  the  cable
business such as franchisee  selection,  billing practices,  system design and
construction,  and safety and consumer protection remains with either state or
local officials and, in some jurisdictions, with both.

      Cable   television   systems   generally   are   operated   pursuant  to
nonexclusive  franchises,  permits or licenses  granted by a  municipality  or
other state or local government entity.  Franchises  generally are granted for
fixed terms and in many cases are terminable for  noncompliance  with material
provisions.  The terms and  conditions  of  franchises  vary  materially  from
jurisdiction to jurisdiction.  Each franchise  generally  contains  provisions
governing  cable  service  rates,   franchise  fees,  franchise  term,  system
construction  and maintenance  obligations,  system channel  capacity,  design
and technical  performance,  customer service  standards,  franchise  renewal,
sale  or   transfer   of  the   franchise,   territory   of  the   franchisee,
indemnification  of the  franchising  authority,  use and  occupancy of public
streets  and types of cable  services  provided.  State and local  franchising
jurisdiction must be exercised consistently with federal law.

      Proposed Changes

      The  Congress  and the FCC have under  consideration,  and in the future
may consider and adopt,  new laws,  regulations and policies  regarding a wide
variety of matters that could affect,  directly or indirectly,  the operation,
ownership  and  profitability  of  Galaxy's  broadcast  and cable  programming
networks.  In addition to the changes and proposed  changes noted above,  such
matters include, for example,  spectrum use fees, political advertising rates,
potential  restrictions on the advertising of certain products (beer, wine and
hard liquor, for example),  proposals to change the rates and structure of the
cable compulsory  copyright license,  and the rules and policies to be applied
in  enforcing  the FCC's equal  opportunity  regulations.  Other  matters that
could  affect  Galaxy's  regulated  media  businesses  include   technological
innovations  and  developments  generally  affecting  competition  in the mass
communications  industry,  such  as  direct  radio  and  television  broadcast
satellite  service,  the continued  establishment  of wireless  cable systems,
digital  television  and  radio  technologies,  and the  advent  of  telephone
company participation in the provision of video programming service.

                                       24
<PAGE>

      Employees

      As  of  December  31,  1997,  Galaxy  had  approximately  453  full-time
employees  and  82  part-time  employees,  none  of  whom  are  subject  to  a
collective  bargaining  agreement.  Galaxy  considers its  relations  with its
employees to be excellent.  In addition,  Galaxy Management  employs 41 people
who are dedicated primarily to servicing Galaxy.

      Item 2.  Properties.

      Galaxy  owns or leases  parcels of real  property  for signal  reception
sites  (antenna  towers  and  headends),  microwave  facilities  and  business
offices,  and owns most of its  service  vehicles.  Galaxy  believes  that its
properties,  both owned and leased, are in good condition and are suitable and
adequate for Galaxy's business operations.

      Galaxy's  cables  generally  are  attached  to utility  poles under pole
rental  agreements  with  local  public  utilities,  although  in  some  areas
the  distribution  cable is  buried  in  underground  ducts or  trenches.  The
physical  components  of Galaxy's  systems  require  maintenance  and periodic
upgrading to keep pace with technological advances.

      Item 3.  Legal Proceedings.

      There are no material  pending legal  proceedings to which either Galaxy
or Galaxy Telecom Capital Corp.,  its wholly owned  subsidiary,  is a party to
or to which any of its properties are subject.

      Item 4.  Submission of Matters to a Vote of Security Holders.

      Not applicable.

      Item 4(a). Executive Officers.

      See Part III, Item 10.



                                       25
<PAGE>

                                      PART II

      Item 5. Market for  Registrant's  Common Equity and Related  Stockholder
               Matters.

      There is no established  public  trading market for Galaxy's  classes of
common equity.

      Item 6.  Selected Financial Data.

      The combined  statement of operations  data for the periods from January
1, 1993 to  December  22,  1994 set forth  below  have been  derived  from the
unaudited  financial  statements of the cable television systems acquired from
Vantage  Cable  and  Vista  Communications  and the  Western  Kentucky  Region
("Wickliffe")  and Cameron,  Texas  ("Cameron")  cable  television  systems of
Galaxy  Cablevision,  and the cable systems of Chartwell Cable  (collectively,
the "Initial  Systems").  The combined  statement of  operations  data for the
period from  December  23, 1994 to December  31,  1994,  calendar  years 1995,
1996 and 1997 and the balance  sheets  data as of  December  31, 1996 and 1997
set forth below have been derived from Galaxy's audited financial  statements,
and the unaudited  financial  statements of Cameron and Chartwell  Cable.  The
data should be read in conjunction with the historical  financial  statements,
the notes related thereto and the other financial  information included in the
exhibits and elsewhere herein.
<TABLE>
<CAPTION>


                                 Initial Systems (Combined)                        Company
                                                  Period from   Period from
                                                     Jan. 1      Dec. 23
                                                     1994 to      1994 to
                                                     Dec. 22      Dec. 31
                                          1993         1994         1994     1995 (b)      1996 (b)    1997(b)
                                          ----         ----         ----     --------      --------    -------
<S>                                     <C>         <C>         <C>          <C>        <C>         <C>


    (Dollars in thousands)
      Statement of Operations Data:

Revenues                                $ 27,285    $ 27,117    $    577    $ 29,995    $ 62,337    $ 68,808

Operating expenses:
  Systems operations                       9,938      10,338         260      13,219      28,353      31,503
  Selling, general and administrative      4,722       5,272          99       3,681       6,439       8,130
   Management fee to affiliate             1,320       1,316          32       1,605       2,804       3,092
  Depreciation and amortization           15,681      14,541         214      10,206      21,739      24,673
                                        --------    --------    --------    --------    --------    --------

    Total operating expenses              31,661      31,467         605      28,711      59,335      67,398
                                        --------    --------    --------    --------    --------    --------

Operating income (loss)                   (4,376)     (4,350)        (28)      1,284       3,002       1,410

Interest expense                          (6,229)     (6,015)       (153)    (10,442)    (20,133)    (21,037)
Other income (expense)                        37        (248)          6         608         219        (421)
                                        --------    --------    --------    --------    --------    --------
Net loss                                $(10,568)   $(10,613)   $   (175)   $ (8,550)   $(16,912)   $(20,048)
                                        ========    ========    ========    ========    ========    ========

EBITDA (a)                              $ 11,305    $ 10,191    $    186    $ 11,490    $ 24,741    $ 26,083


      Balance Sheet Data (at end of period):
      Total assets                                               $102,736   $199,913    $217,498    $207,048
      Total long-term debt and other obligations                   67,215    145,527     169,738     179,250
      Partners' capital                                            35,521     42,171      25,259       5,211
</TABLE>

(a)     EBITDA  represents  income  (loss)  before  interest  expense,  income
      taxes,  depreciation  and  amortization,  and  other  income  (expense).
      EBITDA  is  not  presented  in  accordance   with   generally   accepted
      accounting  principles and should not be considered an  alternative  to,
      or more meaningful than,  operating income or operating cash flows as an
      indicator of Galaxy's operating performance.

                                       26
<PAGE>

(b)      In December 1995,  except for the Cameron systems which were acquired
      in March 1995,  Galaxy acquired certain cable  television  systems which
      were  recorded  under the purchase  method of  accounting.  As a result,
      the  Consolidated  Statement  of  Operations  of Galaxy for the  periods
      subsequent to the  acquisitions  are not  comparative  to prior periods.
      In addition,  Galaxy  acquired  various cable systems during fiscal 1996
      and  1997,  which  were  insignificant  in  the  aggregate  to  Galaxy's
      on-going  operations.  (See "Business-1996  Acquisitions and Trades" and
      "Business-1997 Acquisitions and Dispositions).

      Item 7.  Management's  Discussion  and Analysis of  Financial  Condition
               and Results of Operations.

      Introduction

      On December 23,  1994,  Galaxy  commenced  operations.  Galaxy  acquired
certain cable television systems of Galaxy  Cablevision,  Vantage Cable, Vista
Communications  and  Chartwell  Cable on December 23, 1994,  and certain other
cable  systems  of  Galaxy  Cablevision,  L.P.  on  March  31,  1995,  for  an
aggregate  consideration of $98.8 million. (See "Business -- Background" for a
description  of the Initial  Systems.)  The  following  discussion  of results
of  operations  for the year ended  December 31, 1995 is based on the combined
historical  financial  data  for  the  Systems  adjusted  to  give  historical
pro-forma effect to management fees,  depreciation and amortization,  interest
expense  and debt  issue  costs  that  would  have been  incurred  if the 1995
acquisitions  had  been  acquired  as  of  January  1,  1995.  The  historical
pro-forma  results of  operations  of Galaxy do not reflect any changes in the
operation  or  management  of the  Systems  that Galaxy has made or intends to
make and are not  necessarily  indicative  of the results of  operations  that
would have been  achieved  had the Systems  been owned and  operated by Galaxy
during the periods presented.  The discussion of results of operations for the
years ended December 31, 1996 and 1997 reflects the actual  financial data for
the Systems for the years then ended.

      Results of Operations

      Overview

      In each of the past three  years,  the Initial  Systems  have  generated
substantially  all of their  revenues  from fees for monthly basic and premium
subscriptions  and from  one-time  charges such as late fees and  installation
charges.   Minimal  additional  revenues  were  generated  from  the  sale  of
advertising and from home shopping networks.

      The Systems  have  generated  increases  in revenues in each of the past
three  fiscal  years.  This growth was  accomplished  primarily  through  rate
increases.   Total  systems  operations  expenses  and  selling,  general  and
administrative expenses have increased,  but at a lesser amount than revenues.
Although  Galaxy expects to experience  increases in programming  expenses for
the foreseeable future,  Galaxy believes it will be able to increase its rates
for cable  services to recover  increases in the costs of  programming  to the
extent such increases exceed the general rate of inflation.  The high level of
depreciation  and  amortization  associated with the  acquisitions and capital
expenditures  related to continued  construction and upgrading of the Systems,
together  with  interest  costs  related  to  Galaxy's  and the prior  owners'
financing  activities,  have caused the prior owners of the Systems and Galaxy
to report  net  losses.  Galaxy  believes  that such net losses are common for
cable television companies.

      The  following  table  sets  forth  for the  periods  indicated  certain
statement of operations  items  expressed in dollar amounts (in thousands) and
a  percentage  of total  revenues  from  continuing  operations  on a combined
historical basis:


                                       27
<PAGE>

<TABLE>
<CAPTION>


                                             1995                    1996                  1997
                                         ------------             ----------           --------
                                                   % of                   % of                  % of
                                         Amount   Revenues       Amount   Revenues      Amount  Revenues
                                         ------   --------       ------  --------      ------   --------
(Dollars in Thousands)
  ----------------------
<S>                                     <C>         <C>       <C>         <C>       <C>         <C>

Revenues                                $ 29,995    100.0%    $ 62,337    100.0%    $ 68,808    100.0%

Operating expenses:
  System Operations                       13,219     44.1%      28,353     45.5%      31,503     45.8%
  Selling, general and administrative      3,681     12.2%       6,439     10.3%       8,130     11.8%
  Management fee to affiliate              1,605      5.3%       2,804      4.5%       3,092      4.5%
  Depreciation and  amortization          10,206     34.0%      21,739     34.9%      24,673     35.9%
                                        --------    -----     --------    -----     --------    -----

  Total operating  expenses               28,711     95.7%      59,335     95.2%      67,398     98.0%
                                        --------    -----     --------    -----     --------    -----

Operating income (loss)                    1,284      4.3%       3,002      4.8%       1,410      2.0%

  Interest expense                       (10,442)   (34.8%)    (20,133)   (32.3%)    (21,037)   (30.5%)
  Other income  (expense)                    608     (2.0%)        219      0.4%        (421)    (0.6%)
                                        --------    -----     --------    -----     --------    -----

Net loss                                $ (8,550)   (28.5%)   $(16,912)   (27.1%)   $(20,048)   (29.1%)
                                        ========    =====     ========    =====     ========    =====

EBITDA (a)                              $ 22,800     39.7%      24,741     39.7%      26,083     37.9%
</TABLE>

(a) EBITDA  represents  income (loss) before interest  expense,  income taxes,
      depreciation and  amortization,  and other income  (expense).  EBITDA is
      not  presented  in  accordance   with  generally   accepted   accounting
      principles  and  should not be  considered  an  alternative  to, or more
      meaningful  than,  operating  income  or  operating  cash  flows  as  an
      indicator of Galaxy's operating performance.

      1997 Compared to 1996

      Revenues  increased 10.4%, or approximately  $6.5 million,  from 1996 to
1997.  The increase in revenues  resulted  primarily from an increase in basic
rates in some Systems during the year,  offset  somewhat by a reduction in the
number of basic subscribers during fiscal year 1997.

      Systems  operations  expenses  increased  11.1%, or  approximately  $3.1
million,  from 1996 to 1997.  The  growth in  expenses  was due  primarily  to
increases  in  programming  and  other   subscriber   related  expenses  which
typically  vary with  revenues and the increased  number of channels  carried.
Systems operations expenses,  as a percentage of revenues,  increased slightly
from 45.5% in 1996 to 45.8% in 1997.

      Selling,   general  and  administrative  expenses  increased  26.3%,  or
approximately  $1.7  million,   from  1996  to  1997.  Selling,   general  and
administrative  expenses,  as a percentage of revenues,  increased to 11.8% in
1997 from 10.3% in 1996.  The  increase  was due  primarily  to an increase in
selling costs in an effort to spur subscriber growth in the Systems.

      Management fees increased  10.3%, or  approximately  $0.3 million,  from
1996 to 1997.  The  increase  was  directly  proportionate  to the increase in
revenue.

      Depreciation and amortization  expense increased 13.5%, or approximately
$2.9  million,  from 1996 to 1997.  Depreciation  and  amortization  increased
from 34.9% of revenues in 1996 to 35.9% of  revenues  in 1997.  This  increase
is due to the increase in fixed assets during the comparable periods.

      Interest  expense  increased 4.5%, or approximately  $0.9 million,  from
1996 to 1997.  Interest expense,  as a percentage of revenues,  decreased from
32.3% in 1996 to 30.6% in 1997 because of lower  interest  rates for bank debt
during  1997.  Interest  income  decreased  34.4%  from  1996 to  1997  due to
lower cash balances in 1997.

                                       28
<PAGE>

      Other income (expense),  net went from income of $182,711 during 1996 to
a net  expense of  $445,003  during  1997.  This  change of $0.6  million  was
mainly  due to a loss on sale of  assets  during  1997 in the  amount  of $0.2
million.

      The prior owners of the Systems and Galaxy as separate  entities paid no
income  taxes,  although  they were  required to file federal and state income
tax  returns  for  informational  purposes  only.  All  income or loss  flowed
through  to the  partners  of such  entities  as  specified  in the  governing
partnership agreements.

      As a combined  result of the items discussed  above,  net loss increased
18.5%,   or   approximately   $3.1   million,   from   1996  to  1997.   As  a
percentage  of  revenues,  net loss  increased  from 27.1% in 1996 to 29.0% in
1997.

      EBITDA  increased  5.4%, or  approximately  $1.3  million,  from 1996 to
1997,  due  primarily  to  the  increase  in  revenues.  As  a  percentage  of
revenues,  EBITDA decreased from 39.7% in 1996 to 37.9% in 1996,  primarily as
a result of the increases in system  operation  expenses and selling,  general
and administrative  expenses discussed above.  EBITDA represents income (loss)
before interest  expense,  income taxes,  depreciation and  amortization,  and
other income  (expense).  EBITDA is not presented in accordance with generally
accepted  accounting  principles  and should not be considered an  alternative
to, or more meaningful  than,  operating  income or operating cash flows as an
indicator of Galaxy's operating performance.

      1996 Compared to 1995

      Revenues  increased  107.8%, or approximately  $32.3 million,  from 1995
to  1996.  This is a result of the acquisitions during 1995 discussed below.

      System operations  expenses  increased  114.5%,  or approximately  $15.1
million,  from 1995 to 1996. Systems operations  expenses,  as a percentage of
revenues,  increased  from  44.1% in 1995 to 45.5%  in 1996.  These  increases
were a result of the acquisitions made during 1995.

      Selling,   general  and  administrative  expenses  increased  74.9%,  or
approximately $2.8 million,  from 1995 to 1996. The increase in expenses was a
result  of  the   acquisitions   made  during  1995.   Selling,   general  and
administrative  expenses,  as a percentage of revenues,  decreased  from 12.3%
in 1995 to 10.3% in 1996. This decrease was due primarily to Galaxy's  ability
to  administer  to  additional  customers  as a result of the  acquisition  of
systems during 1995 through the existing call centers.

      Management  fees to affiliate  increased  74.7%, or  approximately  $1.2
million,  from 1995 to 1996.  Management  fees are  calculated as a percentage
of revenue.  In December,  1995,  such fees were adjusted from 5.5% of revenue
to 4.5% of revenue.

      Depreciation   and   amortization    expense    increased   113.0%,   or
approximately  $11.5 million,  from 1995 to 1996. As a percentage of revenues,
depreciation and  amortization  increased from 34.0% in 1995 to 34.9% in 1996.
The increase in expense was a result of the acquisitions made during 1995.

      Interest expense  increased 92.8%, or approximately  $9.7 million,  from
1995 to 1996.  This  increase  was a result  of  additional  borrowings  under
Galaxy's  Revolving  and  Term  Loan  during  the  year.  As a  percentage  of
revenues,  interest  expense  decreased  from  34.8% in 1995 to 32.3% in 1996.
This  decrease was achieved  mainly due to the increase in revenues  and, to a
lesser extent, by placing a greater  percentage of the Revolving and Term Loan
under the LIBOR interest rate option.

      Other income (expense),  net went from income of $608,405 during 1995 to
income  of   $218,839,   or  0.4%  of   revenues   in  1996.   The  change  of
approximately  $0.4  million  is  primarily  attributable  to  a  decrease  in
interest  income of  approximately  $570,000  as a result of less cash on hand
during 1996.

                                       29
<PAGE>

      The prior owners of the Systems and Galaxy as separate  entities paid no
income  taxes,  although  they were  required to file federal and state income
tax  returns  for  informational  purposes  only.  All  income or loss  flowed
through  to the  partners  of such  entities  as  specified  in the  governing
partnership agreements.

      As a combined  result of the items discussed  above,  net loss increased
97.8%,  or  approximately  $8.4  million,  from 1995 to 1996.  As a percentage
of revenues, net loss increased from 28.5% in 1995 to 27.1% in 1996.

      EBITDA increased  approximately  $13.3 million,  or 115.3%, from 1995 to
1996, and, as a percentage of revenues,  EBITDA from 38.3% in 1995 to 39.7% in
1996.

      1995 Acquisitions

      Galaxy Cablevision  Acquisition.  On March 31, 1995, Galaxy acquired all
of the operating assets comprising Galaxy  Cablevision's eight Cameron,  Texas
cable  television  systems (the "Cameron  Systems").  The Cameron  Systems are
located  northeast  of  Austin,  Texas.  The  purchase  price for the  Cameron
Systems was  approximately  $3.6  million.  Upon  acquisition  by Galaxy,  the
Cameron  Systems  passed  approximately  7,730  homes with 143 miles of plant,
resulting  in  a  density  of  approximately   54.1  homes  per  mile,  served
approximately  3,500 basic  subscribers  and had a basic  penetration  rate of
approximately 45.3%.

      Phoenix Cable  Acquisition.  On November 2, 1995, Galaxy acquired all of
the operating  assets  comprising the 3 cable  television  systems  located in
Mississippi  that were owned by Phoenix Cable (the "Phoenix  Cable  Systems").
The  purchase  price for the Phoenix  Cable  Systems was  approximately  $0.55
million.  Upon  acquisition  by  Galaxy,  the  Phoenix  Cable  Systems  passed
approximately  1,115 homes with 71 miles of plant,  resulting  in a density of
approximately 15.7 homes per mile, served  approximately 600 basic subscribers
and had a penetration rate of approximately 53.8%.

      Douglas  Communications   Acquisition.   On  December  1,  1995,  Galaxy
acquired  all of the  operating  assets  comprising  the 226 cable  television
systems located in Illinois,  Missouri, Nebraska and Kansas that were owned by
Douglas   Communications   (the   "Douglas   Communications   Systems").   The
purchase  price  for the  Douglas  Communications  Systems  was  approximately
$45.8 million. Upon acquisition by Galaxy, the Douglas  Communications Systems
passed approximately  72,945 homes, with 1,613 miles of plant,  resulting in a
density of  approximately  45.2 homes per mile,  served  approximately  43,000
basic subscribers, and had a basic penetration rate of approximately 59.0%.

      Friendship  Cable  Acquisition.  On December 29, 1995,  Galaxy  acquired
all  of the  operating  assets  comprising  the 35  cable  television  systems
located in Florida,  Georgia and South  Carolina that were owned by Friendship
Cable  (the  "Friendship   Cable   Systems").   The  purchase  price  for  the
Friendship Cable Systems was  approximately  $21 million.  Upon acquisition by
Galaxy, the Friendship Cable Systems passed  approximately  35,637 homes, with
1,676  miles  of  plant,  for  a  density  of  21.3  homes  per  mile,  served
approximately  17,500 basic  subscribers and had a basic  penetration  rate of
approximately 49.1%.

      Vista-Narragansett   Acquisition.   On   December   29,   1995,   Galaxy
acquired  all of the  operating  assets  comprising  the 18  cable  television
systems  located  in  Mississippi,   Alabama,  Louisiana  and  Tennessee  (the
"Vista-Narragansett  Systems").  The purchase price for the Vista-Narragansett
systems,   net  of  systems  sold,  was  approximately  $13.7  million.   Upon
acquisition by Galaxy,  the  Vista-Narragansett  systems passed  approximately
16,155   homes,   with  433  miles  of  plant,   resulting  in  a  density  of
approximately  37.3  homes  per  mile,  served   approximately   11,000  basic
subscribers and had a basic penetration rate of approximately 68.1%.

                                       30
<PAGE>

      Vista I Acquisition.  On December 29, 1995,  Galaxy  acquired all of the
operating  assets  comprising  the 18  cable  television  systems  located  in
Mississippi  and  Alabama of Vista I (the  "Vista I  Systems").  The  purchase
price  for  the  Vista  I  Systems  was  approximately   $7.6  million.   Upon
acquisition by Galaxy, the Vista I Systems passed  approximately  9,073 homes,
with 323  miles of  plant,  resulting  in a  density  of 28.1  homes per mile,
served  approximately 6,100 basic subscribers and had a basic penetration rate
of approximately 67.2%.

      1996 Acquisitions And Trades

      Galaxy  acquired  various assets  comprising  cable  television  systems
through  purchase  and  trade  throughout  the  year.  Following  is  a  brief
discussion of each transaction.

      Cablevision  of  Texas  Systems.  On March  29,  1996,  Galaxy  acquired
certain assets comprising 31 cable television  systems of Cablevision of Texas
III,  Empire  Communications  and Empire Cable of Kansas (the  "Cablevision of
Texas  Systems") for a purchase price of  approximately  $10.2 million.  As of
the closing  date,  the  Cablevision  of Texas  Systems  passed  approximately
11,771  homes  located  in Kansas,  with 347 miles of plant,  for a density of
approximately  33.9 homes per mile.  The  Cablevision  of Texas Systems served
approximately  9,100 basic  subscribers  and had a basic  penetration  rate of
approximately 77.3%.

         High  Plains  Systems.  On April 1,  1996,  Galaxy  acquired  certain
systems  comprising eight cable  television  systems of High Plains Cable (the
"High Plains  Systems") for a purchase  price of  approximately  $0.3 million.
As of the closing  date,  the High Plains  Systems  passed  approximately  580
homes  located  in  Kansas,   with  20  miles  of  plant,  for  a  density  of
approximately   29  homes   per  mile.   The  High   Plains   Systems   served
approximately  270  basic  subscribers  and  had a basic  penetration  rate of
approximately 46.6%.

         Midcontinent  Systems.  On April 12, 1996,  Galaxy  acquired  certain
assets  comprising  six  cable  television   systems  of  Midcontinent   Cable
Systems (the  "Midcontinent  Systems") for a purchase  price of  approximately
$1.4  million.  As of  the  closing  date,  the  Midcontinent  Systems  passed
approximately  1,853 homes  located in Nebraska,  with 32 miles of plant,  for
a density of  approximately  57.9  homes per mile.  The  Midcontinent  Systems
served  1,328  basic   subscribers  and  had  a  basic   penetration  rate  of
approximately 71.7%.

         Five Rivers Systems.  On November 1, 1996,  Galaxy  acquired  certain
assets  comprising  one cable  television  system of Five Rivers Cable Company
(the  "Five  Rivers  System")  for a  purchase  price  of  approximately  $0.5
million.  As of the closing date, the Five Rivers System passed  approximately
730 homes  located  in  Tennessee,  with 24 miles of plant,  for a density  of
approximately  30.4 homes per mile.  The Five Rivers  System  served 588 basic
subscribers and had a basic penetration rate of approximately 80.5%.

      Hurst  Communications  Systems.  On  March  29,  1996,  Galaxy  acquired
certain   assets   comprising   eight  cable   television   systems  of  Hurst
Communications  (the "Hurst  Systems") for a purchase  price of  approximately
$1.1   million.   As  of  the  closing   date,   the  Hurst   Systems   passed
approximately  1,830 homes  located in Kansas,  with 50 miles of plant,  for a
density  of  approximately  36.6  homes per mile.  The  Hurst  Systems  served
1,371 basic subscribers and had a basic penetration rate of 74.9%.

      TCI Systems  Trade.  On June 14, 1996,  Galaxy traded assets  located in
Shawnee County and Jefferson County,  Kansas (the "Shawnee County System") for
assets  comprising  six cable  television  systems of TCI (the "TCI  Systems")
located in northern Mississippi.  At closing,  Galaxy's Shawnee County Systems
passed  approximately  9,500  homes,  with  approximately  315 miles of plant,
resulting  in a density  of 30.2 homes per mile.  The  Shawnee  County  System
served  approximately 7,000 basic subscribers and had a basic penetration rate
of  approximately  73.7% as of the closing date.  As of the closing date,  the
TCI  Systems  passed  approximately  16,900  homes,  with 729  miles of plant,
resulting in a density of  approximately  23.2 homes per mile. The TCI Systems
served  approximately  10,363 basic  subscribers  and had a basic  penetration
rate of approximately 61.3%.

                                       31
<PAGE>

      C-S  Cable.  On  October  30,  1996,   Galaxy  acquired  certain  assets
comprising the cable  television  systems of CS Cable Services,  Inc. (the "CS
Cable  Systems") for a purchase  price of  approximately  $2.3 million.  As of
the  closing  date,  the CS Cable  Systems  served  approximately  3,500 basic
equivalent subscribers.

      Mexia / Ranburn  Trade.  On  November  1,  1996,  Galaxy  traded  assets
comprising the Ranburn cable system in Ranburn,  Alabama serving approximately
110 subscribers for a similar system in Mexia,  Alabama serving  approximately
230  subscribers.  This trade allowed  Galaxy to trade a small system out of a
non-targeted  service  area for a similar  system in proximity to our targeted
service areas.

      1997 Acquisitions and Dispositions

      TCI Cable of the Midland - Sarpey County Systems.  On September 1, 1997,
Galaxy  acquired  certain assets  comprising the cable  television  systems of
TCI Cable of the Midland (the "Sarpey County Systems"),  located in Sarpey and
Douglas  counties,  for  a  purchase  price  of  approximately   $875,000.  At
September 1, 1997, the Sarpey County Systems passed  approximately 3,000 homes
located in Nebraska,  with  approximately  80 miles of plant, for a density of
39 homes per mile.  The  Sarpey  County  Systems  served  approximately  1,613
basic subscribers and had a basic penetration rate of approximately 52%.

            On  April  7,  1997,  Galaxy  sold its  cable  television  system
located  in  Five  Points,   South   Carolina   (the  "Five  Points   Sale"),
representing  311 basic  subscribers for $372,645,  or  approximately  $1,200
per  subscriber.  Galaxy used most of the proceeds  from the Five Points Sale
to pay down principal of the revolving note.

      On August 1, 1997,  Galaxy sold its cable  television  systems  located
in Lake Murray,  South  Carolina (the "Lake Murray Sale"),  representing  587
subscribers   for  $587,000  or  $1,000  per   subscriber.   Galaxy  retained
ownership of all related  equipment  located in the two head-end  facilities.
Galaxy used the proceeds  from the Lake Murray Sale to pay down  principal of
the revolving note.

      On  December  31,  1997,  Galaxy  sold  its  cable  television  systems
located in Lauderdale  County,  Mississippi (the  "Lauderdale  County Sale"),
representing  833  subscribers  for $1.12  million or $1,350 per  subscriber.
Galaxy  used  the  proceeds  from  the  Lauderdale  County  Sale to pay  down
principal of the revolving note.

      On  December  31,  1997,  Galaxy  sold  its  cable  television  systems
located  in South  Kansas  (the  "South  Kansas  Sale"),  representing  1,346
subscribers  for  $1.25  million  or $932  per  subscriber.  Galaxy  used the
proceeds  from the South Kansas Sale to pay down  principal of the  revolving
note.

      Pending Disposition

      On January 15, 1998,  Galaxy sold its cable  television  systems located
in Wyoming and Idaho (the  "Wyoming  Sale"),  representing  4,000  subscribers
for $4.9 million or $1225 per  subscriber.  Galaxy used the proceeds  from the
Wyoming Sale to pay down principal of the revolving note.

                                       32
<PAGE>

      Liquidity and Capital Resources

      The  cable  television  business  requires  substantial   financing  for
construction,  expansion and maintenance of plant.  Galaxy intends to continue
pursuit of a business strategy which includes  selective  acquisitions.  Since
December of 1994 Galaxy received cash equity  contributions  of  approximately
$44.6 million from the Equity Investors and the Senior  Managers.  Galaxy also
received  equity from  Vantage  Cable  totaling  approximately  $6.4  million.
Galaxy had an aggregate of $179.2 million of  indebtedness  as of December 31,
1997,  representing $119.5 million of senior subordinated notes, $59.2 million
drawn  under  Galaxy's  revolving  line of credit (See "The  Revolving  Credit
Facility and Term Loan"), and $0.5 million in various other  obligations.  Net
borrowings were made under Galaxy's  revolving line of credit of approximately
$23 million  during  fiscal  1997.  Galaxy  anticipates  that  operating  cash
flows,  borrowings  under its revolving  line of credit and sales  proceeds of
assets sold outside its Core Areas will provide  sufficient funds necessary to
meet debt service, working capital and capital expenditure needs.

      Capital Expenditures

      During  1997,  Galaxy's  capital   expenditures   (exclusive  of  system
acquisitions) were  approximately  $16.4 million.  These capital  expenditures
were  used  to  upgrade  existing   systems  through  channel   additions  and
interconnect  traditional copper cable systems with new fiber optic cable, and
purchasing new computer  equipment and software to enhance  communications and
data traffic  between  employees and Galaxy  subscribers.  Galaxy  anticipates
capital  expenditures  over the next two years  will total  approximately  $27
million.  These capital  expenditures  will be used  primarily to continue the
installation  of fiber  optic  cable  and to allow  for the  reduction  in the
number  of  headends.   These   expenditures   also  include   expansion   and
replacement of headend buildings,  rewires of associated  electronic equipment
and for the purchase of new vehicles,  test equipment and computer  equipment.
The  remaining  capital  items  include the expenses and capital  expenditures
required to add new  subscribers  and the  expansion  and upgrade of the cable
television  facilities.  Galaxy  expects to finance  the  anticipated  capital
expenditures  described  above  with cash  flows  generated  from  operations,
borrowings  under the Revolving  Credit  Facility,  proceeds from system sales
and other debt as necessary.

      The Revolving Credit Facility and Term Loan

     The Term Loan Agreement was amended in September 1995 to a Revolving Credit
Facility under which Galaxy may make revolving borrowings of up to $63.0 million
until  December  31,  1998,  subject  to  compliance  with  certain  conditions,
including  certain  financial  covenants.  The  Revolving  Credit  Facility will
require Galaxy to maintain  compliance with certain  financial  ratios and other
covenants.  The  financial  covenants  in  the  Revolving  Credit  Facility  may
significantly  limit  Galaxy's  ability  to borrow  under the  Revolving  Credit
Facility.

      Senior Subordinated Notes

      Pursuant to an  indenture  dated  September  28, 1995 (the  "Indenture")
between  Galaxy  and  Capital  Corp.,  and the  Bank of New  York as  trustee,
Galaxy   issued  $120.0   million   aggregate   principal   amount  of  senior
subordinated  obligations  (the "Notes")  maturing in October 2005.  The Notes
bear an interest  rate of 12.375% per annum  payable  semiannually  on April 1
and October 1, commencing April 1, 1996.

      The payment of principal  and interest on the Notes is  subordinated  in
right of payment to the  Revolving  Credit  Facility and Term Loan  Agreement.
The  Notes  will  rank  pari  passu   with  all  other   senior   subordinated
indebtedness  of Galaxy,  if any,  and is senior to all  subordinated  debt of
Galaxy.

                                       33
<PAGE>

      The  Indenture  contains  various   restrictive   covenants,   including
limitations  on  indebtedness,   certain  restricted  payments  and  affiliate
transactions as defined,  purchases,  asset sales and capital  expenditures in
addition to reporting requirements.

      Outlook

      Galaxy's  computer  software  programs utilize four digits to define the
applicable  year  and  therefore  Galaxy  believes  it  has no  internal  risk
concerning  the  Year  2000  issue.  Any  problems   Galaxy's   suppliers  and
customers  may have related to this issue are not  expected to affect  Galaxy.
Galaxy has not incurred any costs  related to this issue and is not  expecting
to incur any such costs in the future.

      Inflation

      Galaxy does not believe that  inflation  in the United  States in recent
years has had a significant effect on results on operations.

      Safe Harbor Under The Private Securities Litigation Reform Act Of 1995

      The  statements   contained  in  the  Form  10-K  relating  to  Galaxy's
operating  results,   and  plans  and  objectives  of  management  for  future
operations,  including plans or objectives  relating to Galaxy's  products and
services,  constitute  forward  looking  statements  within the meaning of the
Private  Securities  Litigation  Reform Act of 1995.  Actual results of Galaxy
may differ materially from those in the forward looking  statements and may be
affected  by  a  number  of  factors   including  the  receipt  of  regulatory
approvals,  the  success of  Galaxy's  implementation  of digital  technology,
subscriber equipment availability,  tower space availability,  and the absence
of  interference,  as well as other factors  contained  herein and in Galaxy's
securities filings.

      Galaxy's future revenues and  profitability are difficult to predict due
to a variety of risks and  uncertainties,  including  (i) business  conditions
and  growth  in  Galaxy's  existing  markets,  (ii) the  successful  launch of
systems and technologies in new and existing markets,  (iii) Galaxy's existing
indebtedness and the need for additional  financing to fund subscriber  growth
and  system  and  technological   development,   (iv)  government  regulation,
including FCC  regulations,  (v) Galaxy's  dependence on channel leases,  (vi)
the  successful   integration  of  future   acquisitions  and  (vii)  numerous
competitive  factors,   including  alternative  methods  of  distributing  and
receiving video transmissions.

      Galaxy expects to continue its subscriber  growth and launch  additional
systems.  Moderate  increases in revenues and  subscribers  are anticipated in
1998;  however,  the rate of increase  cannot be estimated  with  precision or
certainty.  Galaxy  believes  that  general and  administrative  expenses  and
depreciation  and  amortization  expense will  continue to increase to support
overall growth.

      Because  of  the  foregoing   uncertainties  affecting  Galaxy's  future
operating results,  past performance should not be considered to be a reliable
indicator  of future  performance,  and  investors  should not use  historical
results  or  trends  as  determinative  of  Galaxy's  future  performance.  In
addition,  Galaxy's  participation in a developing  industry employing rapidly
changing technology will result in significant  volatility in the market value
of the Notes.

      In addition to the matters noted above,  certain other  statements  made
in this  Form  10-K are  forward  looking.  Such  statements  are  based on an
assessment of a variety of factors,  contingencies  and  uncertainties  deemed
relevant by management,  including technological changes, competitive products
and services and management  issues. As a result,  the actual results realized
by Galaxy could differ  materially  from the statements  made herein.  Readers
of this Form 10-K are  cautioned  not to place  undue  reliance on the forward
looking  statements  made in this Form 10-K or in  Galaxy's  other  securities
filings.

                                       34
<PAGE>

            Recent Accounting Pronouncements

      In June 1997, the Financial  Accounting  Standards Board ("FASB") issued
SFAS No. 130, "Reporting  Comprehensive  Income," which establishes  standards
for  reporting  and display of  comprehensive  income and its  components in a
full set of general-purpose  financial  statements.  SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997.

      Also in June 1997,  the FASB  issued SFAS No.  131,  "Disclosures  about
Segments  of  an  Enterprise  and  Related   Information,"  which  establishes
standards  for the way that public  business  enterprises  report  information
about  operating  segments in annual  financial  statements  and requires that
those  enterprises  report selected  information  about operating  segments in
interim  financial  reports  issued  to  shareholders.   It  also  establishes
standards for related  disclosures  about  products and  services,  geographic
areas  and  major   customers.   SFAS  No.  131  is  effective  for  financial
statements for periods beginning after December 15, 1997.

      Management  does  not  believe  the   implementation   of  these  recent
accounting  pronouncements  will have a  material  effect on its  consolidated
financial statements.

      Item 7a.    Qualitative and Quantitative Disclosures about Market Risks.

      Not applicable.

                                       35
<PAGE>
      Item 8.   Financial Statement and Supplementary Data.



                       GALAXY TELECOM, L.P. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE


<TABLE>
        <S>                                                                                 <C>


                                                                                              Page
                                                                                            -------
        Consolidated Financial Statements:

             Report of Independent Accountants                                                F-2

             Consolidated Balance Sheets as of December 31, 1997 and 1996                     F-3

             Consolidated Statements of Operations for the Years Ended
               December 31, 1997, 1996 and 1995                                               F-4

             Consolidated Statements of Changes in Partners' Capital for the
               Years Ended December 31, 1997, 1996 and 1995                                   F-5

             Consolidated Statements of Cash Flows for the Years Ended
               December 31, 1997, 1996 and 1995                                               F-6

             Notes to Consolidated Financial Statements                                       F-7


        Financial Statement Schedule:

             Schedule II - Valuation and Qualifying Accounts                                 F-23

</TABLE>

            All other  schedules are omitted as the required  information is not
             applicable  or the  information  is presented  in the  consolidated
             financial statements, related notes orfinancial statement schedule.



                                      F-1
<PAGE>





                                      Report of Independent Accountants





        To the Partners
        Galaxy Telecom, L.P.

        We have audited the consolidated  financial statements and the financial
        statement   schedule  of  Galaxy  Telecom,   L.P.  and  Subsidiary  (the
        "Partnership")  listed in the index on page F-1 of this Form 10-K. These
        consolidated  financial  statements and financial statement schedule are
        the responsibility of the Partnership's  management.  Our responsibility
        is to express an opinion on these consolidated  financial statements and
        financial statement schedule 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, the consolidated  financial statements referred to above
        present fairly,  in all material  respects,  the consolidated  financial
        position of Galaxy Telecom,  L.P. and Subsidiary as of December 31, 1997
        and 1996 and the consolidated 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.   In
        addition,  in our opinion,  the financial statement schedule referred to
        above, when considered in relation to the basic  consolidated  financial
        statements taken as a whole,  presents fairly, in all material respects,
        the information required to be included therein.




                                                 COOPERS & LYBRAND L.L.P.


        Austin, Texas
        March 3, 1998

                                      F-2
<PAGE>

<TABLE>
<CAPTION>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS


                                                                           December 31,
                                                                 ------------------------------
                                                                       1997             1996
                                                                 -------------    -------------

<S>                                                              <C>              <C>
Cash and cash equivalents                                        $   2,403,098    $   2,338,345
Subscriber receivables, net of allowance for doubtful accounts
   $154,692 and $411,950, respectively                               5,424,260        5,998,127
Systems and equipment, net                                         138,729,592      144,822,616
Intangible assets, net                                              57,193,102       62,330,152
Prepaids and other                                                   3,297,573        2,008,768
                                                                 -------------    -------------

                          Total assets                           $ 207,047,625    $ 217,498,008
                                                                 =============    =============


LIABILITIES AND PARTNERS' CAPITAL

Accounts payable and accrued expenses                            $  17,152,286    $  17,738,261
Subscriber deposits and deferred revenue                             5,434,097        4,763,327
Long-term debt and other obligations                               179,250,312      169,737,608
                                                                 -------------    -------------

                        Total liabilities                          201,836,695      192,239,196

Commitments and contingencies

Partners' capital:
    General partners                                                (1,790,070)      18,257,812
    Limited partners                                                 7,001,000        7,001,000
                                                                 -------------    -------------
       Total partners' capital                                       5,210,930       25,258,812
                                                                 -------------    -------------

       Total liabilities and partners' capital                   $ 207,047,625    $ 217,498,008
                                                                 =============    =============











<FN>

            The  accompanying  notes are an  integral  part of the  consolidated financial statements.
</FN>
</TABLE>

                                      F-3
<PAGE>

                                   GALAXY TELECOM, L.P. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                  Years Ended December 31,
                                         ------------------------------------------
                                            1997            1996            1995
                                       ------------    ------------    ------------
<S>                                    <C>             <C>             <C>

Revenues                               $ 68,807,763    $ 62,337,218    $ 29,995,187

Operating expenses:
 Systems operations                      31,502,762      28,353,154      13,219,170
 Selling, general and administrative      8,129,733       6,439,308       3,680,945
 Management fee to affiliate              3,092,354       2,804,374       1,605,404
 Depreciation and amortization           24,672,569      21,738,425      10,205,635
                                       ------------    ------------    ------------
Total operating expenses                 67,397,418      59,335,261      28,711,154
                                       ------------    ------------    ------------

Operating income                          1,410,345       3,001,957       1,284,033

Interest expense                        (21,036,934)    (20,132,735)    (10,442,205)
Interest income                              23,710          36,128         680,992
Other income (expense), net                (445,003)        182,711         (72,587)
                                       ------------    ------------    ------------

Net loss                               $(20,047,882)   $(16,911,939)   $ (8,549,767)
                                       ============    ============    ============






















<FN>



            The  accompanying  notes are an  integral  part of the  consolidated financial statements.

</FN>
</TABLE>

                                      F-4

<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
             CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

<TABLE>
<CAPTION>


                                                                    Limited Partners
                          General        ----------------------------------------------------------------------
                          Partners         Class B       Class C        Class D        Class E         Total          Total
                        ------------    ------------   ------------   ------------   ------------   ------------   ------------
<S>                     <C>             <C>            <C>            <C>            <C>            <C>            <C>

Balance, January 1,
     1995               $ 28,719,518    $      1,000   $    416,000   $  6,384,000   $       --     $  6,801,000   $ 35,520,518

Contributions             15,000,000            --             --             --          200,000        200,000     15,200,000

Net loss                  (8,549,767)           --             --             --             --             --       (8,549,767)
                        ------------    ------------   ------------   ------------   ------------   ------------   ------------

Balance, December 31,
     1995                 35,169,751           1,000        416,000      6,384,000        200,000      7,001,000     42,170,751

Net loss                 (16,911,939)           --             --             --             --             --      (16,911,939)
                        ------------    ------------   ------------   ------------   ------------   ------------   ------------

Balance, December 31,
     1996                 18,257,812           1,000        416,000      6,384,000        200,000      7,001,000     25,258,812

Net loss                 (20,047,882)           --             --             --             --             --      (20,047,882)
                        ------------    ------------   ------------   ------------   ------------   ------------   ------------

Balance, December 31,
     1997               $ (1,790,070)   $      1,000   $    416,000   $  6,384,000   $    200,000   $  7,001,000   $  5,210,930
                        ============    ============   ============   ============   ============   ============   ============




















<FN>



            The  accompanying  notes are an  integral  part of the  consolidated financial statements.

</FN>
</TABLE>
                                      F-5
<PAGE>




                       GALAXY TELECOM, L.P. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                   Years Ended December 31,
                                                       ----------------------------------------------
                                                              1997             1996            1995
                                                       -------------    -------------    -------------

<S>                                                     <C>               <C>                <C>

Cash flows from operating activities:
  Net loss                                             $ (20,047,882)    $(16,911,939)     $(8,549,767)
  Adjustments to reconcile net loss to net cash
    provided by operating activities:
    Depreciation expense                                  20,554,588       17,646,096        7,020,550
    Amortization expense                                   4,117,981        4,092,330        3,185,085
    Amortization included in interest expense                934,770        1,294,650          801,058
    Financeable interest                                        --            597,849          446,046
    Provision for doubtful accounts receivable             1,992,318        1,229,536          383,547
    (Gain)/loss on disposal of equipment                     226,185         (183,095)          72,587
    Changes in assets and liabilities:
      Subscriber receivables                              (1,418,451)      (3,715,522)      (2,023,046)
      Prepaids and other                                  (1,288,805)        (397,610)        (258,916)
      Accounts payable and accrued expenses               (1,637,383)       7,751,279        5,241,429
      Subscriber deposits and deferred revenue               670,770        2,116,914        1,328,391
                                                       -------------    -------------    -------------

          Net cash provided by operating activities        4,104,091       13,520,488        7,646,964
                                                       -------------    -------------    -------------

Cash flows from investing activities:
  Acquisition of cable systems - net of trades              (825,000)     (16,009,136)     (95,614,673)
  Proceeds from sale of capital assets                     3,304,334          683,171        2,101,345
  Acquisition of capital assets                          (15,222,381)     (21,397,549)      (4,815,014)
  Other intangible assets                                   (536,197)        (873,882)        (164,248)
                                                       -------------    -------------    -------------

          Net cash used in investing activities          (13,279,244)     (37,597,396)     (98,492,590)
                                                       -------------    -------------    -------------

Cash flows from financing activities:
  Borrowings under term debt and revolver                 12,400,000       38,226,377       20,850,000
  Payments under term debt and revolver                   (3,051,377)     (14,893,894)     (59,000,000)
  Net (payments) borrowings on other debt                   (108,717)          60,738            5,215
  Proceeds from bond issue                                      --               --        119,400,000
  Payment of debt issue costs                                   --           (408,803)      (4,869,164)
  Partners' contributions                                       --               --         15,000,000

          Net cash provided by financing activities        9,239,906       22,984,418       91,386,051
                                                       -------------    -------------    -------------

Net increase (decrease) in cash and cash equivalents          64,753       (1,092,490)         540,425
Cash and cash equivalents, beginning of period             2,338,345        3,430,835        2,890,410
                                                       -------------    -------------    -------------

Cash and cash equivalents, end of period               $   2,403,098    $   2,338,345    $   3,430,835
                                                       =============    =============    =============

<FN>



            The  accompanying  notes are an  integral  part of the  consolidated financial statements.

</FN>
</TABLE>
                                      F-6
<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



   1.   Organization:

        Galaxy   Telecom,   L.P.  (the   "Partnership"),   a  Delaware   limited
        partnership,  was formed in  December  1994 to acquire,  develop,  hold,
        improve, construct, manage, operate and use cable television systems and
        related   businesses   in  sixteen   states,   predominantly   including
        Mississippi,  Nebraska,  Kansas,  Missouri,  Illinois,  Kentucky,  Iowa,
        Alabama, Georgia and Florida.

        Principles of Consolidation

        The  consolidated  financial  statements  include  the  accounts  of the
        Partnership  and  its  wholly-owned subsidiary, Galaxy  Telecom  Capital
        Corp.  ("Capital Corp.").   All  intercompany   transactions  have been
        eliminated in consolidation.  Capital Corp. was formed in July 1995 and
        maintains a capitalization of $1,000  for  the  purpose  of  co-issuing,
        with  the  Partnership,  the  Senior  Subordinated  Notes (see Note 6).
        Capital Corp. does not and is not expected to have operations other than
        its related purpose as co-issuer.

        Partners

        The general  partners  include Galaxy Telecom  Investments,  L.L.C.  and
        Galaxy  Telecom,  Inc.  with  99% and 1%  interests,  respectively.  The
        limited  partners  include Galaxy Telecom  Investments,  L.L.C.,  Galaxy
        Telecom,  Inc., and Vantage Cable  Associates,  L.P. as Class B, C and D
        limited partners,  respectively.  A Class E limited partner interest was
        issued upon closing of the Partnership's Cameron, Texas cable television
        system  acquisition in March 1995. Class C, D and E limited  partnership
        interests are subject to reductions  resulting  from  potential  set-off
        adjustments to the respective cable television system acquisitions.

        Priority Returns

        The Partnership  agreement  establishes priority returns for the general
        and certain  limited  partners  compounded  annually  on the  respective
        partners'  unreturned  contributions.  Limited partner  priority returns
        range from 9 percent to 10 percent  through  1999 with  general  partner
        priority  returns of up to 35 percent.  The cumulative  priority  return
        totaled  approximately  $57,552,882,   $31,290,847  and  $11,696,000  at
        December 31, 1997, 1996 and 1995, respectively.

        Distributions

        First,  to Class C, D and E  limited  partners  in  proportion  to their
        respective   capital   contributions  to  the  extent  of  such  capital
        contributions and priority returns.

        Second,  to General and Class B limited  partners in proportion to their
        respective   capital   contributions  to  the  extent  of  such  capital
        contributions.

        Third, to general partners in proportion to their percentage interest to
        the extent all  distributions  to the general  partners  equal the first
        priority return.

        Fourth,  94.05  percent  to  general  partners  in  proportion  to their
        percentage  interest and 5.95 percent to Class B limited  partner to the
        extent all  distributions  to the general  partners  equal to the second
        priority return.

                                      F-7
<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


  1.    Organization, continued:


        Distributions, continued

        Thereafter, 88.10 percent to the general partners in proportion to their
        percentage interest and 11.90 percent to the Class B limited partner.

        Distributions  are restricted by the Senior  Subordinated  Notes and the
        Revolving Credit Facility and Term Loan agreement to those amounts which
        are  necessary  for the  partners'  federal and state  income  taxes and
        certain fees.

        Allocations

        Partnership  losses are allocated to the general  partners in proportion
        to their percentage interest, while Partnership profits are allocated to
        the general  partners and the Class B limited partner in the same manner
        as the third, fourth and subsequent distributions. Profits are allocated
        to the  Class C, D and E limited  partners  to the  extent  of  priority
        return distributions to such partners.



   2.   Summary of Significant Accounting Policies:

        Cash and Cash Equivalents

        Cash  equivalents  include highly liquid  investments  purchased with an
        original   maturity  of  three  months  or  less.  There  were  no  cash
        equivalents at December 31, 1997 and 1996.

        Concentrations of Credit Risk

        Financial  instruments  which  potentially  subject the  Partnership  to
        concentrations  of  credit  risk  are  cash  and  cash  equivalents  and
        subscriber and other receivables. The Partnership invests excess cash in
        short-term  liquid money  instruments  issued by  significant  financial
        institutions.  Cash  balances in excess of the  federally  insured limit
        totaled approximately $2.0 million and $3.5 million at December 31, 1997
        and 1996,  respectively.  Though limited  primarily to cable  television
        subscribers,   the   concentration   of  credit  risk  with  respect  to
        receivables   is   minimized   by   geographical    dispersion   through
        approximately  457 individual cable  television  systems ranging in size
        from  approximately  10 subscribers to approximately  3,400  subscribers
        located in small communities in the Midwest and Southeast United States,
        and the large number of customers  with  individually  small balances on
        short payment terms.

                                      F-8

<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   2.   Summary of Significant Accounting Policies, continued:

        Fair Value of Financial Instruments

        Statement  of   Financial   Accounting   Standards   ("SFAS")  No.  107,
        "Disclosures  about  Fair  Value  of  Financial  Instruments,"  requires
        certain disclosures  regarding the fair value of financial  instruments.
        Cash and cash equivalents,  subscriber receivables, accounts payable and
        accrued expenses are reflected in the financial statements at fair value
        because of the short-term maturity of these instruments.  The fixed rate
        Senior  Subordinated Notes (see Note 6) are valued using the closing bid
        price  market  quotes,  and as a result,  the fair value of the Notes at
        December  31,  1997  and  1996  was   $133,200,000   and   $129,588,000,
        respectively. Based on borrowing rates currently available to Galaxy for
        similar debt,  the fair value of the revolver debt closely  approximates
        its carrying value at December 31, 1997 and 1996.

        Revenue Recognition

        Revenues from  subscribers  are  recognized in the month that service is
        provided.  Installation  revenues are recognized  upon completion of the
        service provided to the subscriber.

        Marketing Costs

        Marketing  costs  are  charged  to  operations  in the  period  incurred
        totaling approximately  $1,515,686,  $243,000 and $569,000 for the years
        ended December 31, 1997, 1996 and 1995.

        Federal Income Taxes

        The  Partnership  as an entity  pays no  income  taxes,  although  it is
        required to file federal and state income tax returns for  informational
        purposes  only.  All income or loss "flows  through"  to the  individual
        partners as specified in the Partnership agreement.

        The  differences  between the results of  operations  presented in these
        consolidated  financial  statements  and taxable loss for Federal income
        tax reporting  purposes  result  primarily  from the use of  accelerated
        methods for computing tax depreciation.

        Systems and Equipment

        Systems  and  equipment   obtained  through  the  acquisition  of  cable
        television  systems  are  recorded at  estimated  fair value while other
        additions are recorded at cost including amounts for material and labor.
        Direct costs,  including labor,  associated with  installations in homes
        not previously  served by cable television are capitalized as subscriber
        drops.   Expenditures   for  maintenance  and  repairs  are  charged  to
        operations as incurred and equipment  replacements  and  betterments are
        capitalized.  When  assets are sold or  retired,  the  related  cost and
        accumulated  depreciation are removed from the respective accounts,  and
        any resulting gain or loss is credited or charged to operations.


                                      F-9


<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   2.   Summary of Significant Accounting Policies, continued:

        Intangible Assets

        Goodwill  related  to  the  acquisition  of  cable  television   systems
        represents  the excess of purchase  price plus related direct costs over
        the fair  value of the net  assets  acquired.  Other  intangible  assets
        consist  primarily  of debt  issuance  costs.  Debt  issuance  costs and
        original  issue  discounts are  amortized to interest  expense using the
        interest method.

        The  Partnership  reviews  goodwill  for  impairment  from time to time,
        measuring  impairment based upon expected future undiscounted cash flows
        from operations.

        Impairment of Long-Lived Assets

        In the event  that  facts and  circumstances  indicate  that the cost of
        long-lived assets other than financial  instruments may be impaired,  an
        evaluation of  recoverability  would be  performed.  If an evaluation of
        impairment is required,  the estimated  future  undiscounted  cash flows
        associated  with the asset would be  compared  to the  asset's  carrying
        amount to determine if a write-down is required.

        Use of Estimates

        The  preparation  of financial  statements in conformity  with generally
        accepted accounting principles requires management to make estimates and
        assumptions  that affect the reported  amounts of assets and liabilities
        and disclosure of contingent  assets and  liabilities at the date of the
        financial  statements and the reported  amounts of revenues and expenses
        during the  reporting  period.  Actual  results  could differ from those
        estimates.

        Reclassifications

        Certain  prior year balances  have been  reclassified  to conform to the
        current year's presentation.


                                      F-10

<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   2.   Summary of Significant Accounting Policies, continued:

        Recent Accounting Pronouncements

        In June 1997, the Financial  Accounting  Standards Board ("FASB") issued
        SFAS  No.  130,  "Reporting  Comprehensive  Income,"  which  establishes
        standards  for  reporting  and display of  comprehensive  income and its
        components in a full set of general-purpose  financial statements.  SFAS
        No. 130 is effective for fiscal years beginning after December 15, 1997.

        Also in June 1997,  the FASB  issued SFAS No.  131,  "Disclosures  about
        Segments of an Enterprise and Related  Information,"  which  establishes
        standards  for  the  way  that  public   business   enterprises   report
        information about operating segments in annual financial  statements and
        requires  that  those  enterprises  report  selected  information  about
        operating  segments in interim financial reports issued to shareholders.
        It also establishes standards for related disclosures about products and
        services,  geographic  areas  and  major  customers.  SFAS  No.  131  is
        effective for financial  statements for periods beginning after December
        15, 1997.

        Management  does  not  believe  the   implementation   of  these  recent
        accounting   pronouncements   will  have  a   material   effect  on  its
        consolidated financial statements.

   3.   Acquisition of Cable Television Systems:

        1997 Acquisitions and Trades

        During 1997, the  Partnership  did not acquire or trade any  significant
        cable television systems.








                                      F-11

<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   3.   Acquisition of Cable Television Systems, continued:

        1996 Acquisitions and Trades

        During 1996, the Partnership  acquired certain cable television  systems
        recorded  under the purchase  method of accounting  in  accordance  with
        Accounting Principles Board Opinion No. 16 as follows:

        Purchase consideration consisted of the following:

<TABLE>
               Cablevision
                of Texas        High        Mid
                   III         Plains    Continent         Hurst          TCI      5 Rivers    C-S Cable       Mexia    Purchases
                   ---         ------    ---------         -----          ---      --------    ---------       -----    ---------
<S>              <C>          <C>         <C>           <C>           <C>         <C>          <C>          <C>         <C>
Cash to seller
 paid by the
 Partnership    $9,663,590   $  271,553   $1,271,856    $1,034,594    $    --     $  440,900   $2,197,482   $  107,500  $14,987,475


Cash to
 escrow            500,000       25,000       75,000        21,080         --           --         75,000         --        696,080

Cable systems
 traded:
  Shawnee County      --           --           --            --      5,713,903         --           --           --      5,713,903
  Ranburne            --           --           --            --           --           --           --        279,702      279,702

 Cash for
acquisition
expenses paid or
accrued by the
   Partnership
                    76,542        3,489       12,385          --        112,309        2,875       52,180         --        259,780

 Net (assets)
   liabilities
   assumed
                     1,766        1,047        3,144        (1,674)        --         59,100        2,417         --         65,800
                -----------  ----------   ----------    ----------    ---------   ----------   ----------   ----------   ----------

 Total          $10,241,898  $  301,089   $1,362,385    $1,054,000   $5,826,212   $  502,875   $2,327,079   $  387,202  $22,002,740
                ===========  ==========   ==========    ==========    =========   ==========   ==========   ==========  ===========
</TABLE>


   The aggregate purchase price is allocated as follows:


       Systems and equipment                                     $ 18,682,694
       Intangible assets                                            3,320,046
                                                                -------------
                                                                 $ 22,002,740
                                                                 ============



                                      F-12
<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

        The operating  results for each  acquired  cable  television  system are
        included in the  Partnership's  results of  operations  from the date of
        acquisition. The acquisitions are not presented in a pro forma format as
        the acquisitions,  individually and in the aggregate,  are immaterial to
        the consolidated financial statements taken as whole.

   4.   Systems and Equipment:

        Systems and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                         December 31,
                                  Depreciation   Estimated usage   -------------------------
                                      Method      and life term     1997            1996
                                   -------------  -----------   ------------    ------------

<S>                                 <C>             <C>        <C>              <C>

Cable television distribution
systems:
Head-end                            Straight-line   7 years    $  36,996,781    $  34,398,590
Distribution plant                  Straight-line   12 years     106,353,799       99,852,377
Subscriber drops                    Straight-line   5 years       27,184,290       24,282,076
Other distribution                           --         --         1,023,188          889,917
                                                               -------------    -------------

                                                                 171,558,058      159,422,960

Other:
Vehicles                            Straight-line   5 years        4,924,324        4,684,292
Buildings                           Straight-line   5 years        1,808,057        1,754,979
Furniture, fixtures and equipment   Straight-line   5 years        5,127,605        4,084,463
Land                                         --         --            94,000           95,000
                                                               -------------    -------------

                                                                 183,512,044      170,041,694

Accumulated depreciation                                         (45,072,932)     (25,219,078)
                                                               -------------    -------------

Systems and equipment, net                                     $ 138,439,112    $ 144,822,616
                                                               =============    =============
</TABLE>

  5.    Intangible Assets:

        Intangible assets consist of the following:
<TABLE>
<CAPTION>

                                                                    December 31,
                                Amortization  Amortization     -----------------------
                                   Method       Period         1997            1996
                                ------------- -----------  ------------   ------------
<S>                             <C>             <C>        <C>            <C>
Goodwill, franchise costs and
    subscriber lists            Straight-line   15 years   $ 60,848,942   $ 61,532,820

Debt issuance costs:
    Senior Subordinated Notes   Level yield     10 years      5,402,197      5,399,954
    Revolver and Term Loan      Level yield     8 years       2,778,347      2,678,212
Organization costs and other    Straight-line   5 years         812,858        476,271
                                                           ------------   ------------

                                                             69,842,344     70,087,257

Accumulated amortization                                     12,649,243)    (7,757,105)
                                                           ------------   ------------

Intangible assets, net                                     $ 57,193,102   $ 62,330,152
                                                           ============   ============

</TABLE>

                                      F-13

<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   6.   Long-Term Debt:

        Outstanding long-term debt is as follows:
                                                   December 31,
                                          -----------------------------
                                              1997                1996
                                        -------------       -------------
         Revolving Credit Facility         $59,225,000       $ 49,876,377
        Senior Subordinated Notes         120,000,000         120,000,000
          Unamortized discount               (465,000)           (525,000)
        Other                                 490,312             386,231
                                        -------------       -------------
        Total                           $ 179,250,312       $ 169,737,608
                                        =============       =============


        Senior Subordinated Notes

        Pursuant to an  indenture  dated  September  28, 1995 (the  "Indenture")
        between the  Partnership and Capital Corp.,  (together,  the "Issuers"),
        and the Bank of New York,  which acquired  Boatmen's  Trust Company,  as
        trustee (the "Trustee"),  the Partnership  issued $120 million aggregate
        principal  amount  of  senior  subordinated  obligations  (the  "Notes")
        maturing in October  2005.  The Notes bear interest at a rate of 12.375%
        per annum  payable  semiannually  on April 1 and  October 1,  commencing
        April 1, 1996.

        Pursuant to a pledge  agreement,  $48.2 million of the proceeds from the
        sale of the Notes  were  deposited  with the  Trustee.  All  amounts  so
        deposited were held by the Trustee  pursuant to the pledge  agreement as
        collateral   on  the  Notes  until  such  time  as  they  were  released
        concurrently  with  the  consummation  of  certain  acquisitions.  As of
        December 31, 1995, the required  acquisitions were  consummated,  and as
        such, no funds remained on deposit with the Trustee.  Interest earned on
        such amounts  deposited  totaling $438,190 was restricted for payment of
        interest due on the Notes.

        There are no mandatory sinking fund requirements for the Notes. However,
        the Partnership may be obligated,  under certain  circumstances,  to (a)
        make an offer to purchase all outstanding Notes at a redemption price of
        101 percent of the principal amount thereof,  plus accrued interest upon
        a change of control, as defined, and (b) make an offer to purchase Notes
        with a portion of the net cash proceeds of assets sales, as defined.  To
        the extent  that the  principal  amount is not  reduced to less than $78
        million, the Partnership may redeem up to a maximum of 35 percent of the
        principal  amount at a  redemption  price of  112.375  percent  prior to
        October 1998 in the event of public equity offerings or strategic equity
        investments of at least $25 million, as defined. Subsequent to September
        2000,  the Notes are subject to optional  redemption in whole or in part
        at annually decreasing  redemption prices ranging from 106.15 percent in
        2000  to  100  percent  in  2003  and  thereafter.  Subject  to  certain
        conditions, the Partnership may at any time defease the Notes.

                                      F-14
<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   6.   Long-Term Debt, continued:

        Senior Subordinated Notes, continued

        The payment of principal  and interest on the Notes is  subordinated  in
        right  of  payment  to the  Revolving  Credit  Facility  and  Term  Loan
        Agreement.  The  Notes  will  rank  pari  passu  with all  other  senior
        subordinated  indebtedness of the Partnership,  if any, and is senior to
        all subordinated debt of the Partnership.

        The  Indenture  contains  various   restrictive   covenants,   including
        limitations on indebtedness,  certain restricted  payments and affiliate
        transactions as defined, purchases, asset sales and capital expenditures
        in addition to reporting  requirements.  The Indenture  requires certain
        equity  contributions  ranging from $5 million to $15 million based upon
        the  consummation  of  certain  cable  television  system  acquisitions.
        General partner contributions totaling $15 million in December 1995 were
        received  accordingly.  No such  contributions  were required in 1996 or
        1997.

        Revolving Credit Facility and Term Loan

        Effective  September  28,  1995,  Loan  A of the  Term  Debt  (the  Loan
        Agreement) was amended into a Revolving Credit  Facility. The Revolving
        Credit Facility has been periodically amended with the latest  amendment
        occurring in December 1997 which allows the Partnership to  borrow up to
        $68 million  until  December 1997 when the outstanding balance  converts
        to a  term  loan payable in quarterly installments  escalating  annually
        from 6 percent to 30  percent of the  converted balance through December
        2002. The Revolving Credit Facility is senior to all other  indebtedness
        of the Partnership.

        The Revolving Credit Facility bears interest at prime plus 1.75% (10.25%
        and 10% at December 31, 1997 and 1996, respectively), payable quarterly,
        subject  to  reductions  of up to  0.75%  upon  achievement  of  certain
        financial tests. At the Partnership's option, all or a specified portion
        of the Revolving  Credit  Facility may be converted to an adjusted LIBOR
        rate (LIBOR plus 3.25%)  which is also  subject to  reductions  of up to
        0.75% upon achievement of certain  financial tests. At December 31, 1997
        and 1996,  $59,225,000 and $38,685,000,  respectively,  of the Revolving
        Credit  Facility had been  converted to an adjusted LIBOR rate at 8.875%
        and 8.750%, respectively. The Partnership is required to pay a 0.50% per
        annum  commitment  fee on the unfunded  portion of the Revolving  Credit
        Facility.

        The Term Loan bears  interest on the same terms as the Revolving  Credit
        Facility.  In  addition  to the  stated  interest,  the Term Loan  bears
        additional  interest such that its aggregate  interest rate is 15%. This
        additional  interest is  financeable as additional  principal  under the
        Term Loan.  At December  31,  1996,  both the Term Loan and  financeable
        interest balance were paid in full.

                                      F-15
<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   6.   Long-Term Debt, continued:

        Term Loan, continued

        While  the  Partnership  may  elect to  reduce  amounts  due  under  the
        Revolving Credit Facility through payments of not less than $100,000,  a
        mandatory prepayment is required annually before each March 1  beginning
        in 1999, equal to 70% of the Partnership's prior year ended  December 31
        excess cash flow  (defined as net income before  interest,  depreciation
        and amortization,  management fees and other non-cash expenses,  if any,
        reduced  by  required  and  voluntary  debt  service  payments,  capital
        expenditures  excluding  that  relating to capital  leases and  purchase
        money debt, and permitted restricted payments,  including  distributions
        to  partners,  during the  period).  Mandatory  prepayments  which would
        reduce the  Partnership's  cash balance below  $250,000 may be deferred,
        bearing  annualized  interest  at 3.75%  above the prime  rate,  payable
        monthly  thereafter  to the  extent  available  cash  exceeds  $250,000.
        Additionally,  mandatory  prepayments are required in the event of asset
        sales with net proceeds  exceeding  $5 million,  or asset sales with net
        proceeds  of less than $5 million to the extent  such  proceeds  are not
        reinvested  in permitted  cable  systems  within eight months or are not
        comprised  of at  least  95  percent  cash,  or to the  extent  of total
        insurance proceeds exceeding $500,000.

        The Revolving Credit Facility and Term Loan Agreement sets forth certain
        financial covenants including a maximum total leverage ratio (total debt
        to  operating  cash flow as  defined),  a maximum  senior debt  leverage
        ratio, a maximum senior debt to basic subscriber ratio, minimum interest
        coverage,  debt  service  coverage  and fixed  charge  coverage  ratios.
        Borrowings under the Revolving  Credit Facility to finance  acquisitions
        are limited by the  Partnership's  incurrance  ratio  (total debt to pro
        forma annualized operating cash flow, as defined).

        The Revolving Credit Facility and Term Loan Agreement are collateralized
        by the Partnership's  assets. In the event of default,  the lenders have
        the right to offset deposits against the balance due.

        In  December  1994,  the  Partnership  entered  into  an  interest  rate
        protection  agreement  as  required by the Loan  Agreement,  whereby the
        LIBOR base rate applicable to a notional amount totaling  $40,020,000 is
        capped  at  7.50%  for a two  year  period  ending  December  1996.  The
        Revolving  Credit  Facility and Term Loan Agreement were subject to this
        rate protection agreement.

                                      F-16
<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   6.   Long-Term Debt, continued:

        Five Year Maturities

        The required  principal  payments on the  Company's  long-term  debt and
        obligations  under  capital  leases at December  31,  1997,  assuming no
        additional borrowings, is as follows:

                  1998                                            $ 3,645,189
                  1999                                              9,765,086
                  2000                                             13,075,045
                  2001                                             15,449,065
                  2002                                             17,780,927
                  Thereafter                                      120,000,000
                                                               --------------
                                                               $  179,715,312
                                                               ==============
   7.   Supplemental Disclosure of Cash Flow Information:

        Interest payments during  1997, 1996 and 1995 were approximately  $20.8
        million, $20.0 million, and $4.9 million, respectively.

        Noncash  transactions  for the year  ended  December  31,  1997  were as
        follows:

           Capital expenditures of approximately $1,346,000 included in accounts
           payable.

           Acquisition of equipment  through  issuance of capital leases payable
           totaling $212,800.

        Noncash  transactions  for the year  ended  December  31,  1996  were as
        follows:

           Capital  expenditures of approximately  $417,910 included in accounts
           payable.

           Acquisition of equipment  through  issuance of capital leases payable
           totaling $159,585.

           Acquisition of cable systems  totaling  $5,993,605  through trades of
           current systems.


        Noncash  transactions  for the year  ended  December  31,  1995  were as
        follows:

           Issuance of $200,000 Class E limited partner  interest in acquisition
           of cable system.

           Capital  expenditures of approximately  $415,327 included in accounts
           payable.

           Financeable   interest  payable  totaling  $446,046,   added  to  the
           principal of the Term Loan.

           Receivable  from  purchaser  of  resold  Vista  Narragansett  systems
           totaling $594,000.

           Original issue discount on Senior Subordinated Notes of $600,000.

           Accrued cable systems acquisition costs of $82,225.

                                      F-17
<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   7.   Supplemental Disclosure of Cash Flow Information, continued:

           Revolving  Credit Facility  issuance,  and Senior  Subordinated  Note
           issuance costs totaling $720,512.

           Acquisition of equipment  through  issuance of capital leases payable
           totaling $160,694.

   8.   Commitments and Contingencies:

        Management Fee to Affiliate

        The  Partnership  incurs  management  fees and expenses  pursuant to the
        terms of a management  agreement  with Galaxy Systems  Management,  Inc.
        ("GSMI"), an affiliate of a general partner,  under which it manages the
        Partnership's   business.  In  addition  to  reimbursing  expenses,  the
        Partnership  pays a management  fee monthly,  in arrears  based upon 5.5
        percent of gross revenues as defined in the management agreement through
        November 1995, whereupon systems acquisitions trigger a reduction in the
        fee to 4.5 percent of gross  revenues.  Management  fees and  reimbursed
        expenses  approximated  $3,409,000,  $3,071,000  and  $1,888,000 for the
        years ended December 31, 1997, 1996 and 1995. The management fee rate is
        subject to further  pro rata  reductions  to a minimum of 3.5 percent in
        the  event  the   management   company   acquires  or   controls   other
        entertainment or telecommunications  assets. The management  agreement's
        initial  term  through  December  31,  1999  may  be  extended  annually
        thereafter and is subject to early  termination  upon the  Partnership's
        sale  or  disposition  of  the  acquired   cable   television   systems.
        Partnership  obligations under the management  agreement are subordinate
        to the Partnership's long-term debt. There was no management fee payable
        at  December  31,  1997 and 1996.  The  Partnership  also  provides  and
        receives  certain  operational  services  from  affiliates  of a general
        partner.  Included in prepaids and other are advances to such affiliates
        approximating  $287,000  and  $265,000 as of December 31, 1997 and 1996,
        respectively,  of  which  approximately  $118,000  and  $265,000  as  of
        December 31, 1997 and 1996,  respectively,  represent  receivables  from
        GSMI.

                                      F-18
<PAGE>

                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

   8.   Commitments and Contingencies, continued:

        Capital Leases

        The  Partnership  leases certain  assets under capital lease  agreements
        which  expire at  various  dates  through  2002.  The  lease  agreements
        generally  provide  purchase  options at the end of the  original  lease
        terms. Future minimum lease payments under non-cancelable capital leases
        consist of the following:

               Year Ending
               December 31,

               1998                                               $ 119,455
               1999                                                  86,474
               2000                                                  54,896
               2001                                                  54,896
               2002                                                  13,724

               Total minimum lease payments                         329,445
                Less amounts representing interest                  (53,495)
                                                                 ----------
                Obligations under capital leases                 $  275,950
                                                                 ==========

        Operating Leases

        The Partnership is obligated under certain operating leases for head-end
        and  transmission   facility  real  estate  as  well  as  administrative
        facilities.  Rent  expense  incurred in  conjunction  with these  leases
        approximated $346,343, $298,000 and $100,000 during 1997, 1996 and 1995,
        respectively.

        Future  minimum lease payments  under  operating  leases with initial or
        remaining lease terms of more than one year are as follows:

               Year Ending
               December 31,
                  1998                                              $ 335,513
                  1999                                                286,730
                  2000                                                251,273
                  2001                                                235,678
                  2002                                                205,108
                  Thereafter                                              -
                                                                  -----------
                                                                  $ 1,314,302
                                                                  ===========

        In  addition,  the  Partnership,  as  an  integral  part  of  its  cable
        operations,  has entered into short-term lease contracts for pole usage.
        Rent expense  approximated  $1,143,000,  $1,177,000 and $433,000 for the
        years ended December 31, 1997, 1996 and 1995,  respectively,  under such
        contracts.

                                      F-19
<PAGE>


                          GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

   8.   Commitments and Contingencies, continued:

        Employee Benefits

        The  Partnership  sponsors a defined  contribution  retirement  plan for
        eligible  employees  with a  minimum  six-months  of  service  with  the
        Partnership or certain  affiliates.  The Partnership makes contributions
        on  behalf of each  employee  of a  matching  amount  not to exceed  the
        employee's contribution or 8% of such employee's salary. The Partnership
        contributed $197,506, $150,480 and $41,000 to the plan during 1997, 1996
        and 1995, respectively.

        Franchises and Programming

        Cable  television  systems are generally  constructed and operated under
        non-exclusive  franchises  granted  by local  governmental  authorities,
        which in addition  to  imposing  certain  operating  conditions,  impose
        franchise fees not to exceed 5% of gross revenues. While such franchises
        are not  perpetual,  renewal may not be  unreasonably  withheld  without
        compensation  to the cable  system  operator.  The  Partnership  has not
        experienced  nor does it  anticipate  nonrenewal  of existing  franchise
        agreements.

        The  Partnership  has  various  contracts  to obtain  basic and  premium
        programming from program suppliers whose compensation is typically based
        on  a  fixed  fee  per   subscriber.   The  Partnership  has  negotiated
        programming  agreements with premium  service  suppliers that offer cost
        incentives to the Partnership under which premium unit prices decline as
        certain premium service growth thresholds are met. In addition to volume
        pricing discounts, some program suppliers offer marketing support to the
        Partnership in the form of  advertising  funds,  promotional  materials,
        rebates and other incentives.  The Partnership's  programming  contracts
        are generally for a fixed period of time, typically three to five years,
        and are subject to negotiated renewal.

        Cable Service Rate Regulation

        In  October  1992,   Congress  enacted  the  Cable  Television  Consumer
        Protection and  Competition Act 1992 (the "1992 Cable Act"). In 1993 and
        1994, the Federal Communications Commission ("FCC") adopted certain rate
        increases. As a result of such actions, the Partnership's basic and tier
        service rates and its equipment and installation charges (the "Regulated
        Services")  are  subject  to  the  jurisdiction  of  local   franchising
        authorities  and the FCC.  Basic and tier  service  rates are  evaluated
        against  competitive  benchmark rates as published by FCC, and equipment
        and installation charges are based on actual costs. The rate regulations
        do not  apply  to the  relatively  few  systems  which  are  subject  to
        "effective  competition" or to services offered on an individual service
        basis, such as premium movie and pay-per-view services.


                                      F-20
<PAGE>


                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


   8.   Commitments and Contingencies, continued:

        Cable Service Rate Regulation, continued

        The Partnership  believes that it has complied in all material  respects
        with the  provisions  of the 1992 Cable Act,  including its rate setting
        provisions.  However, the Partnership's rates for Regulated Services are
        subject to review by the FCC, if a complaint  has been filed,  or review
        by the  appropriate  franchise  authority,  if such  authority  has been
        certified.  If,  as a result  of the  review  process,  a system  cannot
        substantiate its rates, it could be required to retroactively reduce its
        rates to the  appropriate  benchmark  and refund  the excess  portion of
        rates received.  Any refunds of the excess portion of tier service rates
        would be retroactive to the date of complaint. Any refunds of the excess
        portion of all other Regulated Service rates would be retroactive to one
        year prior to the implementation of the rate reductions.

        In February 1996, a telecommunications  bill was signed into federal law
        which significantly  impacts the cable industry.  Most notably, the bill
        allows cable  system  operators to provide  telephony  services,  allows
        telephone   companies  to  offer  video   services,   and  provides  for
        deregulation of cable  programming  service rates by 1999. The impact of
        the new bill cannot be determined  at this time,  but it is not expected
        to have a  significant  adverse  impact  on the  financial  position  or
        results of operations of the Partnership.

        Year 2000 Compliance

        Galaxy's  computer  software  programs utilize four digits to define the
        applicable  year and therefore  Galaxy  believes it has no internal risk
        concerning  the Year 2000 issue.  Any problems  Galaxy's  suppliers  and
        customers  may have related to this issue are not expected to affect the
        Company.  Galaxy has not incurred any costs related to this issue and is
        not expecting to incur any such costs in the future.

        Litigation

        Galaxy is subject to various legal and administrative proceedings in the
        ordinary course of business. Management believes the outcome of any such
        proceedings  will  not  have  a  material  adverse  effect  on  Galaxy's
        consolidated financial position, results of operations and cash flows.

   9.   Quarterly Data, Unaudited:

        The  results  of  operations  for each  quarter  in 1997 were as follows
        (thousands of dollars):

                                 First       Second        Third         Fourth
                               Quarter      Quarter      Quarter        Quarter

         Revenue             $  16,666    $  17,305    $  17,363      $  17,474
         Operating income          493          586          124            207
         Net loss               (4,631)      (4,856)      (5,291)        (5,270)

                                      F-21
<PAGE>

                       GALAXY TELECOM, L.P. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued



   9.   Quarterly Data, Unaudited, continued:

        The  results  of  operations  for each  quarter  in 1996 were as follows
        (thousands of dollars):

                                 First       Second         Third        Fourth
                               Quarter      Quarter        Quarter      Quarter

         Revenue           $    14,475    $  15,545     $  15,889    $   16,428
         Operating income        1,374          760           503           365
         Net loss               (3,433)      (4,834)       (4,009)       (4,636)

        The  results of  operations  for the  quarters in 1996  include  certain
        adjustments  primarily  related  to  depreciation  and  amortization  on
        current year  acquisitions.  The  adjustments to net loss, in thousands,
        are $209,  $257 and  $454,  for the  first,  second  and third  quarter,
        respectively.

   10.  Subsequent Event:

                                      F-22
<PAGE>
<TABLE>
<CAPTION>
                               SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                     GALAXY TELECOM, L.P. AND SUBSIDIARY


             Column A                        Column B                Column C                   Column D          Column E
             --------                        --------   ---------------------------------       --------          --------
                                                                      Additions
                                            Balance at       Charged to          Charged to                      Balance at
                                             Beginning        Cost and        Other Accounts   Deductions          End of
            Description                      of Period        Expenses           -Describe      -Describe          Period
            -----------                      ---------        --------           ---------      ---------          ------
<S>                                        <C>               <C>                <C>             <C>              <C>

Year ended December 31, 1997:
 Reserve and allowance deducted
    from asset accounts-allowance
      for uncollectible accounts          $  411,950        $ 1,992,318         $        -      $2,249,576 (2)  $  154,692

Year ended December 31, 1996:
 Reserve and allowance deducted
    from asset accounts-allowance
      for uncollectible accounts          $   834,425        $ 1,229,536        $ 186,791 (1)   $1,838,802 (2)  $  411,950

Year ended December 31, 1995:
 Reserve and allowance deducted
    from asset accounts-allowance
      for uncollectible accounts          $   320,605        $   383,547        $ 359,385 (1)    $ 229,112 (2)  $  834,425


               (1)     Allowance for uncollectible purchased accounts.


               (2)     Uncollectible accounts written off, net of recoveries.

</TABLE>

                                      F-23
<PAGE>

      Item 9. Changes in and Disagreements  with Accountants on Accounting and
               Financial Disclosures.

      None.


                                       36
<PAGE>

                                      PART III

      Item 10.    Directors and Executive Officers of the Registrants.

      The general partners of Galaxy,  Galaxy Telecom,  Inc. ("Galaxy GP") and
Galaxy Telecom Investments,  L.L.C. ("Galaxy Investments") (collectively,  the
"General  Partners"),  have  designated  Galaxy  GP as  the  managing  general
partner of Galaxy,  and, as such, Galaxy GP has responsibility for the overall
management  of the  business  and  operations  of Galaxy.  Galaxy  Investments
retains  the right to become  the  managing  general  partner at any time upon
written  notice to Galaxy GP. The directors of Galaxy GP are also the managers
of Galaxy Investments.

      Galaxy  is  party  to a  Management  Agreement  with  Galaxy  Management
Limited ("Galaxy  Management")  with respect to the day-to-day  management and
operation of Galaxy's cable systems.

       The  executive  officers  of Galaxy  Management  and the  directors  of
Galaxy GP are:

    Tommy L. Gleason, Jr.....52    President, Chief Executive Officer and
                                   Director of Galaxy Management and Galaxy GP
    J. Keith Davidson........42    Executive Vice President, Treasurer,
                                   Secretary and Director of Galaxy
                                   Management and Galaxy GP
    James M. Gleason.........34    Chief Operating Officer of Galaxy
                                   Management and Galaxy GP
    Terry M. Cordova.........36    Vice President - Engineering of Galaxy
                                   Management
    Ronald Voss..............54    Vice President - Corporate Development of
                                   Galaxy Management
    William P. Collatos......43    Director of Galaxy GP
    Kenneth T. Schiciano.....35    Director of Galaxy GP
    Richard D. Tadler........41    Director of Galaxy GP

      Tommy L. Gleason,  Jr. has served as President,  Chief Executive Officer
and a  director  of Galaxy  Management  and Galaxy GP, and a manager of Galaxy
Investments  since  December 1994. Mr. Gleason is past President of CableMaxx,
Inc.,  a wireless  cable  television  company.  Since  1987,  he has served as
president  and  director of Galaxy  Cablevision  Management,  Inc.,  a general
partner of the  managing  general  partner of Galaxy  Cablevision,  L.P.  from
which  Galaxy  acquired  the Galaxy  Cablevision  Systems.  He was  formerly a
director of Capital Bancorporation,  Inc. of Cape Girardeau,  Missouri, and an
individual  general  partner  of  Community  Investment  Partners,  a  venture
capital fund in St. Louis,  Missouri.  Mr. Gleason began his cable  television
career in 1964, and from then until 1971 he was a field  engineer  responsible
for the  operation of 45 headend  facilities  in 11 states.  From 1971 through
1976,  he was a  product  sales  manager  for Essex  Wire  Corp.  of  Chicago,
Illinois.  From 1976 through 1982,  he was President of Galaxy  Communications
Systems,  which operated 29 cable television systems in four states.  Prior to
1979, he engineered and built eight cable television  systems in Illinois.  In
1988 and 1989,  Mr.  Gleason served as Secretary and Director of the NCTC. Mr.
Gleason was inducted into the Cable TV Pioneers in 1989.

      J.  Keith  Davidson  has  served  as  Executive  Vice  President,  Chief
Financial  Officer,  Treasurer,  Secretary of Galaxy Management and Galaxy GP,
director  of Galaxy  Management  and a manager  of  Galaxy  Investments  since
December  1994.  From  1988 to 1994,  Mr.  Davidson  was the  Chief  Financial
Officer and Assistant  Secretary of Galaxy  Cablevision  Management,  Inc. Mr.
Davidson has 17 years of experience in the cable television industry.

                                       37
<PAGE>

      James M.  Gleason has served as Chief  Operating  Officer and a director
of Galaxy  Management  since December 1994. Mr. Gleason also presently  serves
as Chief  Operating  Officer  of Galaxy  GP.  From 1988 to 1994,  he served as
Vice President - Administrative  Operations of Galaxy Cablevision  Management,
Inc.  Mr.  Gleason  is  responsible  for  field  office   administration   and
customer service,  computer  operations,  and was responsible for implementing
Galaxy  Management's  MIS  operations.   He  has  prior  experience  in  cable
television system construction,  mapping,  marketing and operations.  In 1992,
Mr.  Gleason  served as  Chairman  of the Board of the NCTC.  Mr.  Gleason has
16 years of  experience  in the cable  television  industry and is the brother
of Tommy L. Gleason, Jr.

      Terry M. Cordova has served as Vice  President -  Engineering  of Galaxy
Management  since December  1994.  From 1988 to 1994, he was Vice President of
Engineering of Galaxy Cablevision Management,  Inc. Prior thereto, Mr. Cordova
was a field engineer for Cable Services,  Inc. in Junction City, Kansas. He is
a member of the Cable Television  Interface Practices Committee of the Society
of Cable Television  Engineers and a member of the Institute of Electrical and
Electronic  Engineers.  Mr.  Cordova has 16 years of  experience  in the cable
television industry.

      Ronald  Voss has served as Vice  President -  Corporate  Development  of
Galaxy  Management  since  December  1994.  From  1986 to  1994,  he was  Vice
President of Corporate  Development  of Galaxy  Cablevision  Management,  Inc.
Mr.  Voss  is a past  director  of  CableMaxx,  Inc.  and the  Wireless  Cable
Association   International.   Mr.   Voss  is   responsible   for   initiating
acquisitions   and  dispositions  and  is  involved  in  the  franchising  and
licensing  process.  Mr.  Voss  has  17  years  of  experience  in  the  cable
television industry.

       William  P.  Collatos  has  served  as a  director  of  Galaxy GP and a
manager  of  Galaxy  Investments  since  December  1994  and  currently  is  a
managing  general partner of Spectrum Equity  Investors L.P., a private equity
firm which he  co-founded  in May 1994.  From 1990 to 1994,  Mr.  Collatos was
a  private  equity  investor.  Mr.  Collatos  was  an  Associate  and  General
Partner of funds managed by Media  Communications  Partners and TA Associates,
Inc.,  a private  equity  capital  firm ("TA  Associates")  from 1980 to 1990.
From  1976 to 1980,  Mr.  Collatos  worked in and  subsequently  ran the media
lending group at Fleet National Bank.

      Kenneth  T.  Schiciano  has  served  as a  director  of  Galaxy GP and a
manager of Galaxy  Investments since December 1994 and has been a Principal of
TA Associates  since January 1995.  Mr.  Schiciano was a Vice  President of TA
Associates from August, 1989 to December 1994.

      Richard D.  Tadler has served as  director of Galaxy GP and a manager of
Galaxy  Investments  since  December  1994.  Mr.  Tadler  has been a  Managing
Director of TA Associates  since January 1994. From 1987 to December 1993, Mr.
Tadler was a general  partner of TA  Associates.  Mr.  Tadler is a director of
TechForce Corporation.

      Item 11.  Executive Compensation.

      Management Agreement

      Pursuant to the  Management  Agreement  between  Galaxy  Management  and
Galaxy,   Galaxy  Management,   including  Messrs.  Tommy  L.  Gleason,   Jr.,
Davidson, James Gleason,  Cordova, and Voss, who are employed by Galaxy
Management and are otherwise  referred to as the Senior Managers,  manages all
aspects  of  the   day-to-day   business  and  operations  of  Galaxy  and  in
connection  therewith  undertakes  those  activities  and  services  that  are
customary  in the cable  television  industry for the account and on behalf of
Galaxy.  For a more detailed  description  of the  Management  Agreement,  see
Item 13 of this Part III ("Certain  Relationships and Related  Transactions --
Management Agreement").

                                       38
<PAGE>

      Executive Compensation

      None  of  the   employees   of  Galaxy  are   deemed  to  be   executive
officers of Galaxy.  The Senior  Managers are  employees of Galaxy  Management
and the  services  of such  individuals  are  provided  to  Galaxy,  for which
services  Galaxy  pays Galaxy  Management  a fee  pursuant  to the  Management
Agreement.   The  Senior   Managers  are  compensated  in  their  capacity  as
executive  officers of Galaxy Management and therefore receive no compensation
from  Galaxy.  The general  partners  of Galaxy  receive no  compensation  for
their services to Galaxy in such capacity.

      Director Compensation

      Galaxy GP pays an annual  retainer  of $15,000 to its  directors,  other
than   those  who  are   salaried   employees   or   executive   officers   of
Galaxy   Management.   In  addition,   Galaxy  pays  to  such   directors  the
ordinary  and  necessary  out-of-pocket  expenses  incurred  by them to attend
meetings of the Board of Directors of Galaxy GP and committees thereof.

      Item 12. Security Ownership of Certain Beneficial Owners and Management.

      The following table sets forth certain  information,  as of December 31,
1997,  concerning  the  beneficial  ownership  of (i)  the  units  of  general
partnership  interests  and limited  partnership  interests of Galaxy owned by
each person  known by Galaxy to own  beneficially  more than 5.0% of any class
of  Galaxy's  partnership  interests,  (ii)  equity  securities  of and member
interests  in Galaxy GP and  Galaxy  Investments,  respectively,  owned by all
executive  officers  and  directors  of Galaxy GP and the  managers  of Galaxy
Investments,  respectively,  owned by all executive  officers and directors of
Galaxy GP and the managers of Galaxy  Investments as a group, and (iii) member
interests in Galaxy Management owned by the Senior Managers.

<TABLE>
<CAPTION>

    Name and Address                                                                         No. of Units/   % of
   Of Beneficial Owner                              Type of Interest                           Shares(1)      Class
   -------------------                              ----------------                           ---------      -----
<S>                                       <C>                                                 <C>            <C>
Galaxy Telecom, Inc.                      Class A General Partnership Units of Company           133,333        *
  1220 North Main Street                  Class C Limited Partnership Units of Company           416,000     100.0
  Sikeston, Missouri   63801              Class E Limited Partnership Units of Company           200,000     100.0

Galaxy Telecom Investments, L.L.C.        Class A General Partnership Units of Company        44,491,667      99.7
  1220 North Main Street                  Class B  Limited Partnership Units of Company            1,000     100.0
  Sikeston, Missouri  63801

Vantage Cable Associates, L.P.            Class D Limited Partnership Units of Company         6,384,000     100.0
  c/o Farm Bureau Life Insurance Company
  5400 University Avenue
  W. Des Moines, Iowa  50266

Galaxy Telecom Management, L.L.C.        Class A Voting Common Stock of Galaxy GP                 20,000      16.9
  1220 North Main Street                  Common Interests in Galaxy Investments                     990      99.0
  Sikeston, Missouri  63801               Voting Preferred Interests in Galaxy Investments       288,549       7.3

TA Associates Group (2)                   Class A Voting Common Stock of Galaxy GP                63,281      53.3
  c/o TA Associates, Inc.                 Common Interests in Galaxy Investments                       6        *
  125 High Street, Suite 2500             Voting Preferred Interests in Galaxy Investments     3,452,523      87.8
  Boston, Massachusetts  02110

Spectrum Equity Investors, L.P.           Class A Voting Common Stock of Galaxy GP                24,615      20.7
  125 High Street, Suite 2600             Common Interests in Galaxy Investments                       2       *
  Boston, Massachusetts  02110

Fleet Equity Partners(3)                  Class A Voting Common Stock of Galaxy GP                 5,810       4.9
  111 Westminster Street                  Class B Nonvoting Common Stock of Galaxy GP             14,703     100.0
  Providence, Rhode Island  02903         Common Interests in Galaxy Investments                       2       *
                                          Voting Preferred Interests in Galaxy Investments       192,646       4.9
                                          Nonvoting Preferred Interests in Galaxy Investments    570,368     100.0

Tommy L. Gleason, Jr.                     Common Interests of Galaxy Management Limited          770,000      38.5

Tommy L. Gleason, Sr.                     Common Interests of Galaxy Management Limited          485,000      24.3

James M. Gleason                          Common Interests of Galaxy Management Limited          675,000      33.8

J. Keith Davidson                         Common Interests of Galaxy Management Limited           40,000       2.0

Terry M. Cordova                          Common Interests of Galaxy Management Limited           25,000       1.3

Ronald Voss                               Common Interests of Galaxy Management Limited            5,000        *

All executive officers and directors of   Class A Voting Common Stock of Galaxy GP
  Galaxy GP as a group (6 persons) (4)                                                           107,896      91.0

All managers of Galaxy Investments as     Common Interests in Galaxy Investments                     998      99.8
  a group (5 persons) (5)                 Voting Preferred Interests in Galaxy Investments     3,740,995      95.1

</TABLE>


* Less than one percent.

                                       39
<PAGE>

      (1) Share and unit  ownership  amounts  have been rounded to the nearest
whole number.

      (2) Includes  19,524  shares of Class A Voting Common Stock of Galaxy GP
("Class A Stock") owned by Advent  Atlantic and Pacific II L.P.,  7,040 shares
of Class A Stock  owned by  Advent  Industrial  II L.P.,  3,282  Class A Stock
owned by  Advent  New York,  L.P.,  32,820  shares  of Class A Stock  owned by
Advent  VII  L.P.,  and  615  shares  of  Class A Stock  owned  by TA  Venture
Investors  Limited  Partnership.  Includes  6 units  of  Common  Interests  in
Galaxy  Investments  ("Common  Interests")  owned by Advent VII Investor Corp.
Includes  3,452,523 units of Voting Preferred  Interests in Galaxy Investments
("Voting  Preferred  Interests") owned by Advent VII Investor Corp. All of the
above  beneficial  owners  are  part  of an  affiliated  group  of  investment
partnerships   and   companies   referred   to,   collectively,   as   the  TA
Associates  Group.  Messrs.  Tadler  and  Schiciano,  Directors  of  Galaxy GP
and  managers  of  Galaxy   Investments,   are  a  Managing   Director  and  a
Principal,   respectively,   of  TA  Associates,   Inc.,  which  is  the  sole
general  partner of TA  Associates  VII L.P.,  TA  Associates  VI L.P.  and TA
Associates   AAP  II  Partners  L.P.  TA  Associates  VII  L.P.  is  the  sole
general  partner of Advent VII L.P. TA Associates is the sole general  partner
of Advent New York L.P. and Advent  Industrial  II L.P. TA  Associates  AAP II
Partners  L.P. is the sole general  partner of Advent  Atlantic and Pacific II
L.P. TA  Associates,  Inc.  exercises  sole voting and  investment  power with
respect  to  all of  the  shares  or  units,  as the  case  may  be,  held  of
record by the  named  investment  partnerships,  with the  exception  of those
shares of Class A Stock  held by TA  Venture  Investors  Limited  Partnership.
Principals and employees of TA Associates,  Inc. (including Messrs. Tadler and
Schiciano)  comprise  the  general  partners of TA Venture  Investors  Limited
Partnership.  In such  capacity,  each of Messrs.  Tadler and Schiciano may be
deemed to share  voting and  investment  power  with  respect to 615 shares of
Class A Stock  held of record by TA  Venture  Investors  Limited  Partnership.
Messrs.  Tadler and  Schiciano  each  disclaim  beneficial  ownership  of such
shares, except to the extent of their respective pecuniary interests.

      (3)  Includes  581  shares of Class A Stock and 1,470  shares of Class B
Nonvoting  Common  Stock of Galaxy GP  ("Class  B  Stock")  owned by  Chisholm
Partners  II L.P.,  and 5,229  shares and  13,233  shares of Class A Stock and
Class B Stock,  respectively,  owned  by Fleet  Growth  Resources,  Inc.  Also
includes  0.18 units of Common  Interests,  15,460  units of Voting  Preferred
Interests,  and  45,775  units of  Nonvoting  Preferred  Interests  in  Galaxy
Investments  ("Nonvoting  Preferred  Interests")  owned by  Chisholm  Partners
II L.P.,  1.14 units of Common  Interests,  124,030 units of Voting  Preferred
Interests  and  367,215  units  of  Nonvoting  Preferred  Interests  owned  by
Fleet  Growth  Resources,  Inc.,  and 0.49 units of Common  Interests,  53,156
units of Voting Preferred  Interests and 157,378 units of Nonvoting  Preferred
Interests owned by Fleet Equity Partners VII, L.P.

                                       40
<PAGE>

      (4)  Includes  (i) 20,000  shares  owned of record by Galaxy  Management
Limited as to which Tommy L Gleason,  Jr. and J. Keith  Davidson may be deemed
to have  shared  voting and  investment  power,  (ii) 63,281  shares  owned of
record by TA Associates Group as to which shares Messrs.  Tadler and Schiciano
may be deemed to have  shared  voting and  investment  power and (iii)  24,615
shares owned of record by Spectrum Equity Investors,  L.P.  ("Spectrum") as to
which shares Mr.  Collatos may be deemed to have shared voting and  investment
power.

      (5)  Includes  (i) 990 Common  Interests  and 288,459  Voting  Preferred
Interests  owned of record by Galaxy  Management  Limited  as to which  shares
Messrs.  Gleason,  Jr. and  Davidson  may be deemed to have shared  voting and
investment  power,  (ii) 6 Common  Interests  and 2,494,591  Voting  Preferred
Interests  owned of record by TA Associates  Group as to which shares  Messrs.
Tadler  and  Schiciano  may be deemed to have  shared  voting  and  investment
power and (iii) 2 Common  Interests  and 915,583  Voting  Preferred  Interests
owned of record by Spectrum as to which  shares Mr.  Collatos may be deemed to
have shared voting and investment power.

      Item 13.  Certain Relationships and Related Transactions.

      Management Agreement

      Galaxy  Management,  which is owned by the Senior  Managers and Tommy L.
Gleason, the father of Tommy L. Gleason,  Jr. and James M. Gleason,  currently
manages  all  aspects of the  day-to-day  business  and  operations  of Galaxy
pursuant to the Management  Agreement.  The term of the  Management  Agreement
expires  December 31, 1999, but provides for automatic  renewal for successive
one-year  terms.  Galaxy may terminate the Management  Agreement with 90 days'
written  notice prior to the  expiration  of the initial or any renewal  term.
Galaxy  also has the  option to  terminate  the  Management  Agreement  in the
event  (i)  of a  material  breach  of  the  Management  Agreement  by  Galaxy
Management  and  failure to cure same or  commence  cure  within 30 days after
receipt of notice  from  Galaxy,  (ii) of an unwaived  and uncured  default by
Galaxy of any  substantive  covenant  contained  in its  financing  documents,
(iii) of a 10%  reduction in Galaxy's  gross  revenues or operating  cash flow
over the  prior  fiscal  year or (iv)  that  none of Tommy  L.  Gleason,  Jr.,
Tommy  L.  Gleason  or James M.  Gleason  is  involved  in the  management  of
Galaxy  Management.   The  Management  Agreement  also  will  terminate,  with
respect to any of  Galaxy's  cable  systems,  upon the sale of such  system by
Galaxy and will terminate in its entirety upon the sale or other  distribution
of all of Galaxy's  systems or upon the  dissolution  or winding up of Galaxy,
which  may be  effected  by the  Equity  Investors  in  certain  circumstances
pursuant to the terms of the Equity Holders  Agreement  described below.

                                       41
<PAGE>

      The Management  Agreement  provides that Galaxy Management is authorized
to perform management  services including,  among other things:  operation and
control of the physical  assets of the Systems;  engineering  and  supervision
of   expansion   and   construction   activities   relating  to  the  Systems;
negotiation,  administration  and extension of franchise  and pole  attachment
agreements and agreements  with utility  companies;  management of programming
agreements;   marketing;   purchasing;   budgeting;  billing,  record-keeping,
accounting  and  financial  reporting;  tax return  preparation;  and  hiring,
supervision  and  termination  of employees of Galaxy.  Galaxy  Management  is
also  authorized to establish  and maintain bank accounts for Galaxy  ("System
Operating  Accounts")  to deposit  all funds  collected  by each system and to
make  withdrawals  therefrom  for  purposes  of payment and  reimbursement  of
expenses  incurred by or on behalf of Galaxy.  Galaxy  Management  is entitled
to  reimbursement  from the System  Operating  Accounts on a monthly  basis of
various expenses  allocable to its management and operation of the Systems and
Galaxy,  including truck and automobile expenses,  travel expenses,  meals and
entertainment,  and  third-party  professional  fees. For fiscal 1997,  Galaxy
paid Galaxy Management approximately $317,000 in reimbursed expenses.

      In return for its  management  services,  Galaxy  Management  receives a
management fee, payable  monthly,  equal to a percentage of the gross revenues
derived  by  Galaxy  from the  Systems,  excluding  revenues  from the sale of
Systems or franchises.  The Management  Agreement also provides that, prior to
January 1, 1998,  the dollar  amount of the  management  fee may not  increase
as a result of revenues  attributable  to acquired  cable  television  systems
until  such  time as the gross  revenues  of  Galaxy  reach a certain  minimum
level.  The management  fee is currently 4.5% of revenues.  For the year ended
December 31, 1997,  Galaxy incurred a management fee of $3,092,354.  There can
be no assurance that such amounts are  representative  of the amount of annual
fees to be paid to Galaxy Management in the future.

      The  management  fee may be  reduced  (but not below  3.5%) in the event
other  entities  controlled by Tommy L. Gleason,  Jr., James M. Gleason and/or
J. Keith Davidson acquire other entertainment or  telecommunications  business
assets,   with  the  calculation  to  determine  any  such  reduction  in  the
management  fee based upon the  percentage of the gross revenues of such other
assets  compared  to the  gross  revenues  of  Galaxy.  None of  such  persons
presently  intends,  or intends to cause any such  entities,  to make any such
acquisitions.  The Loan Agreement  limits Galaxy's  ability to pay any accrued
management fee and Galaxy  management's right to such fee and reimbursement of
expenses is restricted by the terms of the Affiliate  Subordination  Agreement
as defined below.

      Galaxy  believes  that  the  terms  of  the  Management   Agreement  are
substantially   the  same  terms  as  could  be   obtained   in   arm's-length
arrangements with unaffiliated third parties.

      Affiliate Subordination Agreement

      Galaxy,  Galaxy GP, Galaxy  Investments,  certain investors in Galaxy GP
and Galaxy Investments,  Galaxy Telecom Management, L.L.C. ("Galaxy Management
Limited"),  Tommy L.  Gleason,  Jr.,  James M. Gleason,  Tommy L. Gleason,  J.
Keith Davidson,  Ronald Voss, Terry M. Cordova,  and the sellers of the Galaxy
Cablevision Systems,  Vista  Communications  Systems and Vantage Cable Systems
(collectively,  the  "Subordinated  Parties")  are  parties  to  an  Affiliate
Subordination  Agreement  dated as of December  23,  1994 (the  "Subordination
Agreement")  with Fleet  National  Bank and the Lenders  under  Galaxy's  Loan
Agreement  (the  "Senior  Parties").  Under  the  terms  of the  Subordination
Agreement,  all obligations  and  liabilities of Galaxy,  Galaxy GP and Galaxy
Investments  to make  any  payments  of cash or other  property  to any of the
other   Subordinated   parties  are  subordinated  in  right  of  payment  and
remedies  to  the  prior  final  payment  in  full  of  the   obligations  and
liabilities  of  Galaxy,  Galaxy  GP and  Galaxy  Investments  to  the  Senior
Parties under the Loan Agreement and the financing documents related thereto.

                                       42
<PAGE>

      Equity Holders Agreement

      Galaxy, Galaxy GP, Galaxy Investments,  the Senior Managers,  the Equity
Investors  and Vantage  Cable have entered into the Equity  Holders  Agreement
relating to the  management of Galaxy GP and Galaxy  Investments,  the general
partners  of Galaxy,  and  certain  other  matters.  Under the Equity  Holders
Agreement,   each   stockholder  of  Galaxy  GP  and  each  member  of  Galaxy
Investments has agreed to elect as directors or managers,  as the case may be,
three designees of the Equity  Investors and Tommy Gleason,  Jr. and one other
designee  of  the  Senior  Managers.  The  current  designees  of  the  Equity
Investors  are  William P.  Collatos,  Kenneth  T.  Schiciano  and  Richard D.
Tadler.  J.  Keith  Davidson  is the  current  second  designee  of the Senior
Managers.  The  Equity  Holders  Agreement  provides  that  James  M.  Gleason
shall  serve as a  director  and  manager if Tommy  Gleason,  Jr. is unable to
serve.

      The  Equity  Holders   Agreement  also  restricts   transfer  of  equity
interests  in  Galaxy  GP  and  Galaxy  Investments  by  the  Senior  Managers
and provides the Equity  Investors  with  piggyback  registration  rights and,
on or after  December 23,  1998,  demand  registration  rights with respect to
interest in Galaxy,  Galaxy GP and Galaxy  Investments.  The Equity  Investors
have  agreed  to  waive  their   registration   rights  with  respect  to  the
registration  of the  Notes.  On or  after  (i)  December  23,  1998 or (ii) a
default  by  Galaxy  in  the   payment  of   principal   or  interest  on  the
indebtedness  outstanding under the Loan Agreement,  the Equity Investors have
the right to require (a) the  reorganization  of Galaxy,  Galaxy GP and Galaxy
Investment to facilitate the  registration  and public  offering of securities
of the  successor  entity  or (b)  the  sale  of  Galaxy,  Galaxy  GP,  Galaxy
Investments or the assets, stock or other securities of any such entities.

      The Equity Holders  Agreement also provides that the Senior Managers and
their   affiliates   will  first  offer  any   opportunity   to  invest  in  a
telecommunications  or  entertainment  business to Galaxy  before  making such
investment.  If  Galaxy  elects  not  to  make  such  investment,  the  Senior
Managers  and  the  Equity  Investors,   if  they  so  elect,  may  make  such
investments  through another  entity.  The decision of Galaxy as to whether or
not to make  such  investment  will be made by the board of  directors  of the
Managing  General  Partner.  Although the directors and executive  officers of
the  Managing  General  Partner  have  certain  fiduciary  obligations  to its
shareholders  under applicable  corporate law and the Managing General Partner
has  fiduciary  duties  to the  other  partners  of  Galaxy,  there  can be no
assurance  that a conflict of interest  relating to any such  investment  will
be  resolved  in  favor  of  Galaxy.   Galaxy  presently  does  not  have  any
agreements or policies governing possible conflicts of interest.

      Limited Partnership Interests in Galaxy

      Galaxy  Investments  owns  100%  of  the  Class  B  Limited  Partnership
Interests in Galaxy,  which it received in  connection  with the  organization
and  initial  capitalization  of Galaxy in December  1994.  Galaxy GP received
100% of the  Class C and Class E Limited  Partnership  Interests  in Galaxy in
connection with Galaxy's acquisitions of the Vista Communications  Systems and
the  Galaxy  Cablevision  Systems,   respectively.   In  connection  with  its
acquisition of the Vantage Cable  Systems,  Galaxy issued  approximately  $6.4
million in the form of Class D Limited  Partnership  Interests in Galaxy,  out
of the  total  consideration  of  approximately  $38.4  million  paid for such
Systems.  Galaxy's  ability to declare or pay any  dividend  or make any other
distributions  to its general and limited  partners is restricted by the terms
of the Indenture dated September 28, 1995.


                                       43
<PAGE>

      Subject  to such  restrictions  and at  such  time as  Galaxy  may  make
distributions  under the Loan  Agreement,  Galaxy GP may cause  Galaxy to make
distributions  to its  Class C  Limited  Partners,  Class D  Limited  Partners
and Class E Limited  Partners prior to making  distributions to other partners
of  Galaxy  in  accordance  with  the  Limited  Partnership   Agreement  dated
December 23, 1994,  as amended,  by and among  Galaxy GP,  Galaxy  Investments
and  Vantage  Cable  (the  "Partnership  Agreement").  Galaxy  may  make  such
distributions  until the aggregate of such distributions  equals the amount of
the  capital  contributions  of each  such  class of  limited  partners,  plus
certain  priority rates of return.  Under the Partnership  Agreement,  Class C
Limited  Partners  are  entitled  to  a  rate  of  return  of  9%,  compounded
annually on the previously  unreturned capital  contribution.  The Partnership
Agreement  provides that Class D Limited  Partners are entitled to an annually
compounded  rate of return of 10.0% per annum  from  December  23,  1994 until
December 31, 1999,  which rate of return  increases  each year  thereafter  in
increments  of 2.0%,  up to a maximum of 18.0%.  Class E Limited  Partners are
entitled  under the  Partnership  Agreement  to a  priority  rate of return of
9% until  December  31,  1999,  which  then  increases  2.0% each year up to a
maximum  of 17%.  Class B Limited  Partners  are  entitled  to up to 11.90% of
any distribution  remaining after  allocation of the capital  contributions of
and  priority  rates of return to the  Class C, D and E Limited  Partners  and
to the Class A General Partners.  To date, Galaxy has made no distributions to
any of the general or limited  partners of Galaxy.  The  interests  of each of
the general and  limited  partners of Galaxy are also  subject to the terms of
the Affiliate Subordination Agreement and the Equity Holders Agreement.

Relationship of Agent with Equity Investor

      Fleet National Bank, the Agent under the Revolving Credit  Facility,  is
a wholly  owned  subsidiary  of Fleet  Financial  Group,  Inc., a bank holding
company  ("Fleet  Financial").  Fleet  Equity  Partners,  one  of  the  Equity
Investors,  is a marketing  name for Fleet  Growth  Resources,  Inc., a wholly
owned subsidiary of Fleet Private Equity Company,  Inc.,  which, in turn, is a
wholly owned subsidiary of Fleet Financial.


                                       44
<PAGE>

                                      PART IV

      ITEM 14. Exhibits,  Financial Statements,  Financial Statement Schedules
               and Reports on Form 8-K.

      (a)(1)  Financial  Statements.  Reference  is made to the  Index on Page
               F-1 for a list of all  financial  statements  filed  as part of
               this Report.

      (a)(2)  Financial  Statement  Schedules.  Reference is made to the Index
               on Page  F-1 for a list of all  financial  statement  schedules
               filed as part of this Report.

      (a)(3)   Exhibits.  See Exhibit Index.

      (b)  Reports  on Form 8-K.  No  reports  on Form 8-K were  filed  during
               the last quarter of the period covered by this report.

                                       45
<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 thereunto duly authorized.




                                 GALAXY TELECOM, L.P.
                          By:    Galaxy Telecom Inc.
                                 As General Partner







      March 31, 1998               /s/ Tommy L. Gleason, Jr.
                          By:    Tommy L. Gleason, Jr.
                                 President and Chief Executive Officer







      March 31, 1998               /s/ J. Keith Davidson
                          By:    J. Keith Davidson
                                 Vice President-Finance (Principle
                                 Financial Officer)


                                       46
<PAGE>

<PAGE>