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, 1998

                                      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,
1999: 100

DOCUMENTS INCORPORATED BY REFERENCE: Not applicable.


<PAGE>


                                GALAXY TELECOM, L.P.
                                     FORM 10-K
                            Year Ended December 31, 1998


                                  TABLE OF CONTENTS

Item        Topic                                                   Page

                                       PART I

 1.     Business...................................................... 3
 2.     Properties....................................................26
 3.     Legal Proceedings.............................................26
 4.     Submission of Matters to a Vote of
        Security Holders..............................................26

                                    PART II

 5.     Market for the Registrant's Securities
        and Related Security Holder Matters...........................27
 6.     Selected Financial Data.......................................27
 7.     Management's Discussion and Analysis of
        Financial Condition and Results of Operations.................29
7a.     Qualitative and Quantitative Disclosures about
        Market Risks..................................................42
 8.     Financial Statements and Supplementary Data..................F-1
 9.     Changes In and Disagreements with Accountants
        on Accounting and Financial Disclosure....................... 43

                                   PART III

10.     Directors and Executive Officers of the Registrant............43
11.     Executive Compensation....................................... 45
12.     Security Ownership of Certain Beneficial
        Owners and Management.........................................45
13.     Certain Relationships and Related Transactions................48

                                   PART IV

14. Exhibits, Financial Statement Schedules
        and Reports on Form 8-K.......................................52

Signatures............................................................53



                                       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,  1998,  the Systems  passed
approximately  228,000 homes and served  approximately  136,000  subscribers  in
sixteen states, predominantly including Mississippi, Nebraska, Kansas, Missouri,
Illinois, Kentucky, Iowa, Alabama, Texas 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 do. 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.

      The four 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.

      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.

                                       3
<PAGE>

      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 for potential  conversion to Core
Areas.

      Background

      The Senior  Managers,  Tommy L. Gleason,  Jr., James M. Gleason,  J. Keith
Davidson and Ronald Voss have been  involved in the  construction,  acquisition,
ownership,  management  and operation of classic cable  television  systems as a
team for more  than a  decade.  They  have  collective  experience  in the cable
television  industry  exceeding  85 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.

      During 1995, Galaxy entered into definitive agreements to acquire selected
cable television systems representing approximately 300 cable systems and 81,700
subscribers  from Galaxy  Cablevision,  Phoenix Cable,  Douglas  Communications,
Friendship Cable and Vista  Communications,  for approximately $92.2 million, or
approximately $1,130 per subscriber.

      1996 Acquisitions and Trades

      Galaxy acquired various assets comprising cable television  systems during
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%.

                                       4
<PAGE>

            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 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.

                                       5
<PAGE>

      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

      Galaxy acquired and disposed of various assets comprising cable television
systems during 1997. Following is a brief discussion of each transaction.

     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 an  initial  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
1,610 basic subscribers and had a basic  penetration rate of approximately  52%.
In 1998, the purchase price was finalized and Galaxy paid an additional $853,000
in cash, in accordance with the amended asset purchase agreement.

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

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

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

                                       6
<PAGE>

      1998 Acquisitions, Dispositions and Trades

      Galaxy acquired and disposed of various assets comprising cable television
systems during 1998. Following is a brief discussion of each transaction.

      On January 15, 1998,  Galaxy sold its cable television  systems located in
Wyoming and Idaho, representing 4,000 subscribers for $4.9 million or $1,225 per
subscriber. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

      On February 1, 1998,  Galaxy sold its cable  television  system located in
Hooper,  Nebraska,  representing 242 subscribers for approximately  $262,000, or
approximately $1,080 per subscriber.  Galaxy used the proceeds from this sale to
pay down principal of the revolving note.

      On March 31, 1998,  Galaxy sold two cable  television  systems  located in
Olathe,  Kansas,  and Independence,  Missouri,  representing 269 subscribers for
approximately  $190,000,  or approximately $706 per subscriber.  Galaxy used the
proceeds from this sale to pay down principal of the revolving note.

      On March 31, 1998, Galaxy sold six cable television systems located in and
around Ottawa County,  Kansas,  representing  752 subscribers for  approximately
$623,000, or approximately $830 per subscriber.

      On March 31, 1998, Galaxy purchased one cable television system located in
Brooks  and  Colquitt  Counties  in  Georgia,   representing  approximately  300
subscribers for approximately $141,000, or approximately $470 per subscriber.

      On March 31, 1998, Galaxy traded four cable television  systems located in
and around Sheridan County, Nebraska, representing approximately 850 subscribers
for  one  cable  television  system  located  in  Jefferson  County,   Colorado,
representing approximately 730 subscribers.

       On April 30, 1998, Galaxy sold seven cable television  systems located in
and around Lincoln County,  Kansas,  representing  approximately 500 subscribers
for approximately  $395,000,  or approximately $790 per subscriber.  Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

      On June 30,  1998,  Galaxy  sold one cable  television  system  located in
Goessel,  Kansas,  representing  approximately 100 subscribers for approximately
$110,000, or approximately $1,100 per subscriber.  Galaxy used the proceeds from
this sale to pay down principal of the revolving note.

      On June 30, 1998, Galaxy sold all of its cable television  systems located
in  central   Georgia,   representing   approximately   5,100   subscribers  for
approximately  $6,120,000,  or approximately $1,200 per subscriber.  Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

       On July 31, 1998,  Galaxy sold two cable  television  systems  located in
Kansas,   representing   201  subscribers   for   approximately   $171,000,   or
approximately $850 per subscriber.

                                       7
<PAGE>

      On August 20, 1998,  Galaxy sold 25 cable television  systems,  13 systems
located in Iowa and 12 systems located in Missouri,  representing  approximately
3,972  subscribers  for  approximately  $3,178,000,  or  approximately  $800 per
subscriber. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

       On August 31, 1998, Galaxy sold nine cable television  systems located in
Southwest   Georgia,    representing   approximately   2,225   subscribers   for
approximately  $2,760,000,  or approximately $1,240 per subscriber.  Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

      On August 31, 1998,  Galaxy sold 23 cable television  systems,  14 systems
located in  Illinois  and nine in  Nebraska,  representing  approximately  3,210
subscribers for approximately  $2,758,000, or approximately $860 per subscriber.
Galaxy used the proceeds  from this sale to pay down  principal of the revolving
note.

      On November 30, 1998, Galaxy sold its cable television  systems located in
Louisiana,  representing  5,575  subscribers for  approximately  $9,500,000,  or
approximately $1,700 per subscriber.  Galaxy used the proceeds from this sale to
pay down principal of the revolving note.

      On December 31, 1998,  Galaxy sold one cable television  system located in
Hawkins County,  Tennessee,  representing  approximately  1,740  subscribers for
approximately  $2,050,000,  or approximately $1,177 per subscriber.  Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

      On December 31, 1998,  Galaxy sold 72 cable television  systems located in
Illinois,  Missouri and Kansas, representing approximately 8,300 subscribers for
approximately  $6,200,000,  or approximately  $750 per subscriber.  In addition,
Galaxy  realized a 40% equity position in Galaxy  American  Communications,  LLC
("GAC").  This equity has no current  market value at the present  time.  Galaxy
used the proceeds from this sale to pay down principal of the revolving note.

      1999 Pending Transactions

      On December 30, 1998, Galaxy entered into an asset exchange agreement with
Mississippi Cablevision, Inc. ("MCI"), an affiliate of Telecommunications, Inc.,
whereby Galaxy will exchange 1 cable television system plus pay $19.6 million in
cash for 8 cable  television  systems  from MCI.  The  Galaxy  cable  television
systems are located primarily in Colorado,  Iowa and South Dakota, while the MCI
cable television systems are located in Mississippi. This pending acquisition is
dependent on Galaxy obtaining various approvals and sufficient financing.

      On February 12, 1999, Galaxy sold one satellite master antenna  television
system ("SMATV") located in Spring Creek,  Georgia,  representing  approximately
1,000  subscribers for  approximately  $1,220,000,  or approximately  $1,220 per
subscriber. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

      On March 8, 1999,  Galaxy signed an asset  purchase  agreement to sell ten
SMATV's  located  around  Kansas  City,  Missouri,  representing  at least 1,070
subscribers  for   approximately   $1,350,000,   or  approximately   $1,260  per
subscriber.  Galaxy retained  ownership of all related  equipment located in the
head-end  facilities.  Galaxy will use the  proceeds  from this sale to pay down
principal of the revolving note.

                                       8
<PAGE>

      On March 23, 1999,  Galaxy signed an asset  purchase  agreement to sell 21
cable television systems located in Alabama,  representing  approximately  5,800
subscribers  for   approximately   $8,500,000,   or  approximately   $1,465  per
subscriber. Galaxy will use the proceeds from this 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.

      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.

                                       9
<PAGE>

      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 an 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 $15.00 to
$31.20 and rates for traditional  premium services generally range from $6.95 to
$12.95 per service.  Because the Systems have been owned and operated by various
other cable television operators, inconsistent 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.

      To better facilitate efforts to maximize quality service to its customers,
Galaxy converted its company billing system to Convergys'  (formerly  Cincinnati
Bell  Information  System)  Cablemaster  2000 in November 1996. This is a system
developed specifically for the cable television industry. Convergys 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  after 30 days the  account  is  referred  to a
collection  agency.  Galaxy has contact with the Convergys  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."

                                       10
<PAGE>

      In addition to monthly billing and one-time charges,  additional potential
sources of revenue for cable  operators  are 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
the various home shopping  programming sales in 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,  1998.  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  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.

      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.  These programming packages are designed to be attractive
to customers  while, at the same time,  enabling Galaxy to enjoy the benefits of
programming agreements that 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.

      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.

                                       11
<PAGE>

      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 serves  approximately 120 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  99% 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, 1998, Galaxy maintained over 6,000
miles of coaxial plant that passed more than 228,000 homes.  The following table
sets forth  certain  information  with regard to the channel  capacities  of the
Systems as of December 31, 1998.

                               Up to 29     30 to 53     54 or more
                               Channels     Channels      Channels       Total  

Subscribers                     43,677       72,491       19,532      135,700
Franchises                         189          241           86          516
% of Subscribers                 32.19%        53.42%       14.39%     100.00%
Miles of Plant                2,403.79     3,043.78       619.03     6,066.60

      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.

                                       12
<PAGE>

      Galaxy  delivers  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 enables  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.

      Cable  modem  service is another  new  product  offered by Galaxy in 1998,
which  provides  high speed  Internet  access to its  residential  and  business
customers,  as well as potential customers not serviced by our cable TV plant by
using a local access  telephone  number.  The cable modem service can access the
Internet at speeds  significantly  faster than most internet  service  providers
("ISP's") and competitive local exchange carriers ("CLEC's").

      Galaxy has deployed the use of digital  compression  technology to enhance
the current channel capacities of some cable systems.  This technology allows up
to 12 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 also allows 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.  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.

                                       13
<PAGE>

      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.

      Centralized Management Functions

      Management functions such as payment 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 Convergys.  The computer
operates with  advanced  software  that  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 center 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  Cable
Act"). See "-Legislation and Regulation- General."

                                       14
<PAGE>

      As of December 31, 1998,  Galaxy held  approximately  516 franchises.  The
existing  non-exclusive  franchise agreements 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  renegotiations  and  modification  of franchise
requirements  if  warranted by changed  circumstances.  See  "-Legislation  and
Regulation - General."

      The table below  illustrates the grouping of the franchises of the Systems
as of December 31, 1998, by date of expiration.

     Year of                          Percentages                  Percentage of
    Franchise           Number of        of Total      Number of        Total
    Expiration          Franchises     Franchises     Subscribers    Subscribers

   1999-2001                 49             9.5%        14,266          10.5%
   2002-2004                 45             8.7%        14,114          10.4%
   After 2004               422            81.8%       107,320          79.1%

   Total Franchises         516           100.0%       135,700         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,  1998,  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 increase
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 (with certain regulatory safeguards).

                                       15
<PAGE>

      We  believe  that of the  competitive  threats  to our cable  television
business,  four  are  the  most  substantial.  (1)  DBS,  (2)  wireless  cable
television  systems or MMDS,  (3)  overbuilds by  municipalities  or telephone
companies, and (4) SMATV systems.

      There are two major DBS providers which  currently  serve  approximately
8.7 million  subscribers  nationally  as of December 31, 1998. We believe that
these providers are continuing to grow their subscriber  base.  Because of the
quality of the  digitally  compressed  signal from these  providers  and their
ability  to  provide a wide  range of video and audio  offerings,  they are an
effective  competitor to cable television  systems.  We believe however,  that
we can effectively  compete with DBS because of our ability to offer local and
regional  broadcast  stations  on our  systems,  many of  which  are not  well
received  with a home  antenna,  and the "whole house" nature of cable service
versus DBS. We also believe that with our intended  roll out of digital  cable
service over the next two years, we can match many of the current  competitive
advantages  of DBS in  offering  digital  picture  and audio for  multichannel
pay-per-view,  multiplexed  premiums,  digital audio service,  and narrow-cast
basic services.  However,  DBS service  currently has some unique  programming
rights,  and is not  subject to a variety  of  regulatory  burdens  imposed on
franchise  cable  operators  such as  franchise  fees.  Although the effect of
competition  from DBS services  cannot be  specifically  predicted,  there has
been  significant  growth in DBS customers  nationwide and we expect that such
competition will continue.

      Wireless  cable  television  systems  have  been  competing  with  cable
television  systems  somewhat   ineffectively  in  urban  markets,   but  more
effectively  in rural  markets  where  cable  systems  frequently  carry fewer
programming  choices.  We operate in several  areas where we compete  directly
with wireless  operators.  We believe that our operations have not been widely
effected  by this  competition,  primarily  because  the MMDS  signal  used by
wireless cable operates in a "line-of-sight"  nature and because of the number
of  large  trees   within  the   communities   we  serve  which   obscure  the
line-of-sight  and  impede  the MMDS  signal.  Some  wireless  operators  have
announced  plans to  provide  a  digital  video  service  in the near  future.
Although we have no knowledge of the digital plans of wireless  operators with
which we compete,  we do not believe that this additional  service, if offered
by such  operators,  will  materially  affect our ability to compete with such
operators.

      Since  the  passage  of  the  1996  Telecom   Act,  and  the   announced
deregulation  of  the  electric  utility  business,   several  local  exchange
carriers  ("CLECs") and local  municipal owned power companies have built video
systems to directly  compete with  existing  cable  television  systems.  This
process is known as  "overbuilding."  We have experienced two instances of LEC
overbuilds in two small  systems,  one in Alabama and one in Kansas,  and have
been threatened  with an overbuild by one  municipally  owned power company in
Mississippi.

                                       16
<PAGE>

      Legislation and Regulation

      The FCC,  some state  governments  and most local  governments,  currently
regulate the cable television industry. 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 for the regulation of cable television systems
and identified the boundaries of permissible federal, state and local government
regulation.  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.

            The Cable  Television  Consumer  Protection and  Competition  Act of
1992. In October 1992,  Congress enacted the 1992 Cable Act. Although certain of
the 1992 Act's  provisions were amended by the 1996 Telecom Act (as described in
greater detail below), many of the 1992 Cable Act's provisions remain intact and
are  summarized  herein.  The 1992 Cable Act permitted a much 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) program
access and exclusivity  arrangements;  (iii) leased access terms and conditions;
(iv) customer and service  requirements;  and (v)  television  broadcast  signal
carriage and retransmission  consent.  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  (with certain  exceptions)  the common
ownership  of cable  systems and  co-located  MMDS or SMATV  systems.  This last
prohibition  was  limited  by the 1996  Telecom  Act to cases in which the cable
operator is not subject to effective competition. In addition, the FCC permits a
cable system to 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 legislation required the FCC to initiate a number of rule-making
proceedings to implement various provisions of the statute.

            Various cable  operators have  challenged the  constitutionality  of
several sections of the 1992 Cable Act (including the must carry  requirements),
although the courts have disposed of most of these  challenges.  The  must-carry
requirements remained in effect during the judicial  proceedings.  After several
appeals, the United States Supreme court upheld the must-carry requirements.

                                       17
<PAGE>

            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,"  which as defined,  encompassed most cable systems.
The 1992 Cable Act  requires the FCC to resolve rate  complaints  for  non-basic
cable  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 generally are
not subject to rate  regulation by either  franchising  authorities  or the FCC.
Notwithstanding  the above,  the 1996 Telecom Act  deregulated  the CPS rates of
"small  cable  operators"  as of February  8, 1996,  and  deregulates  the cable
programming  service  ("CPS")  rates of all other cable  operators  by March 31,
1999. However, certain members of Congress and FCC officials have called for the
delay of this  regulatory  sunset and  further  have urged  more  rigorous  rate
regulation  until a greater degree of competition to incumbent  cable  operators
has developed.

            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.  As modified by the 1996  Telecom Act, FCC review of CPS
rates is triggered by franchising  authority  complaints which may be filed with
the FCC only if the local franchising  authority  receives  multiple  subscriber
complaints within 90 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  distributors  offering service 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  or its  affiliate  provides
comparable   video   programming   in  the   franchise   area  (except   through
direct-to-home satellite services).

            In  implementing  the 1992 Cable Act,  the FCC  adopted a  benchmark
methodology as the principal method of regulating 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.

                                       18
<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  allows  cable  operators  to  pass  through
franchise  fees and  regulatory  fees to  subscribers  without any prior notice.
Cable  operators are allowed under the 1996 Telecom Act to offer bulk  discounts
for  multi-dwelling  units.  In  addition,  a cable  operator  need not maintain
uniform rates throughout a franchise area where there is effective  competition.
Franchising  authorities  may not file  complaints with the FCC unless they have
actually received subscriber complaints, and individual subscribers may not file
complaints with the FCC.

            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 Area of Dominant  Influence  ("ADI"),  as
determined by Arbitron.  This method for determining  whether a station is local
to a cable system will change. The FCC has determined that, effective January 1,
2000, the market of a TV station will be its designated market area ("DMA"),  as
determined by Nielsen.  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.  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.

            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.

                                       19
<PAGE>

            Other Requirements Imposed on Cable Operators.

            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  and  Service  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.

            The 1996 Telecom Act exempts from cable 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 under
the cable franchise.

            Franchise Fees and Renewal.  Although  franchising  authorities  may
impose  franchise  fees under the 1984 Cable Act, as amended 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  and do not apply to
revenues that a cable  operator  derives from  providing  new  telecommunication
services.  Franchising  authorities  are  permitted  to  charge  a fee  for  any
telecommunications provider's use of public right-of-way.

            The 1984  Cable Act  established  renewal  procedures  and  criteria
designed to protect incumbent  franchisees 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.

                                       20
<PAGE>

            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." To date, all of the material franchises
relating to the  Company's  Systems  eligible  for renewal  have been renewed or
extended at or prior to their stated expirations. At any given time, one or more
of the Company's franchises may be involved in the renewal process. There can be
no  assurance  that all  franchise  authorities  will  continue  to  consent  to
franchise  renewals and/or  franchise  transfers to the Company in the future or
that the terms and  conditions or any such  renewals  and/or  transfers  will be
acceptable to the Company and will not have a material adverse effect.

            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  LECs  from  providing  video  programming  directly  to
customers within their local exchange  telephone  service areas.  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.

            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, and the FCC has granted temporary waivers of this ban.

                                       21
<PAGE>

            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.

            To prevent large,  vertically  integrated  cable systems from unduly
favoring their affiliated programmers, the FCC imposes a 40% limit on the number
of  channels  which can be  occupied by video  programmers  affiliated  with the
particular cable system.

            Anti-Trafficking;  Transfers. The 1996 Telecom Act repealed the 1992
Cable Act's three year holding  requirement,  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  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.

            Copyrighted  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.

                                       22
<PAGE>

            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 1998, cable television  systems were required to
pay  regulatory  fees of $0.44 per  subscriber  and the proposed fee for 1999 is
$0.48  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 that cable  operators  often use,
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.

            FCC  regulations  also address among other  things,  the carriage of
local sports programming;  restrictions on origination and cablecasting by cable
system  operators;  privacy  requirements;  application  of the rules  governing
political  broadcasts;  non-duplication  of  network  programming;  deletion  of
syndicated   programming;   Equal  Employment  Opportunity  (EEO)  requirements;
customer  service  standards;  home wiring;  record retention and limitations on
advertising  contained in children's  programming.  The FCC has the authority to
enforce its  regulations  through  the  imposition  of  substantial  fines,  the
issuance  of  cease  and  desist   orders   and/or  the   imposition   of  other
administrative sanctions.

            Telecommunications  Act of  1996.  On  February  8,  1996,  the 1996
Telecom Act was enacted.  This legislation  substantially altered the regulatory
environment for cable television, telecommunications and other services. 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 some of the cable rate regulation  established by the 1992
Cable Act over a three-year period. The CPS rates tiers offered by certain small
cable operators in certain 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. There has been some interest on Capitol Hill to extend
CPS rate  regulation  beyond  1999,  although  no formal  amendment  to the 1996
Telecom Act's sunset of CPS rate regulation has occurred.  Rates for basic tiers
(except  for the small  cable  operator  exception  described  previously)  will
continue to be subject to regulation.  The legislation  also: (i) eliminates the
uniform  rate  requirements  of the 1992 Cable Act where  effective  competition
exists;  (ii) 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;  (iii) adjusts the pole attachment
laws; and (iv) allows cable operators to enter telecommunications  markets which
historically   have   been   closed   to  them,   while   also   allowing   most
telecommunications  providers to begin  providing  competitive  cable service in
their local service  areas,  although  buyouts of existing  cable  operators are
prohibited.

            Cable programmers  challenged the constitutionality of the provision
of the 1996 Telecom Act requiring cable operators to scramble  sexually-explicit
or indecent adult programming.  Following a judicial challenge,  the FCC's rules
on the scrambling of such programming became effective in May 1997.

                                       23
<PAGE>

            Telecommunications    Regulation.   The   1996   Telecom   Act   has
substantially  revised  communications  regulation  in the  United  States.  The
legislation is 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  how  the  legislation  will  be
implemented.

            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 required Bell  operating
companies   ("RBOCs")   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,  RBOCs  were  generally
prohibited from offering such "interLATA"  services.  Under the 1996 Telecom Act
such services may be offered  outside of a RBOC's local exchange  service states
immediately.  RBOCs may offer interLATA  services inside such states (in-region)
when  the  FCC  determines   either  that  the  RBOC  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 RBOC's general
terms for providing  such access and  interconnection.  In either case,  the FCC
also must  conclude  that the RBOC has  satisfied a  "competitive  checklist" of
interconnection and other requirements  specified in the 1996 Telecom Act. These
RBOC preconditions have been held unlawful by at least one federal court and are
still being litigated.  If Galaxy decides to provide interLATA service,  it will
likely face vigorous  competition  from RBOC entrants,  as well as from existing
long distance carriers.

            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 1996 Telecom Act provides that the FCC, in
response to a petition from a carrier, shall forbear from enforcing regulations,
including those requiring  tariffs,  under certain  circumstances.  Such actions
could free Galaxy from regulatory  burdens,  but might also increase the pricing
flexibility of its competitors.

                                       24
<PAGE>

      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.  The Company  holds cable  franchises in all areas in
which they provide  service  where cable  franchises  are  required.  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.

      Employees

      As of December 31, 1998, Galaxy had approximately 357 full-time  employees
and 61 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 42 people who are dedicated  primarily to
servicing Galaxy.

                                       25
<PAGE>

      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.

          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  the
     Partnership's   consolidated  financial  position,  or  future  results  of
     operations or cash flows.

          Certain  customers in Mississippi have filed a class action lawsuit in
     the U.S. District Court for the Northern  District of Mississippi  alleging
     that the Partnership  illegally  charged a late fee on monthly cable bills.
     The  Partnership has denied any liability with respect to this claim and is
     defending this action.  Similar class actions against other cable companies
     have been filed in several states,  some of which have been successful.  At
     this  point,  management  is unable to predict  the  likely  outcome or the
     potential for an adverse  judgment,  if any. An adverse judgment against us
     could have a material,  adverse  affect on the  Partnership's  consolidated
     financial  position,  or  future  results  of  operations  or  cash  flows.
     Management  has not recorded any  liability in the  consolidated  financial
     statements that may arise from the adjudication of this lawsuit.


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

      Not applicable.


                                       26
<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 Consolidated Financial Data.

      The  consolidated  statement of operations  data for the calendar  years
1998,  1997,  1996 and 1995,  , and for the period from  December  23, 1994 to
December 31, 1994, and the consolidated  balance sheet data as of December 31,
1998,  1997,  1996,  1995 and 1994 set  forth  below  have been  derived  from
Galaxy's audited consolidated  financial  statements.  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>
                                                                                                 Period from
                                                                                                   Dec. 23
                                                       For the years ended December 31,            1994 to
                                                   ----------------------------------------        Dec. 31
                                                1998         1997         1996         1995         1994
                                             ---------    ---------    ---------    ---------    ---------
     (Dollars in thousands)

Statement of Operations Data:

<S>                                          <C>          <C>          <C>          <C>          <C>      
Revenues                                     $  67,291    $  68,808    $  62,337    $  29,995    $     577
                                             ---------    ---------    ---------    ---------    ---------
Operating expenses:
  Systems operations                            31,343       31,503       28,353       13,219          260
  Selling, general and administrative            8,087        8,130        6,439        3,681           99
   Management fee to affiliate                   3,028        3,092        2,804        1,605           32
  Depreciation and amortization                 24,415       24,673       21,739       10,206          214
                                             ---------    ---------    ---------    ---------    ---------
    Total operating expenses                    66,873       67,398       59,335       28,711          605
                                             ---------    ---------    ---------    ---------    ---------
Operating income (loss)                            418        1,410        3,002        1,284          (28)

  Interest expense                             (20,914)     (21,037)     (20,133)     (10,422)        (153)
  Other income (expense)                        (4,350)        (421)         219          608            6
                                             ---------    ---------    ---------    ---------    ---------
Net loss                                     $ (24,846)   $ (20,048)   $ (16,912)   $  (8,530)   $    (175)
                                             =========    =========    =========    =========    =========
EBITDA (a)                                   $  24,833    $  26,083    $  24,741    $  11,490    $     186
                                             =========    =========    =========    =========    =========

Balance Sheet Data (at end of period):
Total assets                                 $ 151,743    $ 207,048    $ 217,498    $ 199,913    $ 102,736
Total long-term debt and other obligations     152,446      179,250      169,738      145,527       67,215
Partners' capital (deficit)                    (19,635)       5,211       25,259       42,171       35,521
</TABLE>

                                       27
<PAGE>

(a)   EBITDA  represents  income (loss) before interest  expense,  income taxes,
      depreciation and amortization, and other income (expense). Although EBITDA
      is not a measure of  performance  calculated in accordance  with generally
      accepted accounting  principles  ("GAAP"),  management believes that it is
      useful to an investor in evaluating  Galaxy because it is a measure widely
      used in the cable  industry  to  evaluate a cable  company's  performance.
      Nevertheless,  it should not be considered in isolation or as a substitute
      for operating  income,  cash flows from operating  activities or any other
      measure for determining  Galaxy's operating  performance or liquidity that
      is  calculated  in  accordance  with  GAAP.  As  EBITDA  is not a  measure
      calculated in accordance  with GAAP, this measure may not be comparable to
      similarly titled measures employed by other companies.


                                       28
<PAGE>



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

      Results of Operations

      Overview

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

      The Systems  increased  revenues from 1996 to 1997,  due primarily to rate
increases.  Total revenues decreased from 1997 to 1998, primarily as a result of
system dispositions.  Total systems operations expenses and selling, general and
administrative expenses increased from 1996 to 1997, but at a lesser amount than
revenues.  These expenses decreased from 1997 to 1998,  primarily as a result of
system  dispositions.   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 financing activities,
have caused  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:


                                       29
<PAGE>

<TABLE> 
<CAPTION>
                                               1996                 1997                  1998    
                                         ----------------    --------------------  ------------------
                                                  % of                      % of                % of
                                          Amount Revenues     Amount     Revenues   Amount    Revenues
                                         -------  ------      -------      -----    -------     -----
  (Dollars in Thousands)
<S>                                     <C>         <C>       <C>         <C>       <C>         <C>   
Revenues                                $ 62,337    100.0%    $ 68,808    100.0%    $ 67,292    100.0%

Operating expenses:
  System operations                       28,353     45.5%      31,503     45.8%      31,343     46.6%
  Selling, general and administrative      6,439     10.3%       8,130     11.8%       8,087     12.0%
  Management fee to affiliate              2,804      4.5%       3,092      4.5%       3,028      4.5%
  Depreciation and amortization           21,739     34.9%      24,673     35.9%      24,415     36.3%
                                        --------    -----     --------    -----     --------    -----

  Total operating expenses                59,335     95.2%      67,398     98.0%      66,873     99.4%
                                        --------    -----     --------    -----     --------    -----

Operating income (loss)                    3,002      4.8%       1,410      2.0%         419      0.6%

  Interest expense                       (20,133)   (32.3%)    (21,037)   (30.5%)    (20,914)   (31.1%)
  Interest income                             36      0.1%          24      0.0%          53      0.1%
  Gain (loss) on sale of assets              176      0.0%        (226)    (0.3%)     (4,088)    (6.1%)
  Other income (expense),net                   7      0.3%        (219)    (0.3%)       (316)    (0.4%)
                                        --------    -----     --------    -----     --------    -----

Net loss                                $(16,912)   (27.1%)   $(20,048)   (29.1%)    (24,846)   (36.9%)
                                        ========    =====     ========    =====     ========   ======

EBITDA (a)                                24,741     39.7%      26,083     37.9%      24,834     36.9%
</TABLE>


(a)   EBITDA  represents  income (loss) before interest  expense,  income taxes,
      depreciation and amortization, and other income (expense). Although EBITDA
      is not a measure of  performance  calculated in accordance  with generally
      accepted accounting  principles  ("GAAP"),  management believes that it is
      useful to an investor in evaluating  Galaxy because it is a measure widely
      used in the cable  industry  to  evaluate a cable  company's  performance.
      Nevertheless,  it should not be considered in isolation or as a substitute
      for operating  income,  cash flows from operating  activities or any other
      measure for determining  Galaxy's operating  performance or liquidity that
      is  calculated  in  accordance  with  GAAP.  As  EBITDA  is not a  measure
      calculated in accordance  with GAAP, this measure may not be comparable to
      similarly titled measures employed by other companies.

      Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

            Revenues. Revenues decreased $1.5 million or 2.2% from $68.8 million
in 1997 to  $67.3  million  in 1998.  The  decrease  in  subscribers  is  mainly
attributable  to the  disposition of certain cable systems made during 1998. The
decrease in subscribers was partially  offset by an increase of $1.10 or 3.0% in
revenue per subscriber from $33.60 in 1997 to $34.61 in 1998. Basic revenue as a
component of total revenue decreased by .5% from 79.6% in 1997 to 79.1% in 1998.
The decreases  were also  partially  offset by an increase in Distance  Learning
revenue  of $0.3  million  from $0.05  million in 1997 to $0.4  million in 1998.
Revenue  from the sale of  advertising  and home  shopping  royalties  increased
approximately $0.1 million or 34.2% from $0.4 million in 1997 to $0.5 million in
1998.

                                       30
<PAGE>

            Company operations  expenses.  Company operations expenses decreased
$0.2 million or 0.6% from $31.5  million in 1997 to $31.3  million in 1998.  The
decrease is mainly attributable to the disposition of certain cable systems made
during 1998.  Company  operations  expenses as a percent of revenues,  increased
from 45.8% in 1997 to 46.6% in 1998.  Programming  expenses which increased $1.2
million  represented the largest  portion of the increase in systems  operations
expenses having increased from 22.2% of revenues in 1997 to 24.4% of revenues in
1998.

            Selling, general and administrative  expenses.  Selling, general and
administrative  expenses  decreased  $0.04  million or .5% from $8.14 million in
1997 to $8.1 million in 1998. As a percentage of revenue,  selling,  general and
administrative  expenses  increased  from  11.8% in 1997 to  12.0% in 1998.  The
increase as a percentage of revenue was primarily  attributable to a decrease in
the amount of reimbursements from programmers of $0.8 million or 85.5% from $0.9
million in 1997 to $0.1 million in 1998.

            Management  fees  to  affiliates.   Management  fees  to  affiliates
decreased  $0.06  million or 1.9% from $3.09 million in 1997 to $3.03 million in
1998.  The  decrease was directly  proportional  to the decrease in revenue,  as
management fees are fixed by contract at 4.5% of revenue.

            Depreciation and amortization expense. Depreciation and amortization
expense decreased $0.2 million or.8% from $24.6 million in 1997 to $24.4 million
in 1998.  The decrease was mainly  attributable  to the  disposition  of certain
cable systems in 1998. As a percentage of revenue, depreciation and amortization
expenses increased from 35.9% in 1997 to3 6.3% in 1998.

            Interest  expense.  Interest  expense  decreased $0.1 million or .5%
from $21.0 million in 1997 to $20.9 million in 1998. The decrease was due to the
reduction of debt  associated  with the sale of certain  cable  systems in 1998.
Interest  expense as a percentage  of revenue  increased  from 30.5% ion 1997 to
31.1% in 1998.

            Other expense,  net. Other expense, net, increased $4.0 million from
$0.4 million in 1997 to $4.4 million in 1998.  The increase was due primarily an
increase in loss on sale of assets of $3.9  million  from a loss of $0.2 million
in 1997 to a loss of $4.1 million in 1998.  This decrease was offset slightly by
an increase in interest income.

            Net  loss.  Net loss  increased  24.0% or $4.8  million  from  $20.0
million in 1997 to $24.8 million in 1998,  as a result of the factors  discussed
above.  As a percentage  of revenue,  net loss  increased  from 29.1% in 1997 to
36.9% in 1998.

            EBITDA.  EBITDA  decreased $1.2 million or 4.6% from $26.0 million
in 1997 to $24.8  million in 1998. As a percent of revenue,  EBITDA  decreased
from 37.9% in 1997 to3 6.9% in 1998.

      Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

            Revenues.  Revenues  increased  $6.5  million  or 10.4%,  from $62.3
million in 1996 to $68.8 million in 1997. The increase in revenues  reflected an
increase of $1.99 or 8.5% in basic revenue per subscriber from $23.41 in 1996 to
$25.40 in 1997,  partially  offset by a 5,256 or 2.9%  decrease in the number of
subscribers  from  182,552  in 1996 to  177,296  in  1997 as the  Company  began
adjusting  its  portfolio  of Systems.  As a result,  revenues  from basic cable
services as a component  of total  revenues  increased  by 11.5% or $5.6 million
from 1996 to 1997.  Revenues from distance  learning  began in the fall of 1997.
For the four months for which such  services  were offered in 1997,  the Company
generated  revenues totaling  approximately  $50,000.  Revenues from the sale of
advertising  and home  shopping  royalties  increased  $140,432  or  47.8%  from
$293,501 in 1996 to $433,933 in 1997.

                                       31
<PAGE>

            Company operations  expenses.  Company operations expenses increased
$3.2 million or 11.1%,  from $28.3 million in 1996 to $31.5 million in 1997. The
growth in expenses  was due  primarily to  increases  in  programming  and other
subscriber  related expenses which generally vary with the number of systems and
subscribers  and the  increased  number of channels  that the Company added to a
number of systems.  Company  operations  expenses,  as a percentage of revenues,
increased  slightly from 45.5% in 1996 to 45.8% in 1997.  Programming  expenses,
which  increased $2 million,  represented the largest portion of the increase in
systems operations  expenses,  having increased as a percentage of revenues from
21.5% in 1996 to 22.4% in 1997.

            Selling, general and administrative  expenses.  Selling, general and
administrative  expenses  increased $1.7 million or 26.3%,  from $6.4 million in
1996 to $8.1 million in 1997. As a percentage of revenues,  selling, general and
administrative  expenses  increased  to 11.8% in 1997  from  10.3% in 1996.  The
increase  in  such  expenses  was  primarily   attributable  to  a  decrease  in
cooperative  marketing support from  programmers.  Such support partially offset
marketing  expenses and  decreased  from $1.4 million in 1996 to $0.7 million in
1997.

            Management  fees.  Management  fees  to  affiliates  increased  $0.3
million  or 10.3%,  from  $2.8  million  in 1996 to $3.1  million  in 1997.  The
increase was  directly  proportionate  to the increase in revenue as  management
fees were fixed at 5.0% of revenue.

            Depreciation and amortization expense. Depreciation and amortization
expense  increased  approximately  $2.9 million or 13.5%,  from $21.7 million in
1996 to $24.7 million in 1997.  Depreciation  and  amortization  increased  from
34.9% of revenues in 1996 to 35.9% of revenues in 1997. This increase was due to
the increase in fixed assets during 1997,  primarily due to increased deployment
of fiber optic cable and ongoing upgrades of certain acquired cable systems.

            Interest  expense.  Interest expense  increased  approximately  $0.9
million,  or 4.5%, from $20.1 million in 1996 to $21.0 million in 1997. Interest
expense,  as a percentage of revenues,  decreased from 32.3% in 1996 to 30.5% in
1997. The average  interest rate on indebtedness  declined from 12.4% in 1996 to
11.4% in 1997 as a result of lower  borrowing  costs under the Revolving  Credit
Facility due to lower rates,  partially offset by increased average debt amounts
outstanding.

            Other income (expense),  net. Other income (expense),  net decreased
from income of $0.2 million  during 1996 to a net expense of $0.4 million during
1997. This change of $0.6 million was mainly due to a loss on the sale of assets
during 1997 in the amount of $0.2 million.

            Net loss. Net loss increased 18.5%, or  approximately  $3.1 million,
from $16.9  million in 1996 to $20.0 million in 1997, as a result of the factors
discussed  above. As a percentage of revenues,  net loss increased from 27.1% in
1996 to 29.1% in 1997.

                                       32
<PAGE>

            EBITDA increased $1.3 million or 5.4%, from $24.7 million in 1996 to
$26.1 million in 1997,  due primarily to the increase in revenues  partly offset
by an increase in systems  operations  and selling,  general and  administrative
expenses.  As a percentage of revenues,  EBITDA  decreased from 39.7% in 1996 to
37.9% in 1997,  primarily as a result of the increases in systems operations and
selling, general and administrative expenses discussed above.

      1996 Acquisitions and Trades

      Galaxy acquired various assets comprising cable television  systems during
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%.

            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%.

                                       33
<PAGE>

      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

      Galaxy acquired and disposed of various assets comprising cable television
systems during 1997. Following is a brief discussion of each transaction.


      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%.

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

                                       34
<PAGE>

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

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

      1998 Acquisitions, Dispositions and Trades

      Galaxy acquired and disposed of various assets comprising cable television
systems during 1998. Following is a brief discussion of each transaction.

      On January 15, 1998,  Galaxy sold its cable television  systems located in
Wyoming and Idaho, representing 4,000 subscribers for $4.9 million or $1,225 per
subscriber. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

      On February 1, 1998,  Galaxy sold its cable  television  system located in
Hooper,  Nebraska,  representing 242 subscribers for approximately  $262,000, or
approximately $1,080 per subscriber.  Galaxy used the proceeds from this sale to
pay down principal of the revolving note.

      On March 31, 1998,  Galaxy sold two cable  television  systems  located in
Olathe,  Kansas,  and Independence,  Missouri,  representing 269 subscribers for
approximately  $190,000,  or approximately $706 per subscriber.  Galaxy used the
proceeds from this sale to pay down principal of the revolving note.

      On March 31, 1998, Galaxy sold six cable television systems located in and
around Ottawa County,  Kansas,  representing  752 subscribers for  approximately
$623,000, or approximately $830 per subscriber.

      On March 31, 1998, Galaxy purchased one cable television system located in
Brooks  and  Colquitt  Counties  in  Georgia,   representing  approximately  300
subscribers for approximately $141,000, or approximately $470 per subscriber.

      On March 31, 1998, Galaxy traded four cable television  systems located in
and around Sheridan County, Nebraska, representing approximately 850 subscribers
for  one  cable  television  system  located  in  Jefferson  County,   Colorado,
representing approximately 730 subscribers.

       On April 30, 1998, Galaxy sold seven cable television  systems located in
and around Lincoln County,  Kansas,  representing  approximately 500 subscribers
for approximately  $395,000,  or approximately $790 per subscriber.  Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

      On June 30,  1998,  Galaxy  sold one cable  television  system  located in
Goessel,  Kansas,  representing  approximately 100 subscribers for approximately
$110,000, or approximately $1,100 per subscriber.  Galaxy used the proceeds from
this sale to pay down principal of the revolving note.

                                       35
<PAGE>

      On June 30, 1998, Galaxy sold all of its cable television  systems located
in  central   Georgia,   representing   approximately   5,100   subscribers  for
approximately  $6,120,000,  or approximately $1,200 per subscriber.  Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

       On July 31, 1998,  Galaxy sold two cable  television  systems  located in
Kansas,   representing   201  subscribers   for   approximately   $171,000,   or
approximately $850 per subscriber.

      On August 20, 1998,  Galaxy sold 25 cable television  systems,  13 systems
located in Iowa and 12 systems located in Missouri,  representing  approximately
3,972  subscribers  for  approximately  $3,178,000,  or  approximately  $800 per
subscriber. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

       On August 31, 1998, Galaxy sold nine cable television  systems located in
Southwest   Georgia,    representing   approximately   2,225   subscribers   for
approximately  $2,760,000,  or approximately $1,240 per subscriber.  Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

      On August 31, 1998,  Galaxy sold 23 cable television  systems,  14 systems
located in  Illinois  and nine in  Nebraska,  representing  approximately  3,210
subscribers for approximately  $2,758,000, or approximately $860 per subscriber.
Galaxy used the proceeds  from this sale to pay down  principal of the revolving
note.

      On November 30, 1998, Galaxy sold its cable television  systems located in
Louisiana,  representing  5,575  subscribers for  approximately  $9,500,000,  or
approximately $1,700 per subscriber.  Galaxy used the proceeds from this sale to
pay down principal of the revolving note.

      On December 31, 1998,  Galaxy sold one cable television  system located in
Hawkins County,  Tennessee,  representing  approximately  1,740  subscribers for
approximately  $2,050,000,  or approximately $1,177 per subscriber.  Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

      On December 31, 1998,  Galaxy sold 72 cable television  systems located in
Illinois,  Missouri and Kansas, representing approximately 8,300 subscribers for
approximately  $6,200,000,  or approximately  $750 per subscriber.  In addition,
Galaxy  realized a 40% equity position in Galaxy  American  Communications,  LLC
("GAC").  Galaxy used the proceeds  from this sale to pay down  principal of the
revolving note.

      Pending Transactions

      On December 30, 1998, Galaxy entered into an asset exchange agreement with
Mississippi Cablevision, Inc. ("MCI"), an affiliate of Telecommunications, Inc.,
whereby Galaxy will exchange 1 cable television system plus pay $19.6 million in
cash for 8 cable  television  systems  from MCI.  The  Galaxy  cable  television
systems are located primarily in Colorado,  Iowa and South Dakota, while the MCI
cable television systems are located in Mississippi. This pending acquisition is
dependent on Galaxy obtaining various approvals and sufficient financing.

                                       36
<PAGE>

      On February 12, 1999, Galaxy sold one satellite master antenna  television
system ("SMATV") located in Spring Creek,  Georgia,  representing  approximately
1,000  subscribers for  approximately  $1,220,000,  or approximately  $1,220 per
subscriber. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

      On March 8, 1999,  Galaxy signed an asset  purchase  agreement to sell ten
SMATV's  located  around  Kansas  City,  Missouri,  representing  at least 1,070
subscribers  for   approximately   $1,350,000,   or  approximately   $1,260  per
subscriber.  Galaxy retained  ownership of all related  equipment located in the
head-end  facilities.  Galaxy will use the  proceeds  from this sale to pay down
principal of the revolving note.

      On March 23, 1999,  Galaxy signed an asset  purchase  agreement to sell 21
cable television systems located in Alabama,  representing  approximately  5,800
subscribers  for   approximately   $8,500,000,   or  approximately   $1,465  per
subscriber. Galaxy will use the proceeds from this sale to pay down principal of
the revolving note.

      Liquidity and Capital Resources

     The Partnership has incurred losses each year since its inception and has a
partnership  deficit of $19.6  million at December  31, 1998.  During 1998,  the
Partnership  began  implementation of a strategy whereby it would sell its cable
television  systems in its non-core regions and focus on improving and acquiring
cable  television  systems in its core regions,  which are primarily  located in
Illinois,  Kansas, Kentucky,  Mississippi and Nebraska. In 1998, the Partnership
received net proceeds  from sales of its non-core  cable  television  systems of
$38.6  million,  which was used to pay down the balance on its revolving line of
credit.  Management  intends to seek new debt and/or equity financing and reduce
its borrowings  under its revolving line of credit through the sales of non-core
systems  in order for the  Partnership  to meet its  business  plan and  sustain
operations.  However, there is no assurance that the Partnership will be able to
implement its strategy and raise new capital.

     The  cable  television   business   requires   substantial   financing  for
construction,  expansion and  maintenance  of plant.  Galaxy intends to continue
pursuit of a business  strategy  that  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 $152.4  million of  indebtedness  as of December 31, 1998,
representing  $119.6  million of senior  subordinated  notes (net of unamortized
discount of $0.4 million),  $30.5 million drawn under Galaxy's revolving line of
credit (See "The Revolving Credit Facility and Term Loan"),  and $2.3 million in
various other obligations.  Net payments were made under Galaxy's revolving line
of credit of  approximately  $29 million during 1998.  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.

      Galaxy provided net cash by operating activities of $4,104,091 in 1997 and
$1,384,698 in 1998,  respectively,  a decrease in net cash provided by operating
activities  of  $2,719,393.  This  reduction is mainly due to an increase in the
cash used to reduce  accounts  payable and accrued  expenses from  $1,637,383 in
1997 to $3,837,431 in 1998.

      Galaxy used net cash in investing  activities of  $13,279,244 in 1997, and
provided net cash by investing activities of $26,197,766 in 1998, an increase in
net cash  provided by investing  activities  of  $39,477,010.  This  increase is
mainly due to an increase in proceeds  from sales of cable  television  systems,
and a reduction in capital expenditures.

                                       37
<PAGE>

      Galaxy  provided net cash by financing  activities  of $9,239,906 in 1997,
and used net cash in financing activities of $27,771,785 in 1998, an increase in
net cash used in financing activities of $37,011,691,  mainly due to the payment
of principal on the revolving line of credit.

      Capital Expenditures

      During  1998,  Galaxy's  capital   expenditures   (exclusive  of  system
acquisitions) were  approximately  $12.9 million.  These capital  expenditures
were used to add channels,  construct wide-area networks for distance learning
and data services and purchase new computer  equipment and software to enhance
communications  and data traffic  between  employees  and Galaxy  subscribers.
Based  on its  present  liquidity  and  capital  resources,  Galaxy  currently
anticipates   capital   expenditures  over  the  next  two  years  will  total
approximately  $20.0  million.  Galaxy  is  considering  additional  financing
alternatives.  To the extent any such  financing  is  successful,  the company
will use proceeds for additional capital  expenditures and,  accordingly,  its
capital expense budget will be increased.  These capital  expenditures will be
used  primarily to continue the  installation  of fiber optic cable,  purchase
digital  equipment  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  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 ("the  Revolver").  The Revolver,  which has been periodically
amended,  with the  latest  amendment  occurring  in March  1999,  allows  the
Partnership   to  borrow  up  to  $55.9  million  until  June  1999  when  the
outstanding  balance  converts to a term loan. The first principal  payment is
due on December 31, 1999, in an amount equal to 22% of the converted  balance,
and in subsequent quarterly  installments  escalating annually from 22 percent
to 30 percent of the converted  balance  through  December  2002. Net proceeds
from any system  sale will be used to reduce the  commitment  available  under
the Revolver.  The Revolver will require  Galaxy to maintain  compliance  with
certain  financial  ratios  and  other  covenants,   such  as  total  debt  to
annualized  cash flow, cash flow to interest  expense,  capital expense limits
and basic  subscribers  to total long term debt.  The  financial  covenants in
the Revolving  Credit  Facility may  significantly  limit Galaxy's  ability to
borrow under the Revolver.

      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 Revolver.  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.

      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.

                                       38
<PAGE>

      Year 2000

      The year 2000 ("Y2K") issue concerns the inability of information  systems
to properly recognize and process  date-sensitive  information beyond January 1,
2000. This section is a Year 2000 Readiness Disclosure.

      During  1998,  Galaxy  has  put a  program  in  place  designed  to  bring
information  systems and software  into Y2K  compliance  in time to minimize any
significant  detrimental  effects on operations.  The program covers information
systems infrastructure,  financial and administrative  systems,  process control
and cable television  systems.  Galaxy's program  recognizes that date sensitive
systems may fail at different points in time depending on their function. Galaxy
is utilizing internal  personnel,  contract  programmers and vendors to identify
Y2K issues,  modify code and test the modifications.  In most cases, these third
party programmers and vendors have verified their Y2K compliance with Galaxy. In
some cases,  non-compliant  software  and hardware  will be replaced.  The steps
Galaxy  has taken in this  program  include  (1)  planning  and  awareness,  (2)
identification  of where failures may occur,  (3) resolution  including  repair,
upgrade,  etc. and (4)  deployment  of compliant  systems.  The first two steps,
planning and awareness and identification are largely completed.

      The following table  illustrates  Galaxy's present status of completion of
each step of its Y2K program.

                                       Percentage                Expected
                                        completed               Completion
      Phase                         within each step               Date        
     -----------------------        ----------------         ---------------    

      Planning and awareness               95%                   June 1999
      Identification                       95%                September 1999
      Resolution                           80%                September 1999
      Deployment                           70%                September 1999


      The  completion  dates set  forth  above  are  based on  Galaxy's  current
expectations.  However,  due to the uncertainties  inherent in the Y2K issue, no
assurances  can be given as to whether such  projects  will be completed on such
dates.  Galaxy  expects  the  total  incremental  cost  of the Y2K  issue  to be
approximately  $100,000. This estimated cost does not include any normal ongoing
costs for computer  hardware or software that would be replaced even without the
presence of the Y2K issue.  The  occurrence  of these  costs is expected  during
1999,  and the  majority  of these  costs  have been and will be  provided  from
operations.

      Galaxy has been  focusing its efforts on  identification,  resolution  and
deployment  of  its  Y2K  exposures  and  has  not  yet  developed   significant
contingency plans in the event it encounters  unknown events.  Galaxy intends to
examine its status periodically to determine whether such plans are necessary.

                                       39
<PAGE>

      The  failure  to  correct  a  material  Y2K  problem  could  result  in an
interruption or failure of certain  important  business  operations.  Management
believes  that  its  Y2K  program  will  significantly   reduce  Galaxy's  risks
associated  with  the  changeover  to  the  Y2K  and  has  implemented   certain
contingency   plans  to  minimize  the  effect  of  any  potential  Y2K  related
disruptions.  The risks and the uncertainties discussed below and the associated
contingency  plans relate to systems,  software,  equipment,  and services  that
Galaxy has deemed critical in regard to customer service,  business  operations,
financial impact or safety.

      Customer  service networks and/or automated voice response systems failure
could  prevent  access to  customer  account  information,  hamper  installation
scheduling and disable the processing of pay-per-view requests.  Galaxy plans to
have its customer service  representatives answer telephone calls from customers
in the event of outages  and  expects to retrieve  needed  customer  information
manually from the billing service provider.

      Galaxy is dependent in some way on third-party  vendors. For example, if a
cable programmer  encounters Y2K problems that impede its ability to deliver its
programming,  Galaxy  will be unable to provide  that  programming  to its cable
customers.  Galaxy has  attempted  to  ascertain  their  state of Y2K  readiness
through  questionnaires,  interviews,  industry  group  participation  and other
available means.  Galaxy has not received any response from third-party  vendors
that indicate a problem with the Y2K issue. There can be no assurance,  however,
that such a problem may occur.

      A failure of the services  provided by Convergys could result in a loss of
customer  records  which  could  disrupt  the  ability to bill  customers  for a
protracted  period.  Galaxy plans to prepare  electronic  backup  records of its
customer  billing  information  prior to the Y2K to allow for data recovery.  In
addition, Galaxy continues to monitor the Y2K readiness of Convergys.

      Advertising  revenue could be adversely affected by the failure of certain
equipment  which could impede or prevent the insertion of  advertising  spots in
Galaxy's  programming.  Galaxy  anticipates  that it can minimize such effect by
manually resetting the dates each day until the equipment is repaired.

      In the event that the local public  utility  cannot supply  power,  Galaxy
will not be able to supply power to most of its cable headends and office sites.

      The financial impact of any or all of the above  worst-case  scenarios has
not been and cannot be estimated by Galaxy due to the numerous uncertainties and
variables associated with such scenarios.

      Despite  Galaxy's  efforts  in  solving  the Y2K  issue,  there  can be no
assurance that partial or total systems  interruptions or the costs necessary to
update  hardware  and  software  would not have a material  adverse  effect upon
Galaxy's business,  financial condition,  and results of operations and business
prospects.

      Inflation

      Galaxy  does not believe  that  inflation  in the United  States in recent
years has had a significant effect on results on operations.
                                       40
<PAGE>


            Recent Accounting Pronouncements

      In June 1998, the Financial  Accounting  Standards  Board ("FASB")  issued
SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities."
SFAS No. 133 is effective for all fiscal  quarters of all fiscal years beginning
after  June 15,  1999  (January  1,  2000,  for the  Partnership).  SFAS No. 133
requires  that all  derivative  instruments  be recorded on the balance sheet at
their fair value.  Changes in the fair value of  derivatives  are recorded  each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction, and, if it is, the type
of hedge transaction.

      Management of the Partnership  anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a significant
effect on the Partnership's results of operations or its financial position.

      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. These factors include 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 1999;
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.

                                       41
<PAGE>

      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.

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

      Galaxy is not directly  exposed to any foreign exchange rates or commodity
price fluctuations.

      Galaxy is exposed to changes in interest rates due to its variable rate of
interest (LIBOR plus 3.25%) on its revolving line of credit.

      Based on Galaxy's  variable  debt at December  31,  1998, a 1% increase in
market interest rates would increase yearly interest expense and decrease income
by  approximately  $328,000.  This  amount  was  calculated  using the  variable
interest  rate in effect at  December  31,  1998,  assuming a constant  level of
variable-rate  debt.  This amount  does not include the effects of other  events
that  could  affect  interest  rates,  such as a downturn  in  overall  economic
activity,  or actions  management  could take to lessen risk. This also does not
take into account any changes in Galaxy's  financial  structure  that may result
from higher interest rates.


                                       42
<PAGE>

      Item 8.   Financial Statement and Supplementary Data.


                     GALAXY TELECOM, L.P. AND SUBSIDIARY
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                       AND FINANCIAL STATEMENT SCHEDULE


                                                                          Page

Consolidated Financial Statements:

     Report of Independent Accountants                                     F-2

     Consolidated Balance Sheets as of December 31, 1998 and 1997          F-3

     Consolidated Statements of Operations for the Years Ended
       December 31, 1998, 1997 and 1996                                    F-4

     Consolidated Statements of Changes in Partners' Capital (Deficit)
       for the Years Ended December 31, 1998, 1997 and 1996                F-5

     Consolidated Statements of Cash Flows for the Years Ended
       December 31, 1998, 1997 and 1996                                    F-6

     Notes to Consolidated Financial Statements                            F-7

Financial Statement Schedule:

     Report of Independent Accountants on Financial Statement Schedule    F-24


     Schedule II - Valuation and Qualifying Accounts                      F-25


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


                                      F-1
<PAGE>



                      Report of Independent Accountants



To the Partners
Galaxy Telecom, L.P.

In our opinion, the consolidated financial statements listed in the accompanying
index on page F-1 present fairly,  in all material  respects,  the  consolidated
financial position of Galaxy Telecom, L.P. and subsidiary (the "Partnership") at
December 31, 1998 and 1997, and the consolidated results of their operations and
their cash flows for each of the three years in the period  ended  December  31,
1998,  in  conformity  with  generally  accepted  accounting  principles.  These
consolidated  financial  statements are the  responsibility of the Partnership's
management;  our  responsibility is to express an opinion on these  consolidated
financial  statements  based on our  audits.  We  conducted  our audits of these
statements  in accordance  with  generally  accepted  auditing  standards  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.


                                                    PricewaterhouseCoopers LLP

Austin, Texas
February 19, 1999,
except for Notes 7 and 12, as to
which the date is March 31, 1999





                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                     GALAXY TELECOM, L.P. AND SUBSIDIARY
                         CONSOLIDATED BALANCE SHEETS

                                                                                December 31,
                                                                        -----------------------------
                                                                            1998             1997
                                                                        ------------    -------------
                                   ASSETS

<S>                                                                      <C>              <C>        
Cash and cash equivalents                                                $ 2,213,777      $ 2,403,098
Subscriber receivables, net of allowance for doubtful accounts of
   $116,572 and $154,692, respectively                                     4,334,563        5,424,260
Systems and equipment, net                                               104,197,674      138,729,592
Intangible assets, net                                                    38,260,678       57,193,102
Prepaids and other                                                         2,735,940        3,297,573
                                                                        ------------    -------------
       Total assets                                                    $ 151,742,632    $ 207,047,625
                                                                     ===============  ===============
            LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Accounts payable and accrued expenses                                   $ 14,854,052     $ 17,152,286
Subscriber deposits and deferred revenue                                   4,078,407        5,434,097
Long-term debt and other obligations                                     152,445,620      179,250,312
                                                                        ------------    -------------
       Total liabilities                                                 171,378,079      201,836,695
                                                                        ------------    -------------
Commitments and contingencies

Partners' capital (deficit):
   General partners                                                      (19,635,447)               -
   Limited partners                                                                -        5,210,930
                                                                        ------------    -------------
       Total partners' capital (deficit)                                 (19,635,447)       5,210,930
                                                                        ------------    -------------
       Total liabilities and partners' capital (deficit)               $ 151,742,632    $ 207,047,625
                                                                     ===============  ===============
</TABLE>
                                      F-3

<PAGE>

<TABLE>
<CAPTION>

                     GALAXY TELECOM, L.P. AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF OPERATIONS



                                                  Years Ended December 31,
                                         ------------------------------------------
                                              1998            1997            1996
                                         ------------    ------------    ------------
<S>                                      <C>             <C>             <C>         
Revenues                                 $ 67,291,506    $ 68,807,763    $ 62,337,218
                                         ------------    ------------    ------------
Operating expenses:
   Systems operations                      31,343,006      31,502,762      28,353,154
   Selling, general and administrative      8,086,624       8,129,733       6,439,308
   Management fee to affiliate              3,028,118       3,092,354       2,804,374
   Depreciation and amortization           24,415,370      24,672,569      21,738,425
                                         ------------    ------------    ------------
       Total operating expenses            66,873,118      67,397,418      59,335,261
                                         ------------    ------------    ------------
Operating income                              418,388       1,410,345       3,001,957

Interest expense                          (20,914,341)    (21,036,934)    (20,132,735)
Interest income                                52,533          23,710          36,128
Gain (loss) on sale of assets              (4,088,370)       (226,185)        183,095
Other income (expense), net                  (314,587)       (218,818)           (384)
                                         ------------    ------------    ------------
       Net loss                          $(24,846,377)   $(20,047,882)   $(16,911,939)
                                         ============    ============    ============
<FN>
  The accompanying  notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>

                                     F-4 
<PAGE>
<TABLE>
<CAPTION>

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

                                                                    Limited Partners
                           General      -------------------------------------------------------------------------
                          Partners         Class B         Class C         Class D         Class E          Total          Total
                        ------------    ------------    ------------   ------------    ------------   ------------   ------------
<S>                     <C>             <C>             <C>            <C>             <C>            <C>            <C>         
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                 (18,257,812)           (256)       (106,366)    (1,632,311)        (51,137)    (1,790,070)   (20,047,882)
                        ------------    ------------    ------------   ------------    ------------   ------------   ------------
Balance, December 31,
  1997                          --               744         309,634      4,751,689         148,863      5,210,930      5,210,930

Net loss                 (19,635,447)           (744)       (309,634)    (4,751,689)       (148,863)    (5,210,930)   (24,846,377)
                        ------------    ------------    ------------   ------------    ------------   ------------   ------------
Balance, December 31,
  1998                  $(19,635,447)   $       --      $       --     $       --      $       --     $       --     $(19,635,447)
                        ============    ============    ============   ============    ============   ============   ============
<FN>
  The accompanying  notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>

                                     F-5
<PAGE>
<TABLE>
<CAPTION>
                     GALAXY TELECOM, L.P. AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                Years Ended December 31,
                                                            1998            1997            1996
                                                       ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>          
Cash flows from operating activities:
   Net loss                                            $(24,846,377)   $(20,047,882)   $(16,911,939)
   Adjustments to reconcile net loss to net cash
    provided by operating activities:
    Depreciation expense                                 20,572,418      20,554,588      17,646,095
    Amortization expense                                  3,842,952       4,117,981       4,092,330
    Amortization included in interest expense             1,269,126         934,770       1,294,650
    Financeable interest                                       --              --           597,849
    Provision for doubtful accounts receivable            1,209,797       1,992,318       1,229,536
    Loss on disposal of cable systems                     4,088,370         226,185            --
    Gain on disposal of equipment                              --              --          (183,095)
    Changes in assets and liabilities:
     Subscriber receivables                                (120,100)     (1,418,451)     (3,715,522)
     Prepaids and other                                     561,633      (1,288,805)       (397,610)
     Accounts payable and accrued expenses               (3,837,431)     (1,637,383)      7,751,279
     Subscriber deposits and deferred revenue            (1,355,690)        670,770       2,116,914
                                                       ------------    ------------    ------------
       Net cash provided by operating activities          1,384,698       4,104,091      13,520,487
                                                       ------------    ------------    ------------
Cash flows from investing activities:
   Acquisition of cable systems - net of trades            (999,452)       (825,000)    (16,009,136)
   Proceeds from sales of cable systems                  38,619,045       3,304,334            --
   Proceeds from sale of equipment                             --              --           683,172
   Acquisition of capital assets                        (11,337,085)    (15,222,381)    (21,397,549)
   Other intangible assets                                  (84,742)       (536,197)       (873,882)
                                                       ------------    ------------    ------------
       Net cash provided by (used in) investing
        activities                                       26,197,766     (13,279,244)    (37,597,395)
                                                       ------------    ------------    ------------
Cash flows from financing activities:
   Borrowings under term debt and revolver               10,825,000      12,400,000      38,226,377
   Payments under term debt and revolver                (39,550,000)     (3,051,377)    (14,893,894)
   Borrowings under other debt                            4,014,110         259,386         372,663
   Payments under other debt                             (2,153,802)       (368,103)       (311,925)
   Payment of debt issue costs                             (907,093)           --          (408,803)
                                                       ------------    ------------    ------------
       Net cash provided by (used in) financing
        activities                                      (27,771,785)      9,239,906      22,984,418
                                                       ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents       (189,321)         64,753      (1,092,490)
Cash and cash equivalents, beginning of year              2,403,098       2,338,345       3,430,835
                                                       ------------    ------------    ------------
Cash and cash equivalents, end of year                 $  2,213,777    $  2,403,098    $  2,338,345
                                                       ============    ============    ============
<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
     fifteen states,  predominantly  including  Mississippi,  Nebraska,  Kansas,
     Missouri, Illinois, Kentucky, Iowa, Alabama, Georgia and Florida.

     The  Partnership  has incurred  losses each year since its  inception and
     has a partnership  deficit of $19.6 million at December 31, 1998.  During
     1998,  the  Partnership  began  implementation  of a strategy  whereby it
     would sell its cable  television  systems  in its  non-core  regions  and
     focus on improving and  acquiring  cable  television  systems in its core
     regions,  which are  primarily  located in  Illinois,  Kansas,  Kentucky,
     Mississippi and Nebraska.  In 1998, the Partnership received net proceeds
     from sales of its non-core  cable  television  systems of $38.6  million,
     which was primarily  used to pay down the amounts due under its revolving
     line of  credit.  Management  intends  to seek  new  debt  and/or  equity
     financing and reduce its  borrowings  under its revolving  line of credit
     through the sales of  non-core  systems in order for the  Partnership  to
     meet its  business  plan and  sustain  operations.  However,  there is no
     assurance  that the  Partnership  will be able to implement  its strategy
     and raise new capital.



     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 7).  Capital
     Corp.  does not have any  operations  other than its  related  purpose as
     co-issuer.   Investments  in  20-  to  50-percent-owned   affiliates  are
     accounted for using the equity method (see Note 10).

     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.  (Class B),
     Galaxy Telecom, Inc. (Class C and E), and Vantage Cable Associates,  L.P.
     (Class D).  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,  and  thereafter up to a maximum of 18
     percent in annual 2 percent  increments.  General partner  priority returns
     increase to a maximum of 35 percent. The cumulative priority return totaled
     approximately  $95,487,000,  $57,553,000  and  $31,291,000  at December 31,
     1998, 1997 and 1996, respectively.

                                    F-7
<PAGE>

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


1.   Organization, continued:

     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.

     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  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 their capital  contributions  and priority return
     distributions  to  such  partners.  Partnership  losses  are  allocated  as
     follows:  first, to the general  partners in proportion to their percentage
     interest up to their capital amounts;  secondly, to the limited partners in
     proportion to their percentage  interest up to their capital  amounts;  and
     thereafter,  to the general  partners  in  proportion  to their  percentage
     interest.

2.   Summary of Significant Accounting Policies:

     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, 1998 and 1997.

     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
     $3.0 million and $2.0 million at December 31, 1998 and 1997,  respectively.
     Though limited primarily to cable television subscribers, the concentration
     of credit risk with respect to receivables is minimized by

                                     F-8
<PAGE>

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


2. Summary of Significant Accounting Policies, continued:

     Concentrations of Credit Risk, continued:

     geographical   dispersion   through   approximately  540  individual  cable
     television  systems  ranging in size from  approximately  10 subscribers to
     approximately 4,800 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.

     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 7) are  valued  using the  closing  bid price
     market quotes, and as a result, the fair value of the Notes at December 31,
     1998 and 1997 was $127,020,000  and  $133,200,000,  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, 1998 and 1997.

     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,  to the extent of direct selling costs,
     with any  remaining  balance  deferred and  recognized  as revenue over the
     estimated  period that  subscribers are expected to remain connected to the
     cable television system.

     Marketing Costs

     Marketing costs are charged to operations in the period  incurred  totaling
     approximately  $1,822,000,  $1,516,000  and  $243,000  for the years  ended
     December 31, 1998, 1997 and 1996.

     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.

                                     F-9
<PAGE>

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


2. Summary of Significant Accounting Policies, continued:

     Systems and Equipment

     Systems and equipment 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.

     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.

     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.  These  assumptions  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 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
     No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities."
     SFAS No. 133 is  effective  for all  fiscal  quarters  of all fiscal  years
     beginning after June 15, 1999 (January 1, 2000, for the Partnership).  SFAS
     No. 133 requires that all derivative instruments be recorded on the balance
     sheet at their fair  value.  Changes in the fair value of  derivatives  are
     recorded  each period in current  earnings or other  comprehensive  income,
     depending  on  whether  a  derivative  is  designated  as  part  of a hedge
     transaction, and, if it is, the type of hedge transaction.

     Management of the  Partnership  anticipates  that the adoption of  SFAS No.
     133 will not have a  significant  effect on the  Partnership's  results  of
     operations or its financial position.

3.   Reporting Comprehensive Income:

     In 1998,  Galaxy adopted 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. Comprehensive loss was the same as net loss reported.



                                      F-11

<PAGE>


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


4. Acquisitions and Dispositions of Cable Television Systems:

     1998 Acquisitions and Dispostions

     During  1998,  the  Partnership  acquired  one  cable  television  system
     serving  approximately  300  subscribers  in  Georgia  for  approximately
     $141,000,  and traded four cable television systems serving approximately
     850  subscribers  in Nebraska  for one cable  television  system  serving
     approximately 730 subscribers in Colorado.

     During 1998, the Partnership disposed of the following cable systems:



                   Number
                      of
                    Cable                         Cash paid
                   Systems       Selling      by Partnership for       Net
   Region            Sold         Price         Selling Expense   Cash Received
   --------------  ---------   -------------    --------------   ---------------

   Alabama            18       $  2,760,000       $   179,480     $   2,580,520
   Central            27          6,120,000           136,289         5,983,711
   Illinois           36          2,596,300            48,780         2,547,520
   Iowa               18          2,572,629            40,815         2,531,814
   Kansas             20          1,579,146            24,896         1,554,250
   Louisiana           5          9,500,000            39,701         9,460,299
   Missouri           63          5,201,444            91,454         5,109,990
   Nebraska           10          2,125,100            15,146         2,109,954
   South Carolina      2          2,050,000            60,055         1,989,945
   Wyoming            17          4,930,000           178,958         4,751,042
                   ---------   -------------   ---------------   ---------------

   Total             216       $ 39,434,619        $  815,574      $ 38,619,045
                   =========   =============   ===============   ===============

   The aggregate sales price and related loss were as follows:

   Systems and equipment                           27,141,381
   Intangible assets                               15,566,034
                                               ---------------
   Assets sold                                     42,707,415

   Net sales price                                 38,619,045
                                               ---------------
   Total loss on sale                              (4,088,370)
                                               ===============



                                      F-12

<PAGE>


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


4.   Acquisitions and Dispositions  of Cable Television Systems, continued:

     1997 Acquisitions and Dispositions

     During 1997, the Partnership  acquired certain cable  television  systems
     serving  approximately  1,610  subscribers in Nebraska for  approximately
     $875,000.  In 1998,  the purchase  price was adjusted in accordance  with
     the  amended  asset  purchase  agreement  and  the  Partnership  paid  an
     additional  $853,000 in cash.  The effect of this  adjustment  on systems
     and equipment, franchise cost and net loss was immaterial.

     During 1997,  the  Partnership  sold certain  non-core  cable  television
     systems  serving  approximately  3,080  subscribers  in  South  Carolina,
     Mississippi and Kansas for approximately $3.3 million.

     Pending Transaction

     On December  30,  1998,  the  Partnership  entered  into an asset  exchange
     agreement  with  Mississippi  Cablevision,  Inc.  ("MCI"),  an affiliate of
     Telecommunications,  Inc.,  whereby the  Partnership  will exchange 1 cable
     television  system  plus pay $19.6  million in cash for 8 cable  television
     systems from MCI. The  Partnership's  cable television  systems are located
     primarily  in  Colorado,  Iowa  and  South  Dakota,  while  the  MCI  cable
     television systems are located in Mississippi.  This pending acquisition is
     dependent on Galaxy obtaining various approvals and sufficient financing.

5.   Systems and Equipment:

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

                                         Estimated
                                       Depreciation     Useful Life             December 31,
                                          Method           Term           1998             1997
                                       -------------   ------------- -------------    -------------
<S>                                    <C>                <C>        <C>              <C>          
Cable television distribution
   systems:
   Head-end                            Straight-line      7 years    $  28,390,239    $  36,996,781
   Distribution plant                  Straight-line     12 years       91,011,687      106,644,279
   Subscriber drops                    Straight-line      5 years       23,783,738       27,184,290
   Other distribution                           --              --       1,029,403        1,023,188
                                                                     -------------    -------------
                                                                       144,215,067      171,848,538

Other:
   Vehicles                            Straight-line      5 years        4,672,900        4,924,324
   Buildings                           Straight-line      5 years        1,873,474        1,808,057
   Furniture, fixtures and equipment   Straight-line      5 years        5,479,623        5,127,605
   Land                                         --              --          91,000           94,000
                                                                     -------------    -------------
                                                                       156,332,064      183,802,524

Less accumulated depreciation                                          (52,134,390)     (45,072,932)
                                                                     -------------    -------------
Systems and equipment, net                                           $ 104,197,674    $ 138,729,592
                                                                     =============    =============
</TABLE>


                                      F-13
<PAGE>


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


6.   Intangible Assets:

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

                                Amortization    Amortization              December 31,
                                   Method          Period              1998            1997
                                -------------   -------------  ------------    ------------
<S>                             <C>               <C>          <C>             <C>         
Goodwill, franchise costs and
 subscriber lists               Straight-line     15 years     $ 41,306,900    $ 60,848,942
Debt issuance costs:
 Senior Subordinated Notes       Level Yield      10 years        5,403,197       5,402,197
 Revolver and Term Loan          Level Yield       7 years        3,286,912       2,778,347
Other                           Straight-line     15 years        1,114,325         812,858
                                                               ------------    ------------
                                                                 51,111,334      69,842,344

Less accumulated amortization                                   (12,850,656)    (12,649,243)
                                                               ------------    ------------
Intangible assets, net                                         $ 38,260,678    $ 57,193,102
                                                               ============    ============
</TABLE>

7.   Long-Term Debt:

     Outstanding long-term debt is as follows:


                                                   December 31,
                                              1998              1997
                                          ------------     ------------
       Revolving Credit Facility         $  30,500,000    $  59,225,000
       Senior Subordinated Notes           120,000,000      120,000,000
          Unamortized discount                (405,000)        (465,000)
       Other, including capital leases       2,350,620          490,312
                                         -------------    -------------
                Total                    $ 152,445,620    $ 179,250,312
                                         =============    =============




                                      F-14
<PAGE>


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


7.   Long-Term Debt, continued:

     Revolving Credit Facility

     The Term Loan  Agreement  was  amended in  September  1995 to a Revolving
     Credit  Facility  ("the   Revolver").   The  Revolver,   which  has  been
     periodically  amended, with the latest amendment occurring in March 1999,
     allows  the  Partnership  to borrow up to $55.9  million  until June 1999
     when  the  outstanding  balance  converts  to  a  term  loan.  The  first
     principal  payment is due on December 31, 1999, in an amount equal to 22%
     of the  converted  balance,  and  in  subsequent  quarterly  installments
     escalating  annually  from 22  percent  to 30  percent  of the  converted
     balance  through  December  2002.  Net proceeds from any system sale will
     be used to  reduce  the  commitment  available  under the  Revolver.  The
     Revolver  will  require  Galaxy  to  maintain   compliance  with  certain
     financial  ratios and other  covenants,  such as total debt to annualized
     cash flow,  cash flow to interest  expense,  capital  expense  limits and
     basic  subscribers  to total long term debt.  The financial  covenants in
     the Revolving  Credit Facility may  significantly  limit Galaxy's ability
     to borrow under the Revolver.

     The Revolving Credit Facility bears interest at prime plus 1.75% (9.50% and
     10.25% at December  31, 1998 and 1997,  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, 1998 and 1997,
     $30,500,000 and $59,225,000, respectively, of the Revolving Credit Facility
     had  been  converted  to an  adjusted  LIBOR  rate at  8.879%  and  8.875%,
     respectively.  The  Partnership  is  required  to  pay a  0.50%  per  annum
     commitment fee on the unfunded portion of the Revolving Credit Facility.

     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 May 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.

                                      F-15
<PAGE>

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


7.   Long-Term Debt, continued:

     Revolving Credit Facility, continued:

     The  Revolving  Credit  Facility  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
     incurrence ratio (total debt to pro forma  annualized  operating cash flow,
     as defined).

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

     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.

     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
                                      F-16
<PAGE>

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


7.   Long-Term Debt, continued:

     Senior Subordinated Notes, continued

     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  1996 were received  accordingly.  No such
     contributions were required in 1997 or 1998.

     Five Year Maturities

     The  required  principal  payments  on the  Company's  long-term  debt  and
     obligations  under  capital  leases  at  December  31,  1998,  assuming  no
     additional borrowings, are as follows:


     1999                                              $ 7,841,602
     2000                                                7,929,018
     2001                                                7,930,000
     2002                                                9,150,000
     2003                                                        -
     Thereafter                                        120,000,000
                                                     -------------
                                                     $ 152,850,620
                                                     =============
                                      F-17

<PAGE>



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

8.   Supplemental Disclosure of Cash Flow Information:

     Interest  payments  during  1998,  1997 and 1996 were  approximately  $20.0
     million, $20.8 million and $20.0 million, respectively.

     Noncash investing and financing transactions for the year ended 
       December 31, 1998 were as follows:

        Acquisition of cable systems through trades
          of current systems                                          $975,099
        Capital expenditures included in accounts payable           $1,539,197

     Noncash investing and financingtransactions for the year ended  
       December 31, 1997 were as follows:

        Capital expenditures included in accounts payable          $1,051,408
        Acquisition of equipment  through issuance
          of capital leases payable                                  $212,800

     Noncash investing and financingtransactions for the year ended  
      December 31, 1996 were as follows:

        Capital expenditures included in accounts payable            $417,910
        Acquisition of equipment through issuance
          of capital leases payable                                  $159,585
        Acquisition of cable systems through trades
          of current systems                                       $5,993,605

9.   Commitments and Contingencies:

     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  noncancelable  capital leases consist of the
     following:

           Year Ending
           December 31,
          ------------

                1999                                            $  33,765
                2000                                                  -
                2001                                                  -
                2002                                                  -
                2003                                                  -
                                                            -------------
           Total minimum lease payments                            33,765
           Less amounts representing interest                       2,187
                                                            -------------
           Obligations under capital leases                      $ 31,578
                                                            =============

                                      F-18
<PAGE>

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

9.   Commitments and Contingencies, continued:
     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
     $304,000, $346,000 and $298,000 during 1998, 1997 and 1996, 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,
          ------------
              1999                                 $  274,990
              2000                                    234,944
              2001                                    223,604
              2002                                    194,282
              2003                                    176,566
           Thereafter                                     -
                                                   -----------
                                                   $ 1,104,386
                                                   ===========


     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  $1,235,000,  $1,143,000  and  $1,177,000  for the years ended
     December 31, 1998, 1997 and 1996, respectively, under such contracts.

     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
     approximately $217,000, $198,000 and $150,000 to the plan during 1998, 1997
     and 1996, 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.

                                      F-19
<PAGE>

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

9.   Commitments and Contingencies, continued:

     Franchises and Programming, continued


     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

     Galaxy's  operations  are subject to regulation  at the federal,  state and
     local levels.  Many aspects of such regulation are currently the subject of
     judicial proceedings and administrative or legislative proposals.

     In October 1992,  Congress enacted the Cable Television Consumer Protection
     and  Competition  Act of 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


9.   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; however,  management does not expect the
     new bill to have a significant  adverse impact on the financial position or
     results of operations of the Partnership.

     Management of Galaxy believes that it has complied in all material respects
     with the provisions of the FCC rules and  regulations and the provisions of
     local franchising authorities.  Accordingly,  no provision has been made in
     the  financial  statements  for any  potential  refunds.  These  rules  and
     regulations are, however,  subject to judgmental  interpretations,  and the
     impact of potential  rate changes or refunds  ordered by local  franchising
     authorities  or the FCC could cause Galaxy to make refunds and/or lower its
     rates for regulated services 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 the  Partnership's
     consolidated  financial  position,  or future results of operations or cash
     flows.

     Certain  customers in  Mississippi  have filed a class action lawsuit in
     the  U.S.  District  Court  for  the  Northern  District  of  Mississippi
     alleging  that the  Partnership  illegally  charged a late fee on monthly
     cable bills.  The  Partnership  has denied any liability  with respect to
     this claim and is defending  this action.  Similar class actions  against
     other cable  companies have been filed in several  states,  some of which
     have been  successful.  At this  point,  management  is unable to predict
     the likely outcome or the potential for an adverse  judgment,  if any. An
     adverse judgment against us could have a material,  adverse affect on the
     Partnership's  consolidated  financial  position,  or future  results  of
     operations  or cash flows.  Management  has not recorded any liability in
     the   consolidated   financial   statements   that  may  arise  from  the
     adjudication of this lawsuit.

                                      F-21
<PAGE>


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

10.  Related Party Transactions:

     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 $3,294,000,
     $3,409,000 and  $3,071,000 for the years ended December 31, 1998,  1997 and
     1996. 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, 1998 and 1997.  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
     $515,000 and $405,000 as of December  31, 1998 and 1997,  respectively,  of
     which approximately $205,000 and $118,000 as of December 31, 1998 and 1997,
     respectively, represent receivables from GSMI.

     Investment

     The  Partnership  has a 40 percent  membership  interest in Galaxy American
     Communications,  L.L.C.  ("GAC").  GAC  was  formed  in  September  1998 to
     acquire,  develop and operate cable television  systems.  During the period
     from  inception  to December  31,  1998,  GAC did not have any  significant
     operations.  At December 31, 1998, the Partnership's  investment balance in
     GAC  was $0 and  the  Partnership  had a  receivable  balance  from  GAC of
     approximately  $223,000. In January 1999, the Partnership made its required
     capital  contribution  of $800 in services to GAC and the other two members
     of GAC made their required capital contributions of $600 each.

     On December 31, 1998, GAC issued debt of approximately  $31 million.  Also,
     on December  31,  1998,  the  Partnership  sold cable  systems,  comprising
     approximately 8,300 subscribers,  to GAC for approximately $6.2 million and
     recorded a loss on the sale of $4.3 million.

     In December 1998, GSMI entered into a management agreement with GAC whereby
     GSMI will  operate  and manage the GAC cable  systems.  For its  management
     services,  GSMI  will be paid a  monthly  fee of 2.5  percent  of the gross
     monthly  receipts from the GAC cable  systems.  Also, in January 1999,  the
     Partnership  entered  into a shared  cost  agreement  with GAC  whereby the
     Partnership will provide services in connection with the  administration of
     the GAC cable systems.  The Partnership will be reimbursed for actual costs
     incurred for administrative services provided to GAC.

                                      F-22
<PAGE>

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

11.  Quarterly Data, Unaudited:
     The results of operations for each of the quarters in 1998 and 1997 were as
     follows (thousands of dollars):


                                                  1998
                                     --------------------------------
                                  First     Second     Third     Fourth
                                 Quarter    Quarter   Quarter    Quarter
                                  -----      -----     -----      -----
Revenue                          $17,331    $17,472   $16,853    $15,636
Operating income (loss)              145        366        86       (179)
Net loss                          (3,858)    (6,571)   (8,348)    (6,069)


                                                  1997
                                     --------------------------------
                                  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)


12.  Subsequent Event:

     On March 23,  1999,  Galaxy  signed  an asset  purchase  agreement  to sell
     approximately 20 cable television systems located in Alabama,  representing
     approximately   5,800   subscribers  for   approximately   $8,500,000,   or
     approximately $1,470 per subscriber.

     







                                      F-23
<PAGE>




                     Report of Independent Accountants on
                         Financial Statement Schedule


      To the Partners
      of Galaxy Telecom, L.P.


      Our audits of the  consolidated  financial  statements  referred to in
      our report dated  February 19, 1999,  except for Notes 7 and 12, as to
      which the date is March 31,  1999,  appearing on page F-2 of this 1998
      Annual  Report on Form 10-K also  included  an audit of the  financial
      statement  schedule listed in the  accompanying  index on page F-1. In
      our opinion,  this financial  statement  schedule  presents fairly, in
      all material  respects,  the  information  set forth therein when read
      in conjunction with the related consolidated financial statements.

                                                  PricewaterhouseCoopers LLP




      Austin, Texas
      February 19, 1999







                                      F-24
<PAGE>


               SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                     GALAXY TELECOM, L.P. AND SUBSIDIARY

<TABLE>
<CAPTION>

       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>  <C>     
Year ended December 31, 1998:
   Reserve and allowances deducted
    from asset accounts-allowance
     for uncollectible accounts               $154,692    $1,614,118       $     -        $1,652,238 (2)  $116,572

Year ended December 31, 1997:
   Reserve and allowances 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 allowances deducted
    from asset accounts-allowance
     for uncollectible accounts               $834,425    $1,229,536       $ 186,791 (1)  $1,838,802 (2)  $411,950

<FN>
(1) Allowance for uncollectible purchased accounts.
(2) Uncollectible accounts written off, net of recoveries.
</FN>
</TABLE>

F-25
<PAGE>

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

      None.

      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  Systems
Management,   Inc.  ("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.....53    Chairman, Chief Executive Officer and
                                   Director of Galaxy Management and Galaxy GP
    James M. Gleason.........35    President, Chief Operating Officer of
                                   Galaxy Management and Galaxy GP
    J. Keith Davidson........43    Executive Vice President, Chief Financial
                                   Officer, Secretary and Director of Galaxy
                                   Management and Galaxy GP
    Ronald Voss..............55    Vice President - Corporate Development of
                                   Galaxy Management
    William P. Collatos......45    Director of Galaxy GP
    Kenneth T. Schiciano.....36    Director of Galaxy GP
    Richard D. Tadler........42     Director of Galaxy GP

     Tommy L. Gleason, Jr. has served as Chairman, Chief Executive Officer and a
director of Galaxy Management and Galaxy GP, and a manager of Galaxy Investments
since December  1994.  Mr. Gleason was President of CableMaxx,  Inc., a wireless
cable  television  company,  from 1993 to 1996.  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 the
Company acquired the Galaxy  Cablevision  Systems.  Mr. Gleason is an individual
general partner of Community  Investment Partners, a venture capital fund in St.
Louis,  Missouri and is currently a director of Galaxy  America  Communications.
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.  Mr.  Gleason is  chairman  of the NCTC.  Mr.  Gleason was
inducted into the Cable TV Pioneers in 1989.

                                       43
<PAGE>

     James M. Gleason has served as  President,  Chief  Operating  Officer and a
director of Galaxy  Management  since  December 1994. Mr. Gleason also presently
serves as President, 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.  Mr. Gleason is on the
board of the Small Business Cable Association and in 1992, he served as Chairman
of the Board of the NCTC.  Mr.  Gleason has 17 years of  experience in the cable
television industry and is the brother of Tommy L. Gleason, Jr.

     J. Keith Davidson has served as Executive Vice  President,  Chief Financial
Officer,  Secretary and Director of Galaxy Management and Galaxy GP, director of
Galaxy  Management and a manager of Galaxy  Investments since December 1994. Mr.
Davidson is currently a director of Galaxy American Communications. From 1988 to
1994, Mr.  Davidson was the Chief Financial  Officer and Assistant  Secretary of
Galaxy Cablevision  Management,  Inc. Mr. Davidson has 18 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 has 18
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 1995, Mr. Tadler was
a general  partner  of TA  Associates.  Mr.  Tadler is a director  of  TechForce
Corporation.
                                       44
<PAGE>

      Item 11.  Executive Compensation.

      Management Agreement

      Pursuant to the Management Agreement between Galaxy Management and Galaxy,
Galaxy Management,  including Messrs. Tommy L. Gleason,  Jr., J. Keith Davidson,
James  Gleason and Ronald 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.  In connection  therewith  they
undertake  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").

      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,
1998,   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.


                                       45
<PAGE>

<TABLE>
<CAPTION>

                             Galaxy Telecom, L.P.
                             --------------------

Name and Address of                                                          Number of        % of     % of
Beneficial Owner                        Type of Interest                      Units(1)        Class   Total Units
------------------------------------    --------------------------------     ----------      -----   ------

<S>                                     <S>                                    <C>                <C>   
Galaxy Telecom Systems, Inc.            Class A General Partnership Units      133,333            1    *
                                        Class C Limited Partnership Units      416,000          100    *

Senior Managers                         Class E Limited Partnership Units      200,000          100    *

Galaxy Communications Systems, L.L.C    Class A General Partnership Units   44,491,667         99.7   86.2
                                        Class B Limited Partnership Units        1,000          100    *
                                        Class D Limited Partnership Units           -             -      -
Vantage Cable Associates, L.P.          Class D Limited Partnership Units    6,384,000          100   12.4
   c/o Farm Bureau Life Ins. Co. 
   5400 University Avenue
   West Des Moines, IA 50266

                         Galaxy Telecom Systems, Inc.
                             --------------------
Name and Address of                                                          Number of        % of     % of
Beneficial Owner                        Type of Interest                      Units(1)        Class   Total Units
------------------------------------    --------------------------------     ----------      -----   ------

Galaxy Telecom, Inc.                    Common Stock                                          100      100

                    Galaxy Communications Systems, L.L.C.
                             --------------------
Name and Address of                                                          Number of        % of     % of
Beneficial Owner                        Type of Interest                      Units(1)        Class   Total Units
------------------------------------    --------------------------------     ----------      -----   ------

Galaxy Telecom Investments, L.L.C.      Common Interests                                      100      100
[Galaxy Holdings]                       Common Interests

                             Galaxy Telecom, Inc.
                             --------------------
Name and Address of                                                          Number of        % of     % of
Beneficial Owner                        Type of Interest                      Units(1)        Class   Total Units
------------------------------------    --------------------------------     ----------      -----   ------

Galaxy Telecom Management, L.L.C. (2)   Class A Voting Common Stock             20,000        16.9     15.6

TA Associates Group (3) (4)             Class A Voting Common Stock             63,281        53.3     49.3
   125 High Street, Suite 2500
   Boston, MA   02110

Spectrum Equity Investors, L.P.         Class A Voting Common Stock             24,615        20.7     19.2
   One International Pl., 29th Fl.
   Boston, MA   02110

Fleet Equity Partners (5)               Class A Voting Common Stock              5,810         4.9      4.5
   50 Kennedy Plaza                     Class B Non-Voting Common Stock         14,703       100.0     11.4
   Providence, RI   02903

                                       46
<PAGE>

                      Galaxy Telecom Investments, L.L.C.
                             --------------------
Name and Address of                                                          Number of        % of     % of
Beneficial Owner                        Type of Interest                      Units(1)        Class   Total Units
------------------------------------    --------------------------------     ----------      -----   ------

Galaxy Telecom Management, L.L.C. (6)   Common Interests                           990        99.0       *
                                        Voting Preferred Interests             288,459         7.3      6.4

TA Associates Group (7) (3)             Common Interests                             8          *        *
   125 High Street, Suite 2500          Voting Preferred Interests           3,452,523        87.8     76.6
   Boston, MA   02110

Spectrum Equity Investors, L.P.         Common Interests                             2          *        *
   One International Pl., 29th Fl.
   Boston, MA   02110
Fleet Equity Partners (8)               Common Interests                             2          *        *
   50 Kennedy Plaza                     Voting Preferred Interests             192,646         4.9      4.3
   Providence, RI   02903               Non-Voting Preferred Interests         570,367       100.0     12.7

                      Galaxy Telecom Management, L.L.C.
                             --------------------
Name and Address of                                                          Number of        % of     % of
Beneficial Owner                        Type of Interest                      Units(1)        Class   Total Units
------------------------------------    --------------------------------     ----------      -----   ------

Tommy L. Gleason, Jr.                   Common Interests                     1,027,500        51.9     51.4
James M. Gleason                        Common Interests                       922,500        46.1     46.1
J. Keith Davidson                       Common Interests                        45,000         2.3      2.3
Ronald Voss                             Common Interests                         5,000          *        *


<FN>

*..Less than one percent.

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


(2)Includes:  (i) 20,000 shares owned of record by Galaxy Management as to which
   shares  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.


(3)Includes  19,524  shares of Class A Voting  Common  Stock of  Galaxy  Telecom
   Systems, Inc. ("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
   shares of 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.


(4)The  beneficial  owners  listed  in Notes 3 and 7 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
   Telecom Systems, Inc. and managers of Galaxy Communications Systems,  L.L.C.,
   are a Managing Director and a Vice President, 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 VI L.P. 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.


(5)Includes  581 shares of Class A Stock and 1,470  shares of Class B  Nonvoting
   Common  Stock of Galaxy  Telecom  Systems,  Inc.  ("Class B Stock")  owned by
   Chisholm Partners II L.P., and 3,660 shares and 9,263 shares of Class A Stock
   and Class B Stock, respectively, owned by Fleet Growth Resources, Inc.


                                       47
<PAGE>

(6)Includes:  (i) 990 Common  Interests and 298,459 Voting  Preferred  Interests
   owned of record by Galaxy Management 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.


(7)Includes  8 units of  Common  Interests  in  Galaxy  Communications  Systems,
   L.L.C. ("Common Interests") and 3,452,523 units of Voting Preferred Interests
   in Galaxy Communications Systems, L.L.C. ("Voting Preferred Interests") owned
   by Advent VII Investor Corp.


(8)Includes  0.18 units of Common  Interests,  15,460 units of Voting  Preferred
   Interests,   45,775  units  of  Non-Voting   Preferred  Interests  in  Galaxy
   Communications Systems, L.L.C. 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 Non-Voting Preferred Interests owned by Fleet Growth Resources, Inc.
   and  0.49  units  of  Common  Interest,  53,155  units  of  Voting  Preferred
   Interests, and 157,378 units of Non-Voting Preferred Interests owned by Fleet
   Equity Partners VII, L.P.
</FN>
</TABLE>

      Item 13.  Certain Relationships and Related Transactions.

      Management Agreement

      Galaxy  Management,  which  is  owned by the  Senior  Managers,  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 neither
Tommy L.  Gleason,  Jr., nor 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.  The
Management  Agreement  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.

      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 1998, Galaxy
paid Galaxy Management approximately $266,000 in reimbursed expenses.

                                       48
<PAGE>

      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, 1998,  Galaxy
incurred a management  fee of  $3,028,118.  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, 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.

      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.

                                       49
<PAGE>

      The Equity Holders Agreement also restricts  transfers of equity interests
in Galaxy GP and Galaxy  Investments  by the Senior  Managers  and  provides the
Equity  Investors with  piggyback  registration  rights and demand  registration
rights with respect to equity  interests  in the  Company,  Galaxy GP and Galaxy
Investments.  The Equity Investors have the right to require the Company, Galaxy
GP and Galaxy  Investments  to  restructure in order to facilitate a sale of the
Company or its cable systems and to consummate such a sale.

      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.

                                       50
<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.

      On December 31, 1998,  Galaxy  acquired a 40% interest in Galaxy  American
Communications,  LLC ("GAC"). This interest was acquired in conjunction with the
sale of cable television  systems to GAC. There was no cash investment by Galaxy
and there is no present market value for this interest.


                                       51
<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.


                                       52
<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, 1999               /s/ Tommy L. Gleason, Jr.           
                          By:    Tommy L. Gleason, Jr.
                                 Chairman, Chief Executive Officer
                                 and            Director



      March 31, 1999               /s/ James M. Gleason              
                          By:    James M. Gleason
                                 Chief Operating Officer




      March 31, 1999               /s/ J. Keith Davidson              
                          By:    J. Keith Davidson
                                 Executive Vice President, Chief
                                 Financial Officer and Director


                                       53
<PAGE>

INDEX TO EXHIBITS


 2.1-      Asset purchase agreement by and between Douglas Cable
           Communications, Limited Partnership and Galaxy, dated as of July
           19, 1995, incorporated herein by reference to Exhibit 2.1 to the
           Registration Statement on Form S-1 (Reg. No. 37-95278) (the "Form
           S-1").

 2.2-      Asset Purchase  Agreement by and between Friendship Cable of Florida,
           Friendship  Cable of  Georgia,  Friendship  Cable of South  Carolina,
           Buford  Group,   Inc.  and  Galaxy,   dated  as  of  July  19,  1995,
           incorporated herein by reference to Exhibit 2.2 to the Form S-1.

 2.3-      Asset Purchase Agreement by and between Vista Communications  Limited
           Partnership I and Galaxy,  dated as of August 31, 1995,  incorporated
           herein by reference to Exhibit 2.3 to the Form S-1.

 2.4-      Asset Purchase Agreement by and between Vista/Narragansett Cable,
           L.P. and Galaxy, dated as of August 8, 1995, incorporated herein
           by reference to Exhibit 2.4 to the Form S-1.

 2.5-      Asset Purchase  Agreement by and between  Phoenix Country Cable Joint
           Venture and Galaxy, dated as of July 19, 1995, incorporated herein by
           reference to Exhibit 2.5 to the Form S-1.

 2.6-      Agreement  by and between  Galaxy and Anderson  Pacific  Corporation,
           dated as of August 4,  1995,  incorporated  herein  by  reference  to
           Exhibit 2.6 to the Form S-1.

 3.1-      Limited  Partnership  Agreement  (the  "Partnership   Agreement")  of
           Galaxy,  dated  as of  December  23,  1994,  incorporated  herein  by
           reference to Exhibit 3.1 to the Form S-1.

 3.2-      Certificate  of  Limited  Partnership  of  the  Company,  dated
              December 23, 1994, incorporated herein by reference to Exhibit
           3.2 to the Form S-1.

 3.3-      Certificate of Incorporation of Galaxy Telecom Capital Corp.
           ("Capital Corp."),  incorporated herein by reference to Exhibit
           3.3 to the Form S-1.

 3.4-      Bylaws of Capital Corp.,  incorporated herein by reference to
           Exhibit 3.4 to the Form S-1.

 3.5-      Amendment  No.1 to the  Limited  Partnership  Agreement,  dated as of
           December 1, 1995,  filed as Exhibit 3.5 to Galaxy's  Annual Report on
           Form 10-K for the year  ended  December  31,  1995,  is  incorporated
           herein by reference.

 3.6-      Amendment  No.2 to the  Limited  Partnership  Agreement,  dated as of
           December 29, 1995,  filed as Exhibit 3.6 to Galaxy's Annual Report on
           Form 10-K for the year  ended  December  31,  1995,  is  incorporated
           herein by reference.

                                       54
<PAGE>

 4.1-      Indenture by and among  Galaxy,  Capital Corp.  and  Boatman's  Trust
           Company,  as Trustee,  relating  to the 12 3/8%  Senior  Subordinated
           Notes due 2005,  incorporated  herein by  reference to Exhibit 4.1 to
           the Form S-1.

 4.2-      Form of Note (included in Exhibit 4.1).

10.1-      Management Agreement by and between Galaxy Systems Management,
           Inc. and Galaxy, dated as of December 23, 1994, incorporated
           herein by reference to Exhibit 10.1 to the Form S-1.

10.2-      Securities Purchase Agreement by and among Galaxy, Galaxy Telecom,
           Inc. and Galaxy Telecom Investments, L.L.C. and the Purchasers and
           other parties named therein, dated as of December 23, 1994 (the
           "Securities Purchase Agreement"),  incorporated herein by
           reference to Exhibit 10.2 to the Form S-1.

10.3-      Equity Holders Agreement by and among Galaxy,  Galaxy Telecom,  Inc.,
           Vantage Cable  Associates,  L.P. and the Management  Stockholders and
           Purchasers named in the Securities  Purchase  Agreement,  dated as of
           December 23, 1994,  incorporated  herein by reference to Exhibit 10.3
           to the Form S-1.

10.4-      Contract by and between Galaxy and QUALCOMM Incorporated, dated as of
           November 18, 1993,  as amended,  incorporated  herein by reference to
           Exhibit 10.5 to the Form S-1.

10.5-      Asset Purchase Agreement by and between Galaxy (as assignee of Galaxy
           Management,  Inc.) and Galaxy Cablevision,  L.P., dated as of May 16,
           1994,  incorporated  herein by  reference to Exhibit 10.6 to the Form
           S-1.

10.6-      Asset Purchase Agreement by and between Galaxy (as assignee of Galaxy
           Management,  Inc.) and Vantage Cable  Associates,  L.P.,  dated as of
           June 8, 1994, as amended as of December 23, 1994, incorporated herein
           by reference to Exhibit 10.7 to the Form S-1.

10.7-      Asset Purchase Agreement by and between Galaxy (as assignee of Galaxy
           Management,  Inc.)  and  Chartwell  Cable of  Colorado,  Inc.,  dated
           November 11, 1994,  incorporated  herein by reference to Exhibit 10.8
           to the Form S-1.

10.8-      Asset   Purchase   Agreement   by  and  between   Galaxy  and  Galaxy
           Cablevision, L.P., dated as of December 23, 1994, incorporated herein
           by reference to Exhibit 10.9 to the Form S-1.

10.9-      Agreement of Purchase and Sale by and between  Galaxy (as assignee of
           Galaxy Management, Inc.) and Vista Communications Limited Partnership
           III, dated as of June 13, 1994,  incorporated  herein by reference to
           Exhibit 10.10 to the Form S-1.

                                       55
<PAGE>

10.10-     Affiliate  Subordination  Agreement by and among Galaxy and the other
           parties named  therein,  dated as of December 23, 1994,  incorporated
           herein by reference to Exhibit 10.11 the Form S-1.

10.11-     First  Amendment  to  Securities  Purchase  Agreement,  dated  as  of
           December 1, 1995, filed as Exhibit 10.11 to Galaxy's Annual Report on
           Form 10-K for the year  ended  December  31,  1995,  is  incorporated
           herein by reference.

10.12-     Amended and Restated Loan Agreement dated as of September 28, 1995 by
           and among  Galaxy  and Fleet  National  Bank,  as Agent,  Lender  and
           Co-Arranger,    and   Internationale   Nederlanden   (U.S.)   Capital
           Corporation,  as Lender  and  Co-Arranger,  and the  other  Financial
           Institutions party thereto. Filed as Exhibit 10.12 to Galaxy's Annual
           Report  on Form  10-K  for the  year  ended  December  31,  1996,  is
           incorporated herein by reference.

10.13-     Amendment No. 1 of the Amended and Restated Loan Agreement dated
           October 21, 1996 by and among Galaxy, Galaxy Telecom Capital Corp.
           and Fleet National Bank.  It was filed as Exhibit 10 to Galaxy's
           Quarterly Report on Form 10-Q for the quarter ended March 31,
           1997, is incorporated herein by reference.

10.14-     Amendment No. 2 of the Amended and Restated Loan Agreement dated
           March 28, 1997 by and among Galaxy, Galaxy Telecom Capital Corp.
           and Fleet National Bank, is incorporated herein by reference.

10.15-     Amendment No. 3 of the Amended and Restated Loan Agreement dated
           November 14, 1997 by and among Galaxy, Galaxy Telecom Capital
           Corp. and Fleet National Bank, is incorporated herein by reference.

10.16-     Amendment No. 4 of the Amended and Restated Loan Agreement dated
           March 27, 1998 by and among Galaxy, Galaxy Telecom Capital Corp.
           and Fleet National Bank, is incorporated herein by reference.

10.17-     Amendment  No. 5 of the Amended and  Restated  Loan  Agreement  dated
           September 8, 1998 by and among Galaxy,  Galaxy Telecom Capital Corp.,
           Fleet National Bank,  State Street Bank and Trust Company,  The First
           National  Bank of Chicago and Union Bank.  It was filed as Exhibit 10
           to  Galaxy's  Quarterly  Report  on Form 10-Q for the  quarter  ended
           September 30, 1998, is incorporated herein by reference.

12.1-      Computation of Ratio of Earnings to Fixed Charges.

21.1-      Subsidiaries of Galaxy incorporated herein by reference to Exhibit
           21.1 to the Form S-1.

27.1-      Financial Data Schedule.

                                       56