U.S. SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549

                                FORM 10-KSB

(Mark One)

/X/  Annual report under Section 13 or 15(d) of the Securities and
     Exchange Act of 1934

             For the fiscal year ended December 31, 1997

/  /  Transition report under Section 13 or 15(d) of the Securities and
      Exchange Act of 1934
      For the transition period from        to


                       COMMISSION FILE NUMBER 33-97876


                             ILLUMINET HOLDINGS, INC.
        (Exact name of small business issuer as specified in its charter)


       Delaware                                      36-4042177
(State or other jurisdiction                     (I.R.S. Employer
of incorporation or organization)                Identification No.)


 4501 Intelco Loop, Lacey, Washington                    98503
(Address of principal executive office)               (Zip code)

                                 (360) 493-6000
                (Issuer's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:  None
Securities registered under Section 12(g) of the Exchange Act:  None

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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 past 90 days. Yes X   No __

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

      State issuer's revenues for its most recent fiscal year. $54,308,057



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Voting stock held by  non-affiliates  has no currently  quoted market value.  No
voting stock held by non-affiliates has been the subject of bid or ask prices in
the past 60 days.

At December  31, 1997,  5,347,081  shares of common  stock,  $0.01 per share par
value were outstanding.

Transitional Small Business Disclosure Format (check one):  Yes __  No  X


                                        2


<PAGE>



                         ILLUMINET HOLDINGS, INC.
                    INDEX TO 10-KSB FOR THE FISCAL
                     YEAR ENDED DECEMBER 31, 1997


PAGE

----
                                     PART I

ITEM 1:       DESCRIPTION OF BUSINESS                                        3

ITEM 2:       DESCRIPTION OF PROPERTY                                        4

ITEM 3:       LEGAL PROCEEDINGS                                              5

ITEM 4:       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS            5

                                     PART II

ITEM 5:       MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS       6

ITEM 6:       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS     6

ITEM 7:       FINANCIAL STATEMENTS

     Illuminet Holdings, Inc. Consolidated Balance Sheets -
       December 31, 1997 and 1996                                           12
     Illuminet Holdings, Inc. Consolidated Statements of Income -
       Years ended December 31, 1997 and 1996                               14
     Illuminet Holdings, Inc. Consolidated Statements of Shareholders'
       Equity - Years ended December 31, 1997 and 1996                      15
     Illuminet Holdings, Inc. Consolidated Statements of Cash Flows -
       Years ended December 31, 1997 and 1996                               16
     Notes to Consolidated Financial Statements - December 31, 1997         17
       Report of Ernst & Young LLP, Independent Auditors                    28

ITEM 8:       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURE                                      28

                                    PART III

ITEM 9:       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT             29



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ITEM 10:      EXECUTIVE COMPENSATION                                        34

ITEM 11:      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
               AND MANAGEMENT                                               39

ITEM 12:      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                43

ITEM 13:      EXHIBITS, LIST AND REPORTS ON FORM 8-K                        44

SIGNATURES                                                                  47


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                                     PART I


ITEM 1:   DESCRIPTION OF BUSINESS

Illuminet  Holdings,  Inc. (formerly USTN Holdings,  Inc.), and its wholly-owned
subsidiary  Illuminet,  Inc.  (formerly  USTN  Services,  Inc.),   (collectively
referred to as "ILLUMINET") were incorporated in the State of Delaware on August
2, 1995 to effect the merger of U.S. Intelco Holdings, Inc. ("U.S. Intelco") and
Independent  Telecommunications  Network, Inc. ("ITN"). In accordance with terms
of the merger,  U.S.  Intelco and ITN merged  with and into  Illuminet,  Inc. on
February 23, 1996 (the "Merger").

The Merger was accounted for as a purchase  business  combination  in accordance
with generally  accepted  accounting  principles with U.S. Intelco designated as
the acquiring company.  Accordingly,  the consolidated  statements of income and
cash flows for the year ended  December  31, 1996  presented in this Form 10-KSB
include  the  results  of ITN's  operations  prospectively  from the date of the
Merger. The pro forma information  presented in the Management's  Discussion and
Analysis or Plan of  Operations  item  reflects the combined  activities of U.S.
Intelco and ITN as if the Merger had occurred effective January 1, 1996.

ILLUMINET is engaged in the  business of  developing,  managing and  marketing a
Signaling  System 7 ("SS7")  network and related  products and services based on
SS7 technology to the entire telecommunications  marketplace,  including network
services  and other  products  and  services to the  cellular  market.  SS7 is a
telecommunications  industry-standard system of protocols and procedures that is
used to control  telephone  communications  and provide  routing  information in
association with vertical calling  features,  such as card validation,  Advanced
Intelligent  Network  ("AIN")  services,  Local  Number  Portability,   cellular
services,  800 Number  Portability,  and Calling  Name  Delivery.  Additionally,
ILLUMINET provides advanced data base services, billing-and-collection services,
calling card services,  and network traffic  tracking and  measurement  software
products to a range of  telephone  companies as well as  interexchange  carriers
("Carriers"),  operator service providers ("OSPs") and other  telecommunications
companies  and providers of  telecommunications  services.  ILLUMINET  primarily
provides  services to  companies  in the  telecommunications  industry  that are
located  throughout the United States and considers all of its operations as one
segment.

Competition

     The  advanced  data base,  billing  and  collection,  calling  card and SS7
network  services  offered  by  ILLUMINET  are  offered  by a  number  of  other
companies. In the area of  billing-and-collection  services,  ILLUMINET competes
with Independent NECA Services, a New Jersey-based company. Each of the Regional
Bell Operating  Companies  ("RBOCs") created by the AT&T break-up,  Southern New
England  Telephone  Company  ("SNET"),   Sprint  Corporation   ("Sprint"),   MCI
Communications  Corporation  ("MCI"),  and GTE Corporation  ("GTE") operate line
information data bases and SS7 networks that are in competition with ILLUMINET's
services. In addition, a few state  telecommunications  associations have formed
intrastate networks to provide services to member companies. These are primarily
equal access and facilities networks;


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<PAGE>



however,   their   associations   with  carriers  could  allow  these  statewide
associations to offer competing  calling card and marketing  services on a local
level.

     Although  ILLUMINET's  network  may be similar  to the other SS7  networks,
ILLUMINET believes its network offers its customers significant advantages apart
from the technology. The focus of ILLUMINET's network offerings is on carrier to
carrier  services  and  excludes  any  service  to the  public.  As  such,  this
neutrality  allows  carrier  customers  the  incentive to provide  viewpoints on
services  offered by the network and the timing of the delivery of such services
without the concern of aiding their competitors.

Regulation

     ILLUMINET does not provide voice-grade or data telecommunications  services
to the public.  ILLUMINET  will  provide  facilities  and  services on a private
contractual  basis to other  entities in the  telecommunications  industry which
will utilize the services and  facilities in their  provision of both  regulated
and nonregulated  telecommunications  services. In as much as ILLUMINET does not
provide voice-grade or data common carrier  telecommunications  services,  it is
anticipated  that the provision of facilities and services by ILLUMINET will not
be subject to regulation by the FCC or state public utility commissions.

Suppliers

     Certain aspects of ILLUMINET's  services  incorporate  services or products
provided by third  parties.  For  example,  a regional  Bell  operating  company
("RBOC") provides the data base used in ILLUMINET's 800 data base services which
allow  carriers  to query an 800  data  base to  obtain  screening  and  routing
information  for  originating 800 calls.  Additionally,  several  inter-exchange
carriers  provide data  transmission  lines that are integral to ILLUMINET's SS7
network.  The providers of these services are not the only available  sources of
such services. Consequently, ILLUMINET believes that if necessary, such services
can be obtained from alternative vendors at competitive rates.

Intellectual Property

     ILLUMINET  relies on a combination of copyright,  trademark,  trade secret,
unfair   competition   and  other   intellectual   property   laws,   a  patent,
confidentiality procedures and contractual provisions to protect its proprietary
rights,  the most  significant of which is  ILLUMINET's  patent on network usage
measurement.  Such  protections,   however,  may  not  be  adequate  to  prevent
misappropriation   of  such  rights  and  may  not  preclude   competitors  from
independently   developing  services  similar  to  ILLUMINET's   services.   The
technology  underlying  ILLUMINET's  patent is a usage measurement  system for a
telephone signaling network. The patent will expire on January 18, 2010. As part
of a patent  settlement  arrangement,  ILLUMINET  has  granted a  third-party  a
non-exclusive,  irrevocable,  fully paid license to make, have made, sell, offer
to sell and/or use products, systems, methods and/or processes under the patent.
The license granted to the third-party does not include any right of third-party
in or to any particular  technology of ILLUMINET which embodies the patent, such
as ILLUMINET's INMART or AMAT7(R) software. From time to time ILLUMINET receives
or  solicits  inquiries  for the sale or  licensing  of certain  of its  assets,
including the patent, which it will consider on a case-by-case basis.


                                        6


<PAGE>




Employees

     As of December 31, 1997, ILLUMINET had 233 full-time employees.


ITEM 2:   DESCRIPTION OF PROPERTY

     ILLUMINET's headquarters and a portion of its operations center are located
in Lacey, Washington, where it owns a 70,000 square foot facility. The building,
approximately  13.7  acres of land on which the  building  is  constructed,  and
certain of  ILLUMINET's  computer  hardware  and  software are financed by Rural
Telephone  Finance  Cooperative  ("RTFC").  RTFC  has a first  priority  lien on
substantially all of ILLUMINET's assets,  revenues and property,  excluding cash
collected  and held on  behalf  of others  in the  normal  course  of  providing
ILLUMINET's services.

     ILLUMINET  also leases 18,683 square feet of office space in Overland Park,
Kansas,  where in addition  to certain  selling  and  administrative  functions,
ILLUMINET has its Network  Surveillance and Control Center (NSCC) which operates
on a 24-hour a day basis,  7 days a week.  The lease term began  August 16, 1993
and expires  August 15, 1998.  ILLUMINET  has entered into a separate  five-year
lease with another party beginning August 16, 1998, with the option to renew the
lease for an additional five year period, for a 23,000 square foot facility that
is being currently  constructed in Overland Park,  Kansas,  to suit  ILLUMINET's
specifications.

     ILLUMINET's  network  operations  include  redundant Signal Transfer Points
("STPs") facilities located in Mattoon, Illinois, and Rock Hill, South Carolina.
Additional STP facilities are located in Lacey,  Washington,  Las Vegas, Nevada,
Akron,  Pennsylvania  and  Waynesboro,  Virginia.  ILLUMINET has subleased 4,657
square feet for its STP facilities at Mattoon,  Illinois in the  headquarters of
Consolidated  Communications,  Inc., a shareholder  of  ILLUMINET.  The sublease
expired on July 31,  1996,  and was  renewed  under one of the three  additional
five-year period renewal options. ILLUMINET leases 6,468 square feet for its STP
facilities at Rock Hill, South Carolina, of which it subleases 1,243 square feet
to another party. The lease expired April 30, 1996, and was renewed under one of
three additional  five-year period renewal options. In February 1997,  ILLUMINET
negotiated a five-year  lease expiring in December 2001 for 600 square feet with
an unrelated  party for its STP facilities at Las Vegas,  Nevada.  In July 1997,
IILLUMIENT  entered into separate  lease  agreements  for its STP  facilities at
Waynesboro,  Virginia and Akron,  Pennsylvania.  These five-year leases are each
with IILLUMINET shareholders, and are for 54 square feet each expiring June 2002
with no options for renewal.


ITEM 3:  LEGAL PROCEEDINGS

     None.

ITEM 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was  submitted  to a vote of security  holders  during the fourth
quarter of 1997.


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<PAGE>



                                     PART II


ITEM 5:   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     There are no  established  public  trading  markets for shares of Illuminet
Holdings,  Inc. Common Stock ("Illuminet  Common Stock") or Illuminet  Holdings,
Inc. Series A Convertible Preferred Stock ("Illuminet Series A Preferred").

     At December 31, 1997, Illuminet Holdings, Inc. had 265 holders of Illuminet
Common Stock (40 of which also hold Illuminet Series A Preferred Stock),  and 83
holders of Illuminet  Series A Preferred  Stock (40 of which also hold Illuminet
Common Stock).

     When  authorized  by the  Illuminet  Holdings,  Inc.  Board  of  Directors,
payments  of  dividends  are  restricted   under   ILLUMINET's   long-term  debt
arrangements,  as follows:  (1) approval of RTFC is required unless  ILLUMINET's
ratio of equity to total assets  exceeds 40% and (2) dividends are restricted to
75% of  net  income  as  defined  in the  indenture  relating  to the  Illuminet
Debentures.  Dividends  are not payable to  Illuminet  Series A Preferred  Stock
unless dividends are declared,  set aside or paid  simultaneously  to holders of
Illuminet Common Stock. To date, no dividends have been declared.


ITEM 6:   MANAGEMENT'S DISCUSSION AND ANALYSIS OR
          PLAN OF OPERATIONS

BASIS OF PRESENTATION

Illuminet  Holdings,  Inc., and its  wholly-owned  subsidiary,  Illuminet,  Inc.
(formerly named USTN Services, Inc.), (collectively referred to as "ILLUMINET"),
were  incorporated  for the  purpose of  effecting  the  merger of U.S.  Intelco
Holdings, Inc. ("U.S. Intelco") and Independent Telecommunications Network, Inc.
("ITN") that was consummated effective February 23, 1996 ("Merger").  The Merger
was  accounted  for  as a  purchase  business  combination  in  accordance  with
generally accepted  accounting  principles,  with U.S. Intelco designated as the
acquiring  company.  Accordingly,  references  to Illuminet  Holdings,  Inc. and
ILLUMINET in the  accompanying  financial  statements  and related notes for the
periods  prior  to the  Merger  represent  U.S.  Intelco,  while  references  to
Illuminet  Holdings,  Inc.  and  ILLUMINET  for the  periods  after  the  Merger
represent the  consolidated  entity  including the net assets and  operations of
ITN. The pro forma  information  presented in this  Management's  Discussion and
Analysis or Plan of Operations  reflects the combined activities of U.S. Intelco
and ITN as if the Merger had occurred effective January 1, 1996.


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<PAGE>


<TABLE>
<CAPTION>

RESULTS OF OPERATIONS

Years Ended December 31, 1997 and 1996

REVENUES.  The following table summarizes ILLUMINET's services and the effect of the
Merger on ILLUMINET's revenues:
                                                                                             Change
                                                  1997               1996               $              %
<S>                                            <C>             <C>                 <C>               <C>
                                                  ----               ----               ---           ---
Billing-and-collection
 services                                      $ 6,723,305     $ 7,895,674         $(1,172,369)      (15%)
Data base services                               8,960,491       7,427,696           1,532,795         21%
Network usage measurement
 software                                        3,468,212         557,932           2,910,280        522%
Other services                                    59,600           742,998            (683,398)      (92%)
                                                ----------      ----------          ----------
                                                19,211,608      16,624,300           2,587,308         16%
                                                ----------      ----------          ----------
Services acquired by Merger:
---------------------------
Intelligent network
 services                                       29,477,657      21,408,804           8,068,853         38%
Wireless services                                5,618,792       3,664,001           1,954,791         53%
                                                ----------      ----------          ----------
                                                35,096,449      25,072,805          10,023,644         40%
                                                ----------      ----------          ----------
Pro forma revenue                               54,308,057      41,697,105          12,610,952         30%
Financial statement
 reporting adjustment
 for operations prior
 to the Merger                                       -          (3,809,227)          3,809,227        100%
                                                ----------      ----------          ----------
Revenues per statements
 of income                                      $54,308,057    $37,887,878         $16,420,179         43%
                                                ==========      ==========          ==========
</TABLE>

Billing-and-collection  services  revenues  for 1997 were lower  primarily  as a
result of a $1,271,684, or 20%, decrease in clearinghouse product line revenues.
This  decrease  reflects a fourth  quarter 1996 price  reduction  offset by a 4%
growth in messages  processed from 68.8 million in 1996 to 71.3 million in 1997,
due to the addition of a large customer in the second quarter of 1996.

Data base services  revenues  growth is  attributable  to an increase in Calling
Name Delivery  ("CNAM")  product line revenues of $1,205,753,  or 173%, in 1997.
This increase  reflects growing market  acceptance of the service  introduced in
1995. CNAM queries increased 134% from 125.3 million in 1996 to 293.5 million in
1997.

Network usage measurement software revenues derived from the sale of ILLUMINET's
Signaling  System 7 ("SS7")  network traffic  tracking and measurement  software
products  AMAT7(R)  and CDR7(R)  increased  in 1997 as  ILLUMINET  penetrated  a
greater portion of the market.  Network usage measurement software product sales
have  a long  sales  cycle  with  each  individual  sale  normally  contributing
significant revenue to the product line.


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Other  services  revenues  were  lower  primarily  due  to  the  termination  of
ILLUMINET's  contract  to  provide  voice  messaging  services  for the State of
Washington in September,  1996. Voice messaging contributed revenues of $548,408
in 1996.

Intelligent  network services  revenues for 1997 grew primarily as a result of a
$4,436,389, or 93%, increase in trunk signaling and related service product line
revenues,  reflecting new customer  growth.  Network  connectivity  product line
revenues increased $3,939,483, or 50%, from growth in chargeable customer links.
Offsetting the revenue growth in these product lines, Line Information Data Base
("LIDB") switch and transport revenues decreased  $675,911,  or 17%, in 1997 due
to lower query volumes and reduced prices brought on by competition.

Wireless  services revenue grew primarily due to a $1,270,010,  or 38%, increase
in 1997 in cellular  switch and transport  product line  revenues.  The increase
reflects  additional  customers  and increased  utilization  of the network with
message volumes  increasing 82% from 1,253.9 million messages in 1996 to 2,288.2
million  messages  in 1997.  The  difference  between  the  revenue  and  volume
increases reflects the impact of volume discount pricing arrangements.

EXPENSES.  The following table summarizes ILLUMINET's expenses and the effect of
the Merger on ILLUMINET's expenses:


<TABLE>
<CAPTION>

                                                                                             Change
                                                   1997            1996                 $               %
<S>                                             <C>            <C>                 <C>               <C>
                                                  ----            ----                ---             ---
Operating                                       $13,947,243    $10,269,993         $ 3,677,250         36%
Selling, general
 and administrative                              9,905,522       9,486,311             419,211          4%
Depreciation and
 amortization                                    7,353,526       6,175,510           1,178,016         19%
Network operating                               15,313,206      11,063,026           4,250,180         38%
Merger expenses                                      -             700,875            (700,875)     (100%)
                                                ----------      ----------          ----------
Pro forma expenses                              46,519,497      37,695,715           8,823,782         23%
Financial statement
 reporting adjustment
 for operations prior
 to the Merger                                       -          (3,710,914)          3,710,914        100%
                                                ----------      ----------          ----------
Expenses per statements
 of income                                      $46,519,497    $33,984,801         $12,534,696         37%
                                                ===========     ==========          ==========
</TABLE>

ILLUMINET's primary costs are network operating expenses, which are comprised of
leased network  connectivity charges incurred to establish and maintain customer
connectivity  to  the  company's  SS7  network,  followed  by  personnel  costs,
depreciation and amortization of hardware,  software and facilities  assets, and
software maintenance expenses.

Operating  expenses  grew in 1997  primarily  to support the  increased  use and
expansion  of  ILLUMINET's  SS7  network and  related  products.  The growth was
comprised  mainly of higher  personnel  expenses  related to an expansion in the
customer support,  operations and engineering  functions,  increased maintenance
costs for new network


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<PAGE>



and  systems  hardware  and  software,  and  establishing  bad debt  reserves in
proportion to the growth in revenues and clients.

Selling, general and administrative expenses grew from 1996 levels due to higher
personnel  expenses  related  to an  expansion  in the sales and  marketing  and
product  management  functions,  increased  travel  expenses  and new  marketing
material costs related to increased sales and marketing efforts.

Depreciation  and  amortization  expenses  increased in 1997 due to placing into
service  new  network  equipment,  and a carrying  value for  certain  assets in
connection with ILLUMINET's long-lived assets impairment policy.

Network  operating  expenses  increased  due to the  growth  in  leased  network
connectivity,  link and Local Access  Transport  Area  ("LATA")  access  charges
incurred to support increased customer use of the SS7 network.

Merger expenses were comprised  primarily of  non-recurring  severance  expenses
incurred in the first quarter of 1996.

INTEREST INCOME/INTEREST EXPENSE. Interest income increased by $256,899, or 54%,
from $475,125 in 1996 to $732,024 in 1997. This growth  resulted  primarily from
an increase in  available  cash  balances  provided by  operations  over the two
years. On a pro forma basis, interest income increased by $239,494, or 49%, from
$492,530 in 1996 to $732,024 in 1997.

Interest  expense  increased  $226,658,  or  17%,  from  $1,313,299  in  1996 to
$1,539,957  for in 1997.  The increase  reflects the  exclusion of two months of
pre-Merger  interest  expense  incurred  by ITN in 1996.  On a pro forma  basis,
interest expense was comparable in 1996 and 1997.

INCOME TAXES.  ILLUMINET has federal income tax net operating loss carryforwards
available  to offset  future  taxable  income for  federal  income tax  purposes
totaling  $12,291,927 that expire in various amounts from 2008 through 2011, and
tax credit  carryforwards of $335,332.  ILLUMINET's  ability to utilize such net
operating  loss  carryforwards  and tax credit  carryforwards  is  dependent  on
ILLUMINET's  ability  to  generate  sufficient  taxable  income  from its future
operations.  The 1997 tax accounts and provision reflect a benefit of $3,108,315
attributable  to the reversal of  substantially  all of the previously  recorded
deferred  tax  valuation  allowance  due  to  improved  recent  and  anticipated
operating  results.  The 1997 tax accounts and  provision  also reflect  federal
alternative  minimum  taxes  which  cannot  be  completely  offset  by tax  loss
carryforwards.

EARNINGS

ILLUMINET's  net income grew  $4,704,452,  or 159%,  from $2,952,982 in 1996, to
$7,657,434  in 1997.  This  growth  primarily  reflects  an  increase in network
services and network usage measurement software product revenues,  the effect of
non-recurring  Merger costs incurred in 1996, and the impact of the  post-Merger
operational efficiencies that have reduced costs as a percentage of revenues.

ILLUMINET  believes that it will continue to have positive  earnings in the near
future  through new product and  customer  diversification  and  expansion  into
related


                                       11


<PAGE>



telecommunications markets. ILLUMINET anticipates that increased expenditures in
the  development  of services and products  will  continue over the next several
years.  While it is anticipated  that the existing primary services and products
will continue to be profitable,  overall  profitability  in the immediate future
could be negatively impacted by delays in obtaining new product revenues coupled
with  related  increases  in new  product  start-up  costs.  A general  downward
pressure on price caused by increased  competition  may also  negatively  impact
profitability.

LIQUIDITY AND CAPITAL RESOURCES

ILLUMINET  relies on a combination of cash generated from  operations,  debt and
equity  to  fund  service  development  and  expansion  activities.   Currently,
ILLUMINET's operating activities are generating positive cash flows. However, as
ILLUMINET   broadens  its  services  and  products  to  those  requiring  larger
investments   coupled  with  longer  periods  before  subsequent   revenues  are
generated,  ILLUMINET believes there may be increased pressure on cash generated
from operations.  ILLUMINET  anticipates  continued high levels of investment in
the  development  of new services and  products  over the next several  years to
manage   increased   volumes   relating   to  its   network,   data  base,   and
billing-and-collection  services,  to broaden its product base to keep pace with
changing markets and customer needs, and to enhance customer support systems.

ILLUMINET's  working capital  (current assets in excess of current  liabilities)
was  $11,996,282 as of December 31, 1997.  ILLUMINET's  cash and cash equivalent
balances included  $3,763,000 required as working capital to service ILLUMINET's
clearinghouse  customers.  Such funds are  received  and  disbursed on a monthly
basis.  The growth in working  capital of $5,537,778 from $6,458,504 at December
31, 1996, reflects the increase in accounts receivable attributable to increased
revenue,  decreased payables related to ILLUMINET's  clearinghouse  program, and
the recognition of a deferred tax asset for net operating loss  carryforwards as
described in "INCOME TAXES". Cash received from customers and paid to customers,
suppliers and employees includes toll clearing and other pass-through activities
associated with ILLUMINET's services.  The increase of $20,286,162,  or 13% from
$155,132,157  in 1996 to  $175,418,319  in 1997 in cash received from customers,
and  the  increase  of  $18,533,199,  or  13%,  from  $143,562,818  in  1996  to
$162,096,017 in 1997 in cash paid to customers, suppliers and employees reflects
the increase in  clearinghouse  product volumes and the additional two months of
cash  transactions  included in 1997 for merged ITN  activity  when  compared to
1996.

ILLUMINET's  expenditures  for property and equipment were  $11,254,272  for the
year ended  December 31, 1997.  Expenditures  for  property and  equipment  were
primarily for network equipment to expand capacity and enhance reliability.

At December 31, 1997,  ILLUMINET had a secured line of credit  expiring  August,
2001, with Rural Telephone Finance  Cooperative  ("RTFC") that permits ILLUMINET
to borrow up to $7,300,000, not to exceed 80% of accounts receivable. There were
no borrowings against the line of credit at December 31, 1997.  Additionally, at
December  31,  1997,   ILLUMINET  had  $5,188,007  of  unused  loan   facilities
established  or  committed  with RTFC,  maturing in the years 2000 and 2001.  In
December,  1996,  ILLUMINET  drew  against one of its  existing  mortgage  notes
totaling  $2,680,765  to finance the  expansion of the network  with  additional
switching  equipment.   Currently,   ILLUMINET  has  obtained  vendor  financing
commitments and is finalizing


                                       12


<PAGE>



documentation  for capital  leases  related to a purchase of $6.0 million of new
network equipment to enhance monitoring and troubleshooting capabilities.

ILLUMINET  believes that its existing cash  balances,  funds  generated from its
operations and borrowings available under its existing credit agreements will be
sufficient to meet existing  capital  expenditure  and working capital needs for
the immediate future.

IMPACT OF YEAR 2000

ILLUMINET  has begun to assess its systems  with  respect to the Year 2000 Issue
and has  preliminarily  concluded  that it will be required to modify or replace
portions of its software so that its computer and network  systems will function
properly  with respect to dates in the year 2000 and  thereafter.  ILLUMINET has
not made a full  determination  of the  extent of  necessary  modifications  and
replacements,  but  estimates  that the cost will range between $2.0 million and
$5.0 million.  This range of cost is based on ILLUMINET's best estimate based on
currently available  information;  however, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated  as  further  work on the  issue is  performed.  ILLUMINET  has also
identified  the  need  to  initiate  formal   communications  with  all  of  its
significant  suppliers  and large  customers  to  determine  the extent to which
ILLUMINET's  interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 Issues. There can be no guarantee that the systems
of other companies on which  ILLUMINET's  systems rely will be converted  timely
and would not have an adverse effect on ILLUMINET's systems.

ILLUMINET believes that with modifications to existing systems and conversion to
new systems,  which are expected to occur through the end of 1999, the Year 2000
Issue  will not pose  significant  operational  problems  for its  computer  and
network systems. However, if such modifications and conversions are not made, or
are not  completed  timely,  the Year 2000 Issue  could have a material  adverse
impact on ILLUMINET's results from operations.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR
CAUTIONARY STATEMENT

This  Management's  Discussion  and  Analysis  or Plan of  Operations  and other
sections  of  this  Annual  Report  on  FORM  10-KSB  contain  "forward-looking"
statements,  as defined in the Private Securities  Litigation Reform Act of 1995
("Act"), that are based on current expectations, estimates and projections. Such
statements  are  made  pursuant  to the  safe  harbor  provisions  of  the  Act.
Statements that are not historical facts, including statements about ILLUMINET's
beliefs  and  expectations  are  forward-looking  statements.  These  statements
contain potential risks and  uncertainties.  There are certain important factors
that could cause actual results to differ  materially from those  anticipated by
the  forward-looking  statements.  ILLUMINET  undertakes no obligation to update
publicly any forward-looking  statements whether as a result of new information,
future events or otherwise.

Important factors that may affect these projections or expectations include, but
are not limited to:  changes in the overall  economy;  competition in markets in
which  ILLUMINET  operates from larger and better  financed  companies;  cost or
failure  to defend  the  validity  of  ILLUMINET's  patents;  telecommunications
industry consolidation; changes in the telecommunications regulatory environment
that may impact ILLUMINET's regulated customers; future litigation; availability
of future


                                       13


<PAGE>



financing;  and market  acceptance of new products.  Readers should evaluate any
statements in light of these important factors.




                                       14


<PAGE>





ITEM 7:   FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                 ILLUMINET HOLDINGS, INC.

                                                Consolidated Balance Sheets


                                                                  December 31,
                                                                ---------------------
                  ASSETS                                          1997           1996
<S>                                                            <C>            <C>
                  ------                                          ----           ----
Current assets:
    Cash and cash equivalents                                 $ 11,167,152    $ 12,514,507
    Accounts receivable, less allowance
       for doubtful accounts of $1,282,000
       ($438,000 in 1996)                                       23,818,209      21,580,485
    Deferred income taxes                                        3,644,805          -
    Prepaid expenses and other                                     377,169         365,735
                                                              ------------    ------------
       Total current assets                                     39,007,335      34,460,727
                                                              ------------    ------------
Property and equipment:
    Land                                                           911,765         911,765
    Building and leasehold improvements                          6,934,636       6,907,061
    Equipment and furniture                                      2,904,756       2,472,543
    Network assets                                              39,547,424      31,637,544
    Computer hardware and software                              18,231,476      16,008,791
                                                              ------------    ------------
                                                                68,530,057      57,937,704
    Less:  Accumulated depreciation and amortization           (33,815,369)    (26,560,848)
                                                              ------------    ------------
       Total property and equipment                             34,714,688      31,376,856
                                                              ------------    ------------
See accompanying notes to consolidated financial statements


                                       15



<PAGE>





Computer software product costs, less
    accumulated amortization of $1,223,000
    ($662,000 in 1996)                                           1,635,686       2,196,782
Other assets, less  accumulated
    amortization of $102,000
    ($86,000 in 1996)                                            2,668,655       2,787,968
                                                              ------------    ------------
Total assets                                                  $ 78,026,364    $ 70,822,333
                                                              ============    ============

</TABLE>

See accompanying notes to consolidated financial statements.



                                       16


<PAGE>




<TABLE>
<CAPTION>

                            ILLUMINET HOLDINGS, INC.

                     Consolidated Balance Sheets, Continued


                                                                           December 31,
                                                                           -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY                                         1997               1996
------------------------------------                                         ----               ----
<S>                                                                      <C>                <C>
                                                                          ------------      -----------
Current liabilities:
    Trade accounts payable                                                $ 4,553,725        $4,347,084
    Accrued expenses                                                        3,247,959         2,243,468
    Due to customers                                                       16,930,777        19,236,821
    Current portion of long-term debt                                       2,278,592         2,174,850
                                                                          ------------      ------------
       Total current liabilities                                           27,011,053        28,002,223
                                                                          ------------      ------------
Deferred income taxes                                                       2,775,045             -
Long-term debt, less current portion                                       18,014,115        21,060,061
                                                                          ------------      ------------
    Total non-current liabilities                                          20,789,160        21,060,061
                                                                          ------------      ------------

Shareholders' equity:
    Illuminet Holdings, Inc. Preferred Stock, par value
       $.01 per share, authorized 95,584 shares, none
       issued or outstanding                                                   -                 -
    Illuminet Holdings, Inc. Series A Convertible Preferred
       Stock, par value $.01 per share, authorized 4,416
       shares, issued and outstanding 2,451 (2,637 in 1996),
       aggregate liquidation preference $2,451,000                                25                26
Illuminet Holdings, Inc. Common Stock, par value
       $.01 per share, authorized 12,000,000 shares,
       issued and outstanding 5,347,081 (5,262,354 in 1996)                   53,471            52,624
    Additional paid-in capital                                            11,985,679        10,701,247

See accompanying notes to consolidated financial statements.

                                       17


<PAGE>





    Deferred stock compensation                                              (340,454)           -
    Retained earnings                                                      18,527,430       11,006,152
                                                                         -------------        -------
       Total shareholders' equity                                          30,226,151       21,760,049
                                                                         -------------        -------
Total liabilities and shareholders' equity                                $78,026,364      $70,822,333
                                                                           ==========       ==========

See accompanying notes to consolidated financial statements.

                                       18

</TABLE>

<PAGE>


<TABLE>
<CAPTION>



                                                 ILLUMINET HOLDINGS, INC.

                                             Consolidated Statements of Income

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

Revenues                                                 $54,308,057   $37,887,878
                                                       -------------      -------
Expenses:
    Operating                                             13,947,243     9,914,192
    Selling, general and administrative                    9,905,522     8,648,618
    Depreciation and amortization                          7,353,526     5,714,269
    Network operating                                     15,313,206     9,357,655
    Merger expenses                                            -           350,067
                                                       -------------      -------
       Total expenses                                     46,519,497    33,984,801
                                                       -------------      -------
Operating income                                           7,788,560     3,903,077

Interest income                                              732,024       475,125
Interest expense                                          (1,539,957)   (1,313,299)
                                                       -------------      -------
Income before income taxes                                 6,980,627     3,064,903

Income tax provision (benefit)                              (676,807)      111,921
                                                       -------------      -------

See accompanying notes to consolidated financial statements.

                                       19


<PAGE>





Net income                                               $ 7,657,434   $ 2,952,982
                                                          ==========    ==========
Basic earnings per share                                 $      1.45   $      0.59
                                                          ==========    ==========
Diluted earnings per share                               $      1.27   $      0.57
                                                          ==========    ==========
Weighted-average common shares                             5,295,509     4,995,092
                                                          ==========    ==========
Weighted-average common shares
    and potential common shares                            6,396,665     5,972,284
                                                           =========     =========

See accompanying notes to consolidated financial statements.

</TABLE>

                                       20


<PAGE>





<TABLE>
<CAPTION>

                                             ILLUMINET Holdings, Inc.

                                Consolidated Statements of Shareholders' Equity

                                    Years Ended December 31, 1997 and 1996

                                           U.S. Intelco Holdings, Inc.
                                     -----------------------------------
                                                 Common Stock                              Illuminet Holdings, Inc.
                                     -----------------------------------             ---------------------------------
                                     Class A                  Class B                 Common         Series A Preferred
                                  --------------       ------------------           ------------     -----------------

                                Shares        $        Shares          $          Shares        $        Shares     $
                                ------      ------     ------        -----        ------      ------     ------   ------
<S>                             <C>       <C>          <C>         <C>          <C>          <C>         <C>       <C>

Balance at
     January 1, 1996               466    $ 23,300     1,208,696    $ 24,174          --      $   --        --       $--
Merger dissenting
     shares repurchased             (6)       (300)      (17,917)       (358)         --          --        --       --
                                  ----    --------    ----------    --------    ----------    --------    ------    ----
Total before merger
     on February 23, 1996          460      23,000     1,190,779      23,816          --          --        --       --
Conversion to Illuminet
     Holdings, Inc. stock         (460)    (23,000)   (1,190,779)    (23,816)    3,673,871      36,739      --       --
Purchase of Independent
     Telecommunications
     Network, Inc.                --          --            --          --       1,566,988      15,670     2,675      27
Illuminet Common Stock
     issued under former
     stock incentive plan         --          --            --          --           7,539          75      --       --
Conversion of Illuminet
     Series A Preferred
     Stock                        --          --            --          --           3,235          33       (38)     (1)
Conversion of convertible
     redeemable subordinated
     debentures                   --          --            --          --          10,721         107      --       --
Net income                        --          --            --          --            --          --        --       --
                                ------    --------    ----------    --------    ----------    --------    ------    ----
Balance at
     December 31, 1996            --          --            --          --       5,262,354      52,624     2,637     $26
Conversion of Illuminet
     Series A Preferred
     Stock                        --          --            --          --          15,832         158      (186)     (1)
Conversion of convertible
     redeemable subordinated
     debentures                   --          --            --          --          66,194         662      --       --
Illuminet Common Stock
     issued under former
     stock incentive plan         --          --            --          --          14,240         142      --       --
Stock repurchases                 --          --            --          --         (11,539)       (115)     --       --
Deferred stock compensation       --          --            --          --            --          --        --       --
Stock compensation expense        --          --            --          --            --          --        --       --
Net income                        --          --            --          --            --          --        --       --
                                ------    --------    ----------    --------    ----------    --------    ------    ----
Balance at
     December 31, 1997            --      $   --            --      $   --       5,347,081    $ 53,471     2,451    $ 25
                                ======    ========    ==========    ========    ==========    ========    ======    ====


See accompanying notes to consolidated financial statements.


                                       21

<PAGE>
                                 Additional    Deferred
                                   Paid-In      Stock          Retained       Total
                                   Capital    Compensation     Earnings       Equity
                                   -------    -------------     ------        ------
<S>                           <C>            <C>            <C>             <C>

Balance at
     January 1, 1996           $  4,136,159    $    --      $  8,235,741    $ 12,419,374
Merger dissenting
     shares repurchased                --           --          (182,571)       (183,229)
                               ------------    ---------    ------------    ------------
Total before merger
     on February 23, 1996         4,136,159         --         8,053,170      12,236,145
Conversion to Illuminet
     Holdings, Inc. stock            10,077         --              --              --
Purchase of Independent
     Telecommunications
     Network, Inc.                6,354,252         --              --         6,369,949
Illuminet Common Stock
     issued under former
     stock incentive plan            81,772         --              --            81,847
Conversion of Illuminet
     Series A Preferred
     Stock                              (32)        --              --              --
Conversion of convertible
     redeemable subordinated
     debentures                     119,019         --              --           119,126
Net income                             --           --         2,952,982       2,952,982
                               ------------    ---------    ------------    ------------
Balance at
     December 31, 1996           10,701,247         --        11,006,152      21,760,049
Conversion of Illuminet
     Series A Preferred
     Stock                             (157)        --              --              --
Conversion of convertible
     redeemable subordinated
     debentures                     734,839         --              --           735,501
Illuminet Common Stock
     issued under former
     stock incentive plan            40,441         --              --            40,583
Stock repurchases                      --           --          (136,156)       (136,271)
Deferred stock compensation         509,309     (509,309)           --              --
Stock compensation expense             --        168,855            --           168,855
Net income                             --           --         7,657,434       7,657,434
                               ------------    ---------    ------------    ------------
Balance at
     December 31, 1997         $ 11,985,679    $(340,454)   $ 18,527,430    $ 30,226,151
                               ============    =========    ============    ============


</TABLE>

See accompanying notes to consolidated financial statements.

                                                                22


<PAGE>



<TABLE>
<CAPTION>


                                                      ILLUMINET HOLDINGS, INC.

                                           Consolidated Statements of Cash Flows

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

Cash flows from operating activities:

    Cash received from customers                         $ 175,418,319    $ 155,132,157
    Interest received                                          724,726          470,997
    Cash paid to customers, suppliers and employees       (162,096,017)    (143,562,818)
    Income taxes refunded (paid)                              (226,000)         173,795
    Interest paid                                           (1,943,564)      (1,463,940)
                                                         -------------    -------------
       Net cash provided by operating activities            11,877,464       10,750,191
                                                         -------------    -------------

Cash flows from investing activities:

    Cash acquired in acquisition of Independent
       Telecommunications Network, Inc.                         -               613,086
    Cash payments in connection with acquisition
       of Independent Telecommunications Network, Inc.          -              (738,634)
    Capital expenditures and software development          (11,254,272)      (6,113,559)
                                                         -------------     -------------
       Net cash used by investing activities               (11,254,272)      (6,239,107)
                                                         -------------     -------------


See accompanying notes to consolidated financial statements.




                                       23


<PAGE>



Cash flows from financing activities:
    Purchase of subordinated capital certificates
    related to notes payable                                    -              (134,038)
    Proceeds from issuance of notes payable                     -             2,680,765
    Principal payments on notes payable                     (1,834,276)      (1,352,281)
    Acquisition of common stock                               (136,271)            -
    Payments to dissenting shareholders                         -              (183,229)
                                                           -------------       ---------
       Net cash provided (used) by financing activities     (1,970,547)       1,011,217
                                                           -------------       ---------

Net increase (decrease) in cash and cash equivalents        (1,347,355)       5,522,301

Cash and cash equivalents at:

    Beginning of year                                       12,514,507        6,992,206
                                                          -------------        ---------
    End of year                                           $ 11,167,152     $ 12,514,507
                                                           ============     ============


See accompanying notes to consolidated financial statements.
</TABLE>

                                       24


<PAGE>





                            ILLUMINET HOLDINGS, INC.

                   Notes to Consolidated Financial Statements

                                December 31, 1997


Note 1:  Summary of Significant Accounting Policies
---------------------------------------------------

Description of Business and Basis of Presentation
-------------------------------------------------

Illuminet  Holdings,  Inc. (formerly USTN Holdings,  Inc.), and its wholly-owned
subsidiary  Illuminet,  Inc.  (formerly  USTN  Services,  Inc.),   (collectively
referred to as "ILLUMINET") were incorporated in the State of Delaware on August
2, 1995, to effect the merger of U.S. Intelco  Holdings,  Inc. ("U.S.  Intelco")
and Independent  Telecommunications  Network,  Inc. ("ITN").  In accordance with
terms of the merger,  U.S. Intelco and ITN merged with and into Illuminet,  Inc.
on February 23, 1996 (the "Merger").  The Merger was accounted for as a purchase
business  combination  with U.S.  Intelco  designated as the acquiring  company.
Accordingly,  references  to  Illuminet  Holdings,  Inc.  and  ILLUMINET  in the
accompanying financial statements and related notes for the periods prior to the
Merger represent U.S. Intelco, while references to Illuminet Holdings,  Inc. and
ILLUMINET for the periods after the Merger  represent  the  consolidated  entity
including the net assets and operations of ITN (see Note 2).

ILLUMINET is engaged in the  business of  developing,  managing and  marketing a
Signaling  System 7 ("SS7")  network and related  products and services based on
SS7  technology  to  the  entire  telecommunications   marketplace.   SS7  is  a
telecommunications  industry-standard system of protocols and procedures that is
used to control  telephone  communications  and provide  routing  information in
association with vertical calling  features,  such as card validation,  Advanced
Intelligent Network services,  Local Number Portability,  cellular services, 800
Number Portability, and Calling Name Delivery. Additionally,  ILLUMINET provides
advanced  data base  services,  billing-and-collection  services,  calling  card
services,  and network traffic tracking and measurement  software  products to a
range of telephone companies as well as interexchange carriers, operator service
providers   and   other   telecommunications    companies   and   providers   of
telecommunications  services. ILLUMINET primarily provides services to companies
in the telecommunications industry that are located throughout the United States
and considers all of its operations as one segment.

ILLUMINET has its corporate headquarters and a portion of its operations located
in Lacey, Washington; a network control center and related operations located in
Overland Park, Kansas; and additional SS7 Signal Transfer Points located in Rock
Hill, South Carolina;  Mattoon, Illinois; Las Vegas, Nevada; Akron, Pennsylvania
and Waynesboro, Virginia.




                                       25


<PAGE>




Principles of Consolidation
---------------------------

The  consolidated  financial  statements  include the  financial  statements  of
Illuminet  Holdings,  Inc. and its  subsidiaries.  All significant  intercompany
balances and transactions have been eliminated in consolidation.



                                       26


<PAGE>





Cash Equivalents
----------------

ILLUMINET  considers all highly liquid  investments with original  maturities of
three  months  or less at  purchase  to be cash  equivalents.  Cash  equivalents
consist of money market funds that are stated at cost which approximates  market
value. At December 31, 1997 and 1996, such investments  included $10,310,303 and
$9,538,536,  respectively,  invested in a money market fund consisting of direct
obligations of the U.S.  Treasury and repurchase  agreements  collateralized  by
such obligations of the U.S. Treasury.

Accounts Receivable
-------------------

One of ILLUMINET's services involves providing a clearinghouse function for toll
collected by telephone companies on behalf of other  telecommunications  service
providers.   At  December  31,  1997  and  1996,  accounts  receivable  included
$10,628,000  and  $11,964,000,  respectively,  of such  toll  amounts  due  from
telephone companies,  and due to customers included $14,142,000 and $16,917,000,
respectively,  owed to such service  providers.  Accounts  receivable from these
companies  are  uncollateralized;  however,  uncollected  amounts  may be offset
against amounts otherwise due to service providers.

Included  in accounts  receivable  at  December  31,  1997 is  $629,100  due for
services and  reimburseable  expenses  from a customer in which  Illuminet has a
preferred  stock  equity  investment  currently  representing  18% of the voting
rights of the  customer.  Revenues  earned from the customer  were  $515,900 and
$69,400 for the years ended December 31, 1997 and 1996, respectively.

Concentration of credit risk with respect to trade receivables is limited due to
the diversity of the customer base and geographic dispersion and is evidenced by
a history of minimal customer account write-offs.

Property and Equipment and Capitalized Software
-----------------------------------------------

Property and equipment and capitalized software are stated at cost. Depreciation
and amortization are provided using the straight-line  method over the estimated
useful lives of the assets.  Estimated  useful lives for property and  equipment
are as follows:

         Corporate headquarters building                   31.5 years
         Network assets                                 5 to 10 years
         Office equipment and systems                   5 to 20 years
         Furniture and fixtures                         5 to 15 years
         Computer equipment and software                 3 to 5 years
         Leasehold improvements                               5 years

Computer  software  product  costs  represent  capitalized  costs  incurred  for
development  of software  products  after the  technological  feasibility of the
product is  established.  Costs  incurred  prior to that date are expensed.  The
annual amortization, which was $561,000 for each of the years ended December 31,
1997 and 1996, is determined on a product-by-product basis as the greater of the
amount  computed  using (a) the ratio that current gross  revenues for a product
bear to the total of current and  anticipated  future  gross  revenues  for that
product,  or (b) the straight-line  method over the remaining estimated economic
life of the  product of five  years.  Amortization  starts  when the  product is
available for general release to customers.


                                       27


<PAGE>






Impairment of Long-Lived Assets
-------------------------------

Long-lived assets consist of intangible  assets and certain capital assets.  The
carrying  value of these assets is regularly  reviewed to verify they are valued
properly.  If the  facts  and  circumstances  suggest  that the  value  has been
impaired, the carrying value of the assets will be reduced appropriately.

Revenue Recognition
-------------------

ILLUMINET's  revenues are  recognized  when earned.  Computer  software  product
revenues are recognized  when all contractual  obligations  have been fulfilled.
Revenues are recorded net of amounts passed through to service providers.

Stock-Based Compensation
------------------------

ILLUMINET has elected to apply the  disclosure-only  provisions of the Financial
Accounting  Standards Board ("FASB") Statement of Financial Accounting Standards
No.  123,   "Accounting  for  Stock-Based   Compensation"   ("Statement   123").
Accordingly, ILLUMINET accounts for stock-based compensation using the intrinsic
value  method  prescribed  in  Accounting   Principles  Board  Opinion  No.  25,
"Accounting for Stock Issued to Employees" ("APB 25").  Compensation expense for
stock  options  is  measured  as the  excess,  if any,  of the fair value of the
ILLUMINET  common stock at the  measurement  date over the stock option exercise
price.

Income Taxes
------------

ILLUMINET provides for income taxes under the liability method, whereby deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rates and laws that will be in effect when the  differences  are expected to
reverse.

Earnings Per Share
------------------

In 1997, the FASB issued  Statement of Financial  Accounting  Standards No. 128,
"Earnings per Share" ("Statement  128").  Statement 128 replaced the calculation
of primary and fully diluted  earnings per share with basic and diluted earnings
per share.  Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of stock options and convertible  preferred stock.  Diluted
earnings  per share is very similar to the  previously  reported  fully  diluted
earnings per share.  All prior  earnings per share amounts have been restated to
conform to the Statement 128 requirements.




                                       28


<PAGE>




Use of Estimates
----------------

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

Reclassifications
-----------------

Certain  reclassifications  to the 1996 financial  statements  have been made to
conform to the 1997 presentation.


                                       29


<PAGE>





Note 2:  Acquisition and Merger
----------------------------------------------

In exchange for the net assets of ITN, excluding U.S. Intelco's 36% ownership of
ITN on the date of the Merger,  Illuminet  Holdings,  Inc.  issued the following
consideration and incurred the following costs:

   Fair value of Illuminet Common Stock issued                     $5,561,778
   Fair value of Illuminet Series A Preferred Stock issued            808,171
   Direct and incremental merger costs                                678,076
                                                                    ---------
      Aggregate purchase price                                     $7,048,025
                                                                    =========

As  consideration  for  the  sale,   non-dissenting  ITN  shareholders  received
1,566,988 shares of Illuminet  Holdings,  Inc. Common Stock  ("Illuminet  Common
Stock")  and 2,675  shares of  Illuminet  Holdings,  Inc.  Series A  Convertible
Preferred  Stock  ("Illuminet  Series A Preferred  Stock").  ITN Debentures were
converted   to  Illuminet   convertible   redeemable   subordinated   debentures
("Illuminet  Debentures")  having the same amount of  outstanding  principal and
interest under the terms and  conditions set forth in the Merger.  Payments made
to ITN dissenters totaled $738,634 during the year ended December 31, 1996.

After elimination of U.S. Intelco's 36% ownership of ITN, the purchase price was
less than the fair value of the remaining assets by $2,506,548, and accordingly,
has been recorded as a reduction in the long-lived assets acquired. The purchase
price was  allocated  to the acquired net assets of ITN as of February 23, 1996,
as follows:

   Cash                                                           $   613,086
   Accounts receivable                                              5,880,200
   Other current assets                                               282,267
   Deferred tax assets                                                991,644
   Network assets                                                  16,227,702
   Other property and equipment                                     1,290,293
   Other assets                                                     1,093,701
   Trade accounts payable and other current liabilities            (5,560,523)
   Amounts due dissenting shareholders                               (738,634)
   Long-term debt                                                 (13,031,711)
                                                                   ----------
                                                                  $ 7,048,025
                                                                   ==========

In 1996, ILLUMINET paid dissenting U.S. Intelco shareholders a total of $183,229
in exchange for U.S.  Intelco stock held by such  dissenters on the merger date.
The payments were recorded as a stock repurchase and retirement transaction.

Assuming that this acquisition had taken place on January 1, 1996, unaudited pro
forma results of operations for the year ended December 31, 1996 would have been
as follows:




                                       30


<PAGE>





         Revenues                                 $41,697,105
                                                   ==========
         Net income                               $ 2,854,268
                                                   ==========
         Diluted earnings per share               $      0.52
                                                   ==========

The pro forma  results do not  necessarily  represent  results  which would have
occurred if the acquisition had taken place on the date indicated,  nor are such
results necessarily indicative of the results of future operations.

In connection with the acquisition,  U.S. Intelco was substantially reorganized,
resulting in corporate realignment expenses comprised mainly of severance costs,
totaling $350,067 for the year ended December 31, 1996.

Note 3:  Long-Term Debt
-----------------------

Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>

                                                                                1997              1996
<S>                                                                          <C>               <C>
                                                                                ----              ----
 Various secured notes payable to
     Rural  Telephone  Finance  Cooperative
     ("RTFC") with variable interest rates,
     6.65% at December 31, 1997
     (6.30% at  December  31,  1996)
     payable  in  quarterly installments,
     including  interest,  each maturing
     at various dates ranging from
     August, 2000, to March, 2015.                                            $11,459,411      $13,328,043
 Convertible redeemable subordinated
     debentures ("Illuminet Debentures")
     bearing interest at 7.5%, maturing
     August, 2001 (net of original
     issue discount of $172,095).                                               7,561,124        8,248,342
 Convertible redeemable subordinated
     debenture deferred interest payable                                        1,272,172        1,658,526
                                                                                ---------      -----------
                                                                               20,292,707       23,234,911
 Less: Current portion                                                         (2,278,592)      (2,174,850)
                                                                               -----------     -----------
 Total long-term debt                                                         $18,014,115      $21,060,061
                                                                               ==========      ===========
</TABLE>

Additional  borrowings  available  under the various note  agreements  with RTFC
aggregated $5,188,007 at December 31, 1997.  All of the RTFC notes have variable
interest rates that are based on RTFC's short-term  funding costs. In accordance
with the  terms  of the  loan  agreements,  ILLUMINET  purchased  lender-issued,
non-interest-bearing  subordinated capital certificates based on a percentage of
the  gross  loan  amount.  Such  certificates  are  amortized  against  the loan
principal  balance  over  the  terms  of  the  respective  loans.   Certificates
purchased, net of


                                       31


<PAGE>





amortization,  totaled  $1,107,656 and $1,142,012 at December 31, 1997 and 1996,
respectively,  are carried at cost, and are included in other long-term  assets.
The loan agreements  contain certain  covenants,  the most  restrictive of which
requires ILLUMINET to maintain certain cash flow-to-debt service ratios.

All RTFC loans are currently  secured by a first-priority lien on  substantially
all of ILLUMINET's assets,  revenues and property,  excluding cash collected and
held on behalf of others in the normal course of providing ILLUMINET's services.
Cash and cash  equivalents  not subject to the lien were  $3,763,000 at December
31, 1997.

In August,  1996, ILLUMINET entered into a secured line of credit agreement with
RTFC that  permits  ILLUMINET to borrow up to  $7,300,000,  not to exceed 80% of
accounts  receivable for a term of five years. The line of credit bears interest
at the lesser of the prime rate plus 1.5% or RTFC's monthly line of credit rate,
and contains certain covenants, the most restrictive of which requires ILLUMINET
to maintain a zero balance in the line at least five  consecutive  business days
every 360 days after the initial advance.  There were no borrowings  outstanding
against the line of credit at December 31, 1997.

The Illuminet Debentures,  formerly ITN Debentures converted in the Merger, bear
interest  at 7.5% and are due August 15,  2001.  Interest on the  debentures  is
payable in quarterly installments,  in arrears.  Interest accrued for the period
prior to  December  31,  1995,  was  deferred  and will be paid  ratably on each
interest  payment date over the remaining term of the debentures.  The Illuminet
Debentures are convertible  into the number of shares of Illuminet  Common Stock
equal  to the  principal  amount  of the  Illuminet  Debenture  at the  time  of
conversion  divided by the market price of Illuminet Common Stock at the time of
conversion  (as defined in the  Indenture),  or if no market  price  exists,  at
$11.11 per share.  Illuminet  Debentures  are  subordinated  to all senior debt.
Illuminet  Debentures are directly  associated with Illuminet Series A Preferred
Stock in that these securities were issued as a unit.

The carrying value of ILLUMINET's long-term debt approximates fair value.

Maturities of the long-term debt for the years ending  December 31 are scheduled
as follows:

                1998                              $2,278,592
                1999                               2,404,127
                2000                               1,570,996
                2001                               8,699,780
                2002                                 371,843
                2003-2007                          2,463,255
                2008-2012                          2,046,404
                2013-2015                            457,710
                                                  ----------
                                                 $20,292,707
                                                  ==========



                                       32


<PAGE>




Note 4:  Shareholders' Equity
-----------------------------

At December 31, 1997,  Illuminet  Holdings,  Inc. is  authorized  to issue up to
12,100,000  shares of  capital  stock  consisting  of (i)  12,000,000  shares of
Illuminet  Common Stock,  par value $.01 per share,  and (ii) 100,000  shares of
Illuminet  Preferred  Stock,  par value $.01 per share.  Each share of Illuminet
Common Stock and Illuminet  Series A Preferred Stock is entitled to one vote and
100 votes, respectively.

Each share of  Illuminet  Series A  Preferred  Stock is  convertible  into 85.12
shares of Illuminet  Common Stock  ("Conversion  Amount"),  at the option of the
holder  thereof  at any time that the  holder  elects to  convert  an  Illuminet
Debenture  issued as a unit with such a share.  Each share of Illuminet Series A
Preferred Stock will be convertible,  at the option of Illuminet Holdings, Inc.,
into Illuminet  Common Stock based on the Conversion  Amount,  at such time that
the  Illuminet  Debenture  issued as a unit with such  share is  converted  into
shares of  Illuminet  Common  Stock.  If the  Illuminet  Debentures  and accrued
interest  thereon,  and Illuminet Series A Preferred Stock had been converted at
December 31, 1997,  1,101,156  shares of Illuminet  Common Stock would have been
issued. In the event of liquidation,  Illuminet Series A Preferred Stock will be
entitled  to $1,000  per share out of the  assets  of  ILLUMINET  available  for
distribution to its shareholders, but before any payment or distribution is made
to holders of Illuminet  Common Stock or any other series of preferred  stock of
Illuminet Holdings, Inc.

Payments  of  dividends  are  restricted   under   ILLUMINET's   long-term  debt
arrangements   as follows:  (1) approval of RTFC is required unless  ILLUMINET's
ratio of equity to total assets  exceeds 40% and (2) dividends are restricted to
75% of  net  income  as  defined  in the  indenture  relating  to the  Illuminet
Debentures.  Dividends  are not payable to  Illuminet  Series A Preferred  Stock
unless dividends are declared,  set aside or paid  simultaneously  to holders of
Illuminet Common Stock.

Note 5:  Stock Option Plans
-----------------------------

ILLUMINET  established  the 1997 Equity  Incentive  Plan under  which  1,000,000
shares were reserved for issuance  pursuant to non-qualified and incentive stock
options, and stock appreciation rights that may be granted. Employee options are
generally exercisable ratably over four years and expire ten years from the date
of grant except that options expire one year after termination of employment, or
60 days after termination of employment if ILLUMINET's stock is publicly traded.
Outside Director non-qualified stock options are generally exercisable after one
year and expire ten years from the date of grant.

During 1997,  171,500  non-qualified  stock options to purchase Illuminet Common
Stock were granted to key employees, and 60,004 non-qualified stock options were
granted to outside  Directors.  The non-qualified  stock options were granted at
prices less than the then estimated fair value of the common stock as determined
by the Board of  Directors.  No options  were  exercised  or expired in the year
ended December 31, 1997, and 70,004 were exercisable at December 31, 1997 with a
weighted-average  remaining  contractual life of 9.7 years. The weighted average
option price was $8.80 for options granted in 1997 and exercisable at December


                                       33


<PAGE>





31, 1997.  Deferred  compensation  expense for the stock options  granted during
1997 was $509,309 of which $168,855 was recognized as stock compensation expense
for the year ended December 31, 1997.

Pro forma information regarding net income and earnings per share is required by
Statement  123, and has been  determined  as if ILLUMINET  had accounted for its
stock options under the fair value method of that  Statement.  The fair value of
these  options was estimated at the date of grant using a  Black-Scholes  option
pricing model with the following  weighted-average  assumptions for 1997:  5.92%
risk-free  interest rate; zero percent dividend yield;  zero percent  volatility
factor of the expected  market price of ILLUMINET's  non-publicly  traded common
stock; and an 8.54 year expected life. The  weighted-average  estimated value of
the options granted during 1997 was $5.59 per share.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting period; accordingly,  the 1997
pro forma impact of stock options granted may not be indicative of the pro forma
impact in future years.  ILLUMINET's  pro forma  information  for the year ended
December 31, 1997 follows:

         Net income - as reported                        $7,657,434
                                                          =========
         Net income - pro forma                          $7,485,015
                                                          =========

         Diluted earnings per share - as reported        $    1.27
                                                         ==========
         Diluted earnings per share - pro forma          $    1.25
                                                         ==========

Note 6:  Income Taxes
---------------------

Components of the income tax provision (benefit) for the years ended December 31
are summarized as follows:

                                                           1997           1996
                                                           ----           ----

         Current                                       $ 192,953        $111,921
         Deferred                                       (869,760)           -
                                                       -----------      --------
         Total income tax provision (benefit)          $(676,807)       $111,921
                                                       ===========      ========

ILLUMINET provides for deferred taxes based on the differences between the bases
of assets  and  liabilities  for  financial  reporting  purposes  and income tax
purposes,  calculated  using  enacted  tax rates that will be in effect when the
differences  are  expected to  reverse.  At  December  31,  1997 and 1996,  such
differences primarily related to net operating loss carryforwards, tax credit


                                       34


<PAGE>





carryforwards,  the use of accelerated  depreciation  and  amortization  for tax
purposes,  accruals for certain  expenses that are not currently  deductible for
tax purposes  until paid,  the tax basis of certain  investments  that have been
written-off for financial  statement  purposes,  and software  development costs
that were capitalized for financial statement purposes.

At  December  31,  1997,  ILLUMINET  had a  valuation  allowance  related to tax
benefits  associated  with  capital  losses  recorded  for  financial  statement
purposes but not yet realized for tax purposes.  During the year ended  December
31,  1997,  the  valuation  allowance  decreased  $3,108,315  primarily  through
utilization  of net  operating  loss  carryforwards  in 1997 and the reversal of
substantially all of the previously  recorded  deferred tax valuation  allowance
due to improved recent and anticipated  operating results. At December 31, 1997,
ILLUMINET had federal income tax net operating loss  carryforwards  available to
offset  future  taxable   income  for  federal  income  tax  purposes   totaling
$12,291,927  that expire in various  amounts  from 2008  through  2011,  and tax
credit  carryforwards  of $335,332.  These  carryforwards  may be limited  under
certain provisions of the Internal Revenue Code.

The reconciliations of the income tax provision  (benefit)  calculated using the
U.S. federal statutory rates to the recorded income tax provision  (benefit) for
the years ended December 31 are summarized as follows:

                                                           1997           1996
                                                           ----           ----

  Tax at U.S. federal statutory rate                     $2,373,413  $1,042,067
  Utilization of net operating loss
      carryforward                                      (2,373,413)  (1,042,067)
  Alternative minimum tax                                  192,953      111,921
  Reversal of valuation allowance                         (869,760)        -
                                                         ----------    --------
  Income tax provision (benefit)                        $ (676,807)  $  111,921
                                                         =========    =========




                                       35


<PAGE>





The  components  of the deferred tax assets as of December 31 are  summarized as
follows:
                                                        1997            1996
                                                        ----            ----
    Deferred tax assets:
        Net operating loss carryforwards             $4,425,094      $7,547,217
        Tax credit carryforwards                        335,332         142,379
        Allowance for doubtful accounts                 461,579         157,680
        Other non-deductible accruals                 1,430,291         593,807
        Valuation allowance                            (180,270)     (3,288,585)
                                                     ----------      -----------
          Net deferred tax assets                     6,472,026       5,152,498
                                                     ----------      -----------
         Deferred tax liabilities:
             Excess tax over book depreciation
                and amortization                     (5,587,755)     (5,137,987)
             Other                                      (14,511)        (14,511)
                                                     ----------       ----------
               Total deferred tax liabilities        (5,602,266)     (5,152,498)
                                                     ----------       ----------
         Deferred tax asset, net                     $  869,760      $     -
                                                     ==========      ===========


Note 7:  Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per
share:
                                                     1997              1996
                                                     ----              ----
  Numerator:
      Numerator for basic earnings
          per share - income available
          to common shareholders                  $7,657,434       $2,952,982
      Effect of dilutive securities -
          Illuminet Debentures                       497,411          446,958
                                                  ----------       ----------
      Numerator for diluted earnings
          per share - income available
          to common shareholders after
          assumed conversions                     $8,154,845       $3,399,940
                                                  ==========       ==========

  Denominator:
      Denominator for basic earnings
          per share - weighted-average shares      5,295,509         4,995,092
                                                   ---------         ---------

  Weighted-average effect of dilutive securities:
            Illuminet Debentures                     882,073           787,097


                                       36


<PAGE>





           Illuminet Series A Preferred Stock         219,083          190,095
                                                      -------          -------

         Dilutive potential common shares           1,101,156          977,192
                                                    ---------          -------

     Denominator for diluted earnings per
         share -adjusted weighted-average
         shares and assumed conversions             6,396,665        5,972,284
                                                    =========        =========

 Basic earnings per share                          $     1.45       $     0.59
                                                    =========        =========
 Diluted earnings per share                        $     1.27       $     0.57
                                                    =========        =========

     See notes 3, 4 and 5 for  additional  information  regarding  the Illuminet
     Debentures, Illuminet Series A Preferred Stock and stock options.

     Stock options to purchase  231,504 shares of common stock were  outstanding
     during 1997 but were not included in the  computation  of diluted  earnings
     per share because of their anti-dilutive effect.

Note 8:  Statements of Cash Flows
---------------------------------

Reconciliations  of net income to net cash provided by operating  activities for
the years ended December 31 are summarized as follows:

                                                       1997             1996
                                                       ----             ----

   Net income                                       $ 7,657,434    $ 2,952,982

   Adjustments to reconcile  net income
     to net cash  provided by operating
       activities:

     Depreciation and amortization                    7,353,526      5,714,269
     Stock compensation                                 168,855-
     Deferred income taxes                             (869,760)-
   Change in:
       Accounts receivable                           (2,237,724)    (1,958,928)
       Other assets                                      63,773        296,698
       Trade accounts payable                         1,380,984      1,016,866
       Accrued expenses                               1,004,491     (1,094,088)
       Due to customers                              (2,306,044)     3,850,974
       Other liabilities                               (338,071)       (28,582)
                                                     ----------      ----------
   Net cash provided by
       operating activities                         $11,877,464     $10,750,191
                                                    ===========     ===========




                                       37


<PAGE>





During the years ended December 31, 1997 and 1996,  ILLUMINET  redeemed  $34,356
and $23,248, respectively, of lender-issued,  non-interest-bearing  subordinated
capital  certificates,  which were  deducted  from the mortgage  loan  principal
balance.

Note 9:  Employee Benefit Plans
-------------------------------

ILLUMINET has qualified  profit  sharing/401(k)  trust retirement plans covering
all employees subject to certain  eligibility  requirements.  ILLUMINET provides
matching   contributions   to  the  plans'  trusts  on  a  portion  of  employee
contributions  to the plans,  and also may,  at the  discretion  of the Board of
Directors, provide a discretionary contribution. For 1997 and 1996, contribution
expense was approximately $1,177,000 and $788,000, respectively.

Note 10:  Commitments and Contingencies
---------------------------------------

ILLUMINET  has  entered  into  non-cancelable  operating  leases for its various
facilities,  excluding its Lacey  headquarters site which is owned by ILLUMINET,
the most  significant of which is the lease of its Overland Park  facility.  The
lease for the Overland Park facility expires August, 1998. ILLUMINET has entered
into a separate  five-year lease with another party beginning August, 1998, with
the  option to renew the lease for an  additional  five-year  period,  for a new
Overland Park facility that is currently being  constructed to suit  ILLUMINET's
specifications.  During 1997 and 1996 rent  expense was $409,000  and  $321,000,
respectively.

Future  minimum lease  payments  under the  non-cancelable  leases for the years
ending December 31 are as follows:

            1998                              $  439,600
            1999                                 468,400
            2000                                 468,400
            2001                                 428,100
            2002                                 366,900
            Thereafter                           221,100
                                               ---------
                                              $2,392,500
                                               =========

ILLUMINET is party to a contract  with the  subsidiary  of one of its  corporate
shareholders which supplies  ILLUMINET with transmission  facilities in the form
of private leased lines. Such lines are leased from the corporate shareholder at
rates comparable to third-party  service  providers.  Payments  pursuant to this
contract  totaled  $1,101,000 for the period February 23, 1996, the Merger date,
to December 31, 1996, and $1,571,000 for the year ended December 31, 1997.

In December,  1997, ILLUMINET entered into a commitment to purchase $6.0 million
of network  equipment and expects to finalize a related  capital lease financing
arrangement in early 1998.


                                       38


<PAGE>




                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Shareholders
Illuminet Holdings, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets of  Illuminet
Holdings,  Inc.  ("ILLUMINET") as of December 31, 1997 and 1996, and the related
consolidated statements of income,  shareholders' equity, and cash flows for the
years  then  ended.  These  financial   statements  are  the  responsibility  of
ILLUMINET's  management.  Our  responsibility  is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

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

/s/Ernst & Young LLP
Seattle, Washington
February 13, 1998

ITEM 8:   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

         Not applicable.

                                              39


<PAGE>






                                    PART III

ITEM 9:   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
          CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors

         The persons currently serving as directors of Illuminet Holdings,
Inc. and their ages are set forth below.  All such individuals are
outside directors.

                     Name                                       Age
                     ----                                       ---

         Theodore D. Berns                                      48
         Eugene L. Cole                                         62
         Aubrey E. Judy                                         60
         Kenneth L. Lein                                        65
         Richard A. Lumpkin                                     63
         James S. Quarforth                                     43
         G. I. Ross                                             64
         James W. Strand                                        51
         Gregory J. Wilkinson                                   47


         Currently,  outside  directors receive a monthly fee of $300 except for
the Chairman of the Board of Directors  who  receives  $500 per month,  and each
outside director receives an annual fee of $7,000 worth of common stock options.
Additionally  in 1997, each outside  director  received an award of 2,000 common
stock  options.  Outside  directors  are also paid $300 per  meeting per day for
attendance at board or committee  meetings not to exceed a total of $600 per day
and are  reimbursed  for their expenses  incurred in attending  their  meetings.
Payment of monthly and meeting fees is made in the form of cash,  stock or stock
options at the election of the outside director. All common stock options issued
to outside  directors  in 1997 became  exercisable  by  December  31, 1997 at an
exercise price of $8.80 per share, and expire ten years after the date of grant.

     Mr.  Berns  has  been a  director  of  Illuminet  Holdings,  Inc.  and  its
predecessor  companies since October 1991. Mr. Berns  currently  serves as Chief
Executive Officer of OGI Telecom,  a competitive local exchange carrier ("CLEC")
located in  Portland,  Oregon.  From 1993 to October  1995,  Mr. Berns served as
Director,  President and Chief Executive Officer of AdVal  Communications,  Inc.
located in Vancouver, Washington. During 1993, Mr. Berns served as President and
Chief Executive Officer of TRT Communications,  Inc. From 1986 through 1992, Mr.
Berns was  employed  by Pacific  Telecom,  Inc.  (Pacific  Telecom),  located in
Vancouver, Washington. Mr. Berns served as President and Chief Operating Officer
of Pacific  Telecom.  Mr. Berns also served as Manager of Legal Affairs and Vice
President and Corporation Secretary. From 1984 to 1985, Mr. Berns served


                                       40


<PAGE>





as Vice  President of  Multivisions,  Ltd.,  located in  Anchorage,  Alaska.  In
addition,  Mr.  Berns  is a  former  director  of the  United  States  Telephone
Association ("USTA").

          Mr.  Cole has been a director  of  Illuminet  Holdings,  Inc.  and its
predecessor  companies  since its  formation  in 1981.  Mr. Cole worked at Canby
Telephone  Association,  Canby,  Oregon  ("Canby")  where in 1968,  he was named
General Manager and in 1986 became President of the Canby Telephone Association.
Mr.  Cole  also  served  as  President  of CTA  Service  Corporation,  and North
Willamette  Telecom from 1986 until March 1994.  He then retired on May 1, 1995.
Mr. Cole returned from  retirement in 1995 and currently  serves as President of
Canby Telephone Association and President of North Willamette Telecom, and until
June  1997  served  as  President  of CTA  Service  Corporation.  He served as a
Director of Western Rural Telephone  Association from 1976 to 1983 and served as
President  of that  organization  from 1977 to 1978.  Since  1970,  Mr. Cole has
served as Director of the Oregon Independent Telephone Association,  of which he
was the  President  from 1980 to 1981.  From  1982  until  1995,  he served as a
Trustee of the N.T.C.A.  Pension Trust. Mr. Cole served as director of the Board
of Rural Telephone Finance Cooperative 1990 to February 1993. From November 1994
until February 1996, Mr. Cole had been a Director of ITN.

         Mr.  Judy has been a  Director  of  Illuminet  Holdings,  Inc.  and its
predecessor  companies  since April 1982.  Mr. Judy was  employed  with  Farmers
Telephone Cooperative,  Inc., an Independent in Kingstree, South Carolina, since
1964 and served as its Executive  Vice  President from 1981 until his retirement
in December 1993. He served as a Director of Rural Telephone Finance Cooperative
from 1987 to 1994, the South Carolina  Telephone  Association from 1984 to 1994,
Williamsburg  First National Bank from 1984 to present,  PalmettoNet,  Inc. from
1985 to 1994, and South Carolina Net, Inc. from 1992 to 1994. Mr. Judy served on
the National Telcom  Corporation Board from 1985 to 1992, and served on the NTCA
Board of Directors  from 1976 to 1982,  holding the offices of  Secretary,  Vice
President and President.

     Mr.  Lein  has  been  a  Director  of  Illuminet  Holdings,  Inc.  and  its
predecessor  companies  since  1987.  Mr.  Lein  managed  Winnebago  Cooperative
Telephone Association ("Winnebago"),  a local exchange telephone company located
in Lake Mills,  Iowa, from 1974 to February 1998. Mr. Lein was a Director of ITN
from 1990 until the merger of ITN and U.S. Intelco in 1996. He is past President
of the  Organization  for the  Protection  and  Advancement  of Small  Telephone
Companies  ("OPASTCO").  He is a past member of the USTA Board of Directors  and
has served as  Secretary  of the USTA Board and is a past  Chairman  of the USTA
Small Company  Committee.  Mr. Lein is a co-founder of and past Director of Iowa
Network  Services.  He  presently  serves  on the  Board  of  MEANS  Telcom,  an
independent  telco  owned  Minnesota-based  centralized  equal  access  and long
distance company.

     Mr.  Lumpkin  has been a  director  of  Illuminet  Holdings,  Inc.  and its
predecessor companies since January 1989 and currently serves as Chairman of the
Board and Chairman of the Executive Committee.  Since 1957, Mr. Lumpkin has been
employed by Consolidated Communication Inc. ("CCI") and

                                       41


<PAGE>





its affiliates.  In September  1997, CCI was merged into McLeodUSA  Incorporated
("McLeodUSA").  Mr. Lumpkin became Vice Chairman and a Director of McLeodUSA. He
remains Chairman and CEO of Illinois Consolidated Telephone Company. Mr. Lumpkin
is currently a director of First Mid-Illinois  Bancshares and First Mid-Illinois
Bank and Trust in Mattoon,  Illinois, Central Illinois Public Service Company in
Springfield, Illinois, and Ameren Corporation, a public utility headquartered in
St. Louis, Missouri. Mr. Lumpkin is also a former Director and past President of
the Illinois Telephone Association and USTA.

     Mr.  Quarforth  has been a Director of  Illuminet  Holdings,  Inc.  and its
predecessor  companies  since January 1989. Mr.  Quarforth  currently  serves as
President and Chief Executive Officer of CFW Communications Company ("CFWC") and
Chairman and Chief Executive Officer of its affiliates.  Mr. Quarforth is also a
Director of American Telecasting,  Inc. and Virginia Financial Corporation.  Mr.
Quarforth is a past  Director and  President of the Virginia  Telecommunications
Industry  Association.  Mr.  Quarforth  is also  Chairman  of the  Virginia  PCS
Alliance, L.C. and West Virginia PCS Alliance L.C.

     Mr.  Ross  has  been  a  Director  of  Illuminet  Holdings,  Inc.  and  its
predecessor  companies  since  January  1989.  Since  1970,  Mr.  Ross  has been
President,   Chief   Executive   Officer   and  a  director   of   Lufkin-Conroe
Communications  Company ("LCC"),  and Chairman & CEO of its operating companies,
located in Texas. Mr. Ross has served on the Boards of the Texas  Association of
Business  since 1980 and First Bank of Conroe,  Texas,  since 1983. In 1972, Mr.
Ross  became a  director  and  member of the  Executive  Committee  of the Texas
Telephone Association and in 1975 its Chairman.  Mr. Ross has served as Chairman
of the Board of TECA since 1988.  Mr.  Ross has been a member of the  Electronic
Engineering  Technical Advisory Committee at Texas A&M University since 1974 and
holds an MBA Finance. Mr. Ross is a member of the USTA Board.


     Mr.  Strand  has  been a  Director  of  Illuminet  Holdings,  Inc.  and its
predecessor  companies since May 1992. Since 1990, Mr. Strand has been President
of  Diversified  Operations  and  a  director  of  Aliant  Communications,  Inc.
("Aliant")(formerly  Lincoln  Telecommunications  Company)  located in  Lincoln,
Nebraska. Mr. Strand has served on the Board of the Cellular  Telecommunications
Industry  Association  ("CTIA")  and was elected to the  Executive  Committee in
1993.  He also  serves as  subcommittee  chairman  for  operations  in the small
operators  caucus,  Chairman of the CTIA  Foundation and is a member of the CTIA
Technology Operations Policy Council ("TOPS") of the Board of Directors.

     Mr.  Wilkinson  has been a Director of  Illuminet  Holdings,  Inc.  and its
predecessor  companies since February 1986 and currently serves as Vice Chairman
of the Board and Chairman of the Audit/Finance Committee. Mr. Wilkinson has been
associated with Telephone & Data Systems, Inc. ("TDS"), a communications holding
company with  headquarters in Madison,  Wisconsin,  in various  capacities since
1972.  Since  January  1992,  he has held the  position  of Vice  President  and
Controller with that company and was its Corporate  Controller prior thereto. He
also serves as an officer and

                                       42


<PAGE>





director of various  subsidiaries of TDS. Mr.  Wilkinson holds B.S.,  M.B.A. and
J.D. degrees from the University of Wisconsin. He is licensed to practice law in
the Wisconsin State and federal courts.



                                       43


<PAGE>





Executive Officers

         The  persons  currently  serving as  executive  officers  of  Illuminet
Holdings, Inc. or its wholly-owned  subsidiary Illuminet,  Inc., their ages, and
their positions are set forth below:


  Name                    Age                 Position
  ----                    ---                 --------
Roger H. Moore            56         President and Chief Executive
                                       Officer - Illuminet Holdings, Inc.
                                       President and Chief Executive
                                       Officer - Illuminet, Inc.
Daniel E. Weiss           50         Vice President, Secretary/Treasurer
                                        - Illuminet Holdings, Inc.
                                        Vice President - Illuminet, Inc.
Bruce E. Johnson          49         Vice President - Illuminet, Inc.
David Nicol               52         Vice President - Illuminet, Inc.
F. Terry Kremian          50         Vice President - Illuminet, Inc.

-------------


     The  following  is a summary  of the  experience  of each of the  executive
officers:

     Mr.  Moore has been  President  and Chief  Executive  Officer of  Illuminet
Holdings, Inc. and Illuminet, Inc. since February 1996. Prior to that, Mr. Moore
served as Vice  President  of Major  Accounts of Northern  Telecom  from 1994 to
December 1995. He was President of Northern Telecom Japan from 1991 to 1994. Mr.
Moore has held other senior  positions  with Northern  Telecom since joining the
company  in 1985.  Prior to  joining  Northern  Telecom,  Mr.  Moore  was,  from
1982-1985,  the  President  of AT&T  Canada.  Mr.  Moore  has  over 30  years of
experience in the  telecommunications  and business systems industry.  Mr. Moore
received  a  Bachelor  of  Science  degree  in  general  science  from  Virginia
Polytechnic Institute.

     Mr. Weiss has been Illuminet Holdings,  Inc. Vice President - Finance since
February 1996 and the Company's  Secretary and Treasurer  since April 1996.  Mr.
Weiss also serves as the Vice President - Finance for Illuminet, Inc. as well as
its  Secretary  and   Treasurer.   Prior  to  that  Mr.  Weiss  served  as  Vice
President-Finance,  Treasurer  and Assistant  Treasurer for Illuminet  Holdings,
Inc.'s predecessor  companies since 1979. Mr. Weiss served in various capacities
for Evergreen State College, Olympia,  Washington,  from 1971 to 1979, including
Accounting  Manager,  Assistant  Director of Facilities and Academic  Operations
Officer. Mr. Weiss graduated from Western Washington  University with a Bachelor
of Science  degree in  Accounting  and is a member of the American  Institute of
Certified  Public  Accountants  and the Washington  Society of Certified  Public
Accountants.

     Mr.  Johnson has been  Illuminet,  Inc.'s Vice  President - Operations  and
Engineering since February 1996. Prior to that he served as ITN's


                                       44


<PAGE>





Vice  President - Operations  and  Engineering  from July 1992 to February 1996.
Prior to joining  ITN,  Mr.  Johnson  was  responsible  for  implementing  NYNEX
Corporation's SS7 network. This included strategic planning,  network design and
SS7 service  testing.  While at NYNEX Mr. Johnson was  responsible for deploying
one of the first Industry Intelligent Network services and played an active role
in providing  SS7  performance  data to the FCC for their 800 Data Base mandate.
From 1970 to 1983 Mr.  Johnson served New England  Telephone in various  Outside
Plant  Engineering and Operations  assignments.  Mr. Johnson has participated on
numerous  industry  standards and technical  committees,  including the American
National  Standards  Institute's T1 SS7 standards  committee and was a member of
the  original  work group that  issued  the first SS7 TCAP  standards  for North
America.  Mr.  Johnson  holds a BS in  Computer  Science  and  Mathematics  from
Worcester  State  College  and has been  awarded an MBA from the  University  of
Kansas.

         Mr.  Nicol  has  been  Illuminet,   Inc.'s  Vice  President  -  Product
Management and  Development  since  February  1996.  Prior to that, he served as
ITN's Vice President  Planning and  Administration  from February 1994. Prior to
ITN, Mr. Nicol was Chief Operating  Officer of a privately held computer network
integrator on the West Coast,  where he was instrumental in its acquisition by a
NYSE company.  Earlier in a similar  capacity,  he had likewise  engineered  the
acquisition of a leading LAN/WAN systems integrator in the Midwest. From 1987 to
1990, he was Vice President  Corporate Planning for United Telecom (now Sprint),
having served since 1984 as its Vice President Planning - Telephone Group. Prior
to Sprint, Mr. Nicol was a consultant to a wide variety of Fortune 500 and other
companies.  Mr. Nicol's undergraduate degree in Aeronautical Engineering is from
Ohio State University.  He holds a masters and doctorate in Industrial Economics
and  Corporate  Finance  from  Case  Western  Reserve  University.   His  entire
thirty-year  career has been in technology  industry  sectors,  the last fifteen
directly in telecommunications.

         Mr. Kremian has been Illuminet,  Inc's.  Vice President - Marketing and
Sales  since  November  1997.  Prior to that Mr.  Kremian  was with MCI where he
directed  Carrier  Sales,  National  Accounts and provided  consultation  to the
Canadian  Provincial  phone companies on competition in the marketplace  through
the MCI  Stentor  Alliance.  Mr.  Kremian  has  more  than 15  years  of  senior
experience in  telecommunications,  serving in a variety of management positions
that include sales, operations, legal and administration.





                                       45


<PAGE>





ITEM 10:   EXECUTIVE COMPENSATION

         The  following  table sets  forth for each of the last three  completed
fiscal  years the  compensation  received by  Illuminet  Holdings,  Inc.'s Chief
Executive  Officer and four other most  highly  compensated  executive  officers
based on salary  and  bonus for the last  completed  fiscal  year  (collectively
referred to herein as the "Named Executive Officers").



<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE


                                                                                            Long-Term Compensation

                                                                                 ----------------------------------------

                                            Annual Compensation                      Awards                          Payouts

                                           ---------------------               -----------------                ----------------

                                                                              Securities                            All Other
                                                                              Underlying         LTIP            Compensation ($)
Name and Principal                                                             Options/
    Position              Year           Salary ($)         Bonus ($)          SARs (#)
------------------        -----           ----------         ---------       ----------         ----             ----------------
<S>                       <C>              <C>               <C>              <C>               <C>               <C>

Roger H. Moore,            1997             225,000           --(2)            --(3)            --(3)              8,000(4)(5)
   President and           1996(1)          225,000          118,750                            --(3)              5,600(6)
   Chief Executive
   Officer

Daniel E. Weiss,           1997             112,824           --(2)            20,000           --                 5,641(4)(7)
   Vice President          1996             110,863           22,643                            15,095(8)         14,430(9)
                           1995             106,074           14,500                            --                 9,220(10)
Raymond E.                 1997(11)         152,112           --(2)            10,000           --                 7,606(4)(12)
Donnelly, Vice             1996(14)         122,062           22,469                            14,979(8)         20,287(13)
President

Bruce E. Johnson,          1997             131,700           --(2)            20,000           --                 6,585(4)
Vice President             1996(14)         105,676           19,936                            13,290(8)          6,893(15)

David Nicol, Vice          1997             132,036           --(2)            20,000           --                 6,602(4)
President                  1996(14)         103,292           20,642                            13,761(8)          16,344(16)


</TABLE>


                                       46


<PAGE>






------------------------
(1)      Mr. Moore was hired effective January 1, 1996.

(2)      Bonus amounts for this executive for the year 1997 have not yet been
         determined.

(3)      Mr. Moore has not finalized the terms of his employment  agreement with
         respect to long-term incentives.

(4)      Retirement  trust profit sharing  contributions  for the year 1997 have
         not yet been determined and are therefore not included in this amount.

(5)      Represents $8,000 in ILLUMINET 401(k) matching contributions.

(6)      Represents $5,600 in ILLUMINET 401(k) matching contributions.

(7)      Represents $5,641 in ILLUMINET 401(k) matching contributions.

(8)      Long-term cash incentive  awards for the year 1996 that will be due and
         payable  on  December  31,  1998 if  executive  is  still  employed  by
         ILLUMINET,  or has not been  terminated for cause through  December 31,
         1998.

(9)      Represents $4,479 in ILLUMINET 401(k) matching contributions and $9,951
         in ILLUMINET retirement trust profit sharing contributions.

(10)     Includes  $3,182 in U.S.  Intelco  401(k)  matching  contributions  and
         $6,038 in U.S. Intelco retirement trust profit sharing contributions.

(11)     Mr. Donnelly terminated employment effective December 31, 1997.

(12)     Represents $7,606 in ILLUMINET 401(k) matching contributions.

(13)     Represents  $5,841  in  ILLUMINET  401(k)  matching  contributions  and
         $14,446 in ILLUMINET retirement trust profit sharing contributions.

(14)     Messrs.  Donnelly,  Johnson  and  Nicol  were  deemed  hired  effective
         February 23, 1996, the effective date of the Merger.

(15)     Represents  $5,057  in  ILLUMINET  401(k)  matching  contributions  and
         $11,836 in ILLUMINET retirement trust profit sharing contributions.

(16)     Represents  $4,925  in  ILLUMINET  401(k)  matching  contributions  and
         $11,419 in ILLUMINET retirement trust profit sharing contributions.





                                       47



<PAGE>






Grants Of Stock Options

     The following  table sets forth options  granted during 1997 to each of the
Named Executive Officers:
<TABLE>
<CAPTION>

                                       OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
                                                  (Individual Grants)


                                                          Percent of
                                   Number of                Total
                                  Securities            Options/SARs
                                  Underlying             Granted to            Exercise Or
                                 Options/SARs           Employees in           Base Price            Expiration
  Name                           Granted (#)            Fiscal Year             ($/Sh)                 Date
------------                    ------------            ------------          ------------          ------------
<S>                             <C>                     <C>                   <C>                   <C>

Daniel E. Weiss                 20,000(1)                11.66%                 8.80                10/29/2007
Raymond E. Donnelly             10,000(2)                 5.83%                 8.80                12/31/99
Bruce E. Johnson                20,000(1)                11.66%                 8.80                10/29/2007
David Nicol                     20,000(1)                11.66%                 8.80                10/29/2007
--------------

</TABLE>

These employee options are  exercisable  ratably  over five years and expire ten
     years  from  the  date  of  grant,   provided  that  such  officer  remains
     continuously employed by ILLUMINET.

These options became  exercisable on Mr. Donnelly's  retirement date of December
     31, 1997 and expire two years after such retirement date.




                                       48



<PAGE>





Exercises Of Stock Options

         The following table provides information on option exercises in 1997 by
Named Executive Officers and the value of such officers'  unexercised options on
December 31, 1997:

<TABLE>
<CAPTION>

                                          AGGREGATED OPTION/SAR EXERCISES IN
                                     LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES


                                                                Number of Securities          Value of Unexercised In-
                                                                Underlying Unexercised       The-Money Options/SARs at
                        Shares                                 Options/SARs at FY-End (#)           FY-End ($)(1)
                      Acquired on               Value
          Name        Exercise (#)           Realized ($)
                                                               --------------------------    --------------------------

                                                            Exercisable     Unexercisable     Exercisable     Unexercisable
-------------------  ------------            ------------   ------------    ------------      -----------     ------------
<S>                       <C>                <C>              <C>               <C>             <C>            <C>

Daniel E. Weiss              --                   --             --               20,000           --           44,000
Raymond E                    --                   --           10,000               --           22,000           --
Donnelly
Bruce E. Johnson             --                   --                              20,000            --          44,000
David Nicol                  --                   --                              20,000            --          44,000

------------------
</TABLE>

         (1) As ILLUMINET's stock is not traded, a readily  ascertainable market
         value is not available.  A value of $11.00 per share,  representing the
         Board of Director's  good-faith  estimate,  was used as of December 31,
         1997,  and for purposes of determining  compensation  related to grants
         made in 1997.




                                       49


<PAGE>





EMPLOYMENT AGREEMENTS

ILLUMINET has agreements with Messrs. Moore, Nicol and Johnson pursuant to which
such  person's  employment  by ILLUMINET  may be  terminated by ILLUMINET at any
time, with or without cause.  The agreements  provide for an initial annual base
compensation of $250,000, $110,000 and $108,000, respectively (which such annual
base  compensation has been  subsequently  adjusted by the Board of Directors to
$132,036  for Mr.  Nicol,$131,700  for Mr.  Johnson for the year ended  December
31,1997),  and provide for the  opportunity  to earn bonuses in accordance  with
incentive plans established. Each such agreement provides, that, in the event of
involuntary termination (as defined therein) for other than cause such executive
officer will be entitled to receive a severance payment in an amount equal to 12
months of such  executive  officer's then base  compensation.  Mr. Moore is also
entitled to such termination payment in the event of his election to resign as a
result of a change of control.  In accordance  with the terms of his  agreement,
Mr. Donnelly  received a lump-sum payment equal to his annual base  compensation
in the amount of $152,112 upon his termination.



                                       50


<PAGE>
ITEM 11:   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth as of December 31, 1997 the  beneficial
ownership of each class of Illuminet Holdings,  Inc.'s capital stock held by (i)
owners  of five  percent  (5%)  or more of any  class,  (ii)  each  director  of
Illuminet  Holdings,  Inc.,  (iii) each  executive  officer named in the Summary
Compensation  Table, and (iv) all directors and executive  officers of ILLUMINET
as a group.
<TABLE>
<CAPTION>
                                                                                                        Fully
                                             Shares of                    Shares of                    Diluted
                                             Illuminet                    Illuminet                   Shares of
                                              Common        Percent       Series A       Percent      Illuminet       Percent
                                              Stock           of         Preferred         of          Common           of
                Name                                        Class          Stock         Class        Stock(1)        Class
                -----                        ------         ------       --------        ------       -------         ------
<S>                                          <C>            <C>             <C>           <C>         <C>             <C>
Aliant Communications, Inc. (formerly       136,954          2.53            156          6.36        203,293          3.15
Lincoln Telecommunications Co.)
P.O. Box 81309
1440 M Street
Lincoln, NE 68508
CFW Communications Company, Inc.            104,000          1.92            172          7.02        178,751          2.77
401 Spring Lane
Suite 300
P.O. Box 1990
Waynesboro, VA 22980-1990
Coastal Utilities, Inc.                      68,130          1.26            125          5.10        119,975          1.86
P.O. Box 631
Hinesville, GA 31310
Consolidated Communication, Inc.             51,029            *             523         21.34        267,677          4.15
121 S. 17th Street
Mattoon, IL 61938
Rock Hill Telephone Co.                      25,000            *             303         12.36        148,624          2.30
P.O. Box 470
330 E. Black St
Rock Hill, SC 29731
Shenandoah Telephone Company                 61,592          1.14            136          5.55        118,098          1.83
P.O. Box 459
Edinburg, VA 22824
Telephone & Data Systems, Inc.              621,556         11.47             --            --        621,556          9.64
Suite 4000
30 N. LaSalle St
Chicago, IL 60602
                                                              Percent
                                                                of
                                                 Total         Total
                Name                            Votes(2)       Votes
                -----                           -------        ------
<S>                                             <C>             <C>
Aliant Communications, Inc. (formerly           152,554          2.73
Lincoln Telecommunications Co.)
P.O. Box 81309
1440 M Street
Lincoln, NE 68508
CFW Communications Company, Inc.                 121,200         2.17
401 Spring Lane
Suite 300
P.O. Box 1990
Waynesboro, VA 22980-1990
Coastal Utilities, Inc.                          80,630          1.44
P.O. Box 631
Hinesville, GA 31310
Consolidated Communication, Inc.                103,329          1.85
121 S. 17th Street
Mattoon, IL 61938
Rock Hill Telephone Co.                          55,300           *
P.O. Box 470
330 E. Black St
Rock Hill, SC 29731
Shenandoah Telephone Company                     75,192          1.34
P.O. Box 459
Edinburg, VA  22824
Telephone & Data Systems, Inc.                  621,556         11.11
Suite 4000
30 N. LaSalle St
Chicago, IL 60602
</TABLE>
                                       51


<PAGE>


<TABLE>
<CAPTION>

                                                                          Fully
                            Shares of             Shares of              Diluted
                            Illuminet             Illuminet             Shares of                                   Percent
                             Common     Percent   Series A   Percent    Illuminet       Percent                        of
                              Stock        of     Preferred     of        Common           of          Total         Total
       Name                              Class      Stock     Class      Stock(1)        Class        Votes(2)       Votes
      -----                  ------      ------   --------    ------     -------         ------       -------        ------
<S>                           <C>         <C>      <C>        <C>        <C>            <C>          <C>            <C>

Theodore D. Berns(3)          9,571         *          --       --        9,571             *          2,867            *
Eugene L. Cole(4)            35,047         *          --       --       35,407             *         28,343            *
Aubrey E. Judy(5)             7,107         *          --       --        7,107             *            736            *
Kenneth L. Lein(6)           26,258         *           9        *       29,920             *         20,454            *
Richard A. Lumpkin(7)        61,767      1.14         523    21.34      278,415          4.32        106,807         1.91
James S. Quarforth(8)       113,144      2.09         176     7.18      189,563          2.94        124,040         2.22
G. I. Ross(9)               218,007      4.02         105     4.28      261,702          4.06        222,247         3.97
James W. Strand(10)         146,115      2.70         156     6.36      212,454          3.29        155,122         2.77
Gregory J. Wilkinson(11)    629,207     11.62          --       --      629,207          9.76        622,503        11.13
Roger H. Moore                 --          --          --       --           --            --             --           --
Daniel E. Weiss                --          --          --       --           --            --             --           --
Raymond E. Donnelly(12)      15,739         *          20        *       23,836             *          7,739            *
David Nicol                     971         *          --       --          971             *            971            *
Bruce E. Johnson              2,381         *           7        *        5,276             *          3,081            *
                             ------      ------   --------    ------     -------        ------       -------        ------
Executive Officers and
Directors as a Group      1,265,314     23.36         996    40.64    1,683,069         26.10      1,294,910        23.16
                          =========    =======   ========    ======   =========         ======     =========       =======



                                       52

</TABLE>

<PAGE>





--------------

*        Less than 1%

(1)  Assumes  conversion into shares of Illuminet  Common Stock of all shares of
     each  series of  Illuminet  Series A  Preferred  Stock,  and the  Illuminet
     Debentures and accrued  interest  thereon as of December 31, 1997 (assuming
     such  interest  is  deemed  principal  by the  holders  of  such  Illuminet
     Debentures).

(2)  Represents  total number of votes for  outstanding  stock and percentage of
     votes held.  Holders of Illuminet  Series A Preferred Stock are entitled to
     100 votes per share.

(3)  Includes  6,704 shares  issuable to Mr. Berns pursuant to options within 60
     days after December 31, 1997.

(4)  As an  executive  officer of Canby,  Mr. Cole may be deemed the  beneficial
     owner of the 27,607  shares of Illuminet  Common Stock owned by Canby,  and
     6,704 shares  issuable to Mr. Cole pursuant to options within 60 days after
     December 31, 1997.

(5)  Includes  6,371 shares  issuable to Mr. Judy pursuant to options  within 60
     days after December 31, 1997.

(6)  As an executive officer of Winnebago, Mr. Lein may be deemed the beneficial
     owner  of the  18,818  shares  of  Illuminet  Common  Stock  and 1 share of
     Illuminet  Series A Preferred  Stock owned by  Winnebago,  and 6,704 shares
     issuable to Mr. Lein pursuant to options  within 60 days after December 31,
     1997. In February 1998, Mr. Lein retired from Winnebago and since that date
     is no longer affiliated with Winnebago.

(7)  As a director and executive officer of McLeodUSA, Mr. Lumpkin may be deemed
     the beneficial owner of the 51,029 shares of Illuminet Common Stock and 523
     shares of Illuminet  Series A Preferred  Stock owned by CCI, a wholly owned
     subsidiary of McLeodUSA,  and 7,260 shares issuable to Mr. Lumpkin pursuant
     to options within 60 days after December 31, 1997.

(8)  As an executive officer of CFWC, Mr. Quarforth may be deemed the beneficial
     owner of the 104,000  shares of  Illuminet  Common  Stock and 172 shares of
     Illuminet Series A Preferred Stock owned by CFWC, and 6,704 shares issuable
     to Mr.  Quarforth  pursuant to options  within 60 days after  December  31,
     1997.

(9)  As a director  and  executive  officer of LCC,  Mr.  Ross may be deemed the
     beneficial  owner of the 208,930  shares of Illuminet  Common Stock and 105
     shares of Illuminet Series A Preferred Stock owned by LCC, and 6,260 shares
     issuable to Mr. Ross pursuant to options  within 60 days after December 31,
     1997.



                                       53
<PAGE>





(10) As a director and executive officer of Aliant, Mr. Strand may be deemed the
     beneficial  owner of the 136,954  shares of Illuminet  Common Stock and 156
     shares of  Illuminet  Series A Preferred  Stock owned by Aliant,  and 6,593
     shares  issuable to Mr.  Strand  pursuant  to options  within 60 days after
     December 31, 1997.

(11) As an executive  officer of TDS, Mr. Wilkinson may be deemed the beneficial
     owner of 621,556  shares of Illuminet  Common Stock  beneficially  owned by
     TDS, and 6,704 shares issuable to Mr. Wilkinson  pursuant to options within
     60 days after December 31, 1997.

(12) Includes 10,000 shares issuable to Mr. Donnelly  pursuant to options within
     60 days after December 31, 1997.




                                       54


<PAGE>





ITEM 12:   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ILLUMINET provides certain services to companies who have an officer or director
on the board of directors of Illuminet  Holdings,  Inc., or to companies who own
five percent (5%) or more of any class of Illuminet  Holdings,  Inc. stock.  The
services  provided and the rates charged are the same as those provided to other
customers. For the year ended December 31, 1997, and for the period February 23,
1996, the Merger date, to December 31, 1996, ILLUMINET received (1) $956,000 and
$578,000,  respectively,  from McLeodUSA or its affiliates, of which Mr. Lumpkin
is a director and executive  officer;  (2) $698,000 and $619,000,  respectively,
from Aliant or its  affiliates,  of which Mr. Strand is a director and executive
officer; (3) $106,000 and $279,000, respectively, from LCC, of which Mr. Ross is
a director and executive officer; (4) $235,000 and $147,000,  respectively, from
CFWC or its  affiliates,  of which Mr.  Quarforth is an executive  officer;  (5)
$172,000 and  $194,000,  respectively,  from Rock Hill  Telephone  Company;  (6)
$71,000 and $38,000,  respectively from Shenandoah  Telephone  Company,  and (7)
$134,000 and $148,000, respectively, from Coastal Utilities, Inc. Under the same
terms,  ILLUMINET  received  from TDS, of which Mr.  Wilkinson  is an  executive
officer,  $988,000 and $633,000 for the years ended  December 31, 1997 and 1996,
respectively.

For  participation  in certain data base services  provided by ILLUMINET for the
year ended December 31, 1997,  and for the period  February 23, 1996, the Merger
date, to December 31, 1996, ILLUMINET paid at rates that are the same as paid to
other  participants  (1) $82,000  and  $64,000,  respectively,  to Aliant or its
affiliates,  of which Mr.  Strand is a director  and  executive  officer and (2)
$65,000 and $21,000,  respectively, to McLeodUSA or its affiliates, of which Mr.
Lumpkin  is a  director  and  executive  officer.  Under the same  participation
arrangements,  ILLUMINET  paid  TDS,  of which  Mr.  Wilkinson  is an  executive
officer,  $92,000 and $72,000  for the years ended  December  31, 1997 and 1996,
respectively.

For use of  transmission  lines in the form of private leased lines for the year
ended  December 31,  1997,for the period  February 23, 1996, the Merger date, to
December 31, 1996,  ILLUMINET paid, at rates  comparable to third-party  service
providers,  $1,571,000  and  $1,101,000,   respectively,  to  McLeodUSA  or  its
affiliates  of which Mr.  Lumpkin  is a  director,  and  $102,000  and  $77,000,
respectively, to Aliant or its affiliates, of which Mr. Strand is a director and
executive officer.





<PAGE>





 ITEM 13:   EXHIBITS, LIST AND REPORTS ON FORM 8-K

           (a)  EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION
                S-B
  EXHIBIT 3.1          Certificate of Incorporation of U.S Telnet Holdings, Inc.

  EXHIBIT 3.2          Certificate of Amendment of Certificate of  Incorporation
                       of U.S. Telnet Holdings, Inc. dated September 21, 1995.

  EXHIBIT 3.3          Certificate of Amendment of Certificate of  Incorporation
                       of USTN Holdings, Inc. dated January 23, 1996.

  EXHIBIT 3.4          Bylaws of USTN Holdings, Inc.

  EXHIBIT 3.5          Certificate of Amendment of Certificate of  Incorporation
                       of USTN Holdings, Inc. dated May 1, 1997.

  EXHIBIT 3.6          First  Amendment  to the By-Laws of  Illuminet  Holdings,
                       Inc. dated June 13, 1996

  EXHIBIT 4.1          Specimen Common Stock Certificate of USTN Holdings,  Inc.
                       (Incorporated   by  reference  to  Exhibit  4.1  to  USTN
                       Holdings,  Inc.'s Registration Statement on Form S-4, No.
                       33-97876).

  EXHIBIT 4.2          Specimen  Common  Stock   Certificate   (Incorporated  by
                       reference  to  Exhibit  4.2  to  USTN  Holdings,   Inc.'s
                       Registration Statement on Form S-4, No. 33-97876).

  EXHIBIT 4.3(a)       Indenture,  dated  August 15,  1991  between  Independent
                       Telecommunications  Network,  Inc.  and  United  Missouri
                       Bank,  N.A.,  as  trustee  and  form  of  7.5%Convertible
                       Redeemable  Subordinated  Debentures  due August 15, 2001
                       (Incorporated   by  reference  to  Exhibit  4.3  to  USTN
                       Holdings,  Inc.'s Registration Statement on Form S-4, No.
                       33-97876).

  EXHIBIT 4.3(b)       First   Supplement  to  Indenture   between   Independent
                       Telecommunications  Network, Inc. and USTN Holdings, Inc.
                       and USTN  Services,  Inc.  and UMB Bank,  N.A.,  Trustee,
                       dated February 12, 1996.  Supplemental to Indenture dated
                       August 15, 1991 (Incorporated by reference to Exhibit 4.3
                       to USTN  Holdings,  Inc.'s  Annual  Report on Form 10-KSB
                       dated March 28, 1997).

  EXHIBIT 4.4          Second  Supplement  to Indenture  between USTN  Holdings,
                       Inc.  and  USTN  Services,  Inc.  and UMB  Bank,  N.A.  ,
                       Trustee,  dated June 24, 1996.  Supplemental to Indenture
                       dated  August 15,  1991.  (Incorporated  by  reference to
                       Exhibit 4.4 to USTN




<PAGE>





                       Holdings,  Inc.'s   Form   10-KSB  for  the  year   ended
                       December 31, 1996, No. 33-97876).

  EXHIBIT 4.5          Certificate of Designation of USTN Holdings,  Inc. Series
                       A Convertible  Preferred Stock (Incorporated by reference
                       to Exhibit 4.5 to USTN  Holdings,  Inc.'s Form 10-KSB for
                       the year ended December 31, 1996, No. 33-97876).

  EXHIBIT 10.1         Office  Building Lease dated June 25, 1993 by and between
                       The   Travelers   Insurance   Company   and   Independent
                       Telecommunications   Network,   Inc.   (Incorporated   by
                       reference  to  Exhibit  10.1  to  USTN  Holdings,  Inc.'s
                       Registration Statement on Form S- 4, No. 33-97876).

                      Management Contracts and Compensatory Plans
                      -------------------------------------------

  EXHIBIT 10.2         ILLUMINET   1996   Executive    Long-Term    Bonus   Plan
                       (Incorporated   by  reference  to  Exhibit  4.5  to  USTN
                       Holdings,  Inc.'s Form 10-KSB for the year ended December
                       31, 1996, No. 33-97876).

  EXHIBIT 10.3         ILLUMINET   1996   Executive    Short-Term   Bonus   Plan
                       (Incorporated   by  reference  to  Exhibit  4.5  to  USTN
                       Holdings,  Inc.'s Form 10-KSB for the year ended December
                       31, 1996, No. 33-97876).

  EXHIBIT 10.4         Employment   Agreement   by   and   between   Independent
                       Telecommunications,  Inc. and Bruce Johnson (Incorporated
                       by  reference to Exhibit  10.5 to USTN  Holdings,  Inc.'s
                       Registration Statement on Form S- 4, No. 33-97876).

  EXHIBIT 10.5         Employment   Agreement   by   and   between   Independent
                       Telecommunications, Inc. and David J. Nicol (Incorporated
                       by  reference to Exhibit  10.7 to USTN  Holdings,  Inc.'s
                       Registration Statement on Form S- 4, No. 33-97876).

  EXHIBIT 10.6         Employment   Agreement   by   and   between   Independent
                       Telecommunications,   Inc.   and   Raymond  E.   Donnelly
                       (Incorporated  by  reference  to  Exhibit  10.8  to  USTN
                       Holdings, Inc.'s Registration Statement on Form S- 4, No.
                       33-97876).

  EXHIBIT 10.7         Employment   Agreement  by  and  between   U.S.   Intelco
                       Networks,  Inc.  and  Kingsley W. Hill  (Incorporated  by
                       reference  to  Exhibit  10.10  to USTN  Holdings,  Inc.'s
                       Registration Statement on Form S-4, No. 33- 97876).





<PAGE>





  EXHIBIT 10.8         Independent   Telecommunications   Network,   Inc.   1995
                       Long-Term  Bonus  Plan   (Incorporated  by  reference  to
                       Exhibit  10.13  to  USTN  Holdings,  Inc.'s  Registration
                       Statement on Form S-4, No. 33-97876).

  EXHIBIT 10.9         Independent   Telecommunications   Network,   Inc.   1995
                       Short-Term  Bonus  Plan  (Incorporated  by  reference  to
                       Exhibit  10.14  to  USTN  Holdings,  Inc.'s  Registration
                       Statement on Form S-4, No. 33-97876).

  EXHIBIT  10.10       Form of Severance  Agreement  and General  Release by and
                       between U.S.  Intelco  Holdings,  Inc. and Robert D. Cook
                       (Incorporated  by  reference  to  Exhibit  10.15  to USTN
                       Holdings,  Inc.'s Registration Statement on Form S-4, No.
                       33-97876).

  EXHIBIT  10.11       Form of  Letter  Agreement  of  Employment  by and  among
                       Independent   Telecommunications   Network,   Inc.,  U.S.
                       Intelco  Holdings,  Inc. and Roger H. Moore regarding Mr.
                       Moore's  employment  as  President  and  Chief  Executive
                       Officer of USTN Holdings, Inc. (Incorporated by reference
                       to Exhibit 10.16 to USTN  Holdings,  Inc.'s  Registration
                       Statement on Form S- 4, No. 33-97876).

  EXHIBIT 10.12        Illuminet Holdings, Inc. 1997 Equity Incentive Plan

  EXHIBIT  10.13       Illuminet  Holdings,  Inc. 1997 Equity  Incentive  Plan -
                       Non-Qualified Stock Option Award Agreement

  EXHIBIT 10.14        Illuminet  Holdings,  Inc. 1997 Equity  Incentive  Plan -
                       Director Stock Option Award Agreement

  EXHIBIT 10.15        Illuminet, Inc. 1997 Short-Term Incentive Plan

  EXHIBIT 10.16        Form of Letter Agreement between  Illuminet,  Inc. and F.
                       Terry Kremian regarding Mr. Kremian's  employment as Vice
                       President-Sales and Marketing of Illuminet, Inc.

  EXHIBIT 21           LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1997

  EXHIBIT 27           FINANCIAL DATA SCHEDULE

         (b)  REPORTS ON FORM 8-K
                NONE





<PAGE>





                                 SIGNATURES

In accordance with  requirements of the Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                                     ILLUMINET HOLDINGS, INC.



                                                By:
                                                Roger H. Moore
                                                President and Chief Executive
                                                Officer
                                                Date:  March 10, 1998


In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated.

              SIGNATURE/TITLE                                 DATE


By:  /s/ Roger H. Moore                                       March 10, 1998
     Roger H. Moore, President and Chief Executive Officer
     (Principal Executive Officer)


By:  /s/ Daniel E. Weiss                                      March  6, 1998
     Daniel E. Weiss, Vice President - Finance
     (Principal Financial Officer and Accounting Officer)


By:  /s/ Richard A. Lumpkin                                   March  25, 1998
    Richard A. Lumpkin, Chairman of the Board


By:  /s/ Gregory J. Wilkinson                                 March  18, 1998
     Gregory J. Wilkinson, Vice Chairman of the Board


By:  /s/ Theodore D. Berns                                    March  18, 1998
     Theodore D. Berns, Director


By:  /s/ Eugene L. Cole                                       March  25, 1998
     Eugene L. Cole, Director


By:  /s/ Aubrey E. Judy                                       March  19, 1998
     Aubrey E. Judy, Director




<PAGE>







By:  /s/ Kenneth L. Lein                                      March 21, 1998
     Kenneth L. Lein, Director


By:  /s/ James S. Quarforth                                   March 25, 1998
     James S. Quarforth, Director


By:  /s/ G. I. Ross                                           March  19, 1998
     G. I. Ross, Director


By:  /s/ James W. Strand                                      March  16, 1998
     James W. Strand, Director