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                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

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<S>                                                  <C>


 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998        COMMISSION FILE NUMBER: 333-26427-01

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                                  KDSM, INC.
            (Exact name of Registrant as specified in its charter)
                              ------------------

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<S>                                      <C>
              MARYLAND                                        52-1975792
   (State or other jurisdiction of              (I.R.S. Employer Identification No.)
   incorporation or organization)

</TABLE>

                             2000 WEST 41ST STREET
                           BALTIMORE, MARYLAND 21211
                   (Address of principal executive offices)
                                (410) 467-5005
             (Registrant's telephone number, including area code)


                               SINCLAIR CAPITAL
            (Exact name of Registrant as specified in its charter)
                              ------------------

<TABLE>
<S>                                    <C>
              DELAWARE                                       52-2026076
   (State or other jurisdiction of             (I.R.S. Employer Identification No.)
   incorporation or organization)

</TABLE>

                             2000 WEST 41ST STREET
                           BALTIMORE, MARYLAND 21211
                   (Address of principal executive offices)
                                (410) 467-5005
             (Registrant's telephone number, including area code)

       Securities registered pursuant to Section 12 (b) of the Act: NONE
       Securities registered pursuant to Section 12 (g) of the Act: NONE

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

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

As of March 25,  1999,  there are 100 shares of Class A Common  stock,  $.01 par
value of KDSM, Inc., issued and outstanding.

In addition,  2,000,000 shares of $200 million aggregate liquidation value of 11
5/8% High Yield  Trust  Offered  Preferred  Securities  of Sinclair  Capital,  a
subsidiary trust of KDSM, Inc., are issued and outstanding.
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                                    PART I


FORWARD-LOOKING STATEMENTS

     The matters discussed in this Form 10-K include forward-looking statements.
In addition,  when used in this Form 10-K, the words  "intends to,"  "believes,"
"anticipates,"  "expects"  and  similar  expressions  are  intended  to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties.  Actual  results  in  the  future  could  differ  materially  and
adversely from those described in the forward-looking  statements as a result of
various  important  factors,  including  the impact of changes in  national  and
regional  economies,  successful  integration  of acquired  television and radio
stations  (including  achievement  of synergies  and cost  reductions),  pricing
fluctuations in local and national advertising,  volatility in programming costs
and the other risk factors set forth in the Company's  prospectus filed with the
Securities  and  Exchange  Commission  on  March  17,  1997,  pursuant  to  rule
424(b)(5). KDSM, Inc. undertakes no obligation to publicly release the result of
any revisions to these  forward-looking  statements  that may be made to reflect
any future events or circumstances.


ITEM 1. BUSINESS

     KDSM, Inc., which is collectively referred to hereafter as "the Company" or
"KDSM", is an indirect wholly owned subsidiary of Sinclair Broadcast Group, Inc.
("Sinclair"),  which  owns  all of  the  assets  related  to  the  operation  of
television station KDSM.

     KDSM,  Channel 17, is located in Des Moines, the state capital of Iowa. The
Des Moines market is currently  served by five commercial  television  stations,
all of which are network  affiliated.  KDSM,  the Fox  affiliate,  is pursuing a
counter-programming  strategy against the other network  affiliates  designed to
attract   additional   audience  share  in  demographic  groups  not  served  by
programming on competing  stations.  KDSM also has a program  license  agreement
with UPN and carries  programming  from UPN including  "Star Trek:  Voyager" and
such   successful   syndicated   products  as   "Seinfeld,"   "Frasier,"   "Home
Improvement," "Mad About You" and "The Simpsons."

     The following  table sets forth certain market  revenue,  size and audience
share information for the Des Moines DMA:





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<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                   -------------------------------------------
                                                       1996            1997           1998
                                                   ------------   -------------   ------------
                                                             (DOLLARS IN THOUSANDS)
<S>                                                <C>            <C>             <C>
Market revenue .................................    $  41,988        $39,944       $  44,699
Annual market revenue growth/(decline) .........         10.2%          (4.9%)          11.9%
Station rank within market .....................            3              4               3
Television homes ...............................      373,630        383,000         388,000
KDSM audience share ............................          8.3%           7.3%            7.3%
</TABLE>

     KDSM had station broadcast revenues of $8.4 million and broadcast cash flow
of $3.7 million in 1998.

     The principal office of KDSM is located at 2000 W. 41st Street,  Baltimore,
MD 21211 and its telephone number is 410-467-5005.


SINCLAIR CAPITAL

     Sinclair  Capital is a special  purpose  statutory  business  trust created
under  Delaware  law  pursuant  to (i) a  trust  agreement  executed  by KDSM as
depositor  for the Trust,  First Union  National  Bank of Maryland,  as Property
Trustee (the  "Property  Trustee")  and First Union Bank of Delaware as Delaware
Trustee (the "Delaware Trustee"),  and (ii) the filing of a certificate of trust
with the Delaware  Secretary of State. The Property Trustee acts as sole trustee
under  the  Trust  Agreement  for the  purposes  of  compliance  with the  Trust
Indenture  Act. The Trust exists for the  exclusive  purposes of (i) issuing the
Preferred   Securities  and  the  Common  Securities,   representing   undivided
beneficial interests in the assets of the Trust, (ii) purchasing the KDSM Senior
Debentures with the proceeds from sale of the Preferred


                                       1
<PAGE>

Securities  and the Common  Securities  and (iii)  engaging  in only those other
activities  necessary or  incidental  thereto.  All of the Common  Securities of
Sinclair  Capital,  are  owned by KDSM and KDSM has  agreed  in the KDSM  Senior
Debenture Indenture to maintain such ownership.  KDSM acquired Common Securities
having an aggregate  liquidation  amount equal to 3% of the total capital of the
Trust.  The Trust has a term  expiring  in 2015,  but may  terminate  earlier as
provided in the Trust Agreement.  The Trust's business affairs will be conducted
by the Property Trustee,  the Delaware Trustee and the  Administrative  Trustee.
The holder of the Common  Securities,  or the  holders of at least a majority in
the aggregate  Liquidation Value of then outstanding  Preferred Securities if an
Event of Default has  occurred and is  continuing,  will be entitled to appoint,
remove or replace the Trustees of the Trust.

     The  duties and  obligations  of the  Trustees  are  governed  by the Trust
Agreement.  David D. Smith and David B. Amy,  each an officer of Sinclair,  were
appointed  as  administrative  trustees  of the  Trust  (in such  capacity,  the
"Administrative  Trustees") pursuant to the terms of the Trust Agreement.  Under
the Trust Agreement,  the Administrative Trustees have certain duties and powers
including, but not limited to, the delivery of certain notices to the holders of
the Preferred  Securities,  the appointment of the Preferred  Securities  Paying
Agent and the Preferred  Securities  Registrar (as defined under "Description of
the Preferred  Securities--Registrar  and Transfer  Agent"),  the registering of
transfers of the Preferred  Securities  and the Common  Securities and preparing
and filing on behalf of the Trust all United States federal, state and local tax
information and returns and reports required to be filed by or in respect of the
Trust.  Under the Trust  Agreement,  the Property Trustee has certain duties and
powers,  including,  but not limited to,  holding legal title to the KDSM Senior
Debentures on behalf of the Trust,  the collection of payments in respect of the
KDSM Senior  Debentures,  maintenance of the Payment  Account (as defined in the
Trust  Agreement),  the sending of default notices with respect to the Preferred
Securities  and the  distribution  of the  assets of the Trust in the event of a
winding-up of the Trust.


TELEVISION BROADCASTING


Operating Strategy

     The  Company's  television  operating  strategy  includes the following key
elements:

Attracting Viewership

     The  Company  seeks to attract  viewership  and expand its  audience  share
through selective, high-quality programming.

     Popular  Programming.  The Company  believes  that an  important  factor in
attracting  viewership  is its network  affiliation  with Fox.  The  affiliation
enables  the  Company to  attract  viewers  by virtue of the  quality  first-run
original  programming  provided by this network and the  network's  promotion of
such  programming.  The  Company  also seeks to obtain,  at  attractive  prices,
popular  syndicated  programming that is complementary to the station's  network
affiliation.  Examples of popular syndicated programming obtained by the Company
for broadcast are "Mad About You," "Frasier," "The Simpsons," "Home Improvement"
and "Seinfeld."

     Children's  Programming.  The  Company  seeks to be a leader in  children's
programming  in its  designated  market  area  ("DMA").  KDSM  carries  the  Fox
Children's  Network  ("FCN"),  which  includes  significant  amounts of animated
programming  throughout the week. In addition to this animated programming,  the
Company broadcasts other forms of children's programming,  which may be produced
by the Company or by Fox or supplied by a syndicated programmer.

     Counter-Programming.  The Company's programming strategy on its Fox station
also includes  "counter-programming,"  which consists of  broadcasting  programs
that are  alternatives  to the types of  programs  being shown  concurrently  on
competing  stations.  This strategy is designed to attract  additional  audience
share in  demographic  groups not served by concurrent  programming on competing
stations.  The Company believes that implementation of this strategy enables its
station to achieve  competitive  rankings in  households  in the 18-49 and 25-54
demographics and to offer greater diversity of programming in its DMA.


                                       2
<PAGE>

     Popular  Sporting  Events.  The  Company  attempts  to capture a portion of
advertising  dollars  designated  to sports  programming.  Affiliates of Fox are
subject to prohibitions against preemptions of network programming.  The Company
has been able to acquire  the local  television  broadcast  rights  for  certain
sporting events,  including Major League Baseball,  NFL football, NHL hockey and
Big Ten football and Iowa and Big Ten basketball.

Innovative Local Sales and Marketing

     The  Company  believes  that it is able to attract new  advertisers  to its
station and increase  its share of existing  customers'  advertising  budgets by
creating a sense of partnership  with those  advertisers.  The Company  develops
such relationships by training its sales forces to offer new marketing ideas and
campaigns to  advertisers.  These  campaigns  often involve the  sponsorship  by
advertisers of local  promotional  events that capitalize on the station's local
identity and programming franchises.  For example, KDSM has a local Family Fair,
which allows station  advertisers  to reinforce  their on-air  advertising  with
their target  audience.  Through its strong local sales and marketing focus, the
Company seeks to capture an increasing share of its revenues from local sources,
which are generally more stable than national advertising.

Control of Operating and Programming Costs

     By employing a disciplined approach to managing programming acquisition and
other costs,  Sinclair has been able to achieve  operating margins that Sinclair
believes are among the highest in the television  broadcast  industry.  Sinclair
has sought and will continue to seek to acquire  quality  programming for prices
at or below prices paid in the past which directly  affects KDSM. As an owner or
provider  of   programming   services  to  57  stations  in  36  DMAs   reaching
approximately 26% of U.S.  television  households,  Sinclair believes that it is
able to negotiate favorable terms for the acquisition of programming.  Moreover,
Sinclair  emphasizes  control of KDSM's  programming and operating costs through
program-specific  profit  analysis,   detailed  budgeting,  tight  control  over
staffing levels and detailed long-term planning models.

Attract and Retain High Quality Management

     Sinclair believes that much of its success is due to its ability to attract
and retain  highly  skilled and  motivated  managers,  both at the corporate and
local  station  levels.  A  portion  of the  compensation  provided  to  general
managers,  sales managers and other station managers is based on their achieving
certain  operating  results.  Sinclair  also  provides its corporate and station
managers with deferred  compensation  plans offering  options to acquire Class A
Common Stock.

Community Involvement

     KDSM actively  participates in various community activities and offers many
community services.  KDSM's activities include broadcasting programming of local
interest and  sponsorship of community and charitable  events.  The Company also
encourages its station  employees to become active members of their  communities
and to promote  involvement  in community and  charitable  affairs.  The Company
believes that active  community  involvement by its station  provides  increased
exposure  in their  DMA and  ultimately  increases  viewership  and  advertising
support.

Programming and Affiliations

     Sinclair  continually  reviews KDSM's  existing  programming  inventory and
seeks to purchase the most  profitable and  cost-effective  syndicated  programs
available  for each time period.  In  developing  its  selection  of  syndicated
programming,  Sinclair balances the cost of available  syndicated  programs with
their  potential to increase  advertising  revenue and the risk of their reduced
popularity during the term of the program  contract.  Sinclair seeks to purchase
only those programs with contractual periods that permit programming flexibility
and  which   complement   a   station's   overall   programming   strategy   and
counter-programming  strategy.  Programs that can perform  successfully  in more
than  one  time  period  are  more  attractive  due to the  long  lead  time and
multi-year commitments inherent in program purchasing.


                                       3
<PAGE>

     On August 21, 1996,  Sinclair  entered into an agreement with Fox (the "Fox
Agreement") which, among other things,  provides that the affiliation  agreement
between Fox and KDSM would be amended to have a new five-year term commencing on
the date of the Fox  Agreement.  Fox has the  option to extend  the  affiliation
agreement  for an  additional  five-year  term and must extend all of Sinclair's
affiliation  agreements if it extends any (except that Fox may selectively renew
affiliation  agreements if any station has breached its affiliation  agreement).
The Fox  Agreement  also  includes  provisions  limiting  the ability of KDSM to
preempt Fox programming  except where it has existing  programming  conflicts or
where KDSM  preempts to serve a public  purpose.  Fox produces  and  distributes
programming  in  exchange  for  KDSM's  commitment  to air  the  programming  at
specified times and for commercial announcement time during the programming.

FEDERAL REGULATION OF TELEVISION BROADCASTING

     The ownership, operation and sale of television stations are subject to the
jurisdiction   of  the  FCC,   which  acts  under   authority   granted  by  the
Communications  Act.  Among other things,  the FCC assigns  frequency  bands for
broadcasting;  determines  the particular  frequencies,  locations and operating
power of  stations;  issues,  renews,  revokes and  modifies  station  licenses;
regulates  equipment  used by stations;  adopts and implements  regulations  and
policies  that  directly  or  indirectly  affect the  ownership,  operation  and
employment  practices of  stations;  and has the power to impose  penalties  for
violations of its rules or the Communications Act.

     The   following  is  a  brief   summary  of  certain   provisions   of  the
Communications  Act,  the 1996 Act and specific FCC  regulations  and  policies.
Reference should be made to the Communications  Act, the 1996 Act, FCC rules and
the public notices and rulings of the FCC for further information concerning the
nature and extent of federal regulation of broadcast stations.

     License  Grant  and  Renewal.   Television  stations  operate  pursuant  to
broadcasting  licenses  that are granted by the FCC for  maximum  terms of eight
years and are subject to renewal upon  application  to the FCC.  During  certain
periods  when  renewal  applications  are  pending,  petitions  to deny  license
renewals can be filed by interested  parties,  including  members of the public.
The FCC will generally  grant a renewal  application  if it finds:  (i) that the
station has served the public  interest,  convenience  and necessity;  (ii) that
there have been no serious  violations by the licensee of the Communications Act
or the rules and regulations of the FCC; and (iii) that there have been no other
violations  by  the  licensee  of  the  Communications  Act  or  the  rules  and
regulations of the FCC that, when taken together,  would constitute a pattern of
abuse.

     KDSM's FCC license  will expire on  February 1, 2006.  Although  renewal of
license is granted in the vast majority of cases even when petitions to deny are
filed,  there can be no  assurance  that the licenses of such  stations  will be
renewed.

Ownership Matters
-----------------

GENERAL

     The  Communications  Act prohibits the assignment of a broadcast license or
the transfer of control of a broadcast  licensee  without the prior  approval of
the FCC. In determining  whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license,  the FCC considers a number
of factors pertaining to the licensee,  including  compliance with various rules
limiting common ownership of media  properties,  the "character" of the licensee
and those persons holding "attributable"  interests therein, and compliance with
the Communications Act's limitations on alien ownership.

     To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, appropriate applications must be filed with the
FCC. If the application involves a "substantial change" in ownership or control,
the application must be placed on public notice for a period of approximately 30
days during which  petitions to deny the  application may be filed by interested
parties,  including members of the public. If the application does not involve a
"substantial  change" in ownership or control,  it is a "pro forma" application.
The "pro forma"  application  is not subject to petitions to deny or a mandatory
waiting period, but is nevertheless  subject to having informal objections filed
against it.


                                       4
<PAGE>

If the FCC grants an assignment or transfer application, interested parties have
approximately 30 days from public notice of the grant to seek reconsideration or
review of the grant.  Generally,  parties that do not file initial  petitions to
deny or informal  objections  against the application face difficulty in seeking
reconsideration  or review of the grant.  The FCC normally has  approximately an
additional 10 days to set aside such grant on its own motion. When passing on an
assignment  or transfer  application,  the FCC is  prohibited  from  considering
whether the public  interest might be served by an assignment or transfer to any
party other than the assignee or transferee specified in the application.

     The FCC generally applies its ownership limits to "attributable"  interests
held by an individual,  corporation,  partnership or other  association.  In the
case of corporations  holding, or through  subsidiaries  controlling,  broadcast
licenses,  the  interests  of  officers,  directors  and those who,  directly or
indirectly, have the right to vote 5% or more of the corporation's stock (or 10%
or more of such stock in the case of insurance  companies,  investment companies
and  bank  trust   departments   that  are  passive   investors)  are  generally
attributable, except that, in general, no minority voting stock interest will be
attributable  if there is a single  holder of more  than 50% of the  outstanding
voting power of the  corporation.  The FCC has a pending  rulemaking  proceeding
that,  among other  things,  seeks  comment on whether the FCC should modify its
attribution rules by (i) raising the attribution stock benchmark from 5% to 10%;
(ii) raising the attribution  stock benchmark for passive  investors from 10% to
20%; (iii)  restricting  the  availability  of the single  majority  shareholder
exemption; and (iv) attributing certain interests such as non-voting stock, debt
and certain holdings by limited liability corporations in certain circumstances.
More  recently,  the FCC has solicited  comment on proposed rules that would (i)
treat an otherwise  nonattributable  equity or debt interest in a licensee as an
attributable  interest  where the interest  holder is a program  supplier or the
owner of a  broadcast  station in the same  market and the  equity  and/or  debt
holding is  greater  than a  specified  benchmark;  (ii)  treat a licensee  of a
television  station  which,  under an LMA,  brokers more than 15% of the time on
another  television  station serving the same market,  as having an attributable
interest in the brokered station; and (iii) in certain circumstances,  treat the
licensee of a broadcast  station that sells  advertising time on another station
in the same market pursuant to a JSA as having an  attributable  interest in the
station whose  advertising is being sold. The Company cannot predict the outcome
of this proceeding or how it will affect the business.

     Under its  "cross-interest"  policy, the FCC considers certain "meaningful"
relationships  among  competing  media  outlets in the same market,  even if the
ownership  rules do not  specifically  prohibit  the  relationship.  Under  this
policy,  the FCC may consider  significant  equity  interests  combined  with an
attributable interest in a media outlet in the same market, joint ventures,  and
common key  employees  among  competitors.  The  cross-interest  policy does not
necessarily prohibit all of these interests,  but requires that the FCC consider
whether,  in  a  particular  market,  the  "meaningful"   relationships  between
competitors  could have a significant  adverse effect upon economic  competition
and program  diversity.  Heretofore,  the FCC has not applied its cross-interest
policy to LMAs and JSAs between broadcast  stations.  In its ongoing  rulemaking
proceeding  concerning  the  attribution  rules,  the FCC has sought comment on,
among other things, (i) whether the cross-interest policy should be applied only
in smaller markets, and (ii) whether non-equity financial  relationships such as
debt, when combined with multiple business  interrelationships  such as LMAs and
JSAs,  raise concerns under the  cross-interest  policy.  Moreover,  in its most
recent proposals in its ongoing attribution rulemaking  proceeding,  the FCC has
proposed  treating  television  LMAs,  television  and radio JSAs, and presently
nonattributable  debt or equity  interests as attributable  interests in certain
circumstances  without regard to the  cross-interest  policy. The Company cannot
predict the outcome of this rulemaking.

     The  Communications Act prohibits the issuance of broadcast licenses to, or
the holding of a broadcast license by, any corporation of which more than 20% of
the  capital  stock is owned of record or voted by  non-U.S.  citizens  or their
representatives  or by a foreign government or a representative  thereof,  or by
any corporation  organized  under the laws of a foreign  country  (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast  license by, any corporation  directly
or indirectly  controlled by any other corporation of which more than 25% of the
capital  stock is owned of  record  or voted by  Aliens.  The  Company  has been
advised that the FCC staff has  interpreted  this provision to require a finding
that such grant or holding  would be in the public  interest  before a broadcast
license may be granted


                                       5
<PAGE>

to or held by any  such  corporation  and  that the FCC  staff  has made  such a
finding only in limited  circumstances.  The FCC has issued  interpretations  of
existing  law under which  these  restrictions  in modified  form apply to other
forms of business organizations,  including  partnerships.  As a result of these
provisions, the licenses granted to Subsidiaries of the Company by the FCC could
be revoked if, among other restrictions imposed by the FCC, more than 25% of the
Company's stock were directly or indirectly owned or voted by Aliens.

TELEVISION

     National  Ownership Rule.  Pursuant to the 1996 Act no individual or entity
may have an attributable  interest in television stations reaching more than 35%
of the national  television  viewing audience.  Historically,  VHF stations have
shared a larger portion of the market than UHF stations. Therefore, only half of
the  households  in the  market  area  of any  UHF  station  are  included  when
calculating  whether an entity or individual owns television  stations  reaching
more  than  35% of the  national  television  viewing  audience.  KDSM  is a UHF
station.

     Duopoly Rule. On a local level,  the  television  "duopoly"  rule generally
prohibits a single individual or entity from having an attributable  interest in
two or more television  stations with overlapping  Grade B service areas.  While
the 1996 Act did not  eliminate  the TV duopoly  rule,  it did direct the FCC to
initiate a rulemaking  proceeding  to determine  whether to retain,  modify,  or
eliminate the rule. The FCC has pending a rulemaking  proceeding in which it has
proposed,  among other options,  to modify the television duopoly rule to permit
the common  ownership of television  stations in different  DMAs, so long as the
Grade A signal  contours of the stations do not overlap.  Pending  resolution of
its  rulemaking  proceeding,  the FCC has adopted an interim  waiver policy that
permits the common  ownership of television  stations in different  DMAs with no
overlapping  Grade A signal  contours,  conditioned  on the final outcome of the
rulemaking  proceeding.  The FCC has  also  sought  comment  on  whether  common
ownership of two  television  stations in a market should be permitted (i) where
one or  more of the  commonly  owned  stations  is UHF,  (ii)  where  one of the
stations is in bankruptcy  or has been off the air for a  substantial  period of
time and (iii) where the commonly  owned  stations  have very small  audience or
advertising  shares,  are  located in a very large  market,  and/or a  specified
number of  independently  owned media voices would remain after the acquisition.
The Company  cannot  predict the outcome of the proceeding in which such changes
are being considered.

OTHER OWNERSHIP MATTERS

     There  remain  in  place  after  the  1996  Act  a  number  of   additional
cross-ownership  rules and  prohibitions  pertaining  to licensees of television
stations.  FCC rules,  the  Communications  Act, or both  generally  prohibit an
individual or entity from having an  attributable  interest in both a television
station and a radio station,  a daily newspaper,  or a cable  television  system
that is located in or serves the same market area.

     Antitrust  Regulation.  The DOJ  and  the  Federal  Trade  Commission  have
increased  their scrutiny of the  television  industry since the adoption of the
1996 Act, and have indicated  their  intention to review matters  related to the
concentration  of ownership  within markets  (including LMAs and JSAs) even when
the ownership or LMA or JSA in question is permitted under the laws administered
by the FCC or by FCC rules and regulations.  For instance,  the DOJ has for some
time taken the position that an LMA entered into in  anticipation of a station's
acquisition  with the  proposed  buyer of the  station  constitutes  a change in
beneficial  ownership of the station  which,  if subject to filing under the HSR
Act, cannot be implemented until the waiting period required by that statute has
ended or been terminated.

     Radio/Television   Cross-Ownership   Rule.   The   FCC's   radio/television
cross-ownership  rule (the "one to a market" rule) generally  prohibits a single
individual  or entity  from  having an  attributable  interest  in a  television
station and a radio station serving the same market.  However, in each of the 25
largest local markets in the United States,  provided that there remain at least
30 separately owned television and radio stations in the particular market after
the acquisition in question,  the FCC has  traditionally  employed a policy that
presumptively  allows  waivers of the one to a market  rule to permit the common
ownership


                                       6
<PAGE>

of one AM, one FM and one TV station in the market. The 1996 Act directs the FCC
to extend  this  policy  to each of the top 50  markets.  Moreover,  the FCC has
pending  a  rulemaking  proceeding  in which  it has  solicited  comment  on the
implementation  of this  policy and  whether  the one to a market rule should be
eliminated altogether.

     However,  the FCC does not apply  its  presumptive  waiver  policy in cases
involving the common ownership of one television station,  and two or more radio
stations in the same service (AM or FM), in the same market. Pending its ongoing
rulemaking  proceeding to reexamine the one to a market rule, the FCC has stated
that it will consider  waivers of the rule in such  instances on a  case-by-case
basis,  considering  (i) the public  service  benefits  that will arise from the
joint operation of the facilities  such as economies of scale,  cost savings and
programming and service benefits;  (ii) the types of facilities involved;  (iii)
the number of media outlets owned by the applicant in the relevant market;  (iv)
the financial  difficulties of the stations involved;  and (v) the nature of the
relevant  market in light of the level of competition  and diversity after joint
operation is implemented. Waiver requests involving the common ownership of more
than two same service radio  stations in the same market  generally are granted,
but are temporary and conditioned on the outcome of the rulemaking proceeding.

     In its ongoing rulemaking proceeding to reexamine the one to a market rule,
the FCC has proposed the  following  options for modifying the rule in the event
it is not  eliminated:  (i)  extending  the  presumptive  waiver  policy  to any
television  market in which a specified  number of  independently  owned  voices
would  remain after  common  ownership  of a television  station and one or more
radio stations is effectuated;  (ii) extending the presumptive  waiver policy to
entities  that seek to own more than one FM and/or one AM radio  station;  (iii)
reducing the minimum number of independently owned voices that must remain after
a transaction is effectuated;  and (iv) modifying the  five-factor  case-by-case
test for waivers.

     Local Television/Cable  Cross-Ownership Rule. While the 1996 Act eliminates
a previous  statutory  prohibition  against the common ownership of a television
broadcast station and a cable system that serve the same local market,  the 1996
Act leaves the current  FCC rule in place.  The  legislative  history of the Act
indicates  that the repeal of the  statutory ban should not prejudge the outcome
of any FCC review of the rule.

     Broadcast Network/Cable  Cross-Ownership Rule. The 1996 Act directs the FCC
to  eliminate  its rules which  formerly  prohibited  the common  ownership of a
broadcast  network and a cable  system,  subject to the  provision  that the FCC
revise its rules as  necessary  to ensure  carriage,  channel  positioning,  and
non-discriminatory  treatment  of  non-affiliated  broadcast  stations  by cable
systems  affiliated with a broadcast  network.  In March 1996, the FCC issued an
order implementing this legislative change.

     Broadcast/Daily  Newspaper  Cross-Ownership  Rule. The FCC's rules prohibit
the common  ownership  of a radio or  television  broadcast  station and a daily
newspaper  in the same  market.  The 1996 Act does not  eliminate or modify this
prohibition. In October 1996, however, the FCC initiated a rulemaking proceeding
to  determine  whether it should  liberalize  its waiver  policy with respect to
cross-ownership  of a daily newspaper and one or more radio stations in the same
market.

     Dual  Network  Rule.  The 1996 Act directs the FCC to repeal its rule which
formerly  prohibited an entity from operating more than one television  network.
In March 1996, the FCC issued an order  implementing  this  legislative  change.
Under the modified  rule, a network entity is permitted to operate more than one
television  network,  provided,  however,  that ABC,  CBS,  NBC,  and/or Fox are
prohibited  from  merging  with each other or with  another  network  television
entity such as WB or UPN.

     Expansion of Sinclair's  broadcast  operations on both a local and national
level will continue to be subject to the FCC's  ownership  rules and any changes
the FCC or Congress  may adopt.  Concomitantly,  any further  relaxation  of the
FCC's  ownership  rules may increase the level of  competition in one or more of
the markets in which the Sinclair's  stations are located,  more specifically to
the extent that any of the Sinclair's competitors may have greater resources and
thereby be in a superior position to take advantage of such changes.


                                       7
<PAGE>

Must-Carry/Retransmission Consent
---------------------------------

     Pursuant to the Cable Act of 1992, television  broadcasters are required to
make   triennial   elections  to  exercise   either  certain   "must-carry"   or
"retransmission  consent"  rights in  connection  with their  carriage  by cable
systems in each broadcaster's local market. By electing the must-carry rights, a
broadcaster  demands carriage on a specified channel on cable systems within its
Area of  Dominant  Influence,  in general as  defined  by the  Arbitron  1991-92
Television  Market Guide.  These must-carry  rights are not absolute,  and their
exercise is dependent on variables such as (i) the number of activated  channels
on a cable system;  (ii) the location and size of a cable system;  and (iii) the
amount of programming on a broadcast  station that duplicates the programming of
another broadcast station carried by the cable system. Therefore,  under certain
circumstances,   a  cable   system  may  decline  to  carry  a  given   station.
Alternatively,  if a  broadcaster  chooses to  exercise  retransmission  consent
rights,  it can prohibit  cable  systems  from  carrying its signal or grant the
appropriate  cable system the authority to retransmit the broadcast signal for a
fee or other  consideration.  In October 1996,  Sinclair  elected  must-carry or
retransmission  consent with respect to each of its non-Fox affiliated  stations
based on its evaluation of the respective markets and the position of Sinclair's
owned or programmed  station(s) within the market.  KDSM continues to be carried
on the  pertinent  cable  system,  and the  Company  does not  believe  that its
elections have resulted in the shifting of its station to less  desirable  cable
channel  locations.  Sinclair's  stations  affiliated with Fox (including  KDSM)
granted Fox their  proxies to  negotiate  retransmission  consent with the cable
systems.  The  agreements  negotiated  by Fox extend  only  through May of 1999.
Therefore,  subject  to  Fox's  approval,  Sinclair  will  need to  negotiate  a
retransmission  consent  agreement  for KDSM to attain  carriage on the relevant
cable system for the balance of this triennial  period (i.e.,  through  December
31, 1999).  For subsequent  elections  beginning with the election to be made by
October 1, 1999, the must-carry  market will be the station's DMA, in general as
defined by the Nielsen DMA Market and Demographic Rank Report of the prior year.

     The FCC has initiated a rulemaking  proceeding to consider whether to apply
must-carry rules to require cable companies to carry both the analog and digital
signals of local broadcasters  during the DTV transition period between 2002 and
2006 when television stations will be broadcasting both signals. If the FCC does
not require DTV must-carry,  cable customers in the Company's  broadcast  market
may not receive the station's digital signal, which could have an adverse affect
on the Company.

Syndicated Exclusivity/Territorial Exclusivity
----------------------------------------------

     The FCC has imposed  syndicated  exclusivity  rules and  expanded  existing
network  nonduplication  rules.  The  syndicated  exclusivity  rules allow local
broadcast   television  stations  to  demand  that  cable  operators  black  out
syndicated  non-network  programming carried on "distant signals" (i.e., signals
of broadcast stations,  including so-called  "superstations,"  which serve areas
substantially  removed from the cable  system's  local  community).  The network
non-duplication  rules allow local broadcast  network  television  affiliates to
require that cable operators black out duplicating  network  programming carried
on distant signals.

Restrictions on Broadcast Advertising
-------------------------------------

     Advertising of cigarettes  and certain other tobacco  products on broadcast
stations has been banned for many years. Various states restrict the advertising
of  alcoholic  beverages.   Congressional   committees  have  recently  examined
legislation  proposals which may eliminate or severely  restrict the advertising
of beer and wine. Although no prediction can be made as to whether any or all of
the present  proposals will be enacted into law, the elimination of all beer and
wine advertising would have an adverse effect upon the revenues of the Company's
stations,  as well as the revenues of other  stations  which carry beer and wine
advertising.

     The FCC has imposed  commercial time  limitations in children's  television
programming pursuant to legislation. In television programs designed for viewing
by  children  of 12 years of age and under,  commercial  matter is limited to 12
minutes per hour on weekdays and 10.5 minutes per hour on weekends.

     The  Communications  Act and  FCC  rules  also  place  restrictions  on the
broadcasting  of  advertisements  by legally  qualified  candidates for elective
office.  Among other things, (i) stations must provide  "reasonable  access" for
the purchase of time by legally qualified candidates for federal office; (ii)


                                       8
<PAGE>

stations  must provide  "equal  opportunities"  for the  purchase of  equivalent
amounts  of  comparable  broadcast  time by  opposing  candidates  for the  same
elective  office;  and (iii)  during the 45 days  preceding a primary or primary
run-off election and during the 60 days preceding a general or special election,
legally qualified candidates for elective office may be charged no more than the
station's  "lowest unit charge" for the same class of  advertisement,  length of
advertisement,  and daypart.  Recently,  both the President of the United States
and the Chairman of the FCC have called for rules that would  require  broadcast
stations to provide  free airtime to political  candidates.  The Company  cannot
predict the effect of such a requirement on its advertising revenues.

Programming and Operation
-------------------------

     General. The Communications Act requires  broadcasters to serve the "public
interest."  The FCC has  relaxed  or  eliminated  many  of the  more  formalized
procedures  it had  developed  in the past to promote the  broadcast  of certain
types of  programming  responsive  to the  needs  of a  station's  community  of
license. FCC licensees continue to be required,  however, to present programming
that is responsive to their communities' issues, and to maintain certain records
demonstrating  such   responsiveness.   Complaints  from  viewers  concerning  a
station's  programming  may be considered  by the FCC when it evaluates  renewal
applications  of a licensee,  although such  complaints may be filed at any time
and generally  may be considered by the FCC at any time.  Stations also must pay
regulatory and application  fees, and follow various rules promulgated under the
Communications  Act that regulate,  among other things,  political  advertising,
sponsorship  identifications,  the  advertisement  of  contests  and  lotteries,
obscene and indecent broadcasts,  and technical operations,  including limits on
radio frequency radiation. Certain of the FCC's rules that required licensees to
develop and  implement  affirmative  action  programs  designed to promote equal
employment  opportunities  and the annual  submission of reports to the FCC with
respect  to those  matters  were  found  unconstitutional  by the U.S.  Court of
Appeals. The FCC has initiated a rulemaking to revise these rules.

     Children's  Television  Programming.  Pursuant  to  rules  adopted  in 1996
television  stations are required to broadcast a minimum of three hours per week
of  "core"  children's  educational  programming,   which  the  FCC  defines  as
programming  that (i) has serving the  educational  and  informational  needs of
children 16 years of age and under as a significant  purpose;  (ii) is regularly
scheduled,  weekly  and at least 30  minutes  in  duration;  and  (iii) is aired
between the hours of 7:00 a.m.  and 10:00 p.m.  Furthermore,  "core"  children's
educational programs, in order to qualify as such, are required to be identified
as  educational  and  informational  programs  over the air at the time they are
broadcast,  and are  required to be  identified  in the  children's  programming
reports   required  to  be  placed  in  stations'   public   inspection   files.
Additionally,   television   stations  are  required  to  identify  and  provide
information  concerning "core"  children's  programming to publishers of program
guides and listings.

     Television Violence.  The 1996 Act contains a number of provisions relating
to television violence. First, pursuant to the 1996 Act, the television industry
has  developed a ratings  system which the FCC has approved.  Furthermore,  also
pursuant to the 1996 Act, the FCC has adopted rules requiring certain television
sets to include the so-called  "V-chip," a computer chip that allows blocking of
rated  programming.  Under these rules, half of television  receiver models with
picture  screens 13 inches or greater will be required to have the  "V-chip," by
July 1, 1999,  and all such  models  will be  required  to have the  "V-chip" by
January 1, 2000. In addition,  the 1996 Act requires that all television license
renewal  applications  filed  after May 1, 1995  contain  summaries  of  written
comments  and  suggestions  received  by the station  from the public  regarding
violent programming.

     Closed  Captioning.  The FCC has adopted rules that require  generally that
(i) 100% of all new programming first published or exhibited on or after January
1, 1998 must be  closed  captioned  within  eight  years,  and (ii) 75% of "old"
programming  which first aired prior to January 1, 1998 must be closed captioned
within 10 years, subject to certain exemptions.

Digital Television
------------------

     The FCC has taken a number of steps to implement DTV  broadcasting  service
in the United States. In December 1996, the FCC adopted a DTV broadcast standard
and, in April 1997, adopted decisions in several pending rulemaking  proceedings
that establish service rules and a plan for implementing DTV.


                                       9
<PAGE>

The  FCC  adopted  a DTV  Table  of  Allotments  that  provides  all  authorized
television  stations  with a second  channel on which to broadcast a DTV signal.
The FCC made slight revisions to the DTV rules and table of allotments in acting
upon a number of appeals in the DTV proceeding. The FCC has attempted to provide
DTV coverage areas that are comparable to stations'  existing service areas. The
FCC has ruled that television broadcast licensees may use their digital channels
for a wide  variety of services  such as  high-definition  television,  multiple
standard  definition  television  programming,  audio,  data, and other types of
communications,  subject to the  requirement  that each  broadcaster  provide at
least one free video channel equal in quality to the current technical  standard
and further  subject to the  requirement  that  broadcasters  pay a fee of 5% of
gross revenues on all DTV subscription services.


     DTV  channels  will  generally  be  located in the range of  channels  from
channel 2 through  channel 51. The FCC is requiring that affiliates of ABC, CBS,
Fox and NBC in the top 10 television  markets begin digital  broadcasting by May
1,  1999,  that  affiliates  of these  networks  in  markets 11 through 30 begin
digital  broadcasting by November 1999 and that all other stations begin digital
broadcasting by May 1, 2002. KDSM is required to commence digital  operations by
May 1,  2002.  Applications  for such  facilities  are  required  to be filed by
November 1, 1999. The FCC's plan calls for the DTV  transition  period to end in
the year 2006, at which time the FCC expects that television  broadcasters  will
cease  non-digital  broadcasting  and  return one of their two  channels  to the
government,  allowing that  spectrum to be recovered  for other uses.  Under the
Balanced Budget Act,  however,  the FCC is authorized to extend the December 31,
2006 deadline for reclamation of a television station's  non-digital channel if,
in any given case: (i) one or more television stations affiliated with ABC, CBS,
NBC or Fox in a market is not  broadcasting  digitally,  and the FCC  determines
that such stations have  "exercised  due  diligence" in attempting to convert to
digital broadcasting;  or (ii) less than 85% of the television households in the
station's  market  subscribe to a multichannel  video service  (cable,  wireless
cable or direct-to-home  broadcast satellite television ("DBS")) that carries at
least one digital  channel from each of the local  stations in that  market;  or
(iii) less than 85% of the  television  households  in the  market  can  receive
digital  signals off the air using either a set-top  converter box for an analog
television set or a new DTV television set. The Balanced Budget Act also directs
the FCC to auction the  non-digital  channels by September  30, 2002 even though
they are not to be reclaimed by the government until at least December 31, 2006.
The Balanced  Budget Act also  permits  broadcasters  to bid on the  non-digital
channels in cities with populations greater than 400,000,  provided the channels
are used for DTV. Thus, it is possible a broadcaster could own two channels in a
market. The FCC has initiated separate  proceedings to consider the surrender of
existing  television  channels and how these frequencies will be used after they
are eventually recovered from broadcasters.  Additionally, the FCC has initiated
a  separate   proceeding  to  consider  to  what  extent  the  cable  must-carry
requirements will apply to DTV signals.


     Implementation of digital  television will improve the technical quality of
television signals received by viewers.  Under certain  circumstances,  however,
conversion to digital operation may reduce a station's  geographic coverage area
or result in some  increased  interference.  The FCC's DTV allotment plan allows
present UHF stations  that move to DTV channels  considerably  less signal power
than present VHF stations that move to UHF DTV  channels.  While the 1998 orders
of the FCC  present  current UHF  stations  with some  options to overcome  this
disparity,  it is unknown  whether the Company will  benefit from such  options.
Additionally,  the DTV  transmission  standard  adopted by the FCC may not allow
certain  stations  to provide a DTV signal of  adequate  strength to be reliably
received by certain viewers using inside television set antennas. Implementation
of  digital  television  will  also  impose  substantial   additional  costs  on
television  stations  because of the need to replace  equipment and because some
stations  will  need to  operate  at  higher  utility  costs and there can be no
assurance  that the  Company  will be able to  increase  revenue to offset  such
costs.  The Company is currently  considering  plans to provide HDTV, to provide
multiple channels of television  including the provision of additional broadcast
programming and transmitted  data on a subscription  basis,  and to continue its
current TV program  channels on its allocated DTV channels.  The 1996 Act allows
the FCC to charge a spectrum fee to broadcasters who use the digital spectrum to
offer  subscription-based  services. The FCC ruled that broadcasters are subject
to the  requirement  to pay a fee of 5% of gross  revenues  on all  subscription
services.  The FCC is also considering imposing new public interest requirements
on  television  licensees  in exchange  for their  receipt of DTV  channels.  In
addition, Congress has held hearings on broadcasters' plans for the use of their
digital spectrum.A governmental commission was appointed to consider


                                       10
<PAGE>

whether  additional public service  obligations  should be imposed on television
broadcasters.  The commission  issued its report in December 1998 making several
non-binding  recommendations,  including that broadcasters  voluntarily  provide
five  minutes of free air time per evening to  political  candidates  for thirty
days  prior to an  election.  The  Company  cannot  predict  the  impact of such
recommendations  or what future  actions the FCC might take with respect to DTV,
nor can it predict the effect of the FCC's  present DTV  implementation  plan or
such future actions on the Company's business.

Proposed Changes
----------------

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

Other Considerations
--------------------

     The foregoing  summary does not purport to be a complete  discussion of all
provisions  of the  Communications  Act or  other  congressional  acts or of the
regulations and policies of the FCC. For further  information,  reference should
be made to the Communications Act, other congressional acts, and regulations and
public  notices  promulgated  from time to time by the FCC. There are additional
regulations  and  policies  of the FCC and other  federal  agencies  that govern
political broadcasts, public affairs programming,  equal employment opportunity,
and other matters affecting the Company's business and operations.

ENVIRONMENTAL REGULATION

     Prior to the Company's ownership or operation of its facilities, substances
or  waste  that  are  or  might  be  considered   hazardous   under   applicable
environmental  laws may have been  generated,  used,  stored or  disposed  of at
certain of those facilities.  In addition,  environmental conditions relating to
the soil and groundwater at or under the Company's facilities may be affected by
the proximity of nearby properties that have generated, used, stored or disposed
of hazardous  substances.  As a result,  it is possible  that the Company  could
become subject to  environmental  liabilities  in the future in connection  with
these facilities under applicable  environmental laws and regulations.  Although
the  Company   believes  that  it  is  in  substantial   compliance   with  such
environmental  requirements,  and has not in the  past  been  required  to incur
significant  costs in connection  therewith,  there can be no assurance that the
Company's  costs to  comply  with such  requirements  will not  increase  in the
future.  The Company  presently  believes that none of its  properties  have any
condition  that is likely to have a  material  adverse  effect on the  Company's
financial condition or results of operations.

COMPETITION

     The Company competes for audience share and advertising  revenue with other
television stations in its DMAs as well as with other advertising media, such as
newspapers,  magazines,  outdoor advertising,  transit advertising,  yellow page
directories,  direct  mail and local  cable and  wireless  cable  systems.  Some
competitors  are  part  of  larger  organizations  with  substantially   greater
financial, technical and other resources than the Company.


                                       11
<PAGE>

     Competition in the television  broadcasting  industry  occurs  primarily in
individual DMAs.  Generally,  a television  broadcasting station in one DMA does
not compete with  stations in other DMAs.  The Company's  television  station is
located in a highly  competitive  DMA. In  addition,  the  Company's  DMA may be
overlapped by both over-the-air and cable carriage of stations in adjacent DMAs,
which tends to spread  viewership  and  advertising  expenditures  over a larger
number of television stations.

     Broadcast  television  stations compete for advertising  revenues primarily
with other broadcast television stations,  radio stations,  cable channels,  and
cable system operators serving the same market.  Traditional network programming
generally  achieves  higher  household  audience  levels  than  Fox,  WB and UPN
programming and syndicated  programming aired by independent stations.  This can
be attributed to a combination of factors,  including the traditional  networks'
efforts to reach a broader audience,  generally better signal carriage available
when  broadcasting  over VHF channels 2 through 13 versus  broadcasting over UHF
channels  14 through 69 and the higher  number of hours of  traditional  network
programming being broadcast weekly. However, greater amounts of advertising time
are  available  for sale  during  Fox  programming  and  non-network  syndicated
programming, and as a result the Company believes that the Company's programming
typically  achieves a share of television  market  advertising  revenues greater
than its share of the market's audience.

     Television  stations  compete for audience share  primarily on the basis of
program  popularity,  which has a direct effect on  advertising  rates.  A large
amount of the  Company's  prime time  programming  is  supplied by Fox. In those
periods,  the Company is totally  dependent upon the performance of Fox programs
in attracting  viewers.  Non-network  time periods are programmed by the station
primarily  with  syndicated  programs  purchased for cash,  cash and barter,  or
barter-only,  and also  through  self-produced  news,  public  affairs and other
entertainment programming.

     Television  advertising rates are based upon factors which include the size
of the DMA in which the  station  operates,  a  program's  popularity  among the
viewers  that an  advertiser  wishes  to  attract,  the  number  of  advertisers
competing for the available  time, the  demographic  makeup of the DMA served by
the  station,  the  availability  of  alternative  advertising  media in the DMA
including radio and cable, the  aggressiveness  and knowledge of sales forces in
the DMA and  development of projects,  features and programs that tie advertiser
messages to  programming.  The Company  believes that its sales and  programming
strategies allow it to compete effectively for advertising.

     Other  factors  that are  material to a  television  station's  competitive
position include signal coverage, local program acceptance, network affiliation,
audience  characteristics and assigned broadcast  frequency.  Historically,  the
Company's  UHF  broadcast  station has suffered a  competitive  disadvantage  in
comparison   to  stations  with  VHF   broadcast   frequencies.   This  historic
disadvantage has gradually declined through (i) carriage on cable systems,  (ii)
improvement   in  television   receivers,   (iii)   improvement   in  television
transmitters, (iv) wider use of all channel antennae, (v) increased availability
of  programming,  and (vi) the  development  of new networks such as Fox, WB and
UPN.

     The broadcasting  industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of federal
regulatory  bodies,  including  the FCC,  any of  which  could  possibly  have a
material  effect on a television  station's  operations  and profits.  There are
sources of video service other than conventional  television stations,  the most
common being cable  television,  which can increase  competition for a broadcast
television station by bringing into its market distant  broadcasting signals not
otherwise available to the station's audience,  serving as a distribution system
for national satellite-delivered programming and other non-broadcast programming
originated on a cable system and selling  advertising time to local advertisers.
Other  principal  sources of  competition  include  home video  exhibition,  DBS
entertainment  services  and  multichannel   multipoint   distribution  services
("MMDS").  DBS and cable operators in particular are competing more aggressively
than in the past for  advertising  revenues  in our TV  station's  market.  This
competition could adversely affect our station's revenues and performance in the
future.   Moreover,   technology   advances  and  regulatory  changes  affecting
programming  delivery through fiber optic telephone lines and video  compression
could lower entry barriers for new video channels and encourage the  development
of increasingly specialized "niche"



                                       12
<PAGE>



programming.   The  1996  Act  permits  telephone  companies  to  provide  video
distribution  services via radio  communication,  on a common carrier basis,  as
"cable  systems"  or  as  "open  video  systems,"  each  pursuant  to  different
regulatory  schemes.   The  Company  is  unable  to  predict  what  other  video
technologies might be considered in the future, or the effect that technological
and regulatory changes will have on the broadcast television industry and on the
future profitability and value of a particular broadcast television station.

     The  Company   believes  that  television   broadcasting  may  be  enhanced
significantly  by the development and increased  availability of DTV technology.
This  technology  has the  potential  to permit the  Company to provide  viewers
multiple  channels  of digital  television  over each of its  existing  standard
channels,  to provide certain programming in a high definition television format
and to deliver  various forms of data,  including data on the Internet,  to home
and business  computers.  These additional  capabilities may provide the Company
with additional sources of revenue.  The Company is currently  considering plans
to provide  HDTV,  to provide  multiple  channels of  television  including  the
provision  of  additional  broadcast  programming  and  transmitted  data  on  a
subscription  basis,  and to  continue  its  current TV program  channels on its
allocated DTV channels.  The 1996 Act allows the FCC to charge a spectrum fee to
broadcasters who use the digital spectrum to offer subscription-based  services.
The FCC has ruled that  broadcasters  are  required  to pay a fee of 5% of gross
revenues in all subscription  services. In addition,  Congress has held hearings
on broadcasters' plans for the use of their digital spectrum. The Company cannot
predict what future  actions the FCC or Congress might take with respect to DTV,
nor can it predict the effect of the FCC's  present DTV  implementation  plan or
such future actions on the Company's business. While DTV technology is currently
available in some of the top ten viewing markets,  a successful  transition from
the current  analog  broadcast  format to a digital  format may take many years.
There can be no assurance  that the Company's  efforts to take  advantage of the
new technology will be commercially successful.

     Sinclair also competes for  programming,  which involves  negotiating  with
national  program  distributors  or  syndicators  that sell  first-run and rerun
packages of programming.  Sinclair's  stations  compete for exclusive  access to
those programs against in-market  broadcast  station  competitors for syndicated
products.  Cable  systems  generally  do not  compete  with local  stations  for
programming,  although  various  national  cable networks from time to time have
acquired  programs that would have  otherwise  been offered to local  television
stations.   Public  broadcasting  stations  generally  compete  with  commercial
broadcasters for viewers but not for advertising dollars.

     Historically,  the cost of programming has increased because of an increase
in the number of new independent stations and a shortage of quality programming.
However,  the  Company  believes  that over the past five years  program  prices
generally have stabilized.

     The  Company  believes  it  competes  favorably  against  other  television
stations  because of its  management  skill and  experience,  the ability of the
Company  historically to generate revenue share greater than its audience share,
its network  affiliation  and its local  program  acceptance.  In addition,  the
Company  believes  that it benefits  from the  operation  of multiple  broadcast
properties by Sinclair,  affording it certain nonquantifiable economies of scale
and competitive advantages in the purchase of programming.

EMPLOYEES

     As of December 31, 1998, the Company had  approximately 47 employees.  None
of the employees are represented by labor unions under any collective bargaining
agreement.  No significant  labor problems have been experienced by the Company,
and the Company considers its overall labor relations to be good.


                                       13
<PAGE>

ITEM 2. PROPERTIES

The Company has  facilities  consisting  of  offices,  studios and tower  sites.
Transmitter  and tower sites are located to provide  maximum signal  coverage of
the stations  market.  The  following  table  generally  describes the Company's
principal owned and leased real property in the Des Moines market:





<TABLE>
<CAPTION>
Television Properties   Type of Facility and Use      Owned or Leased(a)            Approximate Size (Sq. Feet)
----------------------- ----------------------------- ----------------------------- ----------------------------
<S>                     <C>                           <C>                           <C>
Des Moines Market       KDSM Studio & Office Site     Owned                         13,000
                        KDSM Transmitter bldg/tower   Owned                         2,000
                        KDSM Transmitter land         Leased (expires 11/08/2034)   40 Acres
                        KDSM Translator tower/shed    Leased (expires 12/31/98)     48
</TABLE>

     The Company believes that all of its properties, both owned and leased, are
generally in good operating condition,  subject to normal wear and tear, and are
suitable and adequate for the Company's current business operations.


ITEM 3. LEGAL PROCEEDINGS

     Lawsuits and claims are filed  against the Company from time to time in the
ordinary course of business.  These actions are in various  preliminary  stages,
and no judgments or decisions  have been  rendered by hearing  boards or courts.
Management,  after reviewing  developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company.

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

     No matters were  submitted to a vote of the Company's  stockholders  during
the fourth quarter of 1998.




                                       14
<PAGE>

                                    PART II

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

   None

ITEM 6. SELECTED FINANCIAL DATA

     The selected  consolidated  financial data for the years ended December 31,
1994,  1995,  1996,  1997 and 1998 have been derived from the Company's  audited
Consolidated Financial Statements. The Consolidated Financial Statements for the
years ended December 31, 1996, 1997 and 1998 are included elsewhere in this Form
10-K.

     The  information  below should be read in  conjunction  with  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
the Consolidated Financial Statements included elsewhere in this Form 10-K.


                                       15
<PAGE>


<TABLE>
<CAPTION>
                                                                                                     THE          THE
                                                               PREDECESSOR        COMBINED (A)     COMPANY      COMPANY
                                                         ----------------------- -------------- ------------ ------------
                                                                             YEARS ENDED DECEMBER 31,
                                                         ----------------------------------------------------------------
                                                             1994        1995         1996          1997         1998
                                                         ----------- ----------- -------------- ------------ ------------
                                                                              (DOLLARS IN THOUSANDS)
<S>                                                      <C>         <C>         <C>            <C>          <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues (b) .............................  $  6,848    $  7,478      $  8,218     $    8,140   $   8,363
Barter revenues ........................................        --          --           204            398         552
                                                          --------    --------      --------     ----------   ---------
Total revenues .........................................     6,848       7,478         8,422          8,538       8,915
                                                          --------    --------      --------     ----------   ---------
Operating costs (c) ....................................     3,347       3,489         3,773          3,658       3,742
Expenses from barter arrangements ......................        --          --           225            283         377
Depreciation and amortization (d) ......................     2,979       3,338         2,616          3,521       4,349
Stock-based compensation ...............................        --          --            --             23          23
                                                          --------    --------      --------     ----------   ---------
Broadcast operating income .............................       522         651         1,808          1,053         424
Parent preferred stock dividend income .................        --          --            --         20,826      26,033
Subsidiary trust minority interest expense (e) .........        --          --            --        (18,600)    (23,250)
                                                          --------    --------      --------     ----------   ---------
Interest and other income ..............................        --          12            --             --         239
                                                          --------    --------      --------     ----------   ---------
Income before income taxes .............................  $    522    $    663      $  1,808     $    3,279   $   3,446
                                                          ========    ========      ========     ==========   =========
Net income .............................................  $    522    $    663      $  1,323     $    1,895   $     729
                                                          ========    ========      ========     ==========   =========
Net income available to common
 shareholders ..........................................  $    522    $    663      $  1,323     $    1,895   $     729
                                                          ========    ========      ========     ==========   =========
OTHER DATA:
Broadcast cash flow (f) ................................  $  2,908    $  2,922      $  3,727     $    3,661   $   3,693
Broadcast cash flow margin (g) .........................      42.5%       39.1%         45.4%          45.0%       44.2%
Adjusted EBITDA (h) ....................................  $  2,551    $  2,772      $  3,291     $    3,378   $   3,423
Adjusted EBITDA margin (g) .............................      37.3%       37.1%         40.0%          41.5%       40.9%
Program contract payments ..............................  $    950    $  1,217      $  1,133     $    1,219   $   1,373
Corporate overhead expense .............................       357         150           436            283         270
Capital expenditures ...................................       140         139           190            197         235
Cash flows from operating activities ...................     2,679       2,813         1,647          4,060       4,210
Cash flows from investing activities ...................      (140)       (121)         (190)      (207,973)       (235)
Cash flows from financing activities ...................    (2,512)     (2,686)       (1,485)       203,921      (3,979)

BALANCE SHEET DATA:
Cash and cash equivalents ..............................  $     56    $     62      $      3     $       11   $       7
Total assets ...........................................     9,688       8,344        40,674        258,540     259,519
HYTOPS (i) .............................................        --          --            --        200,000     200,000
Total equity of partnership 1994 and 1995, total
 stockholders' equity 1996 to 1998 .....................     7,069       5,046        37,516         53,749      54,478
</TABLE>

----------------
(a) The combined column represents the results of operations for the five months
    ended May 31, 1996 of KDSM-TV, a division of River City  Broadcasting,  L.P.
    (the  Predecessor)  and the results of operations for the seven months ended
    December 31, 1996 of KDSM, Inc. and subsidiaries (the Company).

(b) "Net  broadcast  revenues"  are defined as broadcast  revenues net of agency
    commissions.

(c) Operating costs include program and production expenses and selling, general
    and administrative expenses.

(d) Depreciation  and  amortization  includes  amortization of program  contract
    costs and net realizable value adjustments, depreciation and amortization of
    property and equipment, and amortization of acquired intangible broadcasting
    assets and other assets including  amortization of deferred  financing costs
    and costs related to excess syndicated programming.

(e) Subsidiary trust minority  interest expense  represents the distributions on
    the HYTOPS (see footnote h).

(f) "Broadcast  cash  flow"  is  defined  as  broadcast  operating  income  plus
    corporate  overhead  expense,  special  bonuses paid to executive  officers,
    stock-based  compensation,  depreciation  and  amortization  (including film
    amortization  and excess  syndicated  programming),  less cash  payments for
    program  rights.  Cash program  payments  represent  cash  payments made for
    current programs payable and do not necessarily correspond to program usage.
    Special  bonuses  paid to  executive  officers  are  considered  unusual and
    non-recurring. The Company has presented broadcast cash flow data, which the
    Company believes are comparable


                                       16
<PAGE>

  to the data provided by other companies in the industry, because such data are
  commonly used as a measure of performance  for broadcast  companies.  However,
  broadcast  cash flow does not purport to represent  cash provided by operating
  activities  as  reflected in the  Company's  consolidated  statements  of cash
  flows,  is not a measure of financial  performance  under  generally  accepted
  accounting  principles  and  should not be  considered  in  isolation  or as a
  substitute for measures of performance  prepared in accordance  with generally
  accepted accounting principles.

(g) "Broadcast  cash flow margin" is defined as  broadcast  cash flow divided by
    net  broadcast  revenues.  "Adjusted  EBITDA  margin" is defined as Adjusted
    EBITDA divided by net broadcast revenues.

(h) "Adjusted EBITDA" is defined as broadcast cash flow less corporate  expenses
    and is a commonly  used  measure of  performance  for  broadcast  companies.
    Adjusted  EBITDA does not purport to  represent  cash  provided by operating
    activities  as reflected in the  Company's  consolidated  statements of cash
    flows, is not a measure of financial  performance  under generally  accepted
    accounting  principles  and should not be  considered  in  isolation or as a
    substitute for measures of performance prepared in accordance with generally
    accepted accounting principles.

(i) HYTOPS  represents  Company  Obligated  Mandatorily  Redeemable  Security of
    Subsidiary Trust Holding Solely KDSM  Senior  Debentures  representing  $200
    million aggregate liquidation value.


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

INTRODUCTION

     The  operating  revenues of the Company are derived from local and national
advertisers.  The Company's  revenues from local  advertisers  have continued to
trend upward and revenues  from  national  advertisers  have  continued to trend
downward when measured as a percentage of total broadcast  revenue.  The Company
believes  this trend is  primarily  resulting  from an increase in the number of
media outlets providing national advertisers a means by which to advertise their
goods and  services.  The  Company's  efforts to  mitigate  this  trend  include
continuing  its  efforts to  increase  local  revenues  and the  development  of
innovative marketing strategies to sell traditional and non-traditional services
to national advertisers.

     The Company's primary operating  expenses involved in owning,  operating or
programming  the  television   station  are  syndicated   program  rights  fees,
commissions  on  revenues,  employee  salaries  and station  promotional  costs.
Amortization  and  depreciation of costs  associated with the acquisition of the
station  are also  significant  factors in  determining  the  Company's  overall
profitability.

     Set forth below are the principal types of broadcast  revenues  received by
the Company's station for the periods indicated and the percentage  contribution
of each type to the Company's total gross broadcast revenues:


                               BROADCAST REVENUES
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                       -----------------------------------------------------------------------------
                                              1996 (A)                     1997                       1998
                                       -----------------------   ------------------------   ------------------------
<S>                                    <C>          <C>          <C>           <C>          <C>           <C>
Local/regional advertising .........    $  5,790        61.3%     $  6,132         65.6%     $  6,618         69.2%
National advertising ...............       3,468        36.7%        3,146         33.7%        2,769         29.0%
Network compensation ...............          --         0.0%           --          0.0%           53          0.5%
Political advertising ..............         146         1.6%           --          0.0%           34          0.4%
Production .........................          39         0.4%           66          0.7%           89          0.9%
                                        --------       -----      --------        -----      --------        -----
Broadcast revenues .................       9,443       100.0%        9,344        100.0%        9,563        100.0%
                                                       =====      ========        =====      ========        =====
Less: agency commissions ...........      (1,225)                   (1,204)                    (1,200)
                                        --------                  --------                   --------
Broadcast revenues, net ............       8,218                     8,140                      8,363
Barter revenues ....................         204                       398                        552
                                        --------                  --------                   --------
Total revenues .....................    $  8,422                  $  8,538                   $  8,915
                                        ========                  ========                   ========
</TABLE>

----------------
(a)  For  presentation  purposes,  the results of operations for the five months
     ended May 31, 1996 of KDSM-TV, a division of River City Broadcasting,  L.P.
     (the Predecessor) have been combined with the results of operations for the

     seven months ended December 31, 1996 of KDSM,  Inc. and  subsidiaries  (the
     Company).


                                       17
<PAGE>

     The  Company's   primary  types  of  programming   and  their   approximate
percentages of 1998 net broadcast revenues were syndicated  programming (56.6%),
network programming (20.6%), sports programming (14.3%), paid programming (4.7%)
and  children's  programming  (3.8%).   Similarly,  the  Company's  six  largest
categories  of  advertising  and  their  approximate  percentages  of  1998  net
broadcast  revenues  were  automotive  (21%),  restaurants  (11%),  food  (10%),
services  (9%),  retail/department  stores (8%) and soft drinks  (7%).  No other
advertising  category  accounted for more than 7% of the Company's net broadcast
revenues in 1998.  No  individual  advertiser  accounted for more than 5% of the
station's net broadcast revenues in 1998.

     The following  table sets forth certain  operating  data of the Company for
the years ended December 31, 1996, 1997 and 1998. For definitions of items,  see
footnotes on pages 19 and 20 of this document.


                                OPERATING DATA
                            (DOLLARS IN THOUSANDS)





<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                                 ----------------------------------------
                                                                  1996 (A)        1997           1998
                                                                 ----------   ------------   ------------
<S>                                                              <C>          <C>            <C>
Net broadcast revenues (b) ...................................    $  8,218     $    8,140     $   8,363
Barter revenues ..............................................         204            398           552
                                                                  --------     ----------     ---------
Total revenues ...............................................       8,422          8,538         8,915
                                                                  --------     ----------     ---------
Operating costs (c) ..........................................       3,773          3,658         3,742
Expenses from barter arrangements ............................         225            283           377
Depreciation and amortization (d) ............................       2,616          3,521         4,349
Stock-based compensation .....................................          --             23            23
                                                                  --------     ----------     ---------
Broadcast operating income ...................................       1,808          1,053           424
Parent preferred stock dividend income .......................          --         20,826        26,033
Subsidiary trust minority interest expense (e) ...............          --        (18,600)      (23,250)
                                                                  --------     ----------     ---------
Interest and other income ....................................          --             --           239
                                                                  --------     ----------     ---------
Income before income taxes ...................................    $  1,808     $    3,279     $   3,446
                                                                  --------     ----------     ---------
Net income ...................................................    $  1,323     $    1,895     $     729
Basic and diluted net income available to common shareholders.    $  1,323     $    1,895     $     729
                                                                  ========     ==========     =========
BROADCAST CASH FLOW (BCF)
 DATA:
 BCF (f) .....................................................    $  3,727     $    3,661     $   3,693
 BCF margin (g) ..............................................        45.4%          45.0%         44.2%

OTHER DATA:
 Adjusted EBITDA (h) .........................................    $  3,291     $    3,378     $   3,423
 Adjusted EBITDA margin (g) ..................................        40.0%          41.5%         40.9%
 Program contract payments ...................................    $  1,133     $    1,219     $   1,373
 Corporate overhead expense ..................................         436            283           270
 Capital expenditures ........................................         190            197           235
 Cash flows from operating activities ........................       1,647          4,060         4,210
 Cash flows from investing activities ........................        (190)      (207,973)         (235)
 Cash flows from financing activities ........................      (1,485)       203,921        (3,979)
</TABLE>

----------
(a) For  presentation  purposes,  the results of operations  for the five months
    ended May 31, 1996 of KDSM-TV, a division of River
  City  Broadcasting,  L.P.  (the  Predecessor)  have  been  combined  with  the
  results  of  operations  for the seven months ended December 31, 1996 of KDSM,
  Inc. and subsidiaries (the Company).


RESULTS OF OPERATIONS


YEARS ENDED DECEMBER 31, 1998 AND 1997

     Total  revenues  increased to $8.9 million for the year ended  December 31,
1998 from $8.5 million for the year ended December 31, 1997, or 4.7%.  Excluding
the effects of non-cash barter transactions, net broadcast revenues for the year
ended  December  31,  1998  increased  by 2.7% when  compared  to the year ended
December 31, 1997.  When  comparing the year ended December 31, 1998 to the year
ended


                                       18
<PAGE>

December 31,  1997,  revenues  from local  advertisers  increased  approximately
$486,000 or 7.9% and revenues from national advertisers decreased  approximately
$377,000 or 12.0%. The Company's decrease in national  advertising was mitigated
by an offsetting increase in local advertising revenue. The decrease in national
revenue is a trend that the Company  believes is  resulting  from an increase in
the number of media outlets providing  national  advertisers a means by which to
advertise their goods and services.

     Station  operating  costs for the year ended  December  31,  1998  remained
consistent compared to the year ended December 31, 1997.

     Broadcast  operating  income  decreased to $424,000  for the twelve  months
ended  December 31, 1998 from $1.1 million for the twelve months ended  December
31, 1997,  or 61.5%.  The decrease in  broadcast  operating  income for the year
ended  December  31, 1998 as compared  to the year ended  December  31, 1997 was
primarily  attributable  to increases in  amortization  and selling  general and
administrative expenses partially offset by an increase in total revenues.

     Parent  preferred stock dividend income of $26.0 million for the year ended
December  31, 1998 is related to the  Company's  investment  in 12 5/8% Series C
Preferred  Stock  (the  "Parent  Preferred   Securities")  issued  by  Sinclair,
completed March 12, 1997.  Subsidiary  trust minority  interest expense of $23.3
million for the year ended December 31, 1998 is related to the private placement
of the subsidiary  trust  preferred  securities  (the  "HYTOPS").  The Company's
ability to make future  subsidiary trust minority  interest payments is directly
contingent upon the Parent's ability to pay dividends on Parent Preferred Stock.

     The income  tax  provision  increased  to $2.7  million  for the year ended
December  31, 1998 from $1.4 million for the year ended  December 31, 1997.  The
increase for the year ended December 31, 1998 as compared to the combined twelve
months ended  December  31, 1997 is  attributable  to deferred  tax  liabilities
associated with the HYTOPS. The Company's  effective tax rate for the year ended
December 31, 1998 was 78.8% as compared to 42.2% for the year ended December 31,
1997.  The  increase  in the  Company's  effective  tax rate for 1998  primarily
resulted from the deferred tax liability associated with the HYTOPS.

     Deferred state tax liability  increased to $846,000 as of December 31, 1998
from $334,000 as of December 31, 1997.  The increase in the  Company's  deferred
tax  liability  as of December  31,  1998 as  compared  to December  31, 1997 is
primarily due to pre-tax  income for the year ended  December 31, 1998.  Federal
income taxes are allocated to the Company by Sinclair at the statutory rate, are
considered  payable  currently  and are  reflected as an  adjustment to Due from
Parent in the Company's balance sheet.

     Net income for the year ended  December 31, 1998 was  $729,000  compared to
net income of $1.9 million for the year ended December 31, 1997.

     Adjusted  EBITDA and  Broadcast  Cash Flow for the year ended  December 31,
1998 remained consistent compared to the year ended December 31, 1997.

     The Company's  Broadcast  cash flow margin  decreased to 44.2% for the year
ended  December 31, 1998 from 45.0% for the year ended  December  31, 1997.  The
decrease in Broadcast  cash flow margins for the year ended December 31, 1998 as
compared to the year ended December 31, 1997  primarily  resulted from decreases
in national  revenues as noted above combined with increases in program contract
payments.

     The Company's  Adjusted EBITDA margin decreased to 40.9% for the year ended
December 31, 1998 from 41.5% for the year ended  December 31, 1997. The decrease
in Adjusted  EBITDA  margin for the year ended  December 31, 1998 as compared to
the year ended December 31, 1997  primarily  resulted from decreases in national
revenues as noted above combined with increases in program contract payments.


COMBINED PERIODS DECEMBER 31, 1997 AND YEAR ENDED 1996

     Total  revenues  increased to $8.5 million for the year ended  December 31,
1997 from $8.4 million for the combined  twelve months ended  December 31, 1996,
or 1.2%.  Excluding the effects of non-cash barter  transactions,  net broadcast
revenues for the year ended December 31, 1997 decreased by 0.9% when


                                       19
<PAGE>

compared to the combined  twelve months ended December 31, 1996.  When comparing
the year ended  December 31, 1997 to the combined  twelve months ended  December
31, 1996, revenues from local advertisers  increased  approximately  $342,000 or
6.0% and revenues from national advertisers decreased  approximately $322,000 or
9.3%. Revenue growth from local advertisers  primarily resulted from an increase
in market  revenue  growth.  The decrease in revenue from  national  advertisers
primarily resulted from a decrease in market share.

     Station  operating  costs  decreased  to $3.7  million  for the year  ended
December  31,  1997 from $3.8  million  for the  combined  twelve  months  ended
December 31, 1996, or 2.6%. The decrease in station  operating  expenses for the
year ended  December  31, 1997 as compared to the combined  twelve  months ended
December 31, 1996 was  primarily  related to  decreases in corporate  management
fees and sales commissions related to national advertising revenues.

     Broadcast  operating income decreased to $1.1 million for the twelve months
ended  December 31, 1997 from $1.8 million for the combined  twelve months ended
December 31, 1996, or 38.9%. The decrease in broadcast  operating income for the
year ended  December  31, 1997 as compared to the combined  twelve  months ended
December 31, 1996 was primarily  attributable  to increases in  amortization  of
intangibles  related  to the  acquisition  and  costs  related  to  the  private
placement of the HYTOPS of Sinclair Capital,  a subsidiary trust of the Company,
completed March 12, 1997.

     Parent  preferred stock dividend income of $20.8 million for the year ended
December  31, 1997 is related to the  Company's  investment  in 12 5/8% Series C
Preferred  Stock  (the  "Parent  Preferred   Securities")  issued  by  Sinclair,
completed March 12, 1997.  Subsidiary  trust minority  interest expense of $18.6
million for the year ended December 31, 1997 is related to the private placement
of the  Trust  Preferred  Securities.  The  Company's  ability  to  make  future
subsidiary  trust minority  interest  payments is directly  contingent  upon the
Parent's ability to pay dividends on Parent Preferred Stock.

     The income  tax  provision  increased  to $1.4  million  for the year ended
December 31, 1997 from $485,000 for the combined  twelve  months ended  December
31, 1996.  The increase for the year ended  December 31, 1997 as compared to the
combined   twelve  months  ended  December  31,  1996  is  attributable  to  the
Predecessor's  difference in structure in which there were no taxes for the five
months ended May 31, 1996.  The  Predecessor  was a partnership  and as such the
related tax attributes were deemed to be distributed to, and to be reportable by
the partners of the partnership.  The Company's  effective tax rate for the year
ended December 31, 1997 was 42.2%.

     Deferred  state taxes  increased  to $334,000 as of December  31, 1997 from
$73,000 as of December 31,  1996.  The  increase in the  Company's  deferred tax
liability  as of December 31, 1997 as compared to December 31, 1996 is primarily
due to pre-tax  income for the twelve  months ended  December 31, 1997.  Federal
income taxes are allocated to the Company by Sinclair at the statutory rate, are
considered  payable  currently  and are  reflected as an  adjustment to Due from
Parent in the Company's balance sheet.

     Net income for the year ended  December 31, 1997 was $1.9 million  compared
to net income of $1.3 million for the combined  twelve months ended December 31,
1996.

     Broadcast  cash flow  decreased to $3.6 million for the year ended December
31, 1997 from $3.7 million for the  combined  twelve  months ended  December 31,
1996, or 2.7%.  The decrease in Broadcast  cash flow for the year ended December
31, 1997 as compared to the  combined  twelve  months  ended  December  31, 1996
primarily  resulted from decreases in national  revenues as noted above combined
with increases in program contract payments.

     Adjusted  EBITDA  increased to $3.4 million for the year ended December 31,
1997 from $3.3 million for the combined  twelve months ended  December 31, 1996,
or 3.0%. The increase in Adjusted EBITDA for the year ended December 31, 1997 as
compared to the combined  twelve  months ended  December 31, 1996  resulted from
decreases in operating expenses as noted above.

     The Company's  Broadcast  cash flow margin  decreased to 45.0% for the year
ended December 31, 1997 from 45.4% for the combined twelve months ended December
31,  1996.  The  decrease  in  Broadcast  cash flow  margins  for the year ended
December 31, 1997 as compared to the combined  twelve months ended  December 31,
1996  primarily  resulted  from  decreases  in national  revenues as noted above
combined with increases in program contract payments.


                                       20
<PAGE>

     The Company's  Adjusted EBITDA margin increased to 41.5% for the year ended
December 31, 1997 from 40.0% for the combined  twelve months ended  December 31,
1996.  The increase in Adjusted  EBITDA  margin for the year ended  December 31,
1997 as compared to the combined twelve months ended December 31, 1996 primarily
resulted from decreases in operating expenses as noted above.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31,  1998,  the Company had cash  balances of  approximately
$7,000 and working  capital of  approximately  $768,000.  The Company's  primary
source of  liquidity is cash from  operations  which  management  believes to be
sufficient to meet operating cash requirements. Cash requirements or excess cash
from operations are funded by or deposited into Sinclair's  centralized  banking
system utilized by all of its wholly owned subsidiaries.

     The Company does not anticipate capital  expenditures in the coming year to
exceed historical capital  expenditures,  which were  approximately  $235,000 in
1998.  If the Company is required to make capital  expenditures  to keep up with
emerging  technologies,  management  believes  it will  be  able  to  fund  such
expenditures  from its  cash  flow and from  the  proceeds  of  indebtedness  or
financing that is allowed to be incurred or obtained under the Company's  Senior
Debenture  Indenture  (provided that the Company's debt to Adjusted EBITDA ratio
is 4 to 1 or less) or from  capital  contributions  from  Sinclair to the extent
permitted under Sinclair's debt instruments.  Under these instruments,  Sinclair
would  currently  be able to make  capital  contributions  to the  Company in an
amount sufficient to cover such costs if it chose to do so.

SEASONALITY

     The Company's results usually are subject to seasonal  fluctuations,  which
result in fourth quarter  broadcast  operating income being greater usually than
first,  second and third quarter broadcast operating income. This seasonality is
primarily  attributable to increased expenditures by advertisers in anticipation
of holiday season spending and an increase in viewership  during this period. In
addition, revenues from political advertising tend to be higher in even numbered
years.


YEAR 2000 COMPLIANCE

     The Company has  commenced a process to assure Year 2000  compliance of all
hardware,  software,  broadcast  equipment and ancillary equipment that are date
dependent. The process involves four phases:

     Phase  I  -  Inventory  and  Data   Collection.   This  phase  involves  an
identification of all items that are date dependent.  The Company commenced this
phase in the third quarter of 1998,  and  Management  estimates it has completed
approximately  50% of this phase as of the date hereof.  The Company  expects to
complete this phase by the end of the second quarter of 1999.

     Phase II - Compliance Requests. This phase involves requests to information
technology systems vendors for verification that the systems identified in Phase
I are Year 2000 compliant.  The Company will identify and begin to replace items
that cannot be updated or certified as  compliant.  Sinclair has  completed  the
compliance  request  phase of its plan as of the date hereof.  In addition,  the
Company has verified that its accounting,  traffic,  payroll, and local and wide
area network  hardware  and software  systems are  compliant.  In addition,  the
Company is  currently  in the process of  ascertaining  that all of its personal
computers and PC applications are compliant.  The Company is currently reviewing
its news-room  systems,  building  control  systems,  security systems and other
miscellaneous  systems. The Company expects to complete this phase by the end of
the second quarter of 1999.

     Phase III - Test,  Fix and Verify.  This phase  involves  testing all items
that are date  dependent and upgrading all  non-compliant  devices.  The Company
expects to complete  this phase during the first,  second and third  quarters of
1999.

     Phase IV - Final Testing,  New Item Compliance.  This phase involves review
of all inventories for compliance and retesting as necessary. During this phase,
all new equipment will be tested for compliance. The Company expects to complete
this phase by the end of the third quarter of 1999.


                                       21
<PAGE>

     The Company has developed a contingency/emergency plan to address Year 2000
worst case  scenarios.  The  contingency  plan includes,  but is not limited to,
addressing  (i)  regional  power  facilities,  (ii)  interruption  of  satellite
delivered  programming,  (iii) replacement or repair of equipment not discovered
or fixed  during  the year  2000  compliance  process  and (iv)  local  security
measures that may become  necessary  relating to the Company's  properties.  The
contingency plan involves obtaining  alternative  sources if existing sources of
these goods and services are not  available.  Although the  contingency  plan is
designed to reduce the impact of  disruptions  from these  sources,  there is no
assurance that the plan will avoid material disruptions in the event one or more
of these events occurs.

     To  date,  the  Company  believes  that its  major  systems  are Year  2000
compliant.  This  substantial  compliance has been achieved  without the need to
acquire new hardware,  software or systems other than in the ordinary  course of
replacing  such  systems.  The Company is not aware of any  non-compliance  that
would be material  to repair or replace or that would have a material  effect on
the  Company's  business if compliance  were not achieved.  The Company does not
believe that non-compliance in any systems that have not yet been reviewed would
result in material  costs or  disruption.  Neither is the  Company  aware of any
non-compliance  by its customers or suppliers that would have a material  impact
on  Sinclair's   business.   Nevertheless,   there  can  be  no  assurance  that
unanticipated  non-compliance  will not  occur,  and such  non-compliance  could
require  material  costs to repair or could cause  material  disruptions  if not
repaired.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCUSSION ABOUT MARKET RISK

     Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial  statement and supplementary  data of the Company required by
this item are filed as exhibits hereto,  are listed under Item 14(a)(1) and (2),
and are incorporated herein by reference.

ITEM 9. CHANGES IN AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING  FINANCIAL
        DISCLOSURE

     None

                                       22
<PAGE>

                                   PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below is certain information  relating to the Company's executive
officers,  directors,  certain  key  employees  and  persons  expected to become
executive officers, directors or key employees.





<TABLE>
<CAPTION>
              NAME                 AGE             TITLE
-------------------------------   -----   -----------------------
<S>                               <C>     <C>
David D. Smith ................    48     President and Director
David B. Amy ..................    46     Secretary and Director
Dr. David C. McCarus ..........    47     Director
</TABLE>

     Members of the Board of Directors are elected for one-year  terms and until
their  successors  are  duly  elected  and  qualified.  Executive  officers  are
appointed  by the Board of Directors  annually to serve for  one-year  terms and
until their successors are duly appointed and qualified.

     David D. Smith has served as  President  since April of 1996.  In addition,
Mr. Smith has served as President,  Chief Executive  Officer and Chairman of the
Board for Sinclair Broadcast Group, Inc. since September 1990. Prior to that, he
served as General  Manager of WPTT,  Pittsburgh,  Pennsylvania,  from 1984,  and
assumed the financial and engineering responsibility for Sinclair, including the
construction of WTTE, Columbus, Ohio, in 1984. In 1980, Mr. Smith founded Comark
Television,  Inc.,  which  applied for and was granted the permit for WPXT-TV in
Portland, Maine and which purchased WDSI-TV in Chattanooga,  Tennessee.  WPXT-TV
was sold one year after  construction  and  WDSI-TV was sold two years after its
acquisition.  From 1978 to 1986,  Mr. Smith  co-founded and served as an officer
and  director  of  Comark  Communications,   Inc.,  a  company  engaged  in  the
manufacture  of  high  power  transmitters  for  UHF  television  stations.  His
television  career  began  with  WBFF  in  Baltimore,  where  he  helped  in the
construction  of the station and was in charge of  technical  maintenance  until
1978.

     David B. Amy has served as  Secretary  since April 1996.  In  addition,  he
served as Chief Financial  Officer  ("CFO") of Sinclair  Broadcast  Group,  Inc.
since  October of 1994 and as Secretary of Sinclair  Communications,  Inc.,  the
Sinclair subsidiary which owns and operates the broadcasting  operations.  Prior
to his  appointment  as CFO,  Mr.  Amy  served as the  Corporate  Controller  of
Sinclair  beginning in 1986 and has been  Sinclair's  Chief  Accounting  Officer
since that time. Mr. Amy has over fourteen years of broadcast experience, having
joined Sinclair as a business  manager for WCWB in Pittsburgh.  Mr. Amy received
an MBA degree from the University of Pittsburgh in 1981.

     Dr.  David  C. McCarus has served as Director of the Company since February
9,  1999.  Dr.  McCarus  is Board Certified in Obstetrics and Gynecology and has
been  in  private  practice  since  1983.  Dr.  McCarus  has  served  on various
committees  and  medical  staff  for  the  Greater  Baltimore Medical Center. He
currently  serves  as  a  member  of  the  Quality  Assurance Committee of Aetna
USHealthcare  and is an active member of the St. Joseph Medical Center staff. He
also  serves  as  the  Head  of  the  Division of Gynecology for MedTrend Health
Systems,  Inc.  and  Towson  Surgery  Center,  located  in Maryland. Dr. McCarus
received  his  M.D.  Degree from the West Virginia University School of Medicine
and completed his residency training at the Greater Baltimore Medical Center.

ITEM 11. EXECUTIVE COMPENSATION

     The following table sets forth certain information regarding the annual and
long-term  compensation paid by Sinclair for services rendered in all capacities
during the year ended  December 31, 1998 by the President and the other officers
of the Company who received total annual salary and bonus of $100,000 or more in
1998 (the "Named Executive Officers"):


                                       23
<PAGE>

                          SUMMARY COMPENSATION TABLE
                              ANNUAL COMPENSATION

<TABLE>
<CAPTION>
                                                                         LONG-TERM
                                   ANNUAL COMPENSATION                  COMPENSATION
        NAME AND           ------------------------------------    SECURITIES UNDERLYING        ALL OTHER
   PRINCIPAL POSITION       YEAR        SALARY       BONUS (A)      OPTIONS GRANTED (#)      COMPENSATION (B)
------------------------   ------   -------------   -----------   -----------------------   -----------------
<S>                        <C>      <C>             <C>           <C>                       <C>
David D. Smith .........   1998      $1,290,000      $502,526                  --                $ 6,515
 President .............   1997       1,354,490        98,224                  --                  6,306
                           1996         767,308       317,913                  --                  6,748
David B. Amy ...........   1998         200,000        75,000             135,000                 11,136
 Secretary .............   1997         189,000        50,000              25,000                 10,140
                           1996         173,582        31,000                  --                  7,766
</TABLE>

----------
(a) The  bonuses  reported  in this column  represent  amounts  awarded and paid
    during the fiscal  years  noted but  relate to the fiscal  year  immediately
    prior to the year noted.

(b) All other  compensation  consists of income deemed received for personal use
    of  Company-leased  automobiles,  the Company's 401 (k)  contribution,  life
    insurance and long-term disability coverage.

STOCK OPTIONS

     We have set  forth  below  certain  information  concerning  the  grant and
exercise of options to purchase  Sinclair  Class A Common  Stock  during 1998 to
each of the Named Executive Officers.

                             OPTION GRANTS IN 1998

<TABLE>
<CAPTION>
                             NUMBER OF       PERCENT OF TOTAL
                             SECURITIES     OPTIONS GRANTED TO
                             UNDERLYING        EMPLOYEES IN
          NAME            OPTIONS GRANTED      FISCAL YEAR
------------------------ ----------------- -------------------
<S>                      <C>               <C>
David D. Smith .........           --               --
David B. Amy ...........      135,000               2.5%

<CAPTION>
                                                             POTENTIAL REALIZABLE VALUE
                                                               AT ASSUMED ANNUAL RATES
                                                             OF STOCK PRICE APPRECIATION
                                                                 FOR OPTION TERM (A)
                              EXERCISE      EXPIRATION ---------------------------------------
          NAME            PRICE PER SHARE      DATE         0%           5%           10%
------------------------ ----------------- ----------- ----------- ------------- -------------
<S>                      <C>               <C>         <C>         <C>           <C>
David D. Smith .........     --                   --          --            --            --
David B. Amy ........... $ 24.20             2/16/08    $259,875    $2,477,908    $5,880,805
</TABLE>

----------
Aggregated  Option  Exercises  in  Last Fiscal Year and December 31, 1998 Option
Values

<TABLE>
<CAPTION>
                                                               NUMBER OF
                                                         SECURITIES UNDERLYING         VALUE OF UNEXERCISED
                                                          UNEXERCISED OPTIONS         "IN-THE-MONEY" OPTIONS
                                                         AT DECEMBER 31, 1998          AT DECEMBER 31, 1998
                          SHARES ACQUIRED    VALUE   ----------------------------- ----------------------------
          NAME              ON EXERCISE     REALIZED  EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
------------------------ ----------------- --------- ------------- --------------- ------------- --------------
<S>                      <C>               <C>       <C>           <C>             <C>           <C>
David D. Smith .........        --            $--            --             --              --            --
David B. Amy ...........        --             --        37,500        162,500        $237,375       $47,570
</TABLE>

(a) An  "In-the-Money"  option is an option  for which the  option  price of the
    underlying stock is less than the market price at December 31, 1998, and all
    of the value shown reflects stock price  appreciation  since the granting of
    the option.

EMPLOYMENT AGREEMENTS

     Sinclair  entered  into  an  employment  agreement  with  David  D.  Smith,
President and Chief Executive  Officer of the Company,  on June 12, 1995,  which
expired on June 12, 1998. Sinclair has not entered into a new agreement with Mr.
Smith and does not currently  anticipate  entering into a new  agreement.  As of
January 1, 1999, David Smith receives a base salary of approximately $1,290,000.

     In September 1998,  Sinclair entered into an amended  employment  agreement
with David B. Amy, Vice  President and Chief  Financial  Officer of Sinclair and
Secretary of the Company. The agreement does not have any specified  termination
date,  and Sinclair has the right to terminate the  employment of Mr. Amy at any
time,  with or without cause,  subject to the payment of severance  payments for
termination  without cause. The severance  payment due upon termination  without
cause is equal to one


                                       24
<PAGE>

month's  base  salary  in  effect at the time of termination times the number of
years  of  continuous  employment  by  Sinclair  or its predecessor. During each
year,  Mr.  Amy  will  be  entitled to receive compensation as determined by the
Compensation  Committee  of  Sinclair  in  consultation with the Chief Executive
Officer  of  Sinclair.  Mr.  Amy's  compensation may include a bonus in the sole
discretion  of  the  Compensation  Committee  of  Sinclair.  The  agreement also
contains non-competition and confidentiality restrictions on Mr. Amy.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Other than as  follows,  no Named  Executive  Officer  is a  director  of a
corporation  that has a director or executive  officer who is also a director of
the Company.  Each of David D. Smith and David Amy,  both of whom are  executive
officers and directors of the Company, is a director and/or executive officer of
Sinclair.

     During  1998,  none of the Named  Executive  Officers  participated  in any
deliberations of the Company's Board of Directors or the Compensation  Committee
relating to compensation of the Named Executive Officers.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the beneficial
ownership of KDSM,  Inc.  common stock as of March 25, 1999,  by holders  having
beneficial ownership of more than five percent of KDSM, Inc.
common stock.





<TABLE>
<CAPTION>
                                                        COMMON STOCK
                                          --------------------------------------
        NAME OF BENEFICIAL OWNER           NUMBER OF SHARES     PERCENT OF CLASS
---------------------------------------   ------------------   -----------------
<S>                                       <C>                  <C>
Sinclair Communications, Inc. .........          100                 100%
 2000 West 41st Street
 Baltimore, MD 21211
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None

                                       25
<PAGE>

                                    PART IV


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

(a) (1) Index to Financial Statements

     The following financial statements required by this item are submitted in a
separate section beginning on page F-1 of this report.





<TABLE>
<CAPTION>
                                                                                           PAGE
                                                                                          -----
<S>                                                                                       <C>
   Index to Financial Statements ......................................................    F-1
   Report of Independent Public Accountants ...........................................    F-2
   Consolidated Balance Sheets as of December 31, 1997 and 1998 .......................    F-3
   Consolidated Statements of Operations for the Five Months Ended May 31, 1996, the
     Seven Months Ended December 31, 1996 and the Years Ended December 31, 1997
     and 1998 .........................................................................    F-4
   Consolidated Statements of Changes in Undistributed Earnings for the Five Months
     Ended May 31, 1996, and Consolidated Statements of Changes in Stockholder's
     Equity for the Seven Months Ended December 31, 1996 and the Years Ended
     December 31, 1997 and 1998 .......................................................    F-5
   Consolidated Statements of Cash Flows for the Five Months Ended May 31, 1996, the
     Seven Months Ended December 31, 1996 and the Years Ended December 31, 1997
     and 1998 .........................................................................    F-6
   Notes to Consolidated Financial Statements .........................................    F-7

</TABLE>

(a) (2) Index to Financial Statements Schedules

     The  following  financial  statements  schedules  required by this item are
submitted on pages S-1 through S-3 of this Report.





<TABLE>
<CAPTION>
                                                                  PAGE
                                                                 -----
<S>                                                              <C>
   Index to Schedules ........................................    S-1
   Report of Independent Public Accountants ..................    S-2
   Schedule II -- Valuation and Qualifying Accounts ..........    S-3

</TABLE>

     All other  schedules  are omitted  because they are not  applicable  or the
required information is shown in the Financial Statements or the notes thereto.


(a) (3) Index to Exhibits

     See Index to Exhibits

(b)  Reports on Form 8-K

     There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of the fiscal year ended December 31, 1997.

(c)  Exhibits

     The exhibits required by this Item are listed under Item 14 (a) (3).

(d) Financial Statements Schedules

     The financial  statement  schedules  required by this Item are listed under
Item 14 (a) (2).

                                       26
<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements  of the Section 13 or 15(d) of the Securities
Exchange Act of 1934,  the Registrant has duly caused this report on Form 10-K/A
to be signed on its behalf by the undersigned,  thereto duly authorized on March
31, 1999.


                                        KDSM, INC.

                                        By: /s/ David D. Smith
                                           ------------------------------------
                                            David D. Smith
                                            President
                                            Principal Executive Officer


                                        SINCLAIR CAPITAL

                                        By: /s/ David B. Amy
                                           ------------------------------------
                                            David B. Amy
                                            Administrative Trustee

     Pursuant to the  requirements  of the  Securities and Exchange Act of 1934,
this report has been signed by the following  persons in the  capacities  and on
the dates indicated:





<TABLE>
<CAPTION>
         SIGNATURE                         TITLE                     DATE
---------------------------   ------------------------------   ---------------
<S>                           <C>                              <C>

      /s/ David D. Smith      President and Director           March 31, 1999
-------------------------     (Principal Executive Officer)
          David D. Smith      KDSM, Inc.
                              Administrative Trustee
                              (Principal Executive Officer)
                              Sinclair Capital

        /s/ David B. Amy      Vice President and Director      March 31, 1999
-------------------------     (Principal Financial and
        David B. Amy          Accounting Officer)
                              KDSM, Inc.
                              Administrative Trustee
                              (Principal Financial and
                              Accounting Officer)
                              Sinclair Capital

</TABLE>

                                       27
<PAGE>

                        KDSM, INC. AND SUBSIDIARIES AND
   KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR")

                         INDEX TO FINANCIAL STATEMENTS






<TABLE>
<CAPTION>
                                                                                             PAGE
                                                                                            -----
<S>                                                                                         <C>
KDSM, INC. AND SUBSIDIARIES
 Report of Independent Public Accountants ...............................................    F-2
 Consolidated Balance Sheets as of December 31, 1997 and 1998 ...........................    F-3
 Consolidated Statements of Operations for the Five Months Ended May 31, 1996, the Seven
   Months Ended December 31, 1996 and the Years Ended December 31, 1997 and 1998 ........    F-4
 Consolidated Statements of Changes in Undistributed Earnings for the Five Months Ended
   May 31, 1996, and Consolidated Statements of Changes in Stockholder's Equity for the
   Seven Months Ended December 31, 1996 and the Years Ended December 31, 1997 and 1998 ..    F-5
 Consolidated  Statements  of Cash Flows for the Five Months Ended May 31, 1996, the
   Seven  Months Ended December 31, 1996 and the Years Ended December 31, 1997 and 1998..    F-6
 Notes to Consolidated Financial Statements .............................................    F-7

</TABLE>



                                      F-1
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Stockholders of
Sinclair Broadcast Group, Inc.:


     We have audited the  accompanying  balance sheets of KDSM, Inc. (a Maryland
corporation)  and  subsidiaries  (the Company) as of December 31, 1997 and 1998,
and the statements of  operations,  changes in  undistributed  earnings and cash
flows of KDSM-TV,  a division of River City  Broadcasting (the  Predecessor),  a
limited  partnership  for the five months  ended May 31,  1996,  and the related
statements of operations,  stockholder's equity and cash flows of KDSM, Inc. and
subsidiaries  for the seven months  ended  December 31, 1996 and the years ended
December 31, 1997 and 1998. These financial statements are the responsibility of
the Company's and the Predecessor'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 financial position of KDSM, Inc. and subsidiaries
as of December 31, 1997 and 1998,  and the results of operations  and cash flows
of KDSM-TV, a division of River City Broadcasting (the  Predecessor),  a limited
partnership,  for the five  months  ended May 31,  1996,  and the results of its
operations  and its cash  flows of KDSM,  Inc.  and  subsidiaries  for the seven
months ended  December  31, 1996 and the years ended  December 31, 1997 and 1998
and in conformity with generally accepted accounting principles.


Baltimore, Maryland,
March 23, 1999


                                      F-2
<PAGE>

                          KDSM, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)





<TABLE>
<CAPTION>
                                                                                 AS OF DECEMBER 31,
                                                                               -----------------------
                                                                                  1997         1998
                                                                               ----------   ----------
<S>                                                                            <C>          <C>
                                    ASSETS
CURRENT ASSETS:
 Cash ......................................................................    $     11     $      7
 Accounts receivable, net of allowance for doubtful accounts of $30 and $33,
   respectively ............................................................       2,150        2,107
 Dividends receivable from parent ..........................................       1,085        1,085
 Current portion of program contract costs .................................         988          910
 Prepaid expenses and other current assets .................................          33           25
 Deferred barter costs .....................................................         100           28
                                                                                --------     --------
   Total current assets ....................................................       4,367        4,162
PROPERTY AND EQUIPMENT, net ................................................       3,208        3,062
PROGRAM CONTRACT COSTS, less current portion ...............................         925          534
INVESTMENT IN PARENT PREFERRED SECURITIES ..................................     206,200      206,200
DUE FROM PARENT ............................................................       2,673        6,652
OTHER ASSETS, net of accumulated amortization of $664 and $1,889,
 respectively ..............................................................       7,757        6,532
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net of
 accumulated amortization of $1,468 and $2,501, respectively................      33,410       32,377
                                                                                --------     --------
   Total Assets ............................................................    $258,540     $259,519
                                                                                ========     ========
                        LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
 Accounts payable ..........................................................    $     30     $     17
 Accrued liabilities .......................................................         396          386
 Current portion of program contracts payable ..............................       1,612        1,920
 Deferred barter revenues ..................................................         209          102
 Subsidiary trust minority interest expense payable ........................         969          969
                                                                                --------     --------
   Total current liabilities ...............................................       3,216        3,394
PROGRAM CONTRACTS PAYABLE ..................................................       1,241          801
DEFERRED STATE TAXES .......................................................         334          846
                                                                                --------     --------
   Total liabilities .......................................................       4,791        5,041
                                                                                --------     --------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE
 SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY KDSM
 SENIOR DEBENTURES .........................................................     200,000      200,000
                                                                                --------     --------
STOCKHOLDER'S EQUITY:
 Common stock, $.01 par value, 1,000 shares authorized and 100 shares
   issued and outstanding ..................................................          --           --
 Additional paid-in capital ................................................      51,149       51,149
 Retained earnings .........................................................       2,600        3,329
                                                                                --------     --------
   Total stockholder's equity ..............................................      53,749       54,478
                                                                                --------     --------
   Total Liabilities and Stockholder's Equity ..............................    $258,540     $259,519
                                                                                ========     ========

</TABLE>

 The accompanying notes are an integral part of these consolidated statements.


                                      F-3
<PAGE>

                         KDSM, INC. AND SUBSIDIARIES AND
    KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR"),
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    FOR THE FIVE MONTHS ENDED MAY 31, 1996,
                    THE SEVEN MONTHS ENDED DECEMBER 31, 1996
                 AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                       PREDECESSOR     COMPANY
                                                                       FIVE MONTHS   SEVEN MONTHS
                                                                          ENDED          ENDED
                                                                         MAY 31,      DECEMBER 31,    COMPANY      COMPANY
                                                                           1996          1996           1997         1998
                                                                      ------------- -------------- ------------ ------------
<S>                                                                   <C>           <C>            <C>          <C>
REVENUES:
 Station broadcast revenues, net of agency commissions of $494,
  $731, $1,204 and $1,200 respectively...............................    $ 3,478        $4,740      $   8,140    $   8,363
 Revenues realized from station barter arrangements .................         85           119            398          552
                                                                         -------        ------      ---------    ---------
  Total revenues ....................................................    $ 3,563        $4,859          8,538        8,915
                                                                         -------        ------      ---------    ---------
OPERATING EXPENSES:
 Program and production .............................................        509           627          1,199        1,153
 Selling, general and administrative ................................      1,321         1,316          2,482        2,612
 Expenses realized from station barter arrangements .................         98           127            283          377
 Amortization of program contract costs and net realizable value
  adjustments .......................................................        507           864          1,579        1,710
 Depreciation and amortization of property and equipment ............        233           191            354          381
 Amortization of acquired intangible broadcasting assets and other
  assets ............................................................        277           544          1,588        2,258
                                                                         -------        ------      ---------    ---------
  Total operating expenses ..........................................      2,945         3,669          7,485        8,491
                                                                         -------        ------      ---------    ---------
  Broadcast operating income ........................................        618         1,190          1,053          424
                                                                         -------        ------      ---------    ---------
OTHER INCOME (EXPENSE):
 Parent preferred stock dividend income .............................         --            --         20,826       26,033
 Subsidiary trust minority interest expense .........................         --            --        (18,600)     (23,250)
 Interest income ....................................................         --            --             --          239
                                                                         -------        ------      ---------    ---------
  Income before allocation of consolidated federal income taxes
    and state income taxes ..........................................        618         1,190          3,279        3,446
ALLOCATION OF CONSOLIDATED FEDERAL INCOME
 TAXES ..............................................................         --           412          1,123        2,205
STATE INCOME TAXES ..................................................         --            73            261          512
                                                                         -------        ------      ---------    ---------
NET INCOME ..........................................................    $   618        $  705      $   1,895    $     729
                                                                         =======        ======      =========    =========
Basic and diluted net income per common share .......................    $    --        $7,050      $  18,950    $   7,290
                                                                         =======        ======      =========    =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING...........................         --           100            100          100
                                                                         =======        ======      =========    =========
PRO FORMA NET INCOME AFTER IMPUTING AN INCOME
 TAX PROVISION:
Net income, as reported .............................................    $   618
Imputed income tax provision ........................................        247
                                                                         -------
 Pro forma net income ...............................................    $   371
                                                                         =======

</TABLE>

 The accompanying notes are an integral part of these consolidated statements.


                                      F-4
<PAGE>

                        KDSM, INC. AND SUBSIDIARIES AND
    KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR")
         CONSOLIDATED STATEMENTS OF CHANGES IN UNDISTRIBUTED EARNINGS
                    FOR THE FIVE MONTHS ENDED MAY 31, 1996,
      AND CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FOR
         THE SEVEN MONTHS ENDED DECEMBER 31, 1996 AND THE YEARS ENDED
                          DECEMBER 31, 1997 AND 1998
                                (IN THOUSANDS)





<TABLE>
<CAPTION>
                                                                                 TOTAL
                                                                             UNDISTRIBUTED
             PREDECESSOR                                                        EARNINGS
------------------------------------                                        --------------
<S>                                                                         <C>
BALANCE, December 31, 1995 .........                                             $5,046
 Net Income ........................                                                618
                                                                                 ------
BALANCE, May 31, 1996 ..............                                             $5,664
                                                                                 ======
</TABLE>


<TABLE>
<CAPTION>
                                                      ADDITIONAL                      TOTAL
                                           COMMON       PAID-IN      RETAINED     STOCKHOLDER'S
                COMPANY                     STOCK       CAPITAL      EARNINGS        EQUITY
---------------------------------------   --------   ------------   ----------   --------------
<S>                                       <C>        <C>            <C>          <C>
BALANCE, June 1, 1996 .................     $ --        $36,811       $   --         $36,811
 Net income ...........................       --             --          705             705
                                            ----        -------       ------         -------
BALANCE, December 31, 1996 ............       --         36,811          705          37,516
 Parent capital contributions .........       --         14,338           --          14,338
 Net income ...........................       --             --        1,895           1,895
                                            ----        -------       ------         -------
BALANCE, December 31, 1997 ............       --         51,149        2,600          53,749
 Net income ...........................       --             --          729             729
                                            ----        -------       ------         -------
BALANCE, December 31, 1998 ............     $ --        $51,149       $3,329         $54,478
                                            ====        =======       ======         =======
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.


                                      F-5
<PAGE>

                         KDSM, INC. AND SUBSIDIARIES AND
    KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR"),
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    FOR THE FIVE MONTHS ENDED MAY 31, 1996,
                    THE SEVEN MONTHS ENDED DECEMBER 31, 1996
                AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998
                                (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                            PREDECESSOR
                                                                            FIVE MONTHS
                                                                               ENDED
                                                                              MAY 31,
                                                                                1996
                                                                           -------------
<S>                                                                        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income ..............................................................    $  618
 Adjustments to reconcile net income to net cash flows from
  operating activities -
  Depreciation and amortization of property and equipment ................       233
  Amortization of acquired intangible broadcasting assets and other
    assetsassets...... ...................................................       277
  Amortization of program contract costs and net realizable value
    adjustments ..........................................................       507
 Changes in assets and liabilities, net of effects of acquisitions and
  dispositions-
  (Increase) decrease in accounts receivable, net ........................        21
  Increase in dividend receivable from parent ............................        --
  Decrease (increase) in prepaid expenses and other current assets.               82
  Increase (decrease) in accounts payable and accrued liabilities ........        79
  Increase in deferred state taxes .......................................        --
  Net effect of change in deferred barter revenues and deferred
    barter costs .........................................................        61
  Increase in subsidiary trust minority interest expense payable .........        --
 Payments on program contracts payable ...................................      (891)
                                                                              ------
 Net cash flows from operating activities ................................       987
                                                                              ------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Investment in Parent Preferred Securities ...............................        --
 Payment for exercise of purchase option .................................        --
 Acquisition of property and equipment ...................................       (29)
 Proceeds from disposal of property and equipment ........................        --
                                                                              ------
 Net cash flows from investing activities ................................       (29)
                                                                              ------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net change in due from parent ...........................................      (773)
 Contributions of capital ................................................        --
 Prepayment of excess syndicated program contract liabilities ............      (216)
 Net proceeds from subsidiary trust securities offering ..................        --
                                                                              ------
  Net cash flows from financing activities ...............................      (989)
                                                                              ------
NET INCREASE (DECREASE) IN CASH ..........................................       (31)
CASH, beginning of period ................................................        62
                                                                              ------
CASH, end of period ......................................................    $   31
                                                                              ======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
 AND FINANCING ACTIVITIES:
 Contribution of capital - building ......................................    $   --
                                                                              ======
 Subsidiary trust minority interest payments .............................    $   --
                                                                              ======
 Parent preferred stock dividend income ..................................    $   --
                                                                              ======




<CAPTION>
                                                                              COMPANY
                                                                            SEVEN MONTHS
                                                                                ENDED
                                                                             DECEMBER 31,    COMPANY       COMPANY
                                                                                1996           1997          1998
                                                                           -------------- ------------- -------------
<S>                                                                        <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income ..............................................................   $     705     $     1,895    $   729
 Adjustments to reconcile net income to net cash flows from
  operating activities -
  Depreciation and amortization of property and equipment ................         191             354        381
  Amortization of acquired intangible broadcasting assets and other
    assetsassets...... ...................................................         544           1,588      2,258
  Amortization of program contract costs and net realizable value
    adjustments ..........................................................         864           1,579      1,710
 Changes in assets and liabilities, net of effects of acquisitions and
  dispositions-
  (Increase) decrease in accounts receivable, net ........................      (2,053)            (98)        43
  Increase in dividend receivable from parent ............................          --          (1,085)        --
  Decrease (increase) in prepaid expenses and other current assets.                (67)             53          8
  Increase (decrease) in accounts payable and accrued liabilities ........         636            (276)       (23)
  Increase in deferred state taxes .......................................          73             261        512
  Net effect of change in deferred barter revenues and deferred
    barter costs .........................................................           9              39        (35)
  Increase in subsidiary trust minority interest expense payable .........          --             969         --
 Payments on program contracts payable ...................................        (242)         (1,219)    (1,373)
                                                                             ---------     -----------    --------
 Net cash flows from operating activities ................................         660           4,060      4,210
                                                                             ---------     -----------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Investment in Parent Preferred Securities ...............................          --        (206,200)        --
 Payment for exercise of purchase option .................................          --          (1,576)        --
 Acquisition of property and equipment ...................................        (161)           (197)      (235)
 Proceeds from disposal of property and equipment ........................          --              --         --
                                                                             ---------     -----------    --------
 Net cash flows from investing activities ................................        (161)       (207,973)      (235)
                                                                             ---------     -----------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net change in due from parent ...........................................        (496)         (2,611)    (3,979)
 Contributions of capital ................................................          --          13,776         --
 Prepayment of excess syndicated program contract liabilities ............          --              --         --
 Net proceeds from subsidiary trust securities offering ..................          --         192,756         --
                                                                             ---------     -----------    --------
  Net cash flows from financing activities ...............................        (496)        203,921     (3,979)
                                                                             ---------     -----------    --------
NET INCREASE (DECREASE) IN CASH ..........................................           3               8           (4)
CASH, beginning of period ................................................          --               3         11
                                                                             ---------     -----------    ---------
CASH, end of period ......................................................   $       3     $        11    $     7
                                                                             =========     ===========    =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
 AND FINANCING ACTIVITIES:
 Contribution of capital - building ......................................   $      --     $       562    $    --
                                                                             =========     ===========    =========
 Subsidiary trust minority interest payments .............................   $      --     $    17,631    $23,250
                                                                             =========     ===========    =========
 Parent preferred stock dividend income ..................................   $      --     $    19,742    $26,033
                                                                             =========     ===========    =========

</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-6
<PAGE>

                    KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       DECEMBER 31, 1996, 1997 AND 1998


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION
---------------------

The accompanying consolidated financial statements include the accounts of KDSM,
Inc., Sinclair Capital (a subsidiary trust), and KDSM Licensee,  Inc., which are
collectively  referred to hereafter as "the Company" or "KDSM." The Company is a
television broadcaster serving the Des Moines, Iowa area through station KDSM on
Channel 17, a Fox affiliate. This station was wholly owned and operated by River
City  Broadcasting,  L.P. (RCB) through its ownership in KDSM-TV,  a division of
RCB (the  "Predecessor")  through May 31, 1996.  Sinclair  Broadcast Group, Inc.
(Sinclair) purchased the non-license assets of KDSM-TV from RCB on May 31, 1996,
and  exercised  its option to acquire the license  assets of KDSM-TV from RCB on
April 22, 1997. KDSM owns all of the issued and outstanding common stock of KDSM
Licensee,  Inc. and all of the common trust interests of Sinclair  Capital.  All
intercompany amounts are eliminated in consolidation.

The  accompanying  December 31, 1997 and 1998  consolidated  balance  sheets and
related statements of operations and cash flows for the seven-month period ended
December 31, 1996 and the years ended  December 31, 1997 and 1998, are presented
on a new basis of  accounting.  The  accompanying  financial  statements for the
five-month  period ended May 31, 1996, are presented as "predecessor"  financial
statements (see Note 8).

USE OF ESTIMATES
----------------

The preparation of financial  statements in accordance  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses in the
financial   statements  and  in  the   disclosures  of  contingent   assets  and
liabilities. While actual results could differ from those estimates,  management
believes  that actual  results  will not be  materially  different  from amounts
provided in the accompanying consolidated financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------

Unless otherwise stated, the financial  instruments in the accompanying  balance
sheets approximate fair value.

PROGRAMMING
-----------

The  Company  has  agreements  with  distributors  for the rights to  television
programming  over contract  periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period.  Each contract is recorded as an asset and a liability
when the  license  period  begins  and the  program is  available  for its first
showing.  The  portion  of the  program  contracts  payable  within  one year is
reflected  as a  current  liability  in the  accompanying  consolidated  balance
sheets.

The rights to program  materials are reflected in the accompanying  consolidated
balance  sheets at the lower of  unamortized  cost or estimated  net  realizable
value.  Estimated net realizable values are based upon management's  expectation
of future  advertising  revenues net of sales commissions to be generated by the
program material.  Amortization of program contract costs is generally  computed
under either a four year accelerated method or based on usage,  whichever yields
the greater  amortization for each program.  Program contract costs estimated by
management  to be amortized in the  succeeding  year are  classified  as current
assets.  Payments  of  program  contract  liabilities  are  typically  paid on a
scheduled  basis  and  are not  affected  by  adjustments  for  amortization  or
estimated net realizable value.


                                      F-7
<PAGE>

                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED)

BARTER ARRANGEMENTS
-------------------

Certain  program  contracts  provide for the exchange of advertising air time in
lieu of cash payments for the rights to such  programming.  These  contracts are
recorded  as  the  programs  are  aired  at  the  estimated  fair  value  of the
advertising  air  time  given  in  exchange  for  the  program  rights.  Network
programming is excluded from these calculations.

The Company broadcasts certain customers' advertising in exchange for equipment,
merchandise and services. The estimated fair value of the equipment, merchandise
or services  received is recorded as deferred barter costs and the corresponding
obligation to broadcast advertising is recorded as deferred barter revenues. The
deferred barter costs are expensed or capitalized as they are used,  consumed or
received.  Deferred barter revenues are recognized as the related advertising is
aired.

OTHER ASSETS
------------

Other assets primarily consist of costs related to the issuance of the HYTOPS in
March of 1997.  These costs are being amortized on a straight-line  basis over a
12 year period which represents the date they are mandatorily redeemable.

ACQUIRED INTANGIBLE BROADCASTING ASSETS
---------------------------------------

Acquired  intangible  broadcasting assets are being amortized over periods of 15
to 40 years.  These  amounts  result from the  acquisition  of the  broadcasting
assets of KDSM-TV by Sinclair  from RCB. The Company  monitors  and  continually
evaluates the  realizability of intangible and tangible assets and the existence
of any impairment to its recoverability based on the projected undiscounted cash
flows of the respective stations.  Management believes that the carrying amounts
of the Company's tangible and intangible assets have not been impaired.

Intangible  assets,  at cost,  as of December 31, 1997 and 1998,  consist of the
following (in thousands):


<TABLE>
<CAPTION>
                                                  AMORTIZATION
                                                     PERIOD         1997         1998
                                                 -------------   ----------   ----------
<S>                                              <C>             <C>          <C>
       Goodwill ..............................   40 years         $ 26,777     $ 26,777
       Decaying advertiser base ..............   15 years            1,452        1,452
       FCC licenses ..........................   25 years            4,966        4,966
       Network affiliations ..................   25 years            1,683        1,683
                                                                  --------     --------
                                                                    34,878       34,878
       Less-Accumulated amortization .........                      (1,468)      (2,501)
                                                                  --------     --------
                                                                  $ 33,410     $ 32,377
                                                                  ========     ========

</TABLE>

ACCRUED LIABILITIES
-------------------

Accrued  liabilities  consist  of the following as of December 31, 1997 and 1998
(in thousands):


<TABLE>
<CAPTION>
                                    1997          1998
                                   ------       -------
<S>                                <C>         <C>
  Compensation .................    $230         $206
  Other ........................     166          180
                                    ----         ----
                                    $396         $386
                                    ====         ====

</TABLE>

                                      F-8
<PAGE>

                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED)

REVENUES
--------

Broadcasting  revenues are derived principally from the sale of program time and
spot  announcements  to local,  regional and national  advertisers.  Advertising
revenue is  recognized  in the period  during  which the  program  time and spot
announcements are broadcast.

RECLASSIFICATIONS
-----------------

Certain   reclassifications  have  been  made  to  the  prior  years'  financial
statements to conform with the current year presentation.

2. PROPERTY AND EQUIPMENT:

Property  and  equipment  are  stated at cost,  less  accumulated  depreciation.
Depreciation  is computed  under the  straight-line  method  over the  following
estimated useful lives:



<TABLE>
<S>                                                 <C>
         Buildings and improvements  ............   10--35 years
         Station equipment ......................    5--10 years
         Office furniture and equipment .........    5--10 years
         Leasehold improvements .................   10--31 years
         Automotive equipment ...................    3-- 5 years

</TABLE>

Property and  equipment  consisted of the  following as of December 31, 1997 and
1998 (in thousands):




<TABLE>
<CAPTION>
                                                        1997         1998
                                                     ----------   ----------
<S>                                                  <C>          <C>
         Buildings and improvements ..............        751          800
         Station equipment .......................      2,693        2,843
         Office furniture and equipment ..........        249          285
         Leasehold improvements ..................         34           34
         Automotive equipment ....................         26           26
                                                        -----        -----
                                                        3,753        3,988
         Less-Accumulated depreciation and
          amortization ...........................       (545)        (926)
                                                        -----        -----
                                                       $3,208       $3,062
                                                       ======       ======

</TABLE>

3. PROGRAM CONTRACTS PAYABLE:

Future  payments  required  under program  contracts  payable as of December 31,
1998, are as follows (in thousands):



<TABLE>
<S>                                                        <C>
         1999 ..........................................    $  1,920
         2000 ..........................................         495
         2001 ..........................................         259
         2002 ..........................................          47
                                                            --------
                                                               2,721
         Less: Current portion .........................      (1,920)
                                                            --------
         Long-term portion of program contracts payable.    $    801
                                                            ========

</TABLE>

                                      F-9
<PAGE>

                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED)

Included in the current portion amounts are payments due in arrears of $388,000.
In addition,  the Company has entered into noncancelable  commitments for future
program rights aggregating $2.6 million as of December 31, 1998.

The Company has  estimated the fair value of its program  contract  payables and
noncancelable   commitments   at   approximately   $2.7  million  and  $164,000,
respectively,  as of December  31,  1997,  and $2.4  million  and $2.0  million,
respectively, at December 31, 1998, based on future cash flows discounted at the
Company's current borrowing rate.

4. RELATED PARTY TRANSACTIONS:

The  Predecessor's   financial  statements  of  KDSM-TV  were  included  in  the
consolidated  financial statements of RCB. RCB corporate expenses were allocated
to KDSM-TV and each of RCB's  stations  to cover the  salaries  and  expenses of
senior  management.  Total  management  fees and expenses,  including  allocated
corporate   expenses,   for  the  five  months  ended  May  31,  1996,   totaled
approximately $290,000.

The financial  statements  of KDSM,  Inc. and  subsidiaries  are included in the
consolidated  financial statements of Sinclair.  Sinclair corporate expenses are
allocated  to KDSM and each of the Sinclair  subsidiaries  to cover the salaries
and expenses of senior management. Total management fees and expenses, including
allocated corporate  expenses,  for the seven months ended December 31, 1996 and
the years  ended  December  31,  1997 and  1998,  were  approximately  $146,000,
$283,000  and  $270,000,   respectively.   Management   believes  these  amounts
approximate  the charges  which would have been  incurred had the services  been
purchased from  independent  third parties.  Sinclair also provides and receives
short-term  cash  advances  to and from  the  Company  through  a  central  cash
management  system.  The total amount due from Sinclair was  approximately  $2.7
million and $6.7 million as of December 31, 1997 and 1998.

In connection with the acquisition of KDSM's non-license assets by Sinclair,  on
May 31, 1996,  Sinclair entered into a local marketing  agreement (LMA) with RCB
to provide  programming  services.  Sinclair made specified periodic payments to
RCB in exchange for the right to program and sell advertising.  During the seven
months ended December 31, 1996, Sinclair made payments of approximately $172,000
to RCB in  connection  with the LMA. In  addition,  during 1997,  Sinclair  made
$8,000 of  payments  related  to the LMA with RCB  before  the FCC  license  was
transferred  to  KDSM  (see  Note  11).  These  payments  were  included  in the
accompanying  statement of operations as program and production expenses for the
seven months ended December 31, 1996 and the year ended December 31, 1997.  KDSM
reimbursed  Sinclair for these  payments,  and any amounts due to Sinclair  have
been included in the net due from Parent amount in the accompanying consolidated
balance sheets.

5. INCOME TAXES:

No  income  tax  provision  has been  included  in the  Predecessor's  financial
statements for the five months ended May 31, 1996, since profit and loss and the
related tax attributes  are deemed to be distributed  to, and reportable by, the
partners of RCB on their respective income tax returns.

A pro forma income tax provision, along with the related pro forma effect on net
income, is presented in the accompanying statement of operations.  The pro forma
income taxes for the year ended December 31, 1996 are the product of multiplying
the estimated  blended  federal and state statutory rate of 40% by net income as
reported in the statement of operations.

Sinclair files a consolidated federal tax return, and separate state tax returns
for each of its  subsidiaries.  It is  Sinclair's  policy to charge KDSM for its
federal income tax provision through intercompany  charges, and KDSM is directly
responsible for its current state tax liabilities.  The  accompanying  financial
statements  have been prepared in accordance  with the separate return method of
FASB 109, whereby


                                      F-10
<PAGE>

                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED)

the  allocation  of federal tax provision due to the Parent is based on what the
subsidiary's  current and deferred federal tax provision would have been had the
subsidiary  filed a federal  income tax return outside its  consolidated  group.
Given that KDSM is required to reimburse Sinclair for its federal tax provision,
the federal  income tax  provision  is recorded  as an  intercompany  charge and
included  as a  reduction  of the due from  Parent  amount  in the  accompanying
consolidated  balance sheets as a current obligation.  Accordingly,  KDSM has no
federal deferred income taxes. Since KDSM is directly  responsible for its state
taxes, all deferred tax assets or liabilities are related to state income taxes.
The Company had no alternative  minimum tax credit  carryforwards as of December
31, 1997 and 1998.

The  allocation of  consolidated  income taxes consists of the following for the
years ended December 31, 1997 and 1998 (in thousands):


<TABLE>
<CAPTION>
                                        1997        1998
                                      ---------   ---------
<S>                                  <C>         <C>
  Current .................
  Federal .................            $1,123      $2,205
  State ...................              --          --
                                       ------      ------
                                        1,123       2,205
                                       ------      ------
  Deferred ................
  Federal .................              --          --
  State ...................               261         512
                                       ------      ------
                                       $1,384      $2,717
                                       ======      ======
</TABLE>

The  following is a  reconciliation  of federal  income taxes at the  applicable
statutory rate to the recorded provision:

<TABLE>
<CAPTION>
                                                                      1997         1998
                                                                   ----------   ----------
<S>                                                                <C>          <C>
         Statutory federal income taxes ........................       35.0%        35.0%
         Adjustments- ..........................................
          State income taxes ...................................        7.9          7.9
          Non-deductible expense items .........................         --          0.2
          Tax liability related to dividends on Parent Preferred
           Stock (a) ...........................................         --         35.6
          Other ................................................       (0.7)         0.1
                                                                       ----         ----
         Provision for income taxes ............................       42.2%        78.8%
                                                                       ====         ====
</TABLE>

(a) In March 1997, the Company issued the HYTOPS securities.  In connection with
    this  transaction,  Sinclair  Broadcast  Group,  Inc. (the "Parent")  issued
    $206.2 million of Series C Preferred Stock (the "Parent Preferred Stock") to
    KDSM, Inc., a wholly owned subsidiary. Parent Preferred Stock dividends paid
    to KDSM, Inc. are considered taxable income for Federal tax purposes and not
    considered  income for book purposes.  Also for Federal tax purposes,  KDSM,
    Inc.  is  allowed a tax  deduction  for  dividends  received  on the  Parent
    Preferred  Stock in an amount  e
qual to  Parent  Preferred  Stock  dividends
    received  in each  taxable  year  limited  to the extent  that the  Parent's
    consolidated  group has "earnings and profits." To the extent that dividends
    received by KDSM,  Inc.  are in excess of the  Parent's  consolidated  group
    earnings  and  profits,  the Parent  will reduce its tax basis in the Parent
    Preferred  Stock  which  gives  rise  to a  deferred  tax  liability  (to be
    recognized upon redemption) and KDSM, Inc.'s dividend income is treated as a
    permanent  difference  between  taxable  income and book income.  During the
    years  ended  December  31,  1997 and  1998,  the  Parent  did not  generate
    "earnings and profits" in an amount  greater than or equal to dividends paid
    on the Parent Preferred Stock.  This resulted in a reduction in basis of the
    Parent's  Series C  Preferred  Stock and  generated a related  deferred  tax
    liability.


The following table summarizes the state tax effects of the significant types of
temporary differences between financial reporting basis and tax basis which were
generated during the years ended December 31, 1997 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                1997        1998
                                             ---------   ---------
<S>                                          <C>         <C>
       Net operating losses ..............    $1,446      $2,572
       Film amortization .................        12          42
       Fixed asset depreciation ..........       (77)        (89)
</TABLE>

                                      F-11
<PAGE>

                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED)


<TABLE>
<CAPTION>
                                                                                 1997          1998
                                                                             -----------   -----------
<S>                                                                          <C>           <C>
       Intangible amortization ...........................................        (182)         (241)
       Parent preferred stock deferred tax liability [see (a) above] .....      (1,541)       (3,152)
       Other .............................................................          10            22
                                                                                ------        ------
                                                                              $   (334)     $   (846)
                                                                              ========      ========
</TABLE>

The deferred state tax liability  represents  the state tax benefits  related to
the temporary  differences listed above. The estimated blended federal and state
statutory rate was 41.9% for the years ended December 31, 1997 and 1998.

6. EMPLOYEE BENEFITS:

Substantially  all employees of KDSM,  as of May 31, 1996,  were covered under a
qualified  profit-sharing  plan  administered  by RCB,  which  included a thrift
provision  qualifying  under Section  401(k) of the Internal  Revenue Code.  The
provision allowed the participants to contribute up to 12% of their compensation
in the plan year,  subject to statutory  limitations.  As of May 31, 1996,  KDSM
participates in Sinclair's  retirement  savings plan under Section 401(k) of the
Internal  Revenue  Code.  This plan covers  substantially  all  employees of the
Company who meet minimum age or service  requirements and allows participants to
defer a portion of their annual  compensation on a pre-tax basis.  Contributions
from the  Company are made on an annual  basis in an amount  equal to 50% of the
participating  employee  contributions,  to the extent such contributions do not
exceed 4% of the employees' eligible compensation during the year.

7. COMMITMENTS AND CONTINGENCIES:

LITIGATION
----------

The  Company is  involved in certain  litigation  matters  arising in the normal
course  of  business.  In the  opinion  of  management,  these  matters  are not
significant  and  will not  have a  material  adverse  effect  on the  Company's
financial position.

OPERATING LEASES
----------------

The Company leases certain property and equipment under noncancellable operating
lease agreements. Rental expense charged to income for the five months ended May
31, 1996,  the seven months ended December 31, 1996 and the years ended December
31, 1997 and 1998,  was  approximately  $5,000,  $7,000,  $25,000  and  $31,000,
respectively.  Future  minimum lease  payments  under  noncancellable  operating
leases are approximately (in thousands):



         <TABLE> 
          <S>                                      <C>
            1999 ...............................    $ 22
            2000 ...............................      15
            2001 ...............................      10
            2002 ...............................      10
            2003 ...............................      10
            2004 and thereafter ................     323
                                          ----
                                          $390
                                          ====
</TABLE>

8. ACQUISITION OF BUSINESS:

On May 31, 1996,  Sinclair acquired all of the non-license assets of the Company
from RCB for approximately $36.8 million. In connection with this purchase,  the
Company  purchased  an  option  to  acquire  the  license  assets  of  KDSM  for
approximately $3.4 million,  with an option exercise price of approximately $1.6
million and entered into an LMA with RCB as described in Note 4. None of the


                                      F-12
<PAGE>

                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED)

current assets of KDSM were acquired.  The  acquisition  was accounted for under
the purchase  method of accounting  whereby the purchase  price was allocated to
property  and  equipment,   acquired  intangible   broadcasting   assets,  other
intangible  assets and purchase  options of $2.8 million,  $3.1  million,  $27.5
million and $3.4 million, respectively.

9.  COMPANY OBLIGATED MANDATORILY  REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
    TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES:

In March  1997,  the  Company  completed  a private  placement  of $200  million
aggregate  liquidation  value of 11 5/8%  High  Yield  Trust  Offered  Preferred
Securities (the "Trust Preferred  Securities") of Sinclair Capital, a subsidiary
trust of the Company. The Trust Preferred Securities were issued March 12, 1997,
mature March 15, 2009, are mandatorily  redeemable at maturity,  and provide for
quarterly distributions to be paid in arrears beginning June 15, 1997. The Trust
Preferred Securities were sold to "qualified  institutional  buyers" (as defined
in Rule 144A under the  Securities Act of 1933, as amended) and a limited number
of  institutional  "accredited  investors"  and the  offering  was  exempt  from
registration  under the  Securities  Act of 1933,  as amended  (the  "Securities
Act"),  pursuant  to  Section  # 4(2)  of  the  Securities  Act  and  Rule  144A
thereunder.  The Company utilized the proceeds of the private placement combined
with other capital  contributions  to acquire $206.2 million of 12 5/8% Series C
Preferred Stock (the "Parent Preferred Securities") of Sinclair.

Pursuant to a Registration  Rights Agreement entered into in connection with the
private  placement of the Trust Preferred  Securities,  Sinclair Capital offered
holders  of the  Trust  Preferred  Securities  the right to  exchange  the Trust
Preferred  Securities with new Trust Preferred  Securities having the same terms
as the existing securities,  except that the exchange of the new Trust Preferred
Securities for the existing Trust Preferred Securities has been registered under
the Securities  Act. On May 2, 1997, the Company filed a registration  statement
on Form S-4 with the  Securities  and  Exchange  Commission  for the  purpose of
registering the new Trust Preferred Securities to be offered in exchange for the
aforementioned  existing  Trust  Preferred  Securities  issued by the Company in
March 1997 (the "Exchange  Offer").  The Company's Exchange Offer was closed and
became  effective  on August 11, 1997,  at which time all of the existing  Trust
Preferred Securities were exchanged for new Trust Preferred Securities.

10. PARENT PREFERRED SECURITIES:

In March  1997,  the  Company  utilized  the  proceeds  of the  Trust  Preferred
Securities  combined with other capital  contributions to acquire $206.2 million
of 12 5/8% Parent Preferred Securities, issued by Sinclair. The Parent Preferred
Securities  were issued March 12, 1997,  mature March 15, 2009, are  mandatorily
redeemable at maturity,  and provide for quarterly  distributions  to be paid in
arrears beginning June 15, 1997.

Pursuant to a Registration  Rights Agreement entered into in connection with the
private placement of the Trust Preferred  Securities,  Sinclair was obligated to
exchange the existing Parent Preferred  Securities (the "Old Parent  Preferred")
with New Parent  Preferred  Securities (the "New Parent  Preferred")  registered
under the Securities Act. The terms of the New Parent Preferred are identical in
all  material  respects  to those of the Old Parent  Preferred.  A  registration
statement  was filed on May 2, 1997 with respect to  registering  the New Parent
Preferred, and was declared effective on July 14, 1997 and the exchange has been
completed.

11. EXERCISE OF OPTION TO ACQUIRE LICENSE ASSETS:

During  1997,  the FCC granted  approval for transfer of the FCC license of KDSM
from RCB to the Company. The Company exercised its option to acquire the License
Assets (the assets essential for broadcasting a television  signal in compliance
with regulatory  guidelines) of KDSM from RCB for an option exercise  payment of
approximately $1.6 million.


                                      F-13
<PAGE>

                          KDSM, INC. AND SUBSIDIARIES

                              INDEX TO SCHEDULES



<TABLE>
<S>                                                          <C>
Report of Independent Public Accountants .................   S-2
Schedule II -- Valuation and Qualifying Accounts .........   S-3
</TABLE>

All  schedules  except those listed above are omitted as not  applicable  or not
required or the required  information is included in the consolidated  financial
statements or in the notes thereto.

                                      S-1
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Stockholders of
Sinclair Broadcast Group, Inc.:


We have audited in accordance with generally  accepted auditing  standards,  the
consolidated balance sheets, statements of operations,  changes in stockholder's
equity and cash flows of KDSM, Inc. and Subsidiaries  included in this Form 10-K
and have issued our report  thereon dated March 23, 1999. Our audit was made for
the purpose of forming an opinion on the basic financial  statements  taken as a
whole. The schedule listed in the accompanying  index is the  responsibility  of
the Company's  management  and is presented  for purposes of complying  with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements.  This schedule has been subjected to the auditing procedures applied
in the audit of the basic  financial  statements  and,  in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.



Baltimore, Maryland,
March 23, 1999

                                      S-2
<PAGE>

                                                                    SCHEDULE II


                          KDSM, INC. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                                (IN THOUSANDS)





<TABLE>
<CAPTION>
                                              BALANCE AT     CHARGED TO                     BALANCE
                                               BEGINNING      COSTS AND                     AT END
                DESCRIPTION                    OF PERIOD      EXPENSES      DEDUCTIONS     OF PERIOD
------------------------------------------   ------------   ------------   ------------   ----------
<S>                                          <C>            <C>            <C>            <C>
Predecessor 1996
 Allowance for doubtful accounts .........        $12            $38             --           $50
Company 1996
 Allowance for doubtful accounts .........         --             39             --            39
Company 1997
 Allowance for doubtful accounts .........         39             39            $48            30
Company 1998
 Allowance for doubtful accounts .........         30             13             10            33
</TABLE>

                                      S-3
<PAGE>

                                                   EXHIBIT INDEX

<TABLE>
<CAPTION>
   EXHIBIT
     NO.                                               DESCRIPTION
------------   -------------------------------------------------------------------------------------------
<S>            <C>
 3.1(a)        Amended and Restated Trust Agreement, dated as of March 12, 1997 among KDSM, Inc.,
               First Union National Bank of Maryland, First Union Bank of Delaware, David D. Smith and
               David B. Amy
 3.2(a)        Articles of Incorporation of KDSM, Inc., as of April 22, 1996
 3.3(a)        By-Laws of KDSM, Inc.
 4.1(a)        Indenture, dated as of March 12, 1997 among KDSM, Inc., Sinclair Broadcast Group, Inc. and
               First Union National Bank of Maryland
 4.2(a)        Pledge and Security Agreement dated as of March 12, 1997 between KDSM, Inc. and First
               Union National Bank of Maryland
 4.3(a)        Form of 11 5/8% High Yield Trust Offered Preferred Securities of Sinclair Capital
 4.4(a)        Form of 11 5/8% Senior Debentures due 2009 of KDSM, Inc. (included in Exhibit 4.1)
 4.5(a)        Form of Parent Guarantee Agreement between Sinclair Broadcast Group, Inc. and First
               Union National Bank of Maryland
 27            Financial Data Schedule of KDSM, Inc.
</TABLE>

----------
(a) Incorporated  by reference from the Company's Registration Statement on Form
    S-4, No. 333-26427.