================================================================================
                                  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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997   COMMISSION FILE NUMBER: __________

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

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

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

                              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)
                              ------------------

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

                              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  filers  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 27,  1998,  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.

================================================================================
<PAGE>
                                    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 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 four 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  such  programming  as  "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:


<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
                                                       1995           1996           1997
                                                   ------------   ------------   ------------
                                                             (DOLLARS IN THOUSANDS)

<S>                                                <C>            <C>            <C>
Market revenue .................................    $  38,089      $  41,988       $39,944
Annual market revenue growth/(decline) .........          7.9%          10.2%         (4.9%)
Station rank within market .....................            3              3             4
Television homes ...............................      369,410        373,630       383,000
KDSM audience share ............................          8.0%           8.3%          7.3%
</TABLE>


     KDSM had station broadcast revenues of $8.1 million and broadcast cash flow
of $3.6 million in 1997.

     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 (the  "Trust") 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  National 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 11 5/8% High Yield  Offered  Preferred  Securities  (the  "Preferred
Securities") and the common  securities (the "Common  Securities")  representing
undivided  beneficial interests in the Trust, (ii) purchasing the 11 5/8% Senior
Debentures due 2009 (the "KDSM Senior Debentures") with 

                                       1
<PAGE>
the proceeds from sale of the Preferred 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 (as defined below). 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,  the registering of transfers of
the Preferred  Securities and the Common  Securities and preparing and filing on
behalf of the Trust all 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 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  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 35 stations in 24 DMAs.  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.











                                       3

<PAGE>
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 its 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.

     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.

USE OF DIGITAL TELEVISION TECHNOLOGY

     The  Company   believes  that  television   broadcasting  may  be  enhanced
significantly   by  the  development  and  increased   availability  of  digital
broadcasting service 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,
although the Company may be required to incur  significant  additional  costs in
connection therewith. The Company is currently considering plans to provide high
definition  television  ("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 digital  television  ("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, and the FCC has opened a rulemaking to consider the
spectrum fees to be charged to broadcasters for such use. 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.  DTV
technology  is not  currently  available to the viewing  public and 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.

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



                                       4

<PAGE>
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.

     Television  station licenses are subject to renewal upon application to the
FCC. During certain  periods when renewal  applications  are pending,  competing
applicants  may file for the  television  frequency  being  used by the  renewal
applicant.   During  the  same  periods,   petitions  to  deny  license  renewal
applications  may be filed  by  interested  parties,  including  members  of the
public.  The FCC is required to hold hearings on renewal  applications  if it is
unable to determine  that renewal of a license would serve the public  interest,
convenience  and necessity,  or if a petition to deny raises a "substantial  and
material  question of fact" as to whether  the grant of the renewal  application
would be prima facie  inconsistent  with the public  interest,  convenience  and
necessity.   However,   the  FCC  is  prohibited  from   considering   competing
applications for a renewal applicant's  frequency,  and is required to grant the
renewal  application,  if the FCC  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
licenses is granted in the vast  majorities of cases even when petitions to deny
are filed, there can be no assurance that the license 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,  an appropriate  application 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.  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 that 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. 

                                       5

<PAGE>
     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 pending a  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.

     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  nonattributable  equity  or  debt
interests in a media outlet  combined with an  attributable  interest in another
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  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 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.

Television
----------

     National  Ownership  Rule.  Prior  to the 1996  Act,  FCC  rules  generally
prohibited an individual or entity from having an attributable  interest in more
than 12 television stations nationwide,  or in television stations reaching more
than 25% of the national television viewing audience.  Pursuant to the 1996 Act,
the FCC has  modified  its rules to eliminate  any  limitation  on the number of
television stations an 

                                       6

<PAGE>
individual  or entity may own  nationwide,  subject to the  restriction  that 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.  All but six of the stations owned and operated by the Company,  or to
which the Company provides programming services, are UHF. Upon completion of all
pending acquisitions and dispositions,  the Company will reach approximately 14%
of U.S. television households using the FCC's method of calculation.

     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  television  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.

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 and radio 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  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
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 

                                       7

<PAGE>
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. Generally, any such waivers that
are granted,  and which allow common ownership of a television  station and more
than two  same-service  radio  stations in the same market,  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  media
"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.

     The 1996 Act requires the FCC to review its broadcast ownership rules every
two years to  "determine  whether any of such rules are  necessary in the public
interest as the result of  competition,"  and to repeal or modify any rules that
are  determined to be no longer in the public  interest.  In March 1998, the FCC
initiated a rulemaking  proceeding to review certain of its broadcast  ownership
rules  pursuant  to the  statutory  mandate,  including:  (i) the rule  limiting
ownership of  television  stations  nationally  to stations  reaching 35% of the
national television  audience;  (ii) the rule attributing only 50% of television
households  in a market to the audience  reach of a UHF  television  station for
purposes of the 35% national  audience reach limit;  (iii) the rule  prohibiting
common  ownership  of a  broadcast  station  and a daily  newspaper  in the same
market;  (iv) the rule prohibiting  common  ownership of a broadcast  television
station and a cable  system in the same  market;  (v) the local  radio  multiple
ownership  rules; and (vi) the dual network rule.  Additionally,  the FCC stated
that its  already-pending  proceedings to review the television duopoly and "one
to a market" rules satisfy the 1996 Act's biennial review requirements.

     Expansion  of the  Company'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 

                                       8

<PAGE>
or more of the  markets  in which  the  Company's  stations  are  located,  more
specifically  to the  extent  that  any of the  Company's  competitors  may have
greater  resources  and thereby be in a superior  position to take  advantage of
such changes.

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  markets  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.  Since the  Company is  affiliated  with Fox it is  required to elect
retransmission  consent  because Fox's  retransmission  consent  negotiations on
behalf of the Company resulted in agreements which extend into 1998.  Therefore,
the Company will need to negotiate a retransmission  consent agreement to attain
carriage on the relevant cable systems 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.

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 duplicative  network  programming carried
on distant signals. However, in a number of markets in which the Company owns or
programs stations  affiliated with a network,  a station that is affiliated with
the same network in a nearby market is carried on cable systems in the Company's
market.  This is not in violation  of the FCC's  network  nonduplication  rules.
However,  the  carriage of two network  stations on the same cable  system could
result in a decline  of  viewership  adversely  affecting  the  revenues  of the
Company owned or programmed station.

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  examined  legislation
proposals which would eliminate or severely restrict the advertising of beer and
wine.  Although  no  prediction  can be  made as to  whether  any or all of such
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.

                                       9
<PAGE>
     The Communications Act and FCC rules also impose regulations  regarding 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)
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.  In addition,  licensees must develop and implement
affirmative action programs designed to promote equal employment  opportunities,
and must submit  reports to the FCC with  respect to these  matters on an annual
basis and in connection with a renewal application.  Failure to observe these or
other rules and  policies  can result in the  imposition  of various  sanctions,
including monetary forfeitures, the grant of a renewal for a "short" (i.e., less
than the full) license term,  or, for  particularly  egregious  violations,  the
denial of a license renewal application or the revocation of a license.

     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 1996 Act directs the FCC to adopt rules  requiring
closed  captioning  of  all  broadcast  television  programming,   except  where
captioning would be "economically burdensome." The FCC has recently adopted such
rules. The rules require generally that (i) 95% of all new programming 

                                       10
<PAGE>
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 digital television ("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. 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. In
February  1998,  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.

     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 (many stations affiliated with these networks in the top 10 markets have
voluntarily  committed to begin digital broadcasting by November 1998), and that
affiliates of these networks in markets 11 through 30 begin digital broadcasting
by November 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 DBS) that  carries at least one digital  channel from each of the local
stations in that market,  and 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  concluded a separate  proceeding  in
which it reallocated  television  channels 60 through 69 to other services while
protecting  existing  television  stations on those  channels from  interference
during the DTV  transition  period.  Additionally,  the FCC will open 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.  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's
television  stations will be able to increase  revenue to offset such costs. The
FCC is also considering imposing new public interest  requirements on television
licensees  in  exchange  for their  receipt  of DTV  channels.  The  Company  is
currently  considering  plans to provide HDTV, to provide  multiple  channels of
television,  including  the provision of additional  broadcast  programming  and
trans- 

                                       11
<PAGE>
mitted 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 opened a  rulemaking  to consider the
spectrum fees to be charged to broadcasters for such use. 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 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  stations,  result in the loss of
audience share and advertising  revenues for the Company's  broadcast  stations,
and affect the ability of the Company to acquire  additional  broadcast stations
or finance such  acquisitions.  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
properties  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,  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  and  radio  stations  in its DMA 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.

                                       12
<PAGE>
     Television Competition. 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 is
located in a highly competitive DMA. In addition,  certain of the Company's DMAs
are 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  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 within its DMA.

     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 has suffered a competitive  disadvantage  in comparison to stations with
VHF  broadcast  frequencies  due to its UHF broadcast  frequency.  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,
direct-to-home broadcast satellite television ("DBS") entertainment services and
multichannel  multipoint  distribution services ("MMDS").  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"
programming.   The  1996  Act  permits  telephone  companies  to  provide  video
distribution services via

                                       13
<PAGE>
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 the effect that technological and regulatory changes will have
on the broadcast  television industry and on the future  profitability and value
of the Company's broadcast television station.

     The FCC  authorizes DBS services  throughout the United States.  Currently,
two FCC permitees,  DirecTV and United States  Satellite  Broadcasting,  provide
subscription  DBS services via  high-power  communications  satellites and small
dish receivers,  and other companies provide  direct-to-home video service using
lower powered satellites and larger receivers. Additional companies are expected
to commence direct-to-home  operations in the near future. DBS and MMDS, as well
as other new technologies,  will further increase competition in the delivery of
video programming.

     The Company  cannot  predict what other  matters might be considered in the
future,  nor can it judge in advance what impact, if any, the  implementation of
any of these proposals or changes might have on its business.

     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 opened a rulemaking  to consider the spectrum  fees to be charged to
broadcasters  for  such  use.  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.  DTV technology is not currently
available  to the viewing  public and a successful  transition  from the current
analog television  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,
the network affiliations and its local program acceptance. In addition, Sinclair
believes that it benefits from the operation of multiple  broadcast  properties,
affording  it  certain  nonquantifiable   economies  of  scale  and  competitive
advantages in the purchase of programming.

EMPLOYEES

     As of December 31, 1997, the Company had  approximately 44 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.

                                       14
<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'  markets.  The following table  generally  describes the Company's
principal owned and leased real property in the Des Moines market:


<TABLE>
<CAPTION>

Type of Facility and Use        Owned or Leased(a)              Approximate Size (Sq. Feet)
-----------------------------   -----------------------------   ----------------------------
<S>                             <C>                             <C>
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 1997.

                                       15

<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,
1993,  1994,  1995,  1996 and 1997 have been derived from the Company's  audited
Consolidated Financial Statements. The Consolidated Financial Statements for the
years ended December 31, 1995, 1996 and 1997 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.












                                       16
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                      THE
                                                                    PREDECESSOR                  COMBINED (A)       COMPANY
                                                       --------------------------------------   --------------   ------------
              YEARS ENDED DECEMBER 31,                    1993          1994          1995           1996            1997
----------------------------------------------------   ----------   -----------   -----------   --------------   ------------
<S>                                                    <C>          <C>           <C>           <C>              <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues (b) .........................    $ 6,172      $  6,848      $  7,478       $   8,218       $    8,140
Barter revenues ....................................         --            --            --             204              398
                                                        -------      --------      --------       ---------       ----------
Total revenues .....................................      6,172         6,848         7,478           8,422            8,538
                                                        -------      --------      --------       ---------       ----------
Operating costs (c) ................................      3,161         3,347         3,489           3,773            3,658
Expenses from barter arrangements ..................         --            --            --             225              283
Depreciation and amortization (d) ..................      2,963         2,979         3,338           2,616            3,521
Stock-based compensation ...........................         --            --            --              --               23
                                                        -------      --------      --------       ---------       ----------
Broadcast operating income .........................         48           522           651           1,808            1,053
Parent preferred stock dividend income .............         --            --            --              --           20,826
Subsidiary trust minority interest expense (e) .....         --            --            --              --          (18,600)
Interest and other income ..........................        (45)           --            12              --               --
                                                        -------      --------      --------       ---------       ----------
Income before income taxes .........................    $     3      $    522      $    663       $   1,808       $    3,279
                                                        =======      ========      ========       =========       ==========
Net income .........................................    $     3      $    522      $    663       $   1,323       $    1,895
                                                        =======      ========      ========       =========       ==========
Net income available to common shareholders ........    $     3      $    522      $    663       $   1,323       $    1,895
                                                        =======      ========      ========       =========       ==========
OTHER DATA:
Broadcast cash flow (f) ............................    $ 2,233      $  2,908      $  2,922       $   3,727       $    3,661
Broadcast cash flow margin (g) .....................       36.2%         42.5%         39.1%           45.4%            45.0%
Adjusted EBITDA (h) ................................    $ 2,056      $  2,551      $  2,772       $   3,291       $    3,378
Adjusted EBITDA margin (g) .........................       33.3%         37.3%         37.1%           40.0%            41.5%
Program contract payments ..........................        955           950         1,217           1,133            1,219
Corporate overhead expense .........................        177           357           150             436              283
Capital expenditures ...............................        113           140           139             190              197
Cash flows from operating activities ...............      N/A           2,679         2,813           1,647            4,060
Cash flows from investing activities ...............      N/A            (140)         (121)           (190)        (207,973)
Cash flows from financing activities ...............      N/A          (2,512)       (2,686)         (1,485)         203,921

BALANCE SHEET DATA:
Cash and cash equivalents ..........................    $    28      $     56      $     62       $       3       $       11
Total assets .......................................     11,466         9,688         8,344          40,674          258,540
HYTOPS (i) .........................................         --            --            --              --          200,000
Total equity of partnership 1993 to 1995, total
 stockholder's equity 1996 to 1997 .................      9,058         7,069         5,046          37,516           53,749
</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).

                                       17

<PAGE>
(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  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  primary  operating  expenses  involved  in owning,
operating or programming  the television  station are syndicated  program rights
fees, commissions on revenues, employee salaries and promotion. Amortization and
depreciation  of  costs  associated  with the  acquisition  of the  station  are
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,
                                       ----------------------------------------------------------------------------
                                                1995                    1996 (A)                     1997
                                       -----------------------   -----------------------   ------------------------
<S>                                    <C>          <C>          <C>          <C>          <C>           <C>
Local/regional advertising .........    $  5,203        60.6%     $  5,790        61.3%     $  6,132         65.6%
National advertising ...............       3,346        39.0%        3,468        36.7%        3,146         33.7%
Political advertising ..............           5         0.1%          146         1.6%           --          0.0%
Production .........................          25         0.3%           39         0.4%           66          0.7%
                                        --------       -----      --------       -----      --------        -----
Broadcast revenues .................       8,579       100.0%        9,443       100.0%        9,344        100.0%
                                                       =====                     =====                      =====
Less: agency commissions ...........      (1,101)                   (1,225)                   (1,204)
                                        --------                  --------                  --------
Broadcast revenues, net ............       7,478                     8,218                     8,140
Barter revenues ....................          --                       204                       398
                                        --------                  --------                  --------
Total revenues .....................    $  7,478                  $  8,422                  $  8,538
                                        ========                  ========                  ========
</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, 1997 of KDSM,  Inc. and  subsidiaries  (the
     Company).

                                       18

<PAGE>
     The  Company's   primary  types  of  programming   and  their   approximate
percentages  of 1997 net broadcast  revenues were network  programming  (16.3%),
children's  programming  (7.5%),  sports programming (8.8%) and other syndicated
programming  (63.5%).   Similarly,  the  Company's  six  largest  categories  of
advertising  and their  approximate  percentages of 1997 net broadcast  revenues
were automotive (17.3%), restaurants (12.8%), services (9.3%), retail/department
stores (8.4%), soft drinks (6.7%) and food (6.0%). No other advertising category
accounted for more than 6% of the  Company's net broadcast  revenues in 1997. No
individual  advertiser  accounted  for more  than 5% of any  individual  Company
station's net broadcast revenues in 1997.

     The following  table sets forth certain  operating  data of the Company for
the years ended December 31, 1995, 1996 and 1997. For definitions of items,  see
footnotes on pages 17 and 18 of this document. 

                                OPERATING DATA
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                              --------------------------------------
                                                  1995       1996 (A)        1997
                                              -----------   ----------   -----------
<S>                                           <C>           <C>          <C>
Net broadcast revenues (b) ................     $ 7,478      $ 8,218       $ 8,140
Barter revenues ...........................          --          204           398
                                                -------      -------       -------
Total revenues ............................       7,478        8,422         8,538
                                                -------      -------       -------
Operating costs (c) .......................       3,489        3,773         3,658
Expenses from barter arrangements .........          --          225           283
Depreciation and amortization (d) .........       3,338        2,616         3,521
Stock-based compensation ..................          --           --            23
                                                -------      -------       -------
Broadcast operating income ................     $   651      $ 1,808       $ 1,053
                                                =======      =======       =======
BROADCAST CASH FLOW (BCF) DATA:
   BCF (f) ................................     $ 2,922      $ 3,727       $ 3,661
   BCF margin (g) .........................        39.1%        45.4%         45.0%

OTHER DATA:
 Adjusted EBITDA (h) ......................     $ 2,772      $ 3,291       $ 3,378
 Adjusted EBITDA margin (g) ...............        37.1%        40.0%         41.5%
 Program contract payments ................     $ 1,217      $ 1,133       $ 1,219
 Corporate overhead expense ...............     $   150      $   436       $   283
 Capital expenditures .....................     $   139      $   190       $   197

</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, 1997 of KDSM,  Inc. and  subsidiaries  (the
     Company).

                                       19


<PAGE>
RESULTS OF OPERATIONS

COMBINED PERIODS DECEMBER 31, 1996 AND YEAR ENDED 1997

     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 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 9.0%.
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 $200 million  aggregate  liquidation value 11 5/8% High Yield Trust
Offered  Preferred  Securities  (the "Trust  Preferred  Securities") 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 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.

                                       20

<PAGE>
     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.

     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.

YEAR ENDED DECEMBER 31, 1995 AND COMBINED TWELVE MONTHS ENDED DECEMBER 31, 1996

     Net broadcast  revenues  increased to $8.2 million for the combined  twelve
months ended December 31, 1996 from $7.5 million for the year ended December 31,
1995, or 9.3%.  The increase in net broadcast  revenues was primarily the result
of an increase in market revenue and improvements in programming.

     Station operating costs excluding  depreciation and amortization  increased
to $3.8 million for the combined twelve months ended December 31, 1996 from $3.5
million for the year ended  December 31, 1995, or 8.6%. The increase in expenses
for the combined  twelve months ended  December 31, 1996 as compared to the year
ended  December  31,  1995  was  largely  attributable  to  proportional-expense
increases for increased sales.

     Broadcast  operating  income  increased  to $1.8  million for the  combined
twelve  months ended  December  31,  1996,  from $0.7 million for the year ended
December 31, 1995, or 157.1%. The increase in broadcast operating income for the
combined  twelve  months  ended  December 31, 1996 as compared to the year ended
December  31, 1995 was  primarily  the result of an increase in market  revenue,
improvements  in  programming  and decreases in  depreciation  and  amortization
expenses as a result of the acquisition of the Non-License  Assets of KDSM-TV by
Sinclair on May 31, 1996.

     Net income  increased to $1.3 million for the combined  twelve months ended
December  31, 1996 from $0.7 million for the year ended  December  31, 1995,  or
85.7%.  The increase in net income for the combined twelve months ended December
31, 1996 as  compared to the year ended  December  31,  1995 was  primarily  the
result of an  increase  in  market  revenue,  improvements  in  programming  and
decreases  in  depreciation  and  amortization  expenses  as  a  result  of  the
acquisition of the Non-License Assets of KDSM-TV by Sinclair on May 31, 1996.

     Broadcast  cash flow  increased  to $3.7  million for the  combined  twelve
months ended December 31, 1996 from $2.9 million for the year ended December 31,
1995,  or 27.6%.  The  increase in broadcast  cash flow for the combined  twelve
months ended  December 31, 1996 as compared to the year ended  December 31, 1995
was primarily the result of an increase in market  revenue and  improvements  in
programming.

     Adjusted  EBITDA  increased to $3.3 million for the combined  twelve months
ended  December 31, 1996 from $2.8 million for the year ended December 31, 1995,
or 17.9%.  The increase in Adjusted  EBITDA for the combined twelve months ended
December 31, 1996 as compared to the year ended  December 31, 1995 was primarily
the result of an increase in market revenue and improvements in programming.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31,  1997,  the Company had cash  balances of  approximately
$11,000 and working capital of approximately $1.2 million. 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.

                                       21
<PAGE>
     In June 1997, the Parent  contributed  to the Company its station  premises
and building through a capital contribution which was recorded at its fair value
of $562,000.  The Company does not anticipate capital expenditures in the coming
year  to  exceed  historical  capital  expenditures,  which  were  approximately
$197,000 in 1997.  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.

     In March 1997,  the  Company  completed  a private  placement  of the Trust
Preferred Securities,  generating net proceeds of $192.8 million. Simultaneously
with the  private  placement  of the Trust  Preferred  Securities,  the  Company
utilized the net proceeds from the offering combined with proceeds from Sinclair
capital  contributions  to  acquire  $206.2  million  of  the  Parent  Preferred
Securities.  The Company has and will receive dividend  payments relating to its
investment  in the  Parent  Preferred  Securities  that are  sufficient  to meet
dividend payments requirements of the Trust Preferred Securities.

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.

YEAR 2000

     Certain  computer  programs  have been written using two digits rather than
four  to  define  the  applicable  year,  which  could  result  in the  computer
recognizing a date using "00" as the year 1900 rather than the year 2000.  This,
in turn,  could  result in major  system  failures  in  miscalculations,  and is
generally  referred  to as the "Year 2000"  problem.  The Company and all of its
subsidiaries  have implemented  computer systems which run  substantially all of
the  Company's  principal  data  processing  and  financial  reporting  software
applications.  The  applications  software  used in these  systems are Year 2000
compliant.  Presently,  the Company does not believe  that Year 2000  compliance
will result in any material  investments,  nor does the Company  anticipate that
the Year 2000  problem  will  have  material  adverse  effects  in the  business
operations or financial performance of the Company. In addition,  the Company is
not  aware  of  Year  2000  problems  of its  customers,  suppliers  or  network
affiliates that will have a material adverse effect on the business,  operations
or financial  performance  of the Company.  There can be no assurance,  however,
that the Year  2000  problem  will not  adversely  affect  the  Company  and its
business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCUSSION ABOUT MARKETPLACE

     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 and certain key employees.


              NAME                 AGE             TITLE
-------------------------------   -----   -----------------------
David D. Smith ................    47     President
David B. Amy ..................    45     Secretary
Michael Granados ..............    43     Regional Director, SCI
Theodore J. Stephens ..........    49     General Manager, KDSM
Jeff Potthoff .................    36     Business Manager, KDSM

     David D. Smith has served as President  since April 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 from 1984,  and  assumed  the  financial  and
engineering  responsibility for Sinclair,  including the construction of WTTE 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 has
served as Chief  Financial  Officer  ("CFO") of Sinclair  Broadcast  Group since
October  1994 and as  Secretary  of Sinclair  Communications,  Inc.,  Sinclair's
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 thirteen  years of broadcast  experience,  having joined
Sinclair as a business  manager for WPTT in Pittsburgh.  Mr. Amy received an MBA
degree from the University of Pittsburgh in 1981. 

     Michael  Granados has served as a Regional  Director of Sinclair  Broadcast
Group since July 1996. As a Regional  Director,  Mr. Granados is responsible for
the San Antonio, Des Moines,  Peoria and Las Vegas markets.  Prior to July 1996,
Mr.  Granados has served in various  positions with the Company and,  before the
River City Acquisition,  with River City. He served as the General Sales Manager
of KABB from 1989 to 1993,  the Station  Manager  and  Director of Sales of WTTV
from 1993 to 1994 and the General  Manager of WTTV prior to his  appointment  as
Regional Director in 1996.

     Theodore  J.  Stephens  has served as General  Manager  of KDSM,  Inc.  and
KDSM-TV, the Predecessor of KDSM, Inc., since February 1996. Prior to that time,
Mr.  Stephens was  employed by KDSM-TV in various  positions  including  station
manager and sales manager since January 1987.  Mr.  Stephens  received a B.S. in
Journalism from the University of Wisconsin.

     Jeff Potthoff has served as Business Manager of KDSM, Inc. and KDSM-TV, the
Predecessor  of  KDSM,  Inc.  since  May  1995.  Prior  to that  time,  Meredith
Corporation  employed Mr. Potthoff for nine years,  four of which were served as
the  Financial  Manager of  Meredith  Broadcast  Group.  Mr.  Potthoff  also was
employed two years by the public  accounting firm KPMG. Mr. Potthoff  received a
B.B.A.  in  Accounting  from the  University  of Iowa and is a Certified  Public
Accountant.

                                       23
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

     The following table sets forth certain information regarding the annual and
long-term  compensation  by Sinclair  for  services  rendered in all  capacities
during the year ended  December 31, 1997 by the  President  and Secretary of the
Company as to whom the total annual salary and bonus exceeded $100,000 in 1997:

                          SUMMARY COMPENSATION TABLE
                              ANNUAL COMPENSATION
<TABLE>
<CAPTION>
                                                             LONG-TERM           ALL OTHER
                           ANNUAL COMPENSATION             COMPENSATION       COMPENSATION (B)
      NAME AND       --------------------------------  SECURITIES UNDERLYING -----------------
 PRINCIPAL POSITION   YEAR      SALARY     BONUS (A)    OPTIONS GRANTED (#)
-------------------- ------ ------------- ----------- ----------------------
<S>                  <C>    <C>           <C>                <C>                  <C>
David D. Smith       1997    $1,354,490    $ 98,224               --              $ 6,306
 President ......... 1996       767,308     317,913               --                6,748
                     1995       450,000     343,213               --                4,592
David B. Amy         1997       189,000      50,000           25,000               10,140
 Secretary ......... 1996       173,582      31,000               --                7,766
                     1995       132,310      20,000            7,500                7,868
</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

     No grants of stock  options  were made during  1997 to the Named  Executive
Officers.

EMPLOYMENT AGREEMENTS

     Sinclair  has entered  into an  employment  agreement  with David D. Smith,
President and Chief Executive Officer of the Company.  David Smith's  employment
agreement  has an initial  term of three years and is renewable  for  additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the  expiration  of the then current  term.  Effective  January 1,
1997, Sinclair's Compensation Committee increased Mr. Smith's total compensation
from  $1,200,000 to  $1,290,000.  Mr. Smith is also entitled to  participate  in
Sinclair's Executive Bonus Plan based upon the performance of the Company during
the year.  The  employment  agreement  provides  that Sinclair may terminate Mr.
Smith's  employment  prior to expiration of the agreement's  term as a result of
(i) a breach  by Mr.  Smith  of any  material  covenant,  promise  or  agreement
contained  in the  employment  agreement;  (ii) a  dissolution  or winding up of
Sinclair; (iii) the disability of Mr. Smith for more than 210 days in any twelve
month period (as determined under the employment agreement);  or (iv) for cause,
which  includes  conviction  of certain  crimes,  breach of a fiduciary  duty to
Sinclair or the  stockholders,  or repeated failure to exercise or undertake his
duties as an officer of Sinclair (each, a "Termination Event").

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,  Frederick  G. Smith,  J. Duncan Smith and
Robert E. Smith (the "Controlling  Stockholders")  (all of whom are directors of
the Company and Named Executive Officers) is a director and/or executive officer
of  each  of  various  other   corporations   controlled   by  the   Controlling
Stockholders.

     During  1996,  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.

                                       24
<PAGE>
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 27, 1998,  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 financial  statements required by this item are submitted in a separate
section beginning on page F-1 of this report.

(a) (2) Index to Financial Statements Schedules

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

     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) 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>
                        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, 1996 and 1997 ..........................    F-3

 Consolidated Statements of Operations for the Year Ended December 31, 1995, the Five
   Months Ended May 31, 1996, the Seven Months Ended December 31, 1996 and the Year
   Ended December 31, 1997 .............................................................    F-4

 Consolidated Statements of Changes in Undistributed Earnings for the Year Ended Decem-
   ber 31, 1995 and 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
   Year Ended December 31, 1997.. ......................................................    F-5

 Consolidated Statements of Cash Flows for the Year Ended December 31, 1995, the Five
   Months Ended May 31, 1996, the Seven Months Ended December 31, 1996 and the Year
   Ended December 31, 1997 .............................................................    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, 1996 and 1997,
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
year ended  December 31, 1997,  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 year  ended
December  31,  1995 and the five  months  ended May 31,  1996.  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, 1996 and 1997, and the results of its operations and its cash
flows for the seven months ended  December 31, 1996 and the year ended  December
31, 1997 and the results of operations and cash flows of KDSM-TV,  a division of
River City Broadcasting,  a limited partnership, for the year ended December 31,
1995 and the five  months  ended May 31,  1996,  in  conformity  with  generally
accepted accounting principles.

                                                             /s/ Arthur Andersen

Baltimore, Maryland,
March 10, 1998


                                      F-2
<PAGE>
                          KDSM, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                            AS OF DECEMBER 31,
                                                                          -----------------------
                                                                             1996         1997
                                                                          ----------   ----------
<S>                                                                       <C>          <C>
                                   ASSETS
CURRENT ASSETS:
 Cash .................................................................    $     3      $     11
 Accounts receivable, net of allowance for doubtful accounts of $39 and
   $30, respectively...................................................      2,052         2,150
 Dividends receivable from parent .....................................         --         1,085
 Current portion of program contract costs ............................        860           988
 Prepaid expenses and other current assets ............................         86            33
 Deferred barter costs ................................................         50           100
                                                                           -------      --------
   Total current assets ...............................................      3,051         4,367
PROPERTY AND EQUIPMENT, net ...........................................      2,803         3,208
PROGRAM CONTRACT COSTS, less current portion ..........................        794           925
INVESTMENT IN PARENT PREFERRED SECURITIES .............................         --       206,200
DUE FROM PARENT .......................................................        496         2,673
OTHER ASSETS ..........................................................      4,075         7,757
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net of accumu-
 lated amortization of $486 and $1,468, respectively ..................     29,455        33,410
                                                                           -------      --------
   Total Assets .......................................................    $40,674      $258,540
                                                                           =======      ========
                      LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES: ..................................................
 Accounts payable .....................................................    $   292      $     30
 Accrued liabilities ..................................................        410           396
 Current portion of program contracts payable .........................      1,384         1,612
 Deferred barter revenues .............................................        120           209
 Subsidiary trust minority interest expense payable ...................         --           969
                                                                           -------      --------
   Total current liabilities ..........................................      2,206         3,216
PROGRAM CONTRACTS PAYABLE .............................................        879         1,241
DEFERRED STATE TAXES ..................................................         73           334
                                                                           -------      --------
   Total liabilities ..................................................      3,158         4,791
                                                                           -------      --------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURI-
 TIES OF SUBSIDIARY TRUST HOLDING SOLELY KDSM SENIOR
 DEBENTURES ...........................................................         --       200,000
                                                                           -------      --------
STOCKHOLDER'S EQUITY:
 Common stock, $.01 par value, 1,000 shares authorized and 100 shares
   issued and outstanding .............................................         --            --
 Additional paid-in capital ...........................................     36,811        51,149
 Retained earnings ....................................................        705         2,600
                                                                           -------      --------
   Total stockholder's equity .........................................     37,516        53,749
                                                                           -------      --------
   Total Liabilities and Stockholder's Equity .........................    $40,674      $258,540
                                                                           =======      ========
</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 YEAR ENDED DECEMBER 31, 1995, THE FIVE MONTHS ENDED MAY 31, 1996, THE
 SEVEN MONTHS ENDED DECEMBER 31, 1996 AND THE YEAR ENDED DECEMBER 31, 1997
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                                PREDECESSOR      COMPANY
                                                                                FIVE MONTHS   SEVEN MONTHS
                                                                                   ENDED          ENDED
                                                                  PREDECESSOR     MAY 31,     DECEMBER 31,     COMPANY
                                                                      1995          1996          1996          1997
                                                                 ------------- ------------- -------------- ------------
<S>                                                              <C>           <C>           <C>            <C>
REVENUES:
 Station broadcast revenues, net of agency commissions of
   $1,101, $494, $731 and $1,204, respectively .................     $7,478       $ 3,478        $4,740      $   8,140
 Revenues realized from station barter arrangements ............         --            85           119            398
                                                                     ------       -------        ------      ---------
   Total revenues ..............................................      7,478       $ 3,563        $4,859          8,538
                                                                     ------       -------        ------      ---------
OPERATING EXPENSES:
 Program and production ........................................      1,822           509           627          1,199
 Selling, general and administrative ...........................      1,667         1,321         1,316          2,459
 Expenses realized from station barter arrangements ............         --            98           127            283
 Amortization of program contract costs and net realizable
   value adjustments ...........................................      1,504           507           864          1,579
 Stock-based compensation ......................................         --            --            --             23
 Depreciation and amortization of property and equipment .......        897           233           191            354
 Amortization of acquired intangible broadcasting assets and
   other assets ................................................        937           277           544          1,588
                                                                     ------       -------        ------      ---------
   Total operating expenses ....................................      6,827         2,945         3,669          7,485
                                                                     ------       -------        ------      ---------
   Broadcast operating income ..................................        651           618         1,190          1,053
                                                                     ------       -------        ------      ---------
OTHER INCOME (EXPENSE):
 Parent preferred stock dividend income ........................         --            --            --         20,826
 Subsidiary trust minority interest expense ....................         --            --            --        (18,600)
 Other income ..................................................         12            --            --             --
                                                                     ------       -------        ------      ---------
   Income before allocation of consolidated federal income
    taxes and state income taxes ...............................        663           618         1,190          3,279
ALLOCATION OF CONSOLIDATED FEDERAL INCOME
 TAXES .........................................................         --            --           412          1,123
STATE INCOME TAXES .............................................         --            --            73            261
                                                                     ------       -------        ------      ---------
NET INCOME .....................................................     $  663       $   618        $  705      $   1,895
                                                                     ======       =======        ======      =========
Net income per common share ....................................     $   --       $    --        $7,050      $  18,950
                                                                     ======       =======        ======      =========
WEIGHTED AVERAGE COMMON SHARES OUTSTAND-
 ING ...........................................................         --            --           100            100
                                                                     ======       =======        ======      =========
PRO FORMA NET INCOME AFTER IMPUTING AN IN-
 COME TAX PROVISON:
Net income, as reported ........................................     $  663       $   618
Imputed income tax provision ...................................        265           247
                                                                     ------       -------
 Pro forma net income ..........................................     $  398       $   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 YEAR ENDED DECEMBER 31, 1995 AND 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 YEAR ENDED DECEMBER 31, 1997
                                (IN THOUSANDS)

                                             TOTAL
                                         UNDISTRIBUTED
             PREDECESSOR                   EARNINGS
-------------------------------------   --------------
BALANCE, December 31, 1994 ..........      $  7,069
 Net Income .........................           663
 Partnership transfers, net .........        (2,686)
                                           --------
BALANCE, December 31, 1995 ..........         5,046
 Net Income .........................           618
                                           --------
BALANCE, May 31, 1996 ...............      $  5,664
                                           ========

<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
                                            ====        =======       ======         =======
</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 YEAR ENDED DECEMBER 31, 1995, THE FIVE MONTHS ENDED MAY 31, 1996, THE
 SEVEN MONTHS ENDED DECEMBER 31, 1996 AND THE YEAR ENDED DECEMBER 31, 1997
                                (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                          PREDECESSOR
                                                                                          FIVE MONTHS
                                                                                             ENDED
                                                                            PREDECESSOR     MAY 31,
                                                                                1995          1996
                                                                           ------------- -------------
<S>                                                                        <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income ..............................................................   $     663      $  618
 Adjustments to reconcile net income to net cash flows from operat-
  ing activities -
  Gain on disposal of property and equipment .............................         (12)         --
  Depreciation and amortization of property and equipment ................         897         233
  Amortization of acquired intangible broadcasting assets and other
    assets ...............................................................         937         277
  Amortization of program contract costs and net realizable value
    adjustments ..........................................................       1,504         507
  Stock-based compensation ...............................................          --          --
 Changes in assets and liabilities, net of effects of acquisitions and
  dispositions-
  (Increase) decrease in accounts receivable, net ........................         (78)         21
  Increase in dividend receivable from parent ............................          --          --
  Decrease (increase) in prepaid expenses and other current assets.                 52          82
  Increase (decrease) in accounts payable and accrued liabilities ........          67          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 ...................................      (1,217)       (891)
                                                                             ---------      ------
 Net cash flows from operating activities ................................       2,813         987
                                                                             ---------      ------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Investment in Parent Preferred Securities ...............................          --          --
 Payment for exercise of purchase option .................................          --          --
 Acquisition of property and equipment ...................................        (139)        (29)
 Proceeds from disposal of property and equipment ........................          18          --
                                                                             ---------      ------
 Net cash flows from investing activities ................................        (121)        (29)
                                                                             ---------      ------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net change in due from parent ...........................................      (2,686)       (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 ...............................      (2,686)       (989)
                                                                             ---------      ------
NET INCREASE (DECREASE) IN CASH ..........................................           6         (31)
CASH, beginning of period ................................................          56          62
                                                                             ---------      ------
CASH, end of period ......................................................   $      62      $   31
                                                                             =========      ======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
 AND FINANCING ACTIVITIES:
 Contribution of capital - building ......................................   $      --      $   --
                                                                             =========      ======
 Subsidiary trust minority interest ......................................   $      --      $   --
                                                                             =========      ======
 Parent preferred stock dividends ........................................   $      --      $   --
                                                                             =========      ======
<CAPTION>
                                                                               COMPANY
                                                                            SEVEN MONTHS
                                                                                ENDED
                                                                            DECEMBER 31,     COMPANY
                                                                                1996           1997
                                                                           -------------- -------------
<S>                                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income ..............................................................   $     705     $     1,895
 Adjustments to reconcile net income to net cash flows from operat-
  ing activities -
  Gain on disposal of property and equipment .............................          --              --
  Depreciation and amortization of property and equipment ................         191             354
  Amortization of acquired intangible broadcasting assets and other
    assets ...............................................................         544           1,588
  Amortization of program contract costs and net realizable value
    adjustments ..........................................................         864           1,579
  Stock-based compensation ...............................................          --              23
 Changes in assets and liabilities, net of effects of acquisitions and
  dispositions-
  (Increase) decrease in accounts receivable, net ........................      (2,053)            (98)
  Increase in dividend receivable from parent ............................          --          (1,085)
  Decrease (increase) in prepaid expenses and other current assets.                (67)             53
  Increase (decrease) in accounts payable and accrued liabilities ........         636            (299)
  Increase in deferred state taxes .......................................          73             261
  Net effect of change in deferred barter revenues and deferred
    barter costs .........................................................           9              39
  Increase in subsidiary trust minority interest expense payable .........          --             969
 Payments on program contracts payable ...................................        (242)         (1,219)
                                                                             ---------     -----------
 Net cash flows from operating activities ................................         660           4,060
                                                                             ---------     -----------
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)
 Proceeds from disposal of property and equipment ........................          --              --
                                                                             ---------     -----------
 Net cash flows from investing activities ................................        (161)       (207,973)
                                                                             ---------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net change in due from parent ...........................................        (496)         (2,611)
 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
                                                                             ---------     -----------
NET INCREASE (DECREASE) IN CASH ..........................................           3               8
CASH, beginning of period ................................................          --               3
                                                                             ---------     -----------
CASH, end of period ......................................................   $       3     $        11
                                                                             =========     ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
 AND FINANCING ACTIVITIES:
 Contribution of capital - building ......................................   $      --     $       562
                                                                             =========     ===========
 Subsidiary trust minority interest ......................................   $      --     $    17,631
                                                                             =========     ===========
 Parent preferred stock dividends ........................................   $      --     $    19,742
                                                                             =========     ===========
</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, 1995, 1996 AND 1997



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, 1996 and 1997  consolidated  balance  sheets and
related statements of operations and cash flows for the seven-month period ended
December 31, 1996 and the year ended  December 31, 1997,  are presented on a new
basis of accounting.  The accompanying  financial  statements for the year ended
December 31, 1995 and the five-month period ended May 31, 1996, are presented as
"predecessor" financial statements (see Note 9).

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, 1995, 1996 AND 1997 - (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 as of December  31,  1996 and 1997  consist of the  following  (in
thousands):




                                                         1996        1997
                                                       --------   ---------
       Unamortized debt acquisition costs ..........    $  685     $7,757
       Purchase options ............................     3,390         --
                                                        ------     ------
                                                        $4,075     $7,757


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.

Intangible  assets,  at cost,  as of December 31, 1996 and 1997,  consist of the
following (in thousands):



<TABLE>
<CAPTION>
                                               AMORTIZATION
                                                  PERIOD         1996         1997
                                              -------------   ----------   ----------
<S>                                           <C>             <C>          <C>
   Goodwill ...............................     40 years       $26,806      $ 26,777
   Decaying advertiser base ...............     15 years         1,452         1,452
   FCC licenses ...........................     25 years            --         4,966
   Network affiliations ...................     25 years         1,683         1,683
                                                                            --------
                                                                29,941        34,878
   Less- Accumulated amortization .........                       (486)       (1,468)
                                                               -------      --------
                                                               $29,455      $ 33,410
                                                               =======      ========
</TABLE>

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

Accrued  liabilities  consist of the  following as of December 31, 1996 and 1997
(in thousands):



                                  1996      1997
                                 ------   -------
       Compensation ..........    $223     $230
       Other .................     187      166
                                  ----     ----
                                  $410     $396

                                  ====     ====


                                      F-8

<PAGE>
                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1995, 1996 AND 1997 - (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:

       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


Property and  equipment  consisted of the  following as of December 31, 1996 and
1997 (in thousands):

<TABLE>
<CAPTION>
                                                                     1996         1997
                                                                  ----------   ----------
<S>                                                               <C>          <C>
     Buildings and improvements ...............................     $   95          751
     Station equipment ........................................      2,635        2,693
     Office furniture and equipment ...........................        236          249
     Leasehold improvements ...................................          2           34
     Automotive equipment .....................................         26           26
                                                                    ------        -----
                                                                     2,994        3,753
     Less- Accumulated depreciation and amortization ..........       (191)        (545)
                                                                    ------        -----
                                                                    $2,803       $3,208
                                                                    ======       ======

</TABLE>

                                      F-9

<PAGE>
                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1995, 1996 AND 1997 - (CONTINUED )


3. PROGRAM CONTRACTS PAYABLE:

Future  payments  required  under program  contracts  payable as of December 31,
1997, are as follows (in thousands):


          1998 ...................................................    $  1,612
          1999 ...................................................         859
          2000 ...................................................         288
          2001 ...................................................          47
          2002 ...................................................          47
                                                                      --------
                                                                         2,853
          Less: Current portion ..................................      (1,612)
                                                                      --------
          Long-term portion of program contracts payable .........    $  1,241
                                                                      ========

Included in the current portion amounts are payments due in arrears of $542,000.
In addition,  the Company has entered into noncancelable  commitments for future
program rights aggregating $186,000 as of December 31, 1997.

The  estimated  fair  value  of  program  contract  payables  and  noncancelable
commitments is approximately  $1.9 million and $2.8 million at December 31, 1996
and 1997,  respectively,  based on future cash flows discounted at the Company's
current borrowing rate.

4. PREPAYMENT OF SYNDICATED PROGRAM CONTRACT LIABILITIES:

In  connection  with the  acquisition  described in Note 9, the Company  prepaid
certain  syndicated  program contracts payable for which the underlying value of
the  associated  syndicated  program assets was determined to be of little or no
value.  During  1996,  KDSM made cash  payments  of  $216,000  relating to these
syndicated program contracts  payable.  The related assets had been written down
to their net realizable value prior to the prepayment.

5. RELATED PARTY TRANSACTIONS:

The  Predecessor's   financial   statements  of  KDSM-TV  are  included  in  the
consolidated  financial  statements of RCB, Limited  Partnership.  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 year ended December 31, 1995 and
the five months ended May 31, 1996, totaled approximately $150,000 and $290,000,
respectively.

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 year ended  December 31, 1997,  were  approximately  $146,000 and  $283,000,
respectively.  Management  believes these amounts  approximate the charges which
would have been  incurred had the services been  provided by  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  $496,000 and $2.7 million as of December 31,
1996 and 1997.

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


                                      F-10

<PAGE>
                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1995, 1996 AND 1997 - (CONTINUED )

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  12).  These  payments  are  included  in  the
accompanying  statement of operations as program and production expenses for the
seven months ended December 31, 1996 and year ended December 31, 1997.


6. INCOME TAXES:

No  income  tax  provision  has been  included  in the  Predecessor's  financial
statements  for the year ended  December  31, 1995 and 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, 1995 and 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 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, 1996 and 1997.

The  allocation of  consolidated  income taxes consists of the following for the
seven  months ended  December 31, 1996 and the year ended  December 31, 1997 (in
thousands): 

                             1996       1997
                            ------   ---------
Current
  Federal ...............    $412     $1,123
  State .................      --         --
                             ----     ------
                              412      1,123
                             ----     ------
Deferred
  Federal ...............      --         --
  State .................      73        261
                             ----     ------
                             $485     $1,384
                             ----     ------

                                      F-11
<PAGE>
                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1995, 1996 AND 1997 - (CONTINUED )

The  following  table  summarizes  the tax effects of the  significant  types of
temporary differences between financial reporting basis and tax basis which were
generated  during the seven  months  ended  December 31, 1996 and the year ended
December 31, 1997 (in thousands): 


                                              1996          1997
                                           ----------   -----------
     Net operating losses ..............     $   40      $  8,187
     Film amortization .................        (37)           69
     Fixed asset depreciation ..........       (278)         (437)
     Intangible amortization ...........       (261)       (1,031)
     Parent preferred stock ............         --        (8,726)
     Other .............................         51            51
                                             ------      --------
                                             $ (485)     $ (1,887)
                                             ======      ========


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 40.0% and 41.9% for the seven months ended December 31, 1996
and the year ended December 31, 1997, respectively.

7. 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 a
monthly  basis  in  an  amount  equal  to  50%  of  the  participating  employee
contributions,  to  the  extent  such  contributions  do  not  exceed  6% of the
employees' eligible compensation during the month.

8. 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. 

                                      F-12

<PAGE>
                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1995, 1996 AND 1997 - (CONTINUED )

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

The Company leases certain property and equipment under noncancellable operating
lease  agreements.  Rental expense charged to income for the year ended December
31, 1995,  the five months ended May 31, 1996,  the seven months ended  December
31,  1996 and the year ended  December  31,  1997,  was  approximately  $81,000,
$5,000,  $7,000 and 25,000,  respectively.  Future  minimum lease payments under
noncancellable operating leases are approximately (in thousands):


            1998 ........................    $ 24
            1999 ........................      16
            2000 ........................      14
            2001 ........................      10
            2002 ........................      10
            2003 and thereafter .........     333
                                             ----
                                             $407
                                             ====

9. ACQUISITION OF BUSINESS:

On May 31, 1996, Sinclair acquired all of the non-license assets of KDSM-TV 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 $1.6 million and
entered into an LMA with RCB as described in Note 5. None of the 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.

10. 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. 

                                      F-13

<PAGE>
                          KDSM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                DECEMBER 31, 1995, 1996 AND 1997 - (CONTINUED )

11. 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.

12. 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 of KDSM from RCB for an option exercise payment of $1.6 million.

                                      F-14
<PAGE>
                          KDSM, INC. AND SUBSIDIARIES
                               INDEX TO SCHEDULES

                                                           PAGE
                                                            -------
Schedule II -- Valuation and Qualifying Accounts .......... S -- 3



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 10, 1998. 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. 

                                                             /s/ Arthur Andersen


Baltimore, Maryland,
March 10, 1998

                                      S-2

<PAGE>
                                                                    SCHEDULE II

                          KDSM, INC. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                                (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 1995
 Allowance for doubtful accounts .........        $23            $55            $66           $12
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
</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)        Registration Rights Agreement, dated as of March 5, 1997 among Sinclair Broadcast Group,
               Inc., KDSM, Inc., Sinclair Capital, Smith Barney Inc. and Chase Securities Inc.

 4.3(a)        Pledge and Security Agreement dated as of March 12, 1997 between KDSM, Inc. and First
               Union National Bank of Maryland

 4.4(a)        Form of 11 5/8% High Yield Trust Offered Preferred Securities of Sinclair Capital
 4.5(a)        Form of 11 5/8% Senior Debentures due 2009 of KDSM, Inc. (included in Exhibit 4.1)
 4.6(a)        Form of Parent Guarantee Agreement between Sinclair Broadcast Group, Inc. and First
               Union National Bank of Maryland

12.1           Calculation of Ratio of Earnings to Fixed Charges of Sinclair Broadcast Group, Inc. (Includ-
               ed in "Historical and Pro Forma Ratio of Earnings to Fixed Charges" in the Registration
               Statement)

 24            Powers of Attorney (Included in the signature pages to the Report)
 
 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.