<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
(MARK ONE)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
      OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
                        TO

                       COMMISSION FILE NUMBER 333-5396-06

                         PLD CAPITAL ASSET (U.S.) INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                 <C>
                     DELAWARE                                           13-3996647
          (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER IDENTIFICATION NO.)
          INCORPORATION OR ORGANIZATION)

            505 PARK AVENUE, 21ST FLOOR                                    10022
                   NEW YORK, NY                                         (ZIP CODE)
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (212) 527-3800

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                TITLE OF EACH CLASS                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
                -------------------                      -----------------------------------------
<S>                                                 <C>
                       NONE                                                NONE
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE
                                (TITLE OF CLASS)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any amendment to this annual report on Form
10-K.  [X]

     As of August 9, 1999, the aggregate market value of the Common Stock held
by non-affiliates of the registrant was $0. Such aggregate market value was
computed by reference to the closing sale price of the Common Stock as reported
on the National Market segment of The Nasdaq Stock Market on such date. For
purposes of making this calculation only, the registrant has defined affiliates
as including all executive officers, directors and beneficial owners of more
than ten percent of the Common Stock of the Company.

     As of August 9, 1999, there were 1,000 shares of the registrant's Common
Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     None.

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<PAGE>   2

                         PLD CAPITAL ASSET (U.S.) INC.

        FORM 10-K ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 1998

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
PART I
Item 1.   Business....................................................    1
Item 2.   Properties..................................................   15
Item 3.   Legal Proceedings...........................................   15
Item 4.   Submission of Matters to a Vote of Security Holders.........   16

PART II
Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................   16
Item 6.   Selected Financial Data.....................................   17
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   17
Item 7A.  Quantitative and Qualitative Disclosure About Market Risk...   23
Item 8.   Financial Statements and Supplementary Data.................   23
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosures...................................   23

PART III
Item 10.  Directors and Executive Officers of the Registrant..........   24
Item 11.  Executive Compensation......................................   24
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   25
Item 13.  Certain Relationships and Related Transactions..............   25

PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Forms
          8-K.........................................................   25
</TABLE>
<PAGE>   3

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

     PLD Capital Asset (U.S.) Inc. (the "Company") is a wholly owned subsidiary
of PLD Telekom Inc. ("PLD"). The Company was formed to purchase and resell or
lease telecommunications equipment to other subsidiaries of PLD.

     The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), solely because
of the guarantees it has issued in respect of PLD's outstanding 14% Senior
Discount Notes due 2004 (the "Senior Notes") and 9% Convertible Subordinated
Notes due 2006 (the "Convertible Notes"). Upon the completion of PLD's merger
with Metromedia International Group, Inc. described below under "PLD Telekom
Inc.", the Company's guarantees will be terminated and it will cease to be
subject to the periodic reporting requirements of the Exchange Act.

PLD TELEKOM INC.

     PLD, through its operating subsidiaries, is a major provider of local, long
distance and international telecommunications services in the Russian
Federation, Kazakhstan and Belarus. PLD's five principal operating businesses
are: (i) PeterStar Company Limited ("PeterStar"), which provides integrated
local, long distance and international telecommunications services in St.
Petersburg through a fully digital fiber optic network; (ii) Technocom Limited
("Technocom"), which, through Teleport-TP, provides dedicated international
telecommunications services to Russian and foreign businesses in Moscow and
operates a satellite-based pan-Russian long distance network; (iii) Baltic
Communications Limited, ("BCL"), which provides dedicated international
telecommunications services in St. Petersburg, Russia; (iv) ALTEL (known until
May 1998 as BECET International), which provides national cellular service in
Kazakhstan; and (v) Belarus-Netherlands Belcel Joint Venture ("BELCEL"), which
provides the only national cellular service in Belarus. In addition, PLD is
developing a portfolio of international long distance products and services,
under the name "PLDncompass", targeted at carriers and corporate customers in
the United States, the United Kingdom and Europe which require
telecommunications services to and from the countries of the former Soviet
Union. PLD's Common Stock is traded on the Nasdaq National Market under the
symbol "PLDI" and the Toronto Stock Exchange under the symbol "PLD".

     In August 1998, News America Incorporated, through an affiliate ("News"),
acquired a 38% stake in PLD in a series of transactions with PLD and Cable and
Wireless plc ("Cable & Wireless"). Prior to the completion of these
transactions, Cable & Wireless had been, since 1994, PLD's principal
shareholder. As part of these transactions, PLD acquired an additional 11%
interest in PeterStar and its 50% interest in BELCEL.

     On May 18, 1999, PLD entered into an agreement (the "Merger Agreement")
with Metromedia International Group, Inc. ("MMG") pursuant to which PLD would
merge with Moscow Communications, Inc., a newly formed, wholly owned subsidiary
of MMG. Upon consummation of the merger (the "Merger"), PLD will become a wholly
owned subsidiary of MMG, and the holders of shares of Common Stock of PLD will
receive shares of MMG on the basis of an exchange ratio specified in the Merger
Agreement.

     In connection with the Merger, PLD's existing Senior Notes and Convertible
Notes, which are currently guaranteed by the Company, will be exchanged for
senior indebtedness of MMG and the Company's guarantees will be terminated. The
new MMG notes will not be guaranteed by the Company or any other subsidiary of
PLD.

     MMG is a global communications company engaged in the development and
operation of a variety of communications businesses, including cellular
telecommunications, fixed telephony, international and long distance telephony,
cable television, paging and radio broadcasting, in Eastern Europe, the former
Soviet Union, China and other selected emerging markets. Its common stock is
listed on the American and Pacific Stock Exchanges, under the symbol MMG.
<PAGE>   4

RECENT DEVELOPMENTS

  RUSSIAN ECONOMIC AND POLITICAL TURMOIL

     During 1998 there was considerable turmoil and uncertainty in the Russian
financial markets, prompted in large part by a drop in commodity prices and
economic problems in Russia, together with the crisis in the Asian financial
markets which began in late 1997. These developments were accompanied by a
substantial decline in the Russian stock market. These developments led the
Russian government to raise interest rates significantly and to seek special
assistance from the International Monetary Fund. In August 1998, the Russian
government announced a substantial widening of the trading band in which the
Russian Rouble would be permitted to float, together with a moratorium on
certain foreign debt payments. Thereafter the Rouble dropped substantially in
value and traded outside of the high end of the band, and the Russian government
did not intervene to stop this trading, thereby effectively acquiescing to a
major devaluation of the Rouble. The latter part of 1998 and the first half of
1999 saw further declines in the value of the Rouble and this process is
expected to continue.

     Also in August 1998 the Russian government announced a 90-day moratorium on
debt repayments. This moratorium caused considerable difficulties for Russian
banks and businesses with hard currency obligations, as well as significantly
impairing the ability of such banks and businesses, as well as the Russian
government itself, to access the Western capital markets. The difficulties
experienced by the Russian banks in turn caused difficulties for their
customers, as bank transfers and deposits were frozen in many cases. The Russian
government itself has effectively defaulted on substantial amounts of its debt,
and is engaged in negotiations with Western banks and institutions (which reach
back several months) to restructure this indebtedness. Continuation of these
conditions for any significant period of time could have serious long-term
effects on the Russian economy. At the present time, it is impossible to predict
whether or when any resolution of these problems is likely.

     In August 1998, the Russian government experienced a significant upheaval,
with the dismissal of the reformist government led by Sergei Kiriyenko and its
replacement by one led by Yevgeny Primakov. The Primakov government did not
propose a plan to address Russia's economic and financial difficulties, one
result of which was to cause the International Monetary Fund to delay further
assistance to the Russian government. In 1999, further political upheavals
occurred, as President Boris Yeltsin first dismissed the Primakov government in
May 1999 and selected Sergei Stepashin as the new Prime Minister, and then in
turn replaced him with Vladimir Putin in August 1999. It is too soon to predict
what policies will be adopted by the new Putin government. These frequent
governmental reshufflings create increased uncertainty about the future
political situation in Russia, which in turn creates additional concern about
the ability of the government to deal with the many problems currently
afflicting the Russian economic system. See "Risk Factors -- Country
Risks -- Russian Economic and Political Turmoil."

  TRAVELERS FINANCING

     In November 1997 PLD issued $12.32 million in 12% Series A secured
revolving credit notes (the "Series A Notes") and $3.1 million in 12% Series B
revolving credit notes (the "Series B Notes" and, together with the Series A
Notes, the "Revolving Credit Notes") to The Travelers Insurance Company and The
Travelers Indemnity Company (collectively, the "Travelers Parties") pursuant to
a Revolving Credit Note and Warrant Agreement dated November 26, 1997 between
PLD and the Travelers Parties (the "Travelers Agreement"). Both the Series A and
the Series B Notes are secured by PLD's inventory and accounts receivable. In
addition, the Series A Notes are secured by 28 ordinary shares of Technocom. The
Revolving Credit Notes are guaranteed by BCL and Wireless Technology
Corporations Limited ("WTC"), an indirect wholly owned subsidiary of PLD,
through which it holds its interest in ALTEL. In addition, News, which owns 38%
of PLD's outstanding shares of common stock, has guaranteed up to $3.1 million
of the amounts due under the Revolving Credit Notes (the "News Guarantee").

     PLD has made required amortization payments on the Series B Notes totalling
$2.0 million. Currently a total of $13.42 million is due under the Revolving
Credit Notes. The Travelers Parties have given PLD a series

                                        2
<PAGE>   5

of payment deferrals with respect to amounts due under the Revolving Credit
Notes, the last of which was given in connection with the Merger Agreement and
defers payment until the Merger is consummated or terminated.

     In the event that the Merger is consummated: (1) the News Guarantee will be
released; (2) the amount due to the Travelers Parties will be paid as to $8.5
million on the date the Merger is consummated, and as to the remainder in August
2000, together with interest at an annual rate of 10.5%; (3) the amount due to
the Travelers Parties will be guaranteed by PLD Holdings Limited, a wholly owned
subsidiary of PLD through which PLD holds 11% of its total 71% interest in
PeterStar, and by MMG; and (4) the Travelers Agreement will be amended and
restated to reflect the foregoing. The Travelers Parties will continue to be
paid interest monthly on the same basis as before until the consummation of the
Merger, and thereafter on the basis set forth above. All existing security for
the Revolving Credit Notes will remain in place until and following the
consummation of the Merger, as will the existing guarantees given by the BCL and
WTC. The security and guarantees will be terminated once PLD has repaid all of
its indebtedness to the Travelers Parties, which is expected to occur in August
2000. The Travelers Parties have agreed not to exercise certain rights which
they have under the Travelers Agreement pending the consummation of the Merger.

     While agreements have been reached with substantially all of the holders of
the Senior Notes and the Convertible Notes and with the Travelers Parties on a
restructuring of PLD's indebtedness to such parties, those agreements are
conditioned upon the closing of the Merger. If the Merger did not close, PLD
would remain obligated to pay interest on the Senior Notes and Convertible Notes
and there can be no assurance that the Travelers Parties would not demand
payment in full of PLD's obligations to them. PLD's failure to make payment in
full to the Travelers Parties could result in a cross-default under and
acceleration of the Senior Notes and Convertible Notes. In addition, any failure
by PLD to make interest payments on the Senior Notes and Convertible Notes could
result in a default under and acceleration of those Notes.

     Any such events could result in a claim being made against the Company
under its guarantee, which would have a material adverse effect on the Company
and raise substantial doubt about the Company's ability to continue as a going
concern.

     Please also refer to "Risk Factors -- Risks Involving the
Company -- Guarantee of PLD Debt" for the issues that the Company will face if
the Merger is not consummated.

  THE SENIOR AND CONVERTIBLE NOTES

     In June 1996, PLD issued the following securities to a limited number of
U.S. institutional investors (the "June 1996 Placement"): (i) $123,000,000
aggregate principal amount at maturity of Senior Notes; (ii) 123,000 warrants
(the "Placement Warrants") to purchase an aggregate of 4,182,000 shares of
Common Stock (the "Placement Warrant Shares"); and (iii) $26,500,000 aggregate
principal amount of Convertible Notes. The Senior Notes and the Placement
Warrants were initially issued as units (the "Units") and the Placement Warrants
became separable from the Senior Notes on December 10, 1996.

     Pursuant to the Indentures governing the Senior Notes and the Convertible
Notes $46 million of the proceeds from the June 1996 Placement were placed in
two escrow accounts. Up to $37 million of this amount could be used to purchase
telecommunications equipment which would then be leased to operating
subsidiaries of PLD. The operating subsidiaries were required to be located in
Russia or Kazakhstan. The purchaser and lessor of the equipment was required to
be a special purpose, "bankruptcy remote", wholly owned subsidiary of PLD which
was incorporated in Cyprus. All funds received under leases to operating
subsidiaries were required to be re-deposited in the escrow account, and could
be re-used thereafter for additional equipment purchases. The special purpose
subsidiary was required to guarantee PLD's obligations under the Senior and
Convertible Notes, and all of its leases were required to be assigned to The
Bank of New York, as trustee under the Indentures, as collateral for its
guarantee.

     In March 1998, PLD commenced a consent solicitation (the "Consent
Solicitation") directed at the holders of the Senior Notes and the Convertible
Notes requesting their consent to certain amendments to the Indentures governing
such Notes, intended to give PLD more flexibility in conducting its business and
also to

                                        3
<PAGE>   6

clarify certain provisions of those Indentures. Included among these amendments
were provisions which would permit the funds in escrow to be used to purchase
equipment which would then be sold on an installment sale basis to PLD's
operating subsidiaries, as an alternative to leasing. In addition, the
amendments permitted the special purpose subsidiaries which would sell or lease
equipment to the operating subsidiaries to be incorporated in the U.S. as well
as in Cyprus. The amendments required that all equipment sold on an installment
sale basis be pledged to secure such installment sale obligations, and that such
pledge and the installment sales contracts be assigned to The Bank of New York,
as trustee under the Indentures, as collateral for the special purpose
subsidiaries' guarantees of PLD's obligations under the Senior and Convertible
Notes.

     The amendments were approved by the requisite number of holders of the
Notes and, following this, the Company was formed as an additional special
purpose subsidiary. Thereafter, The Bank of New York, as trustee under the
Indentures, PLD and certain other parties executed a supplemental indenture,
dated March 20, 1998, bringing the amendments to the Indentures and certain
related documents into effect. In addition, PLD issued a total of 123,000
five-year warrants to purchase 1.8 shares of PLD Common Stock at $6.90 per share
to the holders of the Senior Notes, and a total of 22,700 five-year warrants to
purchase 2 shares of PLD Common Stock at a price of $6.90 per share to the
holders of the Convertible Notes. If all of these warrants are exercised, PLD
will issue a total of 266,800 shares of Common Stock.

     Unless the context clearly requires otherwise, references to the "Senior
Notes" and the "Convertible Notes" shall refer to such securities as so amended
pursuant to the Consent Solicitation, and references to the "Senior Note
Indenture", the "Convertible Note Indenture" and the "Indentures" shall refer to
such indentures, as so amended pursuant to the Consent Solicitation.

     On July 30, 1998, the Securities and Exchange Commission declared effective
registration statements relating to: (i) an exchange offer (the "Exchange
Offer") pursuant to which the outstanding Senior Notes (the "Outstanding Senior
Notes") would be exchanged for identical Senior Notes which had been registered
under the Securities Act of 1933 (the "Exchange Notes"); (ii) the resale by the
holders thereof of the Convertible Notes and the shares of Common Stock issuable
upon the conversion thereof; and (iii) the resale by the holders thereof of the
Placement Warrants and the Placement Warrant Shares. As a result of the
effectiveness of the registration statement relating to the Convertible Notes
and the Common Stock issuable upon conversion thereof, Special Interest (as
defined in the Indentures) ceased to be payable with respect to the Convertible
Notes on July 30, 1998.

     The Exchange Offer with respect to the Senior Notes commenced on August 28,
1998 and was completed at the close of business on October 9, 1998, with the
holders of 100% of the Outstanding Senior Notes tendering such Notes for
Exchange Notes. Upon completion of the Exchange Offer, the Exchange Notes were
issued in exchange for such Outstanding Senior Notes, in the form of a global
Exchange Note held through the facilities of the Depository Trust Company. As a
result of the completion of the Exchange Offer, Special Interest ceased to be
payable with respect to the Senior Notes on October 9, 1998.

     In connection with the Merger, PLD's Senior and Convertible Notes, which
are currently guaranteed by the Company, will be exchanged for senior
indebtedness of MMG and the Company's guarantees will be terminated. The new MMG
notes will not be guaranteed by the Company or any other subsidiary of PLD.

     Please also refer to "Risk Factors -- Risks Involving the
Company -- Guarantee of PLD Debt" for the issues that the Company will face if
the Merger is not consummated.

  INCREASED INTEREST RATE ON INDEBTEDNESS

     Under the terms of the Senior Notes and the Revolving Credit Notes, the
interest rate payable increased if PLD had not raised $20.0 million in
additional equity by May 31, 1998. PLD did not complete such an equity offering
by such date and accordingly the interest rate on the Senior Notes increased
from 14% to 14.5% per annum, and the interest rate on the Revolving Credit Notes
increased from 12% to 15% per annum, in each case effective June 1, 1998. Such
rates revert to their former levels once the equity offering has been

                                        4
<PAGE>   7

completed. Interest due on the Senior Notes (at 14.5% per annum) accreted until
December 1, 1998, and thereafter is payable in cash, semi-annually, on each June
1 and December 1 thereafter. In connection with the Merger, the holders of
substantially all of the Senior Notes and the Convertible Notes have agreed to
defer until the date of closing of the Merger the payment of interest on such
Notes coming due during the period between the signing of the Merger Agreement
and related documents and the date of closing of the Merger or termination of
the Merger Agreement.

TELECOMMUNICATIONS IN THE FORMER SOVIET UNION

     In the Soviet era, telecommunications in the Russian Federation and other
republics of the former Soviet Union were government owned and designed
principally to serve the defense and security needs of the state. The telephone
network itself was highly centralized, reflecting the centralized nature of the
Soviet economy. Telephonic links were directed towards the center of the network
while neglecting inter-regional links. As a result, the ability to direct calls
between regions without going through the center remains limited, which in turn
has been a major constraint on economic growth in regional markets. Being
committed to a "hub and spoke" network, the former Soviet Union never developed
a trunk "backbone" capable of providing network expansion on a nationwide basis.

     Consistent with a political philosophy which limited access to the world
outside the former Soviet Union, all international calls originating in the
former Soviet Union until 1992 were routed through a single international
exchange in Moscow which had a capacity of only 3,200 circuits. Due to the
inadequacies of the public network, as well as to ensure secrecy, many
individual ministries and security organizations, including the Communist Party
itself, established their own private nationwide networks. These private
networks absorbed a substantial amount of the relatively limited resources
available for investment in telecommunications. At the same time, these networks
currently present an opportunity for the development of a national network apart
from the existing public network.

     With the break-up of the Soviet Union and the liberalization of the
economies of its former republics, the demand for telecommunications services
increased significantly. However, the governments of the countries of the former
Soviet Union did not have the significant capital necessary for the development
of the telecommunications infrastructure. As a result, they have actively
encouraged market liberalization, privatization and foreign investment in the
telecommunications sector. This has resulted in significant development in the
areas of fixed wire overlay systems, private networks and cellular and data
services. They have also made their own efforts to develop a basic
telecommunications infrastructure, but lack of capital, exacerbated by recent
difficult economic conditions, has made progress towards this goal slow.

  TELECOMMUNICATIONS IN THE RUSSIAN FEDERATION

     The Russian telecommunications sector has experienced substantial
difficulty in meeting the rapidly growing demand for telecommunications services
in the Russian Federation. At the local level, there has been a significant
growth in joint ventures providing discrete telecommunications services, such as
international access and cellular service. While the bulk of this activity has
been in Moscow and St. Petersburg, it has occurred in other regions as well.
This trend has been encouraged by the Russian government which has issued over
10,000 licenses through the Ministry of Communications of the Russian Federation
(the "Former MOC") (which as of March 17, 1997 has been replaced by the Russian
Federal Committee on Telecommunications and Informatics (the "RFCTI")) to these
new service providers. Most joint ventures involve a Russian and a foreign
partner. Many of these joint ventures have remained moribund; however, where
they have commenced operations, there has been an immediate improvement in
telecommunications services in the targeted areas. Since much of the marketing
activity has been aimed at the business community, the benefits of these
improvements have not been (and for the foreseeable future are not likely to be)
widely felt by residential customers, particularly those outside major
metropolitan areas.

     When the Former MOC was reorganized in 1991, the Russian government decided
to convert each regional telephone center into a separate, privatized company
with the government maintaining the controlling interest in the company. There
are 89 of these regional telephone companies. The government's interests in most
of these companies are now held through Sviazinvest.
                                        5
<PAGE>   8

     The national and international long distance market in the Russian
Federation is dominated by Rostelecom, a formerly state-owned enterprise which
has been privatized, but in which the Russian government continues to hold a 38%
equity and 51% voting interest through Sviazinvest. Until 1991, Rostelecom was
the monopoly provider of national and international long distance service. Since
then, the Former MOC has issued licenses to approximately twenty other providers
of international services. Rostelecom itself has entered into a number of joint
ventures to develop its network and services, including through its
participation in Teleport-TP.

     Sviazinvest, which was originally 100% owned by the Russian State Property
Committee (now the Ministry of State Property), is a holding company for the
Russian government's interests in the local and regional telephone companies
across the Russian Federation. In general, Sviazinvest has a portfolio that
comprises holdings of 35% of the equity interest and 51% of the voting
interests, with a number of notable exceptions, in these telephone companies.
Sviazinvest is represented on the board of directors of each of these companies,
but does not participate in the day-to-day management of the operations.

     In 1997, it was reported that, notwithstanding previously announced plans
to have Sviazinvest compete with Rostelecom, the Russian government had
consolidated its telecommunications holdings in Sviazinvest and Rostelecom by
transferring its shareholding in Rostelecom (38% of the common stock, and 51% of
the voting stock) to Sviazinvest. The balance of the shares in Rostelecom remain
in the hands of private investors. In April 1997, the government announced that
it was seeking to sell 49% of Sviazinvest in two auctions, one as to a 25% stake
open to Russian and foreign investors and the other as to a 24% stake open only
to Russian investors. In July 1997, the government announced that the 25% stake
had been sold to a consortium which included Oneximbank and Renaissance Capital,
for a purchase price of $1.875 billion. Following this auction, the Russian
government announced its intention to increase the size of the other stake being
sold to 25% minus two shares. The schedule for the sale of the second stake has
been delayed following the August 1998 financial crisis, and the structure of
any such sale (including whether foreign participation will be permitted) has
not been announced. While it is not yet clear how the proceeds of this sale will
be employed, it is understood that the government wishes to have a substantial
part, if not all, of the proceeds allocated to its current budget deficit. Prior
to the August 1998 crisis, Sviazinvest had announced plans to raise $400 million
through a Eurobond offering in 1998, but that offering was also delayed as a
result of the Russian financial crisis. In light of all of the foregoing, it is
unclear what impact the consolidation of the government's telecommunications
holdings and the auction of significant stakes in Sviazinvest will have on the
Russian telecommunications market in general and the Company in particular.

     The provision of telecommunications services is currently regulated by the
Law on Telecommunications which came into effect on February 22, 1995 (the
"Telecommunications Law"). While the Former MOC had significant regulatory
powers prior to the passage of the Telecommunications Law, principally through
the issuance of new licenses, telecommunications had traditionally been viewed
as the province of the military and security services. The Telecommunications
Law placed control of the Russian telecommunications network (except for the
networks of the government, military and security forces) in the hands of a
civilian regulatory authority. Under the Telecommunications Law, the Former MOC
was, and now the RFCTI is, charged with the responsibility of coordinating the
development of telecommunications in the Russian Federation and regulating the
provision of services. Specifically, the Former MOC was and now the RFCTI is,
given authority to issue telecommunications licenses, allocate frequencies and
certify equipment for use in Russia. The Telecommunications Law also establishes
a number of important principles in the telecommunications area, including the
guarantee of equal access for all providers of telecommunications services and
safeguards for private business activity in the telecommunications sector. The
Telecommunications Law extends these principles to foreign companies and
individuals, thereby recognizing the need to encourage foreign participation in
the development of the Russian telecommunications sector.

     The Federal Committee for Regulating Natural Monopolies in
Telecommunications (now under the government of the Russian Federation) has been
empowered to regulate international and, since mid-1997, domestic long distance
tariffs, together with interconnect fees for public operators in the Russian
Federation. In addition, this Committee has the authority to establish the
framework for local fees and tariffs which, in the future, will be regulated by
newly-established Regional Committees for Regulating Natural Monopolies. At
                                        6
<PAGE>   9

the current time, regional governments set and regulate local tariffs, and it is
currently uncertain as to how, and when, local tariff regulation will be
transferred to the Regional Committees. While the Company's businesses are not
public operators and will therefore not be directly affected by any tariff
regulation imposed by the Federal or Regional Committees, their own pricing
policies are inevitably influenced by the tariffs charged by public operators.

     While the RFCTI appears to have succeeded to all of the powers and
authorities of the Former MOC (with the exception of tariff regulation), it is
not yet clear whether it will in fact continue to operate in the same manner,
and wield the same influence as the Former MOC. In particular, it is not clear
whether the RFCTI will be able to control the actions of local governmental and
other regulatory authorities who may endeavor to impose their own informal
licensing and other regulatory requirements or conditions on operators. In
addition, in the area of tariff regulation, it is not yet clear how the various
Committees will interact with the regional governments, and the regional
governments may continue to seek to regulate tariffs in their regions. See "Risk
Factors -- Risks Involving the Company -- Regulatory Uncertainties."

PLD CAPITAL ASSET (U.S.) INC.

     The Company was incorporated in Delaware in March 1998 to act as a special
purpose, "bankruptcy remote" subsidiary of PLD, as contemplated under the terms
of the Indentures governing PLD's Senior Notes and Convertible Notes, to use
funds in the two escrow accounts established under the Indentures to acquire
telecommunications equipment from the manufacturers thereof and resell or lease
such equipment to the operating subsidiaries of PLD in Russia and Kazakhstan.
All funds received from the operating businesses under such resales or leases
are required to be re-deposited in the escrow accounts, and may thereafter be
re-used for additional equipment purchases. The Company has guaranteed PLD's
obligations under the Senior and Convertible Notes. Any leases and installment
sales contracts entered into by it, and any pledges of equipment given to secure
the purchaser's obligations under installment sales contracts, are required to
be assigned to The Bank of New York, as trustee under the Indentures, as
collateral for its guarantee.

     In 1998 the Company assumed all of the rights and obligations of PLD Asset
Leasing Limited ("PLDAL"), which was a similar special purpose subsidiary of PLD
incorporated in Cyprus, under a lease of equipment entered into in 1996 with
PeterStar. Immediately prior to such assumption, PLDAL and PeterStar converted
the lease into an installment sale.

     The Company has entered into additional equipment purchases and resales
with PeterStar, and also with Technocom and Teleport-TP, additional operating
subsidiaries of PLD. Equipment has been purchased from a number of major
suppliers, including Ericsson in Sweden, ECI Telecom and Tadiran
Telecommunications in Israel, Siemens in Germany, Nokia in Finland and Lucent
Technologies in the U.S.

     Although each transaction differs from the others to some degree, typically
the Company pays the manufacturer for the equipment purchased on the
manufacturer's standard terms, which usually require a 15-20% downpayment on
placement of the order, the bulk of the purchase price being paid prior to or
upon delivery, with the balance being payable upon installation and acceptance
of the equipment.

     The Company's arrangements with the operating subsidiaries to which it
re-sells the equipment generally call for the Company to pay for the cost of
delivery to the operating subsidiary (to the extent not included in the
manufacturer's price), and also to pay for the costs of importation, such as
customs duties, import value added taxes, etc. The price at which the equipment
is resold by the Company to the operating subsidiary is the sum of the price
paid to the manufacturer, plus any additional items paid by the Company, plus a
financing charge (the "Resale Price"). Typically, the Resale Price is payable in
semi-annual installments over a three-to five-year period, with the first
installment falling due 3-6 months following installation of the equipment.

     In all cases the Company takes a pledge of the equipment as security for
the payment of the Resale Price.

     As of December 31, 1998, the Company had entered into purchase contracts
with various manufacturers of telecommunications equipment with a total value of
$15.4 million, of which $4.0 million remained unpaid. In relation to this
equipment, the Company had concluded resale arrangements with PeterStar with a
total value of $13.0 million and had commenced receipt of instalment payments on
such contracts following
                                        7
<PAGE>   10

delivery and acceptance of the relevant equipment by PeterStar. As of December
31, 1998, the Company had also finalized further resale contracts with Technocom
and Teleport-TP with a total value of $5.6 million, with receipt of instalment
payments scheduled to commence in 1999 upon final certification and acceptance
of the equipment. Additional resale arrangements with BCL and Teleport-TP in
relation to equipment purchased by the Company from the manufacturers for $2.3
million (of the $15.4 million total), of which $2.1 million remained unpaid, and
which has yet to be delivered, are being finalized. The Company expects that
these resale arrangements will be on terms similar to those for the resale
arrangements already in place with the operating businesses.

     The Company generated net income for the year ended December 31, 1998 of
$566,000 on revenues of $813,000.

     All of the Company's transactions to date have been with PLD operating
subsidiaries in Russia. Because ALTEL, PLD's only operating subsidiary in
Kazakhstan, has been in a position, and appears to be likely to be in a position
for the foreseeable future, to fund its own equipment purchases, the Company
believes that it is highly unlikely that it will ever enter into a transaction
involving Kazakhstan.
                           -------------------------

     The Company, a Delaware corporation, was incorporated in March 1998.

     The Company's executive offices are located at 505 Park Avenue, 21st Floor,
New York, New York, 10022 (telephone number (212) 527-3800).

     As of December 31, 1998, the Company had no employees.

                                        8
<PAGE>   11

RISK FACTORS

     This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to political, social and economic conditions in the
countries of the former Soviet Union and the Commonwealth of Independent States,
the operations of the Company and its affiliates, the impact of Year 2000 issues
on the Company's operations and interpretations and actions of certain
regulatory authorities, including in Russia, as well as information contained
elsewhere in this Report where statements are preceded by, followed by or
include the words "believes," "expects," "anticipates" or similar expressions.
For such statements the Company claims the protection of the safe harbor for
forward-looking statements contained in the private Securities Litigation Reform
Act of 1995. Actual events or results may differ materially from those discussed
in forward-looking statements as a result of various factors, including without
limitation, those discussed elsewhere in this Report and in the documents
incorporated herein by reference. Furthermore, this document constitutes a Year
2000 Readiness Disclosure Statement, and the statements herein are subject to
the Year 2000 Information and Readiness Disclosure Act, and the Company hereby
claims the protection of such Act for this document and all information
contained herein.

  COUNTRY RISKS

     General.  The PLD operating subsidiaries in the Russian Federation with
which the Company does business face significant political, economic, currency,
legal and social risks. For example, a report released February 20, 1997 by the
United States Embassy in Moscow on the commercial environment in the Russian
Federation listed the following general difficulties affecting trade and
investment in the Russian Federation, some or all of which could affect the
ability of the Company to conduct or realize income from its business:

     -  ownership disputes
     -  high taxes, and a frequently changing tax regime
     -  high operating costs
     -  lack of systematic and accessible credit information
     -  corruption and commercial crime
     -  financial illiquidity of many firms
     -  changing requirements from regulatory bodies
     -  lack of market information
     -  an infant commercial legal framework
     -  cultural and language differences
     -  infrastructure problems
     -  payments, arrears and frozen accounts
     -  frequent changes in governmental personnel

     Political Risks.  Since the breakup of the Soviet Union, the political
situation in the Russian Federation has been characterized by uncertainty and
instability.

     There have been significant tensions between the executive and legislative
branches of the government and efforts by the regions and autonomous republics
of the Russian Federation to gain a greater degree of independence (the most
dramatic example of which was the conflict in Chechnya). Lack of consensus
between local and regional authorities and the federal government often results
in the enactment of conflicting legislation at various levels and may result in
political instability. This lack of consensus may have negative economic effects
on the Company, which could be material to its operations.

     In addition, Communist and nationalist parties wield strong influence in
the lower house of Parliament (the Duma) and have made gains in regional
governorships which could result in a slow down or reversal of the development
of a free market economy.

     During the transformation to a market-oriented economy in the Russian
Federation, legislation has been enacted to protect property against
expropriation and nationalization. However, a resurgence in nationalism

                                        9
<PAGE>   12

could result in pressures for the reduction or even elimination of non-Russian
ownership of Russian businesses, and there can be no assurance that such
recently enacted protections would be enforced in the event of an attempted
expropriation or nationalization. Legislation to restrict foreign ownership in
the telecommunications industry is introduced from time to time and, while not
expected to become law, is symptomatic of these increasingly nationalistic
attitudes.

     There is also significant instability in the executive branch. Boris
Yeltsin, President of the Russian Federation, has been unable because of
ill-health to carry out the many and significant responsibilities of that
office. Instead, he has increasingly delegated his responsibilities to
ministerial appointees, while at the same time endeavoring to retain, and
demonstrate, his continuing constitutional powers by making frequent changes in
his appointments. All of this has served to create significant uncertainty, not
only as to the policies his government will pursue, but also as to whether the
government is likely to take any action to deal with the many significant
problems which the Russian Federation faces.

     Additionally, he has announced that he will not run for re-election in
2000, which has set off a race between a number of candidates anxious to succeed
him. The efforts of these other candidates to be elected as President, and the
resulting change in leadership at that time, could result in additional
political instability and also substantial changes in government policies. Any
such matters could have a material adverse effect on the Company.

     Russian Economic and Political Turmoil.  During 1998 there was considerable
turmoil and uncertainty in the Russian financial markets, prompted in large part
by a drop in commodity prices and economic problems in Russia, together with the
crisis in the Asian financial markets which began in late 1997. These
developments were accompanied by a substantial decline in the Russian stock
market. These developments led the Russian government to raise interest rates
significantly and to seek special assistance from the International Monetary
Fund. In August 1998, the Russian government announced a substantial widening of
the trading band in which the Russian Rouble would be permitted to float,
together with a moratorium on certain foreign debt payments. Thereafter the
Rouble dropped substantially in value and traded outside of the high end of the
band, and the Russian government did not intervene to stop this trading, thereby
effectively acquiescing to a major devaluation of the Rouble. The latter part of
1998 and the first half of 1999 saw further declines in the value of the Rouble
and this process is expected to continue.

     Also in August 1998 the Russian government announced a 90-day moratorium on
debt repayments. This moratorium caused considerable difficulties for Russian
banks and businesses with hard currency obligations, as well as significantly
impairing the ability of such banks and businesses, as well as the Russian
government itself, to access the Western capital markets. The difficulties
experienced by the Russian banks in turn caused difficulties for their
customers, as bank transfers and deposits were frozen in many cases. The Russian
government itself has effectively defaulted on substantial amounts of its debt,
and is engaged in negotiations with Western banks and institutions (which reach
back several months) to restructure this indebtedness. Continuation of these
conditions for any significant period of time could have serious long-term
effects on the Russian economy. At the present time, it is impossible to predict
whether or when any resolution of these problems is likely.

     In August 1998, the Russian government experienced a significant upheaval,
with the dismissal of the reformist government led by Sergei Kiriyenko and its
replacement by one led by Yevgeny Primakov. The Primakov government did not
propose a plan to address Russia's economic and financial difficulties, one
result of which was to cause the International Monetary Fund to delay further
assistance to the Russian government. In 1999, further political upheavals
occurred, as President Boris Yeltsin first dismissed the Primakov government in
May 1999 and selected Sergei Stepashin as the new Prime Minister, and then in
turn replaced him with Vladimir Putin in August 1999. It is too soon to predict
what policies will be adopted by the new Putin government. These frequent recent
governmental reshufflings create increased uncertainty about the future
political situation in Russia, which in turn creates additional concern about
the ability of the government to deal with the many problems currently
afflicting the Russian economic system.

     At the present time, it is not possible to predict the complete effect of
the continuing economic, financial and political difficulties in Russia,
although they have made for a difficult business environment in Russia.
                                       10
<PAGE>   13

The Company is not yet able to predict the effects of the ongoing difficulties
on its results for 1999 as a whole, but the continuing economic difficulties in
Russia may have an adverse effect on the Company in current and future reporting
periods, and there can be no assurance that such adverse effects will not be
material.

     Economic Risks -- Uncertain Pace of, and Difficulties Experienced in,
Economic Reform; Reliance on Foreign Economic Aid.  Until recently, the economy
of the Russian Federation was administered by the central authorities of the
former Soviet Union. Following the collapse of those authorities and the command
economy they managed, the government of the Russian Federation sought to
implement policies designed to introduce a free market economy into its country.
While these policies have met with some success, the economy of the Russian
Federation has been characterized by high unemployment, high rates of business
failure, the deterioration of certain sectors of the economy, high government
debt relative to gross domestic product and declining real wages. Real economic
improvement has been limited to the Moscow and St. Petersburg regions. The
Russian Federation is still experiencing a lack of political consensus as to the
scope, content and pace of free market reforms. No assurance can be given that
policies to introduce or support a free market economy will continue to be
implemented in the Russian Federation, that it will remain receptive to foreign
investment or that the economy of the Russian Federation will stabilize. The
failure of any of these to occur could have a material adverse effect on the
Company. In addition, the Russian Federation currently receives substantial
financial assistance from several foreign governments and international
organizations. To the extent any of this financial assistance is reduced or
eliminated, economic development in the Russian Federation may be adversely
affected, and any resulting difficulties in the Russian economy could have a
material adverse effect on the Company.

     -- Limited Experience with Free Market Economy.  Russian businesses have
limited operating history in free market conditions and have had limited
experience compared with Western companies with the entering into and
performance of contractual obligations. Accordingly, as compared to Western
companies, such businesses are often characterized by management that lacks
experience in responding to changing market conditions and limited capital
resources with which to develop their operations. In addition, the Russian
Federation has limited infrastructure to support a market system, and banks and
other financial systems are not well developed or well regulated. Businesses
therefore may experience difficulty in obtaining working capital facilities.
Moreover, these countries' banking system have faced and may encounter in the
future liquidity crises as well as other problems arising as a result of
under-capitalization of the banking sector as a whole. The experiences gained
from the financial and banking crisis in Russia in the last two quarters of 1998
demonstrate how fragile the Russian banking system is, and at the same time how
dependent Western investors are on such system. Another general Russian banking
crisis in particular could have a material adverse effect on the Company's
operations and financial performance and on the ability of the PLD operating
subsidiaries with which it does business to pay amounts due.

     Restrictions on Currency Conversion; Historical Volatility in Currency
Prices.  The Russian Rouble is not convertible outside of Russia.

     In Russia, a market exists for the conversion of Roubles into other
currencies, but it is limited in size and is subject to rules limiting the
purposes for which conversion may be effected. The history of trading in the
Russian Rouble against the U.S. Dollar has been characterized by significant
declines in value and considerable volatility, although the Russian Rouble
experienced relative stability against the U.S. dollar during 1996 and 1997.
However, during 1998 and 1999, the Russian Rouble has been under considerable
pressure and suffered substantial declines against the U.S. Dollar and other
currencies. See "-- Russian Economic and Political Turmoil."

     In general, the PLD operating subsidiaries post their tariffs in U.S.
Dollars, and receive payment in Roubles at the U.S. dollar exchange rate
prevailing on the date of payment. They face an exchange risk to the extent that
they experience any difficulty in converting the Rouble payment received into
U.S. Dollars. In addition, they face a risk that the Rouble weakens against the
U.S. Dollar during the period between the customer instructing its bank to pay
them and the day the payment is actually received by them. Historically, this
time period has been short and the exchange risks arising from this particular
issue have therefore been minimal.

                                       11
<PAGE>   14

     All of these factors, and others, may serve to increase the operating
subsidiaries' exposure to foreign exchange losses in the future, the effect of
which cannot currently be predicted. No assurance can be given that the
operating subsidiaries will be able to continue to post their tariffs in U.S.
Dollars and collect payments in Roubles in amounts determined by reference to
the value of the U.S. Dollar, or that they will continue be able to process such
payments without banking delays or to exchange Roubles for U.S. Dollars without
significant difficulties, delays or costs.

     It is not practical or economical for the operating subsidiaries to hedge
their exchange risks. See "Quantitative and Qualitative Disclosure About Market
Risk." Any of these factors, in conjunction with further declines, or
volatility, in the value of the Russian Rouble against the U.S. Dollar, could
have a material adverse effect on the operating subsidiaries. This could impair
their ability to meet their obligations to the Company which in turn could have
a material adverse effect on the Company. See also "-- Risks Involving the
Company -- Currency Controls."

     Legal Risks -- Underdeveloped Legal System.  The Russian Federation lacks
fully developed legal systems. Russian law is evolving rapidly and in ways that
may not always coincide with market developments, resulting in ambiguities,
inconsistencies and anomalies, and ultimately in investment risk that would not
exist in more developed legal systems. Furthermore, effective redress in Russian
courts in respect of a breach of law or regulation, or in an ownership dispute,
may be difficult to obtain.

     Risks associated with the Russian legal system include: (i) the untested
nature of the independence of the judiciary and its immunity from economic,
political or nationalistic influences; (ii) the relative inexperience of judges
and courts in commercial dispute resolution, and generally in interpreting legal
norms; (iii) inconsistencies among laws, presidential decrees and governmental
and ministerial orders and resolutions; (iv) often times conflicting local,
regional and national laws, rules and regulations; (v) the lack of judicial or
administrative guidance on interpreting the applicable rules; (vi) retroactive
changes in laws and regulations; and (vii) a high degree of discretion on the
part of government authorities and arbitrary decision-making which increases,
among other things, the risk of property expropriation. The result has been
considerable legal confusion, particularly in areas such as company law,
property, commercial and contract law, securities law, foreign trade and
investment law and tax law. No assurance can be given that the uncertainties
associated with the existing and future laws and regulations of the Russian
Federation will not have a material adverse effect on the Company. In addition,
there is no guarantee that a foreign company would obtain effective redress in
any court. No treaty exists between the United States and the Russian Federation
for the reciprocal enforcement of foreign court judgments.

     Furthermore, the relative infancy of business and legal cultures in the
Russian Federation are reflected in the inadequate commitment of local business
people, government officials, agencies and the judicial system to honor legal
rights and agreements, and generally to uphold the rule of law. Accordingly, the
Company may, from time to time, confront threats of, or actual, arbitrary or
illegal revision or cancellation of its agreements, and face uncertainty or
delays in obtaining legal redress, any of which could have a material adverse
effect on the Company.

     Social Risks.  The political and economic changes in the Russian Federation
since the break-up of the former Soviet Union have resulted in significant
social dislocations, as existing governing structures have collapsed and new
ones are only beginning to take shape. The resulting broad decline in the
standard of living has often resulted in substantial political pressure on the
government to slow or even reverse the economic policies currently being
pursued. In addition, such decline in the standard of living has led in the
past, and could lead in the future, to labor and social unrest. Such labor and
social unrest may have political, social and economic consequences, such as
increased support for a renewal of centralized authority, increased nationalism
(with restrictions on foreign investment in the Russian economy) and increased
violence, any of which could have a material adverse effect on the PLD operating
subsidiaries. This could impair their ability to meet their obligations to the
Company which in turn could have a material adverse effect on the Company.

     In addition, the local and international press have reported significant
organized criminal activity, particularly in large metropolitan centers,
directed at revenue-generating businesses, and an increased integration of
Russian organized crime with major international criminal organizations. A
substantial increase
                                       12
<PAGE>   15

in property crime in large cities has also been reported. Finally, the local and
international press have reported high levels of official corruption in the
locations where the PLD operating subsidiaries operate. No assurance can be
given that organized or other crime or claims that any of them has been involved
in official corruption will not in the future have a material adverse effect on
the Company.

     Official Data Reliability.  The official data published by Russian federal,
regional and local governments and federal agencies are substantially less
complete or reliable than those of Western countries, and there can be no
assurance that the official sources from which certain of the information set
forth herein has been drawn are reliable. Official statistics may also be
produced on different bases than those used in Western countries. Any discussion
of matters relating to the Russian Federation herein must therefore be subject
to uncertainty due to concerns about the completeness or reliability of
available official and public information.

  RISKS INVOLVING THE COMPANY

     Guarantee of PLD Debt.  As it has disclosed in its Annual Report on Form
10-K, PLD has significant debt service requirements, including the payment of
interest on the Senior Notes and the Convertible Notes and amounts owing to the
Travelers Parties, and PLD does not presently have sufficient funds on hand to
meet its current debt obligations. The Company is a guarantor of the Senior
Notes and the Convertible Notes under the terms of the related indentures.

     While agreements have been reached with substantially all of the holders of
the Senior Notes and the Convertible Notes and with the Travelers Parties on a
restructuring of PLD's indebtedness to such parties, those agreements are
conditioned upon the closing of the Merger. If the Merger did not close, PLD
would remain obligated to pay interest on the Senior Notes and Convertible Notes
and there can be no assurance that the Travelers Parties would not demand
payment in full of PLD's obligations to them. PLD's failure to make payment in
full to the Travelers Parties could result in a cross-default under and
acceleration of the Senior Notes and Convertible Notes. In addition, any failure
by PLD to make interest payments on the Senior Notes and Convertible Notes could
result in a default under and acceleration of those Notes.

     Any such events could result in a claim being made against the Company
under its guarantee, which would have a material adverse effect on the Company
and raise substantial doubt about the Company's ability to continue as a going
concern.

     Limited Operating History.  The Company was formed in 1998. In view of its
limited operating history, there can be no assurance that the Company will be
able to generate sufficient revenues or control its costs sufficiently to remain
profitable in the future.

     Barriers to Realizing Cash from Operating Subsidiaries.  The ability of the
purchasers or lessees of equipment provided by the Company to make payments to
the Company may be constrained by: (i) their own ability to generate sufficient
cash from their operations; (ii) the level of taxation, particularly corporate
profits and withholding taxes, in the jurisdictions in which they operate; (iii)
currency and exchange controls and other administrative requirements in effect
in the jurisdictions in which they operate, see "-- Currency Controls;" and (iv)
the availability of hard currency and the convertibility of local currency in
the jurisdictions in which they operate, see "-- Country Risks -- Restrictions
on Currency Conversion; Historical Volatility in Currency Prices."

     Year 2000.  While the Company believes that the PLD operating subsidiaries
should not encounter material problems as a result of their equipment not being
Year 2000 compliant, they may encounter disruptions in service as a result of
noncompliance on the part of other traffic carriers, particularly those in
Russia and other C.I.S. countries on which they are dependent for the completion
of calls. The Company believes that the Year 2000 compliance of the Russian and
other C.I.S. parties with which the PLD operating subsidiaries interact appears
to be substantially behind that of Western parties, and that it is unlikely that
those parties will be able to become fully Year 2000 compliant, given the
limited amount of time left for this, and the severe funding constraints faced
by those parties. Accordingly, there is a significant risk that the PLD
operating subsidiaries may experience disruptions in their operations as a
result of their C.I.S. interconnect

                                       13
<PAGE>   16

partners not being able to complete calls or pass traffic to them. Additionally,
the billing systems of those interconnect partners may also be disrupted,
resulting in those partners being unable to make timely settlements with the PLD
operating subsidiaries. All of these items have the potential to adversely
impact the Company, and such adverse impact on the Company's own financial
results may be material. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Issues."

     Currency Controls -- Risks of Changing Regulatory and Administrative
Environment.  While applicable legislation in the Russian Federation currently
permits the making of payments in hard currency, the ability of PLD's operating
subsidiaries to make such payments to the Company is dependent upon the
continuation of the existing legal regimes for currency control and foreign
investment, administrative policies and practices in the enforcement of such
legal regimes and the availability of foreign exchange in sufficient quantities
in the Russian Federation.

     -- Currency Licensing Requirements.  Under current currency regulations in
the Russian Federation, while there do not appear to be additional
administrative requirements for the payment of amounts due under installment
sales contracts, specific licenses from the Central Bank are required for the
making of equipment lease payments to a foreign lessor. Failure to obtain such
currency licenses where required can result in the imposition of fines and
penalties. While the requirements for obtaining such licenses largely involve
the production of documentation, not only are the documentary requirements
themselves burdensome, but there can be no assurance that the entity granting
the licenses may not impose additional, substantive requirements for the grant
of a license or deny a request for a license on an arbitrary basis. See
"-- Country Risks -- Legal Risks -- Underdeveloped Legal System." Furthermore,
the time typically taken by the Central Bank to issue such licenses can be
lengthy, and delays of up to one year or more in the issuance of licenses have
not been uncommon. The failure of an operating subsidiary to obtain, or any
significant delay in the issuance of, such licenses could substantially delay
the time at which the Company may receive payments under such leases. To address
this problem, and based on the Company's belief that currency licenses are
presently not required in the Russian Federation for payments under installment
sales contracts, the Company is providing equipment to the operating businesses
on an installment sales basis rather than through leasing and, as a result of
the Consent Solicitation, the Indentures were amended to permit the Company to
do this. However, there is no assurance that the Central Bank or other relevant
Russian entity will not construe the applicable currency legislation as
requiring licenses for installment sales as well as leases. Failure to obtain
currency licenses, where required, can result in the imposition of fines and
penalties, significant delays in delivering equipment to the operating
businesses and resulting difficulties in generating cash flows from the PLD
operating businesses in the Russian Federation.

     Additionally, the Company's ability to receive payments in hard currency
will be dependent upon the continued ability of the PLD operating subsidiaries
in Russia to bill their customers in U.S. Dollars or the equivalent amount of
Roubles, as well as their ability to exchange freely local currency receipts
into U.S. Dollars. See "-- Country Risks -- Restrictions on Currency Conversion;
Historical Volatility in Currency Prices." There can be no assurance that,
because of changes in Russian currency regulations, and/or because of a
recurrence of the financial, banking and currency crises which afflicted the
Russian Federation in the latter part of 1998, the Company's ability to fully
and/or on a timely basis realize benefits from its leases or sales of equipment
through the receipt of hard currency payments will continue.

     Difficulties in Enforcing Pledges and Agreements.  While the leases or
installment sales contracts and related pledges of assets may be valid and
enforceable under the laws of the Russian Federation, the ability of the Company
actually to enforce their provisions upon any default may be open to some
question. Commercial law, and in particular, enforcement of legal rights such as
leaseholds or pledges, is still very undeveloped in Russia, see "-- Country
Risks -- Legal Risks -- Underdeveloped Legal System," and the readiness of local
partners and courts to respect and recognize such rights is uncertain, including
the rights of parties to enforce the terms of leases, installment sales
contracts or pledges.

     In the event of a default under a lease, installment sales contract or
pledge, any enforcement action will in all likelihood have to occur in the
jurisdiction where the assets are located. The need to bring such

                                       14
<PAGE>   17

enforcement action in such jurisdictions and comply with the laws of those
jurisdictions in relation thereto, coupled with the limited jurisprudence and
experience with such enforcement action in the relevant jurisdiction, may
significantly complicate, delay or limit the scope of such enforcement action.

     A lessor or pledgee seeking to remove repossessed leased equipment from
Russia may have to pay taxes or duties as a condition to doing so. The nature of
the equipment itself, which may be incorporated or integrated into another
structure or system, or otherwise permanently affixed, could make repossession
difficult as both a legal and a practical matter.

     Additionally, the ability of the Company to enforce in the Russian
Federation a judgment or arbitral award obtained outside this jurisdiction may
be limited. For example, the Russian courts generally only recognize foreign
judgments or arbitral awards pursuant to bilateral or multilateral treaty
arrangements. In addition, the Russian courts have limited experience in the
enforcement of foreign judgments. The possible need to re-litigate in the
Russian Federation a judgment or arbitral award obtained elsewhere may
significantly delay the enforcement of such judgment or award.

     Anti-Monopoly Committee Approval.  Under Russian anti-monopoly legislation,
transactions which potentially influence competition in the Russian Federation
are subject to the disclosure to and/or prior consent of the Russian
Anti-Monopoly Committee. The Anti-Monopoly Committee generally has wide
discretion to approve or disapprove transactions falling within the scope of its
authority, though in practice transactions are rarely challenged. The time
typically required by the Anti-Monopoly Committee to review a proposed
transaction varies between three and four months. Failure to obtain prior
consent may constitute grounds for the Anti-Monopoly Committee to seek a court
decision declaring the relevant transaction null and void. In particular,
transactions (including rental or lease transactions) which involve the
acquisition of more than 20% of a Russian company's stock or the transfer of
assets amounting to more than 10% of the assets of a transferor to a transferee,
are subject to prior consent of the Anti-Monopoly Committee.

     Regulatory Uncertainties.  The PLD operating subsidiaries operate in an
uncertain regulatory environment. The Russian telecommunications system is
currently regulated by the RFCTI, largely through the issuance of licenses.
Despite the 1995 enactment of the Telecommunications Law in Russia, considerable
uncertainty still exists as to the application and interpretation of many of its
terms.

     While the RFCTI appears to have succeeded to all of the powers and
authorities of the Former MOC, it is not yet clear whether it will in fact
continue to operate in the same manner and wield the same influence as the
Former MOC. In particular, it is unclear whether the RFCTI will be able to
control the actions of local and regional governmental authorities who may
endeavor to impose new conditions upon operators in their respective
jurisdictions or areas of influence.

     The absence of adequate regulation in the telecommunications sector has
meant that decisions, including the granting and renewal of licenses, may at
times be made by governmental officials without reference to precedent or
procedure.

     Furthermore, the introduction of regulation of tariffs, or any other type
of regulation, could have far-reaching, and potentially materially adverse,
effects on the PLD operating subsidiaries. In particular, there is considerable
uncertainty as to what impact the transfer of authority to regulate local
tariffs to Regional Committees will have on local tariffs in Russian. See
"Telecommunications in the Former Soviet Union -- Telecommunications in the
Russian Federation."

ITEM 2.  PROPERTIES

     The Company does not own or lease any real property. Its executive offices
are located at the offices of PLD.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is not a party to any material legal proceedings.

                                       15
<PAGE>   18

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

     No matters were submitted to a vote of security holders during the fourth
quarter of 1998.

                                    PART II

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

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY

     The Company is a wholly owned subsidiary of PLD and the Company's Common
Stock is not, and has not been since inception, publicly traded.

     The Company did not declare dividends on its Common Stock in 1998 and does
not intend to declare dividends on its Common Stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

     Since its inception in March 1998, the following issuance of unregistered
securities of the Company was made:

          - in connection with the incorporation and initial capitalization of
     the Company, on March 24, 1998, the Company issued an aggregate of 1,000
     shares (the "Shares") of the Company's Common Stock to PLD. The Shares were
     issued in reliance upon Section 4(2) of the Securities Act of 1933 as a
     transaction not involving a public offering.

                                       16
<PAGE>   19

ITEM 6.  SELECTED FINANCIAL DATA

     The following summary financial and operating data was derived from, and
should be read in conjunction with, the audited Financial Statements of the
Company and the related notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations, contained elsewhere herein.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                              1998     1997     1996*
                                                              -----    -----    ------
                                                                   (IN THOUSANDS)
<S>                                                           <C>      <C>      <C>
STATEMENT OF OPERATIONS DATA:
  Interest/finance lease income.............................  $813     $783      $ --
  Operating expenses:
     General and administrative.............................    15        5        31
     Interest expense.......................................    --       --         1
                                                              ----     ----      ----
          Total operating expenses..........................    15        5        32
  Income/(loss) before taxes................................   798      778       (32)
  Income taxes..............................................   232       36        --
                                                              ----     ----      ----
  Net income/(loss).........................................  $566     $742      $(32)
                                                              ----     ----      ----
</TABLE>

<TABLE>
<CAPTION>
                                                                   AS OF DECEMBER 31,
                                                              -----------------------------
                                                               1998       1997       1996
                                                              -------    -------    -------
                                                                     (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
BALANCE SHEET DATA:
  Cash and cash equivalents.................................  $    10    $    10    $    10
  Non-cash working capital surplus/(deficiency).............    3,573     (3,782)    (5,665)
  Total assets..............................................   14,929      7,395      6,612
  Shareholder's equity/(deficiency).........................    7,917        712        (30)
</TABLE>

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

* Represents nine months ended December 31, 1996.

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

     This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to political, social and economic conditions in the
countries of the former Soviet Union and the Commonwealth of Independent States,
the operations of the Company and its affiliates, the impact of Year 2000 issues
on the Company's operations and interpretations and actions of certain
regulatory authorities, including in Russia, as well as information contained
elsewhere in this report where statements are preceded by, followed by, or
include the words "believes," "expects," "anticipates," and similar expressions.
For such statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. Actual events or results may differ materially from those discussed
in forward-looking statements as a result of various factors, including without
limitation, those discussed elsewhere in the Report.

     Furthermore, this document constitutes a Year 2000 Readiness Disclosure
Statement, and the statements herein are subject to the Year 2000 Information
and Readiness Disclosure Act, and the Company hereby claims the protection of
such Act for this document and all information contained herein.

BASIS OF PRESENTATION

     The Company, which was incorporated on March 24, 1998 under the laws of the
State of Delaware as a wholly-owned subsidiary of PLD, was formed to enter into
installment sale and lease agreements in respect of certain telecommunications
equipment required by PLD's operating subsidiaries in the Russian Federation and
Kazakhstan. On June 30, 1998 the Company assumed the assets, liabilities and
business of PLD Asset

                                       17
<PAGE>   20

Leasing Limited ("PLDAL"), recording such assets and liabilities at the
historical cost of PLDAL and reflecting the results of operations of PLDAL for
the first six months of 1998 in the Company's operating results for 1998 since
the entities were under common control. Further, the comparative figures
presented below for 1997 and the nine months ended December 31, 1996 represent
the results of operations of PLDAL. PLDAL is a Cypriot company wholly-owned by
PLD, which existed to enter into lease agreements with PLD's operating
subsidiaries. PLDAL is presently inactive and PLD is in the process of
liquidating PLDAL.

     EBITDA is used as a measure of operating performance and is defined as
earnings (or loss) from continuing operations before income taxes and minority
interest plus net interest (interest expense less interest and other income)
plus depreciation and amortization. It is presented as supplemental disclosure
because it assists in understanding the Company's operating results. EBITDA,
however, may not be comparable to similarly titled measures of other companies
and should not be considered in isolation or as a substitute for net income,
cash flow provided by operating activities, or other income or cash flow data
prepared in accordance with generally accepted accounting principles, or as a
measure of a company's profitability or liquidity.

RESULTS OF OPERATIONS

  YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997

     Overview.  The definition of EBITDA is given in the previous section. It is
commonly used as an indicator of the ability of a business to generate cash
flows from its operating activities. Management therefore considers it to be a
relevant and useful measure for investors. For the year ended December 31, 1998,
the Company reported EBITDA of $0.80 million and net income of $0.57 million on
revenues of $0.81 million, compared to EBITDA of $0.78 million and net income of
$0.74 million on revenues of $0.78 million in 1997. In 1998, net cash provided
by operating activities amounted to $0.53 million, with net cash used in
investing activities amounting to $0.53 million. This compares with 1997 when
net cash used in operating activities amounted to $3.21 million and net cash
provided by investing activities amounted to $1.14 million.

     Revenues.  Revenues in 1998 were marginally higher than those in 1997,
increasing from $0.78 million to $0.81 million.

     General and administrative expenses.  General and administrative expenses
were negligible in 1998 and 1997.

     Income taxes.  Income taxes in 1998 amounted to $0.23 million, made up of
$0.15 million of U.S. federal taxes and foreign taxes and $0.08 million of U.S.
state and local taxes. Income taxes in 1997 were $0.04 million and consisted of
Cypriot income taxes payable by PLDAL.

  YEAR ENDED DECEMBER 31, 1997 VERSUS NINE MONTHS ENDED DECEMBER 31, 1996

     Overview.  For the year ended December 31, 1997, the Company reported
EBITDA of $0.78 million and net income of $0.74 million on revenues of $0.78
million, compared with an EBITDA loss and a net loss of $0.03 million on zero
revenues for the nine months ended December 31, 1996. In 1997, cash used in
operating activities amounted to $3.21 million, with net cash provided by
investing activities amounting to $1.14 million. This compares with the nine
months ended December 31, 1996 when cash provided by operations was $1.06
million and cash used in investing activities amounted to $5.6 million.

     Revenues.  Revenues increased from zero in the nine months ended December
31, 1996 to $0.78 million in the year ended December 31, 1997, because finance
lease income on the Company's only lease started to accrue in 1997.

     General and administrative expenses.  General and administrative expenses
were negligible in 1997 and 1996.

     Income taxes.  Income taxes increased from zero in 1996 to $0.04 million in
1997, reflecting PLDAL's transition from a loss-making to a profitable company.

                                       18
<PAGE>   21

LIQUIDITY AND CAPITAL RESOURCES

     For the year ended December 31, 1998, cash provided by operating activities
totalled $0.53 million and $0.53 million was used in investing activities.
Investing activities in 1998 involved the lodging of funds in the Company's
escrow account which were then invested in U.S. Treasury backed securities with
maturities less than 30 days. In 1997, net cash used in operating activities
amounted to $3.21 million, net cash provided by investing activities amounted to
$1.14 million and $2.07 million was generated from financing activities. In
1996, net cash used in operations totalled $1.06 million, net cash used in
investing activities totalled $5.62 million and cash generated from financing
activities totalled $4.57 million.

     As of December 31, 1998, the Company reported a working capital surplus of
$3.58 million, compared to a working capital deficit of $3.77 million as of
December 31, 1997.

     Shareholder's equity as of December 31, 1998 was $7.92 million, compared
with $0.71 million a year earlier, reflecting the capitalization of a loan from
PLD during the period.

     The Company has financed all of its equipment purchases by drawing the
funds required from the PLD escrow account established pursuant to the
Indentures. Inasmuch as it is not permitted to obtain funds from elsewhere, its
business as a provider of equipment to the PLD operating subsidiaries is
entirely governed by the availability and amount of funds in the PLD escrow
account and the Company's escrow account which was also established pursuant to
the Indentures. The Company does not commit to any equipment purchase unless
there are sufficient funds in the escrow accounts to pay for such purchase
(including costs of delivery to the PLD operating subsidiary which would use the
equipment, and customs duties, VAT and other costs of importation). In the event
that there were insufficient funds in the escrow accounts, the Company would not
make the purchase, and the equipment would have to be financed by PLD or the
applicable operating subsidiary by other means, or the purchase would have to be
postponed.

     As of December 31, 1998 there was approximately $14.4 million in the PLD
escrow account and a further $0.5 million in the Company's escrow account. The
escrow accounts are replenished from time to time by payments made by the PLD
operating subsidiaries under leases and installment sales contracts entered into
with the Company, as well as interest earned on the funds in escrow. They may
also be replenished by the proceeds of certain asset sales as well as returns on
certain limited investments which may be made using escrow funds. The escrow
funds are available, if required, to provide funds to PLD to pay interest on the
Senior Notes.

     The Company's operating costs are minimal and are funded as required by
advances from PLD. The Company is not permitted under the terms of Indentures to
incur, and has not in fact incurred, any other indebtedness or obligations other
than payments to equipment manufacturers which are funded out of the escrow
account. Accordingly, the Company's operations are essentially self-sufficient.

     As it has disclosed in its Annual Report on Form 10-K, PLD has significant
debt service requirements, including the payment of interest on the Senior Notes
and the Convertible Notes and amounts owing to the Travelers Parties, and PLD
does not presently have sufficient funds on hand to meet its current debt
obligations. The Company is a guarantor of the Senior Notes and the Convertible
Notes under the terms of the related indentures.

     While agreements have been reached with the holders of substantially all of
the Senior Notes and the Convertible Notes and with the Travelers Parties on a
restructuring of PLD's indebtedness to such parties, those agreements are
conditioned upon the closing of the Merger. If the Merger did not close, PLD
would remain obligated to pay interest on the Senior Notes and Convertible Notes
and there can be no assurance that the Travelers Parties would not demand
payment in full of PLD's obligations to them. PLD's failure to make payment in
full to the Travelers Parties could result in a cross-default under and
acceleration of the Senior Notes and Convertible Notes. In addition, any failure
by PLD to make interest payments on the Senior Notes and Convertible Notes could
result in a default under and acceleration of those Notes. Any such events could
result in a claim being made against the Company under its guarantee, which
would have a material adverse effect on the Company and raise substantial doubt
about the Company's ability to continue as a going concern.
                                       19
<PAGE>   22

     In connection with the Merger Agreement with MMG and the transactions
contemplated thereunder, the holders of the Senior and Convertible Notes have
agreed, subject to completion of the Merger and other transactions contemplated
by the Merger Agreement, to exchange their outstanding notes for new notes
issued by MMG which will not be guaranteed by the Company.

EFFECTS OF NEWLY-ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities", was
issued. SFAS 133 established accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. SFAS 133 cannot be applied
retroactively to financial statements of prior periods. At the current time the
Company has not evaluated the impact SFAS 133 will have, if any.

     The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1 (SOP 98-1) "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," and Statement of Position No. 98-5 (SOP
98-5) "Reporting on the Costs of Start-Up Activities" in 1998. SOP 98-1 requires
that certain costs related to the development or purchase of internal-use
software be capitalized and amortized over the estimated useful life of the
software. SOP 98-5 requires costs of start-up activities and organization costs
to be expensed as incurred. The Company was required to adopt both new
statements in the first quarter of 1999. The adoption of these statements did
not have a material effect on the Company's condensed financial statements for
the three months ended March 31, 1999 and the six months ended June 30, 1999.

YEAR 2000 ISSUE

     The Year 2000 issue exists because many computer systems and applications,
particularly older systems and applications, use a two-digit, rather than a
four-digit, date field to designate a particular year. As a result of the
century change, date-sensitive systems may recognize dates in the twenty-first
century (i.e., after 2000) as dates in the twentieth century (i.e., the
corresponding year commencing with the prefix 19 -- ). Equally, such systems may
not recognize dates in the twenty-first century at all. All of this could lead
to system failures or miscalculations which could lead to disruption of
operations such as data being lost, an inability to process transactions,
incorrect data being generated and critical deadlines being overlooked. The
impact of these disruptions could be significant.

     PLD has conducted, and has caused each of its operating subsidiaries to
conduct a survey of the equipment and software used by them.

     The PLD operating businesses supply telecommunications services. To the
very limited extent that they maintain actual inventory for sale, they do not
manufacture such inventory themselves but resell goods supplied by recognized
manufacturers of such goods.

     PLD's survey has involved testing of equipment as well as contacting the
manufacturers of equipment and producers of software (or review of materials
published by such parties, including websites) to assess such parties' Year 2000
readiness. Such survey has indicated that, except in a few instances, the
equipment and software which the operating subsidiaries use are Year 2000
compliant. PLD is taking steps to upgrade or replace those items which are not
compliant. In many cases the items required to be upgraded or replaced were due
to be upgraded or replaced in any event, so that PLD's exposure has been the
acceleration of already planned expenditures, rather than new or unanticipated
expenditures. PLD expects that essentially all of its upgrading and replacement
work, and any remaining testing required, will be complete by the end of the
third quarter of 1999.

     As of June 30, 1999, PLD has expended approximately $1,900,000 for
remediation efforts and expects that its total remediation costs, including
scheduled upgrades and replacements of approximately $3,100,000, will be
approximately $4,000,000.

                                       20
<PAGE>   23

     Starting in January 1998, all operating businesses were required to use
their best efforts to obtain specific warranties of Year 2000 compliance from
parties with which they contract for products or services thereafter. While
almost all new contracts for products or services entered into since that date
have contained some form of warranty, these have generally been limited to
recovering of direct losses, and not indirect or consequential losses, such as
loss of revenues or profits. In consequence, the actual efficacy of such
warranties may be somewhat limited.

     Additionally, all operating businesses have been required to review the
terms under which they have heretofore supplied products and/or services to
third parties. No case has been identified in which any operating business has
specifically guaranteed Year 2000 compliance, and PLD has instituted a policy
regarding the giving of such guarantees in the future in order to control and
limit possible exposure thereunder. Further, since none of the operating
businesses manufacture equipment or produce proprietary software for customers
other than in exceptional cases, virtually all such transactions involve the
re-sale or assignment of products and services supplied by others. Accordingly,
PLD believes that, to the extent that such products and services are either
warranted or shown to be Year 2000 compliant, its own exposure is commensurately
reduced.

     While there can be no assurances that equipment failures will not occur,
the effect of such failures may be ameliorated by the fact that such equipment
is usually part of a network of facilities and equipment maintained by PLD's
operating businesses. This means that a failure in an individual component will
not necessarily cause a substantial disruption to the network as a whole,
because no individual item is critical to the operation of the network as a
whole, and the network also provides opportunities to by-pass the failure.

     The foregoing indicates that, to the extent that its business depends upon
equipment, software, facilities and networks under its control, PLD believes
that, by the year 2000, it will have taken all steps reasonably required to
ensure that those items are Year 2000 compliant, and that it has reasonable
contingency arrangements to deal with failures.

     PLD's operating businesses' principal Year 2000 risks arise from the fact
that they are dependent for the completion of their calls upon a variety of
other traffic carriers who provide interconnection and termination services.
Since in many cases there are a variety of routes over which traffic can be
carried, it is simply not possible for the operating businesses to verify that
each entity which could be involved in providing telecommunications services to
them will be Year 2000 compliant. To a large extent, the operating businesses
are reliant in these circumstances on the actions of the other
telecommunications operators and service providers to ensure that their
counterparts are Year 2000 compliant. While the operating businesses believe
that the parties providing these services which are based in the United States
and other Western countries are expected to be substantially Year 2000
compliant, the Year 2000 compliance and readiness of the Russian and other
C.I.S. parties with which the operating businesses interact appears to be
substantially behind that of Western parties. PLD has been unable to determine
with any degree of certainty the extent to which its interconnect partners in
the C.I.S. are non-compliant because those parties have generally been reluctant
to share this information. Nevertheless the Company believes, based on such
reluctance and anecdotal and other evidence, that many of those partners,
particularly in those in the less developed regions of the Russian Federation or
the C.I.S., are substantially non-compliant.

     Furthermore, the likelihood that those parties will be able to become Year
2000 compliant seems problematical, given the limited amount of time left for
this, the severe funding constraints faced by those parties, principally as a
result of poor economic conditions in their home countries, and the possible
lack of governmental pressure on those parties.

     Accordingly, there is a significant risk that the operating businesses may
experience disruptions in its operations as a result of their C.I.S.
interconnect partners not being able to complete calls or pass traffic to them.
While the operating businesses are unable to predict the extent or duration of
such disruptions, the possibility exists that they could be extensive, and also
take considerable time, perhaps even months, to correct.

                                       21
<PAGE>   24

     An additional risk is the likelihood that the billing systems of those
interconnect partners may also be disrupted, resulting in those partners being
unable to collect from their customers or to make timely settlements with the
operating businesses.

     Accordingly, the operating businesses believe that there is a considerable
risk that they will experience disruptions in providing telecommunications
services to and from the countries of the C.I.S. which they serve, and that
those disruptions may be substantial. Given their inability to obtain an
accurate assessment of the extent to which their C.I.S. partners may be
non-compliant, it is impossible for the Company to predict either the extent or
the magnitude of those disruptions. Nevertheless, they have the potential to
adversely impact the operations of its operating subsidiaries, and such adverse
impact may be material.

     PLD has investigated the possibility of obtaining insurance against
liability arising out of claims that products or services supplied are not Year
2000 compliant, but has determined that such insurance is not obtainable upon
terms which are sufficiently comprehensive and/or is only obtainable upon terms
which are uneconomical given the level of perceived risk, and accordingly has
elected not to pursue such insurance.

CURRENCY CONTROLS AND EXCHANGE RATES

     Exchange Controls.  Following the economic crisis in August and September
1998, the Russian Federation introduced more stringent procedural requirements
on Russian residents wishing to pay non-residents in hard currency. The main
reason for this was to attempt to reduce the level of illegal hard currency
outflows from the country. Significant documentary requirements may have to be
satisfied in respect of payments in U.S. Dollars between Russian residents
(which generally includes all Russian companies and citizens resident in Russia)
and non-residents (which generally includes non-Russian companies even if they
have a representative office or other permanent establishment in Russia) for
current currency transactions (generally those where payment is made within 90
days of the provision of goods and services). Payments in U.S. Dollars
classified as movements of capital (which generally includes direct investments,
portfolio investments, acquisition of real estate and payments made pursuant to
loan agreements, or agreements for the lease of goods having terms of over 90
days) are subject to licensing by the Central Bank. The Company believes that
Central Bank licenses are not required for payments under the installment sales
contracts it enters into with the PLD operating subsidiaries. To the extent that
such operating businesses may require Central Bank licenses for other aspects of
their activities, the Company believes that they either hold, or have applied
for and expect eventually to receive, such licenses. The need to apply for
Central Bank licenses can be burdensome, because of the substantial documentary
and other requirements involved and because of the considerable length of time
involved, often running into several months. Failure to apply for the
appropriate licenses, or to receive the outstanding licenses could result in
fines and penalties. See "Business -- Risk Factors -- Risks Involving the
Company -- Currency Licensing Requirements." Finally, banks in Russia require
that certain hard currency transfers be accompanied by a "transaction passport"
setting forth that all required tax and regulatory requirements have been
followed. Other requirements may be introduced in the future by the Russian
Federation to further control hard currency payments from the country.

     Payments between Russian residents must generally be made in Roubles.
Russian companies may exchange Roubles for U.S. Dollars if they can document
U.S. Dollar-denominated liabilities that are due and payable within specified
periods. Russian companies are required to convert 75% of most hard currency
earnings into Roubles, but (as noted in the preceding sentence) may be able to
reconvert such amounts into hard currency if they can document hard currency
denominated liabilities that are due and payable within a specified period.
Roubles may not be lawfully exported from, or converted into, other currencies
outside of Russia.

     Availability of Hard Currency for Conversion Purposes.  The ability of
companies to convert Roubles into hard currency is also subject to the
availability of hard currency in the Russian currency markets. Although there is
an existing market within Russia for the conversion of Roubles into other
currencies, including the interbank currency exchange, over-the-counter and
currency futures markets, conversion of Roubles at times of crisis, such as in
August 1998, may be difficult.

     Exchange Rates.  Significant fluctuations in the value of the Rouble
against the U.S. Dollar and other hard currencies can also have a material
impact on the value of a company's Rouble dividend income or

                                       22
<PAGE>   25

Rouble proceeds from the sale of Rouble denominated securities. The history of
trading in the Russian Rouble against the U.S. Dollar has been characterized by
significant declines in value and considerable volatility, although the Russian
Rouble experienced relative stability against the U.S. dollar during 1996 and
1997. However, during 1998 and 1999, the Russian Rouble has been under
considerable pressure and suffered substantial declines against the U.S. Dollar
and other currencies. See "Risk Factors -- Country Risks -- Russian Economic and
Political Turmoil."

     Repatriation.  Although Russian law governing foreign investment guarantees
foreign investors the right to repatriate their earnings from Russian
investments, the Russian exchange control regime, including licensing
requirements administered by the Central Bank, may materially affect their
ability to do so and may increase the cost of such repatriation. See
"Business -- Risk Factors -- Risks Involving the Company -- Currency Controls."

     Impact upon the Company.  In general, the impact on the Company of the
Russian exchange controls regime has not been particularly adverse but there can
be no assurance that there will be no such impact in the future. See
"Business -- Risk Factors -- Risks Involving the Company -- Currency
Controls -- Currency Licensing Requirements."

TAXATION

     The Company is subject to a number of taxes in the U.S., including
corporate income tax at the rate of approximately 34%. Payments made to the
Company by the PLD operating subsidiaries are exempt from Russian tax under the
U.S.-Russian Federation tax treaty. However, a recent instruction issued by the
Russian State Tax Service mandates full withholding regardless of any treaty and
requires the recipient to seek to obtain a refund for withholding in excess of
treaty amounts, although in practice those refunds can be difficult to obtain.
The need to comply with these provisions may negate or impair tax planning
initiatives undertaken by the Company to reduce its overall tax obligations in
Russia.

     The tax system in Russia has changed rapidly in recent years and may
undergo additional changes, which may have a material adverse effect on the
Company.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     PLD's finance department is responsible for the evaluation and, to the
extent practicable, management of the Company's exposure to market risks.

     The agreements which the Company has entered into with PLD's operating
businesses are denominated in U.S. Dollars, as are most of the Company's
agreements with equipment suppliers. Therefore, the Company does not believe
that it is exposed to any material market risk from changes in foreign exchange
rates. Furthermore, the Company does not believe that it is exposed to any
material market risk from changes in interest rates.

     To the extent that the PLD operating businesses with which the Company
enters into agreements face currency and other risks, these risks could
adversely affect the ability of the operating businesses to pay the Company in
U.S. Dollars on a timely basis. See "Risk Factors -- Country
Risks -- Restrictions on Currency Conversion; Historical Volatility in Currency
Prices" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Currency Controls and Exchange Rates."

     The Company does not use any derivative instruments, either as a trading or
non-trading activity.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements of the Company and supplementary data required by
this item are attached to this report beginning on page F-1.

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

     None.

                                       23
<PAGE>   26

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information with respect to the
executive officers and directors of the Company:

<TABLE>
<CAPTION>
NAME                        AGE                   POSITION
----                        ---                   --------
<S>                         <C>    <C>
E. Clive Anderson.........  52     Vice President, Secretary and Director
Simon Edwards.............  36     President and Director
Clayton A. Waite..........  38     Vice President, Treasurer and Director
</TABLE>

     Set forth below is selected biographical information for the executive
officers and directors of the Company.

     E. Clive Anderson has served as Vice President, Secretary and a Director of
the Company since its inception in March 1998. He has served as Senior Vice
President, General Counsel and Secretary of PLD since June 1997. Prior to
joining the Company, Mr. Anderson was a partner at Morgan, Lewis & Bockius LLP
from 1977 to 1997, where he represented a number of international clients,
including PLD.

     Simon Edwards has served as President and a Director of the Company since
its inception in March 1998. He has served as a Director of PLD since June 1997,
as Chief Financial Officer of PLD since October 1995 and as Senior Vice
President and Treasurer since February 1997. He was previously Director of
Finance for Cable & Wireless Europe from October 1994 to September 1995. From
July 1992 to October 1994, he held a number of corporate finance positions
within Cable & Wireless. From July 1988 to June 1992 he was a management
consultant with Arthur Andersen.

     Clayton Waite has served as Vice President, Treasurer and a Director of the
Company since its inception in March 1998. He is currently a consultant who
provides certain financial and accounting services to PLD. Previously, he was
the Vice President -- Administration and Group Financial Controller of PLD from
September 1997 to April 1999. From 1994 to September 1997, he held a number of
other positions with PLD, including Chief Financial Officer until October 1995.

ITEM 11.  EXECUTIVE COMPENSATION

     The Company does not pay any compensation to its executive officers or
directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Company does not pay any compensation to its executive officers, and
does not have a Compensation Committee.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

     The Company does not pay any compensation to its executive officers, and
does not have a Compensation Committee.

COMPARATIVE STOCK PERFORMANCE GRAPH

     The Company is a wholly owned subsidiary of PLD and the Company's Common
Stock is not, and has not been since inception, publicly traded, so no
comparative stock performance graph is included herein.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     None of the Company's equity securities are registered pursuant to Section
12 of the Securities Exchange Act of 1934, and Section 16(a) of such Act is
therefore not applicable to the holders of the Company's equity securities.

                                       24
<PAGE>   27

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information, with respect to shares
of Common Stock beneficially owned by owners of more than five percent of the
outstanding Common Stock, by all current directors and nominees, by the
executive officers and by all current directors and executive officers of the
Company as a group.

<TABLE>
<CAPTION>
                                                           NUMBER OF SHARES       PERCENT OF
BENEFICIAL OWNER                                          BENEFICIALLY OWNED        CLASS
----------------                                         ---------------------    ----------
<S>                                                      <C>                      <C>
PLD Telekom Inc........................................          1,000               100%
E. Clive Anderson......................................              0                --
Simon Edwards..........................................              0                --
Clayton A. Waite.......................................              0                --
All current directors and executive officers of the
  Company as a group (3 persons).......................              0                --
</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  GUARANTEE OF INDEBTEDNESS

     The Company is a guarantor of the Senior Notes and Convertible Notes. For
further details, please refer to "Business -- The Senior and Convertible Notes."

  EQUIPMENT SALE TRANSACTIONS

     In 1998 the Company assumed all of the rights and obligations of PLDAL,
which was a similar special purpose subsidiary of PLD incorporated in Cyprus,
under a lease of equipment entered into in 1996 with PeterStar. Immediately
prior to such assumption, PLDAL and PeterStar converted the lease into an
installment sale.

     The Company has entered into additional equipment purchases and resales
with PeterStar, and also with Technocom and Teleport-TP, additional operating
subsidiaries of PLD. Equipment has been purchased from a number of major
suppliers, including Ericsson in Sweden, ECI Telecom and Tadiran
Telecommunications in Israel, Siemens in Germany, Nokia in Finland and Lucent
Technologies in the U.S.

     As of December 31, 1998, the Company had entered into purchase contracts
with various manufacturers of telecommunications equipment with a total value of
$15.4 million, of which $4.0 million remained unpaid. In relation to this
equipment, the Company had concluded resale arrangements with PeterStar with a
total value of $13.0 million and had commenced receipt of instalment payments on
such contracts following delivery and acceptance of the relevant equipment by
PeterStar. As of December 31, 1998 the Company had finalized further resale
contracts with Technocom and Teleport-TP with a total value of $5.6 million,
with receipt of instalment payments scheduled to commence in 1999 upon final
certification and acceptance of the equipment. Additional resale arrangements
with BCL and Teleport-TP in relation to equipment purchased by the Company from
the manufacturers for $2.3 million (of the $15.4 million total), of which $2.1
million remained unpaid, and which has yet to be delivered, are being finalized.
The Company expects that these resale arrangements will be on terms similar to
those for the resale arrangements already in place with the operating
businesses. See "Business -- PLD Capital Asset (U.S.) Inc."

                                    PART IV

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

     (a) 1. Financial Statements.  Financial Statements listed in the
accompanying Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 are filed as part of this annual report on Form 10-K.

        2. Exhibits.  (see (c) below).

                                       25
<PAGE>   28

     (b) Reports on Form 8-K

     None

     (c) Exhibits.

     The following is a list of exhibits filed as part of this Annual Report on
Form 10-K. Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           DESCRIPTION
-------                          -----------
<S>      <C>
 3.1*    Certificate of Incorporation.
 3.2*    By-Laws.
 4.1     Indenture, dated as of May 31, 1996, among the Registrant,
         as Issuer, NWE Capital (Cyprus) Limited, PLD Asset Leasing
         Limited, PLD Capital Limited, Baltic Communications Limited
         and Wireless Technology Corporations Limited as Guarantors,
         and The Bank of New York, as Trustee, with respect to
         $123,000,000 aggregate principal amount at stated maturity
         of 14% Senior Discount Notes due 2004 (the "Senior Note
         Indenture") (including exhibits B, C, D and K only).
         (Exhibit 4.1)(1)
 4.2     Indenture, dated as of May 31, 1996, among the Registrant as
         Issuer, NWE Capital (Cyprus) Limited, PLD Asset Leasing
         Limited, PLD Capital Limited, Baltic Communications Limited
         and Wireless Technology Corporations Limited as Guarantors,
         and The Bank of New York, as Trustee, with respect to
         $26,500,000 aggregate principal amount of 9% Convertible
         Subordinated Notes due 2006 (the "Convertible Note
         Indenture") (including exhibit B only). (Exhibit 4.2)(2)
 4.3     First Supplemental Indenture, Amendment Agreement, Consent
         and Waiver, dated as of March 20, 1998, among the
         Registrant, as Issuer, NWE Capital (Cyprus) Limited, PLD
         Asset Leasing Limited, PLD Capital Limited, Wireless
         Technology Corporations Limited and Baltic Communications
         Limited, as Guarantors, Clayton A. Waite and Apropos
         Investments Ltd., as nominee shareholders, and The Bank of
         New York, as Trustee. (Exhibit 4.3)(1)
 4.4*    Second Supplemental Indenture, dated as of June 15, 1998,
         among the Registrant, as Issuer, NWE Capital (Cyprus)
         Limited, PLD Asset Leasing Limited, PLD Capital Limited, PLD
         Capital Asset (U.S.) Inc., Wireless Technology Corporations
         Limited and Baltic Communications Limited, as Guarantors,
         Clayton A. Waite and Apropos Investments Ltd., as nominee
         shareholders, and The Bank of New York, as Trustee.
 4.5*    Third Supplemental Indenture, dated as of January 12, 1999,
         among the Registrant, as Issuer, NWE Capital (Cyprus)
         Limited, PLD Asset Leasing Limited, PLD Capital Limited, PLD
         Capital Asset (U.S.) Inc., Wireless Technology Corporations
         Limited and Baltic Communications Limited, as Guarantors,
         Clayton A. Waite and Apropos Investments Ltd., as nominee
         shareholders, and The Bank of New York, as Trustee.
 4.6*    Global Exchange Note representing 14% Senior Discounted
         Notes due 2004.
 4.7*    Global Note representing 9% Convertible Subordinated Notes
         due 2006.
 4.8*    Leasing Company Escrow Account Agreement (PLD Capital Asset
         (U.S.) Inc.), dated as of June 15, 1998, among The Bank of
         New York as Escrow Agent, as Trustee under the Senior Note
         Indenture, and as Trustee under the Convertible Note
         Indenture and PLD Capital Asset (U.S.) Inc.
 4.9*    Leasing Company Security and Pledge Agreement (PLD Capital
         Asset (U.S.) Inc.), dated as of June 15, 1998, by PLD
         Capital Asset (U.S.) Inc. in favor of The Bank of New York,
         as Trustee under the Senior Note Indenture, as Trustee under
         the Convertible Note Indenture, and as Collateral Agent.
23.1*    Consent of KPMG LLP.
23.2*    Consent of Moore Stephens.
</TABLE>

---------------
 *  Filed herewith

(1) Incorporated by reference to the Company's Registration Statement on Form
    S-4 (File No. 333-5398).

(2) Incorporated by reference to the Company's Registration Statement on Form
    S-3 (File No. 333-5396).

                                       26
<PAGE>   29

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in New York, New York
on August 30, 1999.

                                          PLD CAPITAL ASSET (U.S.) INC.

                                          By:       /s/ SIMON EDWARDS
                                            ------------------------------------
                                                 Simon Edwards
                                                 President and Chief Executive
                                              Officer

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

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

               /s/ E. CLIVE ANDERSON                 Director, Vice President and       August 30, 1999
---------------------------------------------------  Secretary
                 E. Clive Anderson

                 /s/ SIMON EDWARDS                   Director, President and Chief      August 30, 1999
---------------------------------------------------  Executive Officer
                   Simon Edwards

               /s/ CLAYTON A. WAITE                  Director, Vice President,          August 30, 1999
---------------------------------------------------  Secretary and Principal
                 Clayton A. Waite                    Accounting Officer
</TABLE>

                                       27
<PAGE>   30

                         PLD CAPITAL ASSET (U.S.) INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent auditors' report................................    F-2
Balance sheet as of December 31, 1998.......................    F-3
Statement of operations for the year ended December 31,
  1998......................................................    F-4
Statement of shareholder's equity for the year ended
  December 31, 1998.........................................    F-5
Statement of cash flows for the year ended December 31,
  1998......................................................    F-6
Notes to financial statements...............................    F-7
</TABLE>

                                       F-1
<PAGE>   31

                          INDEPENDENT AUDITORS' REPORT

Shareholder and Board of Directors
PLD Capital Asset (U.S.) Inc.:

     We have audited the accompanying balance sheet of PLD Capital Asset (U.S.)
Inc. as of December 31, 1998 and the related statements of operations,
shareholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

     We conducted our audit 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 accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement preparation. We believe that
our audit provides 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 PLD Capital Asset (U.S.)
Inc. as of December 31, 1998 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 9(a) to the
financial statements, the Company's parent, PLD Telekom Inc. (PLD) does not
presently have sufficient funds on hand to meet its current debt obligations.
PLD's failure to make payment in full when required could result in a
cross-default under and acceleration of other debt obligations for which the
Company is a guarantor. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

                                          KPMG LLP

New York, New York
March 30, 1999

                                       F-2
<PAGE>   32

                         PLD CAPITAL ASSET (U.S.) INC.

                                 BALANCE SHEET
                            AS OF DECEMBER 31, 1998
                          (THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                               1998
                                                              -------
<S>                                                           <C>
Assets:
  Current:
     Cash and cash equivalents..............................  $    10
     Other receivables and prepaids.........................      228
     Assets held for resale (note 5)........................    3,949
     Due from related parties -- installment sales contracts
      (note 3)..............................................    6,408
                                                              -------
          Total current assets..............................   10,595
  Escrow funds (note 4).....................................      528
  Due from related parties -- installment sales contracts
     (note 3)...............................................    3,806
                                                              -------
          Total assets......................................  $14,929
                                                              =======
Liabilities and Shareholder's Equity:
  Current liabilities:
     Accounts payable and accrued liabilities (note 6)......    1,977
     Due to related parties.................................    5,035
                                                              -------
          Total current liabilities.........................    7,012
  Commitments and contingencies (note 9)
  Shareholder's equity:
     Capital stock (note 7):
  Additional paid-in capital................................    6,641
  Retained earnings.........................................    1,276
                                                              -------
          Total shareholder's equity........................    7,917
                                                              -------
          Total liabilities and shareholder's equity........  $14,929
                                                              =======
</TABLE>

                See accompanying notes to financial statements.
                                       F-3
<PAGE>   33

                         PLD CAPITAL ASSET (U.S.) INC.

                            STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1998
                          (THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                              1998
                                                              ----
<S>                                                           <C>
Revenues:
  Interest income...........................................  $813
Operating expenses:
  General and administrative................................    15
                                                              ----
Income before taxes.........................................   798
Income taxes (note 8).......................................   232
                                                              ----
Net income..................................................  $566
                                                              ====
</TABLE>

                See accompanying notes to financial statements.
                                       F-4
<PAGE>   34

                         PLD CAPITAL ASSET (U.S.) INC.

                       STATEMENT OF SHAREHOLDER'S EQUITY
                          YEAR ENDED DECEMBER 31, 1998
                          (THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                                 1998
                                                              -----------
<S>                                                           <C>
BALANCE, BEGINNING OF YEAR..................................    $  712
Capitalization of loan from PLD Telekom Inc.................     6,639
Net income..................................................       566
                                                                ------
BALANCE, END OF YEAR........................................    $7,917
                                                                ======
</TABLE>

                See accompanying notes to financial statements.

                                       F-5
<PAGE>   35

                         PLD CAPITAL ASSET (U.S.) INC.

                            STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1998
                          (THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
                                                               1998
                                                              -------
<S>                                                           <C>
Cash provided by/(used in):
  Operations:
     Net income.............................................  $   566
     Non-cash items:
       Increase in deposits.................................     (228)
       Increase in assets held for resale...................   (3,949)
       Change in due from or due to related parties.........    2,205
       Increase in accounts payable and accrued
        liabilities.........................................    1,934
                                                              -------
                                                                  528
  Investing:
     Escrow.................................................     (528)
                                                              -------
                                                                 (528)
                                                              -------
Increase /(decrease) in cash and cash equivalents...........       --
Cash and cash equivalents, beginning of year................       10
                                                              -------
Cash and cash equivalents, end of year......................  $    10
                                                              =======
</TABLE>

                See accompanying notes to financial statements.
                                       F-6
<PAGE>   36

                         PLD CAPITAL ASSET (U.S.) INC.

                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1998

(1)  BUSINESS AND OPERATIONS

     PLD Capital Asset (U.S.) Inc. ("PLDCA" or "the Company") was incorporated
on March 24, 1998 under the laws of the State of Delaware and is a wholly-owned
subsidiary of PLD Telekom Inc. ("PLD" or the "Parent"). The Company was formed
as a special purpose subsidiary to enter into installment sales agreements in
respect of certain telecommunications equipment required by PLD's operating
subsidiaries located in Russia and Kazakhstan. During 1998, PLDCA assumed the
assets, liabilities and business of PLD Asset Leasing Limited ("PLDAL"). PLDCA
has recorded such assets and liabilities at the historical cost of PLDAL and has
reflected the results of operations of PLDAL from January 1, 1998 until June 30,
1998, the date of transfer, since the entities were under common control. PLDAL
is a Cypriot company wholly owned by the Parent, which existed to enter into
lease agreements with related companies. PLDAL is presently inactive and it is
the intention of the Parent to dissolve PLDAL.

     Upon assumption of PLDAL's business, the lease previously entered into with
a related company was restructured to be an installment sale.

     Additionally during 1998, PLD transferred installment sales agreements with
a combined carrying value of $1,824,000 it had previously entered into with
related companies to PLDCA. The Company has recorded these assets at the
historical cost of PLD and has recorded an intercompany liability to PLD at the
same amount.

     The accompanying financial statements present the financial position and
results of operations of the Company on a stand-alone basis. The Company incurs
and pays its own expenses. Specific costs incurred by the parent on behalf of
the Company are charged thereto. All intercompany transactions and charges are
disclosed in note 10, "Related Party Transactions".

     Income tax expense is based upon a calculation of current tax expenses and
deferred tax expenses in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", on a stand-alone basis. Refer
to note 8, "Income Taxes".

     Intercompany interest charges incurred are the result of, and are made
pursuant to, intercompany loan and/or installment sales agreements and are not a
result of allocations of interest by the Parent or its subsidiaries.

     There are no common costs allocated to the Company by the Parent. Direct
costs incurred by the Parent on behalf of the Company are reimbursed by the
Company. Services provided by the Parent are furnished under the terms of
negotiated management agreements. Refer to note 10, "Related Party
Transactions". Management of the Company believes that the accompanying
financial statements include all the costs incurred by the Company in its
operations.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The Company's significant accounting policies are summarized as follows:

  (a) Basis of Presentation

     The accompanying financial statements are prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP).

                                       F-7
<PAGE>   37
                         PLD CAPITAL ASSET (U.S.) INC.

                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1998

  (b) Cash and Cash Equivalents

     The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Funds held in
escrow, totaling $528,000 at December 31, 1998, are shown separately under
non-current assets.

  (c) Revenue Recognition

     The Company records interest income on installment sales contracts as
earned.

  (d) Receivables

     Receivables reflect amounts owing pursuant to installment sales contracts
outstanding with PLD's operating subsidiaries and include accrued interest at
varying rates of interest.

  (e) Fair Value of Financial Instruments

     The carrying amounts reported in the balance sheet for cash and cash
equivalents, escrow funds, accounts receivable and accounts payable approximate
fair value due to their short maturities.

  (f) Use of Estimates

     The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the year. Actual results could differ from those estimates.

  (g) Comprehensive Income

     SFAS 130 "Reporting Comprehensive Income" was issued in June 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130
requires that all items that are required to be recognised under accounting
standards as components of comprehensive income be reported in an annual
financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS 130 as of January 1, 1998. For
the year ended December 31, 1998, comprehensive income was equal to net income
reported in the statement of operations. As SFAS 130 only requires additional
disclosures in the Company's financial statements, its adoption did not have any
impact on the Company's financial position or results of operations.

(3)  INSTALLMENT SALES CONTRACTS

<TABLE>
<S>                                                           <C>
Installment sales contract payments due:
                              1999                             $6,189
                              2000                              2,654
                              2001                              2,338
                              2002                                350
                                                              -------
                                                               11,531
Amounts representing interest...............................    1,317
                                                              -------
Present value of installment sales contract payments due....  $10,214
                                                              =======
</TABLE>

                                       F-8
<PAGE>   38
                         PLD CAPITAL ASSET (U.S.) INC.

                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1998

(4)  ESCROW FUNDS

     At December 31, 1998, the Company had $528,000 deposited in an escrow
account maintained with the Bank of New York. Escrow funds are generally
invested in U.S. Treasury backed securities with maturities less than 30 days.
Use of the escrow funds is governed by the detailed provisions contained within
the revised indentures relating to PLD's senior discount notes which were issued
in June 1996.

(5)  ASSETS HELD FOR RESALE

     Assets held for resale, consisting solely of telecommunications equipment,
is stated at cost and includes assets acquired by the Company which have yet to
be accepted by a PLD subsidiary or which have yet to be used for billable
commercial services. Accordingly, no depreciation is charged on this equipment
as it has yet to be commissioned. At December 31, 1998, a total of $3,949,000 in
equipment had yet to be accepted or put into service by PLD subsidiaries.

(6)  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     A total of $1,948,000 was owed to suppliers by the Company at December 31,
1998 relating to telecommunications equipment yet to be delivered to and/or
accepted by PLD subsidiaries.

(7)  COMMON STOCK

     At December 31, 1998, the authorized capital stock of the Company consisted
of 1,000 shares of Common Stock with a par value of $0.01 per share, all of
which were issued and outstanding.

(8)  INCOME TAXES

     PLDCA is included in the consolidated federal and certain state and local
income tax returns of PLD. PLD accounts for its income taxes under the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
For Income Taxes (SFAS 109). In accordance with SFAS 109, when separate
financial statements are prepared for a member of a group that files a
consolidated return, the consolidated amount of current and deferred tax expense
for the consolidated group must be allocated among the members of the group. The
method of allocation must be consistent with the broad principles of SFAS 109.
For the Company's financial statements, a separate return method was utilized
for income taxes whereby current and deferred taxes were calculated by applying
the provisions of SFAS 109 as if the Company was a separate individual taxpayer.

     The components of income taxes for the year ended December 31, 1998 are as
follows:

<TABLE>
<S>                                                           <C>
Current
  Federal and foreign.......................................  $152,000
  State and local...........................................    80,000
                                                              --------
                                                               232,000
Deferred....................................................        --
                                                              --------
                                                              $232,000
                                                              ========
</TABLE>

     The effect of foreign and state income tax provisions caused the Company's
effective tax rate to differ from the U.S. statutory income tax rate during
1998.

     As of December 31, 1998, $217,000 of tax-related balances owed to PLD is
included under "due to related parties."

                                       F-9
<PAGE>   39
                         PLD CAPITAL ASSET (U.S.) INC.

                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1998

(9)  COMMITMENTS AND CONTINGENCIES

     (a) In June 1996, PLD issued senior discount notes and convertible
subordinated notes with an aggregate principal amount of $149.5 million. The
Company is a guarantor of this debt under the terms of the related indentures.

     As noted in its annual report on Form 10-K, PLD does not presently have
sufficient funds on hand to meet its current debt obligations. While management
of PLD believes that, as long as progress towards settlement of such obligations
is being made, the holders of such debt will agree to payment deferrals beyond
the present due date of April 30, 1999, there can be no assurance that the
holders will grant such deferrals or that they will not demand payment in full
of the obligations. PLD's failure to make payment in full could result in a
cross-default under and acceleration of the senior discount notes and
convertible subordinated notes for which the Company serves as a guarantor.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.

     (b) As of December 31, 1998, the Company had entered into purchase
commitments with unaffiliated companies relating to telecommunications equipment
amounting to $2,051,000.

(10)  RELATED PARTY TRANSACTIONS

     PLDCA has sold to PeterStar Company Limited ("PeterStar")
telecommunications equipment valued at $9,815,000 pursuant to five installment
sales contracts either signed directly with PeterStar, or assigned from PLD and
PLDAL. The Company recorded interest income of $813,000 in respect of these
contracts in 1998. As of December 31, 1998, PeterStar owes PLDCA a total of
$10,214,000 in respect of these contracts.

     As of December 31, 1998, PLDCA owed PLD $4,818,000 in respect of assets
assigned or transferred to PLDCA during the year.

     During 1998, a loan from PLD amounting to $6,600,000 was contributed to
capital.

                                      F-10
<PAGE>   40

                           PLD ASSET LEASING LIMITED

                              FINANCIAL STATEMENTS
      YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED DECEMBER 31, 1996

                                    CONTENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent auditors' report................................  F-12
Balance sheets..............................................  F-13
Statements of operations and retained earnings/(deficit)....  F-14
Statements of cash flows....................................  F-15
Notes to the financial statements...........................  F-16
</TABLE>

                                      F-11
<PAGE>   41

                          INDEPENDENT AUDITORS' REPORT

SHAREHOLDER AND BOARD OF DIRECTORS

PLD ASSET LEASING LIMITED

     We have audited the accompanying balance sheets of PLD Asset Leasing
Limited as of December 31, 1997 and 1996, and the related statements of
operations and retained earnings/(deficit) and cash flows for the year ended
December 31, 1997 and the nine months ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audit 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 audit provides 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 PLD Asset Leasing Limited as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the year ended December 31, 1997 and the nine months ended December
31, 1996 in conformity with accounting principles generally accepted in the
United States.

                                          MOORE STEPHENS
                                          CHARTERED ACCOUNTANTS

Nicosia, Cyprus
May 20, 1998

                                      F-12
<PAGE>   42

                           PLD ASSET LEASING LIMITED

                                 BALANCE SHEETS
                        AS AT DECEMBER 31, 1997 AND 1996
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                              NOTE       1997          1996
                                                              ----    ----------    ----------
<S>                                                           <C>     <C>           <C>
ASSETS
  CURRENT:
     Cash...................................................          $   10,482    $   10,490
     Lease payments receivable-interest.....................   5         782,849            --
     Lease payments receivable-principal....................   5       2,117,954       977,151
                                                                      ----------    ----------
                                                                       2,911,285       987,641
  NON CURRENT:
     Lease payments receivable-principal....................   5       4,483,483     5,624,287
                                                                      ----------    ----------
                                                                      $7,394,768    $6,611,928
                                                                      ==========    ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
  CURRENT LIABILITIES:
     Accounts payable.......................................   6              --     2,065,420
     Taxation payable.......................................              35,739            --
     Accrued liabilities....................................   3           8,281         5,667
     Due to PLD Telekom Inc.................................           6,638,607     4,571,121
                                                                      ----------    ----------
                                                                       6,682,627     6,642,208
SHAREHOLDER'S EQUITY/(DEFICIT)
  CAPITAL STOCK:
     Share capital -- 1,000 ordinary shares of Cy Pds 1 per
       share, issued and fully paid.........................   4           2,140         2,140
                                                                      ----------    ----------
                                                                      ----------    ----------
                                                                           2,140         2,140
Retained earnings/(deficit).................................             710,001       (32,420)
                                                                      ----------    ----------
                                                                         712,141       (30,280)
                                                                      ----------    ----------
                                                                      $7,394,768    $6,611,928
                                                                      ==========    ==========
</TABLE>

             The notes on pages F-16 and F-17 form an integral part
                         of these financial statements
                                      F-13
<PAGE>   43

                           PLD ASSET LEASING LIMITED

            STATEMENTS OF OPERATIONS AND RETAINED EARNINGS/(DEFICIT)
    YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED DECEMBER 31, 1996
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                                1997         1996
                                                              ---------    ---------
<S>                                                           <C>          <C>
REVENUES:
  Finance lease income......................................  $ 782,849    $      --

OPERATING EXPENSES:
  General and administrative................................      4,681       31,475
  Interest expense..........................................          8          945
                                                              ---------    ---------
  Total operating expenses..................................      4,689       32,420
                                                              ---------    ---------
Income/(loss) before income taxes...........................    778,160      (32,420)
Income taxes................................................     35,739           --
                                                              ---------    ---------
Net income/(loss)...........................................  $ 742,421    $ (32,420)
Retained earnings/(deficit), beginning of period............    (32,420)          --
                                                              ---------    ---------
Retained earnings/(deficit), end of period..................  $ 710,001    $ (32,420)
                                                              =========    =========
</TABLE>

             The notes on pages F-16 and F-17 form an integral part
                         of these financial statements
                                      F-14
<PAGE>   44

                           PLD ASSET LEASING LIMITED

                            STATEMENTS OF CASH FLOWS
             YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED
                               DECEMBER 31, 1996
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                                 1997           1996
                                                              -----------    ----------
<S>                                                           <C>            <C>
CASH PROVIDED BY/(USED IN):
OPERATIONS:
Net income/(loss)...........................................  $   742,421    $  (32,420)
Non-cash items:
Changes in non-cash working capital.........................   (3,950,719)    1,093,936
                                                              -----------    ----------
                                                               (3,208,298)    1,061,516
INVESTING:
Lease payments receivable...................................    1,140,804    (5,624,287)
                                                              -----------    ----------
                                                                1,140,804    (5,624,287)
FINANCING:
Due to PLD Telekom Inc......................................    2,067,486     4,571,121
Issue of share capital and premium..........................           --         2,140
                                                              -----------    ----------
                                                                2,067,486     4,573,261
                                                              -----------    ----------
(Decrease)/increase in cash and cash equivalents............           (8)       10,490
Cash and cash equivalents, beginning of period..............       10,490            --
                                                              -----------    ----------
Cash and cash equivalents, end of period....................  $    10,482    $   10,490
                                                              ===========    ==========
</TABLE>

             The notes on pages F-16 and F-17 form an integral part
                         of these financial statements
                                      F-15
<PAGE>   45

                           PLD ASSET LEASING LIMITED

                       NOTES TO THE FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

1.  ACTIVITIES

     The Company has entered into a lease agreement at the end of 1996 to
provide telecommunications equipment to ZAO PeterStar, a Russian Company.

2.  ACCOUNTING POLICIES

     2.1.  ACCOUNTING CONVENTION

     The financial statements have been prepared under the historical cost
convention.

     2.2.  CURRENCY

     The books of the Company are maintained in United States Dollars and the
accompanying financial statements and notes thereto are expressed in this
currency.

     2.3.  TRANSLATION IN FOREIGN CURRENCIES

     Balances in foreign currency are translated at the closing rates prevailing
at the balance sheet date.

     Expenses denominated in currencies other than US$ are recorded in the
accounting records and stated in the financial statements at the amounts
actually converted into US$ at the rate ruling on the transaction date.

     2.4.  FINANCE LEASES

     Leases are recognised in the Company's balance sheet as a receivable equal
to the net investment in the lease. Unearned interest income is recognised in
the profit and loss at a constant periodic rate of return. Minimum lease
payments due within one year are shown as current assets.

3.  ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                              1997     1996
                                                              US $     US $
                                                              -----    -----
<S>                                                           <C>      <C>
Professional fees...........................................  8,281    5,667
                                                              =====    =====
</TABLE>

4.  SHARE CAPITAL

     The Company's authorized share capital of Cy Pds 1,900,000 is made up of
1,900,000 ordinary shares with a par value of Cy Pds 1 each.

     The Company's issued and fully paid share capital amounts to Cy Pds 1,000
made up of 1,000 ordinary shares of Cy Pds 1 each.

     The amount of US $2,140 represents the equivalent of Cy Pds 1,000
translated at the exchange rate ruling on the date of issue.

                     The above notes form an integral part
                         of these financial statements
                                      F-16
<PAGE>   46
                           PLD ASSET LEASING LIMITED

                NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

5.  FINANCE LEASES

<TABLE>
<CAPTION>
                                                          1997         1996
                                                          US $         US $
                                                        ---------    ---------
<S>                                                     <C>          <C>
Gross investment in the lease.........................  8,800,000    8,800,000
Unearned interest income..............................  1,415,713    2,198,562
                                                        ---------    ---------
                                                        7,384,287    6,601,438
                                                        =========    =========
Amounts receivable within one year....................  2,900,804      997,151
Amounts receivable after more than one year...........  4,483,483    5,604,287
                                                        ---------    ---------
                                                        7,384,287    6,601,438
                                                        =========    =========
</TABLE>

6.  ACCOUNTS PAYABLE

     Represent amounts due to equipment suppliers relating to the finance lease
entered into by the Company.

7.  TAXATION

     The Company is liable to income tax under Section 28(a) of the Cyprus
Income Tax Laws.

     The Company has tax payable of US $35,739 (Cy Pds 18,379).

8.  SHAREHOLDERS ADVANCES

     The advances are interest free and without fixed date of repayment.

9.  SECURITIES, PLEDGES AND CHARGES

     a) The Company's shares have been pledged as collateral security in
relation to US $123 million of Senior Discount Notes issued by the parent
company.

     b) A charge has been established on the Company's receipts from the parent
company, fees receivable from subsidiaries and receipts from other leasing
companies as collateral for the US $123 million "Senior Discount Notes" issued
by the parent company.

     c) An assignment of the Company's lease rental receipts, receivable from
ZAO Peterstar amounting to US $8,800,000, has been made.

   All the above described charges, pledges and assignments are in favour of The
   Bank of New York.

10.  POST BALANCE SHEET EVENTS

     The Company allotted an additional 349,000 ordinary shares to the existing
shareholder on May 4, 1998, increasing the issued share capital to Cy Pds
350,000 (nominal value).

                     The above notes form an integral part
                         of these financial statements
                                      F-17