WORLDCOM INC/GA//, S-4, 2000-12-29

WORLDCOM INC/GA//
S-4, 2000-12-29
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As filed with the Securities and Exchange Commission on December 28, 2000
Registration No. 333-

----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________
WORLDCOM, INC.
(Exact name of Registrant as specified in its charter)

Georgia 4813 58-1521612

(State or other (Primary (I.R.S. Employer
jurisdiction of Standard Identification
incorporation or Industrial No.)
organization) Classification
Code Number)

____________
Bernard J. Ebbers
President and Chief Executive Officer
WorldCom, Inc.
500 Clinton Center Drive
Clinton, Mississippi 39056
(601) 460-5600

(Address, including zip code, and (Name and address, including zip
telephone number, including area code, and telephone number, including
code, of Registrant's principal area code, of agent for service)
executive offices)
____________
With copies to:

Scott D. Sullivan Andrew R. Keller
Chief Financial Officer Simpson Thacher & Bartlett
WorldCom, Inc. 425 Lexington Avenue
500 Clinton Center Drive New York, NY 10017-3954
Clinton, Mississippi 39056

____________

<PAGE>

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes
effective.
____________

If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there
is compliance with General Instruction G, check the following box: [_]

If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering: [_]

If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
____________

CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------

<PAGE>

<TABLE>
<CAPTION>
Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price per Proposed Maximum Registration
Securities to be Registered Registered Share Aggregate Offering Price Fee<F3>
----------------------------- -------------- ------------------- ------------------------ -----------------
<S> <C> <C> <C> <C>
WorldCom, Inc. --
WorldCom Group Common
Stock, par value $0.01 per
share <F1><F2>. . . . . . . . N/A N/A N/A N/A
------------- ------------------- ------------------------ -----------------
WorldCom, Inc. --
MCI Group Common Stock, par
value $0.01 per share
<F1><F2>. . . . . . . . . . . N/A N/A $2,881,000,000 $720,250
------------- ------------------- ------------------------ -----------------
<FN>

<F1>
If the tracking stock proposal described herein is approved by the
shareholders, each share of the Registrant's Common Stock, par value
$0.01 per share (the "Existing Common Stock"), will be changed into one
share of WorldCom, Inc. -- WorldCom Group Common Stock, par value $0.01
per share ("WorldCom group stock") and 1/25 of a share of WorldCom, Inc.
MCI Group Common Stock, par value $0.01 per share ("MCI group stock").
The number of shares of WorldCom group stock being registered is equal
to the number of shares of Existing Common Stock outstanding
immediately before the tracking stock proposal is implemented, and the
number of shares of MCI group stock being registered is equal to 1/25
of the number of shares of Existing Common Stock outstanding
immediately before the tracking stock proposal is implemented. In
accordance with Rule 457(o) under the Securities Act of 1933, (the
"Securities Act"), the number of shares being registered is not
included in the table.

<F2>
Each share of WorldCom group stock and MCI group stock includes a
preferred stock purchase right. The value, if any, of this right is
reflected in the market price of the related common stock. Accordingly,
no separate fee is paid.

<F3>
Based upon the book value of the Registrant's historical interest in
the MCI group of $2,881,000,000 as of September 30, 2000.
</TABLE>

<PAGE>

The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, or until
this Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.

<PAGE>

Red herring text The information is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.

SUBJECT TO COMPLETION, DATED DECEMBER 28, 2000
PROXY STATEMENT AND PROSPECTUS OF
WORLDCOM, INC.
SPECIAL MEETING OF SHAREHOLDERS TO BE
HELD AT , LOCAL TIME, ON , 2001
___________________
, 2001
Dear Shareholder,

You are cordially invited to attend a special meeting of WorldCom,
Inc. shareholders, to be held on , 2001, at 10:00 a.m., local time,
at 500 Clinton Center Drive, Clinton, Mississippi.

As part of our ongoing efforts to create additional value for our
shareholders, our board of directors requests your approval to amend our
charter to effect a recapitalization that will replace our existing
common stock with two new series of our common stock that are intended
to reflect, or track, the performance of our WorldCom businesses and our
MCI businesses. We believe that this new capital structure will
facilitate our efforts to continue to create value for our shareholders
by highlighting our distinct businesses.

If the shareholders approve the recapitalization, each share of our
existing common stock will be changed into one share of WorldCom group
stock and 1/25 of a share of MCI group stock. After the
recapitalization, a common shareholder's ownership in WorldCom, Inc.
will then be represented by two stocks: WorldCom group stock and MCI
group stock. We will seek the listing of both the WorldCom group stock
and the MCI group stock on the Nasdaq National Market.

We intend to pay a quarterly dividend of $ per share on
the MCI group stock. We do not intend to pay dividends on the WorldCom
group stock in the foreseeable future.

At the special meeting, we will be asking you to vote in favor of a
proposed amendment to our charter to permit the creation of the tracking
stock capital structure. Approval of the amendment will permit us to
issue the WorldCom group stock and MCI group stock. The terms of the

<PAGE>

WorldCom group stock and the MCI group stock, along with other important
information, are included in this proxy statement and prospectus.

At the special meeting, you will also be asked to consider and
approve a proposal to amend the fair price provisions of our charter to
reflect the tracking stock structure.

Our board of directors unanimously recommends that you vote "FOR"
the tracking stock proposal and the proposal to amend the fair price
provisions of our charter.

This proxy statement provides you with detailed information about
the proposals. We encourage you to read this entire document.

I look forward to seeing you at the special meeting.

Sincerely,

Bernard J. Ebbers
President and Chief Executive Officer

FOR A DISCUSSION OF THE MATERIAL RISKS INVOLVED IN CONNECTION WITH THE
PROPOSALS SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF THIS PROXY STATEMENT
AND PROSPECTUS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROXY STATEMENT AND PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This proxy statement and prospectus is dated , 2001 and is first
being mailed to shareholders on or about ________________, 2001.

<PAGE>

HOW YOU CAN OBTAIN MORE INFORMATION

This proxy statement and prospectus incorporates important
information that is not included in or delivered with this document. You
may request a copy of this information at no cost, by writing or
telephoning us at the following address:

WorldCom, Inc.
500 Clinton Center Drive
Clinton, Mississippi 39056
Attention: Investor Relations Department
Telephone: (877) 624-9266 or (601) 460-5600

TO OBTAIN TIMELY DELIVERY, YOU MUST MAKE THIS REQUEST NO LATER THAN
FIVE BUSINESS DAYS BEFORE , 2001, THE DATE OF THE SPECIAL
MEETING.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROXY STATEMENT AND PROSPECTUS TO VOTE ON THE
MATTERS BEING CONSIDERED AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT AND PROSPECTUS. THIS PROXY STATEMENT
AND PROSPECTUS IS DATED , 2001. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT AND PROSPECTUS IS ACCURATE
AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY
STATEMENT AND PROSPECTUS TO SHAREHOLDERS SHALL NOT CREATE ANY
IMPLICATION TO THE CONTRARY.

<PAGE>

[WorldCom Logo]
500 Clinton Center Drive
Clinton, Mississippi 39056

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

Clinton, Mississippi , 2001

The special meeting of shareholders of WorldCom, Inc. will be held
on , 2001, at 10:00 a.m. local time, at 500 Clinton Center Drive,
Clinton, Mississippi for the purpose of:

- considering and approving a proposal to amend our articles of
incorporation, which would provide for each outstanding share
of our existing common stock to be changed into one share of
WorldCom group stock and 1/25 of a share of MCI group stock;
and

- considering and approving a proposal to amend the fair price
provisions of our articles of incorporation to reflect the
tracking stock structure.

Proposed articles of amendment to our charter to be voted on at the
special meeting are included in Annex I and Annex II to the
accompanying proxy statement and prospectus.

You can vote if you were a shareholder of record on , 2001 of
our common stock or any of our series B, series D, series E, series F or
series G preferred stock.

Your vote is important. Please vote in one of these ways:

1) use the toll-free telephone number shown on your proxy
card;

2) visit and cast your vote at the web site listed on the
proxy card; or

3) mark, sign and return the accompanying proxy.

By Order of the Board of Directors

Scott D. Sullivan
Secretary

<PAGE>

Page
Table of Contents

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS......................... 1
SUMMARY........................................................... 2
RISK FACTORS...................................................... 15
Risks Relating to Our New Tracking Stock Capital Structure...... 15
Risks Relating to Our WorldCom Group Operations................. 21
Risks Relating to Our MCI Group Operations...................... 23
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS......... 24
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING.................. 25
Date, Time and Place of the Special Meeting..................... 25
Proposals to be Considered at the Special Meeting............... 25
Who Can Vote.................................................... 25
Shares Outstanding.............................................. 25
Voting of Shares................................................ 25
Voting of Proxies............................................... 25
Votes Required to Approve the Proposals......................... 25
How You Can Vote................................................ 26
Revocation of Proxy............................................. 26
Quorum.......................................................... 26
Solicitation of Proxies......................................... 26
PROPOSAL 1 - THE TRACKING STOCK PROPOSAL.......................... 28
Description of Proposal 1 - The Tracking Stock Proposal......... 28
Recommendation of Our Board of Directors........................ 30
Dividend Policy................................................. 31
The WorldCom Group and the MCI Group............................ 31
Description of WorldCom Group Stock and MCI Group Stock......... 31
U.S. Federal Income Tax Considerations.......................... 49
Stock Exchange Listings......................................... 50
Stock Transfer Agent and Registrar.............................. 51
Financial Advisors.............................................. 51
Effect on Existing Stock Based Awards, Preferred Stock and
Warrants..................................................... 51
No Dissenters' Rights........................................... 51
BUSINESS OF THE WORLDCOM GROUP.................................... 52
BUSINESS OF THE MCI GROUP......................................... 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF WORLDCOM, INC......................... 75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE WORLDCOM GROUP (AN INTEGRATED
BUSINESS OF WORLDCOM, INC.).................................... 96
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE MCI GROUP (AN INTEGRATED BUSINESS
OF WORLDCOM, INC.)............................................ 108
RELATIONSHIP BETWEEN THE WORLDCOM GROUP AND THE MCI GROUP
General Policy................................................. 117

<PAGE>

Amendment and Modification of the Policy Statement............. 117
Corporate Opportunities........................................ 117
Relationship Between the Groups................................ 118
Dividend Policy................................................ 120
Financial Reporting; Allocation Matters........................ 120
PROPOSAL 2 - AMENDMENTS TO FAIR PRICE PROVISIONS OF CHARTER...... 121
PRINCIPAL SHAREHOLDERS........................................... 122
PRICE RANGE AND DIVIDENDS ON EXISTING COMMON STOCK............... 124
INFORMATION ABOUT SHAREHOLDER PROPOSALS.......................... 124
LEGAL AND TAX OPINIONS........................................... 125
EXPERTS.......................................................... 125
WHERE YOU CAN FIND MORE INFORMATION.............................. 125
INDEX TO FINANCIAL STATEMENTS.................................... F-1

ANNEX I -- Proposed Articles of Amendment to the Second Amended and
Restated Articles of Incorporation of WorldCom, Inc. to
Establish Tracking Stock

ANNEX II-- Proposed Articles of Amendment to Fair Price Provisions of
the Second Amended and Restated Articles of Incorporation
of WorldCom, Inc.

<PAGE>

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

Q-1: What am I being asked to vote on?

A-1: We are asking you to approve articles of amendment to our
charter to permit us to change each outstanding share of our
existing common stock into one share of WorldCom group stock and
1/25 of a share of MCI group stock.

We are also asking you to approve a proposal to amend the fair
price provisions of our charter to reflect the tracking stock
structure.

Q-2: Should I vote "FOR" the proposals?

A-2: Yes. Our directors unanimously recommend that you vote "FOR"
both of the proposals. We are soliciting your vote "FOR" the
proposals with this proxy statement.

Q-3: What will my existing common stock represent if the tracking
stock proposal is implemented?

A-3: Each shares of our existing common stock will be changed into
one share of WorldCom group stock and 1/25 of a share of MCI
group stock. For example, if you own 101 shares of existing
common stock, you would receive 101 shares of WorldCom group
stock, 4 shares of MCI group stock and cash in lieu of 1/25 of a
share of MCI group stock. The cash to be received would be
equal to 1/25 of the closing price of the MCI group stock on the
date the tracking stock proposal is implemented. Neither the
WorldCom group nor MCI group will be a separate independent
entity.

Q-4: Should I send in my stock certificates?

A-4: No. Each old share certificate will represent your new
interests in the WorldCom group stock and MCI group stock.
Shortly after the implementation of the tracking stock proposal,
you will receive instructions on how proposal, you will receive
instructions on how you may, at your option, exchange your
existing stock certificates for new stock certificates
representing your WorldCom group stock and MCI group stock.

Q-5: How do I vote on the proposals?

A-5: You may vote by telephone or via the Internet. You may also
mail your signed proxy card in the enclosed return envelope, but
please do so as soon as possible so that your shares may be
represented at the special meeting. Or, you may attend the
special meeting, as we describe in this proxy statement and
prospectus. The special meeting will take place on , 2001.

<PAGE>

Q-6: If I hold my shares through a broker, how do I vote on the
proposals?

A-6: You should have received with this proxy statement and prospectus
a voting instruction card. If you have further questions on
voting, please contact your broker.

Q-7: Can I change my vote?

A-7: Yes. If you vote by proxy, you may revoke that proxy at any
time before it is voted at the special meeting. You may do this
by (1) voting again by telephone or on the Internet prior to the
special meeting; (2) signing another proxy card with a later
date and returning it to us prior to the special meeting; or (3)
attending the special meeting in person and casting a ballot.

If you own your shares through a broker, your broker can
tell you how to change your vote.

Q-8: What happens if I do not vote on the proposals?

A-8: If you do not return a proxy card or otherwise vote on the
proposals, the effect will be the same as if you have voted
"AGAINST" the proposals. We urge you to vote "FOR" both of the
proposals.

Q-9: Whom can I call with questions?

A-9: If you have any questions about the proposals, please call us at
(___) ___-____.

<PAGE>

SUMMARY

This summary, together with the "Questions and Answers About the
Proposals" on the preceding page, highlights important information from
this proxy statement and prospectus. To understand the tracking stock
proposal fully and for a more complete description of the legal terms of
the tracking stock proposal, you should read carefully this entire
document.

In this proxy statement and prospectus, "we," "us," "our,"
"ours" and "WorldCom" refer to WorldCom, Inc. and its subsidiaries.

TRACKING STOCK

We are asking you to permit us to create two new series of
common stock. The WorldCom group stock is intended to reflect or "track"
the separate performance of our data, Internet, international and
commercial voice businesses and the MCI group stock is intended to track
the performance of our consumer, small business, wholesale long
distance, wireless messaging and dial-up Internet access operations.
These groups are collections of businesses that we have grouped together
in order for us to issue WorldCom group stock and MCI group stock. The
groups are not separate legal entities and cannot issue any securities.
Holders of WorldCom group stock and holders of MCI group stock will be
shareholders of WorldCom, Inc. only and will not have an ownership
interest in the WorldCom group or the MCI group or any company in these
groups. As a result, holders of WorldCom group stock and holders of MCI
group stock will be subject to the benefits and risks associated with an
investment in WorldCom and all of our businesses, assets and
liabilities.

We cannot assure you that either the WorldCom group stock or the
MCI group stock will reflect the separate performance of the WorldCom
group or the MCI group as we intend. In particular, we cannot assure you
that the terms of WorldCom group stock and MCI group stock will
guarantee a linkage between their market prices and group performance.
In addition, the market prices of WorldCom group stock and MCI group
stock could be affected by factors that do not affect the market price
of the stock you now own. We discuss these risks more fully beginning on
page 15.

If shareholders approve the tracking stock proposal, we will be
able to change each share of our existing common stock into one share of
WorldCom group stock and 1/25 of a share of MCI group stock. From that
point forward, you will be able to decide whether to retain or sell
either or both series of common stock, depending on your investment
objectives.

<PAGE>

The following chart contrasts our current capital structure and
our capital structure following the completion of the expected
recapitalization:

<PAGE>

OUR CAPITAL STRUCTURE

CURRENT STRUCTURE TRACKING STOCK STRUCTURE

[GRAPHIC AT THIS POINT]

WORLDCOM, INC.

We provide a broad range of integrated communications and
managed network services to both U.S. and non-U.S. based corporations.
We are a global communications company utilizing a strategy based on
being able to provide service through our own facilities throughout the
world instead of being restricted to a particular geographic location.
We call this our "on-net" strategy. The on-net approach allows our
customers to send data streams or voice traffic across town, across the
U.S., or to any of our networks in Europe or Asia, without ever leaving
our networks. The on-net approach provides our customers with superior
reliability and low operating costs. Our core business is
communications services, which includes voice, data, Internet and
international services. During each of the last three years, more than
90% of our operating revenues were derived from communications services.

Our principal executive offices are located at 500 Clinton
Center Drive, Clinton, Mississippi 39056 and our telephone number is
(601) 460-5600. We are incorporated under the laws of the State of
Georgia.

OUR OPERATIONS TRACKED BY WORLDCOM GROUP STOCK

Through the WorldCom group, we provide a broad range of
integrated communications and managed network services to both U.S. and
non-U.S. based corporations using our extensive and advanced
facilities-based communications networks. We call our networks
"facilities-based" because we offer our services globally through
company-owned facilities. Offerings include data services,
Internet-related services, commercial voice services, and international
services. We believe we are positioned to use our global assets and
customer base to lead the new generation of fast growing, e-commerce and
data-driven segments of the communications industry.

WorldCom group stock is intended to reflect the separate
performance of the WorldCom group, which includes the assets and
liabilities shown in the combined balance sheets of the WorldCom group.
If we acquire interests in other businesses, we intend to attribute
those assets and any related liabilities to the WorldCom group or MCI

<PAGE>

group in accordance with our tracking stock policy statement. All net
income and cash flows generated by the assets attributed to the WorldCom
group will be attributed to the WorldCom group and all net proceeds from
any disposition of these assets will also be attributed to the WorldCom
group.

OUR OPERATIONS TRACKED BY MCI GROUP STOCK

Through the MCI group, we provide a broad range of retail and
wholesale communications services, including long distance voice
communications, consumer local voice telecommunications, wireless
messaging, private line services and dial-up Internet access services.
Our retail services are provided to consumers and small businesses in
the United States. We are the second-largest carrier of long distance
telecommunications services in the United States. We provide a wide
range of long distance telecommunications services, including basic long
distance telephone service, dial around such as our 10-10-321 service,
collect calling, operator assistance and calling card services
(including prepaid calling cards) and toll-free or 800 services. We
offer these services individually and in combinations. Through combined
offerings, we provide customers with benefits such as single billing,
unified services for multi-location companies and customized calling
plans. Our wholesale businesses include wholesale long distance voice
and data services provided to carrier customers and other resellers, and
dial-up Internet services.

MCI group stock is intended to reflect the separate performance
of the MCI group, which includes the assets and liabilities shown in the
combined balance sheets of the MCI group. If we acquire interests in
other businesses, we intend to attribute those assets and any related
liabilities to the MCI group or the WorldCom group in accordance with
our tracking stock policy statement. All net income and cash flows
generated by the assets attributed to the MCI group will be attributed
to the MCI group and all net proceeds from any disposition of these
assets will also be attributed to the MCI group.

THE SPECIAL MEETING

PROPOSALS TO BE CONSIDERED AT THE MEETING (PAGE 25)

We are asking you to consider and vote upon the following
proposals at the special meeting:

- PROPOSAL 1: The adoption of articles of amendment to
our charter pursuant to which our board of directors
intends to create the WorldCom group stock and MCI
group stock with the terms described under "Proposal 1

<PAGE>

- The Tracking Stock Proposal--Description of WorldCom
Group Stock and MCI Group Stock."

- PROPOSAL 2: The adoption of articles of amendment to
our charter pursuant to which, as described under
"Proposal 2 - Amendment to Fair Price Provisions of
Charter," we will amend the fair price provisions of
our charter to reflect the tracking stock structure.

VOTE REQUIRED TO APPROVE THE PROPOSALS (PAGE 25)

The following shareholder votes are required for approval of the
proposals:

- PROPOSAL 1: The favorable vote by a majority of:

- all of the outstanding shares of our existing common
stock; and

- all of the outstanding shares of our existing common
stock and our series B, series D, series E, series F
and series G preferred stock voting together as a
single voting group.

- PROPOSAL 2: The favorable vote by:

- 70% of the shares present at a special meeting of our
existing common stock and our series B, series D,
series E, series F and series G preferred stock
voting together as a single voting group; and

- a majority of all of the outstanding shares of our
existing common stock and our series B, series D,
series E, series F and series G preferred stock
voting together as a single group.

Our directors and executive officers beneficially owned
approximately % of the outstanding shares of our existing common
stock and none of the outstanding shares of our existing series B,
series D, series E, series F and series G preferred stock on ,
2001.

PROPOSAL 1 - THE TRACKING STOCK PROPOSAL (PAGE 28)

THE TRACKING STOCK ARTICLES OF AMENDMENT (PAGE 28)

The adoption of the articles of amendment to our charter will:

<PAGE>

- permit us to issue a total of billion shares of our
common stock as WorldCom group stock and million
shares of our common stock as MCI group stock; and

- provide for each outstanding share of our existing common
stock to be exchanged for one share of WorldCom group
stock and 1/25 of a share of MCI group stock.

If subsequent considerations arise, our board of directors can
decide not to create WorldCom group stock and MCI group stock even if
our shareholders have approved the articles of amendment.

REASONS FOR PROPOSAL 1 - THE TRACKING STOCK PROPOSAL (PAGE 28)

We expect the tracking stock proposal to:

- permit greater market recognition of our businesses;

- increase the effectiveness of management incentives;

- enhance our strategic flexibility; and

- increase our financial flexibility.

For additional reasons for the tracking stock proposal, see "Proposal 1
- The Tracking Stock Proposal -- Background of and Reasons for Proposal
1 - The Tracking Stock Proposal."

<PAGE>

COMPARISON OF EXISTING COMMON STOCK WITH WORLDCOM GROUP STOCK AND MCI
GROUP STOCK (PAGE 33)

The following table compares the terms of our existing common
stock to the terms of WorldCom group stock and MCI group stock. This
comparison should be read together with the more detailed information
set forth under "Proposal 1 - The Tracking Stock Proposal -- Description
of WorldCom Group Stock and MCI Group Stock."

Existing WorldCom Group MCI Group
Common Stock Stock Stock
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
DIVIDENDS:(SEE PAGE 33) None. None for the foreseeable Expected quarterly
future. dividend of $ per
share paid at the
discretion of our board
of directors.

VOTING RIGHTS:(SEE PAGE One vote per share. One vote per share. Variable, based on
33) relative average market
prices of the two series
of common stock.

CONVERSION AT OPTION OF Not convertible. Not convertible. Convertible into WorldCom
BOARD OF DIRECTORS:(SEE group stock.
PAGE 35)

REDEMPTION IN EXCHANGE Not redeemable. Redeemable for common Redeemable for common
FOR THE STOCK OF A stock of WorldCom stock of WorldCom
SUBSIDIARY AT OPTION OF subsidiary holding all subsidiary holding all
BOARD OF DIRECTORS:(SEE assets and liabilities assets and liabilities
PAGE 37) attributed to the attributed to the MCI
WorldCom group. group.

<PAGE>

RIGHTS ON SALE OF AT None. Holders will receive a Holders will receive a
LEAST 80% OF ASSETS dividend or their shares dividend or their shares
ATTRIBUTED TO A GROUP: will be redeemed or the will be redeemed or
(SEE PAGE 38) MCI group stock will be converted into WorldCom
converted into WorldCom group stock at the option
group stock at the option of our board of
of our board of directors.
directors. In limited
circumstances, WorldCom
group stock may be
converted into MCI group
stock.

DISSOLUTION:(SEE PAGE 42) Receives remaining Receives remaining Receives remaining
WorldCom assets in equal WorldCom assets on a per WorldCom assets on a per
amounts per share of share basis in proportion share basis in proportion
existing common stock. to liquidation units per to liquidation units per
share. Each share has one share. Each share has
liquidation unit. 1/25 of one liquidation
unit.

TRACKING STOCK POLICY STATEMENT (PAGE 117)

Our board of directors has adopted a tracking stock policy
statement to govern the ongoing relationship between the WorldCom group
and the MCI group where the holders of WorldCom group stock and MCI
group stock may have potentially divergent interests. Our board of
directors may change our tracking stock policy statement at any time
without shareholder approval.

Our tracking stock policy statement provides that we will
resolve all material matters as to which the holders of WorldCom group
stock and the holders of MCI group stock may have potentially divergent
interests in a manner that our board of directors, or any special
committee appointed by the board at such time, determines to be in the
best interests of WorldCom, Inc. The best interests of WorldCom, Inc.
may be different from the best interests of the holders of one series of
stock. The tracking stock policy statement provides that due
consideration will be given to the potentially divergent interests and
all other interests of the separate series of our common stock that our
board of directors, or any special committee appointed by the board,
deems relevant.

Our tracking stock policy statement also requires:

- centralized management of most financial activities;

<PAGE>

- debt allocated to the MCI group to carry an interest rate
equal to the weighted average interest rate of WorldCom,
Inc. plus a spread that will be determined by the
board of directors based upon rates at which the MCI group
would borrow if it was a wholly owned subsidiary of
WorldCom but did not have the benefit of any guarantee by
WorldCom;

- the MCI group to be charged a fee by the WorldCom group
for use of its fiber optic systems and the WorldCom group to
be charged a fee by the MCI group for use of its business
voice switched services and the fees to be equal to a
proportion, based on usage, of the group's costs. All
other material transactions between the groups are
intended to be on an arm's-length basis;

- the transfer of assets and liabilities between the
businesses attributed to one group and the businesses
attributed to the other group to be at fair value; and

- corporate opportunities to be allocated in our overall
best interests.

ATTRIBUTION OF PROCEEDS OF ISSUANCES OF COMMON STOCK (PAGE 42)

If we issue shares of a series of common stock for cash or other
property, we will attribute the proceeds of that issuance to the group
related to the series of common stock that we are issuing. However, if
there are shares of the series of stock being issued reserved for the
other group or for issuance to the holders of the series of stock
related to the other group, our board of directors will decide whether
any portion of the proceeds should be attributed to such other group.

RISK FACTORS (PAGE 15)

When evaluating the tracking stock proposal, you should be aware
of the risk factors we describe under "Risk Factors," starting on page
15.

U.S. FEDERAL INCOME TAX CONSIDERATIONS (PAGE 49)

We have been advised by Simpson Thacher & Bartlett that the
WorldCom group stock and the MCI group stock will be considered our
common stock for U.S. federal income tax purposes. This means that you
will not recognize any gain or loss for U.S. federal income tax purposes
as a result of the tracking stock proposal, except for any cash received
instead of fractional shares of MCI group stock. However, the Internal

<PAGE>

Revenue Service could disagree. There are no court decisions or other
authorities bearing directly on the terms of stock similar to those of
the WorldCom group stock and the MCI group stock. In addition, the
Internal Revenue Service has announced that it will not issue rulings on
the characterization of stock with characteristics similar to the
WorldCom group stock and the MCI group stock. Therefore, the tax
treatment of the tracking stock proposal is subject to some uncertainty.

STOCK EXCHANGE LISTINGS (PAGE 50)

Our existing common stock is listed on the Nasdaq National
Market. We expect to list WorldCom group stock on the Nasdaq National
Market under the trading symbol "WCOM." We expect to list MCI group
stock on the Nasdaq National Market under the trading symbol "MCIT."

NO DISSENTERS' RIGHTS

Under Georgia law, shareholders who dissent from the tracking
stock proposal will not have appraisal rights.

NO REGULATORY APPROVALS

No state or federal regulatory approvals are required for the
recapitalization.

PROPOSAL 2 -- AMENDMENT TO FAIR PRICE PROVISION OF CHARTER (PAGE 121)

We are also asking you to vote on a related proposal to amend
the fair price provisions of our charter to reflect the tracking stock
structure. In addition to approvals otherwise required by applicable
law, the existing fair price provisions of our charter require approval
by the holders of at least 70% of the outstanding shares of our capital
stock whose holders are present at a meeting of shareholders to approve
a business combination unless the combination is approved by our board
or minimum price requirements are met. The fair price provision
amendments would:

- require 70% of the voting power of our outstanding shares
of capital stock to approve a business combination instead
of 70% of our outstanding shares of capital stock; and

- provide that to satisfy the minimum price requirements,
the price which must be paid for shares of a particular
series of our capital stock in a business combination is
required to be the highest stock purchase price paid for
that particular series of capital stock, rather than for
any series of capital stock.

<PAGE>

____________

RECOMMENDATION OF OUR BOARD OF DIRECTORS

Our board of directors has carefully considered each of the
proposals and believes that the approval of both proposals by the
shareholders is advisable and in the best interests of WorldCom. Our
board of directors unanimously recommends that you vote "FOR" both the
proposals.

<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF WORLDCOM, INC.

We derived the selected historical consolidated financial data
presented below from our consolidated financial statements and related
notes, which include the WorldCom group and the MCI group. Our audited
consolidated financial statements for each of the years ended December
31, 1997, 1998 and 1999 and unaudited consolidated financial statements
for the nine months ended September 30, 1999 and 2000 are included in
this document. The pro forma data set forth below give effect to the
recapitalization as though the recapitalization had occurred on January
1, 1999. Arthur Andersen LLP, independent accountants, audited our
consolidated financial statements for each of the years in the
three-year period ended December 31, 1999.

You should read the selected financial data together with our
audited and unaudited consolidated financial statements and the
"Management's Discussion and Analysis of Financial Condition and Results
of Operations of WorldCom, Inc." included in this document.

In reading the following selected financial data, please note
the following:

- On September 14, 1998 we completed our merger with MCI
Communications Corporation. The MCI merger was accounted
for as a purchase; accordingly, the operating results of
MCI are included from the date of that acquisition.

- Results for the nine months ended September 30, 2000
include a pre-tax charge of $93 million associated with
the termination of the Sprint merger agreement, including
regulatory, legal, accounting and investment banking fees
and other costs, and a $685 million pre-tax charge
associated with specific domestic and international
wholesale accounts that were no longer deemed collectible
due to bankruptcies, litigation and settlements of
contractual disputes that occurred in the third quarter of
2000.

- In 1998, we recorded a pre-tax charge of $196 million in
connection with the Brooks Fiber Properties, Inc. merger,
the MCI merger and certain asset write-downs and loss
contingencies. Such charges included $21 million for
employee severance, $17 million for Brooks Fiber
Properties direct merger costs, $38 million for
conformance of Brooks Fiber Properties accounting
policies, $56 million for exit costs under long-term

<PAGE>

commitments, $31 million for write-down of a permanently
impaired investment and $33 million related to certain
asset write-downs and loss contingencies. Additionally,
in connection with certain 1998 business combinations, we
made allocations of the purchase price to acquired
in-process research and development totaling $429 million
in the first quarter of 1998, related to the CompuServe
Corporation merger and the acquisition of ANS
Communications, Inc., and $3.1 billion in the third
quarter of 1998 related to the MCI merger.

- In connection with certain debt refinancings, we
recognized in 1998 and 1997 extraordinary items of $129
million and $3 million, net of taxes, consisting of
unamortized debt discount, unamortized issuance cost and
prepayment fees.

- In 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities." This accounting
standard required all companies to expense, on or before
March 31, 1999, all start-up costs previously capitalized,
and thereafter to expense all costs of start-up activities
as incurred. This accounting standard broadly defines
start-up activities as one-time activities related to the
opening of a new facility, the introduction of a new
product or service, the commencement of business in a new
territory, the establishment of business with a new class
of customer, the initiation of a new process in an
existing facility or the commencement of a new operation.
We adopted this standard as of January 1, 1998. The
cumulative effect of this change in accounting principle
resulted in a one-time, non-cash expense of $36 million,
net of taxes. This expense represented start-up costs
incurred primarily in conjunction with the development and
construction of SkyTel Communications, Inc.'s messaging
network.

- Revenues and line costs for prior periods reflect
classification changes for reciprocal compensation and
central office based remote access equipment sales, which
are now being treated as an offset to line costs instead
of revenues. Previously, we recorded these items on a
gross basis as revenues. Revenues and line costs for
prior periods have also been adjusted to reflect the
elimination of small business and consumer primary
interexchange carrier, or PICC, charges from both revenues

<PAGE>

and line costs as a result of the Coalition for Affordable
Local and Long Distance Services, or CALLS, legislation
which eliminated single line PICC as of July 1, 2000.

<PAGE>

</TABLE>
<TABLE>
<CAPTION>

As or For the Years Ended As or For the Nine Months
December 31, Ended September 30,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ------------ -----------
Unaudited
--------------------------
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues . . . . . . . . . . . . . . $7,643 $17,617 $35,908 $26,586 $29,483
Operating income (loss). . . . . . . 982 (942) 7,888 5,491 6,727
Income (loss) before cumulative
effect of accounting change and
extraordinary items. . . . . . . . 185 (2,560) 4,013 2,710 3,559
Cumulative effect of accounting
change . . . . . . . . . . . . . . -- (36) -- -- --
Extraordinary items. . . . . . . . . (3) (129) -- -- --
Net income (loss) applicable to
common shareholders. . . . . . . . 143 (2,767) 3,941 2,656 3,510
Preferred dividend requirement . . . 39 24 9 7 1

Earnings (loss) per common share:
Income (loss) before cumulative
effect of accounting change and
extraordinary items:
Basic . . . . . . . . . . . . . 0.10 (1.35) 1.40 0.94 1.23
Diluted . . . . . . . . . . . . 0.10 (1.35) 1.35 0.91 1.20

Net income (loss):
Basic . . . . . . . . . . . . . 0.10 (1.43) 1.40 0.94 1.23
Diluted . . . . . . . . . . . . 0.09 (1.43) 1.35 0.91 1.20
Weighted average shares:
Basic . . . . . . . . . . . . . 1,470 1,933 2,821 2,815 2,864
Diluted . . . . . . . . . . . . 1,516 1,933 2,925 2,923 2,919

Unaudited WorldCom group pro forma
net income per share <F1>:
Basic . . . . . . . . . . . . . -- -- $0.81 -- $0.71
Diluted . . . . . . . . . . . . -- -- $0.78 -- $0.70
Unaudited MCI group pro forma net
income per share <F1>:
Basic . . . . . . . . . . . . . -- -- $14.57 -- $12.72
Diluted . . . . . . . . . . . . -- -- $14.57 -- $12.72

<PAGE>

BALANCE SHEET DATA:
Total assets $24,400 $87,092 $91,072 $99,893
Long-term debt 7,811 16,448 13,128 18,700
Shareholders' investment 14,087 45,241 51,238 55,277

__________
<FN>

<F1>
The WorldCom group stock and the MCI group stock net income calculations
were calculated using the two-class method. The two-class method is an
earnings formula that determines the earnings per share for WorldCom
group stock and MCI group stock according to their participation rights
in undistributed earnings. The combined financial statements of the MCI
group and the WorldCom group will not present earnings per share because
the MCI group stock and the WorldCom group stock are series of common
stock of WorldCom, Inc. and because the MCI group and the WorldCom group
are not legal entities with their own capital structure.
</TABLE>

<PAGE>

Selected Historical Combined Financial and Operating Data
of the WorldCom Group

We derived the selected financial data presented below from the
combined financial statements and related notes of the WorldCom group.
The audited combined financial statements of the WorldCom group for the
year ended December 31, 1999 and unaudited combined financial statements
of the WorldCom group for the nine months ended September 30, 1999 and
September 30, 2000 are included in this document. You should read the
selected financial data together with the combined financial statements
of the WorldCom group and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the WorldCom Group (an
Integrated Business of WorldCom, Inc.)."

Significant events affecting our historical earnings trends
include the following:

- On September 14, 1998 we completed our merger with MCI.
The MCI merger was accounted for as a purchase;
accordingly, the operating results of MCI are included
from the date of that acquisition.

- Results for the nine months ended September 30, 2000
include a pre-tax charge of $93 million associated with
the termination of the Sprint merger agreement, including
regulatory, legal, accounting and investment banking fees
and other costs, and a $340 million pre-tax charge
associated with specific accounts that were deemed
uncollectible due to bankruptcies, litigation and
settlements of contractual disputes that occurred in the
third quarter of 2000.

- In 1998, we recorded a pre-tax charge of $177 million in
connection with the Brooks Fiber Properties merger, the
MCI merger and certain asset write-downs and loss
contingencies. Such charges included $21 million for
employee severance, $17 million for Brooks Fiber
Properties direct merger costs, $38 million for
conformance of Brooks Fiber Properties accounting
policies, $37 million for exit costs under long-term
commitments, $31 million for write-down of a permanently
impaired investment and $33 million related to certain
asset write-downs and loss contingencies. Additionally,
in connection with certain 1998 business combinations, we
made allocations of the purchase price to acquired
in-process research and development totaling $176 million
in the first quarter of 1998, related to the CompuServe

<PAGE>

merger, and $2.3 billion in the third quarter of 1998
related to the MCI merger.

- Revenues and line costs for prior periods reflect
classification changes for reciprocal compensation which
are now being treated as an offset to line costs instead
of revenues. Previously, we recorded these items on a
gross basis as revenues.
<TABLE>
<CAPTION>

AT OR FOR THE AT OR FOR THE
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------- --------------------------
1997 1998 1999 1999 2000
-------------- ------------ --------- ------------ ------------
Unaudited Unaudited Unaudited Unaudited

(dollars in millions)

<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues . . . . . . . . . . . . . . $4,125 $9,809 $19,736 $14,648 $16,918
Operating income (loss). . . . . . . 109 (1,422) 4,631 3,010 3,918
Income (loss) before extraordinary
items. . . . . . . . . . . . . . . (9) (2,060) 2,366 1,451 2,096
Extraordinary items. . . . . . . . . (3) (129) -- -- --
Net income (loss). . . . . . . . . . (51) (2,231) 2,294 1,397 2,047
Preferred dividend requirements. . . 39 24 9 7 1

BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . 22,624 73,633 77,233 86,463
Long-term debt . . . . . . . . . . . 1,811 10,448 7,128 12,700
Allocated group net worth. . . . . . 19,152 42,291 48,738 52,396
</TABLE>

<PAGE>

SELECTED HISTORICAL COMBINED FINANCIAL AND OPERATING DATA
OF THE MCI GROUP

We derived the selected financial data presented below from the
combined financial statements and related notes of the MCI group. The
audited combined financial statements of the MCI group for the year
ended December 31, 1999 and unaudited combined financial statements of
the MCI group for the nine months ended September 30, 1999 and September
30, 2000 are included in this document. You should read the selected
financial data together with the combined financial statements of the
MCI group and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the MCI Group (an Integrated
Business of WorldCom, Inc.)."

Significant events affecting our historical earnings trends
include the following:

- On September 14, 1998 we completed our merger with MCI.
The MCI merger was accounted for as a purchase;
accordingly, the operating results of MCI are included
from the date of that acquisition.

- Results for the nine months ended September 30, 2000
include a $345 million pre-tax charge associated with
specific wholesale accounts that were deemed uncollectible
due to bankruptcies, litigation and settlements of
contractual disputes that occurred in the third quarter of
2000.

- In 1998, we recorded a pre-tax charge of $19 million for
exit costs under long-term commitments in connection with
the MCI merger. Additionally, in connection with certain
1998 business combinations, we made allocations of the
purchase price to acquired in-process research and
development totaling $253 million in the first quarter of
1998, related to the acquisition of ANS, and $775 million
in the third quarter of 1998 related to the MCI merger.

<PAGE>

product or service, the commencement of business in a new
territory, the establishment of business with a new class
of customer, the initiation of a new process in an
existing facility or the commencement of a new operation.
We adopted this standard as of January 1, 1998. The
cumulative effect of this change in accounting principle
resulted in a one-time, non-cash expense of $36 million,
net of taxes. This expense represented start-up costs
incurred primarily in conjunction with the development and
construction of SkyTel's messaging network.

- Revenues and line costs for prior periods reflect
classification changes for reciprocal compensation and
central office based remote access equipment sales which
are now being treated as an offset to line costs instead
of revenues. Previously, we recorded these items on a
gross basis as revenues. Revenues and line costs for prior
periods have also been adjusted to reflect the elimination
of small business and consumer PICC from both revenue and
line costs as a result of the CALLS legislation which
eliminated the PICC as of July 1, 2000.
<TABLE>
<CAPTION>

AT OR FOR THE AT OR FOR THE
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
--------------------------------------- --------------------------
1997 1998 1999 1999 2000
------------ ------------ --------- ------------ ------------
Unaudited Unaudited Unaudited Unaudited
(dollars in millions)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues . . . . . . . . . . . . . . $3,518 $7,808 $16,172 $11,938 $12,565
Operating income . . . . . . . . . . 873 480 3,257 2,481 2,809
Income (loss) before cumulative
effect of accounting change. . . . 194 (500) 1,647 1,259 1,463
Cumulative effect of accounting
change . . . . . . . . . . . . . . -- 36 -- -- --
Net income (loss). . . . . . . . . . 194 (536) 1,647 1,259 1,463

BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . 1,932 13,880 14,815 14,886
Long-term debt . . . . . . . . . . . 6,000 6,000 6,000 6,000
Allocated group net worth (deficit). (5,065) 2,950 2,500 2,881

</TABLE>
32

<PAGE>

RISK FACTORS

You should carefully consider the following risks and other
information contained in this proxy statement and prospectus before
deciding to vote in favor of the tracking stock proposal or the
proposals to amend the fair price provisions of our charter.

RISKS RELATING TO OUR NEW TRACKING STOCK CAPITAL STRUCTURE

RISKS RELATING TO BOTH SERIES OF STOCK

THE MARKET PRICES OF WORLDCOM GROUP STOCK AND MCI GROUP STOCK MAY NOT
REFLECT THE SEPARATE PERFORMANCE OF THE GROUPS

The market price of WorldCom group stock may not reflect the
separate performance of our non-MCI businesses. Similarly, the market
price of MCI group stock may not reflect the separate performance of our
MCI businesses. The market price of either or both series of stock could
simply reflect the performance of WorldCom as a whole, or the market
price could move independently of the performance of the businesses of
the related group. Investors may discount the value of WorldCom group
stock and MCI group stock because they are part of a common enterprise
rather than stand-alone entities.

THE MARKET PRICES OF WORLDCOM GROUP STOCK AND MCI GROUP STOCK COULD BE
AFFECTED BY FACTORS THAT DO NOT AFFECT TRADITIONAL COMMON STOCK

THE COMPLEX NATURE OF THE TERMS OF THE TWO SERIES OF STOCK MAY
ADVERSELY AFFECT THE MARKET PRICES OF THE TWO SERIES OF STOCK

The complex nature of the terms of WorldCom group stock and MCI
group stock, such as the convertibility of each stock, and the potential
difficulties investors may have in understanding these terms, may
adversely affect the market prices of WorldCom group stock and MCI group
stock. As a result, the combined market values of WorldCom group stock
and MCI group stock after the recapitalization may not equal or exceed
the market value of our existing common stock.

THE MARKET PRICE OF ONE SERIES OF STOCK COULD BE ADVERSELY
AFFECTED BY EVENTS INVOLVING THE OTHER GROUP OR THE PERFORMANCE
OF THE OTHER SERIES OF STOCK

Events, such as earnings announcements or announcements of new
products or services, acquisitions or dispositions that the market does
not view favorably and thus adversely affect the market price of one
series of stock, may adversely affect the market price of the other
series of stock. Because both series are common stock of WorldCom, an

<PAGE>

adverse market reaction to one series of stock may, by association,
cause an adverse reaction to the other series of stock. This could occur
even if the triggering event was not material to WorldCom as a whole.

BECAUSE THERE HAS BEEN NO PRIOR MARKET FOR EITHER THE WORLDCOM GROUP
STOCK OR THE MCI GROUP STOCK, THE VALUE OF THE STOCK YOU RECEIVE COULD
BE LESS THAN THE VALUE OF THE EXISTING STOCK

Because there has been no prior market for the WorldCom group
stock or the MCI group stock, the market prices of a share of WorldCom
group stock and 1/25 of a share of MCI group stock could be less than
the market value of a share of our existing common stock prior to the
distribution.

YOU WILL BE SUBJECT TO ALL OF THE RISKS OF AN INVESTMENT IN WORLDCOM AS
A WHOLE, EVEN IF YOU OWN ONLY ONE SERIES OF STOCK

The holders of WorldCom group stock and the holders of MCI group
stock will be shareholders of a single company, WorldCom. Financial
effects arising from one group that affect WorldCom's consolidated
results of operations or financial condition could, if significant,
affect the results of operations or financial condition of the other
group. The WorldCom group and the MCI group will not be separate legal
entities and as such cannot own assets or enter into legally binding
agreements. The issuance of WorldCom group stock and MCI group stock and
the attribution of assets, liabilities and shareholders' equity to the
WorldCom group or the MCI group will not affect ownership of our assets
or responsibility for our liabilities or those of our subsidiaries.

WE COULD BE REQUIRED TO USE ASSETS ATTRIBUTED TO ONE GROUP TO
PAY THE LIABILITIES ATTRIBUTED TO THE OTHER GROUP

The assets we attribute to one group could be subject to the
liabilities attributed to the other group, even if those liabilities
arise from lawsuits, contracts or indebtedness that we attribute to the
other group. No provision of our charter prevents us from using the
assets attributed to one group to satisfy the liabilities attributed to
the other group.

NET LOSSES FROM ONE GROUP COULD ADVERSELY AFFECT THE OTHER
GROUP'S ABILITY TO PAY DIVIDENDS

Net losses of either the WorldCom group or the MCI group and
dividends paid on shares of WorldCom group stock, MCI group stock and
our preferred stock will reduce the dividends we can pay on each series
of common stock under Georgia law.

<PAGE>

FINANCIAL EFFECTS FROM ONE GROUP COULD ADVERSELY AFFECT THE
OTHER GROUP'S BORROWING COSTS

If WorldCom or any of its subsidiaries were to incur significant
indebtedness on behalf of one group, including indebtedness incurred or
assumed in connection with an acquisition or investment, it could affect
the credit rating of WorldCom and its subsidiaries. This, in turn, could
increase the borrowing costs of the companies in the other group and
WorldCom as a whole.

OUR BOARD OF DIRECTORS MAY CHANGE OUR TRACKING STOCK POLICY
STATEMENT TO THE DETRIMENT OF ONE GROUP WITHOUT SHAREHOLDER APPROVAL.

Our board of directors may at any time change, or make
exceptions to, the policies set forth in our tracking stock policy
statement with respect to the allocation of corporate opportunities,
financing arrangements, taxes, debt, interest and other matters, or may
adopt additional policies, without shareholder approval. A decision to
change, or make exceptions to, these policies or adopt additional
policies could disadvantage the holders of one series of common stock
relative to the holders of the other series of common stock.

HOLDERS OF WORLDCOM GROUP STOCK AND MCI GROUP STOCK WILL NOT HAVE
SHAREHOLDER RIGHTS ASSOCIATED WITH TRADITIONAL COMMON STOCK

THERE WILL BE NO BOARD OF DIRECTORS THAT OWES ANY SEPARATE
DUTIES TO THE HOLDERS OF EITHER SERIES OF STOCK

Neither the WorldCom group nor the MCI group will have a
separate board of directors to represent solely the interests of the
holders of WorldCom group stock or MCI group stock. Consequently, there
will be no board of directors that owes any separate duties to the
holders of either series of stock and the board will act in the best
interests of the overall enterprise.

HOLDERS OF WORLDCOM GROUP STOCK AND MCI GROUP STOCK MAY NOT HAVE
ANY REMEDIES IF ANY ACTION BY DIRECTORS OR OFFICERS HAS AN
ADVERSE EFFECT ON THE SERIES OF STOCK RELATED TO THEIR GROUP

Shareholders may not have any remedies if any action or decision
of our directors or officers has an adverse effect on the holders of one
series of common stock compared to the other series of common stock.
Although we are not aware of any Georgia court adjudicating such an
action in the context of our anticipated capital structure, recent cases
in Delaware involving tracking stocks have indicated that decisions by
directors or officers involving treatment of tracking stock shareholders

<PAGE>

should be judged under the business judgment rule unless self-interest
is shown.

The business judgment rule provides that a director or officer
will be deemed to have satisfied his or her fiduciary duties to WorldCom
if that person acts in a manner he or she believes in good faith to be
in the best interests of WorldCom as a whole, not of either group. As a
result, in some circumstances, our directors or officers may even be
required to make a decision that is adverse to the holders of one series
of common stock.

A Georgia court hearing a case involving such a challenge may
decide in any such case to apply principles of Georgia law that are
different from the principles of Delaware law that are discussed above,
or may develop new principles of law.

HOLDERS OF THE SERIES OF STOCK RELATED TO ONE GROUP MAY NOT BE
ENTITLED TO VOTE ON A SALE OF THE ASSETS ATTRIBUTED TO THAT
GROUP

Georgia law requires shareholder approval only for a sale or
other disposition of all or substantially all of the assets of the
entire company. If either group represents less than substantially all
of the assets of WorldCom as a whole, our board of directors could,
without shareholder approval, approve sales and other dispositions of
any amount, including all or substantially all, of the assets attributed
to that group. Initially, the MCI group will not represent substantially
all of our assets and therefore our board could sell the MCI group's
assets without shareholder approval. In exercising its discretion, our
board of directors is not required to select the option that would
result in the distribution with the highest value to the holders of the
series of stock related to the group to which we have attributed the
assets being sold or with the smallest effect on the series of stock
related to the other group.

In addition, under Georgia law, our board of directors could
decline to sell the assets attributed to a group, despite the request of
a majority of the holders of the series of stock related to that group.

TRANSFERS OF CASH, OTHER ASSETS OR LIABILITIES BETWEEN THE WORLDCOM
GROUP AND THE MCI GROUP COULD CAUSE A LOSS IN VALUE TO ONE SERIES OF
STOCK

Under our tracking stock policy statement, our board of
directors may decide to transfer cash, other assets or liabilities
between groups, except as otherwise described herein, at fair value as
determined by the board of directors. If the fair value determination is

<PAGE>

not equitable or the financial markets do not view a transfer as fair to
both groups, then one series of stock may suffer a loss in value.

CONFLICTS OF INTEREST MAY ARISE BETWEEN HOLDERS OF WORLDCOM GROUP STOCK
AND HOLDERS OF MCI GROUP STOCK THAT MAY BE DIFFICULT FOR OUR BOARD OF
DIRECTORS TO RESOLVE OR MAY BE RESOLVED ADVERSELY TO EITHER GROUP, WHICH
MAY SUFFER A LOSS IN VALUE

The existence of separate series of common stock could give rise
to occasions in which the interests of the holders of WorldCom group
stock and the holders of MCI group stock diverge, conflict or appear to
diverge or conflict. Our board of directors will resolve conflicts of
interest between the two groups in favor of WorldCom as a whole.

OPERATIONAL AND FINANCIAL DECISIONS COULD FAVOR ONE GROUP OVER
THE OTHER

Our board of directors could from time to time, without
shareholder approval, make operational and financial decisions or
implement policies that affect disproportionately the businesses
attributed to either group. These decisions could include:

- allocation of financing opportunities in the public
markets;

- allocation of business opportunities, resources and
personnel; and

- transfers of funds, assets or liabilities between groups
and other inter-group transactions.

In each case, the opportunity, resources or personnel allocated, or
funds, assets or liabilities transferred, to one group may be equally or
more suitable for the other group. Furthermore, any such decision may
benefit the businesses of one group more than the businesses of the
other. For example, the decision to borrow funds for companies in one
group may adversely affect the ability of companies in the other group
to obtain funds sufficient to implement their growth strategies or may
increase the cost of those funds.

PROCEEDS OF A MERGER MAY BE ALLOCATED DISPROPORTIONATELY BETWEEN
THE TWO SERIES OF STOCK

Our board of directors will determine how consideration to be
received in a merger involving WorldCom will be allocated between the
holders of WorldCom group stock and the holders of MCI group stock. In
doing so, our board of directors could allocate the proceeds in a manner

<PAGE>

not proportionate to the market capitalizations of the two series of
stock. If this were perceived as unfair by the investment community, the
holders of one series could be adversely affected.

OUR BOARD OF DIRECTORS MAY PAY MORE OR LESS DIVIDENDS ON THE
SERIES OF STOCK RELATED TO ONE GROUP THAN IF THAT GROUP WERE A
SEPARATE COMPANY

Our board of directors has the authority to declare and pay
dividends on WorldCom group stock and MCI group stock in any legal
amount. Our board of directors could, in its sole discretion, declare
and pay dividends exclusively on WorldCom group stock, exclusively on
MCI group stock, or on both, in equal or unequal amounts. It is not
currently contemplated that we will pay dividends on the WorldCom group
stock. Our board of directors could pay more dividends on the series of
stock related to one group than would be financially prudent if that
group were a stand-alone corporation.

CONVERSION OF ONE SERIES STOCK INTO THE OTHER SERIES WILL CHANGE
THE NATURE OF YOUR INVESTMENT, COULD DILUTE YOUR ECONOMIC
INTEREST IN WORLDCOM AND COULD RESULT IN A LOSS IN VALUE

Our board of directors could, without shareholder approval,
convert shares of MCI group stock into shares of WorldCom group stock
or, in more limited circumstances discussed herein, shares of WorldCom
group stock into shares of MCI group stock, at some or no premium. A
conversion would preclude the holders of both series of common stock
from retaining their investment in a security that is intended to
reflect separately the performance of the related group.

If you own shares of the series of stock into which the other
series is being converted and the conversion is at a premium, it is
likely that your shares would suffer a loss in value because your
economic interest in WorldCom would be diluted. In addition, if you own
shares of the series of stock into which the other series is being
converted and that other series is considered over-valued, the holders
of shares of the series being converted would receive more shares of
your series of stock than they should and you would suffer a loss in
value in addition to any loss resulting from dilution of your economic
interest. Conversely, if you own shares of the series of stock being
converted and these shares are considered under-valued, you would not
receive as many shares of the other series of stock as you should and
would suffer a loss in value. Your loss would increase if the other
series of stock was also considered over-valued.

<PAGE>

DECISIONS BY DIRECTORS AND OFFICERS THAT AFFECT MARKET PRICES COULD
DECREASE RELATIVE VOTING POWER OF A SERIES OF STOCK AND THE NUMBER OF
SHARES RECEIVED IN A CONVERSION

The relative voting power per share of each series of common
stock and the number of shares of one series of common stock issuable
upon the conversion of the other series of common stock will vary
depending upon the relative market prices of WorldCom group stock and
MCI group stock. The market price of either or both series of common
stock could be adversely affected by market reaction to decisions by our
board of directors or our management that investors perceive to
disadvantage one series of common stock.

IF OUR BOARD OF DIRECTORS CAUSES A SEPARATION OF ONE GROUP FROM
WORLDCOM, EITHER OR BOTH SERIES OF STOCK MAY SUFFER A LOSS IN VALUE

Our board of directors may, without shareholder approval,
declare that all outstanding shares of either series of common stock
will be exchanged for shares of one or more wholly owned subsidiaries of
WorldCom that own all of the assets and liabilities attributed to that
group. Such an exchange would result in the subsidiary or subsidiaries
becoming independent of WorldCom. If our board of directors chooses to
exchange shares of one series of common stock:

- the market value of the subsidiary shares received in that
exchange could be or become less than the market value of
the series of common stock exchanged; and/or

- the market value of WorldCom's remaining series of common
stock could decrease from its market value before the
exchange.

The market value of the subsidiary shares and/or our remaining series of
common stock may decrease in part because the subsidiary and/or our
remaining businesses may no longer benefit from the advantages of doing
business under common ownership with the other group. Specifically, the
MCI group or the WorldCom group would no longer be able to take
advantage of the strategic and operational benefits of shared managerial
expertise, synergies relating to technology and purchasing arrangements,
cost savings in corporate overhead and enhanced access to capital
markets.

HOLDERS OF ONE SERIES OF COMMON STOCK MAY RECEIVE LESS CONSIDERATION
UPON A SALE OF THE ASSETS ATTRIBUTED TO THEIR GROUP THAN IF THEIR GROUP
WERE A SEPARATE COMPANY

<PAGE>

If we sell 80% or more of the properties and assets attributed
to either group, our board of directors must, subject to some
exceptions:
- distribute to the holders of the stock related to that
group by special dividend or redemption an amount equal to
their proportionate interest in the net proceeds of the
sale; or

- convert the outstanding shares of the MCI group into a
number of shares of the WorldCom group, based on the
average market values of the two series of common stock
during a ten-trading day period after the sale.

If the group to which the sold assets were attributed were a
separate, independent company and its shares were acquired by another
person, certain costs of that sale, including corporate level taxes,
might not be payable in connection with that acquisition. As a result,
shareholders of a separate, independent company might receive a greater
amount than the net proceeds that would be received by the holders of
the stock related to that group. In addition, we cannot assure you that
the net proceeds per share of the stock related to that group will be
equal to or more than the market value per share of the series of common
stock prior to or after announcement of a sale.

IF WORLDCOM WERE TO BE LIQUIDATED, AMOUNTS DISTRIBUTED TO HOLDERS OF
EACH SERIES WILL NOT BEAR ANY RELATIONSHIP TO THE VALUE OF THE ASSETS
ATTRIBUTED TO THE GROUPS

The liquidation rights of the holders of the respective series
of common stock are fixed. As a result, liquidation rights of the two
series of stock will not bear any relationship to the relative market
values, the relative voting rights of the series of common stock or the
relative value of the assets attributed to the groups. For example, each
share of MCI group stock will be entitled to an amount equal to 1/25 of
the amount to which each share of WorldCom group stock will be entitled.
As a result, holders of MCI group stock may receive less than they would
if there were only one series of WorldCom common stock outstanding.

STOCK OWNERSHIP COULD CAUSE DIRECTORS AND OFFICERS TO FAVOR ONE GROUP
OVER THE OTHER

Our directors and officers will initially own more shares,
including shares subject to stock options, of the WorldCom group than
the MCI group. As a policy, our board of directors will periodically
monitor the ownership of shares of WorldCom group stock and shares of
MCI group stock by our directors and senior officers and our option
grants to them so that their interests are generally aligned with the

<PAGE>

two series of common stock and with their duty to act in the best
interests of WorldCom and our shareholders as a whole. However, because
the actual value of their interests in the WorldCom group stock and MCI
group stock is anticipated to vary significantly, it is possible that
they could favor one group over the other due to their stock and option
holdings.

GROUPS MAY COMPETE WITH EACH OTHER TO THE DETRIMENT OF THEIR BUSINESSES

There is no board policy prohibiting competition between the
groups. Any price or other competition between the groups could be
detrimental to the businesses of either or both of the groups.

IT MIGHT BE POSSIBLE FOR AN ACQUIROR TO OBTAIN CONTROL OF WORLDCOM BY
PURCHASING SHARES OF ONLY ONE OF THE TRACKING STOCKS

A potential acquiror could acquire control of WorldCom by
acquiring shares of common stock having a majority of the voting power
of all shares of common stock outstanding. Such a majority could be
obtained by acquiring a sufficient number of shares of both series of
common stock or, if one series of common stock has a majority of such
voting power, only shares of that series. We expect that initially the
WorldCom group stock will have a substantial majority of the voting
power. As a result, initially, it might be possible for an acquiror to
obtain control by purchasing only shares of WorldCom group stock.

EITHER COMMON STOCK MIGHT NOT BE INCLUDED IN CERTAIN STOCK MARKET
INDICES, WHICH COULD RESULT IN A DECLINE OF THE MARKET PRICE OF THAT
STOCK

We do not anticipate that the MCI group stock initially will be
included in any stock market index. As a result, holders of a
substantial number of shares of our existing common stock that are
required to own only stocks included in such an index will be required
to sell immediately the MCI group stock received by them in the
recapitalization. Further, we cannot assure you that the WorldCom group
stock will continue to be included in any particular index or that the
weighting in an index of the WorldCom group stock will be the same as
our existing common stock. Either of these circumstances could adversely
affect the market price of the series of common stock.

PROVISIONS GOVERNING COMMON STOCK COULD DISCOURAGE A CHANGE OF CONTROL
AND THE PAYMENT OF A PREMIUM FOR SHAREHOLDERS' SHARES

Our articles of incorporation contain provisions which could
prevent shareholders from profiting from an increase in the market value

<PAGE>

of their shares as a result of a change in control of WorldCom by
delaying or preventing such change in control.

Our articles of incorporation contain a provision that requires
the approval by the holders of at least 70% of the outstanding shares of
our capital stock whose holders are present at a meeting of shareholders
and entitled to vote generally in the election of directors, voting as a
single group, as a condition to consummate specified business
transactions unless the board of directors approves the transaction and
minimum price requirements are met. In addition, if Proposal 2 is not
approved but Proposal 1 is implemented, our existing fair price
provisions could discourage a takeover because a person seeking to take
over the company might have to pay the highest price paid for one series
of common stock to holders of both series of common stock.

The existence of two series of common stock could also present
complexities and could, in certain circumstances, pose obstacles,
financial and otherwise, to an acquiring person. For example, it will be
impossible to obtain control of the MCI group without acquiring control
of WorldCom as a whole. Because this could be prohibitively expensive,
it is unlikely that the MCI stock will have any takeover premium priced
factored into its trading price.

INTERNAL REVENUE SERVICE COULD ASSERT THAT THE RECEIPT OF TRACKING STOCK
IS TAXABLE

While we believe that no income, gain or loss will be recognized
by you for federal income tax purposes as a result of the tracking stock
proposal, except for any cash received instead of fractional shares of
MCI group stock, there are no court decisions or other authorities
bearing directly on the effect of the features of the MCI group stock
and the WorldCom group stock. In addition, the Internal Revenue Service
has announced that it will not issue rulings on the characterization of
stock with characteristics similar to the MCI group stock and the
WorldCom group stock. It is possible, therefore, that the Internal
Revenue Service could successfully assert that the receipt of the MCI
group stock or the WorldCom group stock as well as the subsequent
conversion of one series of our common stock into the other series of
common stock could be taxable to you and/or to us.

LEGISLATIVE PROPOSALS COULD HAVE ADVERSE TAX CONSEQUENCES FOR US OR FOR
HOLDERS OF MCI GROUP STOCK OR WORLDCOM GROUP STOCK

<PAGE>

exchange for other stock in the corporation or in a distribution by the
issuing corporation as taxable to the shareholders. If this proposal
had been enacted, you could have been subject to tax on your receipt of
MCI group stock and WorldCom group stock. A similar proposal was made
in 1999. Although Congress did not act on either the 1999 or the 2000
proposal, it is impossible to predict whether Congress will act in the
future upon the 2000 proposal or any other proposal relating to tracking
stock.

Under the amended charter, we may convert the MCI group stock
into shares of WorldCom group stock if there is more than an
insubstantial risk of adverse U.S. federal income tax law developments.
A proposal similar to the proposal of the Clinton Administration would
be such an adverse development if it were implemented or received
certain legislative action.

WE MAY NOT BE ABLE TO PAY A DIVIDEND ON EITHER THE WORLDCOM GROUP STOCK
OR THE MCI GROUP STOCK

We do not anticipate declaring a dividend on the WorldCom group
stock and we currently intend to pay a quarterly dividend of $
per share on MCI group stock. The payment of dividends on MCI group
stock will be a business decision to be made by our board of directors
from time to time based primarily upon the results of operations,
financial condition and capital requirements of the companies in the MCI
group and of WorldCom as a whole, and such other factors as our board of
directors considers relevant. Georgia law limits the amount of
dividends that we can pay on all series of common stock to funds legally
available for distributions. Our charter further limits the amount of
dividends we can pay on the series of stock related to either group to
the lesser of funds available for distributions under Georgia law and
the available distribution amount for the applicable group. The
available distribution amount for a group is the same amount that would
be legally available for the payment of dividends on the series of stock
related to that group if that group were a separate company under
Georgia law. Moreover, we cannot assure you we will have any funds
available to pay dividends.

RISKS RELATING TO WORLDCOM GROUP STOCK ONLY

IN CIRCUMSTANCES WHERE A SEPARATE SERIES VOTE IS REQUIRED, HOLDERS OF
MCI GROUP STOCK CAN BLOCK ACTION

If Georgia law, Nasdaq National Market rules, our charter, our
bylaws or our board of directors requires a separate vote on a matter by
the holders of MCI group stock, those holders could prevent approval of
the matter -- even if the holders of a majority of the total number of

<PAGE>

votes cast or entitled to be cast, voting together as one voting group,
were to vote in favor of it.

RISKS RELATING TO MCI GROUP STOCK ONLY

SHAREHOLDERS THAT OWN ONLY MCI GROUP STOCK MAY NOT HAVE SUFFICIENT
VOTING POWER TO PROTECT THEIR INTERESTS

The holders of WorldCom group stock, to the extent they vote the
same way, will control the outcome of a vote because WorldCom group
stock will retain a substantial majority of the combined voting power of
WorldCom group stock and MCI group stock. This will be true even if the
matter involves a divergence from or conflict with the interests of the
holders of WorldCom group stock and the holders of MCI group stock.
These matters may include mergers and other extraordinary transactions.
This control results because both series of stock will generally vote as
a single voting group, except in limited circumstances requiring a vote
of a single series voting as a separate voting group.

RISKS RELATING TO OUR WORLDCOM GROUP OPERATIONS

OUR TECHNOLOGY COULD BECOME OBSOLETE

The market for data and voice communications and Internet access
and related products is characterized by rapidly changing technology,
evolving industry standards, emerging competition and frequent new
product and service introductions. There can be no assurance that we
will successfully identify new product and service opportunities and
develop and bring new products and services to market in a timely
manner. We are also at risk from fundamental changes in the way data
and voice communications, including Internet access services, are
marketed and delivered. Our pursuit of necessary technological advances
may require substantial time and expense, and there can be no assurance
that we will succeed in adapting our communications services business to
alternate access devices, conduits and protocols.

OUR FOREIGN OPERATIONS ARE SUBJECT TO SUBSTANTIAL RISKS WHICH COULD HARM
OUR ABILITY TO DO BUSINESS

Our foreign operations are subject to risks including licensing
requirements, changes in foreign government regulations and
telecommunications standards, interconnection and leased line charges,
currency fluctuations, exchange controls, royalty and tax increases,
retroactive tax claims, expropriation, import and export regulations,
various trade barriers, political and economic instability and other
laws affecting foreign trade, investment and taxation. In addition, in
the event of any dispute arising from foreign operations, we may be

<PAGE>

subject to the exclusive jurisdiction of foreign courts and may not be
successful in subjecting foreign persons or entities to the jurisdiction
of the courts in the United States. We may also be hindered or
prevented from enforcing our rights with respect to foreign governments
because of the doctrine of sovereign immunity. There can be no
assurance that the laws, regulations or administrative practices of
foreign countries relating to our ability to do business in that country
will not change.

Our international communications services are also subject to
certain risks such as changes in United States or foreign government
regulatory policies, disruption, suspension or termination of operating
agreements, and currency fluctuations. The rates that we can charge our
customers for international services may decrease in the future due to
the entry of new carriers with substantial resources and aggressiveness
on the part of new or existing carriers. In addition, the consummation
of mergers, joint ventures and alliances among large international
carriers that facilitate targeted pricing and cost reductions, and the
availability of international circuit capacity on new undersea fiber
optic cables and new high capacity satellite systems in the Atlantic,
Pacific and Indian Ocean regions, may impact rates.

WORLDCOM GROUP FACES COMPETITION IN ALL AREAS OF ITS BUSINESS, AND IF IT
DOES NOT COMPETE EFFECTIVELY, ITS BUSINESS WILL BE HARMED

Virtually every aspect of the telecommunications industry is
extremely competitive. We compete domestically with traditional
telephone companies, also known as incumbent local exchange carriers, or
ILECs, which have historically dominated local telecommunications and
with other competitive local exchange carriers, or CLECs. Some ILECs
offer both local and long distance services, although the
Telecommunications Act of 1996, or the Telecom Act, generally prohibits
the Regional Bell Operating Companies, or RBOCs, from offering long
distance services in states within their local service areas until those
markets have been opened to local competition. The ILECs presently have
numerous advantages as a result of their historic monopoly control over
local exchanges. Additionally, in the next few years, we expect RBOCs
will be permitted to offer long distance services in their regions.

Moreover, a continuing trend toward business combinations and
alliances in the telecommunications industry may create significant new
competitors to us. Some of our existing and potential competitors have
financial, personnel and other resources significantly greater than
ours. We also face competition from one or more competitors in every
area of our business, including competitive access providers operating
local fiber optic networks, in conjunction with, in some cases, the
local cable television operator. Several competitors have announced the

<PAGE>

deployment of, or already have deployed, nationwide fiber optic networks
using advanced technologies. AT&T Corp. and a number of CLECs have
indicated their intention to offer local telecommunications services in
major United States markets using their own facilities. Internet
service providers, or ISPs are beginning to lease fiber optic network
facilities to offer competing voice and data services. In addition, we
compete with equipment vendors and installers and telecommunications
management companies with respect to certain portions of our business.

Overseas, we compete with the incumbent telephone companies,
some of which still have special regulatory status and the exclusive
rights to provide certain services, and virtually all of which have
historically dominated their local, domestic long distance and
international services business. These companies have numerous
advantages including existing facilities, customer loyalty, and
substantial financial resources. We may be dependent upon obtaining
facilities from these incumbent telephone companies. We also compete
with other service providers, many of which are affiliated with
incumbent telephone companies in other countries. Typically, we must
devote extensive resources to obtain regulatory approvals necessary to
operate overseas, and then to obtain access to and interconnection with
the incumbent's network on a non-discriminatory basis.

We may also be subject to additional competition due to the
development of new technologies and increased availability of domestic
and international transmission capacity.

We also compete in offering data communications services,
including Internet access and related services. This is also an
extremely competitive business and it is expected that competition will
intensify in the future.

IF THE WORLDCOM GROUP DOES NOT HAVE SOPHISTICATED INFORMATION AND
BILLING SYSTEMS, IT MAY NOT BE ABLE TO ACHIEVE DESIRED OPERATING
EFFICIENCIES

Sophisticated information and billing systems are vital to the
WorldCom group's growth and ability to monitor costs, bill customers,
fulfill customer orders and achieve operating efficiencies. The
WorldCom group's plans for developing and implementing an information
and billing system rely primarily on the delivery of products and
services by third party vendors. The WorldCom group may not be able to
develop new business, identify revenues and expenses, service customers,
collect revenues or develop and maintain an adequate work force if any
of the following occur:

<PAGE>

- vendors fail to deliver proposed products and services in
a timely and effective manner or at acceptable costs;

- the WorldCom group fails to adequately identify all of its
information and processing needs;

- the WorldCom group's related processing or information
systems fail; or

- the WorldCom group fails to integrate its systems with
those of its major customers.

PRICE COMPETITION MAY ADVERSELY AFFECT THE WORLDCOM GROUP'S OPERATING
RESULTS

Prices for data communications have fallen historically, a trend
we expect to continue. Accordingly, we cannot predict to what extent we
may need to reduce our prices to remain competitive. The extent to
which our business, financial condition, results of operations and cash
flow could be adversely affected will depend on the pace at which these
industry-wide changes continue and our ability to create new and
innovative services to differentiate its offerings, enhance customer
retention and grow market share.

RISKS RELATING TO OUR MCI GROUP OPERATIONS

THE MCI GROUP DOES NOT OWN ITS TRADENAME

The WorldCom group has been assigned all tradenames, including
the MCI tradename and other related MCI tradenames, and the MCI group will
pay the WorldCom group for use of the MCI tradenames. If the WorldCom
group terminates this arrangement or it expires, the MCI group will no
longer have access to the MCI tradenames for marketing purposes.

THE MCI GROUP FACES COMPETITION IN ALL AREAS OF ITS BUSINESS, AND IF IT
DOES NOT COMPETE EFFECTIVELY, ITS BUSINESS WILL BE HARMED

The telecommunications industry is extremely competitive. We
compete with ILECs, which historically have dominated local
telecommunications and with other CLECs, for the provision of long
distance services. Some RBOCs, such as Verizon Communications in New
York and SBC Communications in Texas, already have been permitted to
offer long distance services in certain states within their regions and
have applications pending with the FCC for authorization to offer long
distance service in Massachusetts, Kansas and Oklahoma. The ILECs
presently have numerous advantages as a result of their historic
monopoly control over local exchanges. Additionally, in the next few

<PAGE>

years, we expect other RBOCs will be given permission to offer long
distance services within their regions. A continuing trend toward
business combinations and alliances in the telecommunications industry
may create significant new competitors. Some of our existing and
potential competitors have financial, personnel and other resources
significantly greater than ours.

We may also be subject to additional competitive pressures from
the development of new technologies and increased availability of
domestic and international transmission capacity. The
telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service
offerings and increasing satellite, wireless and fiber optic
transmission capacity for services similar to those provided by us. We
cannot predict which of many possible future product and service
offerings will be important to maintain our competitive position or what
expenditures will be required to develop and provide such products and
services.

PRICE COMPETITION HAS HISTORICALLY AND MAY CONTINUE TO ADVERSELY AFFECT
MCI GROUP'S OPERATING RESULTS

Prices for voice communications have fallen historically because
of the introduction of more efficient networks and advanced technology,
product substitution and deregulation. We expect these trends to
continue and we cannot predict to what extent we may need to reduce our
prices in the future to remain competitive. In addition, we cannot
assure you that we will be able to achieve increased traffic volumes to
sustain our current revenue levels. The extent to which our business,
financial condition, results of operations and cash flow could be
adversely affected will depend on the pace at which these industry-wide
changes continue and our ability to create new and innovative services
to differentiate our offerings, enhance customer retention and grow
market share.

OUR TECHNOLOGY COULD BECOME OBSOLETE

The telecommunications industry is subject to rapid and
significant changes in technology. The effect on the MCI group's
businesses of technology changes, including changes relating to emerging
wireline and wireless transmission, voice over the Internet and
switching technologies, cannot be predicted.

<PAGE>

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

The following statements are or may constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995:

- any statements contained or incorporated herein regarding
possible or assumed future results of operations of the
WorldCom group's or the MCI group's business, anticipated
cost savings or other synergies, the markets for the
WorldCom group's or the MCI group's services and products,
anticipated capital expenditures, the outcome of Euro
conversion efforts, regulatory developments or
competition;

- any statements preceded by, followed by or that include
the words "intends," "estimates," "believes," "expects,"
"anticipates," "should," "could," or similar expressions;
and

- other statements contained or incorporated by reference
herein regarding matters that are not historical facts.

Because such statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by
such forward-looking statements; factors that could cause actual results
to differ materially include, but are not limited to:

- the effects of vigorous competition;

- the impact of technological change on our business, new
entrants and alternative technologies, and dependence on
availability of transmission facilities;

- uncertainties associated with the success of acquisitions;

- risks of international business;

- regulatory risks in the United States and internationally;

- contingent liabilities;

- risks associated with Euro conversion efforts;

- uncertainties regarding the collectibility of receivables;

<PAGE>

- risks associated with debt service requirements and
interest rate fluctuations;

- our financial leverage; and

- the other risks discussed under "Risk Factors."

The cautionary statements contained or referred to in this
section should be considered in connection with any subsequent written
or oral forward-looking statements that may be issued by WorldCom or
persons acting on its behalf. WorldCom does not undertake any obligation
to release publicly any revisions to such forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

<PAGE>

INFORMATION ABOUT THE SPECIAL MEETING AND VOTING

DATE, TIME AND PLACE OF THE SPECIAL MEETING

We are providing this proxy statement and prospectus to you in
connection with the solicitation of proxies by our board of directors
for use at the special meeting of our shareholders. The special meeting
will be held on , 2001, at , local time, at
. This proxy statement and prospectus is first being
mailed to our shareholders on or about , 2001.

PROPOSALS TO BE CONSIDERED AT THE SPECIAL MEETING

You will be asked to consider and vote on the proposals
described in this proxy statement and prospectus. If proposal 1 is
approved, we intend to implement it whether or not proposal 2 is
approved. However, even if our shareholders approve proposal 1, our
board can decide not to implement it. If proposal 2 is approved, we will
implement it only if proposal 1 is approved.

WHO CAN VOTE

You are entitled to vote if you were a holder of record of our
existing common stock or our series B, series D, series E, series F or
series G preferred stock as of the close of business on ,
2001. Your shares can be voted at the meeting only if you are present or
represented by a valid proxy.

SHARES OUTSTANDING

On , 2001, shares of our existing common
stock were outstanding and entitled to vote and shares of our series
B, shares of our series D, shares of our series E, shares of
our series F and shares of our series G preferred shares were
outstanding and entitled to vote. We do not know of any shareholder who
beneficially owned more than 5% of WorldCom common stock or any of our
preferred stock as of , 2001.

VOTING OF SHARES

Each share of our common stock represented at the special
meeting is entitled to one vote on each matter properly brought before
the special meeting. Each share of series B preferred stock is entitled
to one vote per share. Each share of series D, series E and series F
is entitled to one-tenth of a vote per share. Each share of series G
preferred stock is entitled to the number of votes per share equal to

<PAGE>

the number of shares of common stock issuable upon conversion of the
preferred stock into common stock on the record date.

VOTING OF PROXIES

All shares represented by properly executed proxies received in
time for the special meeting will be voted at the special meeting in the
manner specified by the holders of those proxies. Properly executed
proxies that do not contain voting instructions will be voted for the
approval of the proposals.

VOTES REQUIRED TO APPROVE THE PROPOSALS

In order for proposal 1 to be approved, we will need the
favorable vote by the holders of a majority of our outstanding:

- existing common stock, and

- existing common stock and series B, series D, series E,
series F and series G preferred stock, voting together as
a single voting group.

As a result, abstentions and broker non-votes on proposal 1 will have
the same effect as negative votes. Broker non-votes occur when a broker
returns a proxy but does not have authority to vote on the proposal.

In order for proposal 2 to be approved, we will need:

- the favorable vote of 70% of the shares present at a
special meeting of our existing common stock and our
series B, series D, series E, series F and series G
preferred stock voting together as a single group; and

- the favorable vote by a majority of all of the outstanding
shares of our existing common stock and our series B,
series D, series E, series F and series G preferred stock
voting together as a single group.

As a result abstentions and broker non-votes on proposal 2 will
have the same effect as negative votes.

HOW YOU CAN VOTE

You may vote by proxy or in person at the special meeting. To
vote by proxy, you may select one of the following options:

<PAGE>

VOTE BY TELEPHONE

You can vote your shares by telephone by calling the toll-free
telephone number (at no cost to you) shown on your proxy card. Telephone
voting is available 24 hours-a-day, seven days-a-week. Voice prompts
allow you to vote your shares and confirm that your instructions have
been properly recorded. Our telephone voting procedures are designed to
authenticate the shareholder by using individual control numbers.
Proxies granted by telephone using these procedures are valid under
Georgia law. You can also consent to view future proxy statements and
annual reports on the Internet instead of receiving them in the mail. If
you vote by telephone, you do NOT need to return your proxy card.

VOTE BY INTERNET

You can also choose to vote on the Internet. The web site for
Internet voting is shown on your proxy card. Internet voting is
available 24 hours-a-day, seven days-a-week. You will be given the
opportunity to confirm that your instructions have been properly
recorded. Proxies granted over the Internet using these procedures are
valid under Georgia law. You can also consent to view future proxy
statements and annual reports on the Internet instead of receiving them
in the mail. If you vote on the Internet, you do NOT need to return your
proxy card.

VOTE BY MAIL

If you choose to vote by mail, simply mark your proxy card, date
and sign it, and return it in the postage-paid envelope provided. If you
wish to view future proxy statements and annual reports on the Internet,
check the box provided on the card.

REVOCATION OF PROXY

If you vote by proxy, you may revoke that proxy at any time
before it is voted at the special meeting. You may do this by:

- voting again by telephone or on the Internet prior to the
meeting;

- signing another proxy card with a later date and returning
it to us prior to the meeting; or

- attending the meeting in person and casting a ballot.

<PAGE>

QUORUM

A quorum will be present at the WorldCom special meeting if the
holders of shares representing a majority of the votes to be cast on the
matter are represented in person or by proxy.

SOLICITATION OF PROXIES

We will pay the costs of soliciting proxies from the holders of
our common stock. Proxies will initially be solicited by us by mail,
but directors, officers and selected other employees of WorldCom may
also solicit proxies by personal interview, telephone, facsimile or
e-mail. Directors, executive officers and any other employees of
WorldCom who solicit proxies will not be specially compensated for those
services, but may be reimbursed for out-of-pocket expenses incurred in
connection with the solicitation.

Brokerage houses, nominees, fiduciaries, and other custodians
will be requested to forward soliciting materials to beneficial owners
and will be reimbursed for their reasonable out-of-pocket expenses
incurred in sending proxy materials to beneficial owners. We have
retained Salomon Smith Barney Inc. and J.P. Morgan Securities Inc. to
perform various advisory and solicitation services in connection with the
tracking stock proposal. We have agreed to pay each of Salomon Smith
Barney Inc. and J.P. Morgan Securities Inc. a fee of $ for their
solicitation services, in addition to reimbursement by us of their
reasonable out-of-pocket expenses, including attorney's fees, in
connection with the tracking stock proposal. Salomon Smith
Barney Inc. and J.P. Morgan Securities Inc. have in the past provided and
are currently providing investment banking services to us, including
financial advisory services in connection with the tracking stock
proposal, for which they have received and will receive customary
compensation.

<PAGE>

PROPOSAL 1 -THE TRACKING STOCK PROPOSAL

DESCRIPTION OF PROPOSAL 1 - THE TRACKING STOCK PROPOSAL

We are asking you to consider and approve a proposal to amend
our articles of incorporation, which would:

- permit us to issue a total of billion shares of
"WorldCom, Inc.-- WorldCom Group Common Stock," a new
series of our common stock that is intended to reflect the
separate performance of the businesses attributed to the
WorldCom group and million shares of "WorldCom, Inc.
-- MCI Group Common Stock ," a new series of our common
stock that is intended to reflect the separate performance
of the businesses attributed to the MCI group; and

- provide for each outstanding share of our existing common
stock to be changed into one share of WorldCom group stock
and 1/25 of a share of MCI group stock.

The articles of amendment we are asking you to consider and
approve are set forth in Annex I.

If the tracking stock proposal is implemented, your rights as
shareholders will continue to be governed by our charter as amended by
the proposed articles of amendment submitted to the shareholders
attached as Annex I, our bylaws, which will have been filed with the
SEC, and Georgia law.

If the articles of amendment are approved, we will file the
articles of amendment with the Secretary of State of the State of
Georgia. No state or federal regulatory approvals are required for the
consummation of the tracking stock proposal.

LINKAGE BETWEEN GROUP PERFORMANCE AND STOCK PRICE

We believe that WorldCom group stock and MCI group stock will
reflect the separate performance of our WorldCom group businesses and
our MCI group businesses, respectively. Our belief is based in part on
the following:

- upon the sale of 80% or more of the assets attributed to a
group, our board of directors may take action that returns
the value of the net proceeds of those assets to the
holders of the series of stock related to that group;

<PAGE>

- the amount available for payment of dividends to the
holders of WorldCom group stock and MCI group stock is
limited to the amount that would be available for payment
of dividends if the businesses tracked by each stock were
separate corporations;

- if we decide to spin off the assets attributed to a group,
we can redeem shares of the series of stock related to
that group for shares of a subsidiary that holds all of
those assets; and

- the availability of separate, more detailed and specific
public information about the WorldCom group and the MCI
group and more focused coverage of each group by research
analysts.

While we believe that these factors will cause WorldCom group
stock to reflect the separate performance of our non-MCI businesses and
MCI group stock to reflect the separate performance of our MCI
businesses, we cannot guarantee that the stocks will perform as
intended.

BACKGROUND OF AND REASONS FOR PROPOSAL 1 - THE TRACKING STOCK PROPOSAL

We continually review each of our businesses and WorldCom as a
whole to determine ways to increase shareholder value. As a result of
this review process, we concluded that a different capital structure
would improve our ability to execute our business strategies and achieve
a proper valuation of the businesses of each of the groups.

At meetings of our board of directors on March 2, 2000 and
September 7, 2000, our directors discussed the creation of tracking
stock for some or all of our WorldCom group and MCI group businesses. At
meetings on October 31 and November 16, 2000 and , 2001, our board
of directors continued such discussions. In , 2000, we engaged
financial advisors with respect to the tracking stock. After extensive
discussions with our senior management, legal counsel and financial
advisors, our board of directors has determined that the
recapitalization would increase market awareness of our WorldCom group
and MCI group businesses and provide for more efficient valuation of all
of our businesses, advance our strategic and financial objectives and
create flexibility for our overall future growth.

In making this determination, our directors determined that
implementation of the tracking stock proposal would likely have the
following advantages:

<PAGE>

- GREATER MARKET RECOGNITION AND MORE EFFICIENT VALUATION.
Separating the performance of the WorldCom group and the
MCI group and reflecting separately the operating results
and prospects of each group should permit greater market
recognition of the businesses attributed to the WorldCom
group and the MCI group. Separate public information about
the WorldCom group and the MCI group should result in
broader and more focused coverage by research analysts. As
a result, investors should better understand the
businesses attributed to the WorldCom group and the MCI
group and our company as a whole. Having two publicly
traded equity securities for two businesses that have
different economic characteristics should allow equity
investors to apply different and more specific criteria in
valuing the businesses attributed to the WorldCom group
and the MCI group.

- INCREASED SHAREHOLDER CHOICE. The creation of tracking
stock will allow investors to invest in us by owning
either or both series of common stock, depending on their
particular investment objectives. Some investors may want
to own MCI group stock, which reflects a more mature
business with more predictable dividends, while other
investors may desire to own WorldCom group stock, which
reflects a growth business with higher risk and growth
profiles. Others may want to own both WorldCom
group stock and MCI group stock.

- MORE EFFECTIVE MANAGEMENT INCENTIVES. WorldCom group
stock will permit us to structure distinctive and more
effective incentive and retention programs for our
WorldCom group management and employees. Stock options and
other incentive awards to management and employees who
work principally for the businesses attributed to the
WorldCom group will be tied more directly to the
performance of the WorldCom group. Incentive awards to
management and employees who work principally for the
businesses attributed to the MCI group will be based on
its ability to generate strong operating cash flow, reduce
debt and return excess cash flow to the MCI group
shareholders.

- ADVANTAGES OF DOING BUSINESS UNDER COMMON OWNERSHIP. In
contrast to a spin-off, the tracking stock proposal will
retain for us the advantages of doing business as a single
company and allow the businesses attributed to each group
to capitalize on relationships with the businesses

<PAGE>

attributed to the other group. As part of a single
organization, we expect to continue to take advantage of
the strategic and operational benefits of shared
managerial expertise, synergies relating to technology and
purchasing arrangements, consolidated tax benefits, debt
ratings and cost savings in corporate overhead expenses.

- PRESERVES CAPITAL STRUCTURE FLEXIBILITY. The tracking
stock proposal retains future restructuring flexibility by
preserving our ability to undertake future asset
segmentation and capital restructurings, such as spin-offs
and split-offs, if we decide that any such action is
appropriate. The proposal also preserves our ability to
modify our capital structure by unwinding the tracking
stock structure.

- GREATER STRATEGIC FLEXIBILITY. Having two different
equity securities that track the performance of separate
business groups should provide us with greater flexibility
to take advantage of strategic opportunities for each
group. We will be able to issue either WorldCom group
stock or MCI group stock for strategic investments, in
acquisitions and for other transactions. In addition,
shareholders of an entity acquired for the series of stock
related to either the WorldCom group or the MCI group will
be able to continue to own an investment in familiar
businesses with similar dynamics rather than in the much
larger and more diversified company.

- INCREASED FINANCIAL FLEXIBILITY. We also expect that
WorldCom group stock will assist us in meeting the capital
requirements of our WorldCom companies by creating an
additional publicly traded equity security that we can use
to raise capital. In addition, because we do not expect to
pay dividends on WorldCom group stock for the foreseeable
future, our issuance of WorldCom group stock, in
connection with an acquisition or otherwise, would not
reduce cash flow that would otherwise be available for
strategic investments.

Our board of directors also considered that the implementation
of the tracking stock proposal is not expected to be taxable for U.S.
federal income tax purposes to us or to you. In addition, our board of
directors considered the performance of similar equity securities issued
by other telecommunications companies, such as U S West and Sprint.

<PAGE>

Our board of directors also considered the following potential
negative consequences of the tracking proposal:

- UNCERTAINTY OF MARKET VALUATION. Not every company that
has issued tracking stock has seen an increase in its
market capitalization. In fact, many tracking stocks have
traded flat or down from their original issue price. We
cannot predict:

- the degree to which the market price of WorldCom group
stock and MCI group stock will reflect the separate
performances of the WorldCom group and the MCI group;

- the impact of the tracking stock proposal on the market
price of our existing common stock prior to the special
meeting of shareholders; or

- whether the issuance of WorldCom group stock and MCI
group stock will increase our total market
capitalization.

- MORE COMPLEX CORPORATE GOVERNANCE. The tracking stock
proposal introduces additional corporate governance
issues, such as the fiduciary obligation of our board of
directors to holders of different series of common stock
representing different lines of business. Interests of the
companies in two groups could diverge or conflict, or
appear to diverge or conflict, and issues could arise in
resolving conflicts with the result that our board of
directors may benefit the companies in one group more than
the companies in the other group with respect to any
particular issue.

- COMPLEX CAPITAL STRUCTURE. The tracking stock proposal
will make our corporate structure more complex and could
confuse investors, thereby adversely affecting their
valuation of our businesses.

- UNCERTAINTY OF MARKET REACTION TO TRACKING STOCK
DECISIONS. The market values of WorldCom group stock and
MCI group stock could be affected by the market reaction
to decisions by our board of directors and management that
investors perceive as affecting differently one series of
common stock compared to the other. These decisions could
include decisions regarding business transactions between
the groups and the allocation of assets, expenses,

<PAGE>

liabilities and corporate opportunities and financing
resources.

- POTENTIAL ADVERSE EFFECTS IN CONNECTION WITH ACQUISITIONS.
The use of a tracking stock in connection with future
acquisitions could have various adverse effects, such as
the possible inability or increased difficulty of
obtaining a ruling from the Internal Revenue Service for
an acquisition designed to be tax-free.

- POTENTIAL ADVERSE TAX CONSEQUENCES. The uncertain tax
treatment of tracking stock under current law, as well as
the recent proposal by the Clinton Administration to tax
shareholders on the receipt of stock similar to the MCI
group stock and the WorldCom group stock in exchange for
other stock in the corporation or in a distribution by the
corporation, could require us to change our capital
structure after their issuance to avoid adverse tax
consequences.

Our board of directors determined that, on balance, the
potential advantages of the tracking stock proposal outweigh any
potentially negative consequences.

RECOMMENDATION OF OUR BOARD OF DIRECTORS

Our board of directors has carefully considered the tracking
stock proposal and believes that the approval of this proposal by the
shareholders is advisable and in our best interests. Our board of
directors unanimously recommends that you vote FOR this proposal.

DIVIDEND POLICY

WORLDCOM GROUP STOCK. Because the businesses in the WorldCom
group are expected to require significant capital to finance their
operations and fund their future growth, we do not expect to pay any
dividends on shares of WorldCom group stock for the foreseeable future.
If and when our board of directors does determine to pay any dividends
on shares of WorldCom group stock, this determination will be based
primarily on the results of operations, financial condition and capital
requirements of the companies in the WorldCom group and of WorldCom as a
whole and such other factors as our board of directors considers
relevant.

MCI GROUP STOCK. We currently intend to pay a quarterly
dividend of $ per share on MCI group stock. The payment of
dividends on MCI group stock will be a business decision to be made by

<PAGE>

our board of directors from time to time based primarily upon the
results of operations, financial condition and capital requirements of
the companies in the MCI group and of WorldCom as a whole, and such
other factors as our board of directors considers relevant.

In making its dividend decisions, our board of directors will
rely on our consolidated financial statements and the combined financial
statements of the MCI group.

Georgia law limits the amount of dividends that we can pay on
all series of common stock to funds legally available for distributions.
Our articles of amendment will further limit the amount of dividends we
can pay on the series of stock related to either group to the lesser of
funds available for distributions under Georgia law and the available
distribution amount for the applicable group. The available distribution
amount for a group is the same amount that would be legally available
for the payment of dividends on the series of stock related to that
group if that group were a separate company under Georgia law.

THE WORLDCOM GROUP AND THE MCI GROUP

The articles of amendment to our charter will establish our
WorldCom group and our MCI group. The WorldCom group will consist of our
core data, Internet, hosting and international businesses and the MCI
group will consist of our consumer, small business, wholesale long
distance, wireless messaging and dial-up Internet access operations. The
businesses attributed to the WorldCom group are described under
"Business of the WorldCom Group" and the businesses attributed to the
MCI group are described under "Business of the MCI Group." Each group is
a collection of businesses, and neither is a separate legal entity.
Neither group can issue securities or incur obligations; those powers
can only be exercised by us or one of the companies in the groups.
WorldCom group stock and MCI group stock are both common stocks of
WorldCom, Inc. and not of either group.

DESCRIPTION OF WORLDCOM GROUP STOCK AND MCI GROUP STOCK

We have summarized below the material terms of WorldCom group
stock and MCI group stock, the terms of which will be contained in the
articles of amendment to be adopted by our board of directors.

ACTIONS BY OUR BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL;
NO SEPARATE BOARDS OF DIRECTORS FOR THE GROUPS

Under our charter as amended by our articles of amendment, our
board of directors will be able to take actions with respect to the
WorldCom group and the MCI group and WorldCom group stock and MCI group

<PAGE>

stock without shareholder approval so long as those actions are taken on
the terms and conditions set forth in our charter. Neither the WorldCom
group nor the MCI group will have a separate board of directors to
represent solely the interests of holders of WorldCom group stock or MCI
group stock. As described under "--Voting Rights," the holders of
WorldCom group stock and the holders of MCI group stock will generally
vote together as a single voting group on all matters on which holders
of common stock are entitled to vote. This includes the election of
directors of WorldCom.

If we decide to take other actions with respect to WorldCom
group stock or MCI group stock or the WorldCom group or the MCI group
that are not on the terms and conditions in our articles of amendment,
we would be required to obtain shareholder approval of an amendment to
our charter. In instances listed under "-- Voting Rights," approval of
such an amendment would require both the approval of the holders of
WorldCom group stock and MCI group stock, voting together as a single
voting group, and the approval of the holders of any series of common
stock whose rights were affected by such amendment, voting as a separate
voting group.

The actions that our board of directors may take without
shareholder approval, discussed in more detail below, include decisions
to:

- issue additional shares of WorldCom group stock and MCI
group stock so long as those additional shares are
authorized shares under our charter;

- pay dividends on a series of common stock, subject to the
limitations set forth in the charter;

- convert MCI group stock into WorldCom group stock on the
terms set forth in the charter;

- redeem a series of common stock in exchange for stock of
one or more wholly owned subsidiaries holding all of the
assets and liabilities attributed to the related group;

- dispose of assets attributed to the WorldCom group or the
MCI group, except as otherwise required by Georgia law;

- if we dispose of 80% or more of the assets attributed to a
group, pay a special dividend on, or redeem shares of, the
series of common stock related to that group or convert
the MCI group stock into shares of WorldCom group stock;
or

<PAGE>

- take actions that require an increase or decrease in the
number of shares of MCI group stock reserved for the
WorldCom group or the number of shares of WorldCom group
stock reserved for the MCI group.

AUTHORIZED AND OUTSTANDING SHARES

OUR CURRENT CAPITAL STRUCTURE

Our current charter authorizes us to issue 5,050,000,000 shares
of stock, consisting of 5,000,000,000 shares of common stock, par value
$.01 per share, and 50,000,000 shares of preferred stock, par value $.01
per share. Of the 50 million shares of preferred stock, our board has
designated 94,992 as Series A Preferred Stock, 15,000,000 as Series B
Preferred Stock, 3,750,000 as Series C Preferred Stock, as Series D
Preferred Stock, as Series E Preferred Stock, as Series F
Preferred Stock, as Series G Preferred Stock and 5,000,000 as
Series 3 Preferred Stock. As of 2001, approximately
billion shares of our existing common stock and million shares of
preferred stock were issued and outstanding.

OUR PROPOSED CAPITAL STRUCTURE

The articles of amendment will authorize us to issue 5.05
billion shares of stock as follows:

- billion shares as "WorldCom, Inc. -- WorldCom Group Common
Stock;"

- million shares as "WorldCom, Inc. -- MCI Group Common
Stock; and

- 50 million shares of preferred stock in series, par value
$.01 per share.

As a result of the tracking stock proposal, assuming the number
of shares of existing common stock then outstanding on , 2001,
billion shares of WorldCom group stock and million shares
of MCI group stock will be issued and outstanding.

ISSUANCES OF COMMON STOCK WITHOUT SHAREHOLDER APPROVAL

After the implementation of the tracking stock proposal, our
board of directors may issue authorized but unissued shares of WorldCom
group stock and MCI group stock from time to time for any proper
corporate purpose. Our board of directors will have the authority under
our charter, as amended by our articles of amendment, to issue

<PAGE>

additional shares of MCI group stock or WorldCom group stock without a
vote of our shareholders, except as may be required by Georgia law, the
Nasdaq listing rules or the rules of any stock exchange on which any
series of outstanding common stock may then be listed.

ATTRIBUTION OF PROCEEDS OF ISSUANCES OF COMMON STOCK

If we issue shares of a series of common stock for cash or other
property, such as in an acquisition, the proceeds of that issuance,
including property acquired in an acquisition, will be attributed to the
group in respect of which that series of common stock has been issued.
However, if there are shares of series of stock related to that group
reserved for another group or for issuance to the holders of the series
of stock related to that other group, our board of directors will decide
at the time of the issuance whether any portion of the proceeds should
be attributed to the group for which those reserved shares have been
reserved.

DIVIDENDS

Dividends on our existing common stock are limited to the funds
we legally have available for distributions under Georgia law, subject
to the prior payment of dividends on any preferred stock.

Our articles of amendment provide that dividends on WorldCom
group stock or MCI group stock will be limited to the lesser of:

- the funds we legally have available for distributions
under Georgia law; and

- the available distribution amount for the WorldCom group
or the MCI group, as the case may be.

The available distribution amount for a particular group is the
same amount that would be legally available for the payment of dividends
on the series of stock related to that group if that group were a
separate company under Georgia law. The available distribution amount
for the relevant group is the lesser of:

- any amount in excess of the minimum amount necessary to
pay debts attributed to that group as they become due in
the usual course of business; and

- the total assets attributed to that group less the sum of
the total liabilities attributed to that group plus the
amount that would be needed to satisfy the preferential
rights upon dissolution of shares of stock, if any,

<PAGE>

attributed to that group that are superior to the series
of stock related to that group.

Under Georgia law, the amount of funds we legally have available
for distributions is determined on the basis of our entire company, and
not only the respective groups. As a result, the amount of legally
available funds will reflect the amount of:

- any net losses of each group;

- any distributions on WorldCom group stock, MCI group stock
or any preferred stock; and

- any repurchases of WorldCom group stock, MCI group stock
or any preferred stock.

Payment of dividends on WorldCom group stock or MCI group stock
also may be restricted by loan agreements, indentures and other
agreements or obligations entered into by us from time to time.

Voting Rights

Currently, the holders of our existing common stock have one
vote per share on all matters submitted to shareholders.

The holders of WorldCom group stock and the holders of MCI group
stock will be entitled to vote on any matter on which our shareholders
are, by Georgia law, by Nasdaq listing rules or by the provisions of our
charter or our bylaws or as determined by our board of directors,
entitled to vote.

The holders of WorldCom group stock and the holders of MCI group
stock will vote together as a single voting group on each matter on
which holders of common stock are generally entitled to vote, except as
described below.

On all matters as to which all series of common stock will vote
together as a single voting group:

- each share of WorldCom group stock will have one vote; and

- each share of MCI group stock will have a number of votes,
which may be a fraction of one vote, equal to the average
market value of one share of MCI group stock divided by
the average market value of one share of WorldCom group
stock. We will calculate the average market values during

<PAGE>

the 20-day trading period ending on the tenth trading day
prior to the record date for determining the holders
entitled to vote. As a result of this calculation, each
share of MCI group stock may have more than, less than or
exactly one vote per share.

Accordingly, the relative per share voting rights of WorldCom
group stock and MCI group stock will fluctuate depending on changes in
the relative market values of shares of the series of common stock.

Upon implementation of the tracking stock proposal, we expect
that WorldCom group stock will retain a substantial majority of the
total voting power of WorldCom because we expect that initially the
total market value of the outstanding shares of WorldCom group stock
will be substantially greater than the total market value of the
outstanding shares of MCI group stock.

We will set forth the number of outstanding shares of WorldCom
group stock and MCI group stock in our annual report on Form 10-K and
our quarterly reports on Form 10-Q filed under the Securities Exchange
Act of 1934. We will disclose in any proxy statement for a shareholders'
meeting the number of outstanding shares and per share voting rights of
WorldCom group stock and MCI group stock.

If shares of only one series of common stock are outstanding,
each share of that series will have one vote. If any series of common
stock is entitled to vote as a separate voting group with respect to any
matter, each share of that series will, for purpose of such vote, have
one vote on such matter.

The holders of WorldCom group stock and the holders of MCI group
stock will not have any rights to vote separately as a voting group on
any matter coming before our shareholders, except in the limited
circumstances provided under Georgia law described below or by Nasdaq
listing rules, our charter or our bylaws. Our board of directors could
also decide, in its sole discretion, to condition the taking of any
action upon the approval of a series of common stock, voting as a
separate voting group.

The holders of the outstanding shares of a series are entitled
to vote as a separate voting group on a proposed amendment to our
charter if the amendment would:

- effect an exchange or reclassification of all or part of
the shares of the series into shares of the other series;

<PAGE>

- effect an exchange or reclassification, or create the
right of exchange, of all or part of the shares of the
other series into shares of the series;

- change the designation, rights, preferences or limitations
of all or part of the shares of the series;

- change the shares of all or part of the series into a
different number of shares of the same series;

- create a new series of shares having rights or preferences
with respect to distributions or to dissolution that are
prior, superior or substantially equal to the shares of
the series;

- increase the rights, preferences or number of authorized
shares of any series that, after giving effect to the
amendment, have rights or preferences with respect to
distributions or to dissolution that are prior, superior
or substantially equal to the shares of the series; or

- cancel, redeem or repurchase all or part of the shares of
the series.

If the holders of shares of a series would otherwise be entitled
to vote as a separate voting group on a proposed charter amendment, but
the amendment would affect the other series of common stock in the same
or a substantially similar way, the holders of all the affected series
would vote together on the amendment as a single voting group.

THE FOLLOWING ILLUSTRATION DEMONSTRATES THE CALCULATION OF THE
NUMBER OF VOTES TO WHICH EACH SHARE OF MCI GROUP STOCK WOULD BE ENTITLED
ON ALL MATTERS ON WHICH THE HOLDERS OF WORLDCOM GROUP STOCK AND THE
HOLDERS OF MCI GROUP STOCK VOTE TOGETHER AS A SINGLE VOTING GROUP.

If:

- 3 billion shares of WorldCom group stock and 120 million
shares of MCI group stock were outstanding;

- the average market value for the 20-trading day valuation
period for MCI group stock was $50 per share; and

- the average market value for the 20-trading day valuation
period for WorldCom group stock was $40 per share;

<PAGE>

then each share of WorldCom group stock would have one vote and each
share of MCI group stock would have 1.25 votes based on the following
calculation:

average market value of
MCI group stock $50 per share 1.25 votes per
------------------------ = ------------- = share of MCI group
average market value of $40 per share stock
WorldCom group stock

As a result, the shares of WorldCom group stock would represent
3 billion votes, which would equal 95.24% of our total voting power, and
the shares of MCI group stock would represent 150 million votes, which
would equal 4.76% of our total voting power. These amounts are
calculated as follows:

1 vote per share 3 billion shares = 3 billion votes for
of WorldCom group x of WorldCom group WorldCom group
stock stock stock

1.25 votes per share 120 million = 150 million votes for
of MCI group Stock x shares of MCI MCI group stock
group stock

3 billion votes
for WorldCom group stock
-------------------------------- 95.24% of total voting power
150 million votes for = held by WorldCom
MCI group stock + group stock
3 billion votes for
WorldCom group stock

150 million votes for
MCI group stock 4.76% of total voting power
--------------------------------- = held by MCI group stock
150 million votes for
MCI group stock +
3 billion votes for WorldCom
group stock

CONVERSION AND REDEMPTION

Our charter does not provide for either mandatory or optional
conversion or redemption of our existing common stock. The articles of

<PAGE>

amendment will permit the conversion or redemption of WorldCom group
stock and MCI group stock as described below.

CONVERSION OF MCI GROUP STOCK AT OUR OPTION AT ANY TIME

Our board of directors may at any time, without shareholder
approval, convert each share of MCI group stock into a number of shares
of WorldCom group stock equal to a percentage, set forth below under "--
Conversion Ratios," of the ratio of the average market value of one
share of MCI group stock to the average market value of one share of
WorldCom group stock.

Except as described below under "Mandatory Dividend, Redemption
or Conversion of Stock if Disposition of Group Assets Occurs," our board
of directors may not convert shares of WorldCom group stock into shares
of MCI group stock without shareholder approval.

CONVERSION RATIOS. The percentage of the ratio of the average
market values will be as follows:

- during the first three years after the implementation of
the tracking stock proposal -- 110%; and

- beginning on the third anniversary of implementation of
the tracking stock proposal -- 100%.

CALCULATION PERIODS. We will calculate the average market
values during the 20-trading day period ending on the fifth trading day
prior to the date we begin to mail the conversion notice to holders.

TAX EVENT. If at any time there is more than an insubstantial
risk of the adverse income tax consequences described below, the
percentage of the ratio of the average market values will be 100%. This
means that the holders of the MCI group stock to be converted will not
receive any premium in a conversion that is effected under such
circumstances.

Our board of directors may exercise our conversion rights at any
time without a premium if we receive an opinion of our tax counsel to
the effect that, as a result of any amendment to, clarification of, or
change or proposed change in, the laws, or interpretation or application
of the laws, of the United States or any political subdivision or taxing
authority of or in the United States, including:

- the enactment of any legislation;

- the publication of any judicial or regulatory decision,
determination or pronouncement; or

<PAGE>

- any announced proposed change in law by an applicable
legislative committee or the chairperson of an applicable
legislative committee,

regardless of whether the amendment, clarification, change or proposed
change is issued to or in connection with a proceeding involving us and
regardless of whether the amendment, clarification, change or proposed
change is subject to appeal, there is more than an insubstantial risk
that:

- for tax purposes, any issuance of WorldCom group stock or
MCI group stock would be treated as a sale or other
taxable disposition by us or any of our subsidiaries of
any of the assets, operations or relevant subsidiaries to
which WorldCom group stock or MCI group stock relates;

- the issuance or existence of WorldCom group stock or MCI
group stock would subject us, our subsidiaries or
affiliates, or our or their successors or shareholders to
tax or other adverse tax consequences; or

- for tax purposes, either WorldCom group stock or MCI group
stock is not, or at any time in the future will not be,
treated solely as common stock of WorldCom.

For purposes of rendering this opinion, tax counsel will assume that any
legislative or administrative proposals will be adopted or enacted as
proposed.

PURPOSES OF OPTIONAL CONVERSION PROVISIONS; SHAREHOLDER
CONSIDERATIONS. These provisions allow us the flexibility to
recapitalize WorldCom group stock and MCI group stock into one series of
common stock that would, after the recapitalization, represent an equity
interest in the combined businesses of the WorldCom group and the MCI
group. The optional conversion could be exercised at any future time if
our board of directors determines that, under particular facts and
circumstances then existing, an equity structure consisting of these two
series of stock was no longer in the best interests of WorldCom. Our
board of directors may decide to convert MCI group stock into WorldCom
group stock if the equity capital markets were to use the same criteria
in valuing MCI group stock as they use to value WorldCom group stock.
For example, if WorldCom group stock were to be valued primarily on the
basis of an earnings per share multiple and dividends, rather than
multiples of cash flow, and if the performance of the underlying
businesses were expected to be similar based on those criteria, then our
board of directors may be more likely to consider converting MCI group
stock into WorldCom group stock and eliminate the separate series. A
conversion could be exercised, however, at a time that is
disadvantageous to the holders of the series of stock related to one
group.

<PAGE>

Conversion would be based upon the relative market values of
WorldCom group stock and MCI group stock. Many factors could affect the
market values of WorldCom group stock and MCI group stock, including our
results of operations and those of each of the groups, trading volume
and general economic and market conditions. Market values also could be
affected by decisions by our board of directors or our management that
investors perceive to affect differently the series of stock related to
one group compared to the series of stock related to the other group.
These decisions could include changes to our tracking stock policies,
transfers of assets and liabilities between groups, allocations of
corporate opportunities and financing resources between the groups and
changes in dividend policies.

THE FOLLOWING ILLUSTRATION DEMONSTRATES THE CALCULATION OF THE
NUMBER OF SHARES ISSUABLE UPON CONVERSION OF MCI GROUP STOCK INTO SHARES
OF WORLDCOM GROUP STOCK AT OUR OPTION DURING THE FIRST THREE YEARS AFTER
THE IMPLEMENTATION OF THE TRACKING STOCK PROPOSAL.

If:

- there is not more than an insubstantial risk of adverse
income tax consequences;

- 3 billion shares of WorldCom group stock and 120 million
shares of MCI group stock were outstanding immediately
prior to the conversion;

- the average market value of one share of MCI group stock
over the 20-trading day valuation period was $50 per
share; and

- the average market value of one share of WorldCom group
stock over the 20-trading day valuation period was $40 per
share.

then each share of MCI group stock could be converted into 1.375 shares
of WorldCom group stock based on the following calculation:

average market value of
MCI group stock
110% x ------------------------ =
average market value of
WorldCom group stock

<PAGE>

$50 per share
1.1 x ------------- = 1.375 shares
$40 per share

REDEMPTION IN EXCHANGE FOR STOCK OF SUBSIDIARY

Our board of directors may at any time, without shareholder
approval, redeem on a pro rata basis all of the outstanding shares of
WorldCom group stock or MCI group stock in exchange for shares of the
common stock of one or more of our wholly owned subsidiaries that own
all of the assets and liabilities attributed to the relevant group.

These provisions are intended to give us increased flexibility
with respect to spinning off the assets attributed to one of the groups
by transferring all of the assets attributed to that group to one or
more wholly owned subsidiaries. As a result of this redemption, the
holders of WorldCom group stock and the holders of MCI group stock would
hold securities of separate legal entities operating in distinct lines
of business. We currently do not have any intention of spinning off the
assets of either the WorldCom group or the MCI group; however, this
redemption could be authorized by our board of directors at any time in
the future if it determines that, under the facts and circumstances then
existing, an equity structure comprised of WorldCom group stock and MCI
group stock is no longer in the best interests of WorldCom and a
spin-off of the assets attributed to the WorldCom group or the MCI
group, as the case may be, in a company separate from WorldCom is
desirable.

We may redeem shares of WorldCom group stock or MCI group stock
for subsidiary stock only if we have funds legally available for
distribution under Georgia law.

MANDATORY DIVIDEND, REDEMPTION OR CONVERSION OF STOCK IF
DISPOSITION OF GROUP ASSETS OCCURS

If we dispose of 80% or more of the then fair value of the
properties and assets attributed to either the WorldCom group or the MCI
group in a transaction or series of related transactions, our board of
directors is required to take action that returns the value of the net
proceeds of those assets to the holders of the stock related to that
group. That action could take the form of a special dividend, a
redemption of shares or a conversion into WorldCom group stock. There
are exceptions, however, to this requirement that are described below
under "-- Exceptions to the Mandatory Dividend, Redemption and
Conversion Requirement if a Disposition Occurs."

If no exception applies, our board of directors will elect,
without shareholder approval, to do one of the following:

<PAGE>

- pay a special dividend to the holders of shares of the
stock related to that group in cash and/or securities or
other property having a fair value equal to the net
proceeds of the disposition;

- if the disposition involves:

- 100% of the properties and assets attributed to that
group, redeem all outstanding shares of the stock
series related to that group in exchange for cash
and/or securities or other property having a fair value
equal to the net proceeds of the disposition;

- 80% or more but less than 100% of the then fair market
value of the properties and assets attributed to that
group, redeem a number of whole shares of the stock
related to that group in exchange for cash and/or
securities or other property having a fair value equal
to the net proceeds of the disposition; the number of
shares so redeemed will have in the aggregate an
average market value, during the period of ten
consecutive trading days beginning on the 51st trading
day following the disposition date, closest to the net
proceeds of the disposition; or

- convert each outstanding share of MCI group stock into a
number of shares of WorldCom group stock equal to 110%, in
the case of the sale of assets attributed to the MCI
group, or 100% in the case of the sale of assets
attributed to the WorldCom group, of the ratio of the
average market value of one share of the MCI group stock
to the average market value of one share of the WorldCom
group stock. However, if, in the case of the sales of
assets attributed to the MCI group, the disposition is
consummated after the third anniversary of the
implementation of the tracking stock proposal, the number
of shares to be issued as a result of a conversion will
equal 100% of the applicable ratio. We will calculate the
average market values during the ten-trading day period
beginning on the 51st trading day following the
disposition date.

If we dispose of 80% or more of the then fair value of the
properties and assets attributed to the WorldCom group and distribute
the net proceeds of the disposition by means of a special dividend or
redemption as described in the preceding paragraph, we may at any time
thereafter convert each outstanding share of WorldCom group stock into a
number of shares of MCI group stock equal to the ratio of the average
market value of one share of WorldCom group stock to the average market
value of one share of MCI group stock.

<PAGE>

We may only pay a special dividend or redeem shares of WorldCom
group stock or MCI group stock if we have funds for distributions under
Georgia law and the amount to be paid to holders is less than or equal
to the available distribution amount for the group. We will pay the
special dividend or complete the redemption or conversion on or prior to
the 120th trading day following the disposition date.

The "net proceeds" of a disposition means an amount equal to
what remains of the gross proceeds of the disposition after any payment
of, or reasonable provision is made as determined by our board of
directors for:

- any taxes we estimate will be payable by us, or which we
estimate would have been payable but for the utilization
of tax benefits attributable to another group, in respect
of the disposition or in respect of any resulting dividend
or redemption;

- any transaction costs, including, without limitation, any
legal, investment banking and accounting fees and
expenses; and

- any liabilities attributed to the group whose assets are
disposed of, including, without limitation:

- any liabilities for deferred taxes;

- any indemnity or guarantee obligations incurred in
connection with the disposition or otherwise;

- any liabilities for future purchase price adjustments;
and

- any preferential amounts plus any accumulated and
unpaid dividends in respect of any preferred stock
attributed to that group.

We may elect to pay the special dividend or redemption price
either in:

- the same form as the proceeds of the disposition were
received; or

- any other combination of cash, securities or other
property that our board of directors or, in the case of
securities that have not been publicly traded for a period
of at least 15 months, an independent investment banking
firm, determines will have a total market value of not
less than the fair value of the net proceeds.

<PAGE>

The factors our board of directors will consider when it is
required to choose among paying a special dividend, redeeming shares or
converting shares of MCI group stock into WorldCom group stock will
depend upon all of the facts and circumstances at the time. Generally,
if we dispose of 80% or more of the properties and assets attributed to
a group, we probably would redeem the series of common stock related to
that group and exercise our conversion option with respect to the
remaining shares of that series because the scope or scale of the
remaining properties and assets attributed to the group would likely not
provide a reasonable basis for a tracking stock for that group. We may
wish to convert the MCI group stock into the WorldCom group stock, even
at the applicable premium, if it was then desirable for us to retain the
proceeds of the sale for our remaining businesses. However, the likely
taxability of an asset sale and dividend or redemption at both the
corporate and shareholder levels makes it unlikely that we would dispose
of any substantial amount of properties or assets in this manner.

THE FOLLOWING ILLUSTRATION DEMONSTRATES THE APPLICATION OF THE
PROVISIONS REQUIRING A MANDATORY SPECIAL DIVIDEND, REDEMPTION OR
CONVERSION IF A DISPOSITION OCCURS PRIOR TO THE THIRD ANNIVERSARY OF THE
IMPLEMENTATION OF THE TRACKING STOCK.

If:

- 120 million shares of MCI group stock were outstanding;

- the net proceeds of the sale of more than 80% but less
than 100% of the properties and assets attributed to the
MCI group equals $5.4 billion;

- the average market value of MCI group stock during the
ten-trading day valuation period was $50_per share; and

- the average market value of WorldCom group stock during
the ten-trading day valuation period was $40_per share;

then we could do any one of the following:

(1) pay a special dividend to the holders of MCI group stock
equal to:

net proceeds
------------
number of outstanding
shares
of MCI group stock =

<PAGE>

$5.4 billion = $45 per share
------------
120 million shares

(2) redeem for $50 per share a number of shares of MCI group
stock equal to:

net proceeds
------------
average market value of =
MCI group stock

$5.4 billion
------------ = 108 million shares
$50 per share

(3) convert each outstanding share of MCI group stock into a
number of shares of WorldCom group stock equal to:

average market value of
MCI group stock
110% x ------------------------ =
average market value of
WorldCom group stock

$50 per share
1.1 x ------------- = 1.375 shares
$40 per share

EXCEPTIONS TO THE MANDATORY DIVIDEND, REDEMPTION OR CONVERSION
REQUIREMENT IF A DISPOSITION OCCURS. We are not required to take any of
the above actions for any disposition of 80% or more of the properties
and assets attributed to either group in a transaction or series of
related transactions that results in our receiving for those properties
and assets primarily equity securities of any entity that:

- acquires those properties or assets or succeeds to the
business conducted with those properties or assets or that
controls such acquirer or successor; and

- is primarily engaged or proposes to engage primarily in
one or more businesses similar or complementary to the
businesses conducted by that group prior to the
disposition, as determined by our board of directors.

<PAGE>

The purpose of this exception is to enable us technically to
"dispose" of properties or assets of a group to other entities engaged
or proposing to engage in businesses similar or complementary to those
of that group without requiring a special dividend on, or a redemption
or conversion of, the series of stock related to that group, so long as
we receive an equity interest in that entity. We are not required to
control that entity, whether by ownership or contract provisions.

In addition, we are not required to effect a special dividend,
redemption or conversion if a disposition is:

- of 80% or more of our properties and assets in one
transaction or a series of related transactions in
connection with our dissolution and the distribution of
our assets to shareholders;

- on a pro rata basis, such as in a spin-off;

- made to any person or entity controlled by us, as
determined by our board of directors; or

- a disposition conditioned upon the affirmative vote of a
majority of the votes entitled to be cast by the holders
of the stock related to that group, voting as a separate
voting group.

NOTICES IF DISPOSITION OF GROUP ASSETS OCCURS. Not later than
the 45th trading day after the disposition date, we will announce
publicly by press release:

- the net proceeds of the disposition;

- the number of shares outstanding of the series of common
stock related to the group to which the disposed assets
were attributed;

- the number of shares of that series of common stock into
or for which convertible securities are then convertible,
exchangeable or exercisable and the conversion, exchange
or exercise price of those convertible securities; and

- if applicable, the outstanding shares fraction on the date
of the notice.

Not earlier than the 61st trading day and not later than the
65th trading day after the disposition date, we will announce publicly
by press release whether we will pay a special dividend or redeem shares
of stock with the net proceeds of the disposition or convert the MCI
group stock into WorldCom group stock.

<PAGE>

We will mail to each holder of shares of the series of stock
related to the group to which the disposed assets were attributed the
additional notices and other information required by our articles of
amendment.

DISPOSITION OF LESS THAN 80% OF THE ASSETS. If we dispose of
less than 80% of the properties and assets attributed to either the
WorldCom group or the MCI group in a transaction or series of
transactions, we will attribute the proceeds to the group to which the
disposed assets were attributed. We will use those proceeds:

- in the business of that group;

- for distribution to the holders of the series of stock
related to that group; or

- to buy back shares of the series of stock related to that
group in the open market.

We may use those proceeds in the business of another group only if we
reattribute to the group to which the disposed assets and proceeds were
originally attributed consideration with an equivalent fair value.

SELECTION OF SHARES FOR REDEMPTION

If fewer than all of the outstanding shares of a series of stock
are to be redeemed, we will redeem those shares proportionately from
among the holders of outstanding shares of that series of stock or by
such other method as may be determined by our board of directors to be
equitable.

FRACTIONAL INTERESTS; TRANSFER TAXES

We will not be required to issue fractional shares of any
capital stock or any fractional securities to any holder of either
series of stock upon any conversion, redemption, dividend or other
distribution described above. If a fraction is not issued to a holder,
we will pay cash instead of that fraction.

We will pay all documentary, stamp or similar issue or transfer
taxes that may be payable in respect of the issue or delivery of any
shares of capital stock and/or other securities to the holders of record
on redemption or conversion of shares.

LIQUIDATION RIGHTS

Currently, in the event of our dissolution, the holders of
existing common stock are entitled to share equally in our net assets
after payment or provision for payment of our debts and other

<PAGE>

liabilities and the payment of full preferential amounts to which the
holders of any preferred stock are entitled.

Under our articles of amendment, in the event of our
dissolution, the holders of WorldCom group stock, the holders of MCI
group stock and the holders of any additional series of common stock
that is subsequently created will be entitled to receive our assets on a
per share basis in proportion to the liquidation units per share of such
series. Similar to our existing common stock, however, holders of
WorldCom group stock and MCI group stock will be entitled to receive our
assets only after payment or provision for payment of the debts and
other liabilities of WorldCom and full preferential amounts to which
holders of any preferred stock are entitled.

The liquidation rights of the series of common stock will be as
follows:

- each outstanding share of WorldCom group stock will have
one liquidation unit; and

- each outstanding share of MCI group stock will have 1/25
of one liquidation unit.

The number of liquidation units to which each share of WorldCom
group stock and MCI group stock is entitled will not be changed without
the approval of the holders of each series of common stock voting as a
separate voting group, except in the limited circumstances described
below. As a result, the liquidation rights of the holders of the
respective series of common stock may not bear any relationship to the
relative market values, the relative voting rights of the series of
common stock or the relative value of the assets attributed to the
groups.

No holder of WorldCom group stock will have any special right to
receive specific assets attributed to the WorldCom group and no holder
of MCI group stock will have any special right to receive specific
assets attributed to the MCI group in the case of our dissolution.

If we subdivide or combine the outstanding shares of a series of
common stock or declare a dividend or other distribution of shares of a
series of common stock to holders of that series of common stock, the
number of liquidation units of the other series of common stock will be
appropriately adjusted. This adjustment will be made by our board of
directors to avoid any dilution in the relative liquidation rights of
any series of common stock.

Neither a merger or share exchange of WorldCom into or with any
other corporation, nor any sale, lease, exchange or other disposition of
80% or more of our assets, will, alone, cause the dissolution of
WorldCom for purposes of these liquidation provisions.

<PAGE>

Shares Reserved for Another Group or for Issuance to the Holders
of the Series of Stock Related to that Group

The articles of amendment will allow us to reserve the shares of
stock related to one group for the other group or for issuance to the
holders of the other series of common stock. The number of shares of a
series of common stock related to one group that we reserve for the
other group or for issuance to the holders of the other series of common
stock are not outstanding shares and are not entitled to vote until we
actually issue them.

At any time that there are shares of stock related to one group
reserved for the other group or for issuance to the holders of the other
series of common stock, we will use what we refer to as the outstanding
shares fraction to allocate to the other group any dividend or
redemption payment made to the holders of the other stock. In addition,
if at the time of any spin-off of a group by means of redemption of the
stock related to that group for shares of one or more wholly owned
subsidiaries that own all of the assets and liabilities attributed to
that group, there were shares of stock related to the other group
reserved for the spun-off group or for issuance to the holders of stock
related to the spun-off group, we will distribute, in addition to shares
of those subsidiaries, a number of shares of stock related to the other
group equal to the number of shares of that stock that were so reserved
either for the holders of the stock related to the spun-off group or for
one or more of those subsidiaries.

The outstanding shares fraction indicates the relationship
between the number of shares of a series of common stock held by the
public and the number of shares reserved for the other group or for
issuance to the holders of the other series of common stock. It is
calculated by dividing the number of shares of a series of common stock
issued to the public by the sum of the number of shares of such series
of stock issued to the public plus the number of shares of such series
of stock then reserved for the other group or for issuance to the
holders of the other series of common stock. The outstanding shares
fraction will equal 1.0 at any time that there are no shares of a series
of common stock reserved for the other group or for issuance to the
holders of the other series of common stock. Immediately after the
implementation of the tracking stock proposal, there will be no shares
of MCI group stock or WorldCom group stock reserved for the other group
or for issuance to the holders of the other series of common stock.

THE FOLLOWING ILLUSTRATION DEMONSTRATES THE CALCULATION OF THE
OUTSTANDING SHARES FRACTION.

If:

- 120 million shares of MCI group stock were outstanding;
and

<PAGE>

- 30 million shares of MCI group stock were reserved for the
WorldCom group or for issuance to the holders of WorldCom
group stock;

then the outstanding shares fraction with respect to the MCI group stock
would equal 4/5 based on the following calculation:

Number of shares of
MCI group stock outstanding =
--------------------------------------
Number of shares of
MCI group stock outstanding + Number of reserved
shares of MCI group stock

120 million shares = 4/5
--------------------------------------
120 million shares + 30 million shares

The number of shares of a series of common stock reserved for the other
group or for issuance to the holders of the other series of common stock
would be increased, without shareholder approval, to reflect:

- share dividends on such series of common stock;

- reclassifications of such series of common stock resulting
in a greater number of shares of such series of common
stock outstanding;

- purchases of such series of common stock with assets
attributed to the other group;

- transfers to the group related to such series of common
stock of assets attributed to the other group; and

- transfers to the other group of liabilities attributed to
the group related to such series of common stock.

The number of shares of a series of common stock reserved for the other
group or for issuance to the holders of the other series of common stock
would be decreased, without shareholder approval, to reflect:

- sales of such series of common stock for the account of
the other group;

- share dividends of such series of common stock to the
holders of the other common stock;

<PAGE>

- the issuance of such series of common stock when
convertible securities are converted if those shares of
stock were reserved for the other group or for issuance to
the holders of the other series of common stock;

- the issuance of such series of common stock when
securities convertible into that stock and issued as a
distribution to the holders of the other series of common
stock are converted;

- reclassifications of such series of common stock resulting
in a smaller number of shares of such series of common
stock outstanding;

- the redemption of shares of such series of common stock as
described under "Mandatory Dividend, Redemption or
Conversion of Stock if Disposition of Group Assets Occurs"
above;

- transfers to the other group of assets attributed to the
group related to such series of common stock; and

- transfers to such group of liabilities attributed to the
other group.

Our board of directors could, without shareholder approval, also
increase or decrease the number of shares of a series of common stock
reserved for the other group or for issuance to the holders of the other
series of common stock under other circumstances as our board of
directors determines appropriate to reflect the economic substance of
any other event or circumstance.

DETERMINATIONS BY OUR BOARD OF DIRECTORS

Any determinations made in good faith by our board of directors
with respect to a series of common stock will be final and binding on
all of our shareholders.

PREEMPTIVE RIGHTS

The holders of any series of common stock will not have any
preemptive rights.

ANTI-TAKEOVER PROVISIONS OF GEORGIA LAW, OUR CHARTER AND BYLAWS

The following discussion concerns material provisions of Georgia
law, our charter and bylaws and our restated rights agreement that could
be viewed as having the effect of discouraging an attempt to obtain
control of WorldCom, Inc.

<PAGE>

NUMBER AND ELECTION OF DIRECTORS

Our existing bylaws provide that the number of members of the
board of directors is fixed by the board of directors, but cannot be
less than three. Currently, our board of directors has 12 members.
Neither our existing articles of incorporation nor our existing bylaws
provide for a staggered board of directors.

Our existing bylaws provide that directors are elected by a
plurality of the votes cast by shareholders entitled to vote in the
election at a meeting at which a quorum is present. No class or series
of our shares, other than our series D, series E, series F and series G
preferred stocks in the case of certain failures to pay dividends and
other payments, may elect any director solely by vote of such class or
series. Currently, however, no directors are elected by a separate
class or series. Our existing articles of incorporation do not provide
for cumulative voting.

VACANCIES ON THE BOARD OF DIRECTORS

Our existing bylaws provide that any vacancy on our board of
directors caused by an increase in the number of directors by action of
the shareholders will be filled by the shareholders in the same manner
as at an annual meeting. Any vacancy created by an increase in the
number of directors by action of the board of directors or by the
removal or resignation of a director will be filled by the affirmative
vote of a majority of the remaining directors, except that a class of
shareholders may fill a vacancy created by the removal or resignation of
a director elected by that class. Currently, no directors are elected by
a separate class or series of shares of our capital stock.

SHAREHOLDER NOMINATIONS AND PROPOSALS

Under our bylaws, in order for a shareholder to nominate a
candidate for director, timely notice of the nomination must be given to
and received by in advance of the meeting. Ordinarily, notice must be
given and received not less than 120 nor more than 150 days before the
first anniversary of the preceding year's annual meeting. However, if
the date of the annual meeting is advanced by more than 30 days or
delayed by more than 60 days from that anniversary date, then notice
must be given by the shareholder and received by not earlier than 150
days before the annual meeting and not later than the close of business
on the later of the 120th day before the annual meeting or the 10th day
following the day on which public announcement of the meeting is first
made. In some cases, notice may be delivered and received later if the
number of directors to be elected to our board of directors is
increased. The shareholder submitting the notice of nomination must
describe various matters as specified in the bylaws, including the name,
age and address of each proposed nominee, his or her occupation, and the
class and number of shares held by the nominee.

<PAGE>

In the case of special meetings of shareholders, only such
business will be conducted, and only such proposals will be acted upon,
as are brought pursuant to our notice of meeting. Nominations for
persons for election to the board of directors at a special meeting for
which the election of directors is a stated purpose in the notice of
meeting may be made by any shareholder who complies with the notice and
other requirements of the bylaws. If we call a special meeting of
shareholders to elect one or more directors, any shareholder may
nominate a candidate, if notice from the shareholder is given and
received not earlier than 150 days before the special meeting and not
later than the close of business on the later of the 120th day before
the special meeting or the 10th day following the day on which public
announcement of the meeting and/or of the nominees proposed by us is
first made. The notice from the shareholder must also include the same
information described above.

In order for a shareholder to bring other business before an
annual meeting, timely notice must be given to and received by us within
the time limits described above. The shareholder's notice must include a
description of the proposed business, which must be a proper subject for
action by the shareholders, the reasons for conducting such business and
other matters specified in the bylaws.

Proposals of other business may be considered at a special
meeting requested in accordance with the bylaws only if the requesting
shareholder gives and we receive a notice containing the same
information as required for an annual meeting at the time the meeting is
requested.

RIGHTS PLAN

Under our current rights agreement, each share of our existing
common stock has associated with it one preferred stock purchase right.
Each of these rights entitles its holders to purchase at a purchase
price of $160, subject to adjustment, two-thirds of 1/1000 of a share of
our Series 3 preferred stock under the circumstances provided for in our
current rights agreement.

Our board of directors has determined that it is in the best
interests of the company as a whole and our shareholders to amend our
existing rights plan to reflect the creation of the tracking stocks,
therefore, if shareholders approve the tracking stock proposal, we
will amend and restate our current rights agreement to reflect our
new equity structure. Our board of directors reviewed our rights plan
in connection with the tracking stock proposal and the shareholder
proposal approved at the 2000 annual meeting which requested that our
board consider the adoption of a bylaw amendment requiring shareholder
approval of rights plans. As a result of this review, our board
determined to amend our existing rights plan to reflect the creation
of the tracking stocks, if and as appropriate, but otherwise to wait
until closer to the September 6, 2001 scheduled expiration of our
rights plan to take any further action regarding rights plans. Our
board of directors will designate shares of our preferred stock as
Series 4 Preferred Stock and Series 5 Preferred Stock in connection
with the restated rights agreement. As a result, instead of
rights currently applicable to our existing common stock:

- each share of WorldCom group stock will have associated
with it a right to purchase 1/1000 of a share of series 4
preferred stock at a purchase price described below; and

<PAGE>

- each share of MCI group stock will have associated with it
a right to purchase 1/1000 of a share of series 5
preferred stock at a purchase price described below.

The purchase price of the series 4 preferred stock will be equal
to $160 multiplied by a fraction the numerator of which is the opening
price of the WorldCom group stock on the first day such stock is traded
regular way, after the recapitalization, and the denominator of which is
the closing trading price of our existing common stock on the last day
immediately prior to the recapitalization. The purchase price of the
series 5 preferred stock will equal the difference between $160 and the
series 4 preferred stock purchase price.

The rights will not become exercisable until the earlier of:

- 10 business days following a public announcement that a
person or group has become an "acquiring person";

- 10 business days after we first determine that a person or
group has become an acquiring person; or

- 10 business days, or such later date as may be determined
by our board of directors, following the commencement of,
or the announcement of an intention to commence, a tender
offer or exchange offer that would result in a person or
group becoming an acquiring person.

Under our current rights agreement and the restated rights
agreement, a person becomes an "acquiring person" if the person, alone
or together with a group, acquires beneficial ownership of 15% or more
of the total voting power of all of our voting stock. For these
purposes, the voting power of a person or group will be determined at
any time and from time to time as if the day on which the determination
is made is the record date for a vote of shareholders.

The restated rights agreement contains provisions designed to
prevent the inadvertent triggering of the rights. For example, it gives
a person who has inadvertently acquired 15% or more of the total voting
power of all of our voting stock and does not have any intention of
changing or influencing the control of WorldCom the opportunity to sell
a sufficient number of shares so that such acquisition would not trigger
the rights. In addition, the rights will not be triggered and a
divestiture of shares will not be required by (1) our repurchase of
shares of voting stock or (2) any change in the market values of either
series of common stock which could raise the proportion of voting power
held by a person to over the applicable 15% threshold. However, any
person who exceeds such threshold as a result of our stock repurchases
or any changes in such market values will trigger the rights if such
person subsequently acquires any additional shares of voting stock.

<PAGE>

Additionally, at any time a person or a group has become an
acquiring person, the flip-in or flip-over features of our rights or, at
the discretion of the board of directors, the exchange features of our
rights, may be exercised by any holder, except for such person or group.
A summary description of each of these features follows:

"FLIP IN" FEATURE. In the event a person or group becomes an
acquiring person, each holder of a WorldCom group stock right or MCI
group stock right, except for such person or group, will have the right
to acquire, upon exercise of the right, instead of one ten-thousandth of
a share of our Series 4 Preferred Stock or Series 5 Preferred Stock,
shares of our WorldCom group stock or MCI group stock, having a value
equal to twice the exercise price of the right.

"EXCHANGE" FEATURE. In certain circumstances, after the rights
have been triggered, our board of directors may, at its option, exchange
the rights, other than rights owned by an acquiring person, at an
exchange ratio of one share of WorldCom group stock per WorldCom group
right and one share of MCI group stock per MCI group right.

"FLIP OVER" FEATURE. In the event we are acquired in a merger or
other business combination transaction or 50% or more of our assets or
earning power, are sold, each holder of a right, except for an acquiring
person, will have the right to receive, upon exercise of the right, the
number of shares of the acquiring company's capital stock with the
greatest voting power having a value equal to twice the exercise price
of the right.

REDEMPTION OF RIGHTS. At any time before the earlier to occur
of:

- public disclosure that a person or group has become an
acquiring person, or

- our determination that a person or group has become an
acquiring person,

our board of directors may redeem all of the rights at a redemption
price of $0.01 per right, subject to adjustment. The right to exercise
the rights will terminate upon redemption, and at such time, the holders
of the rights will have the right to receive only the redemption price
for each right held.

AMENDMENT OF RIGHTS. At any time before a person or group
becomes an acquiring person, the terms of the restated rights agreement
may be amended by our board of directors without the consent of the
holders of the rights, including an amendment to lower the trigger
thresholds to not less than the greater of:

<PAGE>

- any percentage greater than the largest percentage of the
voting power of all our voting stock then known to us to
be beneficially owned by any person or group, and

- 10% of the voting power of all of our voting stock.

However, if at any time after a person or group becomes an
acquiring person, or acquires such lower percentage as may be amended in
the restated rights agreement, of the voting power of our voting stock,
our board of directors may not adopt amendments to the restated rights
agreement that adversely affect the interests of holders of the rights.
Furthermore, once the rights are no longer redeemable, our board of
directors may not adopt any amendment that would lengthen the time
period during which the rights are redeemable.

TERMINATION OF RIGHTS. If not previously exercised, the rights
will expire on September 6, 2001, unless we earlier redeem or exchange
the rights or extend the final expiration date.

ANTI-TAKEOVER EFFECTS. The rights have certain anti-takeover
effects. Once the rights have become exercisable, the rights will cause
substantial dilution to a person or group that attempts to acquire or
merge with us in certain circumstances. Accordingly, the existence of
the rights may deter potential acquirors from making a takeover proposal
or tender offer. Our rights should not interfere with any merger or
other business combination approved by our board of directors since we
may redeem our rights as described above and since a transaction
approved by our board of directors would not cause the rights to become
exercisable.

SERIES 4 PREFERRED STOCK. In connection with the creation of
the WorldCom group rights, as described above, the WorldCom board of
directors has authorized the issuance of 5,000,000 shares of preferred
stock as series 4 junior participating preferred stock.

WorldCom has designed the dividend, liquidation, voting and
redemption features of the WorldCom series 4 preferred stock so that the
value of 1/1000 of a share of WorldCom series 4 preferred stock
approximates the value of one share of WorldCom group common stock.
Shares of WorldCom series 4 preferred stock may only be purchased after
the WorldCom group rights have become exercisable, and each share of the
WorldCom series 4 preferred stock:

- is nonredeemable and junior to all other series of
preferred stock, except the series 5 preferred stock and
unless otherwise provided in the terms of those series of
preferred stock;

<PAGE>

- will have a preferential dividend in an amount equal to
the greater of $10 or 1,000 times any dividend declared
on each share of WorldCom group stock;

- in the event of liquidation, will entitle its holder to
receive a preferred liquidation payment equal to the
greater of $1,000 or 1,000 times the payment made per
share of WorldCom group stock;

- will have 1,000 votes, voting together with the common
stock and any other capital stock with general voting
rights; and

- in the event of any merger, consolidation or other
transaction in which shares of WorldCom group stock are
converted or exchanged, will be entitled to receive 1,000
times the amount and type of consideration received per
share of WorldCom group stock.

The rights of the WorldCom series 4 preferred stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.

SERIES 5 PREFERRED STOCK. In connection with the creation of
the MCI group rights, as described above, the WorldCom board of
directors has authorized the issuance of ____________ shares of
preferred stock as series 5 junior participating preferred stock.

WorldCom has designed the dividend, liquidation, voting and
redemption features of the WorldCom series 5 preferred stock so that the
value of 1/1000 of a share of WorldCom series 5 preferred stock
approximates the value of one share of MCI group stock. Shares of
WorldCom series 5 preferred stock may only be purchased after the MCI
rights have become exercisable, and each share of the WorldCom series 5
preferred stock:

- is nonredeemable and junior to all other series of
preferred stock, except the series 4 preferred stock and
unless otherwise provided in the terms of those series of
preferred stock;

- will have a preferential dividend in an amount equal to
the greater of $10 or 1,000 times any dividend declared on
each share of MCI group stock;

- in the event of liquidation, will entitle its holder to
receive a preferred liquidation payment equal to the
greater of $1,000 or 1,000 times the payment made per
share of MCI group stock;

<PAGE>

- will have 1,000 votes, voting together with the common
stock and any other capital stock with general voting
rights; and

- in the event of any merger, consolidation or other
transaction in which shares of MCI group stock are
converted or exchanged, will be entitled to receive 1,000
times the amount and type of consideration received per
share of MCI group stock.

The rights of the WorldCom series 5 preferred stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.

BUSINESS COMBINATION RESTRICTIONS

Our existing articles of incorporation contain a provision,
which will be amended by Proposal 2, that requires the approval by the
holders of at least 70% of the outstanding shares of our capital stock
whose holders are present at a meeting of shareholders and which entitle
their holders to vote generally in the election of directors, voting as
a single voting group, as a condition to consummate a "business
transaction", as described below, involving WorldCom and a "related
person", as described below, or in which a related person has an
interest, unless:

- the business transaction is approved by at least a
majority of our "continuing directors" as described below,
then serving on the board of directors or, if the votes of
those continuing directors would have been insufficient to
constitute an act of the board of directors, then the
unanimous vote of the continuing directors is sufficient
to approve the transaction so long as at least three
continuing directors serve on the board of directors at
the time of the unanimous vote; or

- certain minimum price and other requirements are met.

A "business transaction" means:

- any merger, share exchange or consolidation involving us
or any of our subsidiaries;

- any sale, lease, exchange, transfer or other disposition
by us or any of our subsidiaries of more than 20% of its
assets;

- any sale, lease, exchange, transfer or other disposition
of more than 20% of the assets of an entity to us or a
subsidiary of us;

<PAGE>

- the issuance, sale, exchange, transfer or other
disposition by us or a subsidiary of us of any securities
of us or any subsidiary of us in exchange for cash,
securities or other property having an aggregate fair
market value of $15 million or more;

- any merger, share exchange or consolidation of us with any
subsidiary of us in which we are not the surviving
corporation and the charter of the surviving corporation
does not contain provisions similar to the business
combination restrictions in the existing articles of
incorporation;

- any recapitalization or reorganization of us or
reclassification of our securities which would have the
effect of increasing the voting power of a related person
or reducing the number of shares of each class of voting
securities outstanding;

- any liquidation, spin-off, split-off, split-up or
dissolution of us; or

- any agreement, contract or other arrangement providing for
any of the business transactions described above or having
a similar purpose or effect.

A "related person" generally means a person or entity that,
together with its affiliates and associates, beneficially owns 10% or
more of the voting power of our outstanding voting stock.

A "continuing director" means a director who either:

- was a member of the board of directors on September 15,
1993; or

- became a director after that date, and whose election, or
nomination for election, was approved by at least a
majority of the continuing directors then on the board of
directors;

provided that any director who is a related person with an interest in
the business transaction to be voted upon, other than a proportionate
interest as a shareholder, is not considered a continuing director.

U.s. federal income tax considerations

The following discussion is a summary of the principal United
States federal income tax consequences of the implementation of the
tracking stock proposal. This discussion, including the Simpson Thacher
& Bartlett opinion discussed below, is based on the Internal Revenue

<PAGE>

Code of 1986, Treasury Department regulations, published positions of
the Internal Revenue Service, and court decisions now in effect, all of
which are subject to change. In particular, Congress could enact
legislation affecting the treatment of stock with characteristics
similar to the WorldCom group stock and the MCI group stock, or the
Treasury Department could issue regulations or other guidance that
change current law. Any future legislation or regulations (or other
guidance) could apply retroactively to the implementation of the
tracking stock proposal. See " Legislative Proposals" below.

This discussion addresses only those of you who hold your
existing common stock and would hold your WorldCom group stock and MCI
group stock as a capital asset and did not acquire your shares in a
compensatory transaction, including the exercise of employee stock
options. We have included this discussion for general information only.

This discussion does not:

- discuss all aspects of U.S. federal income taxation that
may be relevant to you in light of your particular tax
circumstances;

- apply to you if you are:

- a foreign person;

- a dealer in securities or currencies;

- a trader in securities that has elected the
mark-to-market method of accounting for your
securities;

- a tax-exempt organization;

- an S corporation or other pass-through entity;

- a mutual fund;

- a small business investment company;

- a regulated investment company;

- an insurance company or other financial institution;

- a broker-dealer;

- a U.S. person whose "functional currency" is not the
U.S. dollar; or

<PAGE>

- are otherwise subject to special treatment under the
federal income tax law; or

- apply to you if you hold your existing common stock as
part of a hedging, integrated or conversion transaction,
constructive sale or straddle.

YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH REGARD TO THE APPLICATION
OF THE U.S. FEDERAL INCOME TAX LAW TO YOUR PARTICULAR SITUATION AS WELL
AS TO THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX
LAWS TO WHICH YOU MAY BE SUBJECT.

TAX IMPLICATIONS TO YOU OF THE IMPLEMENTATION OF PROPOSAL 1 -
THE TRACKING STOCK PROPOSAL

In the opinion of Simpson Thacher & Bartlett, our counsel, for
U.S. federal income tax purposes, WorldCom group stock and MCI
group stock will be considered our common stock. This means
that:

- you will not recognize any income, gain or loss on the
exchange of your existing common stock for shares of
WorldCom group stock and MCI group stock;

- your basis in the existing common stock held immediately
before the implementation of the tracking stock proposal
will be allocated between the WorldCom group stock and MCI
group stock received, including any fractional shares
deemed received, in proportion to the fair market value of
such WorldCom group stock and MCI group stock on the date
the tracking stock proposal is implemented;

- your holding period for WorldCom group stock and MCI group
stock will include the holding period of the existing
common stock; and

- any gain or loss recognized upon a subsequent sale or
exchange of either the WorldCom group stock or MCI group
stock will be capital gain or loss.

Generally, you will recognize capital gain or loss on any cash received
in lieu of fractional shares of MCI group stock equal to the difference
between the amount of cash received and the basis allocated to the
fractional shares. If you are an individual and have held your existing
common stock for more than one year, your capital gain may be taxable at
a reduced rate. Your ability to deduct capital losses may be limited.

TAX IMPLICATIONS TO YOU OF A CONVERSION OF MCI GROUP STOCK OR
WORLDCOM GROUP STOCK

<PAGE>

Generally, you will not recognize any income, gain or loss if we
exercise our option to convert one series of common stock into the other
series of common stock, and you will have a carry-over adjusted tax
basis in the shares of common stock that you receive and generally a
holding period that includes the holding period of the common stock you
surrendered in the conversion.

NO INTERNAL REVENUE SERVICE RULING

No ruling has been sought from the Internal Revenue Service. The
Internal Revenue Service has announced that it will not issue any
advance rulings on the classification of an instrument whose dividend
rights are determined by reference to the earnings of a segregated
portion of the issuing corporation's assets, including assets held by a
subsidiary. In addition, there are no court decisions or other
authorities that bear directly on the classification of instruments with
characteristics similar to those of the WorldCom group stock and MCI
group stock. The opinion of Simpson Thacher & Bartlett is not binding on
the Internal Revenue Service or the courts and merely represents its
best judgment based upon existing authorities and certain assumptions
and customary representations made to Simpson Thacher & Bartlett by
management.

It is possible, therefore, that the Internal Revenue Service
could assert successfully that the receipt of the WorldCom group stock
and MCI group stock as well as any subsequent conversion of one series
of common stock into the other series of common stock could be taxable
to you and/or to us. The Internal Revenue Service could also assert
successfully that gain from a subsequent sale of the WorldCom group
stock or the MCI group stock is taxable as ordinary income rather than
capital gain. Once again, you should consult your own tax advisor.

LEGISLATIVE PROPOSALS

The Clinton Administration proposed legislation in February 2000
dealing with tracking stock such as MCI group stock and WorldCom group
stock. This proposal would have, among other things, treated the
receipt of stock similar to MCI group stock and WorldCom group stock in
exchange for other stock in the corporation or in a distribution by the
issuing corporation as taxable to the shareholders. If this proposal
had been enacted, you could have been subject to tax on your receipt of
MCI group stock and WorldCom group stock. A similar proposal was made
in 1999. Congress did not act on the 1999 or 2000 proposal, and it is
impossible to predict whether Congress will act upon this proposal or
any other proposal relating to tracking stock. Under the amended
charter, we may convert the MCI group stock into WorldCom group stock if
there is more than an insubstantial risk of adverse United States
federal income tax law developments. See "--Conversion and Redemption --
Conversion of MCI Group Stock at Our Option at Any Time." The proposal

<PAGE>

of the Clinton Administration would be such an adverse development if it
were implemented or received certain legislative action.

STOCK EXCHANGE LISTINGS

We expect WorldCom group stock to be listed on the Nasdaq
National Market. WorldCom group stock will be listed under the symbol
"WCOM".

We expect MCI group stock to be listed on the Nasdaq National
Market. MCI group stock will be listed under the symbol "MCIT".

STOCK TRANSFER AGENT AND REGISTRAR

Our existing stock transfer agent and registrar, The Bank of New
York, will act as the stock transfer agent and registrar for both
WorldCom group stock and MCI group stock.

FINANCIAL ADVISORS

We have retained Salomon Smith Barney Inc. and J.P. Morgan
Securities Inc. to perform various advisory and solicitation services.
We have agreed to pay each of Salomon Smith Barney Inc. and J.P. Morgan
Securities Inc. a fee of $ .

EFFECT ON EXISTING STOCK BASED AWARDS, PREFERRED STOCK AND WARRANTS

If the recapitalization is implemented, each outstanding stock
option under our existing stock option plans will be converted into a
stock option to acquire shares of WorldCom group stock. The number of
shares of WorldCom group stock subject to the stock option will equal
the number of shares of common stock subject to the existing stock
option multiplied by a fraction, the numerator of which is the closing
trading price of the common stock on the last day immediately prior to
the recapitalization, and the denominator of which is the closing price
of the WorldCom group stock on the first day such stock is traded,
regular way, after the recapitalization (the "Exchange Ratio"). The
exercise price for each share of WorldCom group stock issuable upon
exercise of a WorldCom group stock option will be calculated by dividing
the exercise price per share under such existing stock option by the
Exchange Ratio. The adjustments described in the two preceding
sentences will only be made if the opening price of the WorldCom group
stock on the first day such stock is traded regular way after the
recapitalization is less than the closing price of our existing common
stock on the last day immediately prior to the recapitalization. We
intend to adjust all of our existing stock option plans to provide for
the issuance of options on the WorldCom group stock instead of on our
existing common stock.

<PAGE>

We presently have a warrant outstanding to purchase 157,615
shares of our common stock at an exercise price of $44.91 per share. If
the recapitalization is implemented, pursuant to its terms the warrant
to purchase will become exercisable for 157,615 shares of WorldCom group
stock and 6,304 shares MCI group stock.

We presently have several series of preferred stock outstanding
which are convertible into an aggregate of shares of our common
stock. If the recapitalization is implemented, pursuant to the terms of
our preferred stock, such preferred share will become convertible into
shares of WorldCom group stock and shares of MCI
group stock.

NO DISSENTERS' RIGHTS

Under Georgia law, shareholders who dissent from the tracking
stock proposal will not have appraisal rights.

<PAGE>

BUSINESS OF THE WORLDCOM GROUP

OVERVIEW

We provide a broad range of integrated communications and
managed network services to both U.S. and non-U.S. based corporations
utilizing our extensive and advanced global communications networks. Our
product offerings include data services such as frame relay,
asynchronous transfer mode, or ATM, and Internet Protocol, or IP,
networks; Internet related services, including dedicated access, virtual
private networks, or VPNs, digital subscriber lines, or DSL, web centers
encompassing application and server hosting and managed data services;
commercial voice services; and international services. We believe we are
positioned to use our global assets and customer base to lead the new
generation of fast growing, e-commerce and data-driven segments of the
communications industry.

We have extensive networks that connect metropolitan centers and
various regions throughout the world. As of September 30, 2000,
excluding our investment in Embratel Participacoes S.A., Brazil's
facilities-based national and international communications provider, our
long-haul networks covered approximately 56,500 route miles, with an
additional 10,000 route miles of local loops worldwide. We also had over
2,500 points of presence and 1,738 data switches, and connected 122
cities across North America, Europe, Latin America and Asia.

From our position in IP infrastructure, we intend to continue
our expansion into high growth, next generation "edge" services, such as
IP-VPNs, web data centers, offering application and web site hosting,
managed data services, and Internet content delivery services. We
believe the breadth and scale of these services differentiate our
offerings from those of our competitors and meet our customers'
increasingly complex communications needs, highlighting the unique
quality and reach of our networks.

We are positioning the company for leadership in the high growth
segments of our industry. The Intermedia acquisition and resulting
controlling interest in Digex will provide us with a strong foothold in
the expanding managed hosting arena. This position, combined with our
extensive facilities-based network assets and corporate customer base,
creates a strong competitor for e-business services and a platform for
leadership in our target segments of U.S. and non-U.S. based
corporations.

We believe that implementation of the tracking stock proposal
will be beneficial to the WorldCom group's business because the WorldCom
group stock:

<PAGE>

- will allow us to structure distinct and more effective
incentive and retention programs for management and
employees;

- will provide an acquisition currency for strategic
investments, acquisitions and other transactions; and

- will assist us in raising future capital for the WorldCom
group.

INDUSTRY

For several years, the communications industry has been
undergoing a dramatic transformation due to several factors including:

- technological advances such as the Internet;

- rapid development of new services and products;

- the Telecom Act;

- the deregulation of communications services markets in
selected countries around the world; and

- the entry of new competitors in existing and emerging
markets.

These are only a few of the forces impacting the communications
industry today. However, each of these factors is driven by the rapid
development of data services that are replacing traditional voice
services. The development of frame relay, ATM and IP networks has
dramatically transformed the array and breadth of services offered by
telecommunications carriers.

Use of the Internet, including intranets and extranets, has
grown rapidly in recent years. This growth has been driven by a number
of factors, including the large and growing installed base of personal
computers, improvements in network architectures, increasing numbers of
network-enabled applications, the emergence of compelling content and
commerce-enabling technologies, and easier, faster and cheaper Internet
access. Consequently, the Internet has become an important new global
communications and commerce medium. The Internet represents an
opportunity for enterprises to interact in new and different ways with
both existing and prospective customers, employees, suppliers and
partners. Enterprises are responding to this opportunity by
substantially increasing their investment in Internet sites and
services.

The market for data communications and Internet access and
related products is characterized by rapidly changing technology,

<PAGE>

evolving industry standards, emerging competition and frequent new
product and service introductions. We believe that the Transmission
Control Protocol/IP, where we use fiber optic or copper-based
telecommunications infrastructure, will continue to be the primary
protocol and transport infrastructure for Internet-related services.
Emerging transport alternatives include wireless cable modems and
satellite delivery of Internet information. Alternative open protocol
and proprietary protocol standards have been or are being developed. We
are also participating in trials of next generation, more advanced
technology.

Developments in technology are further increasing the capacity
and lifespan of previously deployed fibers. Throughout 2001, we plan to
deploy high-density optical pipes, ultra-broadband cross connect
systems, optical cross connects, and ultra long-haul transmission
systems. These network investments result in reduced regeneration
requirements for long haul transmissions and higher bandwidth capacity
from existing fiber which enhances our ability to serve global
businesses cost effectively.

STRATEGY

Our objective is to use our strategic assets and customer base
to be a leader in each of our target segments and deliver long-term
sustainable growth. Key elements of our strategy include:

TARGET HIGH GROWTH DATA BUSINESSES: Our strategy is to decrease
reliance on traditional voice services that are experiencing intense
pricing pressures and focus primarily on high growth and high
value-added data services that we can provide utilizing our extensive,
high quality global networks.

CONTINUE OUR FOCUS ON CORPORATE ENTERPRISES: We are realigning
our businesses with the customer segments they serve. We expect to
further focus our resources, including assets, technical expertise and
marketing skills, to better serve and grow our presence with corporate
enterprise customers.

RAPIDLY DEPLOY WEB HOSTING SERVICES: We will quickly take
advantage of the web hosting and managed data capabilities of Digex
acquired through the Intermedia acquisition. By combining Digex's
comprehensive portfolio of mission-critical hosting products with our
extensive networks and customer relationships, we expect to obtain a
significant market position from which to rapidly grow our data services
revenues.

AGGRESSIVELY EXPAND IP-VPN SERVICES: VPNs are private corporate
communications networks and are quickly replacing private lines as the
cost effective and flexible solution of choice for mid-sized and large
corporate enterprises. We view this segment as a key contributor to our

<PAGE>

future growth and an integral part of our high-value service strategy.
With over 2,500 points of presence, we intend to leverage the global
reach and quality of our networks to capitalize on this high growth and
high margin segment.

TARGET WEB CUSTOMER CENTER OPPORTUNITIES: As part of our
strategy to target emerging growth data services segments, we expect to
aggressively expand our web customer center services. We expect the need
for these services to grow in line with the rapid growth of the Internet
and e-commerce. We will capitalize on this trend by leveraging our
customer relationships, networks and expertise in this area to remain at
the forefront of high growth opportunities.

MAINTAIN LEADERSHIP IN INTERNET TRANSPORT: We intend to remain
at the forefront of IP implementation worldwide. IP is a protocol which
allows for market driven development and deployment of new services and
applications. We expect IP services such as IP-VPNs to proliferate and
will use our tradition of pioneering innovative Internet infrastructure
services to continuously expand our Internet value-added services.

EXPAND GLOBALLY: We intend to leverage and further expand our
global networks in line with our customers' expansion internationally
and the rapid growth in cross-border communications. We expect to see
continued rapid expansion in international communications markets and we
believe that our global networks reaching across North America, Brazil,
Europe and our current build-out in Asia will position us to capitalize
on this growth.

UTILIZE OUR EXTENSIVE NETWORKS: We will continue to utilize our
networks to benefit our customers and reduce our costs. The global reach
and quality of our networks enable us to provide complex services at low
operating costs as a result of our facilities-based, on-net approach.
The on-net approach allows our customers to send data streams or voice
traffic locally, across the United States, or to any of our
facilities-based networks in Europe or Asia, without ever leaving our
networks. We believe this approach lowers our operating costs and
provides our customers with superior reliability and quality of service.
Our networks are also highly scalable for future capacity expansions at
lower per unit costs, and are designed to cost-effectively integrate
future generations of optical-networking components to enhance
efficiency and quality.

DESCRIPTION OF SERVICES

We provide a broad range of enhanced data and voice
communications and managed network services through our direct
commercial sales force of approximately 8,000 people, excluding
Embratel. Core services include data services, Internet services,
commercial local and long distance voice communications and
international communications services.

<PAGE>

According to a Gartner Dataquest report, "E-Data Services North
America 2000" authored by Charles Carr, "The total data services market
in the United States in 1999 is estimated to be US $36.5 billion,
increasing robustly at a 24.7 percent compound annual growth rate (CAGR)
to US $109.8 billion in 2004." Domestic IP connectivity is expected to
grow at an annual rate of approximately 25% from $11 billion in 1999 to
approximately $27 billion by 2003, according to market studies by Probe
Research. Much of the growth is expected to result from increased
demand for e-mail, web hosting services, e-commerce, collaborative
workflow and real-time video services and applications. We believe that
most of the growth in data communications will be driven by
corporations' demand for high quality and scalable Internet-based
infrastructure and services, including web hosting and other managed
network services. We are well positioned to capitalize on these growth
opportunities and to shape the future of global digital communications
due to our network, global customer base, tradition of innovation and
corporate strategy to target and lead the high end of data-driven
emerging communications segments.

DATA SERVICES

The ability of businesses to transmit data within their company
or outside to business partners is a critical function today. Over the
last 10 years, businesses have made significant investments in software
development and equipment purchases to effectively process and transmit
this data and information. The Internet has also introduced yet another
means to communicate digitally worldwide.

We continue to make significant investments in network
technologies to satisfy the continuing demand in high bandwidth data
processing. Our global frame relay, ATM and IP networks provide a full
spectrum of public and private network options for any data transmission
requirement. The interoperability of these networks protects customers'
existing investments in established networks while taking advantage of
the newest technologies.

Frame Relay: Frame relay is a high-speed communications
technology that divides the information into frames or packets. Each
frame has an address that the network uses to determine the destination
of the frame. The frames travel through a series of switches within the
frame relay network to arrive at their destination. This technology
gives businesses a cost-effective, flexible way to connect LAN, SNA,
voice, and IP-based applications.

Our frame relay service, which is operated over our own
facilities, is available in 26 countries and is supplemented by
network-to-network interface partnerships that reach additional
locations worldwide. These networks allow us to provide our customers
around the globe with the highest quality standards of service.

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ATM: Our on-net ATM service is a technology and protocol
structure that integrates data, voice, and video over a single
communications network while offering a variety of access speeds and
multiple service categories. ATM technology has the ability to service
both the LAN and WAN environments, providing scalability for users'
current and future needs.

Our ATM services use our highly redundant OC-48 backbone to
obtain these networking advantages. These public data networking
services offer a number of different access speeds and support multiple
classes of service to meet customers' application needs. The nature of
the services provides users with the security and control of a private
network, plus the flexibility and economies of a public network. Our ATM
services allow for the consolidation of applications into a single
network service, reducing network, equipment and operational costs.

Data services revenue grew by approximately 28.4%, to $5.5
billion for the first nine months ending September 2000, from $4.3
billion during the same period in 1999.

INTERNET SERVICES

As a leading Internet backbone provider, we offer a
comprehensive range of Internet access and value-added options,
applications and services tailored to meet the needs of businesses and
other telecommunications providers. Our Internet products and services
include dedicated Internet access, managed networking services and
applications (such as virtual private networks), web hosting and
electronic commerce and transaction services (such as web centers and
credit card transaction processing).

INTERNET ACCESS AND TRANSPORT: Our Internet infrastructure is
based on our OC-192c and OC-48c networks which use a combination of ATM,
frame relay and router technologies at the transport layer for both
metropolitan and inter-regional connectivity. This network
infrastructure enables customers to access the Internet through
dedicated lines. Once connected, the customer's traffic is routed
through our networks to the desired Internet location, whether on our
networks or elsewhere on the Internet.

Through our network, we offer the following access products to
our customers:

- full, partial or shadow T1 / T3 connectivity;

- Internet gateway services;

- frame relay to IP topologies;

- ATM to IP services;

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- DSL; and

- metropolitan area exchanges ATM.

These access options provide the variety of bandwidth choices
required for all business types and sizes.

VIRTUAL PRIVATE NETWORKS: We provide VPNs on public and shared
environments for small and large customers. Our customers use VPNs to
connect their corporate intranets, data centers, remote users, and the
World Wide Web via the public Internet.

Our VPN service, called UUSecure, includes built-in encryption,
bandwidth prioritization and 24-hour centralized management and
monitoring services. UUSecure is already available in 18 countries, with
significant expansion planned.

WIRELESS INTERNET ACCESS: We provide the IP network backbone
for Metricom's Richochet wireless service. Metricom's wireless Internet
service, introduced in select markets in October 2000, represents one of
the first commercial rollouts of complete mobile wireless broadband
Internet access. The service offers business users an always-on, low
cost, fully compatible and complete mobile Internet access technology.

The service offers Internet access at 128 kbps. The network is
based on a frequency-hopping, spread-spectrum microcellular architecture
that uses a combination of unlicensed spectrum as well as licensed
spectrum. The network is comprised of wireless modems that the users
attach to any PC or handheld computer via a serial or USB port, and
Metricom's wireless MicroCellular Data Network of radio transceivers.
The MicroCellular Data Network consists of small shoebox-sized
transceivers, or Microcell Radios, typically mounted to streetlights or
utility poles every quarter-to half-mile in a mesh network. The
end-user wireless modems communicate with the Microcell Radios and on
Wired Access Points through radio frequency packets. The Wired Access
Points collect and convert the radio frequency packets into a format for
transmission on a wired IP network backbone that enables users to reach
the Internet or a corporate network. Each Wired Access Point and the
Microcell Radios that support it can handle thousands of subscribers.

Our wireless Internet services enhance and complement the
existing wireless and messaging services available from us, and are a
key component of our focus on high-growth data, Internet and wireless
services. The service ties not only to our UUNET backbone for IP
access, but also provides an extension of our VPN strategy for customers
that want secure access to corporate intranets.

Hosting for Businesses and ASPs: We are a leading provider of
web hosting services to businesses operating mission-critical,

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multi-functional web sites. The WorldCom group also offers related
value-added services, such as:

- web site management products, such as Windows NT and UNIX
managed servers;

- integrated business solutions, such as e-commerce,
business intelligence and office solutions; and

- enterprise and professional services, such as stress
testing and customized web site activity reporting.

We deliver our services from geographically distributed,
advanced Internet data centers that are connected to our dedicated and
redundant UUNET Internet backbone network. Our tailored solutions are
designed to integrate with existing enterprise systems architectures and
to enable customers to outsource the monitoring, administration and
optimization of their equipment, applications and overall Internet
operations.

In September, 2000, we entered into a definitive merger
agreement with Intermedia. Shareholders of Intermedia voted to approve
the transaction on December 18, 2000. We expect the merger to be
completed in the first quarter of 2001. As a result of this merger,
WorldCom, Inc. will acquire a controlling interest in Digex, a leading
provider of managed web and application hosting services for some of the
world's fastest growing companies. This merger will fuel our web hosting
expansion by providing a comprehensive portfolio of mission-critical
hosting products and services for mid-sized and large businesses. These
services enable businesses to more efficiently deliver their application
services to their customers over the Internet. Digex also offers related
value-added services, such as firewall management, stress testing and
consulting services, including capacity and migration planning and
database optimization. Digex's services include providing the computer
hardware, software, network technology and systems management necessary
to offer our customers comprehensive outsourced web site hosting
solutions.

Digex's server hosting and Internet connectivity services are
offered through its advanced data centers. Today, these data centers
cover over 200,000 square feet of space and deploy the advanced physical
and virtual security architectures. Within these centers, Digex provides
the services and expertise to ensure secure, scalable, high-performance
operation of mission-critical web sites 24 hours a day. Digex continues
to upgrade its networks in order to accommodate expected traffic growth.
Its managed services include performance monitoring, site management
reports, data backup, content delivery and management services, security
services and professional services. These services provide the
foundation for high performance, availability, scalability and
reliability of customers' mission-critical Internet operations. In

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addition, Digex integrates technologies from leading vendors with our
industry expertise and proprietary technology.

Through a resale agreement completed in November 2000, we are
able to sell Digex services to our customer base prior to the close of
the Intermedia merger. Our combination will:

- combine Digex's range of managed, enterprise and portal
hosting solutions with our worldwide, facilities-based
networks and relationships with leading businesses around
the globe;

- enable us to offer key solutions for emerging and
established Internet-based businesses and portals as well
as established businesses who are leveraging e-business to
open new markets, lower costs, improve customer
satisfaction and broaden distribution;

- focus our capital investments in one of the industry's
fastest growing segments; and

- enable us to strategically integrate Intermedia's network
facilities to improve our local presence in select key
markets.

With this merger, we believe we will accelerate our ability to
provide world-class managed web and application hosting services -- one
of the highest growth markets in the industry -- by acquiring the tools
to scale and provide premier web hosting products and services that
customers are demanding. We will offer a comprehensive suite of access,
transport and applications solutions to customers around the globe.

WEB CENTERS: Our web center products, which we are currently
testing and expect to introduce in early 2001, are unified, web-enabled
solutions that allow customers to interact with sales and service agents
using multiple contact mediums -- e-mail, chat, online collaboration,
call back request, voice mail and voice recognition, wireless device
support, fax, or traditional toll-free calls and mail. Customers can
order, integrate, maintain, use, monitor, report and manage customer
contacts through a browser-based interface that we provide.

Internet services revenue grew by approximately 66.2%, to $1.8
billion for the first nine months ending September 2000, from $1.1
billion during the same period in 1999.

COMMERCIAL LOCAL AND LONG DISTANCE VOICE COMMUNICATIONS

We provide a single source for integrated local and long
distance telecommunications services and facilities management services

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to businesses, government entities and other telecommunications
companies.

The market for local exchange services consists of a number of
distinct service components. These service components are defined by
specific regulatory tariff classifications including:

- local network services, which generally include basic dial
tone charges and private line services;

- network access services, which consist of the local
portion of long distance telephone calls; and

- long distance network services;

We also offer a broad range of related services that enhance
customer convenience, add value and provide additional revenue sources.
Advanced toll-free services offer features for caller and customer
convenience, including a variety of call routing and call blocking
options, customer reconfiguration, termination overflow to switched or
dedicated lines, dialed number identification service, real-time
automatic number identification and flexible after-hours call handling
services.

Business local and long distance voice services revenue was $5.3
billion for the first nine months ending September 2000, versus $5.6
billion during the same period in 1999.

INTERNATIONAL OPERATIONS

Our global strategy is enabled by the position of the company as
an owner of telecommunications infrastructure throughout Europe, Asia
and North America. Our international strategy is to leverage this
foundation to design and deliver product sets and features globally so
that multinational enterprises enjoy a consistency in service
performance regardless of geography.

We provide switched voice, private line and/or value-added data
services over our own facilities and leased facilities in the United
Kingdom, Germany, France, the Netherlands, Sweden, Switzerland, Belgium,
Italy, Ireland, Luxembourg, Denmark, Austria, Norway and Spain. We
operate metropolitan digital fiber optic networks in London, Paris,
Frankfurt, Hamburg, Dusseldorf, Amsterdam, Rotterdam, Stockholm,
Brussels, Zurich, Dublin, Birmingham, Edinburgh, Lyons, Marseille, Lille
and Strasbourg. We also offer certain international services over
leased facilities in certain Asian markets, including Australia, Japan,
Hong Kong, Singapore, New Zealand, Indonesia, Malaysia, Thailand,
Philippines, Taiwan and South Korea. We were granted authority in the
first quarter of 1998 to serve as a local and international

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facilities-based carrier in Australia and Japan and now operate
metropolitan digital fiber optic networks in Sydney and Tokyo.

Data centers are being deployed throughout Europe and Asia,
interconnected with the global networks, allowing us to expand into new
business areas using our worldwide telecommunications infrastructure as
the platform for technology and service expansion.

Our investment in Embratel further extends our
local-to-global-to-local strategy. Embratel's business consists
principally of providing intra-regional long distance, inter-regional
long distance and international long distance telecommunications
services as well as data communications, text, Internet services and
mobile satellite and maritime communications services. Embratel operates
under a domestic long distance concession and an international long
distance concession granted by Brazil's Agencia Nacional de
Telecomunicacoes.

Revenues from international operations grew by approximately
35.4%, to $4.3 billion for the first nine months ending September 2000,
from $3.2 billion during the same period in 1999.

FACILITIES

NETWORKS

We have domestic long distance, international and multi-city
local service fiber optic networks with access to additional fiber optic
networks through lease agreements with other carriers. Additionally, we
own and lease trans-oceanic cable capacity in the Atlantic and Pacific
Oceans.

Deployed in business centers throughout the United States,
Western Europe, the United Kingdom, Australia and Japan, our local
networks are constructed using ring topology. Transmission networks are
based on synchronous optical network equipment. Network backbones and
local networks are installed in conduits owned by us or leased from
third parties such as utilities, railroads, long distance carriers,
state highway authorities, local governments and transit authorities.
Lease arrangements are generally executed under multi-year terms with
renewal options and are non-exclusive.

The long distance networks are protected by systems that are
capable of restoring backbone traffic in the event of an outage in
milliseconds. In addition, long distance switched traffic is dynamically
rerouted via switch software to any available capacity to complete
calls.

To serve customers in buildings that are not located directly on
the fiber networks we utilize leased T-3s, T-1s or unbundled local loops

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obtained from the traditional phone companies, ILECs or CLECs and other
carriers who serve these buildings.

Our Internet infrastructure is based on our OC-192c and OC-48c
networks which use a combination of ATM, frame relay and router
technologies to transport data.

WorldCom is deploying technology that integrates a business'
WANs with the public switched telecommunications network utilizing
voice-over-IP gateways and Session Initiated Protocol, or SIP. This
technology will provide businesses with a wide range of Internet voice
and messaging services.

Internationally, we own or lease fiber optic capacity on most
major international undersea cable systems in the Pacific and Atlantic
Ocean regions. In the first quarter of 1998, we, together with our joint
venture partner Cable & Wireless, placed into service a high capacity
digital fiber optic undersea cable between the United States and the
United Kingdom. We also own fiber optic capacity for services to the
former Soviet Union Republics, Central America, South America and the
Caribbean. Furthermore, we own and operate 28 international gateway
satellite earth stations, which enable us to extend public switched and
private line voice and data communications to and from locations
throughout the world.

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Our global network statistics, excluding Embratel, are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1999 2000
----------------- ------------------
<S> <C> <C>
Domestic and international long distance route
miles 55,163 56,496
Local domestic and international route miles 9,323 9,852
Voice grade equivalents 33,060,614 55,473,168
Buildings connected 48,961 59,582
Telcom collocations 429 461
------------------------------------------------------------------------------------------
</TABLE>

Embratel has the largest long distance telecommunications
network in Latin America providing both national and international
telecommunications services. It is the main provider of high-speed data
transmission in Brazil, with the largest network of broadband fiber
optic transmission systems, with a total installed national transmission
capacity of 90Gbps, covering approximately 1.6 million fiber miles as of
September 30, 2000.

DATA NETWORK SWITCHING

Our ATM networks utilize our intracity fiber connections to
customers, ATM switches and high-capacity fiber optic networks. ATM is a
switching and transmission technology based on encapsulation of
information in short (53-byte) fixed-length packets or "cells." ATM
switching was specifically developed to allow simultaneous switching and
transmission of mixed voice, data and video (sometimes referred to as
"multimedia" information at various rates of transmission). In addition,
certain characteristics of ATM switching allow switching information to
be directly encoded in integrated circuitry rather than in software.

Our frame relay networks utilize our owned and maintained frame
relay switches and our high-capacity fiber optic networks to provide
data networking services to commercial customers. Networking equipment
at customer sites connects to our frame relay switches which in turn are
connected to each other via our extensive fiber optic networks. Frame
relay utilizes variable length frames to transport customer data from
one customer location across our networks to another customer location.
Customers utilize the frame relay technology to support traditional

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business applications such as connecting local networks and financial
applications.

RATES AND CHARGES

Domestic and international business services originating in the
United States are primarily billed in six-second increments; others are
billed in partial minutes rounded to the next minute. Switched voice
services originating in international markets are billed in increments
subject to local market conditions and interconnect agreements.
Switched long distance and local services are billed in arrears, with
monthly billing statements itemizing date, time, duration and charges.
Data services are generally billed on a fixed per line and variable
trunk rate. Data service rates are based on the speed of transmission,
and depending on the service type, may be billed in arrears or in
advance. Private line services are billed monthly in advance, with the
invoice indicating applicable rates by circuit. Our rates are generally
designed to be competitive with those charged by other long distance and
local carriers.

Our Internet access options are sold in the United States and in
many foreign countries for both domestic and global Internet services.
Prices vary, based on service type. Due to various factors, such as
available telecommunications technology, foreign government regulation
and market demand, the service options offered outside of the United
States vary as to speed, price and suitability for various purposes.

Embratel's rates for most telecommunications services are
subject to final regulatory approval, to which Embratel submits requests
for rate adjustments. Embratel's rates for domestic and international
long distance service are regulated and are uniform throughout Brazil.
The majority of Embratel's revenues from data communications are
provided by monthly line rental charges for private leased circuits.
The balance consists mainly of normal charges to customers for access to
the only data transmission network and measured charges based on the
amount of data transmitted.

SALES AND MARKETING

We market our business communications services primarily through
a direct sales force targeted at markets defined by both communications
needs and geographies. Our commercial sales force of approximately 8,000
people, excluding Embratel, also provides advanced data specialization
for the domestic and international marketplaces, including private line
services.

Our sales force can be grouped loosely into three segments. The
first targets small to large U.S.-centric enterprises in the U.S. The
second addresses the same small to large enterprises outside the U.S.
The third channel serves the largest 1,000 multinational corporations

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with a unified sales and service organization that mirrors the
customers' own operations.

In each of our geographic markets, we employ full service
support teams that provide our customers with prompt and personal
attention. Our localized management, sales and customer support are
designed to engender a high degree of customer loyalty and service
quality.

In addition, we expect to launch in the second quarter of 2001
an online sales and support channel that will complement our activities
to reach smaller U.S.-based businesses. This web-based channel will
offer a suite of basic data and voice services in a cost-efficient
manner.

COMPETITION

We face substantial competition in each of our business
segments. Some of our existing and potential competitors have financial
and other resources significantly greater than ours. Moreover, some of
these providers presently have advantages as a result of their historic
monopoly control over local exchange facilities. A continuing trend
toward business combinations and alliances in the telecommunications
industry may create significant new competitors. A number of
traditional and emerging competitors, including AT&T, Cable & Wireless,
Genuity, Global Crossing, Level 3, Qwest, Sprint and Williams, have made
significant investments in advanced fiber optic network facilities. In
addition to voice and data competition from long distance service
competitors, a number of facilities-based CLECs and cable television
multi-system operators plan to offer local telecommunications services
in major U.S. cities over their own facilities or through resale of the
local exchange carriers' or other providers' services.

Increasingly, we also must compete with equipment vendors and
consulting companies in emerging Internet service markets. Certain
companies, including Cisco, Andersen Consulting and IBM, have obtained
or have expanded their Internet-based services as a result of network
deployment, acquisitions and strategic investments. We expect these
acquisitions and strategic investments to increase, thus creating
significant new competitors. Furthermore, we expect these firms to
devote greater resources to develop new competitive products and
services and to market those and existing products and services.

Overseas, we compete with new entrants as well as with incumbent
providers, some of which still are partially government-owned, have
special regulatory status along with the exclusive rights to provide
certain services, and virtually all of which have historically dominated
their local, domestic long distance and international services business.
These incumbent providers have numerous advantages including existing
facilities, customer loyalty, and substantial financial resources. We

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often must rely on facilities or termination services from these
incumbent providers. We also compete with other service providers, some
of which are affiliated with incumbent providers in other countries. We
devote extensive resources to obtaining regulatory approvals necessary
to operate overseas, and to obtain access to and interconnect with the
incumbent's network on a non-discriminatory basis. In Europe, we compete
directly with companies such as British Telecom, Deutsche Telekom, Cable
& Wireless, France Telecom, and Equant (in which France Telecom recently
announced plans to acquire a controlling interest), global
telecommunications alliances such as Concert and KPNQwest and regional
Internet service providers such as Terra, Oleane, and Demon Internet
Limited.

The development of new technologies and increased availability
of domestic and international transmission capacity may also give rise
to new competitive pressures. For example, even though fiber optic
networks, such as those used by us, are now widely used for long
distance transmission, it is possible that the desirability of such
networks could be adversely affected by changing technology. The
telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new routing and switching
technologies, new services, and increasing wireless, satellite and fiber
optic transmission capacity for services similar to those provided by
us. We cannot predict with certainty which of many possible future
product and service offerings will help maintain our competitive
position or what expenditures will be required to develop and provide
such products and services. Nor can we predict whether valuable
spectrum licenses will be affected by regulatory decisions to
re-allocate spectrum for other uses, or whether current deployment plans
for our MMDS services will be sustainable if spectrum reallocation
occurs.

Under the Telecom Act and ensuing federal and state regulatory
initiatives, many barriers to local exchange competition are being
eliminated. The introduction of such competition, however, also
establishes, in part, the ability of the RBOCs to provide in-region
interexchange long distance services. To date, the FCC has granted
applications by Verizon for the state of New York and by SBC for the
state of Texas, to provide in-region inter-LATA services. We believe the
RBOCs will continue to seek to enter these markets given their ownership
of extensive facilities in their local service regions, their
long-standing customer relationships and their very substantial capital
and other financial resources. As the RBOCs are allowed to offer
in-region long distance services in additional states, they will be in a
position to offer single source local and long distance service similar,
if not superior, to that being offered by us. We expect that such
increased competition will result in additional pricing and margin
pressures in the domestic telecommunications services business. Indeed,
competition has already significantly reduced consumer long distance
pricing, and as a result negatively affected the profitability of

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traditional service providers. As rates stabilize, we expect to compete
effectively as a result of our innovation, quality and diversity of
services, our ability to offer a combination of services, and our level
of customer service.

As noted, we offer data communications and Internet-based
services, including web hosting, collocation services, virtual private
network services, dedicated and wholesale Internet access, and related
services. This is an extremely competitive business and we expect that
competition will intensify in the future. We believe that the ability
to compete successfully in this arena depends on a number of factors,
including: industry presence; the ability to expand rapidly; the
capacity, reliability and security of network infrastructure; ease of
access to and navigation on the Internet; the pricing policies of our
competitors and suppliers; the timing of the introduction of new
products and services by us and our competitors; our ability to support
industry standards; and industry and overall economic trends. Our
success will depend heavily upon our ability to provide high quality
data communications services, including Internet connectivity and
value-added Internet services, at competitive prices.

Until July 29, 1998, Embratel was the exclusive provider of
inter-state and international long distance services in Brazil, although
it was subject to indirect competition from a number of sources. The
companies organized under Telecomunicacoes Brasileiras S.A., Telebras
were the exclusive providers of intrastate and local telephone services.
However, since 1995, Brazil has been adopting sweeping regulatory
changes intended to open the telecommunications market to competition.

Under the 1997 General Telecommunications Law and the General
Grant Plan, the Ministry of Communications was required to privatize the
Telebras system. According to the privatization model, the Brazilian
states were divided among three regions and the Telebras companies,
which provided services in each of these states, were grouped under
three holding companies (each a "Tele") and granted concessions to
provide local and intra-regional long distance services within one of
the three regions. Embratel was granted concessions to provide domestic
long distance (intra-regional and inter-regional) and international
services. The privatization occurred on July 29, 1998, at which time
Embratel became subject to competition in the intra-regional long
distance markets.

The General Law and the General Grant Plan also required the
regulator, Anatel, promptly after the privatization, to auction: the
mirror authorizations for the provision of local and intra-regional long
distance telephone services in each of the three regions, and one mirror
authorization for the provision of intra-regional, inter-regional and
international long distance telephone services.

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Embratel has three competitors in the north east region for the
provision of intra-regional long distance services (the north east Tele,
the north east mirror authorization holder (Canbra), and the national
long distance mirror authorization holder (Intelig)); three competitors
in the south region for the provision of the intra-regional long
distance services (the south Tele, Global Village Telecom and Intelig);
and three competitors in the Sao Paulo State region for the provision of
inter-regional long distance services (the Sao Paulo State Tele, Vesper
and Intelig).

Beginning in 2002, Anatel may grant an unlimited number of
additional authorizations for the provision of local and intra-regional,
inter-regional and international long distance telephone services.

EMPLOYEES

Through our WorldCom group, excluding Embratel, we employed a
total of approximately 62,000 full and part-time personnel as of
September 30, 2000, approximately 450 of whom are represented by
organized labor organizations. As of September 30, 2000, Embratel
employed approximately 12,000 full and part-time personnel. We consider
our relationship with these employees to be good.

PATENTS, TRADEMARKS, TRADENAMES AND SERVICE MARKS

We actively pursue the protection of intellectual property
rights in the United States and relevant foreign jurisdictions on behalf
of the various entities making up the WorldCom group. Our continuing
efforts have produced numerous issued patents and pending patent
applications on innovative technology developed within the group.

All tradenames, including the MCI tradename and the other
related MCI tradenames, have been attributed to the WorldCom group. The
MCI group will pay an annual fee to the WorldCom group for use of the
MCI tradenames for the next five years based on the following fee
schedule:

Year 1: $27.5 million
Year 2: $30.0 million
Year 3: $35.0 million
Year 4: $40.0 million
Year 5: $45.0 million

Any renewal or termination of use of the MCI tradename by the
MCI group will be subject to the general policy that our board of
directors will act in the best interests of WorldCom.

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REGULATION

We are involved in legal and regulatory proceedings that are
incidental to our business and have included loss contingencies in other
current liabilities and other liabilities for certain of these matters
in the WorldCom group's financial statements. In some instances,
rulings by federal and state regulatory authorities may result in
increased operating costs to us. The results of these various legal and
regulatory matters are uncertain and could have a material adverse
effect on the WorldCom group's combined results of operations or
financial position.

GENERAL

We are subject to varying degrees of federal, state, local and
international regulation. In the United States, our subsidiaries are
most heavily regulated by the states, especially for the provision of
local exchange services. Our subsidiaries must be certified separately
in each state to offer local exchange and intrastate long distance
services. No state, however, subjects us to price cap or rate of return
regulation, nor are we currently required to obtain FCC authorization
for installation or operation of our network facilities used for
domestic services, other than licenses for specific multichannel
multipoint distribution services, wireless communications service and
terrestrial microwave and satellite earth station facilities that
utilize radio frequency spectrum. FCC approval is required, however,
for the installation and operation of our international facilities and
services. We are subject to varying degrees of regulation in the foreign
jurisdictions in which we conduct business, including authorization for
the installation and operation of network facilities. Although the
trend in federal, state and international regulation appears to favor
increased competition, no assurance can be given that changes in current
or future regulations adopted by the FCC, state or foreign regulators or
legislative initiatives in the United States or abroad would not have a
material adverse effect on us.

DOMESTIC

In August 1996, the FCC established nationwide rules pursuant to
the Telecom Act designed to encourage new entrants to compete in local
service markets through interconnection with the ILECs, resale of ILECs'
retail services, and use of individual and combinations of UNEs, owned
by the ILECs. Implementation of these rules has been delayed by various
RBOC appeals. In January 1999, the Supreme Court of the United States
confirmed the FCC's authority to issue the rules, including a pricing
methodology for UNEs. On remand, the FCC clarified the requirement that
RBOCs make specific UNEs available to new entrants. The RBOCs have
sought reconsideration of the FCC's order and have petitioned for review
of the order in the United States Court of Appeals for the D.C. Circuit.
The RBOCs also petitioned for review of the FCC's rules for pricing UNEs
in the United States Court of Appeals for the Eighth Circuit which, in

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July 2000, invalidated the rules. Various parties, including WorldCom,
have sought Supreme Court review of the Eighth Circuit's decision.

The Telecom Act requires RBOCs to petition the FCC for
permission to offer long distance services for each state within their
region. Section 271 of the Act provides that for such applications to
be granted, the FCC must find, among other things, that the RBOC has
demonstrated that it has met a 14-point competitive checklist to open
its local network to competition and that granting the petition is in
the public interest. To date, the FCC has rejected five RBOC
applications and it has granted two: Verizon's for New York and SBC's
for Texas. Currently applications are pending before the FCC by Verizon
for Massachusetts and by SBC for Kansas and Oklahoma. Other
applications may be filed at any time. We have challenged, and will
continue to challenge, any application that does not satisfy the
requirements of Section 271 or the FCC's local competition rules. To
date, these challenges have focused on the pricing of UNEs and on the
adequacy of the RBOCs' operations support systems. In addition, several
bills have been introduced in Congress that would have the effect of
allowing RBOCs to offer in-region long distance data services without
satisfying Section 271 of the Act or of making it more difficult for
competitors to resell RBOC high-speed Internet access services or to
lease the UNEs used to provide such services. To date, WorldCom and
others successfully have opposed these bills.

In August 1998, the FCC ruled that the interconnection,
unbundling, and resale requirements imposed on ILECs by the Telecom Act,
as well as the prohibition on RBOC provision of in-region long distance
services, apply to advanced telecommunication services such as digital
subscriber line, or DSL, technology. U S West petitioned for review of
this order in the United States Court of Appeals for the D.C. Circuit
which, at the request of the FCC, remanded the case for further
administrative proceedings. In December 1999, the FCC reaffirmed its
order, but reserved ruling on whether such obligations apply to traffic
jointly carried by an ILEC and a CLEC to an ISP which self-provides the
transport component of its Internet access services. The order also
found that DSL-based advanced services used to connect ISPs to their
subscribers to facilitate Internet-bound traffic ordinarily constitute
exchange access service. In January 2000, we petitioned for review of
this latter aspect of the FCC's order in the United States Court of
Appeals for the D.C. Circuit.

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requirements for access services. The FCC also is conducting a
proceeding to consider additional pricing flexibility for a wider range
of access services. We have petitioned for review of the Pricing
Flexibility Order in the United States Court of Appeals for the D.C.
Circuit.

In July 1999, the United States Court of Appeals for the Fifth
Circuit reversed in part the FCC's May 1997 universal service decision.
Among other things, the court held that the FCC may collect universal
service contributions from interstate carriers based on only interstate
revenues, and that the FCC could not force the ILECs to recover their
universal service contributions through interstate access charges. In
November 1999, the FCC implemented the Fifth Circuit's decision. AT&T
has petitioned for review of this FCC order in the United States Court
of Appeals for the Fifth Circuit, and we have intervened in support of
AT&T. Pending reconsideration petitions at the FCC seek retroactive
treatment for implementation of the remand order. The FCC has released
two additional universal service orders, which provide for federal
support for non-rural high cost areas. Petitions for review of both
orders were filed in the United States Court of Appeals for the Tenth
Circuit.

In March 1999, the FCC sought public comments on its tentative
conclusion that loop spectrum standards should be set in a competitively
neutral process. In December 1999, the FCC concluded that ILECs should
be required to share primary telephone lines with CLECs, and identified
the high frequency portion of the loop as a network element. In
February 2000, U S West and the United States Telephone Association
petitioned for review of the order in the United States Court of Appeals
for the D.C. Circuit. The court is holding the case in abeyance pending
reconsideration at the FCC.

In February 1999, the FCC issued a Declaratory Ruling and Notice
of Proposed Rulemaking regarding the regulatory treatment of calls to
ISPs. Prior to the FCC's order, over thirty state public utility
commissions issued orders finding that carriers, including us, are
entitled to collect reciprocal compensation for completing calls to ISPs
under the terms of their interconnection agreements with ILECs. Many of
these PUC decisions were appealed by the ILECs and, since the FCC's
order, many ILECs have filed new cases at the PUCs or in court. We
petitioned for review of the FCC's order in the United States Court of
Appeals for the D.C. Circuit, which vacated the order and remanded the
case to the FCC for further proceedings, which are currently pending.
Several bills have been introduced in Congress that would have the
effect of requiring the FCC to deny reciprocal compensation for dial-up
Internet traffic. To date, WorldCom and others successfully have
opposed these bills.

In 1996 and 1997, the FCC issued orders that would require
non-dominant telecommunications carriers to eliminate domestic

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interstate service tariffs, except in limited circumstances. These
orders were stayed pending judicial review. In April 2000, however, the
United States Court of Appeals for the D.C. Circuit affirmed the FCC's
orders and thereafter lifted the stay. The FCC's orders prevent us from
relying upon our domestic federal tariff to limit liability or to
establish interstate rates for our customers. The FCC currently is
considering whether to de-tariff international services. We will comply
with the FCC's orders and are in the process of developing modifications
to the manner in which we establish contractual relationships with our
customers.

In May 2000, the FCC adopted further access charge and universal
service reforms. In response to a proposal made by "CALLS", a group of
RBOCs, GTE and two long distance companies, the FCC reduced access
charges paid by long distance companies to local exchange carriers by
approximately $3.2 billion annually. The proposal, which will allow
charges imposed on end user customers by ILECs to increase over time,
also created a new $650 million universal service fund. Several parties
have petitioned for review of various aspects of the CALLS order.

It is possible that rights held by us to MMDS and/or ITFS
spectrum may be disrupted by FCC decisions to re-allocate some or all of
that spectrum to other services. If such re-allocation were to occur,
we cannot predict whether current deployment plans for our MMDS services
will be sustainable.

INTERNATIONAL

In February 1997, the United States entered into a World Trade
Organization Agreement that is designed to have the effect of
liberalizing the provision of switched voice telephone and other
telecommunications services in scores of foreign countries over the next
several years. The WTO Agreement became effective in February 1998. In
light of the United States commitments to the WTO Agreement, the FCC
implemented new rules in February 1998 that liberalize existing policies
regarding (1) the services that may be provided by foreign affiliated
U.S. international common carriers, including carriers controlled or
more than 25 percent owned by foreign carrier that have market power in
their home markets, and (2) the provision of alternative traffic
routing. The new rules make it much easier for foreign affiliated
carriers to enter the United States market for the provision of
international services.

In August 1997, the FCC adopted mandatory settlement rate
benchmarks. These benchmarks are intended to reduce the rates that U.S.
carriers pay foreign carriers to terminate traffic in their home
countries. The FCC will also prohibit a U.S. carrier affiliated with a
foreign carrier from providing facilities-based service to the foreign
carrier's home market until and unless the foreign carrier has
implemented a settlement rate at or below the benchmark. The FCC also

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adopted new rules that will liberalize the provision of switched
services over private lines to World Trade Organization member
countries. These rules allow such services on routes where 50% or more
of U.S. billed traffic is being terminated in the foreign country at or
below the applicable settlement rate benchmark or where the foreign
country's rules concerning provision of international switched services
over private lines are deemed equivalent to U.S. rules.

In April 1999, the FCC modified its rules to permit U.S.
international carriers to exchange international public switched voice
traffic on many routes to and from the United States outside of the
traditional settlement rate and proportionate return regimes. In June
1999, the FCC enforced the benchmark rates on two non-compliant routes.
Settlement rates have fallen to the benchmarks or below on many other
routes.

Although the FCC's new policies and implementation of the WTO
Agreement may result in lower settlement payments by us to terminate
international traffic, there is a risk that the payments that we will
receive from inbound international traffic may decrease to an even
greater degree. The implementation of the WTO Agreement may also make
it easier for foreign carriers with market power in their home markets
to offer U.S. and foreign customers end-to-end services to our
disadvantage. We may continue to face substantial obstacles in obtaining
from foreign governments and foreign carriers the authority and
facilities to provide such end-to-end services.

EMBRATEL

The 1996 General Telecommunications Law (the "General Law")
provides a framework for telecommunications regulation for Embratel.
Article 8 of the General Law created Agencia Nacional de
Telecomunicacoes ("Anatel") to implement the General Law through
development of regulations and to enforce such regulations. According
to the General Law, companies wishing to offer telecommunications
services to consumers are required to apply to Anatel for a concession
or an authorization. Concessions are granted for the provision of
services under the public regime (the "Public Regime") and
authorizations are granted for the provision of services under the
private regime (the "Private Regime"). Service providers subject to the
Public Regime (concessionaires) are subject to obligations concerning
network expansion and continuity of service provision and are subject to
rate regulation. These obligations and the tariff conditions are
provided in the General Law and in each company's concession contract.
The network expansion obligations are also provided in the Plano Geral
de Universalizacao ("General Plan on Universal Service").

The only services provided under the Public Regime are the
switched fixed telephone services ("SFTS") -local and national and
international long distance - provided by Embratel and the three

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regional Telebras holding companies ("Teles"). All other
telecommunications companies, including other companies providing SFTS,
operate in the Private Regime and, although they are not subject to the
Public Regime, individual authorizations may contain certain specific
expansion and continuity obligations.

The main restriction imposed on carriers by the General Plan on
Universal Service is that, until December 31, 2003, the three Teles are
prohibited from offering inter-regional and international long distance
service, while Embratel is prohibited from offering local services.
These companies can start providing those services two years sooner if
they meet their network expansion obligations by December 31, 2001.

Embratel and the three Teles were granted their concessions at
no fee, until 2005. After 2005, the concessions may be renewed for a
period of 20 years, upon the payment, every two years, of a fee equal to
2% of annual net revenues calculated based on the provision of SFTS in
the prior year, excluding taxes and social contributions.

Embratel also offers a number of ancillary telecommunications
services pursuant to authorizations granted in the Private Regime. Such
services include the provision of dedicated analog and digital lines,
packet switched network services, circuit switched network services,
mobile marine telecommunications, telex and telegraph, radio signal
satellite retransmission and television signal satellite retransmission.
Some of these services are subject to some specific continuity
obligations and rate conditions.

All providers of telecommunications services are subject to
quality and modernization obligations provided in the Plan Geral de
Qualidade ("General Plan on Quality").

Litigation

Between September 5, and October 4, 2000, a number of purported
class actions and stockholder derivative actions were filed in the Court
of Chancery of the State of Delaware. The named defendants include
Intermedia, Digex, the directors of Digex who are also directors or
executive officers of Intermedia and, in some cases, WorldCom. On
October 19, 2000, the Court ordered all purported derivative and class
action lawsuits be consolidated into a single action. The consolidated
action alleges, among other things, that the defendants, other than
WorldCom, breached their fiduciary duties to the class members by acting
to further their own interests at the expense of Digex public
stockholders and that the Digex board members who are also directors or
executive officers of Intermedia conferred a substantial benefit on
Intermedia at the expense of the Digex public stockholders by voting to
waive application of section 203 of the Delaware General Corporate law
to WorldCom. The complaint also alleges that WorldCom aided and abetted
Intermedia's and Digex's wrongdoing. The complaint seeks an order

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enjoining the merger, a declaration that the waiver of section 203 is
inapplicable to WorldCom, attorney's fees and unspecified damages.

On December 13, 2000, the Court denied plaintiffs' motion for
preliminary injunctive relief, concluding that plaintiffs were unlikely
to succeed on the merits of their claim that defendants usurped a Digex
corporate opportunity. The Court further noted that it had determined,
at least preliminarily, that after a full trial on the merits, the
plaintiff minority stockholders are likely to succeed in invalidating
the defendant Digex directors' decision to vote in favor of the section
203 waiver and that the plaintiffs could be entitled to a range of
equitable remedies, including monetary damages.

The WorldCom group is involved in legal and regulatory
proceedings generally incidental to its business. In some instances,
rulings by federal and some state regulatory authorities may result in
increased operating costs to the WorldCom group. Except as indicated in
Note 10 to our consolidated financial statements for the years ended
December 31, 1997, 1998 and 1999 and Note I to our consolidated
financial statements for the nine months ended September 30, 1999 and
2000, which are part of this prospectus and proxy statement, our
management believes that the probable outcome of these matters should
not have an adverse effect on the WorldCom group's combined results of
operations or financial position.

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BUSINESS OF THE MCI GROUP

OVERVIEW

Through the MCI group we provide a broad range of retail and
wholesale communications services, including long distance voice
communications, consumer local voice communications, wireless messaging,
private line services and dial-up Internet access services. Our retail
services are provided to consumers and small businesses in the United
States. We are the second largest carrier of long distance
telecommunications services in the United States. We provide a wide
range of long distance telecommunications services, including: basic
long distance telephone service, dial around, collect calling, operator
assistance and calling card services (including prepaid calling cards)
and toll-free or 800 services. We offer these services individually and
in combinations. Through combined offerings, we provide customers with
benefits such as single billing, unified services for multi-location
companies and customized calling plans. Our wholesale businesses include
wholesale voice services provided to carrier customers and other
resellers, and dial-up Internet access services.

Each of the MCI businesses operates in market segments serving
the telecommunications needs of distinct customer bases. We provide
retail communications services, such as long distance and local
telecommunications, prepaid calling cards and paging to over 20 million
residential and small-business customers. We are one of the largest
providers of telecommunications services to residential and small
business customers throughout the United States. We provide wholesale
communications services, including switched voice, dial-up Internet
access and private lines, to over 470 carriers and other resellers.

The MCI group management's mandate is to leverage its existing
market positions and assets opportunistically to optimize cash flow,
while retiring its debt. Available cash flow, after debt and interest
repayments, will be available for dividend payments and possible share
repurchases. Our MCI group business has significant assets, including
its nationally recognized brand, extensive customer relationships, 20
call centers with highly effective sales representatives and a tradition
of developing innovative calling plans that enhance customer retention.
Management believes it can leverage these strengths to deliver new
services and to bundle existing services.

Industry

The communications services industry continues to change both
domestically and internationally, providing significant opportunities
and risks to the participants in these markets. In the United States,
the Telecom Act has had a significant impact on the MCI group's business
by establishing a statutory framework for opening the U.S. local service
markets to competition and by allowing the RBOCs to provide in-region

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long distance services. In addition, prices for long distance minutes
and other basic communications services have declined as a result of
competitive pressures, the introduction of more efficient networks and
advanced technologies, product substitution, and deregulation.
Competition in these segments is based more on price and less on other
differentiating factors that appeal to the larger business market
customers including: range of services offered, bundling of products,
customer service, and communications quality, reliability and
availability.

The wholesale carrier business is currently undergoing a similar
transformation. The decreasing number of switchless long distance
resellers combined with the intense competition by new entrants such as
Qwest and Level 3 has led to significant price declines and margin
pressure.

The consumer and small business long distance segment is
characterized by rapid deregulation and intense competition among long
distance providers, and more recently, ILECs. Under the Telecom Act, an
RBOC may offer long distance services in a state within its region if
the FCC finds first, that the RBOC's service territory within the state
has been sufficiently opened to local competition and second, that
allowing the RBOC to provide such services is in the public interest.
To date, the FCC has granted such access to Verizon in New York and to
SBC in Texas, and we expect RBOCs to qualify to offer long distance
services in a number of their states in the near future. Verizon has
applied to the FCC for permission to offer long distance services in
Massachusetts and SBC has applied for permission to offer such services
in Kansas and Oklahoma. Additional applications by Verizon, SBC, or
another RBOC are possible at any time. We have challenged, and will
continue to challenge, any such regulatory applications that do not meet
the criteria envisioned by the Telecom Act or the related rules relating
to local competition issued by the FCC. To date, these challenges have
focused on the pricing of UNEs and on the adequacy of the RBOCs'
operations support systems.

STRATEGY

Because of changes in the communications industry, our objective
is to leverage the MCI group's strategic assets and established market
presence to maximize cash flow returns from its mature businesses.
Through our MCI group we intend to:

OPTIMIZE MCI GROUP RESOURCES: We intend to refocus the MCI
group's strategies on enhancing margins and cash flow. The MCI group
will be opportunistic and undertake only those initiatives that can
generate cash flow without significant capital commitment.

LEVERAGE MCI BRAND: The internationally recognized MCI brand
will be an important component of our marketing initiatives.

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LEVERAGE MARKETING CHANNELS: We intend to enhance the
utilization of the MCI group's existing telemarketing centers and
mass-market distribution channels to grow our customer base, enhance
customer retention and expand our consumer product offerings.

EXPAND LOCAL SERVICES: Through the MCI group we have
successfully entered local communications markets in New York,
Pennsylvania and Texas, and will selectively evaluate similar
opportunities.

IMPROVE OPERATIONS SUPPORT SYSTEMS AND AUTOMATION: We intend to
continue to improve operations support systems, or OSS, and increase
automation to improve efficiency, enhance customer service and develop a
platform for more value-added services.

CONTINUE TO LEVERAGE ADVANCED NETWORKS: The MCI group intends to
continue to leverage WorldCom's extensive, advanced and scaleable fiber
optic networks to provide differentiated services at competitive rates.

DESCRIPTION OF SERVICES

Through our 20 call centers and 8,500 customer sales representatives,
we market and sell a variety of communications services to consumers,
small businesses, carrier customers and other resellers across the
United States. Services include long distance voice communications,
local voice communications, wireless messaging and other services,
wholesale communication services as well as dial-up Internet access. We
believe that our MCI group assets, including the call centers, sales
representatives, customer relationships, the MCI brand and the MCI
group's significant marketing skills will allow it to expand its products
and services to its existing consumer base without significantly
increasing its capital spending.

LONG DISTANCE VOICE COMMUNICATIONS

Through the MCI group we are the second largest provider of
consumer and small business long distance telecommunications services in
the United States, including consumer, small business and wholesale. We
offer domestic and international voice services, including basic long
distance telephone, dial around, collect calling, operator assistance and
calling card (including prepaid cards), 800 services, and directory
services. Our well known "5 cents Everyday" and "1 800 Collect" campaigns
have differentiated our offerings from those of our competitors. Long
distance voice services are offered individually or combined as a bundle
with other services such as local voice services. Our market position in
the long distance voice segment has been sustained by our telemarketing
and other marketing channels and marketing support for the MCI brand. In
the nine months ended September 30, 2000, the MCI group provided 79.4
billion minutes of service compared to 68.0 billion in the same period in
1999. For the nine months ended September 30, 2000, long distance
services, including
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consumer, small business wholesale and alternative channels, provided
$9.6 billion of revenue or 76% of the MCI group's total revenue versus
$9.3 and 78% in the same period of 1999.

CONSUMER LOCAL VOICE COMMUNICATIONS

As part of our strategy to leverage the MCI group's presence in
the domestic long distance market, we have selectively entered local
exchange markets, including New York, Pennsylvania and Texas. We
provide local toll and switched access services to residential and small
business customers, typically through our own switches and through UNEs
leased from ILECs. UNE Platform, or UNE-P, is the service delivery
method we use to provide local service to our residential customers.
Under UNE-P, we lease the underlying ILEC network elements as a bundle,
consisting of seven elements, most notably the unbundled loop, the
switch port, and unbundled switching. We pay the ILEC a monthly fee for
the unbundled loop and switch port and a per-minute fee for switching.
This mode of service delivery enables us to recognize originating access
savings as well as terminating access revenue. For those customers who
subscribe for both local and long distance services, we offer an
"all-distance" calling plan that bundles the services at an attractive
price for the customer and enhances customer retention.

As of September 30, 2000, we had a total of 403,000 local
exchange customers in New York, 11,000 in Pennsylvania and 111,000 in
Texas. Approximately 88% of our local exchange customers also subscribe
to our long distance service. We estimate that our market share in New
York, Pennsylvania and Texas is 6.7%, 0.3% and 2.0%, respectively. For
the nine months ended September 30, 2000, consumer local services
provided $125 million of revenue or 1.0% of the MCI group's total
revenue versus $24 million and 0.2% in the same period of 1999.

DIAL-UP INTERNET ACCESS

Our dial-up Internet access business primarily serves
consumer-oriented ISPs that are accessed via dial-up modems. New
technologies, including dedicated access provided by carriers, and
increased competition have caused significant price declines. Although
we believe we are well positioned in this segment due to the strength of
our extensive customer relationships and the scale of our networks, we
expect pricing pressure to continue to affect our business negatively.

As of September 30, 2000, we managed 2.5 million modems. In
addition, we provided 4.8 billion hours of Internet access in the first
nine months of 2000 versus 3.0 billion hours for the same period in
1999. For the nine months ended September 30, 2000, dial-up Internet
access services provided $1.2 billion of revenue or 9.7% of the MCI
group's total revenue versus $1.1 billion or 9.0% in the same period of
1999.

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WIRELESS MESSAGING

We provide and market our paging services through SkyTel
Communications, Inc., a leading provider of wireless messaging services
in the United States and a wholly owned subsidiary of WorldCom. As of
September 30, 2000, SkyTel had approximately 1.6 million units in
service in the United States which included approximately 949,000
domestic one-way units and 633,000 advanced messaging units. For the
nine months ended September 30, 2000, these services provided $415
million of revenue or 3.3% of the MCI group's total revenue versus $345
million or 2.9% in the same period of 1999.

WHOLESALE DATA SERVICES

Our wholesale data services consist primarily of the sale of
private lines to carrier customers. This service has experienced
significant pricing pressure due largely to the entry of new competitors
and the build-out of facilities by our customers allowing them to
provide more services over their own facilities.

We anticipate that wholesale data services will increasingly
become a smaller percentage of total revenues as we focus on providing
services to end-customers rather than competitive carriers. For the
nine months ended September 30, 2000, wholesale data services, including
wholesale alternative channels, provided $1.12 billion of revenue or
8.8% of our total revenue versus $1.11 billion or 9.3% in the same
period of 1999.

FACILITIES

Our long distance voice switches will be allocated to the MCI
group. Domestic long distance services will be provided primarily over
the WorldCom group's fiber optic communications systems. To a lesser
extent, the MCI group will continue to utilize transmission facilities
leased from other common carriers. International communications
services are provided by submarine cable systems in which WorldCom holds
positions, satellites and facilities of other domestic and foreign
carriers.

Long distance voice services are provided by long distance class
3 toll switches using circuit switched technology. Class 3 voice
switches are interconnected together, controlled by CCS-7 signaling, and
provide standard long distance voice services as well as a variety of
value-added services. To reduce capital investment in class 5 local
circuit switches, WorldCom is deploying softswitches to process Internet
dial-up access independent of the narrow band class 5 circuit switches.
The softswitches are general-purpose based computer systems controlled
by CCS-7 signaling which route calls directly to the public Internet.

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Our dial-up Internet access network consists of equipment and
network configurations all generally designed to terminate inbound
Internet data calls from end users. Generally, the equipment consists
of network access servers, which are general purpose computing devices
containing concentrated quantities of digital modems. In the majority of
cases, the equipment is owned and operated by our partners in an
outsourcing arrangement. In the balance of the cases, the equipment is
owned and maintained in our own facilities or in leased co-location
facilities.

The MCI group will be charged a fee by the WorldCom group for
use of its fiber optic systems equal to a proportion, based on usage, of
WorldCom group's fiber optic system costs. All other material
transactions between the groups are intended to be on an arm's-length
basis. The MCI group is free to purchase network capacity from
competitors of the WorldCom group, if our board of directors or any
special committee appointed by our board of directors determines it is
in the best interests of WorldCom as a whole.

Most of the MCI group's customers access its services through
local interconnection facilities provided by the ILECs, the largest of
which are subsidiaries of the RBOCs and CLECs. The MCI group utilizes
UNE-P to provide local services in New York, Pennsylvania and Texas. As
the MCI group expands in other markets upon deregulation and market
evaluation, it expects to continue to utilize UNE-P to offer local
communications services.

Collectively, we own 20 call centers, which range in size from
40,000 square feet to over 100,000 square feet.

RATES AND CHARGES

We charge switched customers on the basis of a fixed rate per
line plus minutes or partial minutes of usage at rates that vary with
the distance, duration and time of day of the call. For local service,
customers are billed a fixed charge plus usage or flat rated charges
depending on the plan chosen by the customer. The rates charged are not
affected by the particular transmission facilities selected by us.
Additional discounts are available to customers who generate higher
volumes of monthly usage. Our dial-up Internet access prices vary based
on service type.

SALES AND MARKETING

We believe our sales and marketing capabilities are one of our
strongest competitive advantages. Telemarketing is a fundamental
component of the sales effort for residential and small business
customers. Typically, roughly 50% of our residential and small business
installations are sold through some 8,500 telemarketers based in 20 call
centers nationwide. Our marketing partners, in turn, are a key

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competitive advantage for differentiating long distance sales, offering
consumers the opportunity to earn frequent flyer miles, free video
rentals, and similar awards based on long distance usage. Over 50% of
subscription long distance minutes are generated by our 7.5 million
partner customers.

We have also increased our market share among high spending
international callers through broad-based marketing efforts. Moreover,
we are the only long distance company to have launched successfully
branded transaction products such as collect calling products. Our
1-800-Collect product has a 40% market share.

Alternate marketing channels include direct sales agents and
prepaid card distribution. Over 500 of our sales representatives focus
on small businesses in 23 markets. We retain a leading position in the
prepaid calling card market as well.

Through our direct sales force, we market various services to
resellers. Major customers for this unit include Verizon and Qwest. We
are a leader in the dial-up Internet access market segment with all
major ISPs as wholesale customers, including, among others, AOL,
Earthlink, and MSN.

COMPETITION

The telecommunications industry is extremely competitive, and we
expect that competition will intensify in the future. In each of the MCI
group's business segments, we face intense competition from other
service providers. The primary competitors in the domestic and
international consumer segments are AT&T, Sprint and, where they are
permitted to offer in-region long distance service, Verizon and SBC. We
also compete against other facilities-based long distance providers,
such as Qwest, and against long distance resellers, such as Excel. The
ILECs presently have numerous advantages as a result of their historic
monopoly control over local exchanges, and some of our existing and
potential competitors have financial and other resources significantly
greater than ours. A continuing trend toward business combinations and
alliances in the telecommunications industry may create significant new
competitors.

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and other financial resources. As the RBOCs are allowed to offer
in-region long distance services in additional states, they will be in a
position to offer single source local and long distance service similar,
if not superior, to those being offered by us through the MCI group. We
expect that such increased competition will result in certain additional
pricing and margin pressures in the domestic telecommunications services
business. Indeed, competition has already significantly reduced
consumer long distance pricing, and as a result negatively affected the
profitability of traditional service providers. As rates stabilize, we
expect to compete effectively as a result of our innovation, quality and
diversity of services, our ability to offer a combination of services,
and our level of customer service.

We expect increased competition from new entrants determined to
exploit technologies that may reduce the cost of providing services. We
are working to develop such services and expect to be at the forefront
of these technological developments and to leverage them to protect and
grow market share, to increase revenues and profitability, and to retain
customers.

We also face intense competition in offering wholesale services,
small business services, dial-up Internet, and paging and prepaid
calling card services. In wholesale services, we compete directly with
traditional network access providers such as AT&T and Sprint, as well as
with new entrants such as Qwest, Level 3, 360 Networks and Metromedia
Fiber Network. The MCI group obtains network capacity from the WorldCom
group and provides wholesale service to other carriers in competition
with a variety of facilities-based carriers. Some of these competitors
have recently introduced high capacity, nationwide fiber optic networks.
There can be no assurance that we will continue to be successful in this
segment. In the small business customer segment, we compete against
ILECs and numerous other competitive carriers offering local services,
long distance services, or both. Other carriers, particularly CLECs, are
aggressively pursuing this segment of the market. Our paging business
competes directly with traditional one-way paging providers such as
PageNet and Metrocall, and has recently experienced significant
competition and product substitution from other advanced wireless data
service providers, including two-way paging services providers such as
PageNet and Nextel, and wireless service providers such as Nextel and
Sprint PCS. Prepaid calling cards are also in an intensely competitive
segment, due to many carriers reselling cheaper aggregated international
minutes through this medium. Prepaid calling cards have begun to also
face competition from wireless products, further compressing pricing and
market viability.

EMPLOYEES

Through our MCI group, we employed a total of approximately
29,700 full and part-time personnel as of September 30, 2000, none of

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whom are represented by organized labor unions. We consider our
relationship with these employees to be good.

PATENTS, TRADEMARKS, TRADENAMES AND SERVICE MARKS

Year 1: $27.5 million
Year 2: $30.0 million
Year 3: $35.0 million
Year 4: $40.0 million
Year 5: $45.0 million

Any renewal or termination of use of the MCI tradename by the
MCI group will be subject to the general policy that our board of
directors will act in the best interests of WorldCom.

REGULATION

We are involved in legal and regulatory proceedings that are
incidental to our business and have included loss contingencies in other
current liabilities and other liabilities for certain of these matters
in the MCI group's financial statements. In some instances, rulings by
federal and state regulatory authorities may result in increased
operating costs to us. The results of these various legal and
regulatory matters are uncertain and could have a material adverse
effect on the MCI group's combined results of operations or financial
position.

GENERAL

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DOMESTIC

In August 1996, the FCC established nationwide rules pursuant to
the Telecom Act designed to encourage new entrants to compete in local
service markets through interconnection with the ILECs, resale of ILECs'
retail services, and use of individual and combinations of UNEs.
Implementation of these rules has been delayed by various RBOC appeals.
In January 1999, the Supreme Court of the United States confirmed the
FCC's authority to issue the rules, including a pricing methodology for
UNEs. On remand, the FCC clarified the requirement that RBOCs make
specific UNEs available to new entrants. The RBOCs have sought
reconsideration of the FCC's order and have petitioned for review of the
order in the United States Court of Appeals for the D.C. Circuit. The
RBOCs also petitioned for review of the FCC's rules for pricing UNEs in
the United States Court of Appeals for the Eighth Circuit which, in July
2000, invalidated the rules. Various parties, including WorldCom, have
sought Supreme Court review of the Eighth Circuit's decision.

As noted, the Telecom Act requires RBOCs to petition the FCC for
permission to offer long distance services for each state within their
region. Section 271 of the Act provides that for such applications to
be granted, the FCC must find, among other things, that the RBOC has
demonstrated that it has met a 14-point competitive checklist to open
its local network to competition and that granting the petition is in
the public interest. To date, the FCC has rejected five RBOC
applications and it has granted two: Verizon's for New York and SBC's
for Texas. Currently applications are pending before the FCC by Verizon
for Massachusetts and by SBC for Kansas and Oklahoma. Other
applications may be filed at any time. We have challenged, and will
continue to challenge, any application that does not satisfy the
requirements of Section 271 or the FCC's local competition rules. To
date, these challenges have focused on the pricing of UNEs and on the
adequacy of the RBOCs' operations support systems. In addition, several
bills have been introduced in Congress that would have the effect of
allowing RBOCs to offer in-region long distance data services without
satisfying Section 271 of the Act or of making it more difficult for
competitors to resell RBOC high-speed Internet access services or to
lease the UNEs used to provide such services. To date, WorldCom and
others successfully have opposed these bills.

In August 1998, the FCC ruled that the interconnection,
unbundling, and resale requirements imposed on ILECs by the Telecom Act,
as well as the prohibition on RBOC provision of in-region long distance
services, apply to advanced telecommunication services such as DSL
technology. U S West petitioned for review of these orders in the
United States Court of Appeals for the D.C. Circuit which, at the
request of the FCC, remanded the case for further administrative
proceedings. In December 1999, the FCC reaffirmed its order, but
reserved ruling on whether such obligations apply to traffic jointly
carried by an ILEC and a CLEC to an ISP which self-provides the
transport component of its Internet access services. The order also
found that DSL-based advanced services used to connect ISPs to their

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subscribers to facilitate Internet-bound traffic ordinarily constitute
exchange access service. In January 2000, we petitioned for review of
this latter aspect of the FCC's order in the United States Court of
Appeals for the D.C. Circuit.

In November 1999, the FCC's Pricing Flexibility Order, which
allowed price-cap regulated ILECs to offer customer specific pricing in
contract tariffs, took effect. Price-cap regulated ILECs can now offer
access arrangements with contract-type pricing in competition with long
distance carriers and other competitive access providers, who have
previously been able to offer such pricing for access arrangements. As
ILECs experience increasing competition in the local services market,
the FCC will grant increased pricing flexibility and relax tariffing
requirements for access services. The FCC also is conducting a
proceeding to consider additional pricing flexibility for a wider range
of access services. We have petitioned for review of the Pricing
Flexibility Order in the United States Court of Appeals for the D.C.
Circuit.

In July 1999, the United States Court of Appeals for the Fifth
Circuit reversed in part the FCC's May 1997 universal service decision.
Among other things, the court held that the FCC may collect universal
service contributions from interstate carriers based on only interstate
revenues, and that the FCC could not force the ILECs to recover their
universal service contributions through interstate access charges. In
November 1999, the FCC implemented the Fifth Circuit's decision. AT&T
has petitioned for review of this FCC order in the United States at the
Court of Appeals for the Fifth Circuit and we have intervened in support
of AT&T. Pending reconsideration petitions at the FCC seek retroactive
treatment for implementation of the remand order. The FCC has released
two additional universal service orders, which provide for federal
support for non-rural high cost areas. Petitions for review of both
orders were filed in the United States Court of Appeals for the Tenth
Circuit.

In March 1999, the FCC sought public comments on its tentative
conclusion that loop spectrum standards should be set in a competitively
neutral process. In December 1999, the FCC concluded that ILECs should
be required to share primary telephone lines with CLECs, and identified
the high frequency portion of the loop as a network element. In
February 2000, U S West and the United States Telephone Association
petitioned for review of this order in the United States Court of
Appeals for the D.C. Circuit. The court is holding the case in abeyance
pending reconsideration at the FCC.

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under the terms of their interconnection agreements with ILECs. Many of
these PUC decisions were appealed by the ILECs and, since the FCC's
order, many ILECs have filed new cases at the PUCs or in court. We
petitioned for review of the FCC's order in the United States Court of
Appeals for the D.C. Circuit, which vacated the order and remanded the
case to the FCC for further proceedings, which are currently pending.
Several bills have been introduced in Congress that would have the
effect of requiring the FCC to deny reciprocal compensation for dial-up
Internet traffic. To date, WorldCom and others successfully have
opposed these bills.

In 1996 and 1997, the FCC issued orders that would require
non-dominant telecommunications carriers to eliminate domestic
interstate service tariffs, except in limited circumstances. These
orders were stayed pending judicial review. In April 2000, however, the
United States Court of Appeals for the D.C. Circuit affirmed the FCC's
orders and thereafter lifted the stay. The FCC's orders prevent us from
relying upon our domestic federal tariff to limit liability or to
establish interstate rates for our customers. The FCC currently is
considering whether to de-tariff international services. We will comply
with the FCC's orders and are in the process of developing modifications
to the manner in which it establishes contractual relationships with its
customers.

In May 2000, the FCC adopted further access charge and universal
service reform. In response to a proposal made by CALLS, a group of
RBOCs, GTE and two long distance companies, the FCC reduced access
charges paid by long distance companies to local exchange carriers by
approximately $3.2 billion annually. The proposal, which will allow
charges imposed on end user customers by ILECs to increase over time,
also created a new $650 million universal service fund. Several parties
have petitioned for review of various aspects of the CALLS order.

LITIGATION

The MCI group is involved in legal and regulatory proceedings
generally incidental to its business. In some instances, rulings by
federal and some state regulatory authorities may result in increased
operating costs to the MCI group. Except as indicated in Note 10 to our
consolidated financial statements for the years ended December 31, 1997,
1998 and 1999 and Note I to our consolidated financial statements for
the nine months ended September 30, 1999 and 2000, which are part of
this prospectus and proxy statement, and while these various legal and
regulatory matters contain an element of uncertainty, our management
believes that the probable outcome of these matters should not have an
adverse effect on the group's combined result of operations or financial
position.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF WORLDCOM, INC.

The following discussion and analysis relates to our financial
condition and results of operations for the years ended December 31,
1997, 1998 and 1999 and the nine months ended September 30, 1999 and
2000. This information should be read in conjunction with the
consolidated financial statements and notes thereto contained herein.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated our
statements of operations as a percentage of its revenues for the periods
indicated:

For the Years Ended For the Nine Months
December 31, Ended September 30,
------------------------------------- ---------------------
1997 1998 1999 1999 2000
----------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>

Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Line costs................................. 48.9 45.3 41.0 41.7 38.6
Selling, general and administrative........ 24.3 25.9 24.9 25.4 26.5
Depreciation and amortization.............. 13.9 13.0 12.1 12.3 12.1
In-process research and development and
other charges............................ -- 21.1 -- -- --
------ ------- ------- ------- ------
Operating income (loss).................... 12.8 (5.3) 22.0 20.6 22.8
Other income (expense):
Interest expense .......................... (5.9) (3.9) (2.7) (2.8) (2.4)
Miscellaneous.............................. 0.6 0.2 0.7 0.2 1.1
------ ------- ------- ------- ------
Income (loss) before income taxes,
minority interests, cumulative effect of
accounting change and extraordinary
items.................................... 7.6 (9.0) 20.0 18.0 21.5
Provision for income taxes................. 5.1 5.0 8.3 7.5 8.7
------ ------- ------- ------- ------
Income (loss) before minority interests,
cumulative effect of accounting change
and extraordinary items.................. 2.4 (14.0) 11.7 10.5 12.8
Minority interests......................... -- (0.5) (0.5) (0.3) (0.7)
Cumulative effect of accounting change..... -- (0.2) -- -- --
Extraordinary items........................ -- (0.7) -- -- --
------ ------- ------ ------ ------
Net income (loss).......................... 2.4 (15.5) 11.2 10.2 12.1

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Preferred dividends and distributions on
subsidiary trust and other mandatorily
redeemable preferred securities........... 0.5 0.2 0.2 0.2 0.2
Net income (loss) applicable to common
shareholders.............................. 1.9% (15.7)% 11.0% 10.0% 11.9%
====== ======= ====== ====== ======
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1999 VS.
NINE MONTHS ENDED SEPTEMBER 30, 2000

REVENUES. Revenues for the nine months ended September 30, 2000
increased 10.9% to $29.5 billion versus $26.6 billion for the same
period in the prior year. The increase in total revenues is
attributable to our internal growth.

Revenues and line costs for periods prior to September 30, 2000
reflect a classification change for reciprocal compensation and central
office based remote access, or COBRA, equipment sales which are now
being treated as offsets to cost of sales. Previously, we recorded
these items on a gross basis as revenue. Results for all periods have
also been adjusted to reflect the elimination of small business and
consumer PICC from both revenues and line costs as a result of the CALLS
legislation which eliminated single line PICC as of July 1, 2000.

On November 1, 2000, we announced a realignment of our
businesses with the distinct customer bases they serve. If approved by
our shareholders, we will create two separately traded tracking stocks:
WorldCom group stock, which will track the performance of our data,
Internet, international and commercial voice businesses; and MCI group
stock, which will reflect the performance of our consumer, small
business, wholesale long distance, wireless messaging and dial-up
Internet access businesses.

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The revenues presented below for the nine months ended September
30, 1999 and 2000 reflect this classification (dollars in millions):

Nine Months Ended
September 30,
------------------------------------
Percent
1999 2000 Change
---------- ---------- ----------
<S> <C> <C> <C>
COMMERCIAL SERVICES REVENUES
Voice................................ $5,590 $ 5,328 (4.7)
Data................................. 4,262 5,474 28.4
International........................ 3,204 4,339 35.4
Internet............................. 1,069 1,777 66.2
------- --------
TOTAL COMMERCIAL SERVICES REVENUES...... 14,125 16,918 19.8
Wholesale and consumer............... 8,559 8,548 (0.1)
Alternative channels and small
business........................... 2,310 2,792 20.9
Dial-up Internet..................... 1,069 1,225 14.6
------- --------
TOTAL COMMUNICATIONS SERVICES REVENUES.. 26,063 29,483 13.1
Other................................ 523 -- --
------- --------
TOTAL $26,586 $29,483 10.9
======= =======
</TABLE>

Commercial services revenues, which include the revenues
generated from commercial voice, data, international and Internet
services, for the nine months ended September 30, 2000 increased 19.8%
to $16.9 billion versus $14.1 billion for the same period in the prior
year.

Voice revenues for the nine months ended September 30, 2000
decreased 4.7% over the prior year period, on traffic growth of 5.2% as
a result of pricing pressure in the commercial markets. The revenue
decrease was partially offset by local voice revenue increases of 19.2%
and wireless voice revenue increases of 98.1% for the nine months ended
September 30, 2000. We continue to show significant percentage gains in
local voice services as customers purchase "all-distance" voice services
from WorldCom. However, local revenues and wireless voice revenues are
still a relatively small component of our total commercial voice
revenues. Voice revenues include both domestic commercial long distance
and local switched revenues.

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Data revenues for the nine months ended September 30, 2000
increased 28.4% over the prior year period. Data includes both
commercial long distance and local dedicated bandwidth sales. The
revenue growth for data services was driven by steady growth in private
line customers, new customer applications and upgrades within the
existing customer base of frame relay services and increased demand in
asynchronous transfer mode, or ATM, services. We continue to experience
strong demand for capacity increases across the product set as
businesses move more of their mission-critical applications to their own
networks. As of September 30, 2000, our domestic local voice grade
equivalents, or VGEs, which measure the capacity of local private line
data circuits, had increased 100% to 55.5 million VGEs versus the prior
year amount.

International revenues for the nine months ended September 30,
2000 increased 35.4% to $4.3 billion versus $3.2 billion for the same
period in the prior year. Excluding Embratel, international revenues
for the nine months ended September 30, 2000 increased 49.1% over the
prior year period. The increase is attributable to additional sales
force and network infrastructure established to pursue international
opportunities. During the first nine months of 2000 we continued to
extend the reach of our end-to-end networks, adding nearly 5,000
buildings for a total of over 15,000 buildings connected on the
international networks.

Internet revenues for the nine months ended September 30, 2000
increased 66.2% over the prior year period. Growth was driven by demand
for dedicated circuits as more and more business customers migrated
their data networks and applications to Internet-based technologies with
greater amounts of bandwidth. Internet revenues include dedicated
Internet access, managed networking services and applications (such as
virtual private networks), web hosting and electronic commerce and
transaction services (such as web centers and credit card transaction
processing).

Wholesale and consumer revenues for the nine months ended
September 30, 2000 decreased 0.1% over the prior year period. The
wholesale market continues to be extremely price competitive as declines
in minute rates outpaced increases in traffic, resulting in revenue
decreases of 10.4% for the nine months ended September 30, 2000, versus
the same period in the prior year. The wholesale market decreases were
partially offset by increases of 5.3% in consumer revenues as our
partner marketing programs helped to drive Dial-1 product gains.
Consumer revenue growth was impacted by declines in 1-800-COLLECT, which
has been pressured by increasing wireless substitution, and 10-10-321,
which we no longer actively market. We expect to see continued pricing
pressure in both the wholesale and consumer businesses, which will
affect both our revenue growth and gross margins.

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Alternative channels and small business revenues for the nine
months ended September 30, 2000 increased 20.9% over the prior year
period. Alternative channels and small business includes sales agents
and affiliates, wholesale alternative channels, small business, prepaid
calling card and wireless messaging revenues. This increase is
primarily attributable to internal growth for wholesale alternative
channel voice revenues. We expect that pricing pressures in the
wholesale and small business markets will negatively affect revenue
growth in this area and this level of growth will decline in the
foreseeable future.

Dial-up Internet revenue growth for the nine months ended
September 30, 2000 was 14.6% over the same period in the prior year.
Our dial access network has grown 76% to over 2.5 million modems as of
September 30, 2000, compared with the same period in the prior year.
Additionally, Internet connect hours increased 58.7% to 4.8 billion
hours for the nine months ended September 30, 2000 versus the same
period in the prior year. These network usage increases were offset by
pricing pressure on dial-up Internet traffic as a result of contract
repricings in the second quarter of 2000.

Other revenues which, prior to April 1999, primarily consisted
of the operations of SHL Systemhouse Corp. and SHL Systemhouse Co., or
SHL, were zero for the nine month period ended September 30, 2000 and
$523 million for the prior year period. SHL provided information
technology, or IT, services including outsourcing, IT consulting,
systems integration, private network management, technology development
and applications and systems development. In April 1999, WorldCom
completed the sale of SHL to Electronic Data Systems Corporation, or
EDS, for $1.6 billion.

LINE COSTS. Line costs as a percentage of revenues for the nine
months ended September 30, 2000 decreased to 38.6% as compared to 41.7%
reported for the same period of the prior year. The overall
improvements are a result of annual access reform reductions, more data
and dedicated Internet traffic over our company-owned facilities and
improved interconnection terms in Europe. These improvements were
somewhat offset by 2000 contract repricings in the dial-up Internet
business, continued competitive pricing on dial-up Internet business and
increased dial-up Internet traffic over facilities not owned by us.

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the outcome of these proceedings or whether or not the result(s) will
have a material adverse impact on our consolidated financial position or
results of operations. However, our goal is to manage transport costs
through effective utilization of our networks, favorable contracts with
carriers and network efficiencies made possible as a result of expansion
of our customer base.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the nine months ended September 30, 2000
were $7.8 billion or 26.5% of revenues as compared to $6.7 billion or
25.4% of revenues for the nine months ended September 30, 1999.
Selling, general and administrative expenses for the nine months ended
September 30, 2000, includes a $685 million pre-tax charge associated
with specific domestic and international wholesale accounts that were
deemed uncollectible due to bankruptcies, litigation and settlements of
contractual disputes that occurred in the third quarter of 2000.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 also includes a $93 million pre-tax one-time charge
recorded in the second quarter of 2000 associated with the termination
of the Sprint Corporation merger agreement, including regulatory, legal,
accounting and investment banking fees and other costs. Excluding these
charges, selling, general and administrative expenses as a percentage of
revenues were 23.9% for the nine months ended September 30, 2000.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 includes increased costs associated with "generation
d" initiatives, which are designed to position us as a leading supplier
of e-business solutions, that include product marketing, customer care,
information systems and product development; employee retention costs;
and costs associated with multichannel multipoint distribution service,
or MMDS, product development. We expect selling, general and
administrative expenses to increase over the next twelve months as a
result of the previously noted costs being incurred at an accelerated
pace.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for the nine months ended September 30, 2000 increased to $3.6
billion or 12.1% of revenues from $3.3 billion or 12.3% of revenues for
the comparable 1999 period. This increase primarily reflects additional
depreciation associated with increased capital expenditures.

INTEREST EXPENSE. Interest expense for the nine months ended
September 30, 2000 was $699 million or 2.4% of revenues as compared to
$748 million or 2.8% of revenues for the first nine months of 1999. For
the nine months ended September 30, 2000 and 1999, weighted average
annual interest rates on our long-term debt were 7.22% and 7.34%
respectively, while weighted average levels of borrowings were $20.8
billion and $19.5 billion, respectively.

Interest expense for the nine months ended September 30, 2000
was favorably impacted by increased construction activity and the

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associated interest capitalization, offset in part by higher weighted
average levels of borrowings and higher interest rates on our variable
rate debt and 2000 public debt offerings. Interest expense for the nine
months ended September 30, 2000 was also favorably impacted as a result
of SHL sale proceeds, investment sale proceeds and proceeds from the
increase in our receivables purchase program in the third quarter of
1999 used to repay indebtedness under our credit facilities and
commercial paper program.

MISCELLANEOUS INCOME AND EXPENSE. Miscellaneous income for the
nine months ended September 30, 2000 was $327 million or 1.1% of
revenues as compared to $53 million or 0.2% of revenues for the first
nine months of 1999. Miscellaneous income includes investment income,
equity in income and losses of affiliated companies, the effects of
fluctuations in exchange rates for transactions denominated in foreign
currencies, gains and losses on the sale of assets and other
non-operating items.

NET INCOME APPLICABLE TO COMMON SHAREHOLDERS. For the nine
months ended September 30, 2000, we reported net income applicable to
common shareholders of $3.5 billion as compared to $2.7 billion for the
nine months ended September 30, 1999. Diluted income per common share
for the nine months ended September 30, 2000 was $1.20 compared to
income per common share of $0.91 for the comparable 1999 period.

YEAR ENDED DECEMBER 31, 1998 VS.
YEAR ENDED DECEMBER 31, 1999

REVENUES. Revenues for 1999 increased 104% to $35.9 billion as
compared to $17.6 billion for 1998. The increase in total revenues is
attributable to the MCI merger and Embratel acquisition as well as
internal growth. Results include MCI and Embratel operations from
September 14, 1998, and CompuServe Network Services and ANS from
February 1, 1998. CompuServe Network Services provided worldwide
network access, management and applications and Internet services to
businesses and ANS provided Internet access to America Online ("AOL")
and AOL's subscribers in the United States, Canada, the United Kingdom,
Sweden and Japan.

Actual reported revenues by category for the years ended
December 31, 1998 and 1999 reflect the following changes by category
(dollars in millions):

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Actual Actual Percent
1998 1999 Change
----------- -------- -----------
<S> <C> <C> <C>

COMMERCIAL SERVICES REVENUES
Voice..................................... $3,422 $ 7,433 117.2
Data...................................... 2,644 5,830 120.5
International............................. 2,272 4,396 93.5
Internet.................................. 897 1,554 73.2
-------- --------
TOTAL COMMERCIAL SERVICES REVENUES 9,235 19,213 108.0
Wholesale and consumer.................... 5,100 11,533 126.1
Alternative channels and small business... 1,706 3,142 84.2
Dial-up Internet.......................... 1,002 1,497 49.4
-------- --------
TOTAL COMMUNICATIONS SERVICES REVENUES 7,043 35,385 107.6
Other..................................... 574 523 (8.9)
-------- --------
TOTAL REPORTED REVENUES....................... $17,617 $35,908 103.8
======== ========
</TABLE>

The following table provides supplemental pro forma detail for
our revenues. Since actual results for 1998 only reflect the operations
of MCI after September 14, 1998, and eleven months of CompuServe Network
Services and ANS, the pro forma results are more indicative of internal
growth for the combined company. The pro forma revenues, excluding
Embratel, for the year ended December 31, 1998 and actual revenues,
excluding Embratel, for the year ended December 31, 1999 reflect the
following changes by category (dollars in millions):

Pro Forma Actual Percent
1998 1999 Change
---------------- ---------------- ---------------
<S> <C> <C> <C>
COMMERCIAL SERVICES REVENUES
Voice................................... $6,764 $7,433 9.9
Data.................................... 4,733 5,830 23.2
International........................... 1,090 1,624 49.0
Internet................................ 943 1,554 64.8
--------- ---------
TOTAL COMMERCIAL SERVICES REVENUES 13,530 16,441 21.5
Wholesale and consumer.................. 11,046 11,533 4.4
Alternative channels and small
business.............................. 2,756 3,142 14.0
Dial-up Internet........................ 1,037 1,497 44.4
--------- ---------
TOTAL COMMUNICATIONS SERVICES REVENUES 28,369 32,613 15.0
Other................................... 1,733 523 (69.8)
--------- ---------
$30,102 $ 33,136 10.1
========= =========
</TABLE>

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The following discusses the revenue increases for the year ended
December 31, 1999, as compared to pro forma results for the comparable
prior year period. The pro forma revenues assume that the MCI merger,
CompuServe merger and the ANS transaction occurred at the beginning of
1998. These pro forma revenues do not include Embratel or the iMCI
business that was sold. iMCI was MCI's Internet backbone facilities and
wholesale and retail Internet business. Changes in actual results of
operations are shown in the consolidated statements of operations
included in this proxy statement and the foregoing tables and, as noted
above, primarily reflect the MCI merger, the Embratel acquisition and
our internal growth.

Voice revenues for 1999 experienced a 9.9% increase over the
prior year pro forma amount, driven by a gain of 6.6% in traffic as a
result of customers purchasing "all-distance" voice services from us.
Local voice revenues grew 113% in 1999 versus the same period the prior
year, but remains a relatively small component of voice revenues for
1999. These volume and revenue gains were offset partially by federally
mandated access charge reductions that were passed through to the
customer.

Data revenues for 1999 increased 23.2% over the same pro forma
period of the prior year. The revenue growth for data services continued
to be driven by significant commercial end-user demand for high-speed
data and by Internet-related growth on both a local and long haul basis.
This growth was driven by connectivity demands and also by corporate
enterprise applications that have become more strategic, far reaching
and complex. In addition, bandwidth consumption drove an acceleration
in growth for higher capacity circuits. As of December 31, 1999, we had
approximately 33.1 million domestic local VGEs and over 39,000 buildings
in the United States connected over our high-capacity circuits.
Domestic local route miles of connected fiber exceeded 8,000 and
domestic long distance route miles exceeded 47,000 as of December 31,
1999.

International revenues excluding Embratel, for 1999 were $1.6
billion, an increase of 49.0% as compared with $1.1 billion for the same
pro forma period of the prior year. We have continued to extend the
reach of our end-to-end networks which, as of December 31, 1999,
provided us the capability to connect approximately 10,000 buildings in
Europe all over our own high-capacity circuits.

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to OC-48 in response to the increasing backbone transport requirements
of both our commercial and wholesale accounts.

Wholesale and consumer revenues for 1999 experienced a 4.4%
increase over the prior year pro forma amount, driven by a gain of 12.8%
in traffic. Consumer revenues increased 7.0% on traffic volume gains of
18.9% as volume gains more than offset pricing declines. Additionally,
wholesale data revenues increased 28.9% on increased demand for
wholesale data services. These volume and revenue gains were offset
partially by anticipated year-over-year declines in wholesale voice
revenues, which decreased 9.4% on wholesale traffic gains of 6.7% over
the prior year pro forma period.

Alternative channels and small business revenues for 1999
increased 14.0% over the prior year pro forma amount. The increase was
driven by a 27.9% increase in wholesale alternative channels and offset
by a decrease in small business revenues of 3.0%.

Dial-up Internet revenues for 1999 increased 44.4% over the
prior year pro forma amount. Growth was driven by increased wholesale
ISP arrangements with vendors. Our dial access network has grown over
85% to 1.7 million modems, compared with the same period in the prior
year.

Other revenues, which primarily consist of the operations of
SHL, for 1999 were $523 million versus $1.7 billion for the pro forma
period of the prior year. In April 1999, we completed the sale of SHL
to EDS for $1.6 billion.

The following discusses the actual results of operations for the
year ended December 31, 1999 as compared to the year ended December 31,
1998.

LINE COSTS. Line costs as a percentage of revenues for 1999
were 41.0% as compared to 45.3% reported for the same period in the
prior year. Overall decreases are attributable to changes in the product
mix and synergies and economies of scale resulting from network
efficiencies achieved from the continued assimilation of MCI, CompuServe
Network Services, ANS and our operations. Additionally, access charge
reductions that occurred in January 1999 and July 1999 reduced total
line cost expense by approximately $429 million for 1999. While access
charge reductions were primarily passed through to customers, line costs
as a percentage of revenues were positively affected by over half a
percentage point for 1999.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for 1999 were $8.9 billion or 24.9% of revenues
as compared to $4.6 billion or 25.9% of revenues for 1998. The decrease
in selling, general and administrative expenses as a percentage of

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revenues for 1999 reflects scale savings in corporate overhead and
operations from merging the MCI and WorldCom organizations.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for 1999 increased to $4.4 billion or 12.1% of revenues from
$2.3 billion or 13.0% of revenues for 1998. This increase reflects
increased amortization and depreciation associated with the MCI merger,
CompuServe merger and ANS transaction as well as additional depreciation
related to capital expenditures. As a percentage of revenues, these
costs decreased due to the higher revenue base.

IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES. In 1998,
we recorded a pre-tax charge of $196 million in connection with the
Brooks Fiber Properties merger, the MCI merger and certain asset
write-downs and loss contingencies. Brooks Fiber Properties is a
leading facilities-based provider of competitive local
telecommunications services. Such charges included $21 million for
employee severance, $17 million for Brooks Fiber Properties direct
merger costs, $38 million for conformance of Brooks Fiber Properties
accounting policies, $56 million for exit costs under long-term
commitments, $31 million for write-down of a permanently impaired
investment and $33 million related to certain asset write-downs and loss
contingencies. The $56 million related to long-term commitments includes
$33 million of minimum commitments between 1999 and 2008 for leased
facilities that we have or will abandon, $19 million related to certain
minimum contractual network lease commitments that expire between 1999
and 2001, for which we will receive no future benefit due to the
migration of traffic to owned facilities, and $4 million of other
commitments. Because of organizational and operational changes that
occurred, management concluded in 1999 that certain leased properties
would not be abandoned according to the original plan that was approved
by management. Therefore, in 1999 a reversal of a $9 million charge to
in-process research and development, or IPR&D, and other charges was
recorded in connection with this plan amendment. Additionally, the $33
million related to certain asset write-downs and loss contingencies
includes $9 million for the decommission of certain information systems
that have no alternative future use, $9 million for the write-down to
fair value of certain assets held for sale that were disposed of in 1998
and $15 million related to legal costs and other items related to Brooks
Fiber Properties. As of December 31, 1999 and 1998, our remaining
unpaid liability related to the above charges was $27 million and $66
million, respectively.

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combinations, the development of these projects had not yet reached
technological feasibility and the R&D in progress had no alternative
future uses. Accordingly, these costs were expensed as of the
respective acquisition dates.

The value of the IPR&D projects reflected the R&D's stage of
completion as of the acquisition date, the complexity of the work
completed to date, the difficulty of completing the remaining
development, costs already incurred and the projected cost to complete
the projects. The value assigned to purchased in-process technology was
determined by estimating the contribution of the purchased in-process
technology to developing commercially viable products, estimating the
resulting net cash flows from the expected product sales of such
products, and discounting the net cash flows to their present value
using a risk-adjusted discount rate.

A description of the acquired in-process technology and the
estimates made by us at the time each business combination was completed
is set forth below.

- MCI. The in-process technology acquired in the MCI merger
consisted of seventy significant R&D projects grouped into six
categories. The aggregate value assigned to MCI IPR&D was $3.1
billion. These projects were all targeted at: (1) developing and
deploying an all optical network, new architecture of the
telephone system using Internet Protocol, or IP, and developing
the systems and tools necessary to manage the voice and data
traffic; (2) creating new products and services; and (3)
developing certain information systems that may enhance the
management of product and service offerings.

As of the allocation date, total MCI stand-alone revenues were
projected to exceed $34 billion within five years. This level
of revenue implied a compound annual growth rate, or CAGR, of
approximately 12.3%. Estimated total revenues from the acquired
in-process technology peaked in the year 2001 and steadily
declined in 2002 through 2009 as other new product and service
technologies were expected to be introduced by the combined
company. As of the MCI merger date approximately $296 million
had been spent on developing the IPR&D. Estimated costs to
complete were approximately $342 million, as follows: 17% during
the last quarter of 1998, 41% during the four quarters in 1999,
31% during the four quarters in 2000, and 11% during the four
quarters in 2001.

The allocation of purchase price for the MCI merger included an
allocation to developed technology, which is being depreciated
over 10 years on a straight-line basis. The remaining purchase
price, which includes allocations to goodwill and tradename, is
being amortized over 40 years on a straight-line basis.

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- COMPUSERVE AND ANS. The in-process technology acquired in the
CompuServe merger and the ANS transaction consisted of three
main R&D efforts underway at CompuServe Network Services and two
main R&D efforts underway at ANS. The aggregate value assigned
to CompuServe and ANS in-process technology was $429 million.
These projects included next generation network technologies and
new value-added networking applications, such as applications
hosting, multimedia technologies and virtual private data
networks.

Based on the cost incurred at the acquisition dates and the
milestones achieved by ANS and CompuServe Network Services, in
aggregate, ANS' projects were estimated to be approximately 80%
complete, while CompuServe Network Services' projects were
estimated to be approximately 60% complete. Estimated costs to
complete were approximately $62 million, as follows: 42% during
the last three quarters of 1998, and 58% during the four
quarters in 1999.

The allocation of purchase price for the CompuServe merger and
the ANS transaction included allocations to developed
technologies, assembled work force, customer relationships and
tradenames, which are being amortized on a straight-line basis
over 10 years.

At December 31, 1999 significant progress had been made on the
development of the IPR&D that was acquired from MCI, ANS and CompuServe.
In general, we believe that each acquired company's R&D efforts are on
track with management's plans at the time the transactions occurred. We
are continuing to invest in the development of the technologies that
were under development at the consummation of the transactions. Related
to MCI, approximately $200 million of the planned total cost to complete
of $340 million has been incurred as of December 31, 1999. Related to
ANS and CompuServe, the R&D projects that were underway at the time of
the transaction have been carried out in accordance with our plans. As
such, cost incurred to complete the ANS and CompuServe projects did not
differ materially from the original estimate of $62 million. Through
this date, no significant adjustments have been made to the economic

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assumptions or expectations that underlie our acquisition decisions and
related purchase accounting.

INTEREST EXPENSE. Interest expense for 1999 was $966 million or
2.7% of revenues, as compared to $692 million or 3.9% of revenues
reported for 1998. The increase in interest expense is attributable to
higher debt levels as a result of the MCI merger, higher capital
expenditures and the 1998 fixed rate debt financings, offset by lower
interest rates as a result of certain tender offers for outstanding debt
in the first and fourth quarters of 1999 and slightly lower rates in
effect on our variable rate debt. Interest expense for 1999 was
favorably impacted as a result of the SHL sale proceeds, investment
sales proceeds and proceeds from the increase in our receivables
purchase program being utilized to repay indebtedness under our credit
facilities and commercial paper program. For 1999 and 1998, weighted
average annual interest rates on our long-term debt were 7.23% and 7.33%
respectively, while weighted average annual levels of borrowings were
$19.1 billion and $12.7 billion, respectively.

MISCELLANEOUS INCOME AND EXPENSE. Miscellaneous income for 1999
was $242 million or 0.7% of revenues as compared to $44 million or 0.2%
of revenues reported for 1998. Miscellaneous income and expense for 1999
includes $374 million of gains on securities sold, offset by $171
million of foreign currency translation losses related to the impact of
the local currency devaluation in Brazil and its effect on Embratel's
holdings of U.S. dollar and other foreign currency denominated debt.
Also included in miscellaneous income and expense for 1999 was a $62
million charge related to the redemption of certain of our outstanding
senior notes.

PROVISION FOR INCOME TAXES. The effective income tax rate for
1999 was 41.4% of income before taxes. The 1999 rate is greater than the
expected federal statutory rate of 35% primarily due to the fact that
amortization of the goodwill related to the MCI merger is not deductible
for tax purposes. Excluding the nondeductible amortization of goodwill,
our effective income tax rate would have been 36.2%.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE. In 1998, the American
Institute of Certified Public Accountants issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities." This accounting
standard required all companies to expense, on or before March 31, 1999,
all start-up costs previously capitalized, and thereafter to expense all
costs of start-up activities as incurred. This accounting standard
broadly defines start-up activities as one-time activities related to
the opening of a new facility, the introduction of a new product or
service, the commencement of business in a new territory, the
establishment of business with a new class of customer, the initiation
of a new process in an existing facility or the commencement of a new
operation. We adopted this standard as of January 1, 1998. The
cumulative effect of this change in accounting principle resulted in a

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one-time, non-cash expense of $36 million, net of income tax benefit of
$22 million. This expense represented start-up costs incurred primarily
in conjunction with the development and construction of SkyTel's
messaging network.

EXTRAORDINARY ITEMS. In the first quarter of 1998, we recorded
an extraordinary item totaling $129 million, net of income tax benefit
of $78 million. The charge was recorded in connection with the tender
offers and certain related refinancings of our outstanding debt from the
Brooks Fiber Properties merger.

NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS. For 1999,
we reported net income applicable to common shareholders of $3.9 billion
as compared to a net loss of $2.8 billion reported for 1998. Diluted
income per common share for 1999 was $1.35 compared to a loss per share
of $1.43 for the comparable 1998 period.

YEAR ENDED DECEMBER 31, 1997 VS.
YEAR ENDED DECEMBER 31, 1998

REVENUES. Revenues for 1998 increased 130.5% to $17.6 billion
as compared to $7.6 billion for 1997. The increase in total revenues
is attributable to the MCI merger, the CompuServe merger and the ANS
transaction as well as internal growth. Results for 1998 include MCI
and Embratel operations from September 14, 1998.

Actual reported revenues by category and associated revenue
increases for the year ended December 31, 1997 and 1998 reflect the
following changes by category (dollars in millions):

<TABLE>
<CAPTION>
Actual Actual Percent
1997 1998 Change
------- ------ -------
<S> <C> <C> <C>
COMMERCIAL SERVICES REVENUES
Voice............................ $ 1,556 $ 3,422 119.9
Data............................. 1,215 2,644 117.6
International.................... 726 2,278 212.9
Internet......................... 216 897 315.3
------- -------
TOTAL COMMERCIAL SERVICES REVENUES. 3,713 9,235 148.7
Wholesale and consumer........... 2,290 5,100 122.7
Alternative channels and small
business..................... 958 1,706 78.1
Dial-up Internet................. 270 1,002 271.1
------- ------

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TOTAL COMMUNICATIONS SERVICES
REVENUES 7,231 17,043 135.7
Other............................ 412 574 39.3
------- ------- -----
Total reported revenues $ 7,643 $17,617 130.5
======= ======= =====

</TABLE>
The following table provides supplemental pro forma detail for
our revenues. Since actual results for 1998 only reflect 108 days of
operations for MCI and eleven months of CompuServe Network Services and
ANS, the pro forma results are more indicative of internal growth for the
combined company. The pro forma revenues, excluding Embratel, for the
years ended December 31, 1997 and 1998 reflect the following changes by
category (dollars in millions):

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Pro Forma Pro Forma Percent
1997 1998 Change
--------- --------- --------

COMMERCIAL SERVICES REVENUES
Voice........................... $ 6,367 $ 6,764 6.2
Data............................ 3,668 4,733 29.0
International................... 726 1,090 50.1
Internet........................ 585 943 61.2
------- -------
TOTAL COMMERCIAL SERVICES
REVENUES 11,346 13,530 19.2
Wholesale and consumer....... 10,430 11,046 5.9
Alternative channels and
small business............. 2,281 2,756 20.8
Dial-up Internet............. 661 1,037 56.9
------- -------
TOTAL COMMUNICATIONS SERVICES
REVENUES 24,718 28,369 14.8
Other........................ 1,999 1,733 (13.3)
-------- -------
TOTAL REVENUES.................. $ 26,717 $ 30,102 12.7
======== ========

Pro forma results for the prior periods reflect a classification
change for inbound international settlements which are now being treated
as an offset to line costs instead of revenues. Previously, both
WorldCom and MCI classified foreign post telephone and telegraph
administration settlements on a gross basis with the outbound settlement
reflected as line cost expense and the inbound settlement reflected as
revenues. This change better reflects the way in which the business is
operated because we actually settle in cash through a formal net
settlement process that is inherent in the operating agreements with
foreign carriers.

The following discusses the pro forma revenue increases for the
year ended December 31, 1998 as compared to pro forma revenues for the
comparable prior year period. The pro forma revenues assume that the
MCI merger, CompuServe merger and the ANS transaction occurred at the
beginning of 1997. These pro forma revenues do not include Embratel or
the iMCI business that was sold. Changes in actual results of
operations are shown in our consolidated statements of operations and
the foregoing tables and, as noted above, primarily reflect the MCI
merger, the CompuServe merger, the ANS transaction and our internal
growth.

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Pro forma voice revenues for 1998 experienced a 6.2%
year-over-year increase driven by a gain of 10.8% in traffic. Strong
long distance volume gains in domestic commercial sales channels,
combined with an increasing mix of local services, were the primary
contributors to this increase. Pro forma local voice revenues grew 85%
in 1998 versus the same period of the prior year, but remained a
relatively small component of our total revenues for 1998.

Pro forma data revenues for 1998 increased 29.0% year-over-year.
The revenue growth for data services continued to be driven by
significant commercial end-user demand for high-speed data and by
Internet-related growth on both a local and long-haul basis. This
growth was not only fueled by connectivity demands, but also by
applications that have become more strategic, far reaching and complex;
additionally, bandwidth consumption drove an acceleration in growth for
higher capacity circuits. Rapidly growing demand for higher bandwidth
services contributed to a 48% pro forma year-over-year local data
revenue growth for 1998. As of December 31, 1998, we had approximately
17 million domestic local VGEs and approximately 34,000 buildings in the
U.S., connected over our high-capacity circuits. Domestic local route
miles of connected fiber exceeded 7,800 and domestic long distance route
miles exceeded 45,000 at December 31, 1998.

Pro forma international revenues excluding Embratel for 1998
were $1.1 billion, an increase of 50.1% as compared with $726 million
for the same pro forma period of the prior year. Significant percentage
gains in international revenues were achieved in continental Europe in
response to our rapidly expanding networks and sales effort. In July
1998, the Pan-European network was commissioned for service and as of
December 31, 1998 provided us the capability to connect from end-to-end
over 5,500 buildings in Europe all over our own high capacity circuits.
In Europe, we had over 900 route miles of local fiber and over 1,700
long distance route miles at December 31, 1998.

The Pan-European networks and national networks in the U.K.,
France, Germany and Belgium drove higher growth of enhanced data sales
internationally. The resulting revenue mix shift contributed to
improved margins in spite of the competitive pricing environment.

Pro forma Internet revenues for 1998 increased 61.2% over the
1997 pro forma amount. Growth was driven by dedicated connectivity to
the Internet as more and more customers migrated their data networks and
applications to Internet-based technologies.

Pro forma wholesale and consumer revenues for 1998 experienced a
5.9% year-over-year increase driven by a gain of 17.3% in traffic.
Consumer markets revenues increased 14.1% on traffic volume growth of
25.9% as growth in 10-10-321 and 10-10-220 products more than offset
pricing declines. Additionally, wholesale data services increased 9.1%.

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These volume and revenue gains were offset by wholesale voice revenue
decreases of 10.1% on traffic growth of 9.8%.

Pro forma alternative channels and small business revenues for
1998 increased 20.8% over the 1997 pro forma amount. The increase was
driven by a 38.7% increase in wholesale alternative channels and a 4.2%
increase in small business revenues.

Pro forma dial-up Internet revenues for 1998 increased 56.9%
over the 1997 pro forma amount. Growth was driven by dial-up
connectivity to the Internet as more and more customers migrated their
data networks and applications to Internet-based technologies.

Pro forma other revenues for 1998 were $1.7 billion, down 13.3%
as compared with 1997. Other revenues, which consists primarily of the
operations of SHL, include equipment deployment, consulting and systems
integration and outsourcing services. The year-over-year decline
reflects the negative impact of eliminating certain lines of operation
and Canadian currency translation effects.

The following discusses the actual results of operations for the
year ended December 31, 1998 as compared to the year ended December 31,
1997.

LINE COSTS. Line costs as a percentage of revenues for 1998
were 45.3% as compared to 48.9% reported for the same period of the
prior year. Overall decreases are attributable to changes in the
product mix and synergies and economies of scale resulting from network
efficiencies achieved from the assimilation of MCI, CompuServe Network
Services, ANS and our operations and were offset in part by new
universal service fund costs recorded for the 1998 year. Additionally,
access charge reductions beginning in July 1997 reduced total line cost
expense by approximately $280 million in 1998. While access charge
reductions were primarily passed through to the customer, line costs as
a percentage of revenues were positively affected by more than half a
percentage point for 1998.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for 1998 were $4.6 billion or 25.9% of revenues
as compared to $1.9 billion or 24.3% of revenues for 1997. The increase
in selling, general and administrative expenses as a percentage of
revenues for the year ended December 31, 1998, which includes MCI for
108 days, reflects our expanding operations, primarily through the MCI
merger.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for 1998 increased to $2.3 billion or 13.0% of revenues from
$1.1 billion or 13.9% of revenues for 1997. The increase reflects
increased amortization associated with the MCI merger, CompuServe merger
and ANS transaction and additional depreciation related to capital

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expenditures. As a percentage of revenues, these costs decreased due to
the higher revenue base.

IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES. In 1998,
we recorded a pre-tax charge of $196 million in connection with the
Brooks Fiber Properties merger, the MCI merger, and certain asset
write-downs and loss contingencies. Such charges included $21 million
for employee severance, $17 million for Brooks Fiber Properties direct
merger costs, $38 million for conformance of Brooks Fiber Properties
accounting policies, $56 million for exit costs under long-term
commitments, $31 million for write-down of a permanently impaired
investment, and $33 million related to certain asset write-downs and
loss contingencies. The $56 million related to long-term commitments
includes $33 million of minimum commitments between 1999 and 2008 for
leased facilities that we have or will abandon, $19 million related to
certain minimum contractual network lease commitments that expire
between 1999 and 2001, for which we will receive no future benefit due
to the migration of traffic to owned facilities, and $4 million of other
commitments. Additionally, the $33 million related to certain asset
write-downs and loss contingencies includes $9 million for the
decommission of certain information systems that have no alternative
future use, $9 million for the write-down to fair value of certain
assets held for sale that were disposed of in 1998 and $15 million
related to legal costs and other items related to Brooks Fiber
Properties.

In connection with certain 1998 business combinations, we made
allocations of the purchase price to acquired IPR&D totaling $429
million in the first quarter of 1998 related to the CompuServe merger
and ANS transaction and $3.1 billion in the third quarter of 1998
related to the MCI merger. These allocations represent the estimated
fair value based on risk-adjusted future cash flows related to the
incomplete projects. At the date of the respective business
combinations, the development of these projects had not yet reached
technological feasibility and the R&D in progress had no alternative
future uses. Accordingly, these costs were expensed as of the
respective acquisition dates.

Discounting the net cash flows back to their present value was
based on the weighted average cost of capital, or WACC. The respective
business enterprises were comprised of various assets, each possessing
different degrees of investment risk contributing to our overall WACC.
Intangible assets were assessed higher risk factors due to their lack of
liquidity and poor versatility for redeployment elsewhere in the
business. In the MCI, CompuServe Network Services and ANS analyses the
implied WACC was 14%, 14.5% and 16.5% respectively, based on the
purchase price paid, assumed liabilities, projected cash flows, and each
company's asset mix. Returns on monetary and fixed assets were
estimated based on then prevailing interest rates. The process for
quantifying intangible asset investment risk involved consideration of

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the uncertainty associated with realizing discernible cash flows over
the life of the asset. A discount rate range of 15.5% to 19% was used
for valuing the IPR&D. These discount rate ranges were higher than the
WACC due to the inherent uncertainties surrounding the successful
development of the purchased IPR&D, the useful life of such technology,
the profitability levels of such technology, and the uncertainty of
technological advances that were unknown at that time.

The value of the IPR&D projects was adjusted to reflect the
relative value and contribution of the acquired R&D. In doing so,
consideration was given to the R&D's stage of completion, the complexity
of the work completed to date, the difficulty of completing the
remaining development, costs already incurred and the projected cost to
complete the projects.

We believe that the assumptions used in the forecasts were
reasonable at the time of the respective business combination. No
assurance can be given, however, that the underlying assumptions used to
estimate expected project sales, development costs or profitability, or
the events associated with such projects will transpire as estimated.
For these reasons, actual results may vary from the projected results.

Management expects to continue supporting these R&D efforts and
believes we have a reasonable chance of successfully completing the R&D
programs. However, there is risk associated with the completion of the
R&D projects and we cannot give any assurance that any of them will meet
with either technological or commercial success.

If none of these R&D projects are successfully developed, our
sales and profitability may be adversely affected in future periods.
However, the failure of any particular individual project in-process
would not materially impact our consolidated financial condition,
results of operations or the attractiveness of the overall investment of
MCI, CompuServe Network Services or ANS.

A description of the acquired in-process technology and the
estimates made by us at the time each business combination was completed
is set forth below.

MCI. The in-process technology acquired in the MCI merger
consisted of seventy significant R&D projects grouped into six
categories. The aggregate value assigned to MCI IPR&D was $3.1 billion.
These projects were all targeted at: (1) developing and deploying an all
optical network, new architecture of the telephone system using IP and
developing the systems and tools necessary to manage the voice and data
traffic; (2) creating new products and services; and (3) developing
certain information systems that may enhance the management of our
products and service offerings.

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A brief description of the six categories of IPR&D projects
purchased at the time of the MCI merger is set forth below:

- R&d related to an all optical network. At the MCI merger date,
these projects involved R&D related to the development of an all
optical network. This structure is in contrast to current
systems which employed a combination of optics and electronics.
New technologies that were in development included: (a) an
optical cross connect system for all optical packet transport
and sub-second service restoration, (b) a wavelength channel
plan for enabling multiple simultaneous transmission channels,
(c) projects related to distortion elimination, and (d) next
generation optical networking technologies related to the fiber
infrastructure. Achievements as of the MCI merger date included
demonstration of limited-scope prototypes in the laboratory.
Remaining efforts included: demonstration of the system on a
large scale with commercial traffic, physics research in certain
areas, development of algorithms to enable network management,
and addressing technology issues related to switching. The
amount of R&D costs incurred as of the MCI merger for these
projects totaled $7 million. Estimated costs to complete were
$10 million, as follows: 15% during the last quarter of 1998,
48% during the four quarters in 1999, 31% during the four
quarters in 2000, and 6% during the four quarters in 2001. As
of the MCI merger date, the completion of these projects was
considered difficult, and the risk of these technologies not
being completed was rated as medium to high. Failure to
complete the R&D would cause our future revenues and profits
attributable to the R&D not to materialize.

- R&D RELATED TO DATA TRANSMISSION SERVICE / OTHER TRANSMISSION
EFFORTS. At the MCI merger date, MCI was working on a variety
of significant efforts related to data management. These new
technologies included: (a) new data services to satisfy new
capacity requirements and Internet needs, (b) a next generation
intelligent network to enable deployment of specific new
telecommunications services across multiple networks, (c) a 16
wavelength bi-directional line amplifier to amplify optical
signals, (d) multiservice and integrated access platforms and
development of new methods for serving ISPs on the local
services network, and (e) Andromedia, which is related to
specific improvements to Internet operations. Achievements as
of the MCI merger date included methods for new high speed
switching, multicasting, and offering a variety of service
levels, as well as architectural design for next generation
intelligent networks. Tasks to complete the new technologies
included: engineering related to telephone systems to utilize
IP; solving scalability issues across the infrastructure; and
conducting extensive testing of the technologies under
development. As of the MCI merger date, $48 million had been

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expended to develop these R&D projects. Estimated costs to
complete the projects were $132 million, as follows: 9% during
the last quarter of 1998, 33% during the four quarters in 1999,
46% during the four quarters in 2000, and 12% during the four
quarters in 2001. The completion of these projects was
considered difficult and the risk of not completing these
projects was characterized as medium to high. Failure to
complete the R&D would cause our future revenues and profits
attributable to the R&D not to materialize.

- NEXT GENERATION TOOLS. At the MCI merger date, MCI's personnel
were developing a variety of new tools designed to achieve
specific reliability and quality objectives related to the
network. Important new development technologies in this
category included: (a) reliability and quality engineering tools
relating to the reliability test and quality control, (b)
network design development tools to enable end-to-end network
design and modeling capabilities, (c) the Integrated Management
Platform Advanced Communications Technology project to provide
new network management for the networks, (d) the integrated test
system to provide a new testing architecture for our local, long
distance, and international networks, and (e) an enhanced
traffic system and security. Progress as of the MCI merger date
included: definition of architectural components, partial
development of software algorithms, and limited prototypes for
tasks. Remaining efforts included completion of algorithms,
prototype development, validation, testing, and development of
support systems. As of the MCI merger date, $84 million had
been spent on the R&D projects. Estimated costs to complete
were $48 million, as follows: 22% during the last quarter of
1998, 46% during the four quarters in 1999, 23% during the four
quarters in 2000, and 9% during the four quarters in 2001. At
the MCI merger date, there were significant risks of not being
able to complete the prototypes and there was also uncertainty
in the timeliness of completion. The aggregate risk level of
this category of R&D projects was considered medium to high.
Project failure would result in the elimination of our future
revenues and profits attributable to the R&D.

- SPECIFIC NEW CUSTOMER CARE CAPABILITIES. At the MCI merger
date, these projects involved a series of efforts designed to
provide customers with a suite of new services, including
development of major technologies such as: (a) the virtual data
delivery system to engineer new order processing and
provisioning capabilities for data services, (b) network
automation projects related to capacity and change management,
(c) hyperlink to deploy private lines and frame relay circuits
utilizing a new methodology, (d) common data platform to create
a depository of network management information, and (e) the
Talisman project to develop data products for the network MCI One

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Voice. Achievements as of the MCI merger date included design,
partial coding, and prototyping. Tasks to complete included:
addition of significant features and functionality; additional
design, testing and coding; and addressing scalability issues.
As of the MCI merger date, $67 million had been spent on
developing this R&D. Estimated costs to complete were $76
million, as follows: 20% during the last quarter in 1998, 50%
during the four quarters in 1999, 19% during the four quarters
in 2000, and 11% during the four quarters in 2001. As of the
MCI merger date, there were significant risks in completing the
algorithms successfully and on time. The aggregate risk level
for this category of R&D projects was considered medium to high.
Project failure would eliminate our future revenues and profits
attributable to the R&D.

- R&D RELATED TO LOCAL SERVICES. At the MCI merger date, this
category involved a series of specific projects to create an
offering of local services on a national basis. Efforts
included: (a) electronic bonding for local service maintenance
organizations, (b) elements of an order automation and tracking
system, (c) access technology development, and (d) the
substantial R&D related to the network optimization enhancement
system. Achievements as of the MCI merger date included:
completion of system definitions, partial coding development,
and base functionality developed on certain projects. Tasks to
complete included adding features and functionality, module
development and testing. As of the MCI merger date, $53 million
had been spent on developing the R&D projects. Estimated costs
to complete were $38 million, as follows: 25% during the last
quarter of 1998, 43% during the four quarters in 1999, 21%
during the four quarters in 2000, and 11% during the four
quarters in 2001. There were significant risks related to
developing the interfaces and the required technologies and the
complex interconnections. The aggregate risk level for this
category of R&D projects was considered medium to high. Failure
of the R&D project would eliminate our future revenues and
profits attributable to the R&D.

- NEW PRODUCTS AND SERVICES. A series of new products and
services were being developed by MCI as of the MCI merger date.
These included: (a) video services to design and implement a new
terrestrial video distribution network for real-time quality
video, (b) distance learning services via an integrated
multimedia network platform, (c) fractal compression technology
for image compression and encoding to reduce data transmit time
and bit losses, and (d) integrated messaging for one number
service for telephone, fax, voicemail, Internet and paging.
Progress as of the MCI merger date included: definition,
development and component testing; feasibility and analysis; and
development of prototypes. Remaining development included:

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design and deployment; resolving issues related to product
functionality; and addressing scalability issues across our
infrastructure. As of the MCI merger date $37 million had been
spent on developing the R&D in this category. Estimated costs
to complete were $38 million, as follows: 24% during the last
quarter of 1998, 43% during the four quarters in 1999, 22%
during the four quarters in 2000, and 11% during the four
quarters in 2001. There were significant risks in completing
the R&D projects, particularly developing the leading edge
components, compression technologies, and developing operational
support systems. The aggregate risk level for this category of
R&D projects was considered medium to high. Project failure
would eliminate our future revenues and profits attributable to
the R&D.

A summary of allocated values by technology/project is as
follows (in millions):

Developed
Technology IPR&D
----------- -----
All Optical Network $ 200 $ 400
Data Transmission Service/Other 200 300
Next Generation Tools 100 400
New Customer Care Capabilities 800 1,100
Local 200 700
New Products and Services 200 200
------ ------
$1,700 $3,100
====== ======

Developed technology related to the MCI merger is being
depreciated over 10 years on a straight-line basis. The remaining
purchase price, which includes allocations to goodwill and tradename, is
being amortized over 40 years on a straight-line basis.

As of the allocation date, total MCI stand-alone revenues were
projected to exceed $34 billion within five years. This level of
revenue implied a CAGR of approximately 12.3%. Estimated total revenues
from the acquired in-process technology peaked in the year 2001 and
steadily declined in 2002 through 2009 as other new product and service
technologies were expected to be introduced by the combined company.

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These projections were based on management's estimates of market size
and growth, expected trends in technology, and the expected timing of
new product introductions

COMPUSERVE AND ANS. The in-process technology acquired in the
CompuServe merger and the ANS transaction consisted of three main R&D
efforts underway at CompuServe Network Services and two main R&D efforts
underway at ANS. The aggregate value assigned to CompuServe and ANS
in-process technology was $429 million. These projects included next
generation network technologies and new value-added networking
applications, such as applications hosting, multimedia technologies and
virtual private data networks.

A brief description of the IPR&D projects purchased at the time
of the CompuServe merger and ANS transaction is set forth below:

- VIRTUAL PRIVATE DATA NETWORK ("VPDN"). At the date of the
CompuServe merger, these projects provided competitive VPDN
products and services, including development of a new
radius-roaming functionality. This capability was intended to
allow remote VPDN users to "roam" the country, much like
cellular phone users, and access their corporate network without
regard for how to initiate a remote connection. Additionally,
development of another VPDN adjunct product called the Phone
Access Locator, if successful, would be used by CompuServe
Network Services' remote customers to look up local network
access point phone numbers. Other VPDN efforts underway at the
date of the CompuServe Merger related to voluntary tunneling and
development of new packet network technologies. Achievements
leading up to the acquisition included completion of certain
software specifications and design limited concept testing, and
performance verification. Remaining efforts included
large-scale design, performance testing, debugging, and quality
assurance. Costs to complete this R&D project were projected to
be approximately $3 million in 1998 and $4 million in 1999. The
risk of not completing these efforts was rated as medium.
Project failure would result in the elimination of our future
revenues and profits attributable to the R&D.

- NETWORK TECHNOLOGIES. At the date of the CompuServe merger,
CompuServe Network Services had undertaken significant projects
to develop new IP-based network technologies. These projects
involved many separate efforts, including: researching the use
of switching and multicast technologies; investigating and
testing proprietary switching and routing technology;
researching and developing Fast Ethernet and/or Gigabit Ethernet
protocols; and developing and testing switches with routing
functionality. CompuServe Network Services was also working on
a significant effort to enhance workstation-based open systems
technologies that contained new functions intended to allow us

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to address new market needs. CompuServe Network Services
development work included the testing of new products and the
development of new in-house network management solutions.
Achievements leading up to the acquisition included completion
of certain software and hardware specifications and design.
Remaining efforts included large-scale design, performance
testing and debugging. Costs to complete the R&D project were
projected to be approximately $6 million in 1998 and $8 million
in 1999. The risk of not completing these efforts was rated as
medium. Project failure would result in the elimination of our
future revenues and profits attributable to the R&D.

- APPLICATION HOSTING. At the date of the CompuServe merger,
CompuServe Network Services had undertaken an effort to develop
proprietary software, and identify and test third party Web
hosting technology in order to provide complex Web and groupware
hosting services. As part of this effort, CompuServe Network
Services was attempting to develop a new capability in which it
would host complex Web sites, without duplicating any
development efforts. In addition, CompuServe Network Services
was in the process of developing leading-edge electronic
commerce solutions for its complex Web hosting product.
CompuServe Network Services was also developing proprietary
software and testing reporting tools. CompuServe Network
Services was also in the process of making substantial
enhancements that would result in a new e-mail gateway.
Achievements leading up to the acquisition included completion
of certain software specifications and design, limited concept
testing, and performance verification. Remaining efforts
included large-scale design and engineering, performance
testing, and debugging. Costs to complete this R&D project were
projected to be approximately $1 million in 1998 and $2 million
in 1999. The risk of not completing these efforts was rated as
medium. Project failure would result in the elimination of our
future revenues and profits attributable to the R&D.

- SUPERCORE. At the date of the ANS transaction, Supercore was a
significant project involving R&D related to data transmission
and VPDN technologies. The Supercore project was intended to
provide for the differentiation of connectivity service based on
the needs of the transmission. At the time of the acquisition,
ANS had made significant progress on this important R&D effort.
Achievements leading up to the acquisition included a completed
design and limited performance evaluation. Remaining efforts
involved large-scale testing and proof of concept. ANS
estimated it would spend approximately $12 million in 1998 and
$17 million in 1999 to complete R&D projects related to
Supercore. The risk of not completing these projects was
considered medium to high risk. Failure to complete the R&D

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would cause our future revenues and profits attributable to the
R&D not to materialize.

- VALUE ADDED APPLICATIONS (SECURITY SYSTEMS, APPLICATION HOSTING,
AND MULTIMEDIA SYSTEMS). At the date of the ANS transaction,
ANS had a number of R&D projects underway related to security
systems, application hosting and multimedia systems. In
connection with a security system product called Interlock, ANS
was developing next-generation capabilities to render multiple
Local Area Network, or LAN, connections, Simple Network
Management Protocol, or SNMP, support, and the selective use of
Java and ActiveX protocols. Other R&D efforts were related to
distributed firewalls, firewall farm technology, new encryption
technologies, and multiple LAN interface capability. A Windows
project involved substantially improving aspects of the server
software intended to make it support a Domain Named System, or
DNS, cache, firewall functionality, and remote administration.
ANS also had several application R&D projects underway that were
aimed at the development of a set of software tools, which would
culminate in a new complex Web hosting product. ANS' complex
Web hosting product was being developed to have near real-time
database replication across geographic location, which would
allow ANS, if successful, to maintain a company's Web site on
several servers. As of the acquisition date, ANS did not offer
multimedia services over its network. As a result, ANS was
conducting R&D related to four multimedia services: fax over IP,
video over IP, voice over IP, and call centers. R&D activity
included system and software design, development of prototype
systems, and systems testing. The most important R&D efforts
related to multimedia systems were development of priority
routing. In addition to ANS' security systems, application
hosting, and multimedia R&D projects, ANS had undertaken a
number of additional R&D efforts to develop technologies that
would allow customers to access the system from any platform and
to create a new data warehouse. In concert with these efforts,
ANS was also addressing the customer's use of reporting, query,
and On-Line Analytical Processing, or OLAP, tools. Achievements
on the value added applications R&D leading up to the
acquisition included the design and development of certain
software algorithms, unit testing, and limited system testing.
Remaining efforts included additional design work, large-scale
testing, significant performance enhancements, and debugging.
ANS expected to spend approximately $4 million in 1998 and $5
million in 1999 to complete the value added applications R&D.
The risk of not completing these projects was considered to be
medium to high risk. Failure to complete the R&D would cause
our future revenues and profits attributable to the R&D not to
materialize.

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The value assigned to purchased in-process technology was
determined by estimating the contribution of the purchased in-process
technology to developing commercially viable products, estimating the
resulting net future cash flows from the expected sales of such
products, and discounting the net future cash flows to their present
value using a risk-adjusted discount rate. We expected to begin
generating the economic benefits from the ANS and CompuServe Network
Services projects in progress as they were completed. At the time of
valuation, the cost to complete all such projects was approximately $62
million. Funding for completion of the in-process projects was expected
to be obtained from internally generated sources. Based on the cost
incurred at the acquisition dates and the milestones achieved by ANS and
CompuServe Network Services, in aggregate, ANS' projects were estimated
to be approximately 80% complete, while CompuServe Network Services'
projects were estimated to be approximately 60% complete.

The allocation of purchase price for the CompuServe merger and
the ANS transaction included allocations to developed technologies,
assembled work force, customer relationships and tradenames which are
being amortized on a straight-line basis over 10 years.

At the time of the allocation, total ANS and CompuServe Network
Services stand-alone revenues were projected to exceed $3.5 billion
within five years. This level of revenues implied a CAGR of
approximately 32%. Estimated total revenues from the acquired
in-process technology related to CompuServe Network Services peaked in
the year 2002 and steadily declined through 2006 as other new product
and service technologies were expected to be introduced by us.
Estimated total revenues from the acquired in-process technology related
to ANS peaked in the year 2004 and steadily declined through 2006.
These projections were based on management's estimates of market size
and growth, expected trends in technology, and the expected timing of
new product introductions. These projections, as well as the statements
above regarding estimated costs of completion, the likelihood of
successful completion, and other aspects of the IPR&D projects in the
future which were made as of the time of the acquisitions, constituted
forward-looking statements, and were not made with a view to public
disclosure and were based on a variety of estimates and judgements.

INTEREST EXPENSE. Interest expense for 1998 was $692 million or
3.9% of revenues, as compared to $450 million or 5.9% of revenues
reported for 1997. The increase in interest expense is attributable to
higher debt levels as the result of higher capital expenditures, the
1998 and 1997 fixed rate debt financings and the MCI merger. These
increases were offset by lower interest rates as a result of the tender
offer for certain outstanding debt in the first quarter of 1998 and
slightly lower rates in effect on our variable rate long-term debt. For
the twelve months ended December 31, 1998 and 1997, weighted average
annual interest rates on our long-term debt were 7.33% and 8.07%

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respectively, while weighted average annual levels of borrowing were
$12.7 billion and $6.3 billion, respectively.

PROVISION FOR INCOME TAXES. We recorded a tax provision of $877
million for the year ended December 31, 1998, on a pre-tax loss of $1.6
billion. Although we generated a consolidated pre-tax loss for the year
ended December 31, 1998, permanent non-deductible items aggregating
approximately $4.0 billion, resulted in the recognition of taxable
income. Included in the permanent non-deductible items was the $3.5
billion charge for IPR&D related to the MCI merger, CompuServe merger
and ANS transaction.

NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS. For the
year ended December 31, 1998, we reported a net loss of $2.8 billion as
compared to net income of $143 million reported for the year ended
December 31, 1997. Diluted loss per common share was $1.43 compared to
diluted earnings per common share of $0.09 per share for the comparable
1997 period.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2000, our total debt was $23.0 billion, an
increase of $4.8 billion from December 31, 1999. Additionally, at
September 30, 2000, we had available liquidity of $7.9 billion under our

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credit facilities and commercial paper program (which are described
below) and from available cash.

On May 24, 2000, we completed a public debt offering of $5.0
billion principal amount of debt securities. The net proceeds of $4.95
billion were used to pay down commercial paper obligations. The public
debt offering consisted of $1.5 billion of Floating Rate Notes Due 2001,
or the Floating Rate Notes, which mature on November 26, 2001, $1.0
billion of 7.875% Notes Due 2003, or the Notes Due 2003, which mature on
May 15, 2003, $1.25 billion of 8.000% Notes Due 2006, or the Notes Due
2006, which mature on May 15, 2006 and $1.25 billion of 8.250% Notes Due
2010, or the Notes Due 2010, which mature on May 15, 2010, or
collectively, with the Floating Rate Notes, the Notes Due 2003 and the
Notes Due 2006, the Notes. The Floating Rate Notes bear interest
payable quarterly on the 24th day of February, May, August and November,
beginning August 24, 2000. The Notes Due 2003, the Notes Due 2006 and
the Notes Due 2010 bear interest payable semiannually in arrears on May
15 and November 15 of each year, commencing on November 15, 2000.

The Notes Due 2006 and the Notes Due 2010 are redeemable, as a
whole or in part, at our option, at any time or from time to time, at
respective redemption prices equal to the greater of (i) 100% of the
principal amount of the Notes to be redeemed or (ii) the sum of the
present values of the Remaining Scheduled Payments (as defined therein)
discounted at the Treasury Rate (as defined therein) plus (a) 25 basis
points for the Notes Due 2006, and (b) 30 basis points for the Notes Due
2010.

On August 3, 2000, we extended our existing $7 billion 364-Day
Revolving Credit and Term Loan Agreement for a successive 364-day term
pursuant to a First Amendment and Renewal of the Amended and Restated
364-Day Revolving Credit and Term Loan Agreement, which we refer to as
the Facility C Loans. The Facility C Loans together with the $3.75
billion Amended and Restated Facility A Revolving Credit Agreement dated
August 6, 1998, which we refer to as the Facility A Loans, provide us
with aggregate credit facilities of $10.75 billion. We refer to both of
these facilities as the Credit Facilities. The Credit Facilities
provide liquidity support for our commercial paper program and will be
used for other general corporate purposes. The Facility A Loans mature
on June 30, 2002. The Facility C Loans mature on August 2, 2001;
provided, however, that we may elect at such time to convert up to $4
billion of the principal debt outstanding under the Facility C Loans
from revolving loans to term loans with a maturity date no later than
one year after the conversion. The Credit Facilities bear interest
payable in varying periods, depending on the interest period, not to
exceed six months, or with respect to any Eurodollar Rate Borrowing, 12
months if available to all lenders, at rates selected by us under the
terms of the Credit Facilities, including a Base Rate or Eurodollar
Rate, plus the applicable margin. The applicable margin for the
Eurodollar Rate Borrowing generally varies from 0.35% to 0.75% as to

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Facility A Loans and from 0.225% to 0.45% as to Facility C Loans, in
each case based upon the better of certain debt ratings. The Credit
Facilities are unsecured but include a negative pledge of our assets and
certain of our subsidiaries (subject to certain exceptions). The Credit
Facilities require compliance with a financial covenant based on the
ratio of total debt to total capitalization, calculated on a
consolidated basis. The Credit Facilities require compliance with
certain operating covenants which limit, among other things, the
incurrence of additional indebtedness by us and certain of our
subsidiaries, sales of assets and mergers and dissolutions, and which
covenants do not restrict distributions to shareholders, provided we are
not in default under the Credit Facilities. At September 30, 2000, we
were in compliance with these covenants. The Facility A Loans and the
Facility C Loans are subject to annual commitment fees not to exceed
0.25% and 0.15%, respectively, of any unborrowed portion of the
facilities.

In January 2000, each share of our Series C Preferred Stock was
redeemed by us for $50.75 in cash, or approximately $190 million in the
aggregate. The funds required to pay all amounts under the redemption
were obtained by us from available liquidity under our credit facilities
and commercial paper program.

In the third quarter of 2000, we paid the final installment of
R$795 million (U.S. $444 million) on the note due in connection with our
purchase of Embratel. Additionally, in the first quarter of 2000, $200
million of senior notes with an interest rate of 7.13% matured. The
funds utilized to repay this indebtedness were obtained from available
liquidity under our credit facilities and commercial paper program.

In the third quarter of 1999, we increased our $500 million
receivables purchase program to $2.0 billion. As of September 30, 2000,
the purchaser owned an undivided interest in a $3.7 billion pool of
receivables, which includes the $1.95 billion sold.

For the nine months ended September 30, 2000, our cash flow from
operations was $5.9 billion versus $7.9 billion for the comparable 1999
period. Our improved operating results were more than offset by a $633
million increase in accounts receivable at Embratel for the first nine
months of 2000 primarily due to Embratel's direct billing of customers
and the implementation of this new billing system during 2000.
Additionally, there were decreases in other current liabilities and
deferred taxes of $1.7 billion versus the prior year period. For the
year ended December 31, 1999, our cash flow from operations was $11.0
billion versus $4.2 billion in 1998 and $1.3 billion in 1997. This
increase was primarily attributable to the MCI merger, internal growth
and synergies and economies of scale resulting from network efficiencies
and selling, general and administrative cost savings achieved from the
assimilation of 1998 acquisitions into our operations.

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Cash used in investing activities for the nine months ended
September 30, 2000, totaled $10.6 billion. Primary capital expenditures
include purchases of switching, transmission, communications and other
equipment. We anticipate that approximately $2.5 billion will be spent
during the remainder of 2000 for transmission and communications
equipment, construction and other capital expenditures without regard to
Embratel.

Increases in interest rates on variable rate debt would have an
adverse effect upon our reported net income and cash flow. We believe
that we will generate sufficient cash flow to service our debt and
capital requirements; however, economic downturns, increased interest
rates and other adverse developments, including factors beyond our
control, could impair our ability to service our indebtedness. In
addition, the cash flow required to service our debt may reduce our
ability to fund internal growth, additional acquisitions and capital
improvements.

We believe that, if consummated, the Intermedia merger will fuel
our web hosting expansion, through the acquisition of the controlling
interest in Digex, by providing a comprehensive portfolio of
mission-critical hosting products and services for commercial
businesses. This will allow us to accelerate our ability to provide
world-class managed web and application hosting services by 12 to 18
months. Additionally, we expect that, after consummation of the
Intermedia merger, Digex will continue to build its operations and
expand its customer base, causing it to continue to incur operating
losses for the foreseeable future, which could adversely affect our
results of operations.

The development of our businesses and the installation and
expansion of our domestic and international networks will continue to
require significant capital expenditures. Failure to have access to
sufficient funds for capital expenditures on acceptable terms or the
failure to achieve capital expenditure synergies may require us to delay
or abandon some of our plans, which could have a material adverse effect
on our success. We have historically utilized a combination of cash
flow from operations and debt to finance capital expenditures and a
mixture of cash flow, debt and stock to finance acquisitions.
Additionally, we expect to experience increased capital intensity due to
network expansion as noted above and believe that funding needs in
excess of internally generated cash flow and our credit facilities and
commercial paper program will be met by accessing the debt markets. We
have filed a shelf registration statement on Form S-3 with the SEC for
the sale, from time to time, of one or more series of unsecured debt
securities having a remaining aggregate value of approximately $9.9
billion. The shelf registration statement offers us flexibility, as the
market permits, to access the public debt markets. No assurance can be
given that any public financing will be available on terms acceptable to
us.

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Absent significant capital requirements for acquisitions, we
believe that cash flow from operations and available liquidity,
including our credit facilities and commercial paper program and
available cash will be sufficient to meet our capital needs for the next
twelve months. However, under existing credit conditions, we believe
that funding needs in excess of internally generated cash flow and
availability under our credit facilities and commercial paper program
could be met by accessing debt markets.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 1999, the SEC issued Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). In
June 2000, the SEC issued an amendment to SAB 101 which allows registrants
to wait until the fourth quarter of their fiscal year beginning after
December 15, 1999 to implement SAB 101. SAB 101 provides guidance on
the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. The deferral of telecommunications
service activation fees and certain related costs are specifically
addressed in SAB 101. We are currently assessing the impact of SAB 101
on our consolidated results of operations or financial position and
there can be no assurance as to the effect on our consolidated financial
statements.

In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. This statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires a company to formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. This statement is currently effective for
fiscal years beginning after June 15, 2000 and cannot be applied
retroactively, although earlier adoption is encouraged. SFAS No. 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at our election,
before January 1, 1998). We believe that the adoption of this standard
will not have a material effect on our consolidated results of
operations or financial position.

EURO CONVERSION

On January 1, 1999, certain member countries of the European
Union established fixed conversion rates between their existing

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currencies and the European Union's common currency ("Euro"). The
transition period for the introduction of the Euro will be between
January 1, 1999 and July 1, 2002. All of the final rules and
regulations have not yet been identified by the European Commission with
regard to the Euro. We are currently evaluating methods to address the
many issues involved with the introduction of the Euro, including
converting information technology systems, recalculating currency risk,
recalibrating derivatives and other financial instruments, devising
strategies concerning continuity of contracts, and evaluating the impact
on the processes for preparing taxation and accounting records. At this
time, we have not yet determined the cost related to addressing this
issue, and there can be no assurance as to the effect of the Euro on our
consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of interest rate changes, foreign
currency fluctuations and changes in market values of our investments.

Our policy is to manage interest rates through the use of a
combination of fixed and variable rate debt. Currently, we do not use
derivative financial instruments to manage our interest rate risk. We
have minimal cash flow exposure due to general interest rate changes for
our fixed rate, long-term debt obligations. We do not believe a
hypothetical 10% adverse rate change in our variable rate debt
obligations would be material to our results of operations. The tables
below provide information about our risk exposure associated with
changing interest rates on long-term debt obligations that impact the
fair value of these obligations as of December 31, 1998 and 1999.

Long-term Debt (in millions of dollars) as of December 31, 1998
------------------------------------------------------------------------------------
Average Average Foreign Average
Fixed Interest Veritable Interest Interest Interest
Expected Maturity Rate Rate(%) Rate Rate (%) Denominated Rate (%)
----------------- -------- -------- -------- --------- ----------- -----------

<S> <C> <C> <C> <C> <C> <C>
1999 $ 1,385 8.26 $2,586 5.70 $ 786 11.44
2000 433 8.06 43 7.40 742 11.61
2001 1,598 6.34 50 7.40 81 8.53
2002 333 12.72 -- -- 79 8.54
2003 632 6.44 2,000 6.03 62 8.42
Thereafter 10,276 7.20 -- -- 119 7.82
-------- ------ ------
Total $14,657 $4,679 $1,869
Fair Value, ======== ====== ======
December 31,1998 $15,519 $4,679 $2,112
======== ====== ======
</TABLE>

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<TABLE>
<CAPTION>
Long-term Debt (in millions of dollars) as of December 31, 1999
----------------------------------------------------------------------------------
Average Average Foreign Average
Fixed Interest Variable Interest Currency Interest
Expected Maturity Rate Rate (%) Rate Rate (%) Denominated Rate (%)
----------------- ------- --------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
2000 $ 363 7.27 $3,876 5.48 $ 776 10.92
2001 1,642 6.38 -- -- 98 9.72
2002 71 7.50 -- -- 96 9.67
2003 628 6.29 -- -- 82 9.91
2004 1,053 7.52 -- -- 75 10.04
Thereafter 9,242 7.10 -- -- 141 11.61
------- ------ ------
Total $12,999 $3,876 $1,268
Fair Value, ======= ====== ======
December 31, 1999. $12,656 $3,876 $1,385
======= ====== ======
</TABLE>

We are exposed to foreign exchange rate risk primarily due to
Embratel's holding of approximately $587 million in U.S. dollar
denominated debt, and approximately $241 million of indebtedness indexed
in other foreign currencies including French Franc, Deutsche Mark,
Japanese Yen and Brazilian REAL as of December 31, 1999. Our potential
immediate loss that would result from a hypothetical 10% change in
foreign currency exchange rates based on this position would be
approximately $16 million (after elimination of minority interests). In
addition, if such change were to be sustained, our cost of financing
would increase in proportion to the change. During January 1999, the
Brazilian government allowed its currency to trade freely against other
currencies resulting in an immediate devaluation of the Brazilian REAL.
As of December 31, 1999, the Brazilian REAL had devalued over 32%
against the U.S. dollar since December 31, 1998. As a result, we
recorded a $171 million foreign currency loss to miscellaneous expense
during the year ended December 31, 1999. After the elimination of
minority interests, this charge totaled approximately $33 million on a
pre-tax basis. If this devaluation is sustained, or worsens, the net
impact to our results of operations could be significant.

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We are also subject to risk from changes in foreign exchange
rates for our international operations which use a foreign currency as
their functional currency and are translated into U.S. dollars.
Additionally, we have designated the note payable in local currency
installments, resulting from the Embratel investment, as a hedge of our
investment in Embratel. As of December 31, 1999, we recorded the change
in value of the note as a reduction to the note payable with the offset
through foreign currency translation adjustment in shareholders'
investment.

We believe our market risk exposure with regard to our
marketable equity securities is limited to changes in quoted market
prices for such securities. Based upon the composition of our
marketable equity securities at December 31, 1999, we do not believe a
hypothetical 10% adverse change in quoted market prices would be
material to net income.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE WORLDCOM GROUP
(AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

Investors should read the following discussion together with the
combined financial statements of the WorldCom group and the related
notes, and our consolidated financial statements and the related notes,
included in this document.

OVERVIEW

The WorldCom group stock is intended to reflect or "track" the
separate performance of our data, Internet, international and commercial
voice businesses. Through the WorldCom group we have an extensive,
advanced facilities-based global communications network. We provide a
broad range of integrated communications and managed network services to
both U.S. and non-U.S. based corporations. Offerings include data
services such as frame relay, asynchronous transfer mode and Internet
Protocol networks; Internet related services, including dedicated
access, virtual private networks, digital subscriber lines, web centers
encompassing application and server hosting and managed data services;
commercial voice services; and international services.

WorldCom group includes the results of operations shown in the
combined statements of operations and the attributed assets and the
attributed liabilities shown in the combined balance sheets of our
WorldCom group. If we acquire interests in other businesses, we intend
to attribute those assets and any related liabilities to our WorldCom
group or our MCI group in accordance with our tracking stock policy
statement. All net income and cash flows generated by the assets will be
attributed to our WorldCom group and all net proceeds from any disposition
of these assets will also be attributed to our WorldCom group.

Although we sometimes refer to such assets and liabilities as
those of the WorldCom group, the WorldCom group is not a separate legal
entity. Rather, all of the assets of the WorldCom group are owned by
WorldCom and holders of the WorldCom group stock will be shareholders of
WorldCom and subject to all of the risks of an investment in WorldCom
and all of its businesses, assets and liabilities.

The attribution to the WorldCom group of assets, liabilities,
equity, revenues and expenses reflected in WorldCom's financial
statements is primarily based on specific identification of those
businesses listed above which are consolidated in accordance with
generally accepted accounting principles in the consolidated financial
statements of WorldCom. Where specific identification was impractical,
other allocation methods and criteria were used that management believes
are equitable and provide a reasonable estimate of the assets,
liabilities, equity, revenues and expenses attributable to the WorldCom
group. Equity investments of WorldCom that operate in WorldCom group

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<PAGE>

businesses have also been attributed to the WorldCom group. WorldCom's
shared corporate services and related balance sheet amounts (such as
executive management, human resources, legal, regulatory, accounting,
tax, treasury, strategic planning and information systems support) have
been assigned to WorldCom group or MCI group based upon identification
of such services specifically benefiting each group. Where
determinations based on specific usage alone have been impractical,
other methods and criteria were used that management believes are
equitable and provide a reasonable estimate of the cost attributable to
each group.

We intend, for so long as the WorldCom group stock remains
outstanding, to include in filings by WorldCom under the Securities
Exchange Act of 1934, as amended, the combined financial statements of
the WorldCom group. These combined financial statements will be
prepared in accordance with generally accepted accounting principles,
and in the case of annual financial statements, will be audited. These
combined financial statements are not legally required under current law
or SEC regulations.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the
WorldCom group's statements of operations as a percentage of its
revenues for the periods indicated:

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<TABLE>
<CAPTION>
For the Nine Months
For the Years Ended December 31, Ended September 30,
---------------------------------- ----------------------
1997 1998 1999 2000
Unaudited Unaudited 1999 Unaudited Unaudited
--------- --------- ----- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Line costs . . . . . . . . . . . . . . . . 54.1 48.9 40.1 42.0 37.9
Selling, general and administrative. . . . 22.9 22.6 21.3 21.9 24.9
Depreciation and amortization . . . . . . 20.4 17.8 15.3 15.6 14.1
In-process research and development and
other charges. . . . . . . . . . . . . . -- 25.2 -- -- --
Operating income(loss) . . . . . . . . . . 2.6 (14.5) 23.5 20.5 23.2
Other income (expense):
Interest expense . . . . . . . . . . . . 2.7 (1.8) (2.3) (2.5) (1.9)
Miscellaneous. . . . . . . . . . . . . . 1.1 0.4 1.2 0.3 1.9
----- ----- ----- ------ ------
Income (loss) before income taxes,
minority interest and extraordinary
items. . . . . . . . . . . . . . . . . . 6.4 (15.9) 22.3 18.4 23.2
Provision for income taxes . . . . . . . . 6.6 4.2 9.4 7.8 9.5
----- ----- ----- ------ ------
Income (loss) before minority interests
and extraordinary items. . . . . . . . . (0.2) (20.1) 12.9 10.5 13.7
Minority interests . . . . . . . . . . . . -- (0.9) (0.9) (0.6) (1.3)
Extraordinary items. . . . . . . . . . . . (0.1) (1.3) -- -- --
Preferred dividends and distributions on
subsidiary trust mandatorily redeemable
preferred securities . . . . . . . . . . 0.9 0.4 0.4 0.4 0.3
----- ------ ----- ------ ------
Net income (loss). . . . . . . . . . . . . (1.2)% (22.7)% 11.6% 9.5% 12.1%
====== --==== ===== ====== ======
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1999 VS.
NINE MONTHS ENDED SEPTEMBER 30, 2000

REVENUES. Revenues for the nine months ended September 30,
2000, increased 15.5% to $16.9 billion versus $14.6 billion for the same
period in the prior year. The increase in total revenues is
attributable to internal growth of the WorldCom group.

Revenues and line costs for periods prior to September 30, 2000
reflect a classification change for reciprocal compensation which is now
being treated as an offset to cost of sales. Previously, the WorldCom
group recorded reciprocal compensation on a gross basis as revenue.

Actual reported revenues by category for the nine months ended
September 30, 1999 and 2000 reflect the following changes by category
(dollars in millions):

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Nine Months Ended
September 30,
--------------------------------
Percent
1999 2000 Change
----- ------- ---------
COMMERCIAL SERVICES REVENUES

Voice......................... $ 5,590 $ 5,328 (4.7)
Data.......................... 4,262 5,474 28.4
International................. 3,204 4,339 35.4
Internet...................... 1,069 1,777 66.2
-------- ------- -----
TOTAL COMMERCIAL SERVICES REVENUES.. 14,125 16,918 19.8
Other.......................... 523 -- --
-------- -------
TOTAL $14,648 $16,918 15.5
======== =======

Voice revenues for the nine months ended September 30, 2000
decreased 4.7% over the prior year period on traffic growth of 5.2% as a
result of pricing pressure in the commercial markets. The revenue
decrease was partially offset by local voice revenue increases of 19.2%
and wireless voice revenue increases of 98.1% for the nine months ended
September 30, 2000. The WorldCom group continues to show significant
percentage gains in local voice services as customers purchase
"all-distance" voice services from the WorldCom group. However, local
revenues and wireless voice revenues are still a relatively small
component of total commercial voice revenues. Voice revenues include
both domestic commercial long distance and local switched revenues.

Data revenues for the nine months ended September 30, 2000,
increased 28.4% over the prior year period. Data includes both
commercial long distance and local dedicated bandwidth sales. The
revenue growth for data services was driven by steady growth in private
line customers, new customer applications and upgrades within the
existing customer base of frame relay services and increased demand in
ATM services. The WorldCom group continues to experience strong demand
for capacity increases across the product set as businesses move more of
their mission-critical applications to their own networks. As of
September 30, 2000, the WorldCom group's domestic local VGEs had
increased 100% to 55.5 million versus the same period of the prior year.

International revenues for the nine months ended September 30,
2000 were $4.3 billion, an increase of 35.4% as compared with $3.2

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billion for the same period of the prior year. Excluding Embratel,
international revenues for the nine months ended September 30, 2000
increased 49.1% over the prior year period. The increase is
attributable to additional sales force and network infrastructure
established to pursue international opportunities. During the first
nine months of 2000 the WorldCom group continued to extend the reach of
its end-to-end networks, adding nearly 5,000 buildings for a total of
over 15,000 buildings connected on the international networks.

Internet revenues for the nine months ended September 30, 2000
increased 66.2% over the prior year period. Growth was driven by demand
for dedicated circuits as business customers migrated their data
networks and applications to Internet-based technologies with greater
amounts of bandwidth. Internet revenues include dedicated Internet
access, managed networking services and applications (such as virtual
private networks), web hosting and electronic commerce and transaction
services (such as web centers and credit card transaction processing).

Other revenues which, prior to April 1999, primarily consisted
of the operations of SHL, were zero for the nine month period ended
September 30, 2000 and $523 million for the nine months ended September
30, 1999. In April 1999, the WorldCom group completed the sale of SHL
to EDS for $1.6 billion.

LINE COSTS. Line costs as a percentage of revenues for the nine
months ended September 30, 2000 decreased to 37.9% as compared to 42.0%
reported for the same period of the prior year. The overall improvement
is a result of annual access reform reductions, more data and dedicated
Internet traffic over WorldCom-owned facilities, and improved
interconnection terms in Europe.

The principal components of line costs are access charges and
transport charges. Regulators have historically permitted access
charges to be set at levels that are well above ILECs' costs. As a
result, access charges have been a source of universal service subsidies
that enable local exchange rates to be set at levels that are
affordable. The WorldCom group has actively participated in a variety
of state and federal regulatory proceedings with the goal of bringing
access charges to cost-based levels and to fund universal service using
explicit subsidies funded in a competitively neutral manner. The
WorldCom group cannot predict the outcome of these proceedings or
whether or not the result(s) will have a material adverse impact on our
combined financial position or results of operations. However, the
WorldCom group's goal is to manage transport costs through effective
utilization of its networks, favorable contracts with carriers and
network efficiencies made possible as a result of expansion of the
WorldCom group's customer base.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the nine months ended September 30, 2000

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were $4.2 billion or 24.9% of revenues as compared to $3.2 billion or
21.9% of revenues for the nine months ended September 30, 1999.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 includes a $340 million pre-tax charge associated
with specific accounts that were deemed uncollectible due to
bankruptcies, litigation and settlements of contractual disputes that
occurred in the third quarter of 2000, and a $93 million pre-tax
one-time charge recorded in the second quarter of 2000 associated with
the termination of the Sprint merger agreement, including regulatory,
legal, accounting and investment banking fees and other costs.
Excluding these charges, selling, general and administrative expenses as
a percentage of revenues were 22.3% for the nine months ended September
30, 2000. Selling, general and administrative expenses for the nine
months ended September 30, 2000 includes increased costs associated with
"generation d" initiatives that include product marketing, customer
care, information system and product development, employee retention
costs, and costs associated with MMDS product development. The WorldCom
group expects selling, general and administrative expenses to increase
over the next twelve months as a result of the previously noted costs
being incurred at an accelerated pace.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for the nine months ended September 30, 2000 increased to $2.4
billion or 14.1% of revenues from $2.3 billion or 15.6% of revenues for
the comparable 1999 period. This increase reflects increased
depreciation associated with increased capital expenditures. As a
percentage of revenues, these costs decreased due to the higher revenue
base.

INTEREST EXPENSE. Interest expense for the nine months ended
September 30, 2000 was $318 million or 1.9% of revenues as compared to
$369 million or 2.5% of revenues for the first nine months of 1999.
Interest expense on borrowings incurred by WorldCom and allocated to the
WorldCom group reflects the difference between WorldCom's actual interest
expense and the interest expense allocated to the MCI group. The MCI
group was allocated interest based on the weighted average interest rate,
excluding capitalized interest, of WorldCom debt plus a spread of 1-1/4
percent calculated on a quarterly basis.

MISCELLANEOUS INCOME AND EXPENSE. Miscellaneous income for the
nine months ended September 30, 2000 was $327 million or 1.9% of
revenues as compared to $48 million or 0.3% of revenues for the first
nine months of 1999. Miscellaneous income includes investment income,
equity in income and losses of affiliated companies, the effects of
fluctuations in exchange rates for transactions denominated in foreign
currencies, gains and losses on the sale of assets and other
non-operating items.

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NET INCOME. For the nine months ended September 30, 2000, the
WorldCom group reported net income of $2.0 billion as compared to $1.4
billion for the nine months ended September 30, 1999.

YEAR ENDED DECEMBER 31, 1998 VS.
YEAR ENDED DECEMBER 31, 1999

REVENUES. Revenues for 1999 increased 101.2% to $19.7 billion
as compared to $9.8 billion for 1998. The increase in total revenues is
attributable to the MCI merger and Embratel acquisition as well as
internal growth. Results include MCI and Embratel operations from
September 14, 1998, and CompuServe Network Services and ANS from
February 1, 1998.

Actual reported revenues by category for the years ended
December 31, 1998, and 1999 reflect the following changes by category
(dollars in millions):

Actual Actual Percent
1998 1999 Change
------- ------- ----------
COMMERCIAL SERVICES REVENUES
Voice...................... $ 3,422 $ 7,433 117.2
Data....................... 2,644 5,830 120.5
International.............. 2,272 4,396 93.5
Internet................... 897 1,554 73.2
------- -------
TOTAL COMMERCIAL SERVICES
REVENUES......................... 9,235 19,213 108.0
Other.................... .... 574 523 (8.9)
------- -------
TOTAL REPORTED REVENUES........... $ 9,809 $19,736 101.2
======= =======

The following table provides supplemental pro forma detail for
the WorldCom group revenues. Since actual results for 1998 only reflect
the operations of MCI after September 14, 1998, and eleven months of
CompuServe Network Services and ANS, the pro forma results are more
indicative of internal growth for the combined company. The pro forma
revenues, excluding Embratel, for the year ended December 31, 1998 and
actual revenues for 1999, excluding Embratel, reflect the following
changes by category (dollars in millions):

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<PAGE>
Pro Forma Actual Percent
1998 1999 Change
---------- --------- ---------

COMMERCIAL SERVICES REVENUES
Voice......................... $ 6,764 $ 7,433 9.9
Data ......................... 4,733 5,830 23.2
International................. 1,090 1,624 49.0
Internet...................... 943 1,554 64.8
------- -------
TOTAL COMMERCIAL
SERVICES REVENUES................ 13,530 16,441 21.5
Other......................... 1,733 523 (69.8)
------- -------
TOTAL REVENUES..................... $15,263 $16,964 11.1
======= =======

The following discusses the revenue increases for the year ended
December 31, 1999 as compared to pro forma results for the comparable
prior year period. The pro forma revenues assume that the MCI merger,
CompuServe merger and the ANS transaction occurred at the beginning of
1998. These pro forma revenues do not include Embratel or the iMCI
business that was sold. Changes in actual results of operations as a
percentage of revenues are shown in the foregoing tables and, as noted
above, primarily reflect the MCI merger, the Embratel acquisition and
internal growth of the WorldCom group.

Voice revenues for 1999 experienced a 9.9% increase over the
prior year pro forma amount, driven by a gain of 6.6% in traffic as a
result of customers purchasing "all-distance" voice services from the
WorldCom group. Local voice revenues grew 113% in 1999 versus the same
period of the prior year, but remained a relatively small component of
voice revenues for 1999. These volume and revenue gains were offset
partially by federally mandated access charge reductions that were
passed through to the customer.

Data revenues for 1999 increased 23.2% over the same pro forma
period of the prior year. The revenue growth for data services continued
to be driven by significant commercial end-user demand for high-speed
data and by Internet-related growth on both a local and long-haul basis.
This growth was driven by connectivity demands and also by corporate
enterprise applications that have become more strategic, far reaching
and complex. In addition, bandwidth consumption drove an acceleration
in growth for higher capacity circuits. As of December 31, 1999, the
WorldCom group had approximately 33.1 million domestic local VGEs and
over 39,000 buildings in the United States connected over its

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high-capacity circuits. Domestic local route miles of connected fiber
exceeded 8,000 and domestic long distance route miles exceeded 47,000 as
of December 31, 1999.

International revenues excluding Embratel for 1999 were $1.6
billion, an increase of 49.0% as compared with $1.1 billion for the same
pro forma period of the prior year. The WorldCom group continued to
extend the reach of its end-to-end networks and as of December 31, 1999,
provided the WorldCom group the capability to connect approximately
10,000 buildings in Europe, all over our high-capacity circuits.

Internet revenues for 1999 increased 64.8% over the prior year
pro forma amount. Growth was driven by more business customers
migrating their data networks and applications to Internet-based
technologies. During 1999, the WorldCom group increased the capacity of
its global Internet network to OC-48 in response to the increasing
backbone transport requirements of its commercial accounts.

Other revenues, which primarily consist of the operations of
SHL, for 1999 were $523 million, a decrease of 69.8% versus $1.7 billion
for the pro forma period of the prior year. In April 1999, the WorldCom
group completed the sale of SHL to EDS for $1.6 billion.

The following discusses the actual results of operations for the
year ended December 31, 1999, as compared to the year ended December 31,
1998.

LINE COSTS. Line costs as a percentage of revenues for 1999
were 40.1% as compared to 48.9% reported for the same period in the
prior year. Overall decreases are attributable to changes in the product
mix and synergies and economies of scale resulting from network
efficiencies achieved from the continued assimilation of MCI, CompuServe
Network Services, ANS and WorldCom's operations. Additionally, access
charge reductions that occurred in January 1999 and July 1999 reduced
total line cost expense by approximately $138 million for 1999. While
access charge reductions were primarily passed through to customers,
line costs as a percentage of revenues were positively affected by
almost half a percentage point for 1999.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for 1999 were $4.2 billion or 21.3% of revenues
as compared to $2.2 billion or 22.6% of revenues for 1998. The decrease
in selling, general and administrative expenses as a percentage of
revenues for 1999 reflects scale savings in corporate overhead and
operations from merging the MCI and WorldCom organizations.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for 1999 increased to $3.0 billion or 15.3% of revenues from
$1.7 billion or 17.8% of revenues for 1998. This increase reflects
increased amortization and depreciation associated with the MCI merger,

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CompuServe merger and ANS transaction as well as additional depreciation
related to capital expenditures. As a percentage of revenues, these
costs decreased due to the higher revenue base.

IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES. In 1998,
the WorldCom group recorded a pre-tax charge of $177 million in
connection with the Brooks Fiber Properties merger, the MCI merger and
certain asset write-downs and loss contingencies. Such charges included
$21 million for employee severance, $17 million for Brooks Fiber
Properties direct merger costs, $38 million for conformance of Brooks
Fiber Properties accounting policies, $37 million for exit costs under
long-term commitments, $31 million for the write-down of a permanently
impaired investment and $33 million related to certain asset write-downs
and loss contingencies. The $37 million related to long-term commitments
includes $33 million of minimum commitments between 1999 and 2008 for
leased facilities that the WorldCom group has or will abandon, and $4
million of other commitments. Because of organizational and operational
changes that occurred, management concluded in 1999 that certain leased
properties would not be abandoned according to the original plan that
was approved by management. Therefore, in 1999 a reversal of a $9
million charge to IPR&D and other charges was recorded in connection
with this plan amendment. Additionally, the $33 million related to
certain asset write-downs and loss contingencies includes $9 million for
the decommission of certain information systems that have no alternative
future use, $9 million for the write-down to fair value of certain
assets held for sale that were disposed of in 1998 and $15 million
related to legal costs and other items related to Brooks Fiber
Properties. As of December 31, 1999 and 1998, the WorldCom group's
remaining unpaid liability related to the above charges was $27 million
and $66 million, respectively.

In connection with certain 1998 business combinations, WorldCom
made allocations of the purchase price to acquired IPR&D totaling $429
million in the first quarter of 1998 related to the CompuServe merger
and ANS transaction and $3.1 billion in the third quarter of 1998
related to the MCI merger. These allocations represent the estimated
fair value based on risk-adjusted future cash flows related to the
incomplete projects. At the date of the respective business
combinations, the development of these projects had not yet reached
technological feasibility and the R&D in progress had no alternative
future uses. Accordingly, these costs were expensed as of the
respective acquisition dates.

Based on the respective fair values of the related operations
allocated to each group, $2.3 billion of the IPR&D charge was allocated
to the WorldCom group. Management believes that this method of
allocation provides a reasonable estimate of the IPR&D charges
attributable to each group. For specific discussion and disclosures of
the components of the IPR&D charges noted above, see WorldCom's

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

INTEREST EXPENSE. Interest expense for 1999 was $460 million or
2.3% of revenues, as compared to $180 million or 1.8% of revenues
reported for 1998. Interest expense on borrowings incurred by WorldCom
and allocated to the WorldCom group reflects the difference between
WorldCom's actual interest expense and the interest expense allocated to
the MCI group. The MCI group was allocated interest based on the
weighted average interest rate, excluding capitalized interest, of
WorldCom debt plus a spread of 1 1/4 percent calculated on a quarterly
basis.

MISCELLANEOUS INCOME AND EXPENSE. Miscellaneous income for 1999
was $237 million or 1.2% of revenues as compared to $44 million or 0.4%
of revenues reported for 1998. Miscellaneous income and expense for 1999
includes $374 million of gains on securities sold, offset by $171
million of foreign currency translation losses related to the impact of
the local currency devaluation in Brazil and its effect on Embratel's
holdings of U.S. dollar and other foreign currency denominated debt.
Also included in miscellaneous income and expense for 1999 was a $62
million charge related to the redemption of certain outstanding senior
notes of the WorldCom group.

PROVISION FOR INCOME TAXES. The effective income tax rate for
1999 was 42.1% of income before taxes. The 1999 rate is greater than the
expected federal statutory rate of 35% primarily due to the fact that
amortization of the goodwill related to the MCI merger is not deductible
for tax purposes. Excluding the nondeductible amortization of goodwill,
WorldCom group's effective income tax rate would have been 35.4%.

EXTRAORDINARY ITEMS. In the first quarter of 1998, the WorldCom
group recorded an extraordinary item totaling $129 million, net of
income tax benefit of $78 million. The charge was recorded in
connection with the tender offers and certain related refinancings of
WorldCom's outstanding debt from the Brooks Fiber Properties merger.

NET INCOME (LOSS). For 1999, the WorldCom group reported net
income of $2.3 billion as compared to a net loss of $2.2 billion
reported for 1998.

YEAR ENDED DECEMBER 31, 1997 VS.
YEAR ENDED DECEMBER 31, 1998

REVENUES. Revenues for 1998 increased 138% to $9.8 billion as
compared to $4.1 billion for 1997. The increase in total revenues is
attributable to the MCI merger, the CompuServe merger and the ANS
transaction as well as internal growth. Results for 1998 include MCI
and Embratel operations from September 14, 1998.

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Actual reported revenues by category and associated revenue
increases for the years ended December 31, 1997 and 1998 reflect the
following changes by category (dollars in millions):

Actual Actual Percent
1997 1998 Change
------- ------- -------
COMMERCIAL SERVICES REVENUES
Voice....................... $ 1,556 $3,422 119.9
Data........................ 1,215 2,644 117.6
International............... 726 2,272 212.9
Internet.................... 216 897 315.3
------- ------
TOTAL COMMERCIAL
SERVICES REVENUES.............. 3,713 9,235 148.7
Other....................... 412 574 39.3
------- ------
TOTAL REPORTED REVENUES.......... $ 4,125 $9,809 137.8
======= ======

The following table provides supplemental pro forma detail for
the WorldCom group revenues. Since actual results for 1998 only reflect
108 days of operations for MCI and eleven months of CompuServe Network
Services and ANS, the pro forma results are more indicative of internal
growth for the combined company. The pro forma revenues, excluding
Embratel, for the years ended December 31, 1997 and 1998 reflect the
following changes by category (dollars in millions):

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<PAGE>

Pro Forma Pro Forma Percent
1997 1998 Change
--------- -------- -------

COMMERCIAL SERVICES REVENUES
Voice........................ $ 6,367 $ 6,764 6.2
Data......................... 3,668 4,733 29.0
International................ 726 1,090 50.1
Internet..................... 585 943 61.2
------- -------
TOTAL COMMERCIAL
services revenues................ 11,346 13,530 19.2
Other......................... 1,999 1,733 (13.3)
------- -------
$13,345 $15,263 14.4
======= =======

The following discusses the pro forma revenue increases for the
year ended December 31, 1998 as compared to pro forma revenues for the
comparable prior year period. The pro forma revenues assume that the
MCI merger, CompuServe merger and the ANS transaction occurred at the
beginning of 1997. These pro forma revenues do not include Embratel or
the iMCI business that was sold. Changes in actual results of
operations as a percentage of revenues are shown in the foregoing tables
and, as noted above, primarily reflect the MCI merger, CompuServe
merger, ANS transaction and internal growth of the WorldCom group.

Pro forma data revenues for 1998 increased 29.0% year-over-year.
The revenue growth for data services continued to be driven by
Internet-related growth on both a local and long-haul basis. This
growth was not only fueled by connectivity demands, but also by
applications that have become more strategic, far reaching and complex;
additionally, bandwidth consumption drove an acceleration in growth for
higher capacity circuits. Rapidly growing demand for higher bandwidth
services contributed to a 48% pro forma year-over-year local data
revenue growth for 1998. As of December 31, 1998, the WorldCom group
had approximately 17 million domestic local VGEs and approximately

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34,000 buildings in the U.S., connected over its high-capacity circuits.
Domestic local route miles of connected fiber exceeded 7,800 and
domestic long distance route miles exceeded 45,000 at December 31, 1998.

Pro forma international revenues excluding Embratel for 1998
were $1.1 billion, an increase of 50.1% as compared with $726 million
for the same pro forma period of the prior year. Significant percentage
gains in international revenues were achieved in continental Europe in
response to the WorldCom group's rapidly expanding networks and sales
effort. In July 1998, the Pan-European network was commissioned for
service and as of December 31, 1998 provided the WorldCom group the
capability to connect from end-to-end over 5,500 buildings in Europe all
over its high capacity circuits. In Europe, the WorldCom group had over
900 route miles of local fiber and over 1,700 long distance route miles
at December 31, 1998.

Pro forma Internet revenues for 1998 increased 61.2% over the
1997 pro forma amount. Growth was driven by dedicated connectivity to
the Internet as more and more business customers migrated their data
networks and applications to Internet-based technologies.

The following discusses the actual results of operations for the
year ended December 31, 1998 as compared to the year ended December 31,
1997.

LINE COSTS. Line costs as a percentage of revenues for 1998
were 48.9% compared to 54.1% reported for the same period of the
prior year. Overall decreases are attributable to changes in the
product mix and synergies and economies of scale resulting from network
efficiencies achieved from the assimilation of MCI, CompuServe Network
Services, ANS and WorldCom's operations and were offset in part by new
universal service fund costs recorded for the 1998 year. Additionally,
access charge reductions beginning in July 1997 reduced total line cost
expense by approximately $75 million in 1998. While access charge
reductions were primarily passed through to the customer, line costs as
a percentage of revenues were positively affected by almost half a
percentage point for 1998.

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SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for 1998 were $2.2 billion or 22.6% of revenues
as compared to $943 million or 22.9% of revenues in 1997. The increase
in selling, general and administrative expenses for 1998, which includes
MCI for 108 days, reflects WorldCom group's expanding operations,
primarily through the MCI merger. As a percentage of revenues, these
costs decreased due to the higher revenue base.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for 1998 increased to $1.7 billion or 17.8% of revenues from
$842 million or 20.4% of revenues for 1997. The increase reflects
increased amortization associated with the MCI merger, CompuServe merger
and ANS transaction and additional depreciation related to capital
expenditures. As a percentage of revenues, these costs decreased due to
the higher revenue base.

IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES. In 1998,
the WorldCom group recorded a pre-tax charge of $177 million in
connection with the Brooks Fiber Properties merger, the MCI merger, and
certain asset write-downs and loss contingencies. Such charges included
$21 million for employee severance, $17 million for Brooks Fiber
Properties direct merger costs, $38 million for conformance of Brooks
Fiber Properties accounting policies, $37 million for exit costs under
long-term commitments, $31 million for write-down of a permanently
impaired investment, and $33 million related to certain asset
write-downs and loss contingencies. The $37 million related to long-term
commitments includes $33 million of minimum commitments between 1999 and
2008 for leased facilities that the WorldCom group has or will abandon,
and $4 million of other commitments. Additionally, the $33 million
related to certain asset write-downs and loss contingencies includes $9
million for the decommission of certain information systems that have no
alternative future use, $9 million for the write-down to fair value of
certain assets held for sale that were disposed of in 1998 and $15
million related to legal costs and other items related to Brooks Fiber
Properties.

Based on the respective fair values of the related operations
allocated to each group, $2.3 billion of the IPR&D charge was allocated

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to the WorldCom group. Management believes that this method of
allocation provides a reasonable estimate of the IPR&D charges
attributable to each group. For specific discussion and disclosures of
the components of the IPR&D charges noted above, see WorldCom's
Management's Discussion and Analysis of Financial Condition and Results
of Operations.

INTEREST EXPENSE. Interest expense for 1998 was $180 million or
1.8% of revenues, as compared to interest income of $110 million or 2.7%
of revenues reported for 1997. Interest expense on borrowing incurred
by WorldCom and allocated to the WorldCom group reflects the difference
between WorldCom's actual interest expense and the interest expense
allocated to the MCI group. The MCI group was allocated interest based
on the weighted average interest rate, excluding capitalized interest,
of WorldCom debt calculated plus a spread of 1 1/4 percent on a quarterly
basis. Since the resultant interest expense allocated to the MCI group
in 1997 was higher than total WorldCom interest expense, net of
capitalized interest, the WorldCom group reported interest income for
1997.

PROVISION FOR INCOME TAXES. The WorldCom group recorded a tax
provision of $409 million for the year ended December 31, 1998, on a
pre-tax loss of $1.6 billion. Although the WorldCom group generated a
combined pre-tax loss for the year ended December 31, 1998, permanent
non-deductible items aggregating approximately $2.7 billion resulted in
the recognition of taxable income. Included in the permanent
non-deductible items was the $2.3 billion charge for IPR&D related to
the MCI merger and CompuServe merger.

NET INCOME (LOSS). For the year ended December 31, 1998, the
WorldCom group reported a net loss of $2.2 billion as compared to net
loss of $51 million reported for the year ended December 31, 1997.
Liquidity and Capital Resources

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2000, the WorldCom group's total allocated
debt was $17.0 billion, an increase of $4.8 billion from December 31,
1999. WorldCom management has a wide degree of discretion over the cash
management policies of both the WorldCom group and the MCI group. Cash
generated by either group could be moved in and out of either group
without prior approval of WorldCom's shareholders. See "WorldCom's
Management's Discussion and Analysis of Financial Condition and Results

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of Operations -- Liquidity and Capital Resources" for a further
discussion of liquidity.

In the third quarter of 1999, WorldCom increased its $500
million receivables purchase program to $2.0 billion. As of September
30, 2000, the purchaser owned an undivided interest in a $3.7 billion
pool of receivables, which includes the $1.95 billion sold, of which
$1.6 billion relates to the WorldCom group. The receivables sold were
assigned to the WorldCom group and the MCI group based on specific
identification where practical, or allocated based on total revenues.

The WorldCom group's cash flow from operations was $4.3 billion
for the nine-month period ended September 30, 2000 versus $5.0 billion
the same period in the prior year. The WorldCom group's improved
operating results were more than offset by a $1.7 billion increase in
accounts receivable for the first nine months of 2000, including $633
million at Embratel primarily due to Embratel's direct billing of
customers and the implementation of this new billing system during 2000.

Cash used in investing activities for the nine months ended
September 30, 2000, totaled $10.1 billion. Primary capital expenditures
include purchases of switching, transmission, communications and other
equipment. The WorldCom group anticipates that approximately $2.4
billion will be spent during the remainder of 2000 for transmission and
communications equipment, construction and other capital expenditures
without regard to Embratel.

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We believe that, if consummated, the Intermedia merger will fuel
our web hosting expansion, through the acquisition of the controlling
interest in Digex, by providing a comprehensive portfolio of mission
critical hosting products and services for commercial businesses. This
will allow us to accelerate our ability to provide world-class managed
web and application hosting services by 12 to 18 months. Additionally,
we expect that, after consummation of the Intermedia merger, Digex will
continue to build its operations and expand its customer base, causing
it to continue to incur operating losses for the foreseeable future,
which could adversely affect our results of operations.

RECENTLY ISSUED ACCOUNTING STANDARDS

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service activation fees and certain related costs are specifically
addressed in SAB 101. We are currently assessing the impact of SAB 101
on our results of operations or financial position and there can be no
assurance as to the effect on the WorldCom group's combined financial
statements.

In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. This statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires a company to formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. This statement is currently effective for
fiscal years beginning after June 15, 2000 and cannot be applied
retroactively, although earlier adoption is encouraged. SFAS No. 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the WorldCom
group's election, before January 1, 1998). We believe that the adoption
of this standard will not have a material effect on the WorldCom group's
combined results of operations or financial position.

EURO CONVERSION

On January 1, 1999, certain member countries of the European
Union established fixed conversion rates between their existing
currencies and the European Union's common currency ("Euro"). The
transition period for the introduction of the Euro will be between
January 1, 1999 and July 1, 2002. All of the final rules and
regulations have not yet been identified by the European Commission with
regard to the Euro. We are currently evaluating methods to address the
many issues involved with the introduction of the Euro, including
converting information technology systems, recalculating currency risk,
recalibrating derivatives and other financial instruments, devising
strategies concerning continuity of contracts, and evaluating the impact
on the processes for preparing taxation and accounting records. At this
time, we have not yet determined the cost related to addressing this
issue, and there can be no assurance as to the effect of the Euro on the
combined financial statements.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)

Investors should read the following discussion together with the
combined financial statements of the MCI group and the related notes,
and our consolidated financial statements and the related notes,
included in this document.

OVERVIEW

The MCI group stock is intended to reflect or "track" the
separate performance of our consumer, small business, wholesale long
distance, wireless messaging and dial-up Internet access businesses.

Through the MCI group we provide a broad range of retail and
wholesale communications services, including long distance voice
communications, consumer local voice telecommunications, wireless
messaging, private line services and dial-up Internet access services.
Our retail services are provided to consumers and small businesses in
the United States. We are the second largest carrier of long distance
telecommunications services in the United States. We provide a wide
range of long distance telecommunications services, including: basic
long distance telephone service, dial around, collect calling, operator
assistance and calling card services (including prepaid calling cards)
and toll free or 800 services. We offer these services individually and
in combinations. Through combined offerings, we provide customers with
benefits such as single billing, unified services for multi-location
companies and customized calling plans. Our wholesale businesses
include wholesale voice services provided to carrier customers and other
resellers and dial-up Internet access services.

The MCI group includes the results of operations shown in the
combined statements of operations and the attributed assets and the
attributed liabilities shown in the combined balance sheets of our MCI
group. If we acquire interests in other businesses, we intend to
attribute those assets and any related liabilities to our MCI group or
our WorldCom group in accordance with our tracking stock policy statement.
All net income and cash flows generated by the assets will be attributed
to our MCI group and all net proceeds from any disposition of these assets
will also be attributed to our MCI group.

Although we sometimes refer to such assets and liabilities as
those of the MCI group, the MCI group is not a separate legal entity.
Rather, all of the assets of the MCI group are owned by WorldCom and
holders of the MCI group stock will be shareholders of WorldCom and
subject to all of the risks of an investment in WorldCom and all of its
businesses, assets and liabilities.

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The attribution to the MCI group of assets, liabilities, equity,
revenues and expenses reflected in WorldCom's consolidated financial
statements is primarily based on specific identification of those
businesses listed above which are consolidated in accordance with
generally accepted accounting principles in the consolidated financial
statements of WorldCom. Where specific identification was impractical,
other methods and criteria were used that management believes are
equitable and provide a reasonable estimate of the assets, liabilities,
equity, revenues and expenses attributable to the MCI group. WorldCom's
shared corporate services and related balance sheet amounts (such as
executive management, human resources, legal, regulatory, accounting,
tax, treasury, strategic planning and information systems support) have
been assigned to WorldCom group or MCI group based upon identification
of such services specifically benefiting each group. Where
determinations based on specific usage alone have been impractical,
other methods and criteria were used that management believes are
equitable and provide a reasonable estimate of the cost attributable to
each group. For purposes of the historical financial statements, debt
allocated to the MCI group was determined to bear an interest rate equal
to the weighted average interest rate of WorldCom, Inc.

We intend, for so long as the MCI group stock remains
outstanding, to include in filings by WorldCom under the Securities
Exchange Act of 1934, as amended, the combined financial statements of
the MCI group. These combined financial statements will be prepared in
accordance with generally accepted accounting principles, and in the
case of annual financial statements, will be audited. These combined
financial statements are not legally required under current law or SEC
regulations.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the MCI
group's statements of operations as a percentage of its revenues for the
periods indicated:

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<TABLE>
<CAPTION>
For the Nine Months Ended
For the Years Ended December 31, September 30,
-------------------------------- -------------------------
1997 1998 1999 2000
Unaudited Unaudited 1999 Unaudited Unaudited
---------- --------- ---- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Line costs................................... 44.5 42.5 43.8 43.0 42.3
Selling, general and administrative.......... 27.2 31.3 31.4 31.6 30.2
Depreciation and amortization................ 3.5 4.1 4.7 4.6 5.2
In-process research and development and
other charges -- 16.0 -- -- --
------ ------ ----- ------ ------
Operating income............................. 24.8 6.1 20.1 20.8 22.4
Other income (expense):
Interest expense........................ (15.9) (6.6) (3.1) (3.2) (3.0)
Miscellaneous........................... -- -- -- -- --
------ ------ ----- ------ ------
Income before income taxes and cumulative
effect of accounting change................. 8.9 (0.4) 17.0 17.6 19.3
Provision for income taxes.................. 3.4 6.0 6.9 7.1 7.7
------ ------ ----- ------ ------
Income (loss) before cumulative effect of
accounting change......................... 5.5 (6.4) 10.2 10.5 11.6
Cumulative effect of accounting change -- (0.5) -- -- --
------ ------ ----- ------ ------
Net income (loss)........................... 5.5% (6.9)% 10.2% 10.5% 11.6%
====== ====== ===== ====== ======
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1999 VS.
NINE MONTHS ENDED SEPTEMBER 30, 2000

REVENUES. Revenues for the nine months ended September 30, 2000
increased 5.3% to $12.6 billion versus $11.9 billion for the same period
in the prior year. The increase in total revenues is attributable to
internal growth of the MCI group.

Revenues and line costs for prior periods reflect a
classification change for reciprocal compensation and COBRA equipment
sales which are now being treated as offsets to cost of sales.
Previously, the MCI group recorded these items on a gross basis as
revenue. Results for all periods have also been adjusted to reflect the
elimination of small business and consumer PICC from both revenues and
line costs as a result of the CALLS legislation which eliminated single
line PICC as of July 1, 2000.

Actual reported revenues by category for the nine months ended
September 30, 1999 and 2000 reflect the following changes by category:

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Nine Months Ended September 30,
----------------------------------
Percent
1999 2000 Change
-------- ------ --------
REVENUES
Wholesale and consumer......... $ 8,559 $ 8,548 (0.1)
Alternative channels
and small business........... 2,310 2,792 20.9
Dial-up Internet............... 1,069 1,225 14.6
-------- -------
TOTAL REVENUES........................$11,938 $12,565 5.3
======== =======

Wholesale and consumer revenues for the nine months ended
September 30, 2000 decreased 0.1%, over the prior year period. The
wholesale market continues to be extremely price competitive as declines
in minute rates outpaced increases in traffic resulting in revenue
decreases of 10.4%, for the nine months ended September 30, 2000, versus
the prior year period. The wholesale market decreases were partially
offset by a 5.3% increase in consumer revenues as the MCI group's
partner marketing programs helped to drive Dial-1 product gains.
Consumer revenue growth was impacted by declines in 1-800-COLLECT, which
has been pressured by increasing wireless substitution, and 10-10-321,
which the MCI group no longer actively markets. The MCI group expects
to see continued pricing pressure in both the wholesale and consumer
businesses, which will affect both revenue growth and gross margins.

Alternative channels and small business revenues for the nine
months ended September 30, 2000 increased 20.9% over the prior year
period. Alternative channels and small business includes sales agents
and affiliates, wholesale alternative channels, small business, prepaid
calling card and wireless messaging revenues. This increase is
primarily attributable to internal growth for wholesale alternative
channel voice revenues. The MCI group expects that pricing pressures in
the wholesale and small business markets to negatively affect revenue
growth in this area and this level of growth will decline in the
foreseeable future.

Dial-up Internet revenue growth for the nine months ended
September 30, 2000 was 14.6% over the same prior year period. The MCI
group's dial access network has grown 76% to over 2.5 million modems as
of September 30, 2000, compared with the same period in the prior year.
Additionally, Internet connect hours increased 58.7% to 4.8 billion
hours for the nine months ended September 30, 2000 versus the same
period in the prior year. These network usage increases were offset by
pricing pressure on dial-up Internet traffic as a result of contract
repricings in the second quarter of 2000.

LINE COSTS. Line costs as a percentage of revenues for the nine
months ended September 30, 2000 decreased to 42.3% as compared to 43.0%
reported for the same period of the prior year. The decrease was
primarily the result of annual access reform reductions. This
improvement was offset by contract repricings in the dial-up Internet
business, continued competitive pricing on the dial-up Internet business

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and increased dial-up Internet traffic over facilities not owned by the
WorldCom group or the MCI group.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the nine months ended September 30, 2000
were $3.8 billion or 30.2% of revenues as compared to $3.8 billion or
31.6% of revenues for the same period in the prior year. Selling,
general and administrative expenses for the nine months ended September
30, 2000 includes a $345 million pre-tax charge associated with specific
wholesale accounts that were deemed uncollectible due to bankruptcies,
litigation and settlements of contractual disputes that occurred in the
third quarter of 2000. Excluding this charge, selling, general and
administrative expenses as a percentage of revenues were 27.4% for the
nine months ended September 30, 2000. This decrease as a percentage of
revenues primarily results from lower advertising and marketing costs
incurred in the consumer business.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for the nine months ended September 30, 2000 increased to $654
million or 5.2% of revenues from $550 million or 4.6% of revenues for
the comparable 1999 period. These increases primarily reflect
additional depreciation associated with capital expenditures.

INTEREST EXPENSE. Interest expense for the nine months ended
September 30, 2000 was $381 million or 3.0% of revenues as compared to
$379 million or 3.2% of revenues for the first nine months of 1999.
Interest expense on borrowings incurred by WorldCom and allocated to the
MCI group was based on the weighted average interest rate, excluding
capitalized interest, of WorldCom debt plus a spread of 1 1/4% calculated
on a quarterly basis. As of January 1, 1999, $6.0 billion of WorldCom's
outstanding debt was notionally allocated to the MCI group.

MISCELLANEOUS INCOME AND EXPENSE. For the nine months ended
September 30, 2000, miscellaneous income was zero as compared to $5
million for the first nine months of 1999.

NET INCOME. For the nine months ended September 30, 2000, the
MCI group reported net income of $1.5 billion as compared to $1.3
billion for the nine months ended September 30, 1999.

YEAR ENDED DECEMBER 31, 1998 VS.
YEAR ENDED DECEMBER 31, 1999

REVENUES. Revenues for 1999 increased to $16.2 billion as
compared to $7.8 billion for 1998. The increase in total revenues is
attributable to the MCI merger as well as internal growth. Results
include MCI operations from September 14, 1998, and CompuServe Network
Services and ANS from February 1, 1998.

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Actual reported revenues by category for the years ended
December 31, 1998 and 1999 reflect the following changes by category
(dollars in millions):

Actual Actual Percent
1998 1999 Change
------ ------ --------
REVENUES
Wholesale and
consumer............. $ 5,100 $11,533 126.1
Alternative channels
and small business... 1,706 3,142 84.2
Dial-up Internet...... 1,002 1,497 49.4
-------- -------
TOTAL REVENUES............. $ 7,808 $16,172 107.1
======== =======

The following table provides supplemental pro forma detail for
the MCI group revenues. Since actual results for 1998 only reflect the
operations of MCI after September 14, 1998, and eleven months of
CompuServe Network Services and ANS, the pro forma results are more
indicative of internal growth for the combined company. The pro forma
revenues, for the year ended December 31, 1998 and actual revenues for
1999, reflect the following changes by category (dollars in millions):

Pro Forma Actual Percent
1998 1999 Change
---------- ------ ---------

Revenues
Wholesale and
consumer............... $11,046 $11,533 4.4
Alternative channels
and small business..... 2,756 3,142 14.0
Dial-up Internet.......... 1,037 1,497 44.4
------- -------
Total revenues............... $14,839 $16,172 9.0
======= =======

The following discusses the revenue increases for the year ended
December 31, 1999 as compared to pro forma results for the comparable
prior year period. The pro forma revenues assume that the MCI merger,
CompuServe merger and the ANS transaction occurred at the beginning of
1998. Changes in actual results of operations as a percentage of
revenues are shown in the foregoing tables and, as noted above,
primarily reflect the MCI merger and internal growth of the MCI group.

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Wholesale and consumer revenues for 1999 experienced a 4.4%
increase over the prior year pro forma amount, driven by a gain of 12.8%
in traffic. Consumer revenues increased 7.0% on traffic volume gains of
18.9% as volume gains more than offset pricing declines. These volume
and revenue gains were offset partially by anticipated year-over-year
declines in wholesale voice revenues, which decreased 9.4% on wholesale
traffic gains of 6.7% over the prior year pro forma period.

Dial-up Internet revenues for 1999 increased 44.4% over the
prior year pro forma amount. Growth was driven by increased wholesale
ISP arrangements with vendors. The MCI group's dial access network has
grown over 85% to 1.7 million modems, compared with the same period in
the prior year.

The following discusses the actual results of operations for the
year ended December 31, 1999 as compared to the year ended December 31,
1998.

LINE COSTS. Line costs as a percentage of revenues for 1999
were 43.8% as compared to 42.5% reported for the same period in the
prior year. The increase was attributable to the change in product mix
as a result of the MCI merger resulting in a larger concentration of
consumer and small business revenues. The increase was partially offset
by decreases as a result of synergies and economies of scale resulting
from network efficiencies achieved from the continued assimilation of
MCI, CompuServe Network Services, ANS and WorldCom operations.
Additionally, access charge reductions that occurred in January 1999 and
July 1999 reduced total line cost expense by approximately $291 million
for 1999. While access charge reductions were primarily passed through
to customers, line costs as a percentage of revenues was positively
affected by a percentage point.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for 1999 were $5.1 billion or 31.4% of revenues
as compared to $2.4 billion or 31.3% of revenues for 1998. The decrease
in selling, general and administrative expenses as a percentage of
revenues for 1999 reflects the assimilation of MCI into our strategy of
cost control.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for 1999 increased to $757 million or 4.7% of revenues from $317
million or 4.1% of revenues for 1998. These increases reflect increased
amortization and depreciation associated with the MCI merger, CompuServe
merger and ANS transaction as well as additional depreciation related to
capital expenditures.

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IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES. In 1998,
the MCI group recorded a pre-tax charge of $19 million in connection
with the MCI merger for certain minimum contractual network lease
commitments that expire between 1999 and 2001, for which the MCI group
will receive no future benefit due to the migration of traffic to owned
facilities.

Based on the respective fair values of the related operations
allocated to each group, $1.2 billion of the IPR&D was allocated to the
MCI group. Management believes that this method of allocation provides
a reasonable estimate of the IPR&D charges attributable to each group.
For specific discussion and disclosures of the components of the IPR&D
charges noted above, see WorldCom's Management Discussion and Analysis
of Financial Condition and Results of Operations.

INTEREST EXPENSE. Interest expense for 1999 was $506 million or
3.1% of revenues, as compared to $512 million or 6.6% of revenues
reported for 1998. Interest expense on borrowings incurred by WorldCom
and allocated to the MCI group was based on the weighted average
interest rate, excluding capitalized interest, of WorldCom debt plus a
spread of 1 1/4 percent calculated on a quarterly basis. As of January 1,
1998, $6.0 billion of WorldCom's outstanding debt was notionally
allocated to the MCI group.

MISCELLANEOUS INCOME AND EXPENSE. Miscellaneous income for 1999
was $5 million as compared to zero for 1998.

PROVISION FOR INCOME TAXES. The effective income tax rate for
1999 was 40.2% of income before taxes. The 1999 rate is greater than the
expected federal statutory rate of 35% primarily due to the fact that
amortization of the goodwill allocated to the MCI group in connection
with the MCI merger is not deductible for tax purposes. Excluding the
nondeductible amortization of goodwill, the MCI group's effective income
tax rate would have been 37.3%.

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standard required all companies to expense, on or before March 31, 1999,
all start-up costs previously capitalized, and thereafter to expense all
costs of start-up activities as incurred. This accounting standard
broadly defines start-up activities as one-time activities related to
the opening of a new facility, the introduction of a new product or
service, the commencement of business in a new territory, the
establishment of business with a new class of customer, the initiation
of a new process in an existing facility or the commencement of a new
operation. We adopted this standard as of January 1, 1998. The
cumulative effect of this change in accounting principle resulted in a
one-time, non-cash expense of $36 million, net of income tax benefit of
$22 million. This expense represented start-up costs incurred primarily
in conjunction with the development and construction of SkyTel's
messaging network.

NET INCOME (LOSS). For 1999, the MCI group reported net income
of $1.6 billion as compared to a net loss of $536 million reported for
1998.

YEAR ENDED DECEMBER 31, 1997 VS.
YEAR ENDED DECEMBER 31, 1998

REVENUES. Revenues for 1998 increased 122% to $7.8 billion as
compared to $3.5 billion for 1997. The increase in total revenues is
attributable to the MCI merger, the CompuServe merger and the ANS
transaction as well as internal growth. Results for 1998 include MCI
operations from September 14, 1998.

Actual reported revenues by category and associated revenue
increases for the years ended December 31, 1997 and 1998 reflect the
following changes by category (dollars in millions):

1997 1998 Percent
Change
------- ------- --------

REVENUES
Wholesale and consumer....... $2,290 $5,100 122.7
Alternative channels
and small business......... 958 1,706 78.1
Dial-up Internet............. 270 1,002 271.1
------ ------
TOTAL REPORTED REVENUES........ $3,518 $7,808 121.9
====== ======

The following table provides supplemental pro forma detail for
the MCI group revenues. Since actual results for 1998 only reflect 108
days of operations for MCI and eleven months of CompuServe Network
Services and ANS, the pro forma results are more indicative of internal
growth for the combined company. The pro forma revenues for the years

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ended December 31, 1997 and 1998 reflect the following changes by
category (dollars in millions):

Pro Forma Pro Forma Percent
1997 1998 Change
--------- --------- -------

REVENUES
Wholesale and consumer .... $10,430 $11,046 5.9
Alternative channels
and small business....... 2,281 2,756 20.8
Dial-up Internet........... 661 1,037 56.9
-------- -------
$13,372 $14,839 11.0
======== =======

The following discusses the pro forma revenue increases for the
year ended December 31, 1998 as compared to pro forma revenues for the
comparable prior year period. The pro forma revenues assume that the
MCI merger, CompuServe merger and the ANS transaction occurred at the
beginning of 1997. Changes in actual results of operations as a
percentage of revenues are shown in the foregoing tables and, as noted
above, primarily reflect the MCI merger, the CompuServe merger, ANS
transaction and internal growth of the MCI group.

The following discusses the actual results of operations for the
year ended December 31, 1998 as compared to the year ended December 31,
1997.

LINE COSTS. Line costs as a percentage of revenues for 1998
were 42.5% as compared to 44.5% reported for the same period of the

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prior year. Overall decreases are attributable to changes in the
product mix and synergies and economies of scale resulting from network
efficiencies achieved from the assimilation of MCI, CompuServe Network
Services, ANS and WorldCom operations and were offset in part by new
universal service fixed costs recorded for the 1998 year. Additionally,
access charge reductions beginning in July 1997 reduced total line cost
expense by approximately $205 million for 1998. While access charge
reductions were primarily passed through to customers, line costs as a
percentage of revenues was positively affected by one and a half
percentage points.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for 1998 were $2.4 billion or 31.3% of revenues
as compared to $957 million or 27.2% of revenues for 1997. The increase
in selling, general and administrative expenses as a percentage of
revenues for the year ended December 31, 1998, which includes MCI for
108 days, reflects the change in product mix to a larger concentration
of consumer and small business revenues which carry higher selling,
general and administrative costs.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for 1998 increased to $317 million or 4.1% of revenues from $124
million or 3.5% of revenues for 1997. The increase reflects increased
depreciation and amortization associated with the MCI merger, CompuServe
merger and ANS transaction.

Based on the respective fair values of the related operations
allocated to each group $1.2 billion of the IPR&D charge was allocated
to the MCI group. Management believes that this method of allocation
provides a reasonable estimate of the IPR&D charges attributable to each
group. For specific discussion and disclosures of the components of the

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IPR&D charges noted above, see WorldCom's Management's Discussion and
Analysis of Financial Condition and Results of Operations.

INTEREST EXPENSE. Interest expense for 1998 was $512 million or
6.6% of revenues, as compared to $560 million or 15.9% of revenues
reported for 1997. Interest expense on borrowings incurred by WorldCom
and allocated to the MCI group was based on the weighted average
interest rate, excluding capitalized interest, of WorldCom debt plus a
spread of 1 1/4 percent calculated on a quarterly basis. As of January 1,
1997, $6.0 billion of WorldCom's outstanding debt was notionally
allocated to the MCI group.

PROVISION FOR INCOME TAXES. The MCI group recorded a tax
provision of $468 million for the year ended December 31, 1998, on
pre-tax loss of $32 million. Permanent non-deductible items aggregating
approximately $1.3 billion resulted in the recognition of taxes in
excess of income. Included in the permanent non-deductible items was
the $1.2 billion charge for IPR&D related to the MCI merger, CompuServe
merger and ANS transaction.

NET INCOME (LOSS). For the year ended December 31, 1998, the
MCI group reported a net loss of $536 million as compared to net income
of $194 million reported for the year ended December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

See WorldCom's "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for a further discussion of liquidity.

At January 1, 1999, $6.0 billion of WorldCom's outstanding debt
was notionally allocated to the MCI group with the remaining balance of

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the Company's outstanding debt allocated to the WorldCom group.
WorldCom management has a wide degree of discretion over the cash
management policies of both the WorldCom group and the MCI group. Cash
generated by either group could be moved in and out of either group
without prior approval of WorldCom's shareholders

In the third quarter of 1999, WorldCom increased its $500
million receivables purchase program to $2.0 billion. As of September
30, 2000, the purchaser owned an undivided interest in a $3.7 billion
pool of receivables, which includes the $1.95 billion sold of which $365
million relates to the MCI group. The receivables sold were assigned to
the WorldCom group and the MCI group based on specific identification
where practical or allocated based on total revenues.

For the nine months ended September 30, 2000, the MCI group's
cash flow from operations was $1.6 billion versus $2.8 billion for the
comparable 1999 period. Changes in working capital during the nine
months ended September 30, 2000 contributed to this decrease. Cash flow
from operations was sufficient to cover investing activities and to
repay $1.1 billion of intergroup advances.

Cash used in investing activities for the nine months ended
September 30, 2000, totaled $528 million. Primary capital expenditures
include purchases of switching and other equipment. The MCI group
anticipates that approximately $100 million will be spent during the
remainder of 2000 for capital expenditures.

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have filed a shelf registration statement on Form S-3 with the SEC for
the sale, from time to time, of one or more series of unsecured debt
securities having a remaining aggregate value of approximately $9.9
billion. The shelf registration statement offers us flexibility, as the
market permits, to access the public debt markets. No assurance can be
given that any public financing will be available on terms acceptable to
us.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 1999, the SEC issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB 101"). In June
2000, the SEC issued an amendment to SAB 101 which allows registrants to
wait until the fourth quarter of their fiscal year beginning after
December 15, 1999 to implement SAB 101. SAB 101 provides guidance on
the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. The deferral of telecommunications
service activation fees and certain related costs are specifically
addressed in SAB 101. We are currently assessing the impact of SAB 101
on our results of operations or financial position and there can be no
assurance as to the effect on the MCI group's combined financial
statements.

In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. This statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires a company to formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. This statement is currently effective for
fiscal years beginning after June 15, 2000 and cannot be applied
retroactively, although earlier adoption is encouraged. SFAS No. 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the MCI group's
election, before January 1, 1998). We believe that the adoption of this
standard will not have a material effect on the MCI group's combined
results of operations or financial position.

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RELATIONSHIP BETWEEN THE WORLDCOM GROUP AND THE MCI GROUP

Our board of directors has adopted a tracking stock policy
statement regarding WorldCom group and MCI group matters.

GENERAL POLICY

Our policy statement provides that all material matters as to
which the holders of WorldCom group stock and the holders of MCI group
stock may have potentially divergent interests will be resolved in a
manner that our board of directors or any special committee appointed by
our board of directors determines to be in the best interests of
WorldCom, after giving due consideration to the potentially divergent
interests and all other interests of the separate series of common stock
of WorldCom that our board of directors or any special committee
appointed by our board of directors, as the case may be, deems relevant.
Under the policy statement, all material transactions which are
determined by the board of directors to be in the ordinary course of
business between the groups, except for use by the MCI group of the
WorldCom group's fiber optic systems and for use by the WorldCom group
of the MCI group's voice switches, are intended to be on terms
consistent with terms that would be applicable to arm's-length dealings
with unrelated third parties.

AMENDMENT AND MODIFICATION OF THE POLICY STATEMENT

Our board of directors or any special committee appointed by our
board of directors may, without shareholder approval, change the
policies set forth in our policy statement, including any resolution
implementing the provisions of our policy statement. Our board of
directors or any special committee appointed by our board of directors
also may, without shareholder approval, adopt additional policies or
make exceptions with respect to the application of the policies
described in our policy statement in connection with particular facts
and circumstances, all as our board of directors or any special
committee appointed by our board of directors may determine to be in the
best interests of WorldCom.

CORPORATE OPPORTUNITIES

Our policy statement provides that our board of directors or any
special committee appointed by our board of directors will allocate any
business opportunities and operations, any acquired assets and
businesses and any assumed liabilities between the WorldCom group and
MCI group, in whole or in part, in a manner it considers to be in the
best interests of WorldCom as a whole. Any allocation of this type may
involve the consideration of a number of factors that our board of
directors or any special committee appointed by our board of directors
determines to be relevant, including, without limitation:

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- whether the business opportunity or operation, the
acquired asset or business, or the assumed liability is
principally within or related to the then existing scope
of one group's business;

- whether one group is better positioned to undertake or
have allocated to it that business opportunity or
operation, acquired asset or business or assumed
liability; and

- the WorldCom group's objective to achieve long-term
sustainable growth and the MCI group's objective to
maximize its cash flow while retiring debt allocated to
it.

Except under the policy statement and any other policies adopted
by our board of directors, the groups will not be prohibited from:

- engaging in the same or similar business activities or
lines of business as the other group,

- doing business with any potential or actual supplier,
competitor or customer of the other group, or

- engaging in, or refraining from, any other activities
whatsoever relating to any of the potential or actual
suppliers or customers of the other group.

In addition, except under the policy statement and any other
policies adopted by our board of directors, we will not have any duty,
responsibility or obligation:

- to communicate or offer any business or other corporate
opportunity that one group has to the other group,
including any business or other corporate opportunity that
may arise that either group may be financially able to
undertake, and that are, from their nature, in the line of
either group's business and are of practical advantage to
either group,

- to have one group provide financial support to the other
group, or

- otherwise to have one group assist the other group.

RELATIONSHIP BETWEEN THE GROUPS

Our policy statement provides that WorldCom will manage the
companies in the WorldCom group and the companies in the MCI group in a
manner intended to maximize the operations, assets and value of both

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groups, and with complementary deployment of personnel, capital and
facilities, consistent with their respective business objectives.

COMMERCIAL INTER-GROUP TRANSACTIONS

The MCI group will be charged a cost based fee by the WorldCom
group for use of its fiber optic systems equal to a proportion, based on
usage, of WorldCom group's fiber optic system costs. In addition,
WorldCom will be charged a cost based fee by the MCI group for use of
its business voice switched services equal to a proportion, based on
usage, of MCI group's switching costs. All other material commercial
transactions between the groups are intended to be on an arm's-length
basis and will be subject to the review and approval of our board of
directors or any special committee appointed by our board of directors.
Neither group is under any obligation to use services provided by the
other group, and each group may use services provided by a competitor of
the other group if our board of directors or any special committee
appointed by our board of directors determines it is in the best
interests of WorldCom as a whole.

It is expected that when the combined services of the two groups
are bundled or offered together and the total cost to consumers of each
of those services are separately identified on a billing statement, each
of the WorldCom group and the MCI group will control the pricing of its
respective services and receive the associated revenues. The group
which sells the service to the public will receive an appropriate fee
from the other group for selling the service.

In a bundled product offering where the services of the two
groups are integrated and the total cost to consumers of each of those
services are not separately identified on a billing statement, the
groups are expected to work collaboratively to determine the nature of
their arrangements and the method to be used to allocate the revenues
between the groups, which method will be subject to the review and
approval of our board of directors or any special committee appointed by
our board of directors.

TRANSFERS OF OTHER ASSETS AND LIABILITIES

Our board of directors or any committee appointed by our board
of directors may, without shareholder approval, reallocate assets and
liabilities between the WorldCom group and the MCI group not in the
ordinary course of their respective businesses. Our board of directors
or any committee appointed by our board of directors may do so, for
example, if we acquire a company whose business activities relate to
both those of the WorldCom group and the MCI group and we issue only one
series of stock as consideration for this acquisition.

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Any reallocation of assets and liabilities between the groups
not in the ordinary course of their respective businesses will be
effected by:

- the reallocation by the transferee group to the transferor
group of other assets or consideration or liabilities;

- the creation of inter-group debt owed by the transferee
group to the transferor group;

- the reduction of inter-group debt owed by the transferor
group to the transferee group;

- the creation of, or an increase in, the number of shares
of stock of the transferor group reserved for issuance for
the benefit of the transferee group or to the holders of
stock of the transferee group;

- the reduction in the number of shares of stock of any
group reserved for issuance for the benefit of another
group or to the holders of the stock of that group; or

- a combination of any of the above factors;

in each case, in an amount having a fair value equivalent to the fair
value of the assets or liabilities reallocated by the transferor group
and, in the case of the creation of or an increase or decrease the
number of shares of stock of any group reserved for issuance for the
benefit of another group or to the holders of stock of that group, in
accordance with the provisions of the articles of amendment. For these
purposes, the fair value of the assets or liabilities transferred will
be determined by the board of directors of WorldCom in its sole
discretion. Our board of directors or any committee appointed by our
board of directors will approve any creation of, or increase or decrease
in, the number of shares of stock of the transferee group reserved for
issuance for the benefit of the transferor group or to the holders of
stock of the transferor group.

CASH MANAGEMENT

Decisions regarding the investment of surplus cash, the issuance
and retirement of debt, and the issuance and repurchase of common and
preferred stock will continue to be made by WorldCom corporate
headquarters on behalf of the groups. Under this centralized cash
management system, the MCI group will generally not be allocated any
cash balances.

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FINANCING ARRANGEMENTS

MCI group will be notionally allocated $6 billion in debt with
the remaining debt allocated to the WorldCom group. Each group's debt
will increase or decrease by the amount of any net cash generated by, or
required to fund, the group's operating activities, dividend payments,
share repurchases and other financing activities. Interest will be
charged to each group based on the amount of such group's allocated
debt.

Debt allocated to the MCI group, including any loans made by the
WorldCom group to the MCI group, will bear interest at a rate indicative
of the rate at which the MCI group would borrow from third parties if it
was a wholly owned subsidiary of WorldCom but did not have the benefit
of any guarantee by WorldCom. This policy contemplates that these loans
will be made on the basis set forth above regardless of the interest
rates and other terms and conditions on which WorldCom or members of the
WorldCom group may have acquired the funds. Interest expense on
borrowings incurred by WorldCom and allocated to the WorldCom group will
reflect the difference between WorldCom's actual interest expense and
the interest expense allocated to the MCI group. Interest rates will be
calculated on a quarterly basis. Expenses related to the debt are
reflected in the weighted average interest rate of WorldCom's debt.

INTANGIBLE ASSETS

Intangible assets consist of the excess consideration paid over
the fair value of net tangible assets acquired by us in business
combinations accounted for under the purchase method and include
goodwill, channel rights, developed technology and tradenames.

All tradenames, including the MCI tradename and the other
related MCI tradenames, have been attributed to the WorldCom group. The
MCI group will pay an annual fee to the WorldCom group for the use of
the MCI tradenames for the next five years based on the following fee
schedule:

Year 1: $27.5 million
Year 2: $30.0 million
Year 3: $35.0 million
Year 4: $40.0 million
Year 5: $45.0 million

Any renewal or termination of use of the MCI tradename by the
MCI group will be subject to the general policy that our board of
directors will act in the best interests of WorldCom.

DIVIDEND POLICY

Our policy statement provides that, subject to the limitations
on dividends set forth in our articles of amendment and to the
limitations of Georgia law, the holders of WorldCom group stock and the

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holders of MCI group stock will be entitled to receive dividends on that
stock when, as and if our board of directors authorizes and declares
dividends on that stock.

Because the companies in the WorldCom group are expected to
require significant capital commitments to finance their operations and
fund their future growth, WorldCom does not expect to pay any dividends
on shares of WorldCom group stock. If and when our board of directors
determines to pay any dividends on shares of WorldCom group stock, our
policy statement provides that determination will be based primarily on
the result of operations, financial condition and capital requirements
of the WorldCom group and of WorldCom as a whole and other factors that
our board of directors considers relevant.

We intend to pay a quarterly dividend of $ per share on
the MCI group stock. The payment of dividends on MCI group stock will
be a business decision that our board of directors makes from time to
time based primarily on the results of operations, financial condition
and capital requirements of the MCI group and of WorldCom as a whole and
other factors that our board of directors considers relevant.

FINANCIAL REPORTING; ALLOCATION MATTERS

Our policy statement provides that WorldCom will prepare and
include in its filings with the SEC consolidated financial statements of
WorldCom and combined financial statements of the WorldCom group and MCI
group for so long as WorldCom group stock and MCI group stock is
outstanding.

SHARED SERVICES AND SUPPORT ACTIVITIES

WorldCom will directly charge specifically identifiable costs to
the WorldCom group and the MCI group. Where determinations based on
specific usage alone are impracticable, WorldCom will use other
allocation methods that we believe are fair based on (i) number of
employees and (ii) total revenues generated by each group.

TAXES

Federal and state income tax liabilities incurred by us and
which are determined on a consolidated, combined, or unitary basis will
be allocated between the WorldCom group and the MCI group in accordance
with our policy statement. The income tax expense for each group and
the balance sheet allocation of the expense will be based on the taxable
income and credits contributed by each group. Such allocation to or
from a group is intended to reflect its actual incremental cumulative
effect (positive or negative) on WorldCom's federal and state taxable
income, related tax liability and tax credit position, subject to
certain adjustments. Tax benefits that cannot be used by a group
generating those benefits but can be used on a consolidated basis will
be credited to the group that generated those benefits. Accordingly,
the amount of taxes payable or refundable that will be allocated to each
group may not necessarily be the same as that which would have been
payable or refundable had that group filed a separate income tax return.

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PROPOSAL 2 -AMENDMENTS TO FAIR PRICE PROVISIONS OF CHARTER

SUMMARY OF THE PROPOSAL

We are asking you to consider and approve amendments to the fair
price provisions of our charter, described in Annex II to this proxy
statement and prospectus, which would:

- require 70% of the voting power of our outstanding shares
of capital stock to approve a business combination instead
of 70% of our outstanding shares of capital stock; and

- provide that to satisfy the minimum price requirements,
the price which must be paid for a particular series of
our capital stock in a business combination is required to
be the highest stock price paid for that particular series
of capital stock, rather than for any series of capital
stock.

BACKGROUND AND REASONS FOR THE PROPOSAL

The reason for the amendments to the fair price provisions of
our charter is to reflect our new voting structure under the tracking
stock proposal. Our present charter provides that business combinations
between WorldCom and related persons (as defined in the charter) require
approval by 70% of our voting stock unless the board of directors has
approved the transaction or certain minimum price requirements are met.
Because under our current voting structure each share of our capital
stock has one vote, a vote at a meeting of 70% of the outstanding shares
of our capital stock approving a business combination ensures that 70%
of the voting power at the meeting has approved such combination. Under
the new voting structure that will be in effect if the tracking stock
structure is adopted, each share of MCI group stock may have more or
less than one vote. Therefore, 70% of the shares of our capital stock
will likely not represent 70% of the voting power of our capital stock.
The proposed change to the 70% approval requirement will ensure that at
least 70% of the votes present at a meeting approve a business
combination.

The other proposed amendment to the fair price provisions of our
charter would change the way certain minimum price requirements are met.
Our present charter requires that any business combination not approved
by our board meet certain minimum price requirements including that the
highest price paid for a share of capital stock be paid to all our
shareholders. As a result of the approval of the tracking stock proposal
we will have two series of common stock that will trade at different
prices. This proposed amendment will provide that the price which must
be paid for a particular series of our capital stock in a business
combination is only required to be the highest stock price paid for that
particular series of capital stock.

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PRINCIPAL SHAREHOLDERS

The following table sets forth the beneficial ownership of
WorldCom group stock, as of September 30, 2000 by:

- each person who we know beneficially owns more than 5% of
our common stock;

- each member of our board of directors;

- each of our named executive officers; and

- all directors and executive officers as a group.

As of , 2001, there were no persons,
individually or as a group, known to be deemed to be the beneficial
owners of more than five percent of our issued and outstanding common
stock or preferred stock. No person listed on the following table is
the beneficial owner of any shares of our preferred stock. Each
director or executive officer has sole voting and investment power over
the shares listed opposite his or her name except as set forth in the
footnotes hereto.

Name of Beneficial Number of Shares Percent of
Owner Beneficially Owned <F1> Class <F1>
-------------------- ---------------------- ------------

Clifford L. Alexander, Jr. ..... <F2> *
James C. Allen ................. <F3> *
Judith Areen.................... <F4> *
Carl J. Aycock.................. <F5> *
Max E. Bobbitt.................. <F6> *
Bernard J. Ebbers............... <F7> *
Francesco Galesi................ <F8> *
Stiles A. Kellett, Jr. ......... <F9> *
Gordon S. Macklin............... <F10> *
Bert C. Roberts, Jr. ........... <F11> *
John W. Sidgmore................ <F12> *
Scott D. Sullivan............... <F13> *
All Directors and Current
Executive Officers as a
Group (12 14) persons)........ <F14> _____%
__________
* Less than one percent.
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<F1> Based on shares of WorldCom stock issued
and outstanding as of September 30, 2000 plus, as to the holder
thereof only, upon exercise or conversion of all derivative
securities that are exercisable or convertible currently or
within 60 days after the Record Date.

<F2> Includes shares purchasable upon exercise of
options.

<F3> Includes shares owned by Mr. Allen's spouse, as
to which beneficial ownership is disclaimed; shares
held in a revocable trust as to which Mr. Allen is a
company-trustee; and shares purchasable upon exercise
of options.

<F4> Includes shares purchasable upon exercise of
options.

<F5> Includes shares owned by Mr. Aycock's spouse;
shares purchasable upon exercise of options; and
shares held as custodian for children.

<F6> Includes shares purchasable upon exercise of
options; and shares as to which Mr. Bobbitt shares
voting and investment power with his spouse.

<F7> Includes shares held as custodian for children; and
shares purchasable upon exercise of options.

<F8> Includes shares owned by Rotterdam Ventures,
Inc., of which Mr. Galesi is sole shareholder; and
shares purchasable upon exercise of options.

<F9> Includes shares owned by Mr. Kellett's spouse;
shares owned by family partnerships, as to which Mr.
Kellett is the general partner; shares owned by a
partnership as to which Mr. Kellett is the general partner;
shares purchasable upon exercise of options; and
shares purchasable upon exercise of options held by Mr.
Kellett's spouse.

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<F10> Includes shares owned by a family trust as to
which Mr. Macklin is sole trustee and beneficiary; and
shares purchasable upon exercise of options.

<F11> Includes shares owned by a limited partnership in
which Mr. Roberts is a general partner and shares
purchasable upon exercise of stock options. Does not include
shares held by Mr. Roberts' spouse in which shares
Mr. Roberts disclaims beneficial ownership.

<F12> Includes shares purchasable upon exercise of
options; and shares held in trusts for which Mr.
Sidgmore is sole trustee with sole voting and dispositive power.

<F13> Includes shares purchasable upon exercise of
options.

<F14> Includes shares purchasable upon exercise of
options.

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PRICE RANGE AND DIVIDENDS ON EXISTING COMMON STOCK

The following table shows the high and low sales prices of our
existing common stock on the Nasdaq National Market:

Fiscal Year High Low
--------------- ---------- ---------
1998

First Quarter.................. $ 29.9167 $ 18.6667
Second Quarter................. 32.2917 27.7500
Third Quarter.................. 38.5833 26.6667
Fourth Quarter................. 50.5000 26.0000

1999
First Quarter ................. 62.8333 46.0000
Second Quarter................. 64.5104 53.5417
Third Quarter.................. 60.9167 47.9167
Fourth Quarter................. 61.3333 44.0417

2000
First Quarter.................. 55.0000 40.6250
Second Quarter................. 47.0000 35.8750
Third Quarte................... 49.9690 25.2500
Fourth Quarter
(through December 27, 2000).... 30.4375 13.5000

The closing sale price of our existing common stock on the
Nasdaq National Market was $23.750 per share on October 31, 2000, the
trading day prior to our announcement of the recapitalization proposal,
and $ per share on , 2001, the third trading day prior to the
date of this proxy statement. As of , 2001, there were
shares of our existing common stock outstanding and holders of
record. No dividends were paid during the periods listed above.

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INFORMATION ABOUT SHAREHOLDER PROPOSALS

All proposals of security holders intended to be presented at
the 2002 annual meeting of shareholders must be received by us not later
than January 2, 2002, for inclusion in our 2002 proxy statement and form
of proxy relating to the 2002 annual meeting. Upon timely receipt of
any such proposal, we will determine whether or not to include such
proposal in the proxy statement and proxy in accordance with applicable
regulations and provisions governing the solicitation of proxies.

Our bylaws contain advance notice provisions relating to
proposals of business and nominations of directors at meetings of
shareholders. Under the bylaws, in order for a shareholder to nominate
a candidate for director at an annual meeting, timely notice of the
nomination must be given to and received by us in advance of the
meeting. Ordinarily, such notice must be given and received not less
than 120 nor more than 150 days before the first anniversary of the
preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is advanced by more than 30 days or
delayed by more than 60 days from such anniversary date, then such
notice must be given and received not earlier than 150 days prior to
such annual meeting and not later than the close of business on the
later of the 120th day prior to such annual meeting or the 10th day
following the day on which public announcement of such meeting is first
made. In certain cases, notice may be delivered and received later if
the number of directors to be elected to the board of directors is
increased. The shareholder submitting the notice of nomination must
describe various matters as specified in the bylaws, including the name
and address of each proposed nominee, his or her occupation and number
of shares held, and certain other information.

In order for a shareholder to bring other business before an
annual meeting of shareholders, timely notice must be given to and
received by us within the time limits described. Such notice must
include a description of the proposed business (which must otherwise be
a proper subject for action by the shareholders), the reasons therefor
and other matters specified in the bylaws. The board of directors or
the presiding officer at the meeting may reject any such proposals that
are not made in accordance with these procedures or that are not a
proper subject for shareholder action in accordance with applicable law.
The articles of incorporation and bylaws also set forth specific
requirements and limitations applicable to nominations and proposals at
special meetings of shareholders.

A shareholder proponent must be a shareholder who was a
shareholder of record both at the time of giving of notice and at the
time of the meeting and who is entitled to vote at the meeting. Any
such notice must be given to the Secretary, whose address is 500 Clinton
Center Drive, Clinton, Mississippi 39056. Any shareholder desiring a
copy of the articles of incorporation or bylaws will be furnished a copy
without charge upon written request to the Secretary. The time limits
described above also apply in determining whether notice is timely for

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purposes of Rule 14a-4(c)(1) under the Securities Exchange Act of 1934
relating to exercise of discretionary voting authority, and are separate
from and in addition to the Securities and Exchange Commission's
requirements that a shareholder must meet to have a proposal included in
our proxy statement for an annual meeting.

LEGAL AND TAX OPINIONS

Alston & Bird LLP, Atlanta, Georgia, has rendered an opinion
concerning the validity of the WorldCom group stock and the MCI group
stock. Simpson Thacher & Bartlett, New York, New York, has rendered an
opinion concerning certain tax matters described under "Proposal 1 --
The Tracking Stock Proposal--U.S. Federal Income Tax Considerations."

EXPERTS

Arthur Andersen LLP, independent auditors, have audited the
consolidated financial statements of WorldCom, Inc. at December 31, 1999
and 1998, and for each of the three years in the period ended December
31, 1999, as set forth in their reports. In addition, Arthur Andersen
has audited the combined financial statements of the WorldCom group and
MCI group at and for the year ended December 31, 1999. We have included
these financial statements in this proxy statement and prospectus in
reliance upon the authority of such firm as experts in accounting and
auditing in giving such reports.

The consolidated financial statements of Brooks Fiber
Properties, Inc. for the year ended December 31, 1997, have been audited
by KPMG LLP, independent certified public accountants, as indicated in
their report with respect thereto, are included in WorldCom's Annual
Report on Form 10-K for the year ended December 31, 1999, and are
incorporated by reference in this proxy statement/prospectus, in
reliance upon the authority of that firm as experts in accounting and
auditing in giving such reports.

Representatives of Arthur Andersen LLP will attend the special
meeting and will have an opportunity to make a statement and to respond
to appropriate questions that you pose.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You
may read and copy any reports, statements or other information that we
file with the Securities and Exchange Commission at the Securities and
Exchange Commission's public reference rooms at the following locations:

215

<PAGE>

Chicago Regional Office
Public Reference Room New York Regional Office Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, DC 20549 New York, NY 10048 Chicago, IL 60661-2511

Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms.
These Securities and Exchange Commission filings are also available to
the public from commercial document retrieval services and at the
Internet worldwide web site maintained by the Securities and Exchange
Commission at "http://www.sec.gov". Reports, proxy statements and other
information concerning WorldCom may also be inspected at the offices of
The Nasdaq Stock Market, which is located at 1735 K Street, N.W.,
Washington, D.C. 20006.

We filed a registration statement on Form S-4 on December 28,
2000, to register with the Securities and Exchange Commission the
WorldCom group stock and MCI group stock to be issued to our
stockholders if the tracking stock proposal is approved. This proxy
statement/prospectus is a part of that registration statement and
constitutes a prospectus of WorldCom in addition to being a proxy
statement. As allowed by Securities and Exchange Commission rules, this
proxy statement/prospectus does not contain all the information you can
find in WorldCom's registration statement or the exhibits to the
registration statement.

The Securities and Exchange commission allows us to "incorporate
by reference" information into this proxy statement/prospectus, which
means that we can disclose important information to you by referring you
to other documents filed separately with the Securities and Exchange
commission. The information incorporated by reference is considered
part of this proxy statement/prospectus, except for any information
superseded by information contained directly in this proxy
statement/prospectus or in later filed documents incorporated by
reference in this proxy statement/prospectus.

This proxy statement/prospectus incorporates by reference the
documents set forth below that we have previously filed with the
Securities and Exchange Commission. These documents contain important
business and financial information that is not included in or delivered
with this proxy statement/prospectus.

216

<PAGE>

WorldCom Filings
(File No. 000-11268,
formerly Resurgens
Communications Group, Inc.
(File No. 1-10415) Period
----------------------------- -------

Annual Report on Form 10-K...... Fiscal year ended December 31, 1999

Quarterly Reports on Form 10-Q.. Quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000

Current Reports on Form 8-K..... Form 8-K dated April 11, 2000 (filed
April 11, 2000), Form 8-K dated
April 11, 2000 (filed April 11,
2000), Form 8-K dated May 16, 2000
(filed May 16, 2000), Form 8-K dated
May 19, 2000 (filed May 22,
2000), Form 8-K dated May 31, 2000
(filed June 12, 2000), Form 8-K
dated July 13, 2000 (filed July 13,
2000) and Form 8-K dated November 1,
2000 (filed November 2, 2000)

We also incorporate by reference additional documents that may
be filed with the Securities and Exchange commission under section
13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this
proxy statement/ prospectus and the date of our special meeting. These
include periodic reports, such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.

You can obtain any of the documents incorporated by reference
through us, the Securities and Exchange Commission or the Securities and
Exchange Commission's Internet web site as described above. Documents
incorporated by reference are available from us without charge,
excluding all exhibits, except that if we have specifically incorporated
by reference an exhibit in this proxy statement/prospectus, the exhibit
will also be provided without charge. You may obtain documents
incorporated by reference in this proxy statement/prospectus by
requesting them in writing or by telephone from us at the following
addresses and telephone numbers:

WorldCom, Inc.
500 Clinton Center Drive
Clinton, Mississippi 39056
Attention: Investor Relations Department
Telephone: (877) 624-9266 or
(601) 460-5600

You should rely only on the information contained or
incorporated by reference in this proxy statement/prospectus. We have
not authorized anyone to provide you with information that is different
from what is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated , 2001. You should not assume
that the information contained in this proxy statement/prospectus is
accurate as of any date other than that date. Neither the mailing of
this proxy statement/prospectus to our shareholders nor the issuance our
group stocks if the tracking stock proposal is approved crates any
implication to the contrary.

217

<PAGE>

INDEX TO FINANCIAL STATEMENTS
Page

WORLDCOM, INC.
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Report of Arthur Andersen LLP, Independent Public Accountants . F-4
Report of KPMG LLP, Independent Auditors' Report . . . . . . . . F-5
Consolidated Balance Sheets as of December 31, 1998 and 1999 . . F-6
Consolidated Statements of Operations for the Three Years
Ended December 31, 1999 . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Shareholders' Investment for the
Three Years ended December 31, 1999 . . . . . . . . . . . . F-8
Consolidated Statements of Cash Flows for the Three Years
ended December 31, 1999 . . . . . . . . . . . . . . . . . . F-9
Notes to Consolidated Financial Statements . . . . . . . . . . . F-10
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
Consolidated Balance Sheets as of December 31, 1999 and
September 30, 2000 . . . . . . . . . . . . . . . . . . . . . F-40
Consolidated Statements of Operations for the Nine Months
Ended September 30, 1999 and 2000 . . . . . . . . . . . . . F-41
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 2000 . . . . . . . . . . . . . F-42
Notes to Consolidated Financial Statements . . . . . . . . . . . F-43

F-1

<PAGE>

INDEX TO FINANCIAL STATEMENTS - (CONTINUED)
Page
WORLDCOM GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)
FOR THE YEAR ENDED DECEMBER 31, 1999
Report of Arthur Andersen LLP, Independent Public Accountants . F-58
Combined Balance Sheet as of December 31, 1999 . . . . . . . . . F-59
Combined Statement of Operations for the Year Ended December
31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . F-60
Combined Statement of Allocated Net Worth for the Year Ended
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . F-61
Combined Statement of Cash Flows for the Year Ended
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . F-62
Notes to Combined Financial Statements . . . . . . . . . . . . . F-63
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
Combined Balance Sheets as of December 31, 1999 and September
30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . F-77
Combined Statements of Operations for the Nine Months Ended
September 30, 1999 and 2000 . . . . . . . . . . . . . . . . F-78
Combined Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 2000 . . . . . . . . . . . . . . . . F-79
Notes to Combined Financial Statements . . . . . . . . . . . . . F-80
_________________

You should understand the following when reading the combined
financial statements of the WorldCom group of WorldCom:

-- WorldCom has presented the combined financial statements of the
WorldCom group at substantially the same level of detail as the
consolidated financial statements of WorldCom. WorldCom believes
that investors will require detailed financial information for
the WorldCom group to properly evaluate the market potential of
WorldCom group stock. It is WorldCom's expectation that
investors will use the combined financial information of the
WorldCom group in conjunction with WorldCom's consolidated
financial information to assist them in making informed financial
decisions relative to the acquisition or disposition of WorldCom
group stock;

-- the WorldCom group is a collection of WorldCom's data, Internet,
international and commercial voice businesses and is not a
separate legal entity;

-- the holders of the WorldCom group stock are shareholders of
WorldCom and do not have an ownership interest in the WorldCom
group or any company in the WorldCom group or a claim on any of
the assets attributed to the WorldCom group;

-- the attribution of a portion of WorldCom's assets and liabilities
to the WorldCom group does not affect WorldCom's ownership of
these assets or responsibility for these liabilities and does not
affect the rights of any creditor of WorldCom; and

-- the assets attributed to the WorldCom group could be subject to
the liabilities attributed to the MCI group.

F-2

<PAGE>

INDEX TO FINANCIAL STATEMENTS - (CONTINUED)
Page
MCI GROUP (AN INTEGRATED BUSINESS OF WORLDCOM, INC.)
FOR THE YEAR ENDED DECEMBER 31, 1999
Report of Arthur Andersen LLP, Independent Public Accountants . F-87
Combined Balance Sheet as of December 31, 1999 . . . . . . . . . F-88
Combined Statement of Operations for the Year Ended December
31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . F-89
Combined Statement of Allocated Net Worth for the Year Ended
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . F-90
Combined Statement of Cash Flows for the Year Ended December
31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . F-91
Notes to Combined Financial Statements . . . . . . . . . . . . . F-92
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
Combined Balance Sheets as of December 31, 1999 and September
30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . F-103
Combined Statements of Operations for the Nine Months Ended
September 30, 1999 and 2000 . . . . . . . . . . . . . . . . F-104
Combined Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 2000 . . . . . . . . . . . . . . . . F-105
Notes to Combined Financial Statements . . . . . . . . . . . . . F-106
_________________

You should understand the following when reading the combined
financial statements of the MCI group of WorldCom:

-- WorldCom has presented the combined financial statements of the
MCI group at substantially the same level of detail as the
consolidated financial statements of WorldCom. WorldCom believes
that investors will require detailed financial information for
the MCI group to properly evaluate the market potential of MCI
group stock. It is WorldCom's expectation that investors will
use the combined financial information of the MCI group in
conjunction with WorldCom's consolidated financial information to
assist them in making informed financial decisions relative to
the acquisition or disposition of MCI group stock;

-- the MCI group is a collection of WorldCom's MCI businesses and is
not a separate legal entity;

-- the holders of the MCI group stock are shareholders of WorldCom
and do not have an ownership interest in the MCI group or any
company in the MCI group or a claim on any of the assets
attributed to the MCI group;

-- the attribution of a portion of WorldCom's assets and liabilities
to the MCI group does not affect WorldCom's ownership of these
assets or responsibility for these liabilities and does not
affect the rights of any creditor of WorldCom; and

-- the assets attributed to the MCI group could be subject to the
liabilities attributed to the WorldCom group.

F-3

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of WorldCom, Inc.:

We have audited the accompanying consolidated balance sheets of WorldCom,
Inc. (a Georgia corporation) and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations,
shareholders' investment and cash flows for each of the years in the
three-year period ended December 31, 1999. 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 did not audit the financial statements of Brooks Fiber
Properties, Inc., a company acquired during 1998 in a transaction
accounted for as a pooling-of-interests, as discussed in Note 2, as of
and for the year ended December 31, 1997. Such statements are included
in the consolidated financial statements of WorldCom, Inc. and reflect
total revenues of two percent of the related consolidated totals in 1997.
These statements were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to amounts
included for Brooks Fiber Properties, Inc. is based solely upon the
report of the other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 and the report of the other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of the other auditors,
the financial statements referred to above present fairly, in all
material respects, the financial position of WorldCom, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Jackson, Mississippi,
March 24, 2000, except for
Note 17, which is as of
November 21, 2000

F-4

<PAGE>

INDEPENDENT AUDITORS' REPORT
The Board of Directors
Brooks Fiber Properties, Inc.:

We have audited the consolidated statements of operations,
changes in shareholders' equity, and cash flows of Brooks Fiber
Properties, Inc. and subsidiaries for the year ended December 31, 1997
(not included herein). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 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 consolidated financial statements referred to
above present fairly, in all material respects, the changes in
shareholders' equity of Brooks Fiber Properties, Inc. and subsidiaries as
of December 31, 1997, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted
accounting principles.

KPMG LLP

St. Louis, Missouri
February 18, 1998

F-5

<PAGE>

WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share Data)

<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,727 $ 876
Marketable securities -- 6
Accounts receivable, net of allowance
for bad debts of $920 in 1998 and
$1,122 in 1999 5,309 5,746
Deferred tax asset 2,546 2,565
Other current assets 1,187 1,131
-------- -------
Total current assets 10,769 10,324
-------- -------
Property and equipment:
Transmission equipment 12,271 14,689
Communications equipment 5,400 6,218
Furniture, fixtures and other 6,092 7,424
Construction in progress 3,080 5,397
-------- --------
26,843 33,728
Accumulated depreciation (2,275) (5,110)
-------- --------
24,568 28,618
-------- --------
47,285 47,308
Goodwill and other intangible assets 4,470 4,822
-------- --------
Other assets $87,092 $91,072
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt and current maturities of
long-term debt $ 4,757 $ 5,015
Accounts payable 1,771 2,557
Accrued line costs 3,903 3,721
Other current liabilities 5,749 5,916
-------- --------
Total current liabilities 16,180 17,209
-------- --------

F-6

<PAGE>

Long-term liabilities, less current portion:
Long-term debt 16,448 13,128
Deferred tax liability 2,870 4,877
Other liabilities 1,855 1,223
-------- --------
Total long-term liabilities 21,173 19,228
-------- --------
Commitments and contingencies

Minority interests 3,700 2,599

Company obligated mandatorily redeemable
preferred securities of
subsidiary trust holding solely junior
subordinated deferrable interest
debentures of the Company and other
redeemable preferred securities 798 789

Shareholders' investment:
Series B preferred stock, par value $.01 per
share; authorized, issued and
outstanding: 11,643,002 shares in
1998 and 11,096,887 shares in 1999
(liquidation preference of $1.00 per
share plus unpaid dividends) -- --
Series C preferred stock, par value $.01 per
share; authorized, issued and
outstanding: 3,750,000 in 1998 and
1999 (liquidation preference of $50
per share) -- --
Preferred stock, par value $.01 per share;
authorized: 31,155,008 shares in
1998 and 1999; none issued -- --
Common stock, par value $.01 per share;
authorized: 5,000,000,000 shares;
issued and outstanding:
2,776,758,726 shares in 1998 and
2,849,743,843 shares in 1999 28 28
Additional paid-in capital 50,173 52,108
Retained deficit (4,869) (928)
Unrealized holding gain on marketable equity
securities 122 575
Cumulative foreign currency translation
adjustment (28) (360)
Treasury stock, at cost, 6,765,316 shares in
1998 and 1999 (185) (185)
-------- --------
Total shareholders' investment 45,241 51,238
-------- --------
$87,092 $91,072
-------- --------

The accompanying notes are an integral part of these statements.
</TABLE>

F-7

<PAGE>

WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions, Except Per Share Data)

<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------
1997 1998 1999
--------- ------- -------
<S> <C> <C> <C>
Revenues $ 7,643 $17,617 $35,908
------- ------- --------
Operating expenses:
Line costs 3,741 7,982 14,739
Selling, general and administrative 1,854 4,563 8,935
Depreciation and amortization 1,066 2,289 4,354
In-process research and development and other charges -- 3,725 (8)
------- ------- --------
Total 6,661 18,559 28,020
Operating income (loss) 982 (942) 7,888
Other income (expense):
Interest expense (450) (692) (966)
Miscellaneous 46 44 242
------- ------- --------

F-8
<PAGE>

Income (loss) before income taxes, minority
interests, cumulative effect of accounting change
and extraordinary items 578 (1,590) 7,164
Provision for income taxes 393 877 2,965
------- ------- --------
Income (loss) before minority interests,
cumulative effect of accounting change and
extraordinary items 185 (2,467) 4,199
Minority interests -- (93) (186)
------- ------- --------
Income (loss) before cumulative effect of
accounting change and extraordinary items 185 (2,560) 4,013
Cumulative effect of accounting change (net of
income taxes of $22 in 1998) -- (36) --
Extraordinary items (net of income taxes of $78 in 1999) (3) (129) --
------- ------- --------
Net income (loss) 182 (2,725) 4,013
Distributions on subsidiary trust mandatorily
redeemable preferred securities -- 18 63
Preferred dividend requirement 39 24 9
------- -------- --------
Net income (loss) applicable to common shareholders: $143 $(2,767) $3,941
======= ======== ========
Earnings (loss) per common share:
Net income (loss) applicable to common
shareholders before cumulative effect of
accounting change and extraordinary items:
Basic $0.10 $(1.35) $1.40
Diluted $0.10 $(1.35) $1.35
======= ======= ====
Cumulative effect of accounting change $-- $(0.02) $--
======= ======= ====
Extraordinary items $-- $(0.07) $--
======= ======= ====

Net income (loss) applicable to common shareholders:
Basic $0.10 $(1.43) $1.40
======= ======= ======
Diluted $0.09 $(1.43) $1.35
======= ======= ======
</TABLE>

The accompanying notes are an integral part of these statements.

F-9
<PAGE>

WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS INVESTMENT
For the Three Years Ended December 31, 1999
(In Millions)

<TABLE>
<CAPTION>
Foreign
Additional Retained Unrealized Currency Total
Common Paid-in Earnings Holding Translation Treasury Shareholders'
Stock Capital (Deficit) Gain Adjustment Stock Investment
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 $14 $15,820 $(2,245) $29 $(2) $-- $13,616
Exercise of stock options (36
million shares) 1 144 -- -- -- -- 145
Tax adjustment resulting from
exercise of stock options -- 24 -- -- -- -- 24
Issuance of common stock in
connection with secondary
equity offering (3 million shares) -- 23 -- -- -- -- 23
Shares issued for acquisitions (18
million shares) -- 159 -- -- -- -- 159
Other comprehensive income (net of
taxes and reclassifications):
Net income -- -- 182 -- -- -- 182
Cash dividends on preferred stock -- -- (39) -- -- -- (39)
Net change in unrealized holding
gain on marketable equity
securities -- -- -- 5 -- -- 5
Foreign currency adjustment -- -- -- -- (28) -- (28)
-------
120
Total comprehensive income ------- ------- ------ ------- ------ ------ -------
Balances, December 31, 1997 15 16,170 (2,102) 34 (30) -- 14,087

Exercise of stock options (49
million shares) 1 471 -- -- -- -- 472
Tax adjustment resulting from
exercise of stock options -- 208 -- -- -- -- 208
Shares issued for acquisitions
(1.182 billion shares) 12 33,314 -- -- -- (185) 33,141
Conversion of preferred stock into
common stock -- 9 -- -- -- -- 9
Employee stock purchase plan
contributions -- 1 -- -- -- -- 1
Other comprehensive income (loss)
(net of taxes and reclassifications):
Net loss -- -- (2,725) -- -- -- (2,725)
Cash dividends on preferred stock
and distributions on Trust
securities -- -- (42) -- -- -- (42)
Net change in unrealized holding
gain on marketable equity securities -- -- 88 -- -- 88

F-10

<PAGE>

Foreign currency adjustment -- -- -- -- 2 -- 2
--------
Total comprehensive income (2,677)
-------- -------- -------- ------- ------- -------- --------
Balances, December 31, 1998 28 50,173 (4,869) 122 (28) (185) 45,241
Exercise of stock options (61
million shares) -- 886 -- -- -- -- 886
Tax adjustment resulting from
exercise of stock options -- 820 -- -- -- -- 820
Shares issued for acquisitions (4
million shares) -- 228 -- -- -- -- 228
Conversion of convertible
subordinated debt into
common stock -- 1 -- -- -- -- 1
Other comprehensive income (loss)
(net of taxes and
reclassifications):
Net income -- -- 4,013 -- -- -- 4,013
Cash dividends on preferred stock
and distributions on Trust
securities -- -- (72) -- -- -- (72)
Net change in unrealized holding
gain on marketable equity
securities -- -- -- 453 -- -- 453
Foreign currency adjustment -- -- -- -- (332) -- (332)
------
Total comprehensive income 4,062
------- ------- ------ ------- ------ ------ ------
Balances, December 31, 1999 $ 28 $52,108 $(928) $575 $(360) $(185) $51,238
======= ======= ====== ======= ====== ====== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-11

<PAGE>

WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)

<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1997 1998 1999
----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $182 $(2,725) $4,013
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change -- 36 --
Extraordinary items 3 129 --
Minority interests -- 93 186
In-process research and development and other charges -- 3,725 (8)
Depreciation and amortization 1,066 2,289 4,354
Provision for losses on accounts receivable 132 395 951
Provision for deferred income taxes 340 785 2,903
Accreted interest on debt 122 25 --
Change in assets and liabilities, net of effect of
business combinations:
Accounts receivable (457) (703) (1,826)
Other current assets (167) (250) 143
Accrued line costs 97 (330) (252)
Accounts payable and other current liabilities (20) 753 944
Other (3) (40) (403)
------- --------- ---------
Net cash provided by operating activities 1,295 4,182 11,005
------- --------- ---------
Cash flows from investing activities:
Capital expenditures (3,153) (5,486) (8,716)
Sale of short-term investments, net 890 54 4
Acquisitions and related costs (1,160) (3,400) (1,078)
Increase in intangible assets (141) (351) (743)
Proceeds from the sale of SHL -- -- 1,640
Proceeds from disposition of marketable securities 133 148 1,940
and other long-term assets
Increase in other assets (260) (319) (1,952)

F-12

<PAGE>

Decrease in other liabilities (42) (144) (650)
------- --------- ---------
Net cash used in investing activities (3,733) (9,498) (9,555)
------- --------- ---------
Cash flows from financing activities:
Principal borrowings (repayments) on debt, net 1,981 6,390 (2,894)
Common stock issuance 166 472 886
Distributions on subsidiary trust mandatorily
redeemable preferred securities -- (18) (63)
Dividends paid on preferred stock (39) (24) (9)
Other (5) 48
------- --------- ---------
Net cash provided by (used in) financing activities 2,103 6,868 (2,080)
------- --------- ---------
Effect of exchange rate changes on cash -- -- (221)
------- --------- ---------

Net increase (decrease) in cash and cash equivalents (335) 1,552 (851)
Cash and cash equivalents at beginning of period 510 175 1,727
------- --------- ---------
Cash and cash equivalents at end of period $175 $1,727 $876
======= ========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-13
<PAGE>

WORLDCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -

DESCRIPTION OF BUSINESS AND ORGANIZATION:

Organized in 1983, WorldCom, Inc., a Georgia corporation
("WorldCom" or the "Company") provides a broad range of
communications, outsourcing, and managed network services to both
U.S. and non-U.S. based corporations. WorldCom is a global
communications company utilizing a facilities-based, on-net
strategy throughout the world. The on-net approach allows the
Company's customers to send data streams or voice traffic across
town, across the U.S., or to any of our facilities-based networks
in Europe or Asia, without ever leaving the confines of the
WorldCom network. The on-net approach provides the Company's
customers with superior reliability and low operating costs. Prior
to May 1, 2000, the Company was named MCI WORLDCOM, Inc.

F-14

<PAGE>

WorldCom leverages its facilities-based networks to focus on data
and the Internet. WorldCom provides the building blocks or
foundation for the new e-conomy. Whether it is an emerging
e-business or a larger, more established company who is embracing
an e-business approach, WorldCom provides the communications
infrastructure to help make them successful. From private
networking - frame relay and asynchronous transfer mode ("ATM") -
to high capacity Internet and related services, to hosting for
complex, high-volume mega-sites, to turn-key network management and
outsourcing, WorldCom provides the broadest range of Internet and
traditional, private networking services available from any
provider.

The Company's core business is communications services, which
includes voice, data, Internet and international services. During
each of the last three years, more than 90% of operating revenues
were derived from communications services.

The Company serves as a holding company for its subsidiaries'
operations. References herein to the Company include the Company
and its subsidiaries, unless the context otherwise requires.

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Investments in joint ventures and other equity investments in which
the Company owns a 20% to 50% ownership interest, except for the
Company's interest in Embratel Participacoes S.A. ("Embratel") as
discussed in Note 2, are accounted for by the equity method.
Investments of less than 20% ownership, where the Company does not
exercise control or significant influence, are accounted for under
the cost method.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying amounts for cash, marketable securities, accounts
receivable, notes receivable, accounts payable and accrued

F-15

<PAGE>

liabilities approximate their fair value. The fair value of
long-term debt is determined based on quoted market rates or the
cash flows from such financial instruments discounted at the
Company's estimated current interest rate to enter into similar
financial instruments. The carrying amounts and fair values of the
Company's debt were $21.2 billion and $22.3 billion, respectively,
at December 31, 1998; $18.1 billion and $17.9 billion,
respectively, at December 31, 1999.

CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES:

The Company considers cash in banks and short-term investments with
original maturities of three months or less as cash and cash
equivalents. The Company has classified all marketable securities
other than cash equivalents as available-for-sale. Proceeds from
the sale of marketable securities approximated $1.0 billion, $54
million and $4 million, respectively, for the years ended December
31, 1997, 1998 and 1999. Realized gains and losses on marketable
securities for the years ended December 31, 1997, 1998 and 1999
were not material.

PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost. Depreciation is
provided for financial reporting purposes using the straight-line
method over the following estimated useful lives:

Transmission equipment (including conduit) 5 to 45 years
Communications equipment 5 to 20 years
Furniture, fixtures, buildings and other 4 to 40 years

The Company evaluates the recoverability of property and equipment
when events and circumstances indicate that such assets might be
impaired. The Company determines impairment by comparing the
undiscounted future cash flows estimated to be generated by these
assets to their respective carrying amounts. In the event an
impairment exists, a loss is recognized based on the amount by
which the carrying value exceeds the fair value of the asset. If
quoted market prices for an asset are not available, fair market
value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved. Losses
in property and equipment to be disposed of are determined in a
similar manner, except that fair market values are reduced for the
cost to dispose.

Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized. The cost and related reserves of
assets sold or retired are removed from the accounts, and any
resulting gain or loss is reflected in results of operations.

F-16

<PAGE>

The Company constructs certain of its own transmission systems and
related facilities. Internal costs directly related to the
construction of such facilities, including interest and salaries of
certain employees, are capitalized. Such internal costs were $212
million ($82 million in interest), $305 million ($195 million in
interest) and $625 million ($339 million in interest) in 1997, 1998
and 1999, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS:

The major classes of intangible assets as of December 31, 1998 and
1999 are summarized below (in millions):

Amortization
Period 1998 1999
------------- -------- ------
<S> <C> <C> <C>
Goodwill 5 to 40 years $44,189 $44,767
Tradename 40 years 1,100 1,100
Developed technology 5 to 10 years 2,100 2,100
Other intangibles 5 to 10 years 1,502 2,682
------- -------
48,891 50,649
Less: accumulated amortization 1,606 3,341
------- -------
Goodwill and other
intangible assets, net $47,285 $47,308
======= =======
</TABLE>

Intangible assets are amortized using the straight-line method for
the periods noted above.

Goodwill is recognized for the excess of the purchase price of the
various business combinations over the value of the identifiable
net tangible and intangible assets acquired. Realization of
acquisition-related intangibles, including goodwill, is
periodically assessed by the management of the Company based on the
current and expected future profitability and cash flows of
acquired companies and their contribution to the overall operations
of WorldCom.

Also included in other intangibles are costs incurred to develop
software for internal use. Such costs were $91 million, $561
million and $710 million for the years ended December 31, 1997,
1998 and 1999, respectively.

UNREALIZED HOLDING GAIN ON MARKETABLE EQUITY SECURITIES:

The Company's equity investment in certain publicly traded
companies is classified as available-for-sale securities.

F-17

<PAGE>

Accordingly, these investments are included in other assets at
their fair value of approximately $1.6 billion and $1.1 billion at
December 31, 1998 and 1999, respectively. The unrealized holding
gain on these marketable equity securities, net of taxes, is
included as a component of shareholders' investment in the
accompanying consolidated financial statements. As of December 31,
1998 and 1999, the gross unrealized holding gain on these
securities was $183 million and $918 million, respectively.
Proceeds from the sale of marketable equity securities totaled $14
million and $1.7 billion, respectively, for the years ended
December 31, 1998 and 1999. There was no sales activity for the
year ended December 31, 1997. Gross realized gains and losses on
marketable equity securities, which represent reclassification
adjustments to other comprehensive income, were $13 million and $31
million, respectively, for the year ended December 31, 1998. Gross
realized gains were $374 million for the year ended December 31,
1999.

FOREIGN CURRENCY TRANSLATION:

Assets and liabilities are translated at the exchange rate as of
the balance sheet date. All revenue and expense accounts are
translated at a weighted-average of exchange rates in effect during
the period. Translation adjustments are recorded as a separate
component of shareholders' equity.

RECOGNITION OF REVENUES:

The Company records revenues for telecommunications services at the
time of customer usage. Service discounts and incentives are
accounted for as a reduction of revenues when granted or, where a
service continuation contract exists, ratably over the contract
period. Revenues from information technology services is
recognized, depending on the service provided, on a percentage of
completion basis or as services and products are furnished or
delivered.

ACCOUNTING FOR INTERNATIONAL LONG DISTANCE TRAFFIC:

The Company enters into operating agreements with
telecommunications carriers in foreign countries under which
international long distance traffic is both delivered and received.
The terms of most switched voice operating agreements, as well as
established Federal Communications Commission ("FCC") policy,
require that inbound switched voice traffic from the foreign
carrier to the United States be routed to United States
international carriers, like WorldCom, in proportion to the
percentage of United States outbound traffic routed by that United
States international carrier to the foreign carrier. Mutually
exchanged traffic between the Company and foreign carriers is

F-18

<PAGE>

settled in cash through a formal settlement policy that generally
extends over a six-month period at an agreed upon settlement rate.
International settlements are treated as an offset to line costs.
This reflects the way in which the business is operated because
WorldCom actually settles in cash through a formal net settlement
process that is inherent in the operating agreements with foreign
carriers.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE:

In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities." This accounting standard required all
companies to expense, on or before March 31, 1999, all start-up
costs previously capitalized, and thereafter to expense all costs
of start-up activities as incurred. This accounting standard
broadly defines start-up activities as one-time activities related
to the opening of a new facility, the introduction of a new product
or service, the commencement of business in a new territory, the
establishment of business with a new class of customer, the
initiation of a new process in an existing facility or the
commencement of a new operation. The Company adopted this standard
as of January 1, 1998. The cumulative effect of this change in
accounting principle resulted in a one-time non-cash expense of $36
million, net of income tax benefit of $22 million. This expense
represented start-up costs incurred primarily in conjunction with
the development and construction of the Advanced Messaging Network
of SkyTel Communications, Inc. ("SkyTel").

EXTRAORDINARY ITEMS:

In the first quarter of 1998, the Company recorded an extraordinary
item totaling $129 million, net of income tax benefit of $78
million. The charge was recorded in connection with the tender
offers and certain related refinancings of the Company's
outstanding debt.

In 1997, the Company recognized an extraordinary loss of $3 million
related to the early extinguishment of secured indebtedness.

INCOME TAXES:

The Company recognizes current and deferred income tax assets and
liabilities based upon all events that have been recognized in the
consolidated financial statements as measured by the provisions of
the enacted tax laws.

F-19

<PAGE>

EARNINGS PER SHARE:

The following is a reconciliation of the numerators and the
denominators of the basic and diluted per share computations (in
millions, except per share data):
<TABLE>
<CAPTION>

1997 1998 1999
------------------------------
<S> <C> <C> <C>
BASIC
Income (loss) before cumulative effect of accounting change and
extraordinary items $185 $(2,560) $4,013
Preferred stock dividends and distributions on trust securities (39) (42) (72)
------ ------- ------
Net income (loss) applicable to common shareholders before
cumulative effect of accounting change and extraordinary items $146 $(2,602) $3,941
====== ======== ======
Weighted average shares outstanding 1,470 1,933 2,821
====== ======== ======
Basic earnings (loss) per share before cumulative effect of
accounting change and extraordinary items $0.10 $ (1.35) $1.40
====== ======= ======
DILUTED
Net income (loss) applicable to common shareholders before
cumulative effect of accounting change and extraordinary items $146 $(2,602) $3,941
Add back:
Dilutive preferred stock dividends 1 -- --
Net income (loss) applicable to common shareholders $147 $(2,602) $3,941
Weighted average shares outstanding 1,470 1,933 2,821
====== ======= =======
Common stock equivalents 44 -- 102
Common stock issuable upon conversion of preferred stock 2 -- 2
------ ------- -------
Diluted shares outstanding 1,516 1,933 2,925
====== ======= =======

Diluted earnings (loss) per share before cumulative effect of
accounting change and extraordinary items $0.10 $(1.35) $1.35
====== ======= =======
</TABLE>

STOCK SPLITS:

On November 18, 1999, the Board of Directors authorized a
three-for-two stock split in the form of a 50% stock dividend which
was distributed on December 30, 1999 to shareholders of record on
December 15, 1999. All per share data and numbers of common shares
have been retroactively restated to reflect this stock split.

F-20

<PAGE>

CONCENTRATION OF CREDIT RISK:

A portion of the Company's revenues is derived from services
provided to others in the telecommunications industry, mainly
resellers of long distance telecommunications service and Internet
online services. As a result, the Company has some concentration
of credit risk among its customer base. The Company performs
ongoing credit evaluations of its larger customers' financial
condition and, at times, requires collateral from its customers to
support its receivables, usually in the form of assignment of its
customers' receivables to the Company in the event of nonpayment.

RECENTLY ISSUED ACCOUNTING STANDARDS:

In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its
fair value. This statement requires that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income statement, and
requires a company to formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. This
statement is effective for fiscal years beginning after June 15,
2000 and cannot be applied retroactively, although earlier adoption
is encouraged. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the Company's election,
before January 1, 1998). The Company believes that the adoption of
this standard will not have a material effect on the Company's
consolidated results of operations or financial position.

USE OF ESTIMATES:

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and revenues
and expenses during the period reported. Actual results could
differ from those estimates. Estimates are used when accounting
for long-term contracts, allowance for doubtful accounts, accrued
line costs, depreciation and amortization, taxes, restructuring
accruals and contingencies.

F-21

<PAGE>

RECLASSIFICATIONS:

Certain consolidated financial statement amounts have been
reclassified for consistent presentation.

(2) BUSINESS COMBINATIONS -

The Company has acquired other telecommunications companies
offering similar or complementary services to those offered by the
Company. Such acquisitions have been accomplished through the
purchase of the outstanding stock or assets of the acquired entity
for cash, notes, shares of the Company's common stock, or a
combination thereof. The cash portion of acquisition costs has
generally been financed through the Company's bank credit
facilities. In addition to the business combinations described
below, the Company or its predecessors completed smaller
acquisitions during the three years ended December 31, 1999.

On October 1, 1999, WorldCom acquired SkyTel, pursuant to the
merger (the "SkyTel Merger") of SkyTel with and into a wholly owned
subsidiary of WorldCom. Upon consummation of the SkyTel Merger,
Empire was renamed SkyTel Communications, Inc. SkyTel is a leading
provider of nationwide messaging services in the United States.
SkyTel's principal operations include one-way messaging services in
the United States, advanced messaging services on the narrow band
personal communications services network in the United States and
international one-way messaging operations.

As a result of the SkyTel Merger, each outstanding share of SkyTel
common stock was converted into the right to receive 0.3849 shares
of WorldCom common stock, par value $.01 per share (the "WorldCom
Common Stock"), or approximately 23 million WorldCom common shares
in the aggregate. Holders of SkyTel's $2.25 Cumulative Convertible
Exchangeable Preferred Stock (the "SkyTel Preferred Stock")
received one share of WorldCom Series C $2.25 Cumulative
Convertible Exchangeable Preferred Stock (the "WorldCom Series C
Preferred Stock") for each share of SkyTel Preferred Stock held.
The SkyTel Merger was accounted for as a pooling-of-interests; and
accordingly, the Company's financial statements for periods prior
to the SkyTel Merger have been restated to include the results of
SkyTel for all periods presented.

SkyTel's net loss for the nine month period ended September 30,
1999 has been restated due to the anticipated utilization of
previously reserved net operating losses as a result of the SkyTel
Merger. Separate and combined results of operations for the nine
months ended September 30, 1999 are as follows (in millions, except
per share data):

F-22

1999
----------

<S> <C>
Revenues:
WorldCom $26,222
SkyTel 422
Intercompany elimination (58)
---------
Combined $26,586
=========
Net income (loss) before cumulative effect of
accounting change and extraordinary items:
WorldCom $2,663
SkyTel (7)
---------
Combined $2,656
=========
Combined earnings per share before cumulative
effect of accounting change and extraordinary
items:
Basic $0.94
=========
Diluted $0.91
=========
</TABLE>
On September 14, 1998, the Company acquired MCI Communications
Corporation ("MCI") for approximately $40 billion, pursuant to the
merger (the "MCI Merger") of MCI with and into TC Investments Corp.
("Acquisition Subsidiary"), a wholly owned subsidiary of the
Company. Upon consummation of the MCI Merger, the Acquisition
Subsidiary was renamed MCI Communications Corporation. Through the
MCI Merger, the Company acquired one of the world's largest and
most advanced digital networks, connecting local markets in the
United States to more than 280 countries and locations worldwide.

As a result of the MCI Merger, each outstanding share of MCI common
stock was converted into the right to receive 1.86585 shares of
WorldCom Common Stock, or approximately 1.13 billion WorldCom
common shares in the aggregate, and each share of MCI Class A
common stock outstanding (all of which were held by British
Telecommunications plc ("BT")) was converted into the right to
receive $51.00 in cash or approximately $7 billion in the
aggregate. The funds paid to BT were obtained by the Company from
(i) available cash as a result of the Company's $6.1 billion public
debt offering in August 1998; (ii) the sale of MCI's Internet
backbone facilities and wholesale and retail Internet business (the
"iMCI Business") to Cable and Wireless plc ("Cable & Wireless") for
$1.75 billion in cash on September 14, 1998; (iii) the sale of
MCI's 24.9% equity stake in Concert Communications Services
("Concert") to BT for $1 billion in cash on September 14, 1998; and
(iv) availability under the Company's commercial paper program and
credit facilities.

F-23

<PAGE>

Upon effectiveness of the MCI Merger, the then outstanding and
unexercised options exercisable for shares of MCI common stock were
converted into options exercisable for an aggregate of
approximately 125 million shares of WorldCom Common Stock having
the same terms and conditions as the MCI options, except that the
exercise price and the number of shares issuable upon exercise were
divided and multiplied, respectively, by 1.86585. The MCI Merger
was accounted for as a purchase; accordingly, operating results for
MCI have been included from the date of acquisition.

On August 4, 1998, MCI acquired a 51.79% voting interest and a
19.26% economic interest in Embratel, Brazil's facilities-based
national and international communications provider, for
approximately R$2.65 billion (U.S. $2.3 billion). The purchase
price is being paid in local currency installments, of which R$1.06
billion (U.S. $916 million) was paid on August 4, 1998, R$795
million (U.S. $442 million) was paid on August 4, 1999, and the
remaining R$795 million (U.S. $440 million at December 31, 1999)
will be paid on August 4, 2000. Embratel provides domestic long
distance and international telecommunications services in Brazil,
as well as over 40 other communications services, including leased
high-speed data, Internet, frame relay, satellite and
packet-switched services. Operating results for Embratel are
consolidated in the accompanying consolidated financial statements
and are included from the date of the MCI Merger.

On January 31, 1998, WorldCom acquired CompuServe Corporation
("CompuServe"), for approximately $1.3 billion, pursuant to the
merger (the "CompuServe Merger") of a wholly owned subsidiary of
the Company with and into CompuServe. Upon consummation of the
CompuServe Merger, CompuServe became a wholly owned subsidiary of
WorldCom.

F-24

<PAGE>

As a result of the CompuServe Merger, each share of CompuServe
common stock was converted into the right to receive 0.609375
shares of WorldCom Common Stock, or approximately 56 million
WorldCom common shares in the aggregate. Prior to the CompuServe
Merger, CompuServe operated primarily through two divisions:
Interactive Services and Network Services. Interactive Services
offered worldwide online and Internet access services for
consumers, while Network Services provided worldwide network
access, management and applications, and Internet service to
businesses. The CompuServe Merger was accounted for as a purchase;
accordingly, operating results for CompuServe have been included
from the date of acquisition.

On January 31, 1998, the Company also acquired ANS Communications,
Inc. ("ANS"), from America Online, Inc. ("AOL"), for approximately
$500 million, and entered into five year contracts with AOL under
which WorldCom and its subsidiaries provide network services to AOL
(collectively, the "AOL Transaction"). As part of the AOL
Transaction, AOL acquired CompuServe's Interactive Services
division and received a $175 million cash payment from WorldCom.
WorldCom retained the CompuServe Network Services division. ANS
provided Internet access to AOL and AOL's subscribers in the United
States, Canada, the United Kingdom, Sweden and Japan. The AOL
Transaction was accounted for as a purchase; accordingly, operating
results for ANS have been included from the date of acquisition.

The purchase price in the CompuServe Merger and AOL Transaction was
allocated based on estimated fair values at the date of
acquisition. This resulted in an excess of purchase price over net
assets acquired of which $429 million was allocated to IPR&D. The
remaining excess of $991 million, as of December 31, 1999, has been
recorded as goodwill, which is being amortized over 10 years on a
straight-line basis.

F-25

<PAGE>

On January 29, 1998, WorldCom acquired Brooks Fiber Properties,
Inc. ("BFP"), pursuant to the merger (the "BFP Merger") of a wholly
owned subsidiary of WorldCom, with and into BFP. Upon consummation
of the BFP Merger, BFP became a wholly owned subsidiary of
WorldCom. BFP is a leading facilities-based provider of
competitive local telecommunications services, commonly referred to
as a competitive local exchange carrier ("CLEC"), in selected
cities within the United States. BFP acquires and constructs its
own state-of-the-art fiber optic networks and facilities and leases
network capacity from others to provide long distance carriers,
ISPs, wireless carriers and business, government and institutional
end users with an alternative to the incumbent local exchange
carriers ("ILECs") for a broad array of high quality voice, data,
video transport and other telecommunications services.

As a result of the BFP Merger, each share of BFP common stock was
converted into the right to receive 2.775 shares of WorldCom Common
Stock or approximately 109 million WorldCom common shares in the
aggregate. The BFP Merger was accounted for as a
pooling-of-interests; and, accordingly, the Company's financial
statements for periods prior to the BFP Merger have been restated
to include the results of BFP for all periods presented.

During 1998 and 1999, the Company recorded other liabilities of
$2.2 billion and $582 million, respectively, related to estimated
costs of unfavorable commitments of acquired entities, and other
non-recurring costs arising from various acquisitions and mergers.
At December 31, 1998 and 1999, other liabilities related to these
accruals totaled $2.0 billion and $1.8 billion, respectively.

The following unaudited pro forma combined results of operations
for the Company assumes that the MCI Merger was completed on
January 1, 1998 (in millions, except per share data):

For the Year
Ended December 31,
1998
------------------
Revenues $30,945
Net income (loss) before cumulative
effect of accounting change and
extraordinary items (2,574)
Net income (loss) attributable
to common shareholders (2,739)
Dilutive income (loss) per common share:
Net income (loss) before cumulative
effect of accounting change and
extraordinary items $ (0.95)
Net income (loss) (1.01)

F-26

<PAGE>

These pro forma amounts represent the historical operating results
of MCI combined with those of the Company with appropriate
preliminary adjustments which give effect to an IPR&D charge of
$3.1 billion in 1998, depreciation, amortization, interest and the
common shares issued. These pro forma amounts do not include
amounts with respect to the CompuServe Merger, AOL Transaction or
Embratel prior to their respective business combination dates
because they are individually, and in the aggregate, not material
to WorldCom. These pro forma amounts are not necessarily indicative
of operating results which would have occurred if MCI had been
operated by current management during the periods presented because
these amounts do not reflect cost savings related to full network
optimization and the redundant effect on operating, selling,
general and administrative expenses.

(3) IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES -

The following table reflects the components of the significant
items included in IPR&D and other charges in 1998 and 1999 (in
millions):

1998 1999
--------- --------

IPR&D $3,529 $--
Provision to reduce the carrying value of
certain assets 49 --
Severance and other employee related costs 21 --
Direct merger costs 17 1
Alignment and other exit activities 109 (9)
------ ------
$3,725 $ (8)
====== ======

In 1998, the Company recorded a pre-tax charge of $196 million in
connection with the BFP Merger, the MCI Merger and certain asset
write-downs and loss contingencies. Such charges included $21
million for employee severance, $17 million for BFP direct merger
costs, $38 million for conformance of BFP accounting policies, $56
million for exit costs under long-term commitments, $31 million for
write-down of a permanently impaired investment and $33 million
related to certain asset write-downs and loss contingencies. The
$56 million related to long-term commitments includes $33 million
of minimum commitments between 1999 and 2008 for leased facilities
that the Company has or will abandon, $19 million related to
certain minimum contractual network lease commitments that expire
between 1999 and 2001, for which the Company will receive no future
benefit due to the migration of traffic to owned facilities, and $4
million of other commitments. Because of organizational and
operational changes that occurred, management concluded in 1999
that certain leased properties would not be abandoned according to
the original plan that was approved by management. Therefore, in

F-27

<PAGE>

1999 a reversal of a $9 million charge to IPR&D and other charges
was recorded in connection with this plan amendment. Additionally,
the $33 million related to certain asset write-downs and loss
contingencies includes $9 million for the decommission of certain
information systems that have no alternative future use, $9 million
for the write-down to fair value of certain assets held for sale
that were disposed of in 1998 and $15 million related to legal
costs and other items related to BFP. As of December 31, 1998 and
1999, the Company's remaining unpaid liability related to the above
charges was $66 million and $27 million, respectively.

CHARGE FOR IN-PROCESS RESEARCH AND DEVELOPMENT:

In connection with certain business combinations, the Company made
allocations of the purchase price to acquired IPR&D totaling $429
million in the first quarter of 1998 related to the CompuServe
Merger and AOL Transaction and $3.1 billion in the third quarter of
1998 related to the MCI Merger. These allocations represent the
estimated fair value based on risk-adjusted future cash flows
related to the incomplete projects. At the date of the respective
business combinations, the development of these projects had not
yet reached technological feasibility and the research and
development in progress had no alternative future uses.
Accordingly, these costs were expensed as of the respective
acquisition dates.

(4) INVESTMENTS -

In November 1999, the Company purchased 30 million shares of
Metricom, Inc. ("Metricom") Series A1 preferred stock (the
"Metricom Preferred Stock") for $300 million. The Metricom
Preferred Stock bears cumulative dividends at the rate of 6.5% per
annum for three years, payable in cash or additional shares of
Metricom Preferred Stock. In addition, the Company has the right
to elect one director to Metricom's Board of Directors, although
voting rights otherwise will be generally limited to specified
matters. The Metricom Preferred Stock is subject to mandatory
redemption by Metricom at the original issuance price in 2009 and
to redemption at the option of the holder upon the occurrence of
specified changes in control or major acquisitions. The Metricom
Preferred Stock is convertible into Metricom common stock at the
Company's option beginning May 2002.

Metricom is a leading provider of mobile data networking and
technology. Metricom's Ricochet service provides mobile
professionals with high-performance, cost effective untethered
access to the Internet, private Intranets, local-area networks,
e-mail and other online services.

F-28

<PAGE>

Additionally, WorldCom signed a five-year, non-exclusive agreement
valued at $388 million with Metricom to sell subscriptions for
Metricom's Ricochet services. The agreement is subject to the
timely deployment of the Metricom network, Metricom's ability to
meet agreed performance standards and Metricom's ability to attract
a significant number of subscribers through other channel partners.

In connection with the MCI Merger, the Company acquired a 44.5%
investment in Avantel, S.A. ("Avantel") and Avantel Servicios
Locales, S.A. ("Avantel Local"), both business ventures with Grupo
Financiero Banamex-Accival, formed to provide competitive domestic
and international telecommunications services in Mexico. At
December 31, 1998 and 1999, the net investment in Avantel and
Avantel Local was approximately $196 million. The Company's share
of Avantel and Avantel Local's net loss for the year ended December
31, 1999 was approximately $39 million. The Company's share of
Avantel and Avantel Local's net loss recorded from the MCI Merger
date through December 31, 1998, was approximately $25 million. The
Company, Avantel and Avantel Local conduct business through the
exchange of domestic and international interconnection services at
prevailing market rates in the ordinary course of business. During
1998 and 1999, the amounts associated with these transactions were
not material.

In connection with the MCI Merger, the Company acquired an
investment in The News Corporation Limited ("News Corp."), valued
at $1.38 billion at December 31, 1998, comprised of cumulative
convertible preferred securities and warrants. In July 1999 the
Company received $1.4 billion in cash from the sale of the
Company's interest in News Corp. preferred stock. The Company
recorded a gain of $130 million on this sale. Additionally, the
Company recorded dividend income of approximately $17 million and
$32 million, respectively, for the years ended December 31, 1998
and 1999.

F-29

<PAGE>

With News Corp., the Company anticipated forming a Direct Broadcast
Satellite ("DBS") joint venture in which the Company would own at
19.9% interest. DBS is a point-to-multipoint broadcast service
that uses high-powered Ku band satellites placed in geosynchronous
orbit. DBS service is capable of delivering a wide range of
services, including subscription television, pay-per-view services,
such as movies, concerts and sporting events, and digitized
content, such as magazines. Prior to the EchoStar Transaction, as
discussed below, the Company held a DBS license from the FCC which
it planned to contribute to the joint venture. The DBS license
granted the Company the right to use 28 of 32 channels in the
satellite slot located at 110 degrees west longitude, which
provides coverage to all fifty states in the U.S. and Puerto Rico.
News Corp. and the Company planned to contribute to the joint
venture the other DBS related assets they each own.

In November 1998, the Company and News Corp. entered into an
agreement with EchoStar Communications Corporation ("EchoStar") for
the sale and transfer of the Company's and News Corp.'s DBS assets
(the "EchoStar Transaction"). The EchoStar Transaction was
consummated in June 1999 and the Company acquired preferred shares
in a subsidiary of News Corp. for a face amount equal to the
Company's cost of obtaining the DBS license from the FCC; plus
interest thereon. The Company also received from EchoStar
approximately 6.8 million shares of EchoStar Class A Common Stock.
In December 1999, the Company sold 2.7 million shares of EchoStar
Class A Common Stock and received $190 million in net proceeds.
The Company recorded a gain of $101 million on this sale.

(5) LONG-TERM DEBT -

Outstanding debt as of December 31, 1998 and 1999 consists of the
following (in millions):

F-30

<PAGE>

<TABLE>
<CAPTION>
1998 1999
-------------------------------------- -------------------------------------
Excluding Excluding
Embratel Embratel Consolidated Embratel Embratel Consolidated
------------ --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commercial paper and credit facilities $4,679 $-- $4,679 $2,875 $-- $2,875
Floating rate notes due 2000 -- -- -- 1,000 -- 1,000
6.13% - 6.95% Notes Due 2001-2028 6,100 -- 6,100 6,100 -- 6,100
7.55% - 7.75% Notes Due 2004-2027 2,000 -- 2,000 2,000 -- 2,000
8.88% - 13.5% Senior Notes Due 2002-2006 1,623 -- 1,623 689 -- 689
7.13% - 8.25% MCI Senior Debentures Due 2023-2027 1,441 -- 1,441 1,438 -- 1,438
6.13% - 7.50% MCI Senior Notes Due
1999-2012 2,653 -- 2,653 2,142 -- 2,142
15% note payable due in annual installments
through 2000 -- 1,317 1,317 -- 440 440
Capital lease obligations, 7.00% - 11.00%
(maturing through 2002) 639 -- 639 483 -- 483
Other debt (maturing through 2008) 201 552 753 148 828 976
------- ------ ------- -------- ------- -------
19,336 1,869 21,205 16,875 1,268 18,143
Short-term debt and current maturities of
long-term debt (3,971) (786) (4,757) (4,239) (776) (5,015)
------- ------ ------- -------- ------- -------
$15,365 $1,083 $16,448 $12,636 $492 $13,128
======= ====== ======= ======== ======= =======
</TABLE>

In January 1999, the Company and one of its wholly owned
subsidiaries redeemed all of its outstanding 9.375% Senior Notes
due January 15, 2004 (the "Senior Notes"). Holders of the Senior
Notes received 103.52% of the principal amount plus accrued and
unpaid interest to January 15, 1999, of $46.875 per $1,000
aggregate principal amount of such Senior Notes. The total
redemption cost of $743 million was obtained from available
liquidity under the Company's Credit Facilities and commercial
paper program (which is described below). The Company recorded a
$28 million charge related to the redemption.

In March 1999, $300 million and $200 million of MCI senior notes,
with interest rates of 6.25% and 6.37%, respectively, matured. The
funds utilized to repay the maturing MCI senior notes were obtained
from available liquidity under the Company's Credit Facilities and
commercial paper program.

On August 5, 1999, WorldCom extended its existing $7 billion
364-Day Revolving Credit and Term Loan Agreement for a successive
364-day term pursuant to an Amended and Restated 364-Day Revolving

F-31

<PAGE>

Credit and Term Loan Agreement ("Facility C Loans"). The Facility
C Loans together with the $3.75 billion Amended and Restated
Facility A Revolving Credit Agreement dated August 6, 1998
("Facility A Loans"), provide WorldCom with aggregate credit
facilities of $10.75 billion (the "Credit Facilities"). The Credit
Facilities provide liquidity support for the Company's commercial
paper program and will be used for other general corporate
purposes. The Facility A Loans mature on June 30, 2002. The
Facility C Loans have a 364-day term, which may be extended for a
second successive 364-day term thereafter to the extent of the
committed amounts from those lenders consenting thereto, with a
requirement that lenders holding at least 51% of the committed
amounts consent. Additionally, effective as of the end of such
364-day term, the Company may elect to convert up to $4 billion of
the principal debt outstanding under the Facility C Loans from
revolving loans to term loans with a maturity date no later than
one year after the conversion. The Credit Facilities bear interest
payable in varying periods, depending on the interest period, not
to exceed six months, or with respect to any Eurodollar Rate
borrowing, 12 months if available to all lenders, at rates selected
by the Company under the terms of the Credit Facilities, including
a Base Rate or Eurodollar Rate, plus the applicable margin. The
applicable margin for the Eurodollar Rate borrowing varies from
0.35% to 0.75% as to Facility A Loans and from 0.225% to 0.45% as
to Facility C Loans, in each case based upon the better of certain
debt ratings. The Credit Facilities are unsecured but include a
negative pledge of the assets of the Company and its subsidiaries
(subject to certain exceptions). The Credit Facilities require
compliance with a financial covenant based on the ratio of total
debt to total capitalization, calculated on a consolidated basis.
The Credit Facilities require compliance with certain operating
covenants which limit, among other things, the incurrence of
additional indebtedness by the Company and its subsidiaries, sales
of assets and mergers and dissolutions, and which covenants do not
restrict distributions to shareholders, provided the Company is not
in default under the Credit Facilities. At December 31, 1999, the

F-32
<PAGE>

Company was in compliance with these covenants. The Facility A
Loans and the Facility C Loans are subject to annual commitment
fees not to exceed 0.25% and 0.15%, respectively, of any unborrowed
portion of the facilities.

Additionally, in August 1999, the Company completed the private
placement offering of $1.0 billion principal amount of Floating
Rate Notes due August 2000. Interest on the Floating Rate Notes is
payable quarterly, equal to the London Interbank Offered Rate
("LIBOR") for the three-month U.S. dollar deposits plus 0.18%. The
net proceeds of the offering were used to pay down debt under the
Company's Credit Facilities and commercial paper program, and for
general corporate purposes.

In December 1999, the Company redeemed all of its outstanding 13.5%
Senior Notes due December 15, 2002 (the "SkyTel Notes"), and all of
its outstanding 6.75% Convertible Subordinated Debentures due May
15, 2002 (the "SkyTel Debentures"). The aggregate outstanding
principal amount of the SkyTel Notes and SkyTel Debentures was
approximately $266 million. In connection with the redemptions,
WorldCom recorded a charge of approximately $34 million in the
fourth quarter of 1999. The funds required to pay all amounts under
the redemptions were obtained by WorldCom from available liquidity
under the Company's Credit Facilities and commercial paper program.

As of December 31, 1999, Embratel had $828 million of long-term
debt outstanding, of which approximately $587 million was
denominated in U.S. dollars and $241 million denominated in other
currencies including the French Franc, Deutsche Mark, Japanese Yen,
and Brazilian real. The Embratel debt bears fixed interest rates
ranging from 5.7% to 10.1% and variable interest rates ranging from
0.25% to 3.30% per annum over the LIBOR. The LIBOR rate at
December 31, 1999 was 6.00125%.

F-33

<PAGE>

Certain of Embratel's credit agreements contain covenants
restricting, among other things, (i) the ability of
Telecomunicacacoes Brasileiras S.A., Telebras ("Telebras"),
Embratel's former parent, to dispose of all or a substantial part
of its assets or to cease to control a company that was an
operating subsidiary of Telebras and (ii) the ability of the
Brazilian Federal Government to dispose of its controlling interest
in Telebras. The breakup of Telebras on May 22, 1998 and the
privatization of Embratel constituted an event of default under
such credit agreements. In addition, most of Embratel's other
credit agreements include cross-default provisions and
cross-acceleration provisions that would permit the holders of such
indebtedness to declare the indebtedness to be in default and to
accelerate the maturity thereof if a significant portion of the
principal amount of Embratel's debt is in default or accelerated.
As of December 31, 1999 approximately $340 million of Embratel's
outstanding debt is currently in default or expected to be in
default as a result of the privatization. Embratel is currently in
negotiations with the appropriate creditors with respect to this
indebtedness.

The consolidated financial statements do not include any
adjustments relating to the recoverability of assets and
classification of liabilities that might be necessary should
Embratel be unable to renegotiate its credit agreements. The
Company believes that once the privatization is finalized,
Embratel's creditors will renegotiate the terms of these credit
agreements and/or provide appropriate waivers regarding such
defaults.

The Company has designated the remaining note payable in local
currency installments, resulting from the Embratel investment, as a
hedge of its investment in Embratel. Accordingly, as of December
31, 1998 and 1999, the Company recorded the change in value of $25
million and $171 million, respectively, resulting from foreign
currency fluctuations, as a reduction of the note payable with the
offset through foreign currency translation adjustment in
shareholders' investment.

The aggregate principal repayments and reductions required in each
of the years ending December 31, 2000 through December 31, 2004 and

F-34

<PAGE>

thereafter for the Company's long-term debt is as follows (in
millions):

2000 $5,015
2001 1,740
2002 167
2003 710
2004 1,128
Thereafter 9,383
-------
$18,143
=======

(6) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE
INTEREST DEBENTURES OF THE COMPANY AND OTHER REDEEMABLE PREFERRED
SECURITIES -

In connection with the MCI Merger, the Company acquired $750
million aggregate principal amount of 8% Cumulative Quarterly
Income Preferred Securities, Series A, representing 30 million
shares outstanding ("preferred securities") due June 30, 2026 which
were previously issued by MCI Capital I, a wholly owned Delaware
statutory business trust (the "Trust"). The Trust exists for the
sole purpose of issuing the preferred securities and investing the
proceeds in the Company's 8% Junior Subordinated Deferrable
Interest Debentures, Series A ("Subordinated Debt Securities") due
June 30, 2026, the only assets of the Trust.

Holders of the preferred securities are entitled to receive
preferential cumulative cash distributions from the Trust on a
quarterly basis, provided the Company has not elected to defer the
payment of interest due on the Subordinated Debt Securities to the
Trust. The Company may elect this deferral from time to time,
provided that the period of each such deferral does not exceed five
years. The preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Subordinated
Debt Securities at maturity or earlier in an amount equal to the
amount of Subordinated Debt Securities maturing or being repaid.
In addition, in the event the Company terminates the Trust, the
Subordinated Debt Securities will be distributed to the then
holders of the preferred securities of the Trust.

F-35
<PAGE>

The Company and MCI have executed various guarantee agreements and
supplemental indentures which agreements, when taken together with
the issuance of the Subordinated Debt Securities, constitute a
full, irrevocable, and unconditional guarantee by the Company and
MCI of all of the Trust's obligations under the preferred
securities (the "Guarantee"). A Guarantee Agreement and Supplement
No. 1 thereto covers payment of the preferred securities' quarterly
distributions and payments on maturity or redemption of the
preferred securities, but only in each case to the extent of funds
held by the Trust. If the Company does not make interest payments
on the Subordinated Debt Securities held by the Trust, the Trust
will have insufficient funds to pay such distributions. The
obligations of the Company and MCI under the Guarantee and the
Subordinated Debt Securities are subordinate and junior in right of
payment to all senior debt of the Company and MCI, respectively.

OTHER REDEEMABLE PREFERRED SECURITIES:

On December 28, 1998, WorldCom Synergies Management Company, Inc.
("SMC"), a wholly owned subsidiary of the Company, issued 475
shares of an authorized 500 shares of 6.375% cumulative preferred
stock, Class A ("SMC Class A Preferred Stock") in a private
placement. Each share of SMC Class A Preferred Stock has a par
value of $0.01 per share and a liquidation preference of $100,000
per share. The SMC Class A Preferred Stock is mandatorily
redeemable by SMC at the redemption price of $100,000 per share
plus accumulated and unpaid dividends on January 1, 2019.
Dividends on the SMC Class A Preferred Stock are cumulative from
the date of issuance and are payable quarterly at a rate per annum
equal to 6.375% of the liquidation preference of $100,000 per share
when, as and if declared by the Board of Directors of SMC.

F-36

<PAGE>

(7) PREFERRED STOCK -

The WorldCom Series B Convertible Preferred Stock (the "WorldCom
Series B Preferred Stock") is convertible into shares of WorldCom
Common Stock at any time at a conversion rate of 0.1460868 shares
of WorldCom Common Stock for each share of WorldCom Series B
Preferred Stock. Dividends on the WorldCom Series B Preferred
Stock accrue at the rate of $0.0775 per share, per annum and are
payable in cash. Dividends will be paid only when, as and if
declared by the Board of Directors. The Company has not declared
any dividends on the WorldCom Series B Preferred Stock to date and
anticipates that future dividends will not be declared but will
continue to accrue. Upon conversion, accrued but unpaid dividends
are payable in cash or shares of WorldCom Common Stock at the
Company's election. To date, the Company has elected to pay all
accrued dividends in cash, upon conversion.

The WorldCom Series B Preferred Stock is also redeemable at the
option of the Company at any time after September 30, 2001 at a
redemption price of $1.00 per share, plus accrued and unpaid
dividends. The redemption price will be payable in cash or shares
of WorldCom Common Stock at the Company's election.

The WorldCom Series B Preferred Stock is entitled to one vote per
share with respect to all matters. The WorldCom Series B Preferred
Stock has a liquidation preference of $1.00 per share plus all
accrued and unpaid dividends thereon to the date of liquidation.
There is no established market for the WorldCom Series B Preferred
Stock.

In January 2000, each outstanding share of WorldCom Series C
Preferred Stock was redeemed by the Company for $50.75 in cash, or
approximately $190 million in the aggregate.

In May 1998, the Company exercised its option to redeem all of the
outstanding Series A 8% Cumulative Convertible Preferred Stock (the
"WorldCom Series A Preferred Stock") and related depositary shares.
Prior to the redemption date, substantially all of the holders of

F-37

<PAGE>

WorldCom Series A Preferred Stock elected to convert the preferred
stock into WorldCom Common Stock, resulting in the issuance of
approximately 49 million shares of WorldCom Common Stock.

(8) SHAREHOLDER RIGHTS PLAN -

On August 25, 1996, the Board of Directors of WorldCom declared a
dividend of one preferred share purchase right (a "Right") for each
outstanding share of WorldCom Common Stock. Each Right entitles
the registered holder to purchase from the Company one one
thousand-five-hundredth of a share of Series 3 Junior Participating
Preferred Stock, par value $.01 per share (the "Junior Preferred
Stock"), of the Company at an initial price of $160.00 per one
one-thousandth of a share of Junior Preferred Stock (the "Purchase
Price"), subject to adjustment.

The Rights generally will be exercisable only after the close of
business on the tenth business day following the date of public
announcement or the date on which the Company first has notice or
determines that a person or group of affiliated or associated
persons (an "Acquiring Person") has acquired, or has obtained the
right to acquire, 15% or more of the outstanding shares of voting
stock of the Company without the prior express written consent of
the Company, or after the close of business on the tenth business
day (or such later day as the Board of Directors shall determine,
but in no event later than the tenth business day after a person
becomes an Acquiring Person) after the commencement of a tender
offer or exchange offer, by a person which, upon consummation,
would result in such party's control of 15% or more of the
Company's voting stock. The Rights will expire, if not previously
exercised, exchanged or redeemed, on September 6, 2001.

If any person or group acquires 15% or more of the Company's
outstanding voting stock without prior written consent of the Board
of Directors, each Right, except those held by such persons, would
entitle each holder of a Right to acquire such number of shares of
WorldCom's Common Stock as shall equal the result obtained by
multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Junior Preferred Stock for which a
Right is then exercisable and dividing that product by 50% of the
then current per-share market price of WorldCom Common Stock.

If any person or group acquires 15% or more, but less than 50%, of
the outstanding WorldCom Common Stock without prior written consent
of the Board of Directors, each Right, except those held by such
persons, may be exchanged by the Board of Directors for one share
of WorldCom Common Stock.

F-38

<PAGE>

If the Company were acquired in a merger or other business
combination transaction where the Company is not the surviving
corporation or where the Company is the surviving corporation, but
WorldCom Common Stock is exchanged or changed for stock or other
securities of any other person or for cash or other property, or
where 50% or more of the Company's assets or earnings power is sold
in one or several transactions without the prior written consent of
the Board of Directors, each Right would entitle the holders
thereof (except for the Acquiring Person) to receive such number of
shares of the acquiring company's common stock as shall be equal to
the result obtained by multiplying the then current Purchase Price
by the number of one one-thousandths of a share of Junior Preferred
Stock for which a Right is then exercisable and dividing that
product by 50% of the then current market price per share of the
common stock of the acquiring company on the date of such merger or
other business combination transaction.

At any time prior to the time an Acquiring Person becomes such, the
Board of Directors of the Company may redeem the Rights in whole,
but not in part, at a price of $.0067 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at
such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of the Rights will be
to receive the Redemption Price.

The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights,
including an amendment to lower certain thresholds described above
to not less than the greater of (i) any percentage greater than the
largest percentage of the voting power of all securities of the
Company then known to the Company to be beneficially owned by any
person or group of affiliated or associated persons (other than an
excepted person) and (ii) 10%, except that from and after such time
as any person or group of affiliated or associated persons becomes
an Acquiring Person no such amendment may adversely affect the
interests of the holders of the Rights.

F-39

<PAGE>

(9) LEASES AND OTHER COMMITMENTS -

The Company leases office facilities and certain equipment under
non-cancelable operating leases having initial or remaining terms
of more than one year. In addition, the Company leases a
right-of-way from a railroad company under a fifteen-year lease
with three fifteen-year renewal options. The Company is also
obligated under rights-of-way and franchise agreements with various
entities for the use of their rights-of-way for the installation of
the Company's telecommunications systems. Rental expense under
these operating leases was $140 million, $184 million and $323
million in 1997, 1998, and 1999, respectively.

At December 31, 1999, minimum lease payments under noncancellable
operating leases and commitments, other contractual commitments and
capital leases were as follows (in millions):

<TABLE>
<CAPTION>
Operating and Capital Leases
----------------------------------------------------------------------------------
Office Facilities
and Equipment
and other Telecommunications
Contractual Facilities Capital
Year Commitments and Rights-of-Way Total Leases
---- ----------------- ------------------- -------- -------
<S> <C> <C> <C> <C>
2000 $580 $1,613 $2,193 $109
2001 534 1,395 1,929 89
2002 641 1,254 1,895 55
2003 599 1,032 1,631 31
2004 520 793 1,313 38
Thereafter 2,440 1,449 3,889 383
------ ------ ------- -----
Total $5,314 $7,536 $12,850 $705
====== ====== ======= =====
Less: imputed interest (222)
$ 483
=======
</TABLE>

F-40

<PAGE>

Certain of the Company's facility leases include renewal options,
and most leases include provisions for rent escalation to reflect
increased operating costs and/or require the Company to pay certain
maintenance and utility costs.

In October 1999, the Company and Electronic Data Systems
Corporation ("EDS") finalized dual outsourcing agreements that are
expected to capitalize on the individual strengths of each company.
Under these agreements, WorldCom has outsourced portions of its
information technology ("IT") operations to EDS. EDS has assumed
responsibility for IT system operations at more than a dozen
WorldCom processing centers worldwide. The IT outsourcing
agreement is represented by a 10-year contractual commitment with
contractually specified minimums over the term of the contract.
The contractual minimums aggregate $3.3 billion and have been
included in the operating and capital lease commitment table above.

In 1999, the Company amended its existing $500 million receivables
purchase agreement to $2 billion including certain additional
receivables and in the process received additional proceeds of $1.4
billion. The Company used these proceeds to reduce the outstanding
debt under the Company's Credit Facilities and commercial paper
program and provide additional working capital. As of December 31,
1999, the purchaser owned an undivided interest in a $3.8 billion
pool of receivables, which includes the $1.9 billion sold.

(10) CONTINGENCIES -

The Company is involved in legal and regulatory proceedings
generally incidental to its business and has included loss
contingencies in other current liabilities and other liabilities
for certain of these matters. In some instances, rulings by
federal and some state regulatory authorities may result in
increased operating costs to the Company. Except as described
herein, and while the results of these various legal and regulatory
matters contain an element of uncertainty, WorldCom believes that
the probable outcome of these matters should not have a material

F-41

<PAGE>

adverse effect on the Company's consolidated results of operations
or financial position.

GENERAL. WorldCom is subject to varying degrees of federal, state,
local and international regulation. In the United States, the
Company's subsidiaries are most heavily regulated by the states,
especially for the provision of local exchange services. The
Company must be certified separately in each state to offer local
exchange and intrastate long distance services. No state, however,
subjects WorldCom to price cap or rate of return regulation, nor is
the Company currently required to obtain FCC authorization for
installation or operation of its network facilities used for
domestic services, other than licenses for specific terrestrial
microwave and satellite earth station facilities that utilize radio
frequency spectrum. FCC approval is required, however, for the
installation and operation of its international facilities and
services. WorldCom is subject to varying degrees of regulation in
the foreign jurisdictions in which it conducts business including
authorization for the installation and operation of network
facilities. Although the trend in federal, state and international
regulation appears to favor increased competition, no assurance can
be given that changes in current or future regulations adopted by
the FCC, state or foreign regulators or legislative initiatives in
the United States or abroad would not have a material adverse
effect on WorldCom.

In implementing the Telecom Act, the FCC established nationwide
rules designed to encourage new entrants to participate in the
local services markets through interconnection with the ILECs,
resale of ILECs' retail services and use of individual and
combinations of unbundled network elements. Appeals of the FCC
order adopting those rules were consolidated before the United
States Court of Appeals for the Eighth Circuit (the "Eighth
Circuit"). Thereafter, the Eighth Circuit held that constitutional
challenges to various practices implementing cost provisions of the
Telecom Act that were ordered by certain Public Utility Commissions
("PUCs") were premature; it vacated, however, significant portions
of the FCC's nationwide pricing rules and an FCC rule requiring
that unbundled network elements be provided on a combined basis.
The United States Supreme Court (the "Supreme Court") reviewed the
decision of the Eighth Circuit and on January 25, 1999, reversed
the Eighth Circuit in part and reinstated, with one exception, all
of the FCC local competition rules. The Supreme Court vacated and
remanded to the FCC for reconsideration the rule determining which
unbundled network elements must be provided by ILECs to new
entrants. On November 5, 1999, the FCC promulgated new unbundling
rules that require two additional network elements, as well as most

F-42

<PAGE>

of the previously identified elements, to be made available to new
entrants. However, the FCC concluded that a new packet-switching
element should not be available for unbundling. That order has
been appealed by the ILECs to the United States Court of Appeals
for the District of Columbia Circuit. The Eighth Circuit is now
considering the ILECs' challenges to the substance of pricing rules
which it previously had found to be premature.

Access charges, both interstate and intrastate, are a principal
component of WorldCom's telecommunications expense. Regulators have
historically permitted access charges to be set at levels that are
well above ILECs' costs. As a result, access charges have been a
source of universal service subsidies that enable local exchange
rates to be set at levels that are affordable. WorldCom has
actively participated in a variety of state and federal regulatory
proceedings with the goal of bringing access charges to cost-based
levels and to fund universal service using explicit subsidies
funded in a competitively neutral manner.

On May 21, 1999, the United States Court of Appeals for the
District of Columbia Circuit reversed and remanded to the FCC its
decision to adjust its price cap regulation of ILECs to require
access charges to fall 6.5% per year adjusted for inflation. On
June 22, 1999, that court stayed the effect of its decision pending
a further order by the FCC justifying or modifying its decision in
response to the court's opinion.

On November 4, 1999, the FCC's Pricing Flexibility Order, which
allowed price-cap regulated ILECs to offer customer specific
pricing in contract tariffs, took effect. Price-cap regulated
ILECs can now offer access arrangements with contract-type pricing
in competition with long distance carriers and other competitive
access providers, who have previously been able to offer such
pricing for access arrangements. As ILECs experience increasing
competition in the local services market, the FCC will grant
increased pricing flexibility and relax tariffing requirements for
access services. The FCC is also conducting a proceeding to
consider additional pricing flexibility for a wider range of access
services. The Company has appealed the Pricing Flexibility Order
to the United States Court of Appeals for the District of Columbia
Circuit.

F-43

<PAGE>

On May 27, 1999, the FCC amended its prior universal service
decisions in two significant respects. First, the FCC raised the
funding level for universal service support to schools and
libraries to $2.25 billion per year, the current maximum that FCC
rules allow. Second, the FCC modified its approach to subsidizing
non-rural high cost areas by rejecting its prior approach of sizing
the subsidy based on forward-looking cost models, and instead
adopted a more complex approach that the FCC said it hoped would
produce a small high cost fund. On November 2, 1999, the FCC
released two further universal service orders, which provide for
federal support for non-rural high cost areas. Both orders have
been appealed to the United States Court of Appeals for the Tenth
Circuit. On July 30, 1999, the United States Court of Appeals for
the Fifth Circuit issued a decision reversing in part the May 1997
FCC universal service decision. Among other things, the court held
that the FCC may collect universal service contributions from
interstate carriers based on only interstate revenues, and that the
FCC could not force the ILECs to recover their universal service
contributions through interstate access charges. On November 1,
1999, the FCC implemented the court's decision. ILEC interstate
access charges decreased by approximately $400 million, and direct
universal service assessments on interstate carriers such as
WorldCom increased by $700 million.

F-44

<PAGE>

FCC reaffirmed its earlier decision that ILECs are subject to the
obligations of Section 251(c) of the Telecom Act in connection with
the offering of advanced telecommunications services such as DSL.
The order reserved ruling on whether such obligations extend to
traffic jointly carried by an ILEC and a CLEC to an ISP where the
ISP self-provides the transport component of its Internet access
service. The Order on Remand also found that DSL-based advanced
services that are used to connect ISPs to their subscribers to
facilitate Internet-bound traffic typically constitute exchange
access service. On January 3, 2000, the Company filed a petition
for review of this aspect of the Order on Remand with the United
States Court of Appeals for the District of Columbia Circuit.

In a companion notice to the original order, the FCC sought comment
on how to implement Section 706 of the Telecom Act, which directs
the FCC to (1) encourage the deployment of advanced
telecommunications capability to Americans on a reasonable and
timely basis, and (2) complete an inquiry concerning the
availability of such services no later than February 8, 1999. The
Commission's rulemaking notice included a proposal that, if
adopted, would allow the ILECs the option of providing advanced
services via a separate subsidiary free from the unbundling and
resale obligations of Section 251(c), as well as other dominant
carrier regulatory requirements. In early February 1999, the FCC
issued its report to Congress, concluding that the deployment of
advanced services is proceeding at a reasonable and timely pace.
The FCC has not yet issued its Section 706 rulemaking order.

In February 1999, the FCC adopted new rules expanding the rights of
CLECs to collocate equipment within ILEC-owned facilities. The
ILECs appealed the February 1999 collocation order to the United
States Court of Appeals for the District of Columbia Circuit. On
March 17, 2000, the court vacated in part and affirmed in part the
rules. Specifically, the court vacated and remanded to the FCC the
portion of its rules that allowed CLECs to collocate equipment that
is necessary for interconnection but that also performs some other
function.

In the same February 1999 order, the FCC sought public comments on
its tentative conclusion that loop spectrum standards should be set
in a competitively neutral process. In November 1999, the FCC

F-45

<PAGE>

concluded that ILECs should be required to share primary telephone
lines with CLECs, and identified the high frequency portion of the
loop as a network element.

On February 26, 1999, the FCC issued a Declaratory Ruling and
Notice of Proposed Rulemaking regarding the regulatory treatment of
calls to ISPs. Prior to the FCC's order, approximately thirty PUCs
issued orders unanimously finding that carriers, including
WorldCom, are entitled to collect reciprocal compensation for
completing calls to ISPs under the terms of their interconnection
agreements with ILECs. Many of these PUC decisions have been
appealed by the ILECs and, since the FCC's order, many have filed
new cases at the PUCs or in court. Moreover, WorldCom appealed the
FCC's order to the United States Court of Appeals for the District
of Columbia Circuit. On March 24, 2000, the court vacated the FCC's
order and remanded the case to the FCC for further proceedings.
WorldCom cannot predict the outcome of the cases filed by the
ILECs, the FCC's rulemaking proceeding, or the FCC's proceedings on
remand, nor can it predict whether or not the result(s) will have a
material adverse impact upon its consolidated financial position or
future results of operations.

Several bills have been introduced during the 106th Congress that
would exclude the transmission of data services or high-speed
Internet access from the Telecom Act's bar on the transmission of
in-region interLATA services by the BOCs. These bills would also
make it more difficult for competitors to resell the high-speed
Internet access services of the ILECs or to lease a portion of the
network components used for the provision of such services.

In 1996 and 1997, the FCC issued decisions that would require
non-dominant telecommunications carriers to eliminate interstate
service tariffs, except in limited circumstances. WorldCom
challenged this decision in the United States Court of Appeals for
the District of Columbia Circuit, and successfully obtained a stay
of the FCC's decision. WorldCom's appeal has been held in abeyance
pending FCC action with respect to petitions for reconsideration.
The FCC recently issued an order addressing those petitions for
reconsideration, briefing of the appeal is ongoing, and oral
argument was held on March 14, 2000. WorldCom cannot predict the
ultimate outcome of this appeal. Should the FCC prevail, WorldCom
could no longer rely on its federal tariff to limit liability or to
establish its interstate rates for customers. Under the FCC's
decision, WorldCom would need to develop a means to contract
individually with its millions of customers in order to establish
lawfully enforceable rates.

In 1997 and 1998, the FCC rejected five applications filed by BOCs
to provide in-region long distance service in competition with long
distance carriers. Pursuant to the Telecom Act, BOCs must file, in
each state in their service area, an application conforming to the
requirements of Section 271 of the Telecom Act if they wish to
offer in-region long distance in that state. Among other things,
the applications must demonstrate that the BOC has met a 14-point
competitive checklist to open its local network to competition and
demonstrate that the application is in the public interest. Bell

F-46

<PAGE>

Atlantic Corporation ("Bell Atlantic") in New York filed an
application with the FCC on October 19, 1999. Bell Atlantic's was
the first application to have been subjected to rigorous
operational testing of readiness to meet the Section 271
requirements. On December 21, 1999, the FCC granted Bell
Atlantic's application. SBC Corporation filed an application for
Texas on January 10, 2000. A decision is expected on that
application by April 7, 2000.

The FCC is currently reviewing a proposal for access charge and
universal service reform that has been filed by the Coalition for
Affordable Local and Long Distance Service ("CALLS"), a group of
RBOCs, GTE Corporation ("GTE") and two long distance companies.
The principal aspects of the plan are (1) residential Subscriber
Line Charges would be increased to $4.35 in 2000, $5.00 in 2001,
$6.00 in 2002, and $6.50 in 2003; (2) residential Presubscribed
Interexchange Carrier Charges ("PICCs") would be eliminated in
2000; (3) carrier access charges would be reduced for the industry
by $2.1 billion on July 1, 2000, with minimal additional reductions
in later years; and (4) the RBOCs and GTE would benefit from a new
$650 million universal service fund. In addition, WorldCom
believes the FCC may have made other commitments to the RBOCs
concerning the disposition and/or timing of other regulatory
proceedings that may be related to the RBOCs' decision to offer the
CALLS plan. This might include, for example, restrictions on
CLECs' ability to use unbundled network elements to offer special
access services. Finally, interexchange carriers participating in
the CALLS plan are committing to eliminate PICC-pass through
charges, eliminate minimum charges for basic schedule customers,
and flow through reductions in access charges. Public comments are
due to the FCC on April 3, 2000, and reply comments are due on
April 17, 2000. WorldCom cannot predict either the outcome of this
proceeding or whether or not the results will have a material
adverse impact upon its consolidated financial position or future
results of operations.

INTERNATIONAL. In February 1997, the United States entered into a
World Trade Organization Agreement (the "WTO Agreement") that is
designed to have the effect of liberalizing the provision of
switched voice telephone and other telecommunications services in
scores of foreign countries over the next several years. The WTO
Agreement became effective in February 1998. In light of the
United States commitments to the WTO Agreement, the FCC implemented
new rules in February 1998 that liberalize existing policies
regarding (1) the services that may be provided by foreign
affiliated United States international common carriers, including
carriers controlled or more than 25 percent owned by foreign
carriers that have market power in their home markets, and (2) the
provision of alternative traffic routing. The new rules make it
much easier for foreign affiliated carriers to enter the United
States market for the provision of international services.

F-47

<PAGE>

carrier affiliated with a foreign carrier from providing
facilities-based service to the foreign carrier's home market until
and unless the foreign carrier has implemented a settlement rate at
or below the benchmark. The FCC also adopted new rules that will
liberalize the provision of switched services over private lines to
World Trade Organization member countries. These rules allow such
services on routes where 50% or more of United States billed
traffic is being terminated in the foreign country at or below the
applicable settlement rate benchmark or where the foreign country's
rules concerning provision of international switched services over
private lines are deemed equivalent to United States rules. On
January 12, 1999, the FCC's benchmark rules were upheld in their
entirety by the United States Court of Appeals for the District of
Columbia Circuit. On March 11, 1999 the District of Columbia
Circuit denied petitions for rehearing of the case.

In April 1999, the FCC modified its rules to permit United States
international carriers to exchange international public switched
voice traffic on many routes to and from the United States outside
of the traditional settlement rate and proportionate return
regimes.

On June 3, 1999, the FCC enforced the benchmark rates on two
non-compliant routes. Settlement rates have fallen to the
benchmarks or below on many other routes.

Although the FCC's new policies and implementation of the WTO
Agreement may result in lower settlement payments by WorldCom to
terminate international traffic, there is a risk that the payments
that WorldCom will receive from inbound international traffic may
decrease to an even greater degree. The implementation of the WTO
Agreement may also make it easier for foreign carriers with market
power in their home markets to offer United States and foreign
customers end-to-end services to the disadvantage of WorldCom. The
Company may continue to face substantial obstacles in obtaining
from foreign governments and foreign carriers the authority and
facilities to provide such end-to-end services.

EMBRATEL. The 1996 General Telecommunications Law (the "General
Law") provides a framework for telecommunications regulation for
Embratel. Article 8 of the General Law created Agencia Nacional de
Telecomunicacoes ("Anatel") to implement the General Law through
development of regulations and to enforce such regulations.
According to the General Law, companies wishing to offer
telecommunications services to consumers are required to apply to
Anatel for a concession or an authorization. Concessions are
granted for the provision of services under the public regime (the
"Public Regime") and authorizations are granted for the provision
of services under the private regime (the "Private Regime").
Service providers subject to the Public Regime (concessionaires)
are subject to obligations concerning network expansion and
continuity of service provision and are subject to rate regulation.
These obligations and the tariff conditions are provided in the
General Law and in each company's concession contract. The network
expansion obligations are also provided in the Plano Geral de
Universalizacao ("General Plan on Universal Service").

F-48

<PAGE>

The only services provided under the Public Regime are the switched
fixed telephone services ("SFTS") -local and national and
international long distance - provided by Embratel and the three
regional Telebras holding companies ("Teles"). All other
telecommunications companies, including other companies providing
SFTS, operate in the Private Regime and, although they are not
subject to the Public Regime, individual authorizations may contain
certain specific expansion and continuity obligations.

The main restriction imposed on carriers by the General Plan on
Universal Service is that, until December 31, 2003, the three Teles
are prohibited from offering inter-regional and international long
distance service, while Embratel is prohibited from offering local
services. These companies can start providing those services two
years sooner if they meet their network expansion obligations by
December 31, 2001.

Embratel and the three Teles were granted their concessions at no
fee, until 2005. After 2005, the concessions may be renewed for a
period of 20 years, upon the payment, every two years, of a fee
equal to 2% of annual net revenues calculated based on the
provision of SFTS in the prior year, excluding taxes and social
contributions.

Embratel also offers a number of ancillary telecommunications
services pursuant to authorizations granted in the Private Regime.
Such services include the provision of dedicated analog and digital
lines, packet switched network services, circuit switched network
services, mobile marine telecommunications, telex and telegraph,
radio signal satellite retransmission and television signal
satellite retransmission. Some of these services are subject to
some specific continuity obligations and rate conditions.

All providers of telecommunications services are subject to quality
and modernization obligations provided in the Plan Geral de
Qualidade ("General Plan on Quality").

LITIGATION. On November 4, 1996, and thereafter, and on August 25,
1997, and thereafter, MCI and all of its directors were named as
defendants in a total of 15 complaints filed in the Court of
Chancery in the State of Delaware. BT was named as a defendant in
13 of the complaints. The complaints were brought by alleged
stockholders of MCI, individually and purportedly as class actions
on behalf of all other stockholders of MCI. In general, the
complaints allege that MCI's directors breached their fiduciary
duty in connection with the MCI BT Merger Agreement, dated November
3, 1996 (the "MCI BT Merger Agreement"), that BT aided and abetted
those breaches of duty, that BT owes fiduciary duties to the other
stockholders of MCI and that BT breached those duties in connection
with the MCI BT Merger Agreement. The complaints seek damages and
injunctive and other relief.

F-49

<PAGE>

additional defendants. These plaintiffs generally allege that the
defendants breached their fiduciary duties to stockholders in
connection with the MCI Merger and the agreement to pay a
termination fee to WorldCom. They further allege discrimination in
favor of BT in connection with the MCI Merger. The plaintiffs
seek, inter alia, damages and injunctive relief prohibiting the
consummation of the MCI Merger and the payment of the inducement
fee to BT.

Three complaints were filed in the U.S. District Court for the
District of Columbia, as class actions on behalf of purchasers of
MCI shares. The three cases were consolidated on April 1, 1998.
On or about May 8, 1998, the plaintiffs in all three cases filed a
consolidated amended complaint alleging, on behalf of purchasers of
MCI's shares between July 11, 1997 and August 21, 1997, inclusive,
that MCI and certain of its officers and directors failed to
disclose material information about MCI, including that MCI was
renegotiating the terms of the MCI BT Merger Agreement. The
consolidated amended complaint seeks damages and other relief. The
Company and the other defendants have moved to dismiss the
consolidated amended complaint.

At least nine class action complaints have been filed that arise
out of the FCC's decision in Halprin, Temple, Goodman and Sugrue
v. MCI Telecommunications Corp., and allege that WorldCom has
improperly charged "Pre-Subscribed" customers "Non-Subscriber" or
so-called "casual" rates for certain direct-dialed calls.
Plaintiffs further challenge WorldCom's credit policies for this
"non-subscriber" traffic. Plaintiffs assert that WorldCom's
conduct violates the Communications Act and various state laws;
they seek rebates to all affected customers and punitive damages
and other relief. In response to a motion filed by WorldCom, the
Judicial Panel on Multi-District Litigation has consolidated these
matters in the United States District Court for the Southern
District of Illinois. That Court denied the Company's motion to
dismiss the state law claims, and the parties are now engaged in
discovery. On February 4, 2000, the Company filed a petition for
review of the FCC's Halprin decision with the United States Court
of Appeals for the District of Columbia Circuit.

On September 3, 1998, WorldCom and MCI entered into a Stock
Purchase Agreement ("SPA") with Cable & Wireless plc and Cable &
Wireless Internet Holdings, Inc. (collectively, "C&W"), pursuant to
which MCI sold the iMCI Business to C&W. That transaction closed
on September 14, 1998, prior to the closing of the MCI Merger.

On February 18, 1999, pursuant to the indemnity provisions of the
SPA, C&W notified WorldCom that it was claiming that WorldCom had
breached representations and warranties in, and had failed to
comply with other provisions of, the SPA. C&W alleged that it had
suffered damages of approximately $1.16 billion. WorldCom advised
C&W on March 19, 1999, that the Company denied these allegations.

On March 31, 1999, C&W filed a complaint against WorldCom in the
United States District Court for the District of Delaware, alleging
that WorldCom had breached the SPA. In the lawsuit, C&W sought

F-50

<PAGE>

unspecified damages and specific performance. On May 11, 1999,
WorldCom filed a motion to stay the litigation and to compel
compliance with the dispute resolution/arbitration provisions in
the SPA and affiliated agreements. On July 12, 1999, the district
court entered an order compelling C&W to comply with the dispute
resolution/arbitration provisions of the SPA and affiliated
agreements with respect to five of the 11 claims in its complaint
and denying a stay of the action. On July 29, 1999, the district
court set a trial date of September 12, 2000. On July 30, 1999,
WorldCom filed an answer denying C&W's claims and asserting four
counterclaims that alleged that C&W breached the SPA and its duty
of good faith and fair dealing.

On September 10, 1999, C&W commenced an arbitration against
WorldCom before the arbitration firm J.A.M.S./Endispute. In its
Notice of Claims filed on September 20, 1999, C&W asserted the
claims dismissed from the Delaware action as well as certain other
disputes between the companies. On October 4, 1999, WorldCom
responded to the Notice of Claims by denying all of C&W's claims
and asserting six counterclaims that alleged contractual breaches
by C&W. The hearing commenced on December 8, 1999.

On February 29, 2000, C&W and WorldCom executed a Settlement
Agreement resolving all claims arising out of the sale of the iMCI
Business. WorldCom agreed to pay C&W $200 million and C&W agreed
to pay WorldCom approximately $125 million for previously issued
but unpaid invoices for services rendered pursuant to various
contracts executed in September 1998. Pursuant to the Settlement
Agreement, the parties have dismissed all claims asserted in the
Delaware litigation and the arbitration, and C&W will withdraw any
related complaints or allegations lodged before any governmental
agencies.

(11) EMPLOYEE BENEFIT PLANS -

STOCK OPTION PLANS:

The Company has several stock option plans under which options to
acquire up to 733 million shares may be granted to directors,
officers and certain employees of the Company including the stock
option plans acquired through various acquisitions. The Company
accounts for these plans under APB Opinion No. 25, under which no
compensation cost is recognized. Terms and conditions of the
Company's options, including exercise price and the period in which
options are exercisable, generally are at the discretion of the
Compensation and Stock Option Committee of the Board of Directors;
however, no options are exercisable for more than 10 years after
date of grant. As of December 31, 1999, 503 million options had
been granted under these plans.

Prior to the MCI Merger, certain executives of MCI were granted
incentive stock units ("ISUs") that vested over a three-year period
and entitled the holder to receive shares of common stock. At
December 31, 1999, there were approximately 1.7 million ISUs
outstanding.

F-51

<PAGE>

Additionally, there are outstanding warrants to acquire shares of
WorldCom Common Stock at prices ranging from $4.1667 to $44.41 per
share which were granted by acquired entities prior to their merger
with WorldCom.

Additional information regarding options and warrants granted and
outstanding is summarized below (in millions, except per share
data):

Weighted-
Numner of Average
Options and Exercise
Warrants Price
----------- ----------

Balance, December 31, 1996 126 $7.04
Granted to employees/directors 48 16.76
Exercised (36) 3.85
Expired or canceled (9) 10.25
------- -------
Balance, December 31, 1997 129 11.27
Granted to employees/directors 48 20.38
Assumed in connection with acquisitions 127 18.68
Exercised (49) 9.87
Expired or canceled (9) 16.63
------- -------
Balance, December 31, 1998 246 16.93
Granted to employees/directors 152 46.61
Exercised (61) 15.32
Expired or canceled (18) 30.87
------- -------
Balance, December 31, 1999 319 $30.58
======= =======

The following table summarizes information about the shares
outstanding at December 31, 1999:

Options and Warrants Outstanding Options and Warrants Exercisable
-------------------------------------------- ----------------------------------
Range of Number Remaining Weighted- Number Weighted-
Exercise Outstanding Contractual Average Outstanding Average
Prices (In Millions) Life (Years) Exercise Price (In Millions) Exercise Price
--------- -------------- ------------ --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.01 - 17.34 93 5.1 $12.29 74 $11.59
17.35 - 34.68 79 7.4 22.55 22 80.25
34.69 - 52.03 146 8.6 46.57 1 43.77
52.04 - 86.71 1 7.6 58.18 1 59.28
---- --- -------
319 98
==== ===
</TABLE>

F-52

<PAGE>

In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 requires disclosure of the
compensation cost for stock-based incentives granted after January
1, 1995 based on the fair value at grant date for awards. Applying
SFAS No. 123 would result in pro forma net income (loss) and
earnings (loss) per share ("EPS") amounts as follows (in millions,
except share data):

<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- -------

<S> <C> <C> <C> <C>
Net income (loss) before cumulative effect of As reported $146 $(2,602) $3,941
accounting change and extraordinary items Pro forma 90 (2,712) 3,442
Basic EPS As reported 0.10 (1.35) 1.40
Pro forma 0.06 (1.40) 1.22
Diluted EPS As reported 0.10 (1.35) 1.35
Pro forma 0.06 (1.40) 1.18
</TABLE>

The fair value of each option or restricted stock grant is
estimated on the date of grant using an option-pricing model with
the following weighted-average assumptions used for grant:

<TABLE>
<CAPTION>
Weighted-
Expected Risk-Free Average Grant-
Date Granted Volatility Interest Rate Date Fair Value
------------- ---------- ------------- ---------------
<S> <C> <C> <C>
1997 22.8% 6.4% $5.32
1998 23.7% 5.6% $6.68
1999 26.8% 5.2% $14.91
</TABLE>

Additionally, for all options, a 15% forfeiture rate was assumed
with an expected life of 5 years and no dividend yield.

Because the SFAS No. 123 method of accounting has been applied only
to grants after December 31, 1994, the resulting pro forma
compensation cost may not be representative of that to be expected
in future periods.

401(K) PLANS:

The Company and its subsidiaries offer its qualified employees the
opportunity to participate in one of its defined contribution
retirement plans qualifying under the provisions of Section 401(k)

F-53

<PAGE>

of the Internal Revenue Code. Each employee may contribute on a
tax deferred basis a portion of annual earnings not to exceed
$10,000. The Company matches individual employee contributions in
certain plans, up to a maximum level which in no case exceeds 6% of
the employee's compensation. Expenses recorded by the Company
relating to its 401(k) plans were $7 million, $26 million and $108
million for the years ended December 31, 1997, 1998 and 1999,
respectively.

(12) PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS -

WorldCom maintains a noncontributory defined benefit pension plan
(the "MCI Plan") and a supplemental pension plan (the "Supplemental
Plan") and WorldCom International Data Services, Inc., a subsidiary
of MCI, has a defined benefit pension plan. Collectively, these
plans cover substantially all MCI employees who became WorldCom
employees as a result of the MCI Merger and who work 1,000 hours or
more in a year. Effective January 1, 1999, no future compensation
credits are earned by participants of the MCI Plan.

Annual service cost is determined using the Projected Unit Credit
actuarial method, and prior service cost is amortized on a
straight-line basis over the average remaining service period of
employees. As of December 31, 1998 and 1999, the MCI Plan
accumulated benefit obligation exceeds the fair value of MCI Plan
assets by $27 million and $51 million, respectively. There is no
additional minimum pension liability required to be recognized.

Additionally, Embratel sponsors a contributory defined benefit
pension plan and a post-retirement benefit plan. Approximately 97%
of Embratel's employees are covered by these plans. The defined
benefit pension plan has an accumulated benefit obligation in
excess of fair value of assets of $300 million at December 31, 1998
and $13 million at December 31, 1999. There is no additional
minimum pension liability to be recognized.

Embratel health care cost trend rates were projected at annual
rates excluding inflation ranging from 5.96% in 2000 to 2.70% in
2048. The effect of a one percentage point increase in the assumed
health care cost trend rates would increase the Embratel
accumulated post-retirement benefit obligation at December 31, 1999
by $14 million and the aggregate service and interest cost
components by $1 million on an annual basis. The effect of a one
percentage point decrease in the assumed health care cost trend
rate would reduce the accumulated post-retirement benefit
obligation by $11 million and reduce the total service and interest
cost component by $1 million.

In April 1999, the Company completed the sale of MCI Systemhouse
Corp. and SHL Systemhouse Co. (collectively "SHL") to EDS for $1.6
billion resulting in a settlement gain of $24 million and benefit
payments of $80 million.

The following table sets forth information for the MCI pension
plans and Embratel defined benefit pension and post-retirement
plans' assets and obligations (in millions):

F-54

<PAGE>

<TABLE>
<CAPTION>
Embratel Plans
MCI -----------------------------
Pension Pension Other
Plans Benefits Benefits
---------- ---------- ---------
<S> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at January 1, 1998 $563 $1,231 $265
Service cost 54 47 10
Interest cost 39 67 16
Actuarial (gain) loss 39 (80) 11
Benefits paid (39) (39) (3)
Foreign currency exchange -- (24) (5)
Assumption change (74) (178) --
Curtailment/settlement -- (567) (162)
----- ------- -----
Benefit obligation at December 31, 1998 582 457 132
Service cost 1 1 --
Interest cost 36 17 5
Actuarial (gain) loss (49) 46 17
Benefits paid (89) (25) (3)
Foreign currency exchange -- (147) (42)
Assumption change (5) -- --
----- ------- -----
Benefit obligation at December 31, 1999 $476 $349 $109
===== ======= =====

Change in Plan Assets
Fair value at January 1, 1998 $494 $550 $29
Actual return on plan assets 63 (14) 7
Employer contributions 63 40 71
Employee contributions -- 30 --
Foreign currency exchange -- (12) --
Benefits paid (39) (39) (3)
Effect of settlement -- (403) (65)
----- ------- -----
Fair value of assets at December 31, 1998 $581 $152 $39
----- ------- -----

F-55
<PAGE>

Actual return on plan assets 71 79 5
Employer contributions -- 1 --
Employee contributions -- 1 --
Foreign currency exchange -- (42) (12)
Benefits paid (87) (25) (3)
Effect of settlement/transfers - 195 -
----- ------- -----
Fair value of assets at December 31, 1999 $565 $361 $29
===== ======= =====
As of December 31, 1999:
Funded status $89 $12 $ (80)
Unrecognized net actuarial (gain) loss (136) (89) 42
Unrecognized prior service cost 4 -- --
Unrecognized transition liability -- 3 -
----- ------- -----
Accrued benefit cost $(43) $ (74) $ (38)
===== ======= =====
Weighted average actuarial assumptions:
Discount rate 8.00% 6.00% 6.00%

Expected return on plan assets 8.75% 9.00% N/A
Rate of compensation increase N/A 2.00% N/A

As of December 31, 1998:
Funded status $ (1) $ (305) $ (93)
Unrecognized net actuarial gain (83) (123) 44
Unrecognized prior service cost 1 -- --
Unrecognized transition liability -- 5 -
------- ------- -------
Accrued benefit cost $ (83) $ (423) $ (49)
======= ======= =======
Weighted average actuarial assumptions:
Discount rate 6.50% 6.00% 6.00%
Expected return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 5.75% 3.25% N/A
</TABLE>

F-56

<PAGE>

The components of the net post-retirement benefit and pension costs
for the years ended December 31, 1998 and 1999 as follows (in
millions):

<TABLE>
<CAPTION>
1998 1999
-------------------------------------------------------
Embratel Embratel
---------------------- MCI -------------------
Pension Other Pension Pension Other
Benefits Benefits Plans Benefits Benefits
-------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Service cost $4 $2 $1 $1 $--
Interest cost on accumulated postretirement
benefit obligation 17 4 36 17 5
Expected return on plan assets (13) (1) (50) (25) (2)
Amortization of transition obligation 7 -- -- (2) --
Amortization of net loss (gain) (1) 1 (4) -- 1
----- --- ------ ------ ---
Net periodic post-retirement benefit cost $14 $6 $ (17) $ (9) $ 4
===== === ====== ====== ===
</TABLE>

During 1998 Embratel created a new defined contribution plan (the
"New Plan") which was approved by the Brazilian government.
Effective November 19, 1998, all newly hired employees of Embratel
automatically enter the New Plan and entry into the existing
Embratel pension and post-retirement plans was frozen. Existing

F-57

<PAGE>

Embratel employees were given the option to migrate from the
existing defined benefit pension and post-retirement benefit plans
to the New Plan. The option expired on December 31, 1998 and the
New Plan was effective on January 1, 1999. The New Plan provides
an employer match on employee contributions based on certain
limits, transfer of the defined benefit account balance, employee
directed investment, and a lump sum payment from the
post-retirement plan, which can be used to assist with medical
coverage in the future. Any employees not electing to migrate to
the New Plan will remain in the existing plans and will not have a
future opportunity to move to the New Plan.

(13) INCOME TAXES -

The provision for income taxes is composed of the following (in
millions):

1997 1998 1999
------ ------ ------
<S> <C> <C> <C>

Current $53 $92 $62
Deferred 340 785 2,903
----- ---- ------
Total provision for income taxes $393 $877 $2,965
===== ==== ======
</TABLE>
The following is a reconciliation of the provision for income taxes
to the expected amounts using the statutory rate:

1997 1998 1999
------- --------- -------
Expected
statutory amount 35.0% (35.0)% 35.0%
Nondeductible
amortization of
excess of cost
over net tangible
assets acquired 17.0 11.2 5.2
State income
taxes 2.7 (2.6) 2.5
Charge for
in-process
research and
development -- 83.5 --
Valuation allowance 15.8 -- (1.5)
Other (2.6) (1.9) 0.2
----- ----- -----
Actual tax provision 67.9% 55.2% 41.4%
===== ===== =====

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities

F-58

<PAGE>

for financial reporting purposes and amounts used for income tax
purposes and the impact of available net operating loss ("NOL")
carryforwards.

At December 31, 1999, the Company had unused NOL carryforwards for
federal income tax purposes of approximately $2.3 billion which
expire in various amounts during the years 2011 through 2018.
These NOL carryforwards together with state and other NOL
carryforwards within the United States result in a deferred tax
asset of approximately $875 million at December 31, 1999. A
valuation allowance of $109 million was reversed during 1999 as a
result of a change in tax regulations and recorded as a reduction
in goodwill.

In addition, at December 31, 1999 the Company has unused NOL
carryforwards of $127 million outside the United States which
generally do not expire. These carryforwards result in a $51
million deferred tax asset for which a valuation allowance has been
established.

Approximately $279 million of the Company's deferred tax assets are
related to preacquisition NOL carryforwards attributable to
entities acquired in transactions accounted for as purchases.
Accordingly, any future reductions in the valuation allowance
related to such deferred tax assets will result in a corresponding
reduction in goodwill. If, however, subsequent events or
conditions dictate an increase in the need for a valuation
allowance attributable to such deferred tax assets, the income tax
expense for that period will be increased accordingly.

The following is a summary of the significant components of the
Company's deferred tax assets and liabilities as of December 31,
1998 and 1999 (in millions):

F-59
<PAGE>

1998 1999
---------------------------- ------------------------
Assets Liabilities Assets Liabilities
---------------------------- ------------------------
<S> <C> <C> <C> <C>
Allowance for bad debts $98 $-- $-- $--
Fixed assets -- (2,585) -- (3,167)
Goodwill and other intangibles -- (103) -- (68)
Investments 91 -- 90 --
Line installation costs -- (277) -- (400)
Accrued liabilities 924 -- 273 --
NOL carryforwards 1,499 -- 926 --
Tax credits 142 -- 220 --
Other 74 (27) -- (135)
------ --------- ------ -------
2,828 (2,992) 1,509 (3,770)
Valuation allowance (160) -- (51)
------ --------- ------ -------
$2,668 $ (2,992) $1,458 $(3,770)
====== ======== ====== =======

</TABLE>

(14) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -

Interest paid by the Company during the years ended December 31,
1997, 1998 and 1999 amounted to $317 million, $543 million and $1.3
billion, respectively. Income taxes paid, net of refunds, during
the years ended December 31, 1997, 1998 and 1999 were $14 million,
$38 million and $106 million, respectively.

F-60

<PAGE>

In conjunction with business combinations during the years ended
December 31, 1997, 1998 and 1999, assets acquired, liabilities
assumed and common stock issued were as follows (in millions):

1997 1998 1999
--------- -------- ---------
<S> <C> <C> <C>
Fair value of assets acquired $341 $21,913 $62
Goodwill and other intangible assets 998 37,104 2,231
Liabilities assumed (20) (22,476) (987)
Common stock issued (159) (33,141) (228)
------- ------- -------
Net cash paid $1,160 $3,400 $1,078
======= ======= =======
</TABLE>

(15) SEGMENT AND GEOGRAPHIC INFORMATION -

The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," as of December 31, 1998. SFAS
No. 131 establishes annual and interim reporting standards for an
enterprise's operating segment and related disclosures about its
products, services, geographic areas and major customers.

Based on its organizational structure, the Company operates in six
reportable segments: voice and data, Internet, International
Operations, Embratel, Operations and technology and Other. The
Company's reportable segments represent business units that
primarily offer similar products and services; however, the
business units are managed separately due to the geographic
dispersion of their operations. The voice and data segment
includes voice, data and other types of domestic communications
services. The Internet segment provides Internet services.
WorldCom International Operations provides voice, data, Internet
and other similar types of communications services to customers
primarily in Europe. Embratel provides communications services in

F-61
<PAGE>

Brazil. Operations and technology includes network operations,
information services, engineering and technology, and customer
service. Other includes primarily the operations of SHL and other
non-communications services.

The Company's chief operating decision-maker utilizes revenue
information in assessing performance and making overall operating
decisions and resource allocations. Communications services are
generally provided utilizing the Company's fiber optic networks,
which do not make a distinction between the types of services.
Profit and loss information is reported only on a consolidated
basis to the chief operating decision-maker and the Company's Board
of Directors.

The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Information about the Company's segments is as follows (in
millions):

Revenues Selling, General and
From External Customers Administrative Expenses Capital Expenditures
----------------------------- ------------------------------- ----------------------------
1997 1998 1999 1997 1998 1999 1997 1998 1999
----- ---- ---- ----- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Voice and data $5,994 $12,852 $27,920 $741 $2,084 $4,501 $-- $-- $--
Internet 511 1,919 3,079 180 539 725 -- -- --
International
Operations 726 1,090 1,624 218 306 416 -- -- --
Operations and
technology -- -- -- 502 1,059 2,353 3,082 4,773 7,071
Other 412 574 513 22 163 170 34 28 12
Corporate -- -- -- 191 154 174 37 316 740
----- ------ ------- ------- ------ ------- ------ ------ ------
Total before
Embratel 7,643 16,435 33,136 1,854 4,305 8,339 3,153 5,117 7,823
Embratel -- 1,182 2,854 -- 258 610 -- 369 893
Elimination of
intersegment
revenues -- -- (82) -- -- (14) -- --
------ ------- ------- ------ ------ ------ ------ ------ -------
Total $7,643 $17,617 $35,908 $1,854 $4,563 $8,935 $3,153 $5,486 $8,716
====== ======= ======= ====== ====== ====== ====== ====== =======

</TABLE>

The following is a reconciliation of the segment information to
income (loss) before income taxes, minority interests and
extraordinary items (in millions):

F-62

<PAGE>

1997 1998 1999
---------- --------- -------
<S> <C> <C> <C>
Revenues $7,643 $17,617 $35,908
Operating expenses 6,661 18,559 28,020
-------- ------- -------
Operating income (loss) 982 (942) 7,888
Other income (expense):
Interest expense (450) (692) (966)
Miscellaneous 46 44 242
------- ------- ------
Income (loss) before income taxes, minority interests,
cumulative effect of accounting change and
extraordinary items $578 $(1,590) $7,164
====== ======= =======
</TABLE>

Information about the Company's operations by geographic areas are
as follows (in millions):

1997 1998 1999
------------------------ ------------------------- ------------------------
Long-lived Long-Lived Long-Lived
Revenues Assets Revenues Assets Revenues Assets
-------- ----------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States $6,762 $6,624 $14,713 $17,954 $30,333 $21,965
Brazil -- -- 1,182 5,049 2,854 4,017
All other international 881 753 1,722 1,565 2,721 2,636
------- ------ ------- -------- --------- -------
Total $7,643 $7,377 $17,617 $24,568 $35,908 $28,618
======= ====== ======= ======== ========= =======
</TABLE>

F-63

<PAGE>

(16) UNAUDITED QUARTERLY FINANCIAL DATA -

Quarter Ended
------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
------------------------------------------------------------------------
1998 1999 1998 1999 1998 1999 1998 1999
------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
WorldCom . . . . . . . . . . . . . . . $2,235 $8,696 $2,497 $8,652 $3,618 $8,874 $8,776 $9,192
SkyTel . . . . . . . . . . . . . . . . 122 140 126 141 133 141 138 152
Intercompany elimination . . . . . . . (1) (19) (1) (20) (8) (19) (18) (22)
Combined . . . . . . . . . . . . . . . 2,356 8,817 2,622 8,773 3,743 8,996 8,896 9,322

Operating income (loss):
WorldCom . . . . . . . . . . . . . . . (71) 1,495 495 1,764 (2,632) 2,202 1,233 2,421
SkyTel . . . . . . . . . . . . . . . . 3 15 6 18 11 (3) 14 (24)
Combined . . . . . . . . . . . . . . . (69) 1,510 501 1,782 (2,621) 2,199 1,247 2,397

Income (loss) before cumulative effect of
accounting change and extraordinary
items:
WorldCom . . . . . . . . . . . . . . . (281) 725 228 879 (2,944) 1,107 457 1,358
SkyTel . . . . . . . . . . . . . . . . (9) 4 (9) 5 (5) (10) 3 (55)
Combined . . . . . . . . . . . . . . . (290) 729 219 884 (2,949) 1,097 460 1,303

Net income (loss):
WorldCom . . . . . . . . . . . . . . . (410) 725 228 879 (2,944) 1,107 457 1,358
SkyTel . . . . . . . . . . . . . . . . (45) 4 (9) 5 (5) (10) 3 (55)
Combined . . . . . . . . . . . . . . . (455) 729 219 884 (2,949) 1,097 460 1,303

Preferred dividend requirement:
WorldCom . . . . . . . . . . . . . . . 7 16 7 16 3 16 15 16
SkyTel . . . . . . . . . . . . . . . . 3 2 3 2 2 2 2 2
Combined . . . . . . . . . . . . . . . 10 18 10 18 5 18 17 18

Income (loss) per share before cumulative effect of
accounting change and extraordinary items:
Basic -
WorldCom . . . . . . . . . . . . . . . (.18) .26 .14 .31 (1.63) .39 .16 .48
SkyTel . . . . . . . . . . . . . . . . (.24) .10 (.22) .08 (.11) (.25) .02 (.95)
Combined . . . . . . . . . . . . . . . (.32) .25 .13 .31 (1.61) .38 .16 .45
Diluted -
WorldCom . . . . . . . . . . . . . . . (.18) .25 .14 .30 (1.63) .37 .15 .46
SkyTel . . . . . . . . . . . . . . . . (.24) .10 (.22) .07 (.11) (.25) .02 (.95)
Combined . . . . . . . . . . . . . . . (.32) .24 .13 .30 (1.61) .37 .15 .44
</TABLE>

F-64

<PAGE>

In the first quarter of 1998, the Company recorded a pre-tax charge
of $38 million for employee severance, alignment charges, loss
contingencies and direct merger costs associated with the BFP
Merger and $31 million for write-down of a permanently impaired
asset. Additionally, in the third quarter of 1998, the Company
recorded a pre-tax charge of $127 million primarily in connection
with the MCI Merger. The third quarter charge included severance
costs associated with the termination of certain employees which
was completed in the first quarter of 1999. Also included are
other exit activities which include exit costs under long-term
commitments and certain asset write-downs. In connection with
certain 1998 business combinations, the Company made allocations of
the purchase price to acquired IPR&D totaling $429 million in the
first quarter of 1998 related to the CompuServe Merger and AOL
Transaction and $3.1 billion in the third quarter of 1998 related
to the MCI Merger. See Note 3.

In connection with certain debt refinancings, the Company
recognized in the first quarter of 1998, extraordinary items of
approximately $129 million, net of taxes, consisting of unamortized
debt discount, unamortized issuance cost and prepayment fees.

F-65
<PAGE>

(17) SUBSEQUENT EVENTS -

TRACKING STOCK PROPOSAL:

On November 1, 2000, the Company announced a realignment of its
businesses with the distinct customer bases they serve. If
approved by the Company's shareholders, the Company will amend its
articles of incorporation to effect a recapitalization that will
replace existing WorldCom Common Stock with two new series of
common stock: WorldCom group stock ("WorldCom stock") and MCI group
stock ("MCI stock"). WorldCom stock is intended to reflect, or
track, the performance of the Company's data, Internet,
international and commercial voice businesses (the "WorldCom
group"), and MCI stock is intended to reflect, or track, the
performance of the Company's consumer, small business, wholesale
long distance, wireless messaging and dial-up Internet access
businesses (the "MCI group"). If this proposal is approved by the
Company's shareholders, each outstanding share of the Company's
existing Common Stock will convert into one share of WorldCom stock
and one twenty-fifth of a share of MCI stock (the
"Recapitalization").

The Company intends to initially pay a quarterly dividend of
approximately $75 million ($300 million per year) on the MCI stock.
MCI group will initially be allocated notional debt of $6 billion
and the remaining Company debt will be allocated on a notional
basis to WorldCom group. The Company will report separate
financial results for WorldCom group and MCI group in addition to
the consolidated Company results. The Company does not expect that
this transaction will have any impact on its credit ratings.

Voting rights of WorldCom group and MCI group shareholders will be
prorated based on the relative market values of WorldCom stock and
MCI stock. The Company will conduct shareholder meetings that
encompass all holders of voting stock. WorldCom group and MCI
group shareholders will vote together as a single class on all
matters brought to a vote of shareholders, including the election
of the Company's directors.

F-66

<PAGE>

The Company's Board of Directors may convert each outstanding share
of MCI stock into shares of WorldCom stock at 110% of the relative
trading value of MCI stock for the 20 days prior to the
announcement of the conversion. No premium will be paid on a
conversion that occurs three years after the issuance of MCI stock.

If all or substantially all of the WorldCom group or MCI group
assets are sold, the relevant shareholders will receive either:
(i) a distribution equal to the fair value of the net proceeds of
the sale, either by special dividend or by redemption of shares; or
(ii) a number of shares of the Company's stock having been
calculated in accordance with a predetermined conversion premium.

The Company expects to hold its shareholder meeting to vote on the
Recapitalization in the first half of 2001, and to effect the
distribution of the tracking stocks shortly after shareholder
approval. No regulatory approvals are expected to be required.

RECLASSIFICATIONS:

Revenues and line costs for all periods reflect a classification
change for reciprocal compensation and COBRA (central office based
remote access) equipment sales which are now being treated as
offsets to cost of sales. Previously, the Company recorded these
items on a gross basis as revenue. Results for all periods have
also been adjusted to reflect the elimination of small business and
consumer PICC from both revenues and line costs as a result of the
CALLS legislation which eliminated single line PICC as of July 1,
2000. Operating income, net income available to common
shareholders and the balance sheet are not affected by these
reclassifications.

The effects of these reclassifications on the accompanying
consolidated statements of operations for the years ended December
31, 1997, 1998 and 1999 are as follows (in millions):

New Presentation
------------------------------------
For the Year Ended December 31,
1997 1998 1999
------- --------- -------
Revenues $7,643 $17,617 $35,908
Line Costs $3,741 $7,982 $14,739

Old Presentation
-------------------------------------
For the Year Ended December 31,
1997 1998 1999
------ ----- ------
Revenues $7,789 $18,169 $37,120
Line Costs $3,887 $8,534 $15,951

F-67

<PAGE>

CONSOLIDATING INFORMATION:

After shareholder approval of the Recapitalization, the Company
intends to separate for financial reporting purposes WorldCom group
and MCI group. Below is the consolidating financial information of
WorldCom group and MCI group. The financial information reflects
the businesses of WorldCom group and MCI group including the
allocation of revenues and expenses between WorldCom group and MCI
group in accordance with our allocation policies.

For each group, the Company attributed assets, liabilities, equity,
revenues and expenses reflected in the Company's consolidated
financial statements primarily based on specific identification of
the businesses included in each group. Where specific
identification was impractical, other methods and criteria were
used that management believes are equitable and provide a
reasonable estimate of the assets, liabilities, equity, revenues
and expenses attributable to each group. The Company's shared
corporate services and related balance sheet amounts (such as
executive management, human resources, legal, regulatory,
accounting, tax, treasury, strategic planning and information
systems support) have been attributed to WorldCom group or MCI
group based upon identification of such services specifically
benefiting each group. Where determinations based on specific
usage alone are impractical, other methods and criteria were used
that management believes are equitable and provide a reasonable
estimate of the cost attributable to each group. Management
believes that the allocation methods developed will be comparable
to the expected future allocation methods.

F-68

<PAGE>

CONSOLIDATING BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
At December 31, 1999
---------------------------------------------------------------------------
WorldCom Group MCI Group Eliminations WorldCom
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $9,037 $2,263 $ (976) $10,324
Property and equipment, net 26,227 2,391 -- 28,618
Goodwill and other intangibles 37,252 10,056 -- 47,308
Other assets 4,717 105 -- 4,822
-------- -------- --------- -------
Total assets $77,233 $14,815 $ (976) $91,072
======== ======== ========= =======
Current liabilities $12,694 $5,491 (976) $17,209
Long-term debt 7,128 6,000 -- 13,128
Noncurrent liabilities 5,276 824 -- 6,100
Minority interests 2,599 -- -- 2,599
Company obligated mandatorily
redeemable preferred securities 798 -- -- 798
Shareholders' investment 48,738 2,500 -- 51,238
-------- ------- -------- --------
Total liabilities and shareholders'
investment (deficit) $77,233 $14,815 $ (976) $91,072
======== ======= ======== ========
</TABLE>

F-69

<PAGE>

CONSOLIDATING STATEMENT OF OPERATIONS
(in millions)
<TABLE>
<CAPTION>

Year Ended December 31, 1999
--------------------------------------------------------
WorldCom MCI
Group Group Eliminations WorldCom
------------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Revenues $19,736 $16,172 -- $35,908
-------- -------- ------ -------
Operating expenses:
Line costs 7,905 7,087 (253) 14,739
Selling, general and administrative 4,195 5,071 (331) 8,935
Depreciation and amortization 3,013 757 584 4,354
In-process research and development and other charges (8) -- -- (8)
------ ------ ------- --------
Total 15,105 12,915 -- 28,020
------ ------ ------- --------
Operating income 4,631 3,257 -- 7,888
Interest expense (460) (506) -- (966)
Miscellaneous 237 5 -- 242
------ ------ ------- -------
Income before income taxes and minority interests 4,408 2,756 -- 7,164
Provision for income taxes 1,856 1,109 -- 2,965
------ ------ ------- -------
Income before minority interests 2,552 1,647 -- 4,199
Minority interests (186) -- -- (186)
------ ------ ------- -------
Net income before distributions on subsidiary trust and other
mandatorily redeemable preferred securities and preferred
dividend requirements 2,366 1,647 -- 4,013
Distributions on subsidiary trust mandatorily redeemable
preferred securities 63 -- -- 63
Preferred dividend requirements 9 -- -- 9
------ ------ ------ --------
Net income $2,294 $1,647 $ -- $3,941
====== ====== ====== ========
</TABLE>

F-70

<PAGE>

CONSOLIDATING STATEMENT OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------------------------
WorldCom Group MCI Group Eliminations WorldCom
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $2,366 $1,647 $-- $4,013
Adjustments to reconcile net income to cash
provided by operating activities: 4,986 2,006 -- 6,992
------ -------- ------ --------
Net cash provided by operating activities 7,352 3,653 -- 11,005
------ ------- ----- -------

Cash flows from investing activities:
Capital expenditures (7,929) (787) -- (8,716)
Acquisitions and related costs (786) (292) -- (1,078)
Proceeds from sale of SHL 1,640 -- -- 1,640
Other investing activities, net (970) (431) -- (1,401)
------ ------- ----- -------

Net cash used in investing activities (8,045) (1,510) -- (9,555)
------ ------- ----- -------

Cash flows from financing activities:
Principal repayments on debt, net (2,894) -- -- (2,894)
Attributed stock activity of WorldCom, Inc. 886 -- -- 886
Distributions on subsidiary trust mandatorily
redeemable preferred securities (63) -- -- (63)
Dividends paid on preferred stock (9) -- -- (9)
Intergroup advances, net 2,097 (2,097) -- --
------ ------- ----- -------

Net cash provided by (used in) financing activities 17 (2,097) -- (2,080)
------ -------- ----- -------
Effect of exchange rates on cash (221) -- -- (221)
------ -------- ----- -------
Net increase (decrease) in cash and
cash equivalents (897) 46 -- (851)
Cash and cash equivalents beginning of period 1,703 24 -- 1,727
------ -------- ----- -------
Cash and cash equivalents end of period $806 $ 70 $ -- $ 876
====== ======== ===== =======

</TABLE>

F-71

<PAGE>

WORLDCOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited. In Millions, Except Share Data)

<TABLE>
<CAPTION>
December 31,1999 September 30,2000
------------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $876 $916
Account receivable, net of allowance for bad debts of $1,122 in 1999
and $1,867 in 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 5,746 6,645
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . 2,565 2,612
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,137 1,911
-------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 10,324 12,084
-------- -------
Property and equipment:
Transmission equipment . . . . . . . . . . . . . . . . . . . . . . . . 14,689 18,243
Communications equipment . . . . . . . . . . . . . . . . . . . . . . . 6,218 7,531
Furniture, fixtures and other . . . . . . . . . . . . . . . . . . . . . 7,424 8,877
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . 5,397 7,360
-------- -------
33,728 42,011
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (5,110) (6,707)
-------- -------
28,618 35,304
-------- -------
Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . 47,308 46,670
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,822 5,835
-------- -------
$91,072 $99,893
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt . . . . . . . $5,015 $4,289
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,557 2,065
Accrued line costs . . . . . . . . . . . . . . . . . . . . . . . . . . 3,721 3,003
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 5,916 6,329
-------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 17,209 15,686
-------- -------
Long-term liabilities, less current portion:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,128 18,700
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . 4,877 5,646
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,223 1,090
-------- -------
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . 19,228 25,436
-------- -------

F-72

<PAGE>

Commitments and contingencies

Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,599 2,696

Company obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely junior subordinated
deferrable interest debentures of the Company and
other redeemable preferred securities . . . . . . . . . . . . . . . 798 798

Shareholders' investment:
Series B preferred stock, par value $.01 per share;
authorized, issued and outstanding: 11,096,887 shares
in 1999 and 10,756,601 shares in 2000 (liquidation
preference of $1.00 per share plus unpaid dividends) . . . . . . . . - -
Series C preferred stock, par value $.01 per share;
authorized: 3,750,000 shares; issued and outstanding:
3,750,000 shares in 1999 and none in 2000
(liquidation preference of $50 per share) . . . . . . . . . . . . . - -
Preferred stock, par value $.01 per share; authorized:
31,155,008 shares in 1999 and 2000; none issued . . . . . . . . . . - -
Common stock, par value $.01 per share; authorized: 5,000,000,000
shares; issued and outstanding: 2,849,743,843 shares in
1999 and 2,883,302,668 shares in 2000 . . . . . . . . . . . . . . . 28 29
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 52,108 52,731
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . (928) 2,581
Unrealized holding gain on marketable equity securities . . . . . . . 575 839
Cumulative foreign currency translation adjustment . . . . . . . . . . (360) (718)
Treasury stock, at cost, 6,765,316 shares in 1999 and 2000 . . . . . . (185) (185)
-------- -------
Total shareholders' investment . . . . . . . . . . . . . . . . . . . . 51,238 55,277
-------- -------
$91,072 $99,893
======== =======
</TABLE>

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

F-73

<PAGE>

WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited. In Millions, Except Per Share Data)

For the Nine Months
Ended September 30,
--------------------------
1999 2000
-------- ----------

Revenues $26,586 $29,483
--------- ----------
Operating expenses:
Line costs . . . . . . . . . . . . . . 11,089 11,376
Selling, general and
administrative . . . . . . . . . . . . 6,740 7,810
Depreciation and amortization . . . . 3,266 3,570
--------- ---------
Total . . . . . . . . . . . . . . . 21,095 22,756
--------- ---------
Operating income . . . . . . . . . . . . 5,491 6,727
Other income (expense):
Interest expense . . . . . . . . . . . (748) (699)
Miscellaneous . . . . . . . . . . . . 53 327
--------- ---------
Income before income taxes and
minority interests . . . . . . . . . . 4,796 6,355
Provision for income taxes . . . . . . . 1,994 2,580
--------- ---------
Income before minority interests . . . . 2,802 3,775
Minority interests . . . . . . . . . . . (92) (216)
--------- ---------
Net income . . . . . . . . . . . . . . . 2,710 3,559
Distributions on subsidiary trust
and other mandatorily redeemable
preferred securities . . . . . . . . . 47 48
Preferred dividend requirement . . . . . 7 1
--------- ---------
Net income applicable to common
shareholders . . . . . . . . . . . . . $2,656 $3,510
========= =========
Earnings per common share:
Net income applicable to common
shareholders:
Basic . . . . . . . . . . . . . . . $0.94 $1.23
========= =========
Diluted . . . . . . . . . . . . . . $0.91 $1.20
========= =========

The accompanying notes are an integral part of these statements.

F-74

<PAGE>

WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited. In Millions)
<TABLE>
<CAPTION>
For the Nine
Months
Ended
September 30,
----------------------
1999 2000
<S> <C> <C>

Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . $2,710 $3,559
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interests . . . . . . . . . . . . 92 216
Depreciation and amortization . . . . . . . 3,266 3,570
Provision for losses on accounts receivable 674 1,515
Provision for deferred income taxes . . . . 1,727 850
Changes in assets and liabilities, net of
effect of business combinations:
Accounts receivable . . . . . . . . . . (995) (2,405)
Other current assets . . . . . . . . . (217) (661)
Accrued line costs . . . . . . . . . . (47) (787)
Accounts payable and other current
liabilities . . . . . . . . . . . . 540 438
Other 101 (372)
------- ------
Net cash provided by operating activities . . . 7,851 5,923
------- ------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . (5,888) (8,777)
Acquisitions and related costs . . . . . . (769) (14)
Increase in intangible assets . . . . . . . (528) (725)
Proceeds from disposition of marketable
securities and other long-term assets . 2,910 617
Increase in other assets . . . . . . . . . (1,297) (1,020)
Decrease in other liabilities . . . . . . . (265) (672)
-------- --------
Net cash used in investing activities (5,837) (10,591)
-------- --------

F-75

<PAGE>

Cash flows from financing activities:
Principal borrowings (repayments) on debt,
net . . . . . . . . . . . . . . . . . . (3,941) 4,467
Common stock issuance . . . . . . . . . . . 814 551
Distributions on subsidiary trust
mandatorily redeemable preferred
securities . . . . . . . . . . . . . . (47) (48)
Dividends paid on preferred stock (7) (1)
Redemption of Series C preferred stock . . . - (190)
Other . . . . . . . . . . . . . . . . . . . - (75)
------- -------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . (3,181) 4,704
Effect of exchange rate changes on cash . . . . (242) 4
------- -------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . (1,409) 40
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . 1,727 876
------- -------
Cash and cash equivalents at end of period . . $318 $916
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-76

<PAGE>

WORLDCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(A) GENERAL

References herein to the "Company" refer to WorldCom, Inc., a
Georgia corporation, and its subsidiaries. Prior to May 1, 2000,
the Company was named MCI WORLDCOM, Inc.

The financial statements included herein, are unaudited and have
been prepared in accordance with generally accepted accounting
principles for interim financial reporting and Securities and
Exchange Commission ("SEC") regulations. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, the financial
statements reflect all adjustments (of a normal and recurring
nature) which are necessary to present fairly the financial
position, results of operations and cash flows for the interim
periods. These financial statements should be read in conjunction
with the audited consolidated financial statements of the Company
included in this document. The results for the nine-month period
ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.

(B) BUSINESS COMBINATIONS

On October 5, 1999, the Company announced that it had entered into
an Agreement and Plan of Merger dated as of October 4, 1999, which
was amended and restated on March 8, 2000 (the "Sprint Merger
Agreement"), with Sprint Corporation ("Sprint"). On July 13, 2000,
the Company and Sprint announced that they had agreed to terminate
the Sprint Merger Agreement, effective immediately.

On September 5, 2000, the Company announced that it had entered
into an Agreement and Plan of Merger dated as of September 1, 2000
(the "Intermedia Merger Agreement"), between the Company, Wildcat
Acquisition Corp., a wholly owned subsidiary of the Company, and
Intermedia Communications Inc. ("Intermedia"). Shareholders of
Intermedia voted to approve the transaction on December 18, 2000.
As a result of the merger (the "Intermedia Merger"), the Company
will acquire a controlling interest in Digex, Incorporated
("Digex"), a leading provider of managed web and application
hosting services for some of the world's fastest growing companies.

F-77

<PAGE>

Under the Intermedia Merger Agreement, each outstanding share of
Intermedia common stock will be exchanged for common stock, par
value, $.01 per share of the Company ("Common Stock") valued at
$39.00, subject to a collar. The actual number of shares of Common
Stock to be exchanged for each share of Intermedia common stock
will be determined based on the average closing price of Common
Stock for 15 days randomly selected from the 30 trading days ending
on the third trading day prior to closing, but will not be less
than 0.8904 (if the average trading price of Common Stock exceeds
$43.80) or more than 1.1872 (if the average trading price of Common
Stock equals or is less than $32.85). If the Common Stock falls
below $36.50, the Company may exercise a cash election right to
cause the exchange ratio to be fixed at 1.0685 and pay the value in
cash of the difference between what the exchange ratio otherwise
would have been and 1.0685. On November 1, 2000, there were
54,724,625 shares of Intermedia common stock outstanding. Holders
of Intermedia preferred stock, other than Intermedia series B
preferred stock, will receive one share of a class or series of the
Company's preferred stock, with substantially identical terms,
which will be established in connection with the Intermedia Merger.
The Intermedia Merger will be accounted for as a purchase.

Consummation of the Intermedia Merger is subject to various
conditions set forth in the Intermedia Merger Agreement, including
adoption of the Intermedia Merger Agreement by stockholders of
Intermedia, certain U.S. regulatory approvals and other customary
conditions. It is anticipated that the Intermedia Merger will
close in the first half of 2001.

The following is a reconciliation of the numerators and the
denominators of the basic and diluted earnings per share
computations for the nine months ended September 30, 1999 and 2000
(in millions, except per share data):

F-78

<PAGE>
For the Nine Months
Ended September 30,
----------------------
1999 2000
------ --------
Basic
Net income $2,710 $3,559
Distributions on subsidiary
trust and other mandatorily
redeemable preferred securities 47 48
Preferred dividend requirement 7 1
------ --------
Net income applicable to
common shareholders $2,656 $3,510
====== ========
Weighted average shares outstanding 2,815 2,864
====== ========
Basic earnings per share $0.94 $1.23
====== ========
Diluted
Net income applicable to common
shareholders $2,656 $3,510
====== ========
Weighted average shares outstanding 2,815 2,864
Common stock equivalents 106 53
Common stock issuable upon conversion
of preferred stock 2 2
------ --------
Diluted shares outstanding 2,923 2,919
====== ========
Diluted earnings per share $0.91 $1.20
====== ========

(D) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest paid by the Company during the nine months ended September
30, 1999 and 2000, amounted to $909 million and $793 million,
respectively. Income taxes paid during the nine months ended
September 30, 1999 and 2000, totaled $75 million and $183 million,
respectively. In conjunction with business combinations during the
nine months ended September 30, 1999 and 2000, assumed assets and
liabilities were as follows (in millions):

1999 2000
---------- --------

Fair value of assets acquired $ 611 $ --
Excess of cost over net tangible assets 2,324 43
acquired
Liabilities assumed (1,938) (29)
Common stock issued (228) --
------- ------
Net cash paid $769 $14
======= ======

F-79

<PAGE>

(E) COMPREHENSIVE INCOME

The following table reflects the calculation of comprehensive
income for the Company for the nine months ended September 30, 1999
and 2000 (in millions):
For the Nine Months
Ended September 30,
-----------------------
1999 2000
-----------------------
Net income applicable to
common shareholders $2,656 $3,510
------- -------
Other comprehensive income (loss):
Foreign currency translation losses (334) (358)
Unrealized holding gains: 457 805
Unrealized holding gains
during the period
Reclassification adjustment for
gains included in
net income (81) (382)
------- -------
Other comprehensive income 42 65
before tax
Income tax expense (141) (159)
------- -------
Other comprehensive loss (99) (94)
------- -------
Comprehensive income applicable
to common shareholders $2,557 $3,416
======== ======

(F) RECLASSIFICATIONS

Revenues and line costs for prior periods reflect a classification
change for reciprocal compensation and COBRA (central office based
remote access) equipment sales which are now being treated as
offsets to cost of sales. Previously, the Company recorded these
items on a gross basis as revenue. Results for all periods have
also been adjusted to reflect the elimination of small business and
consumer PICC (primary interexchange carrier charges) from both
revenues and line costs as a result of the Coalition for Affordable
Local and Long Distance Services ("CALLS") legislation which

F-80

<PAGE>

eliminated single line PICC as of July 1, 2000. Operating income,
net income available to common shareholders and the balance sheet
are not affected by these reclassifications.

The effects of these reclassifications on the accompanying
consolidated statements of operations for the nine months ended
September 30, 1999 and 2000 are as follows (in millions):

New Presentation
--------------------
For the Nine Months
Ended September 30,
--------------------
1999 2000
--------------------

Revenues $26,586 $29,483
Line costs $11,089 $11,376

Old Presentation
---------------------
For the Nine Months
Ended September 30,
---------------------
1999 2000
---------------------

Revenues $27,495 $30,474
Line costs $11,998 $12,367

(G) SEGMENT INFORMATION

Based on its organizational structure, the Company operated in nine
reportable segments: Commercial voice and data, Internet,
International operations, Embratel Participacoes S.A. ("Embratel"),
Wholesale, Consumer, Alternative channels and small business,
Operations and technology and Other. The Company's reportable
segments represent business units that primarily offer similar
products and services; however, the business units are managed
separately due to the type and class of customer as well as the
geographic dispersion of their operations. The Commercial voice
and data segment includes voice, data and other types of domestic
communications services for commercial customers. The Internet
segment provides Internet services including dedicated and dial-up
access and web and application hosting services. International
operations provide voice, data, Internet and other similar types of
communications services to customers primarily in Europe and the
Asia Pacific region. Embratel provides communications services in

F-81

<PAGE>

Brazil. Wholesale includes voice and data domestic communications
services for wholesale customers. Consumer includes domestic voice
communications services for consumer customers. Alternative
channels and small business includes sales agents and affiliates,
wholesale alternative channels, small business, prepaid calling
cards and paging services. Operations and technology includes
network operations, information services, engineering and
technology, and customer service. Other includes primarily the
operations of MCI Systemhouse Corp. and SHL Systemhouse Co.
(collectively, "SHL") and other non-communications services. In
April 1999, SHL was sold to Electronic Data Systems Corporation.
Previously, the Company had defined six reportable segments.

The Company's chief operating decision-maker utilizes revenue
information in assessing performance and making overall operating
decisions and resource allocations. Communications services are
generally provided utilizing the Company's network facilities,
which do not make a distinction between the types of services.
Profit and loss information is reported only on a consolidated
basis to the chief operating decision-maker and the Company's Board
of Directors.

F-82

<PAGE>

Information about the Company's segments for the nine months ended
September 30, 1999 and 2000 is as follows (in millions):

Revenues from
External Customers
----------------------
For the Nine Months
Ended September 30,
----------------------
1999 2000
----- -----

Commercial voice and data $9,852 $10,802
Internet 2,138 3,002
International operations 1,167 1,740
Wholesale 2,965 2,655
Consumer 5,594 5,893
Alternative channels and small business 2,310 2,792
Operations and technology -- --
Other 523 --
Corporate --
-------- ----------
Total before Embratel 24,549 26,884
Embratel 2,091 2,711
Elimination of intersegment revenues (54) (112)
-------- ----------
Total $26,586 $29,483
======= ==========

F-83

<PAGE>

Selling, General and
Administrative Expenses
---------------------------
For the Nine Months
Ended September 30,
---------------------------
1999 2000
Commercial voice and data $987 $1,216
Internet 393 435
International operations 184 440
Wholesale 116 90
Consumer 1,909 1,608
Alternative channels and small business 403 392
Operations and technology 1,992 2,002
Other 170 --
Corporate 144 214
Corporate-Sprint merger costs and
other charges -- 778
------ ------
Total before Embratel 6,298 7,175
Embratel 449 662
Elimination of intersegment expenses (7) (27)
------ ------
Total $6,740 $7,810
====== ======

The following is a reconciliation of the segment information to
income before income taxes and minority interests for the nine
months ended September 30, 1999 and 2000 (in millions):

F-84

<PAGE>

For the Nine Months
Ended September 30,
------------------------
1999 2000
--------- --------

Revenues $26,586 $29,483
Operating expenses 21,095 22,756
--------- -----------
Operating income 5,491 6,727
Other income (expense): (748) (699)
Interest expense
Miscellaneous 53 327
--------- -----------
Income before income taxes $4,796 $6,355
And minority interests

(H) LONG-TERM DEBT

On May 24, 2000, the Company completed a public debt offering of
$5.0 billion principal amount of debt securities. The net proceeds
of $4.95 billion were used to pay down commercial paper
obligations. The public debt offering consisted of $1.5 billion of
Floating Rate Notes Due 2001 (the "Floating Rate Notes"), which
mature on November 26, 2001, $1.0 billion of 7.875% Notes Due 2003
(the "Notes Due 2003"), which mature on May 15, 2003, $1.25 billion
of 8.000% Notes Due 2006 (the "Notes Due 2006"), which mature on
May 15, 2006 and $1.25 billion of 8.250% Notes Due 2010 (the "Notes
Due 2010"), which mature on May 15, 2010 (collectively, with the
Floating Rate Notes, the Notes Due 2003 and the Notes Due 2006, the
"Notes"). The Floating Rate Notes bear interest payable quarterly
on the 24th day of February, May, August and November, beginning
August 24, 2000. The Notes Due 2003, the Notes Due 2006 and the
Notes Due 2010 bear interest payable semiannually in arrears on May
15 and November 15 of each year, commencing on November 15, 2000.

The Notes Due 2006 and the Notes Due 2010 are redeemable, as a
whole or in part, at the option of the Company, at any time or from
time to time, at respective redemption prices equal to the greater
of (i) 100% of the principal amount of the Notes to be redeemed or
(ii) the sum of the present values of the Remaining Scheduled
Payments (as defined therein) discounted at the Treasury Rate (as
defined therein) plus (a) 25 basis points for the Notes Due 2006,
and (b) 30 basis points for the Notes Due 2010.

F-85

<PAGE>

The Company is required, subject to certain exceptions and
limitations set forth in the Notes, to pay such additional amounts
(the "Additional Amounts") to the beneficial owner of any Note who
is a Non-U.S. Holder (as defined in the Notes) in order that every
net payment of principal and interest on such Note and any other
amounts payable on the Note, after withholding for certain U.S.
taxes, will not be less than the amount provided for in such Note
to be then due and payable. The Notes are also subject to
redemption, at the Company's option, subject to certain conditions
specified in the Notes, in the event the Company has or will become
obligated or there is a substantial probability the Company will or
may be required to pay such Additional Amounts.

On August 3, 2000, the Company extended its 364-Day Revolving
Credit and Term Loan Agreement for a successive 364-day term
pursuant to a First Amendment and Renewal of the Amended and
Restated 364-Day Revolving Credit and Term Loan Agreement
("Facility C Loans"). The Facility C Loans together with the $3.75
billion Amended and Restated Facility A Revolving Credit Agreement
dated August 6, 1998 ("Facility A Loans"), provide the Company with
aggregate credit facilities of $10.75 billion (the "Credit
Facilities"). The Credit Facilities provide liquidity support for
the Company's commercial paper program and will be used for other
general corporate purposes. The Facility A Loans mature on June
30, 2002. The Facility C Loans mature on August 2, 2001; provided,
however, that the Company may elect at such time to convert up to
$4 billion of the principal debt outstanding under the Facility C
Loans from revolving loans to term loans with a maturity date no
later than one year after the conversion. The Credit Facilities
bear interest payable in varying periods, depending on the interest
period, not to exceed six months, or with respect to any Eurodollar
Rate Borrowing, 12 months if available to all lenders, at rates
selected by the Company under the terms of the Credit Facilities,
including a Base Rate or Eurodollar Rate, plus the applicable
margin. The applicable margin for the Eurodollar Rate Borrowing
generally varies from 0.35% to 0.75% as to Facility A Loans and
from 0.225% to 0.45% as to Facility C Loans, in each case based
upon the better of certain debt ratings. The Credit Facilities are
unsecured but include a negative pledge of the assets of the
Company and certain of its subsidiaries (subject to certain
exceptions). The Credit Facilities require compliance with a
financial covenant based on the ratio of total debt to total
capitalization, calculated on a consolidated basis. The Credit

F-86

<PAGE>

Facilities require compliance with certain operating covenants
which limit, among other things, the incurrence of additional
indebtedness by the Company and certain of its subsidiaries, sales
of assets and mergers and dissolutions, and which covenants do not
restrict distributions to shareholders, provided the Company is not
in default under the Credit Facilities. At September 30, 2000, the
Company was in compliance with these covenants. The Facility A
Loans and the Facility C Loans are subject to annual commitment
fees not to exceed 0.25% and 0.15%, respectively, of any unborrowed
portion of the facilities.

The following table sets forth the outstanding debt of the Company
as of September 30, 2000 (in millions):

Commercial paper and credit facilities $3,703
Floating rate notes due 2001 through 2002 1,560
7.88% - 8.25% Notes Due 2003-2010 3,500
6.13% - 6.95% Notes Due 2001-2028 6,100
7.13% - 7.75% Notes Due 2004-2027 2,000
8.88% - 9.38% Senior Notes Due 2004-2006 672
7.13% - 8.25% Senior Debentures due 2023-2027 1,437
6.13% - 7.50% Senior Notes Due 2004-2012 1,936
Capital lease obligations (maturing through 2002) 437
Other debt (maturing through 2008) 1,644
--------
22,989
Short-term debt and current maturities of long-term debt 4,289
--------
$18,700
========
(I) CONTINGENCIES

The Company is involved in legal and regulatory proceedings
generally incidental to its business and has included loss
contingencies in other current liabilities and other liabilities
for certain of these matters. In some instances, rulings by
federal and state regulatory authorities may result in increased
operating costs to the Company. Except as described herein, and
while the results of these various legal and regulatory matters
contain an element of uncertainty, the Company believes that the
probable outcome of these matters should not have a material
adverse effect on the Company's consolidated results of operations
or financial position.

F-87

<PAGE>

GENERAL. The Company is subject to varying degrees of federal,
state, local and international regulation. In the United States,
the Company's subsidiaries are most heavily regulated by the
states, especially for the provision of local exchange services.
The Company's subsidiaries must be certified separately in each
state to offer local exchange and intrastate long distance
services. No state, however, subjects any Company subsidiary to
price cap or rate of return regulation, nor are they currently
required to obtain Federal Communications Commission ("FCC")
authorization for installation or operation of their network
facilities used for domestic services, other than licenses for
specific multichannel multipoint distribution service ("MMDS"),
wireless communications service, terrestrial microwave and
satellite earth station facilities that utilize radio frequency
spectrum. FCC approval is required, however, for the installation
and operation of international facilities and services. The Company
is subject to varying degrees of regulation in the foreign
jurisdictions in which it conducts business, including
authorization for the installation and operation of network
facilities. Although the trend in federal, state, local and
international regulation appears to favor increased competition, no
assurance can be given that changes in current or future
regulations adopted by the FCC, state or foreign regulators or
legislative initiatives in the United States or abroad would not
have a material adverse effect on the Company.

In implementing the Telecommunications Act of 1996 (the "Telecom
Act"), the FCC established nationwide rules designed to encourage
new entrants to participate in the local services markets through
interconnection with the incumbent local exchange carriers
("ILECs"), resale of ILECs' retail services and use of individual
and combinations of unbundled network elements. Appeals of the FCC
order adopting those rules have been in litigation since August
1996. On November 5, 1999, the FCC implemented a remand, from the
U.S. Supreme Court, of the FCC's original unbundling rules. The
FCC required two additional network elements, as well as most of
the previously identified elements, to be made available to new
entrants. That order is subject to various reconsideration

F-88

<PAGE>

petitions at the FCC and has been appealed by the ILECs to the
United States Court of Appeals for the District of Columbia
Circuit. The Court is holding the case in abeyance pending
reconsideration at the FCC. On July 18, 2000, the United States
Court of Appeals for the Eighth Circuit again invalidated the FCC's
pricing rules. Among other things, the Court held that the FCC's
requirement that rates for unbundled network elements be based on
the most efficient technology and network configuration available,
using existing wire center locations, violated the plain meaning of
the Telecom Act. The Court, however, upheld the use of a
forward-looking cost methodology. The Court remanded the pricing
rules to the FCC for further proceedings. Various parties,
including the Company, are seeking review by the U.S. Supreme
Court.

On November 4, 1999, the FCC's Pricing Flexibility Order, which
allowed price-cap regulated ILECs to offer customer specific
pricing in contract tariffs, took effect. Price-cap regulated
ILECs can now offer access arrangements with contract-type pricing
in competition with long distance carriers and other competitive
access providers, who have previously been able to offer such
pricing for access arrangements. As ILECs experience increasing
competition in the local services markets, the FCC will grant
increased pricing flexibility and relax tariffing requirements for
access services. The FCC is also conducting a proceeding to
consider additional pricing flexibility for a wider range of access
services. The Company has appealed the Pricing Flexibility Order
to the United States Court of Appeals for the District of Columbia
Circuit.

On July 30, 1999, the United States Court of Appeals for the Fifth
Circuit issued a decision reversing in part the May 1997 FCC
universal service decision. Among other things, the Court held
that the FCC may collect universal service contributions from
interstate carriers based on only interstate revenues, and that the
FCC could not force the ILECs to recover their universal service
contributions through interstate access charges. On June 6, 2000,
the U.S. Supreme Court granted the petition for certiorari filed by
GTE Corporation ("GTE") seeking review of the Fifth Circuit's
decision that the FCC's forward-looking methodology for funding
universal services does not result in an unconstitutional taking of
the ILECs' property. The U.S. Supreme Court denied petitions for
certiorari filed by various parties, including the Company,
challenging certain other aspects of this decision. However, on
November 2, 2000, the Court granted GTE's motion to voluntarily
withdraw its petition for review. On November 1, 1999, the FCC
implemented the Fifth Circuit's decision. AT&T has appealed this
FCC order to the United States Court of Appeals for the Fifth
Circuit, and the Company has intervened in support of AT&T. Pending
reconsideration petitions seek retroactive treatment for
implementation of the remand order. On November 2, 1999, the FCC
released two additional universal service orders, which provide for

F-89
<PAGE>

federal support for non-rural high cost areas. Both orders were
appealed to the United States Court of Appeals for the Tenth
Circuit.

In August 1998, in response to petitions filed by several ILECs
under the guise of Section 706 of the Telecom Act, the FCC issued
its Advanced Services Order. This order clarifies that the
interconnection, unbundling, and resale requirements of Section
251(c) of the Telecom Act, and the interLATA restrictions of
Section 271 of the Telecom Act, apply fully to so-called "advanced
telecommunications services," such as Digital Subscriber Line
("DSL") technology. US West Communications Group ("US West")
appealed this order to the United States Court of Appeals for the
District of Columbia Circuit. At the request of the FCC, the Court
remanded the case for further administrative proceedings, and on
December 23, 1999, the FCC issued its Order on Remand. In that
order, the FCC reaffirmed its earlier decision that ILECs are
subject to the obligations of Section 251(c) of the Telecom Act in
connection with the offering of advanced telecommunications
services such as DSL. The order reserved ruling on whether such
obligations extend to traffic jointly carried by an ILEC and a
competitive local exchange carrier ("CLEC") to an Internet service
provider ("ISP") where the ISP self-provides the transport
component of its Internet access service. The Order on Remand also
found that DSL-based advanced services that are used to connect
ISPs to their subscribers to facilitate Internet-bound traffic
ordinarily constitute exchange access service. On January 3, 2000,
the Company filed a petition for review of this aspect of the Order
on Remand with the United States Court of Appeals for the District
of Columbia Circuit. Oral argument is scheduled for February 21,
2001.

In February 1999, the FCC sought public comments on its tentative
conclusion that loop spectrum standards should be set in a
competitively neutral process. In November 1999, the FCC concluded
that ILECs should be required to share primary telephone lines with
CLECs, and identified the high frequency portion of the loop as a
network element. In February 2000, US West and the United States
Telephone Association appealed this order to the United States
Court of Appeals for the District of Columbia Circuit. The Court
is holding the case in abeyance pending reconsideration at the FCC.

On February 26, 1999, the FCC issued a Declaratory Ruling and
Notice of Proposed Rulemaking regarding the regulatory treatment of
calls to ISPs. Prior to the FCC's order, over 30 state Public
Utility Commissions ("PUCs") issued orders finding that carriers,
including the Company, are entitled to collect reciprocal
compensation for completing calls to ISPs under the terms of their
interconnection agreements with ILECs. Many of these PUC decisions
have been appealed by the ILECs and, since the FCC's order, many
ILECs have filed new cases at the PUCs or in court. Moreover, the

F-90

<PAGE>

Company appealed the FCC's order to the United States Court of
Appeals for the District of Columbia Circuit. On March 24, 2000,
the Court vacated the FCC's order and remanded the case to the FCC
for further proceedings, which are currently pending. On May 15,
2000, legislation was introduced in the U.S. House of
Representatives that would exclude dial-up Internet traffic from
the reciprocal compensation provisions of the Telecom Act. The
Company cannot predict the outcome of the cases filed by the ILECs,
the FCC's proceedings on remand, or the congressional legislation,
nor can it predict whether or not the result(s) will have a
material adverse impact upon its consolidated financial position or
future results of operations.

Several bills have been introduced during the 106th Congress that
would exclude the transmission of data services or high-speed
Internet access from the Telecom Act's bar on the transmission of
in-region interLATA services by the Bell operating companies
("BOCs"). These bills would also make it more difficult for
competitors to resell the high-speed Internet access services of
the ILECs or to lease a portion of the network components used for
the provision of such services.

In 1996 and 1997, the FCC issued orders that would require
non-dominant telecommunications carriers to eliminate interstate
service tariffs, except in limited circumstances. These orders
were stayed pending judicial review. On April 28, 2000, the United
States Court of Appeals for the District of Columbia Circuit issued
a decision upholding the FCC's orders and thereafter lifted the
stay. The FCC's orders prevent the Company from relying on its
domestic federal tariff to limit liability or to establish its
interstate rates for customers. The Company will comply with the
orders and is in the process of developing modifications to the
manner in which it establishes contractual relationships with its
customers.

BOCs must file an application conforming to the requirements of
Section 271 of the Telecom Act for each state in their service area
in order to offer in-region long distance services in that state.
To be granted by the FCC, an application must demonstrate, among
other things, that the BOC has met a 14-point competitive checklist
to open its local network to competition and demonstrate that its
application is in the public interest. Since enactment of the
Telecom Act, the FCC has rejected five Section 271 applications
filed by BOCs and granted two; Bell Atlantic Corporation's
application for New York was granted on December 21, 1999, and SBC
Communications, Inc.'s application for Texas was granted on June
30, 2000. At this time, Section 271 applications for the states of
Massachusetts, Kansas, and Oklahoma are pending before the FCC.
Other applications may be filed this year. The Company cannot
predict the outcome of these proceedings or whether or not the
results will have a material adverse impact on its consolidated
financial position or future results of operations.

F-91

<PAGE>

On May 31, 2000, the FCC adopted further access charge and
universal service reform. In response to a proposal made by CALLS,
a group of regional Bell operating companies, GTE and two long
distance companies, the FCC reduced access charges paid by long
distance companies to local exchange carriers by approximately $3.2
billion annually. The proposal, which will allow charges imposed on
end user customers by local exchange carriers to increase over
time, also created a new $650 million universal service fund.
Several parties have appealed various aspects of the CALLS order.

It is possible that rights held by the Company to MMDS and/or ITFS
spectrum may be disrupted by FCC decisions to re-allocate some or
all of that spectrum to other services. If such re-allocation were
to occur, the Company cannot predict whether current deployment
plans for its MMDS services will be sustainable.

In August 1997, the FCC adopted mandatory settlement rate
benchmarks. These benchmarks are intended to reduce the rates that
United States carriers pay foreign carriers to terminate traffic in
their home countries. The FCC will also prohibit a United States
carrier affiliated with a foreign carrier from providing
facilities-based service to the foreign carrier's home market until
and unless the foreign carrier has implemented a settlement rate at
or below the benchmark. The FCC also adopted new rules that will
liberalize the provision of switched services over private lines to
World Trade Organization member countries. These rules allow such
services on routes where 50% or more of United States billed
traffic is being terminated in the foreign country at or below the
applicable settlement rate benchmark or where the foreign country's
rules concerning provision of international switched services over
private lines are deemed equivalent to United States rules. On
January 12, 1999, the FCC's benchmark rules were upheld in their
entirety by the United States Court of Appeals for the District of

F-92
<PAGE>

Columbia Circuit. On March 11, 1999, the District of Columbia
Circuit denied petitions for rehearing of the case.

On June 3, 1999, the FCC enforced the benchmark rates on two
non-compliant routes. Settlement rates have fallen to the
benchmarks or below on many other routes.

Although the FCC's new policies and implementation of the WTO
Agreement may result in lower settlement payments by the Company to
terminate international traffic, there is a risk that the payments
the Company will receive from inbound international traffic may
decrease to an even greater degree. The implementation of the WTO
Agreement may also make it easier for foreign carriers with market
power in their home markets to offer United States and foreign
customers end-to-end services to the disadvantage of the Company.
The Company may continue to face substantial obstacles in obtaining
from foreign governments and foreign carriers the authority and
facilities to provide such end-to-end services.

F-93

<PAGE>

SFTS, operate in the Private Regime and, although they are not
subject to the Public Regime, individual authorizations may contain
certain specific expansion and continuity obligations.

The main restriction imposed on carriers by the General Plan on
Universal Service is that, until December 31, 2003, the three Teles
are prohibited from offering inter-regional and international long
distance service, while Embratel is prohibited from offering local
services. These companies can start providing those services two
years sooner if they meet their network expansion obligations by
December 31, 2001.

Embratel and the three Teles were granted their concessions at no
fee, until 2005. After 2005, the concessions may be renewed for a
period of 20 years, upon the payment, every two years, of a fee
equal to 2% of annual net revenues calculated based on the
provision of SFTS in the prior year, excluding taxes and social
contributions.

Embratel also offers a number of ancillary telecommunications
services pursuant to authorizations granted in the Private Regime.
Such services include the provision of dedicated analog and digital
lines, packet switched network services, circuit switched network
services, mobile marine telecommunications, telex and telegraph,
radio signal satellite retransmission and television signal
satellite retransmission. Some of these services are subject to
some specific continuity obligations and rate conditions.

All providers of telecommunications services are subject to quality
and modernization obligations provided in the Plan Geral de
Qualidade ("General Plan on Quality").

LITIGATION. In November 2000, class action complaints were filed
in the United States District Court for the Southern District of
Mississippi against the Company and certain of its named executive
officers. The complaints generally allege that the defendants made
false and misleading statements about certain aspects of the
Company's performance by failing to disclose, among other things,
that the merger with MCI Communications Corporation ("MCI") did not
yield the anticipated cost savings and revenue increases, that the
Company's growth rate was declining, and that the Company's
financial statements were inflated due to the failure to write
down, on a timely basis, $405 million in receivables. Based on
these allegations, the complaints assert claims for violation of
Section 10(b) of the Securities Exchange Act of 1934 (the "1934
Securities Act") and Rule 10b-5 promulgated thereunder and Section
20(a) of the 1934 Securities Act. The complaints seek to certify a
class of persons who purchased or otherwise acquired shares of the
Company between April 13, 2000 and November 1, 2000. The Company

F-94
<PAGE>

believes that the factual allegations and legal claims asserted in
the complaints are without merit and it intends to defend them
vigorously.

On November 4, 1996, and thereafter, and on August 25, 1997, and
thereafter, MCI and all of its directors were named as defendants
in a total of 15 complaints filed in the Court of Chancery in the
State of Delaware. British Telecommunications plc ("BT") was named
as a defendant in 13 of the complaints. The complaints were
brought by alleged stockholders of MCI, individually and
purportedly as class actions on behalf of all other stockholders of
MCI. The complaints allege that MCI's directors breached their
fiduciary duty in connection with the MCI BT Merger Agreement,
dated November 3, 1996 (the "MCI BT Merger Agreement"), that BT
aided and abetted those breaches of duty, that BT owes fiduciary
duties to the other stockholders of MCI and that BT breached those
duties in connection with the MCI BT Merger Agreement. The
complaints seek damages and injunctive and other relief.

One of the purported stockholder class actions pending in Delaware
Chancery Court has been amended, one of the purported class actions
has been dismissed with prejudice, and plaintiffs in four of the
other purported stockholder class actions have moved to amend their
complaints to name the Company and a Company subsidiary as
additional defendants. These plaintiffs generally allege that the
defendants breached their fiduciary duties to stockholders in
connection with the merger with MCI and the agreement to pay a
termination fee to the Company. They further allege discrimination
in favor of BT in connection with the MCI merger. The plaintiffs
seek, inter alia, damages and injunctive relief prohibiting the
consummation of the MCI merger and the payment of the inducement
fee to BT.

F-95

<PAGE>

Plaintiffs further challenge the Company's credit policies for this
"non-subscriber" traffic. Plaintiffs assert that the Company's
conduct violates the Communications Act and various state laws; the
complaint seeks rebates to all affected customers as well as
punitive damages and other relief. In response to a motion filed
by the Company, the Judicial Panel on Multi-District Litigation
consolidated these matters in the United States District Court for
the Southern District of Illinois. The parties have entered into a
memorandum of understanding to settle these cases, pursuant to
which the Company would pay $88 million for the benefit of the
Settlement Class. Judicial approval of the tentative settlement is
required. The Company's appeal of the FCC's Halprin decision to
the United States Court of Appeals for the District of Columbia
Circuit is stayed pending judicial review of the proposed
settlement.

Between September 5, and October 4, 2000, a number of purported
class actions and stockholder derivative actions were filed in the
Court of Chancery of the State of Delaware. The named defendants
include Intermedia, Digex, the directors of Digex who are also
directors or executive officers of Intermedia and, in some cases,
Worldcom. On October 19, 2000, the Court ordered all purported
derivative and class action lawsuits be consolidated into a single
action. The consolidated action alleges, among other things, that
the defendants, other than WorldCom, breached their fiduciary
duties to the class members by acting to further their own
interests at the expense of Digex public stockholders and that the
Digex board members who are also directors or executive officers of
Intermedia conferred a substantial benefit on Intermedia at the
expense of the Digex public stockholders by voting to waive
application of section 203 of the Delaware General Corporate Law to
WorldCom. The complaint also alleges that WorldCom aided and
abetted Intermedia's and Digex's wrongdoing. The complaint seeks
an order enjoining the merger, a declaration that the waiver of
section 203 is inapplicable to WorldCom, attorneys' fees and
unspecified damages.

On December 13, 2000, the Court denied plaintiffs' motion for
preliminary injunctive relief, concluding that plaintiffs were
unlikely to succeed on the merits of their claim that defendants
usurped a Digex corporate opportunity. The Court further noted
that it had determined, at least preliminarily, that after a full
trial on the merits, the plaintiff minority stockholders are likely
to succeed in invalidating the defendant Digex directors' decision
to vote in favor of the section 203 waiver and that the plaintiffs
could be entitled to a range of equitable remedies, including
monetary damages.

F-96

<PAGE>

(J) RELATED PARTY TRANSACTIONS

In September 2000, the Company loaned $50 million to Bernard J.
Ebbers, President and Chief Executive Officer of the Company. The
loan from the Company is payable on demand and bears interest at a
floating rate equal to that under the Facility C Loans. In
November 2000, the Company agreed to guarantee up to $100 million
principal amount of indebtedness, together with any related
interest, attorneys' fees or costs, owed from time to time by Mr.
Ebbers to an institutional lender. As of November 14, 2000, no
advance under the guaranty had been made. Additionally, in
November 2000, the Company agreed to loan Mr. Ebbers up to an
additional $25 million, of which $11.5 million had been borrowed as
of November 14, 2000, on the same terms and conditions as the
September loan. In connection with the November transactions, and
subject to certain limitations, including any restrictions under
existing agreements, Mr. Ebbers pledged to the Company shares of
Common Stock held by him to secure his obligations under the loans
and guaranty. The pledge is subordinated to obligations to his
existing lenders. Mr. Ebbers has used, or plans to use, the
proceeds of the loans from the Company and the loan guaranteed by
the Company to repay certain indebtedness under margin loans from
institutional lenders secured by shares of Common Stock held by
him.

(K) RECENTLY ISSUED ACCOUNTING STANDARDS

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In June
2000, the SEC issued an amendment to SAB 101 which allows
registrants to wait until the fourth quarter of their fiscal year
beginning after December 15, 1999 to implement SAB 101. SAB 101
provides guidance on the recognition, presentation and disclosure
of revenue in financial statements filed with the SEC. The
deferral of telecommunications service activation fees and certain
related costs are specifically addressed in SAB 101. The Company
is currently assessing the impact of SAB 101 on its consolidated
results of operations or financial position and there can be no
assurance as to the effect on the Company's consolidated financial
statements.

F-97

<PAGE>

unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement, and requires a company to formally document, designate
and assess the effectiveness of transactions that receive hedge
accounting. This statement is currently effective for fiscal years
beginning after June 15, 2000 and cannot be applied retroactively,
although earlier adoption is encouraged. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997 (and,
at the Company's election, before January 1, 1998). The Company
believes that the adoption of this standard will not have a
material effect on the Company's consolidated results of operations
or financial position.

(L) SUBSEQUENT EVENT

On November 1, 2000, the Company announced a realignment of its
businesses with the distinct customer bases they serve. If
approved by the Company's shareholders, the Company will amend its
articles of incorporation to effect a recapitalization that will
replace existing Common Stock with two new series of common stock:
WorldCom group stock ("WorldCom stock") and MCI group stock ("MCI
stock"). WorldCom stock is intended to reflect, or track, the
performance of the Company's data, Internet, international and
commercial voice businesses (the "WorldCom group"), and MCI stock
is intended to reflect, or track, the performance of the Company's
consumer, small business, wholesale long distance, wireless
messaging and dial-up Internet access businesses (the "MCI group").
If this proposal is approved by the Company's shareholders, each
outstanding share of the Company's existing Common Stock will
convert into one share of WorldCom stock and one twenty-fifth of a
share of MCI stock (the "Recapitalization").

F-98

<PAGE>

matters brought to a vote of shareholders, including the election
of the Company's directors.

F-99

<PAGE>

CONSOLIDATING INFORMATION. After shareholder approval of the
Recapitalization, the Company intends to separate for financial
reporting purposes WorldCom group and MCI group. Below is the
consolidating financial information of WorldCom group and MCI
group. The financial information reflects the businesses of
WorldCom group and MCI group including the allocation of revenues
and expenses between WorldCom group and MCI group in accordance
with our allocation policies.

F-100

<PAGE>

CONSOLIDATING BALANCE SHEET
(Unaudited. In millions)

At September 30, 2000
------------------------------------------------------------
WorldCom MCI
Group Group Eliminations WorldCom
------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $10,959 $2,581 $(1,456) $12,084
Property and equipment, net 33,038 2,266 -- 35,304
Goodwill and other intangibles 36,736 9,934 -- 46,670
Other assets 5,730 105 -- 5,835
--------- --------- --------- -------
Total assets $86,463 $14,886 $(1,456) $99,893
========= ========= ========= =======
Current liabilities $12,129 $5,013 (1,456) $15,686
Long-term debt 12,700 6,000 -- 18,700
Noncurrent liabilities 5,744 992 -- 6,736
Minority interests 2,696 -- -- 2,696
Company obligated mandatorily
redeemable preferred securities 798 -- -- 798
Shareholders' investment 52,396 2,881 -- 55,277
--------- --------- --------- -------
Total liabilities and shareholders'
investment $86,463 $14,886 $(1,456) $99,893
========= ========= ========= =======
</TABLE>

F-101

<PAGE>

CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited. In millions)

Nine Months Ended September 30, 2000
-----------------------------------------------------------------
WorldCom MCI
Group Group Eliminations WorldCom
--------------- ------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues $16,918 $12,565 $-- $29,483
---------- -------- ----- ---------
Operating expenses:
Line costs 6,407 5,312 (343) 11,376
Selling, general and administrative 4,205 3,790 (185) 7,810
Depreciation and amortization 2,388 654 528 3,570
--------- -------- ----- ---------
Total 13,000 9,756 -- 22,756
--------- -------- ----- ---------
Operating income 3,918 2,809 -- 6,727
Interest expense (318) (381) -- (699)
Miscellaneous 327 -- -- 327
--------- -------- ----- ---------
Income before income taxes and minority interests 3,927 2,428 -- 6,355
Provision for income taxes 1,615 965 -- 2,580
--------- -------- ----- ---------
Income before minority interests 2,312 1,463 -- 3,775
Minority interests (216) -- -- (216)
--------- -------- ----- ---------
Net income before distributions on subsidiary
trust and other mandatorily redeemable
preferred securities and preferred dividend
requirements 2,096 1,463 -- 3,559
Distributions on subsidiary trust mandatorily
redeemable preferred securities 48 -- -- 48
Preferred dividend requirements 1 -- -- 1
---------- -------- --------- ---------
Net income $2,047 $1,463 $-- $3,510
========== ======== ========= =========
</TABLE>

F-102

<PAGE>

CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited. In millions)
<TABLE>
<CAPTION>

Nine Months Ended September 30, 2000
--------------------------------------------------------------------
WorldCom Group MCI
Group Eliminations WorldCom
------------------ ------ ------------- --------------
<S> <C> <C> <C> <C>

Cash flows from operating activities:
Net income $2,096 $1,463 $-- $3,559
Adjustments to reconcile net income to cash
provided by operating activities:
2,211 153 -- 2,364
------- -------- -------- --------
Net cash provided by operating activities 4,307 1,616 -- 5,923
-------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures (8,407) (370) -- (8,777)
Acquisitions and related costs (14) -- -- (14)
Other investing activities, net (1,642) (158) -- (1,800)
-------- -------- -------- --------
Net cash used in investing activities (10,063) (528) -- (10,591)
-------- -------- -------- --------
Cash flows from financing activities:
Principal borrowings on debt, net 4,467 - -- 4,467
Attributed stock activity of WorldCom, Inc. 551 -- -- 551
Distributions on subsidiary trust mandatorily (48) -- -- (48)
redeemable preferred securities
Dividends paid on preferred stock (1) -- -- (1)
Intergroup advances, net 1,082 (1,082) -- --
Other (265) -- -- (265)
-------- -------- -------- --------
Net cash provided by (used in) financing
activities 5,786 (1,082) -- 4,704
Effect of exchange rates on cash 4 -- -- 4

-------- -------- -------- --------
Net increase in cash and cash equivalents 34 6 -- 40
Cash and cash equivalents beginning of period 806 70 -- 876
-------- -------- -------- --------
Cash and cash equivalents end of period $840 $76 $-- $916
======== ======== ======== ========

</TABLE>

F-103

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of WorldCom, Inc.:

We have audited the accompanying combined balance sheet of WorldCom
group (an integrated business of WorldCom, Inc.) (as described in
Note 1) as of December 31, 1999, and the related combined
statements of operations, changes in allocated net worth and cash
flows for the year ended December 31, 1999. These financial
statements are the responsibility of WorldCom, Inc.'s management.
Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards
generally accepted in the United States. 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 WorldCom group combined financial statements
referred to above present fairly, in all material respects, the
combined financial position of WorldCom group as of December 31,
1999, and the results of its operations and its cash flows for the
year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

WorldCom group is a fully integrated business of WorldCom, Inc.
Accordingly, as described in Note 1, WorldCom group's combined
financial statements have been derived from the consolidated
financial statements and accounting records of WorldCom, Inc. and,
therefore, reflect certain assumptions and allocations. As more
fully discussed in Note 1, the combined financial statements of

F-104

<PAGE>

WorldCom group should be read in conjunction with the audited
consolidated statements of WorldCom, Inc.

ARTHUR ANDERSEN LLP

Jackson, Mississippi,
November 21, 2000

F-105

<PAGE>

WORLDCOM GROUP (an integrated business of WorldCom, Inc.)
COMBINED BALANCE SHEET
(Unaudited. In Millions)

December 31,
1999
----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $806
Accounts receivable, net of allowance
for bad debts of $440 . . . . . . . . . . . . . . . . . . . . 3,737
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . 2,565
Other current assets . . . . . . . . . . . . . . . . . . . . . 953
Receivable from MCI group . . . . . . . . . . . . . . . . . . . 976
--------
Total current assets . . . . . . . . . . . . . . . . . 9,037
--------
Property and equipment:
Transmission equipment . . . . . . . . . . . . . . . . . . . . 14,312
Communications equipment . . . . . . . . . . . . . . . . . . . 4,323
Furniture, fixtures and other . . . . . . . . . . . . . . . . . 6,765
Construction in progress . . . . . . . . . . . . . . . . . . . 5,179
--------
30,579
Accumulated depreciation . . . . . . . . . . . . . . . . . . . (4,352)
--------
26,227
--------

F-106

<PAGE>

Goodwill and other intangible assets . . . . . . . . . . . . . . . 37,252
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,717
--------
$77,233
========
LIABILITIES AND ALLOCATED NET WORTH
Current liabilities:
Short-term debt and current maturities of long-term debt . . . $5,015
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 1,333
Accrued line costs . . . . . . . . . . . . . . . . . . . . . . 2,110
Other current liabilities . . . . . . . . . . . . . . . . . . . 4,236
--------
Total current liabilities . . . . . . . . . . . . . . 12,694
--------
Long-term liabilities, less current portion:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 7,128
Deferred tax liability . . . . . . . . . . . . . . . . . . . . 4,229

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,047
--------
Total long-term liabilities . . . . . . . . . . . . . 12,404
--------
Commitments and contingencies
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . 2,599

Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely junior
subordinated deferrable interest debentures of the Company
and other redeemable preferred securities . . . . . . . . . . . 798

Allocated net worth . . . . . . . . . . . . . . . . . . . . . . . 48,738
--------
$77,233
========
</TABLE>

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

F-107

<PAGE>

WORLDCOM GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENT OF OPERATIONS
(In Millions)

For the Year Ended
December 31, 1999
-----------------
<S> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $19,736
--------
Operating expenses:
Line costs . . . . . . . . . . . . . . . . . . . . . . 7,905
Selling, general and administrative . . . . . . . . . . 4,195
Depreciation and amortization . . . . . . . . . . . . . 3,013
In-process research and development
and other charges . . . . . . . . . . . . . . . . . . (8)
--------
Total . . . . . . . . . . . . . . . . . . . . . 15,105
--------
Operating income . . . . . . . . . . . . . . . . . . . . . 4,631
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . (460)
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 237
--------
Income before income taxes and
minority interests . . . . . . . . . . . . . . . . . . . 4,408

F-108

<PAGE>

Provision for income taxes . . . . . . . . . . . . . . . . 1,856
--------
Income before minority interests . . . . . . . . . . . . . 2,552
Minority interests . . . . . . . . . . . . . . . . . . . . (186)
--------
Net income before distributions on
subsidiary trust and other mandatorily
redeemable preferred securities and
preferred dividend requirements . . . . . . . . . . . . 2,366
Distributions on subsidiary trust and
other mandatorily redeemable preferred
securities . . . . . . . . . . . . . . . . . . . . . . . 63
Preferred dividend requirements . . . . . . . . . . . . . 9
--------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $2,294
========
</TABLE>

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

F-109

<PAGE>

WORLDCOM GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENT OF ALLOCATED NET WORTH
For the Year Ended December 31, 1999
(In Millions)

Foreign
Unrealized Currency
Attributed Holding Translation Allocated
Capital Gain Adjustment Net Worth
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1998 . . . . . . . . . . . . . . . $42,197 $122 $(28) $42,291
Funds attributed from WorldCom, Inc. . . . . . . . . . . 1,935 - - 1,935
Advances from MCI group . . . . . . . . . . . . . . . . . 2,097 - - 2,097
Other comprehensive income (loss)(net of taxes
and reclassifications):
Net income before distributions on
subsidiary trust and other mandatorily
redeemable preferred securities and
preferred dividend requirements . . . . . . . . . . . . 2,366 - - 2,366
Cash dividends on preferred stock
and distributions on trust
securities . . . . . . . . . . . . . . . . . . . . . . (72) - - (72)
Net change in unrealized holding
gain on marketable equity securities . . . . . . . . . - 453 - 453
Foreign currency adjustment . . . . . . . . . . . . . . . - - (332) (332)
--------
Total comprehensive income . . . . . . . . . . . . . . . 2,415
-------- -------- -------- --------
Balances, December 31, 1999 . . . . . . . . . . . . . . . $48,523 $575 $(360) $48,738
======== ======== ======== ========
</TABLE>

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

F-110

<PAGE>

WORLDCOM GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENT OF CASH FLOWS
(In Millions)

For the Year Ended
December 31,
1999
-----------------
<S> <C>
Cash flows from operating activities:
Net income before distributions on subsidiary
trust and other mandatorily redeemable
preferred securities and preferred
dividend requirements . . . . . . . . . . . . . . . . . . . . . . . $2,366
Adjustments to reconcile net income before
distributions on subsidiary trust and other
mandatorily redeemable preferred securities
and preferred dividend requirements to net
cash provided by operating activities:
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . 186
In-process research and development and
other charges . . . . . . . . . . . . . . . . . . . . . . . . . . (8)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 3,533
Provision for losses on accounts receivable . . . . . . . . . . . . 330
Provision for deferred income taxes . . . . . . . . . . . . . . . . 2,510
Change in assets and liabilities, net of effect of
business combinations:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (941)
Receivable from MCI group, net . . . . . . . . . . . . . . . (555)

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Other current assets . . . . . . . . . . . . . . . . . . 119
Accrued line costs . . . . . . . . . . . . . . . . . . . (261)
Accounts payable and other current liabilities . . . . . 487
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (414)
--------
Net cash provided by operating activities . . . . . . . . . . . . . . 7,352
--------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (7,929)
Acquisitions and related costs . . . . . . . . . . . . . . . . . . (786)
Increase in intangible assets . . . . . . . . . . . . . . . . . . (389)
Proceeds from the sale of SHL . . . . . . . . . . . . . . . . . . 1,640
Proceeds from disposition of marketable securities
and other long-term assets . . . . . . . . . . . . . . . . . . . 1,940
Increase in other assets . . . . . . . . . . . . . . . . . . . . . (1,956)
Decrease in other liabilities . . . . . . . . . . . . . . . . . . (565)
--------
Net cash used in investing activities . . . . . . . . . . . . . . . . (8,045)
--------
Cash flows from financing activities:
Principal repayments on debt, net . . . . . . . . . . . . . . . . (2,894)
Attributed stock activity of WorldCom, Inc. . . . . . . . . . . . 886
Distributions on subsidiary trust mandatorily
redeemable preferred securities . . . . . . . . . . . . . . . . (63)
Dividends paid on preferred stock . . . . . . . . . . . . . . . . (9)
Advances from MCI group, net . . . . . . . . . . . . . . . . . . . 2,097
--------
Net cash provided by financing activities . . . . . . . . . . . . . . 17
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . (221)
--------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . (897)
Cash and cash equivalents at beginning of period . . . . . . . . . . 1,703
--------
Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 806
========

</TABLE>

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WorldCom Group (an integrated business of WorldCom, Inc.)
Notes to Combined Financial Statements
December 31, 1999

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -

Description of Business and Organization:

Organized in 1983, WorldCom, Inc., a Georgia corporation (the
"Company") provides a broad range of communications, outsourcing,
and managed network services to both U.S. and non-U.S. based
corporations. The Company is a global communications company
utilizing a facilities-based, on-net strategy throughout the world.
The on-net approach allows the Company's customers to send data
streams or voice traffic across town, across the U.S., or to any of
our facilities-based networks in Europe or Asia, without ever
leaving the confines of the Company network. The on-net approach
provides the Company's customers with superior reliability and low
operating costs. Prior to May 1, 2000, the Company was named MCI
WORLDCOM, Inc.

The Company's core business is communications services, which
includes voice, data, Internet and international services. The
Company serves as a holding company for its subsidiaries'
operations. References herein to the Company include the Company
and its subsidiaries, unless the context otherwise requires.

BASIS OF COMBINATION AND PRESENTATION:

The Company's Board of Directors has approved a proposal which, if
approved by the Company's shareholders, will amend the Company's
articles of incorporation to effect a recapitalization that will
replace existing Company common stock with two new series of common
stock: WorldCom group stock ("WorldCom stock") and MCI group stock
("MCI stock"). WorldCom stock is intended to reflect, or track,
the performance of the Company's data, Internet, international and
commercial voice businesses (the "WorldCom group"), and MCI stock
is intended to reflect the performance of the Company's consumer,
wholesale, small business and dial-up Internet businesses (the "MCI
group"). If this proposal is approved by the Company's
shareholders, each outstanding share of the Company's existing
common stock will convert into one share of WorldCom stock and one
twenty-fifth of a share of MCI stock (the "Recapitalization"). All
assets reported in the accompanying combined financial statements
are owned by the Company or one of its subsidiaries. These
combined financial statements are based on the operations,

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attributed assets and attributed liabilities of WorldCom group and
are not representative of any separately incorporated entity.

The WorldCom group combined financial statements will provide
WorldCom group shareholders with financial information about
WorldCom group's operations. Investors in WorldCom stock and MCI
stock will be shareholders of the Company and will be subject to
risks related to all of the Company's businesses, assets and
liabilities. The Company retains ownership and control of the
attributed assets, attributed liabilities and operations of
WorldCom group and MCI group. Financial effects of either group
that affect the Company's consolidated results of operations or
financial condition could affect the results of operations or
financial position of the other group or the market price of the
other group's stock. Net losses of either WorldCom group or MCI
group and any dividends or distributions on, or repurchases of,
WorldCom stock or MCI stock will reduce Company funds legally
available for dividends on WorldCom stock or MCI stock. As a
result, the WorldCom group combined financial statements should be
read along with the Company's consolidated financial statements.

The combined financial statements of WorldCom group reflect the
results of operations, financial position, changes in allocated net
worth and cash flows of WorldCom group as if WorldCom group was a
separate entity for the period presented. The financial
information included herein, however, may not necessarily reflect
the combined results of operations, financial position, changes in
allocated net worth and cash flows of WorldCom group had it been a
separate, stand-alone entity during the period presented.

For financial reporting purposes, the Company has attributed all of
its consolidated assets, liabilities, shareholders' investment,
revenues, expenses and cash flows to either WorldCom group or MCI
group. The separate financial statements give effect to the
allocation policies described below under "Related Party
Transactions/Intergroup Allocation Policies". Related party
transactions and intergroup allocation policies adopted by the
Company's Board of Directors can be rescinded or amended, or new
policies may be adopted, at the discretion of the Board of
Directors, without any prior approval of shareholders, although no
such changes are currently contemplated.

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necessarily be indicative of the costs that would have been
incurred if WorldCom group and MCI group had performed these
functions entirely as stand-alone entities. The Company's Board of
Directors will have the ability to control transfers of funds or
other assets between WorldCom group and MCI group. The financial
statements of WorldCom group are presented to provide additional
disclosure related to the underlying businesses that comprise
WorldCom group. Management intends on providing audited financial
statements prepared in accordance with United States generally
accepted accounting principles ("GAAP") for WorldCom group as long
as WorldCom stock is outstanding.

RELATED PARTY TRANSACTIONS / INTERGROUP ALLOCATION POLICIES:

POLICY STATEMENT BETWEEN THE COMPANY, WORLDCOM GROUP AND MCI GROUP

The Company's Board of Directors has fiduciary duties to all
shareholders of the Company, and not independent fiduciary duties
to the holders of WorldCom stock and MCI stock. The Board of
Directors of the Company has adopted a policy statement regarding
WorldCom group and MCI group matters. The Company's Board of
Directors may amend, modify or rescind the policies set forth in
this policy statement from time to time at its sole discretion and
without shareholder approval. The material provisions of the
policy statement are as follows:

GENERAL POLICY. The policy statement provides that all material
matters as to which the holders of WorldCom stock and MCI stock may
have potentially divergent interests will be resolved in a manner
that the Board of Directors of the Company or any special committee
appointed by the Board of Directors determines to be in the best
interests of the Company, after giving due consideration to the
potentially divergent interests and all other relevant interests of
the holders of the separate classes of common stock of the Company.
The policy statement provides that the Company will seek to manage
WorldCom group and MCI group in a manner designed to maximize the
operations, assets and values of both groups, and with
complementary deployments of personnel, capital and facilities,
consistent with their respective business objectives.

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THE TERMS OF INTERGROUP TRANSACTIONS. All material transactions
which are determined by the Company's Board of Directors to be in
the ordinary course of business between WorldCom group and MCI
group, except for those described in the paragraphs below are
intended to be on terms consistent with terms that would be
applicable to arm's-length dealings with unrelated third parties.

CASH MANAGEMENT. The Company maintains a centralized cash
management function utilized by both WorldCom group and MCI group.
Under a centralized cash management system, cash balances are generally
not maintained at a subsidiary level. Historically, the Company
determined the amount of funding provided to WorldCom group based
on actual cash used for capital and operating expenses, net of
WorldCom group and MCI group cash receipts. Cash advances required
by WorldCom group are subject to the ongoing approval and budgeting
processes of the Company.

CORPORATE ALLOCATIONS

Certain corporate allocations have been attributed and/or allocated
to WorldCom group or MCI group based upon identification of such
services specifically benefiting each group. The total of these
expenses allocated to WorldCom group was $1.6 billion in 1999.
Such corporate allocations may change at the discretion of the
Company and do not require shareholder approval. Management
believes that the allocation methodologies applied are reasonable.
However, it is not practical to determine whether the allocated
amounts represent amounts that would have been incurred on a stand
alone basis. Management believes that the allocation methods
developed will be comparable to the expected future allocation
methods. Explanations of the composition and the method of
allocation for such items are described below.

SHARED CORPORATE SERVICES. A portion of the Company's shared
corporate services and related balance sheet amounts (such as
executive management, human resources, legal, regulatory,
accounting, tax, treasury, strategic planning and information
systems support) has been assigned to WorldCom group or MCI group
based upon identification of such services specifically benefiting
such group. Where determinations based on specific usage alone
have been impractical, other methods and criteria were used such as
number of employees and total revenues generated by each group.

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<PAGE>

LINE COSTS. Allocated costs and related liabilities within this
caption include the costs of the telecommunications network
provided by WorldCom group to MCI group and the costs of the business
voice switched services provided by MCI group to WorldCom group.
The line costs allocated to MCI group for the transit capacity provided
by WorldCom group requirements equals a proportion of WorldCom group's
network costs based on MCI group's usage. The line costs allocated to
WorldCom group for the business voice switched services provided by
MCI group equals a proportion of MCI group's long distance switch
costs based on Worldcom group's usage.

ALLOCATION OF INTANGIBLE ASSETS. Intangible assets consist of the
excess consideration paid over the fair value of net tangible
assets acquired by the Company in business combinations accounted
for under the purchase method and include goodwill, channel rights,
developed technology and tradenames. These assets have been
allocated to the respective groups based on specific identification
and where acquired companies have been divided between WorldCom
group and MCI group, the intangible assets have been allocated
based on the respective fair values at the date of purchase of the
related operations attributed to each group. Management believes
that this method of allocation is equitable and provides a
reasonable estimate of the intangible assets attributable to
WorldCom group and MCI group. All tradenames, including the MCI
tradename and the other related MCI tradenames, have been attributed
to WorldCom group. MCI group will pay an annual fee to WorldCom
group for the use of the MCI tradenames for the next five years
based on the following fee schedule:

Year 1: $27.5 million
Year 2: $30.0 million
Year 3: $35.0 million
Year 4: $40.0 million
Year 5: $45.0 million

Any renewal or termination of use of the MCI tradename by MCI group
will be subject to the general policy that our board of directors
will act in the best interests of the Company.

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<PAGE>

ratios and various tests of liquidity in the allocation process.
Management believes that the initial allocation is equitable and
supportable by both WorldCom group and MCI group. The debt
allocated to MCI group will bear interest at a rate indicative of
the rate at which MCI group would borrow from third parties if it
was a wholly owned subsidiary of the Company but did not have the
benefit of any guarantee by the Company. Interest rates will be
calculated on a quarterly basis. For purposes of these combined
historical financial statements, debt allocated to MCI group was
determined to bear an interest rate equal to the weighted average
interest rate of the Company plus 1 1/4 percent. Interest
allocated to WorldCom group will reflect the difference between the
Company's actual interest expense and the interest expense charged
to MCI group. Upon recapitalization, each group's debt will increase
or decrease by the amount of any net cash generated by, or required
to fund, the group's operating activities, investing activities, share
repurchases and other financing activities.

As of December 31, 1999, the Company's receivables purchase program
consisted of a $3.8 billion pool of receivables in which the
purchaser had an undivided interest which includes the $1.9 billion
sold, of which $1.6 billion and $520 million relate to WorldCom
group, respectively. The receivables sold were assigned based on
specific identification where practical, or allocated based on
total revenues. Management believes that this method of allocation
is equitable and provides a reasonable estimate of the receivables
attributable to the groups.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The Company estimates the fair value of attributed WorldCom group
financial instruments using available market information and
appropriate valuation methodologies. The carrying amounts for
cash, accounts receivable, notes receivable, marketable equity
securities, accounts payable, accrued liabilities and long-term
debt approximate their fair value. The fair value of long-term
debt is determined based on quoted market rates or the cash flows
from such financial instruments discounted at the Company's
estimated current interest rate to enter into similar financial
instruments.

CASH AND CASH EQUIVALENTS:

The Company considers cash in banks and short-term investments with
original maturities of three months or less as cash and cash
equivalents.

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<PAGE>

PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost. Depreciation is
provided for financial reporting purposes using the straight-line
method over the following estimated useful lives:

Transmission equipment (including
conduit) 5 to 45 years
Communications equipment 5 to 20 years
Furniture, fixtures, buildings
and other 4 to 40 years

The Company evaluates the recoverability of property and equipment
when events and circumstances indicate that such assets might be
impaired. The Company determines impairment by comparing the
undiscounted future cash flows estimated to be generated by these
assets to their respective carrying amounts. In the event an
impairment exists on property and equipment attributed to WorldCom
group, a loss will be recognized by WorldCom group based on the
amount by which the carrying value exceeds the fair value of the
asset. If quoted market prices for an asset are not available,
fair market value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk
involved. Losses in property and equipment to be disposed of are
determined in a similar manner, except that fair market values are
reduced for the cost to dispose.

The Company constructs certain of its own transmission systems and
related facilities. Internal costs directly related to the
construction of such facilities, including interest and salaries of
certain employees, are capitalized. Such internal costs were $625
million ($339 million in interest) in 1999 and have been allocated
to WorldCom group.

GOODWILL AND OTHER INTANGIBLE ASSETS:

The major classes of intangible assets attributed to WorldCom group
as of December 31, 1999 are summarized below (in millions):

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<PAGE>

Amortization
Period
-----------

Goodwill 5 to 40 years $35,483
Tradename 40 years 1,100
Developed technology 5 to 10 years 1,590
Other intangibles 5 to 10 years 1,879
--------
40,052
Less: accumulated amortization 2,800
--------
Goodwill and other intangible
assets, net $37,252
========

Intangible assets are amortized using the straight-line method for
the periods noted above.

Also included in other intangibles are costs incurred to develop
software for internal use. Such costs were $354 million for the
year ended December 31, 1999.

UNREALIZED HOLDING GAIN ON MARKETABLE EQUITY SECURITIES:

WorldCom group's attributed equity investments in certain publicly
traded companies are classified as available-for-sale securities.
Accordingly, these investments are included in other assets at
their fair value of approximately $1.1 billion at December 31,
1999. The unrealized holding gain on these marketable equity

F-120
<PAGE>

securities, net of taxes, is included as a component of allocated
net worth in the accompanying combined financial statements. As of
December 31, 1999, the gross unrealized holding gain on these
securities was $918 million. Proceeds from the sale of marketable
equity securities totaled $1.7 billion for the year ended December
31, 1999. Gross realized gains on marketable equity securities,
which represent reclassification adjustments to other comprehensive
income, were $374 million for the year ended December 31, 1999.

FOREIGN CURRENCY TRANSLATION:

RECOGNITION OF REVENUES:

WorldCom group records revenues for telecommunications services at
the time of customer usage. Service discounts and incentives are
accounted for as a reduction of revenues when granted or, where a
service continuation contract exists, ratably over the contract
period. Revenues from information technology services are
recognized, depending on the service provided, on a percentage of
completion basis or as services and products are furnished or
delivered.

ACCOUNTING FOR INTERNATIONAL LONG DISTANCE TRAFFIC AND RECIPROCAL
COMPENSATION:

WorldCom group enters into operating agreements with
telecommunications carriers in foreign countries under which
international long distance traffic is both delivered and received.
The terms of most switched voice operating agreements, as well as
established Federal Communications Commission ("FCC") policy,
require that inbound switched voice traffic from the foreign
carrier to the United States be routed to United States
international carriers, like WorldCom group, in proportion to the
percentage of United States outbound traffic routed by that United
States international carrier to the foreign carrier. Mutually
exchanged traffic between WorldCom group and foreign carriers is
settled in cash through a formal settlement policy that generally
extends over a six-month period at an agreed upon settlement rate.
International settlements are treated as an offset to line costs.
This reflects the way in which the business is operated because

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<PAGE>

WorldCom group actually settles in cash through a formal net
settlement process that is inherent in the operating agreements
with foreign carriers.

Additionally, revenues and line costs for prior periods reflect a
classification change for reciprocal compensation, which is now
being treated as an offset to cost of sales. Previously, WorldCom
group recorded reciprocal compensation on a gross basis as revenue.

INCOME TAXES:

The federal income taxes of the Company and the subsidiaries that
own assets directly attributed to or allocated between WorldCom
group and MCI group are determined on a consolidated basis.
Consolidated federal income tax provisions and related tax payments
or refunds are allocated between the groups based principally on
the taxable income and tax credits directly attributable to each
group. Such allocations reflect each group's contribution
(positive or negative) to the Company's consolidated federal
taxable income and the consolidated federal tax liability and tax
credit position. Tax benefits that cannot be used by the group
generating those benefits, but that can be used on a consolidated
basis, are credited to the group that generated such benefits. Had
WorldCom group and MCI group filed separate tax returns, the
provision for income taxes and net income for each group would not
have significantly differed from the amounts reported on the
group's statement of operations for the year ended December 31,
1999. However, the amounts of current and deferred taxes and taxes
payable or refundable attributed to each group on the historical
financial statements may differ from those that would have been
allocated had WorldCom group or MCI group filed separate income tax
returns.

Deferred tax assets and liabilities are based on temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and their respective tax bases,
and the impact of available net operating loss ("NOL")
carryforwards. Valuation allowances have been recorded to reduce
the deferred tax asset to the amount more likely than not to be
realized.

EARNINGS PER SHARE:

After implementation of the Recapitalization, the consolidated
financial statements of the Company will present basic and diluted
earnings per share for WorldCom stock and MCI stock using the

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two-class method. The two-class method is an earnings formula that
determines the earnings per share for WorldCom stock and MCI stock
according to participation rights in undistributed earnings. The
combined financial statements of WorldCom group will not present
earnings per share because WorldCom stock is a series of common
stock of the Company and the WorldCom group is not a legal entity
with a capital structure.

For purposes of the consolidated financial statements of the
Company, basic earnings per share for WorldCom stock will be
computed by dividing net income for the period by the number of
weighted-average shares of WorldCom stock then outstanding.
Diluted earnings per share of WorldCom stock will be computed by
dividing net income for the period by the weighted-average number
of shares of WorldCom stock outstanding, including the dilutive
effect of WorldCom stock equivalents.

CONCENTRATION OF CREDIT RISK:

A portion of WorldCom group's revenues is derived from services
provided to other telecommunications service providers. As a
result, WorldCom group has some concentration of credit risk among
its customer base. WorldCom group performs ongoing credit
evaluations of its larger customers' financial condition and, at
times, requires collateral from its customers to support its
receivables, usually in the form of assignment of its customers'
receivables to WorldCom group in the event of nonpayment.

RECENTLY ISSUED ACCOUNTING STANDARDS:

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In June
2000, the SEC issued an amendment to SAB 101 which allows
registrants to wait until the fourth quarter of their fiscal year
beginning after December 15, 1999 to implement SAB 101. SAB 101
provides guidance on the recognition, presentation and disclosure
of revenue in financial statement filed with the SEC. The deferral
of telecommunications service activation fees and certain related
costs are specifically addressed in SAB 101. The Company is
currently assessing the impact of SAB 101 on its combined results
of operations or financial position and there can be no assurance
as to the effect on WorldCom's group's combined financial
statements.

In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,

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"Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its
fair value. This statement requires that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income statement, and
requires a company to formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. This
statement is effective for fiscal years beginning after June 15,
2000 and cannot be applied retroactively, although earlier adoption
is encouraged. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the Company's election,
before January 1, 1998). The Company believes that the adoption of
this standard will not have a material effect on WorldCom group's
combined results of operations or financial position.

USE OF ESTIMATES:

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

(2) BUSINESS COMBINATIONS -

The Company has acquired other telecommunications companies
offering similar or complementary services to those offered by
WorldCom group. Such acquisitions have been accomplished through
the purchase of the outstanding stock or assets of the acquired
entity for cash, notes, shares of the Company's common stock, or a
combination thereof. The cash portion of acquisition costs has
generally been financed through the Company's bank credit
facilities. In addition to the business combinations described
below, the Company or its predecessors completed smaller
acquisitions during the year ended December 31, 1999.

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<PAGE>

Company. Upon consummation of the MCI Merger, the Acquisition
Subsidiary was renamed MCI Communications Corporation. Through the
MCI Merger, the Company acquired one of the world's largest and
most advanced digital networks, connecting local markets in the
United States to more than 280 countries and locations worldwide.

The purchase price in the MCI Merger was allocated based on
estimated fair values at the date of acquisition. This resulted in
an excess of purchase price over net assets acquired of which, on a
consolidated basis, $3.1 billion was allocated to in-process
research and development ("IPR&D") and $1.7 billion to developed
technology, which will be depreciated over 10 years on a
straight-line basis. The remaining excess of $29.3 billion, as of
December 31, 1999, has been allocated to goodwill and tradename,
which are being amortized over 40 years on a straight-line basis.
Such amounts have been allocated to WorldCom group and MCI group
based on the respective fair values of the related operations
allocated to each group. Accordingly, WorldCom group has been
allocated $2.3 billion, $1.3 billion and $22.3 billion of such
IPR&D, developed technology and goodwill, respectively.

In August 1998, MCI acquired a 51.79% voting interest and a 19.26%
economic interest in Embratel Participacoes S.A. ("Embratel"),
Brazil's facilities-based national and international communications
provider, for approximately R$2.65 billion (U.S. $2.3 billion).
The purchase price is being paid in local currency installments, of
which R$1.06 billion (U.S. $916 million) was paid on August 4,
1998, R$795 million (U.S. $442 million) was paid on August 4, 1999,
and the remaining R$795 million (U.S. $440 million at December 31,
1999) was paid on August 4, 2000. Embratel provides domestic long
distance and international telecommunications services in Brazil,
as well as over 40 other communications services, including leased
high-speed data, Internet, frame relay, satellite and
packet-switched services. Operating results for Embratel are
included in the accompanying combined financial statements of
WorldCom group.

During 1999, the Company recorded other liabilities of $582 million
related to estimated costs of unfavorable commitments of acquired
entities, and other non-recurring costs arising from various
acquisitions and mergers. At December 31, 1999, other liabilities
attributed to WorldCom group related to these accruals totaled $1.6
billion.

(3) INVESTMENTS -

In November 1999, the Company purchased 30 million shares of
Metricom, Inc. ("Metricom") Series A1 preferred stock (the

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<PAGE>

"Metricom Preferred Stock") for $300 million. The Metricom
Preferred Stock bears cumulative dividends at the rate of 6.5% per
annum for three years, payable in cash or additional shares of
Metricom Preferred Stock. In addition, the Company has the right
to elect one director to Metricom's Board of Directors, although
voting rights otherwise will be generally limited to specified
matters. The Metricom Preferred Stock is subject to mandatory
redemption by Metricom at the original issuance price in 2009 and
to redemption at the option of the holder upon the occurrence of
specified changes in control or major acquisitions. The Metricom
Preferred Stock is convertible into Metricom common stock at the
Company's option beginning May 2002.

Additionally, the Company signed a five-year, non-exclusive
agreement valued at $388 million with Metricom to sell
subscriptions for Metricom's Ricochet services. The agreement is
subject to the timely deployment of the Metricom network,
Metricom's ability to meet agreed performance standards and
Metricom's ability to attract a significant number of subscribers
through other channel partners.

In connection with the MCI Merger, the Company acquired a 44.5%
investment in Avantel, S.A. ("Avantel") and Avantel Servicios
Locales, S.A. ("Avantel Local"), both business ventures with Grupo
Financiero Banamex-Accival, formed to provide competitive domestic
and international telecommunications services in Mexico. At
December 31, 1999, the net investment in Avantel and Avantel Local
was approximately $196 million. The Company's share of Avantel and
Avantel Local's net loss for the year ended December 31, 1999 was
approximately $39 million. The Company, Avantel and Avantel Local
conduct business through the exchange of domestic and international
interconnection services at prevailing market rates in the ordinary
course of business. During 1999, the amounts associated with these
transactions were not material.

In connection with the MCI Merger, the Company acquired an
investment in The News Corporation Limited ("News Corp."), valued
at $1.38 billion at December 31, 1998, comprised of cumulative
convertible preferred securities and warrants. In July 1999 the
Company received $1.4 billion in cash from the sale of the
Company's interest in News Corp. preferred stock. The Company
recorded a gain of $130 million on this sale. Additionally, the
Company recorded dividend income of approximately $32 million for
the year ended December 31, 1999. Such amounts have has been
allocated to WorldCom group.

In November 1998, the Company and News Corp. entered into an
agreement with EchoStar Communications Corporation ("EchoStar") for
the sale and transfer of the Company's and News Corp.'s Direct

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<PAGE>

Broadcast Satellite ("DBS") assets (the "EchoStar Transaction").
The EchoStar Transaction was consummated in June 1999 and the
Company acquired preferred shares in a subsidiary of News Corp. for
a face amount equal to the Company's cost of obtaining the DBS
license from the FCC; plus interest thereon. The Company also
received from EchoStar approximately 6.8 million shares of EchoStar
Class A Common Stock. In December 1999, the Company sold 2.7
million shares of EchoStar Class A Common Stock and received $190
million in net proceeds. The Company recorded a gain of $101
million on this sale which has been allocated to WorldCom group.

(4) LONG-TERM DEBT-

The Company's outstanding debt as of December 31, 1999 consists of
the following (in millions):

Excluding
Embratel Embratel Consolidated

--------- -------- ------------
<S> <C> <C> <C>
Commercial paper and credit
facilities $2,875 $ - $2,875
Floating rate notes due 2000 1,000 - 1,000
6.13% - 6.95% Notes Due
2001-2028 6,100 - 6,100
7.55% - 7.75% Notes Due 2,000 - 2,000
2004-2027
8.88% - 13.5 % Senior Notes
Due 2002-2006 689 - 689
7.13% - 8.25% MCI Senior
Debentures Due 2023-2027 1,438 - 1,438
6.13% - 7.50% MCI Senior
Notes Due 1999-2012 2,142 - 2,142
15% note payable due in
annual installments through
2000 - 440 440

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<PAGE>

Capital lease obligations, 483 - 483
7.00% - 11.00% (maturing
through 2002)
Other debt (maturing through
2008) 148 828 976
------- ------- ------
16,875 1,268 18,143
Notional debt allocated (6,000) - (6,000)
------- ------- ------
to MCI group
Notional debt allocated 10,875 1,268 12,143
to WorldCom group
Short-term debt and current
maturities of allocated (4,239) (776) (5,015)
------- ------ -------
WorldCom group long-term
debt $6,636 $ 492 $7,128
====== ===== =======

</TABLE>

As of January 1, 1999, $6.0 billion of debt was notionally
allocated by the Company to MCI group with the remaining debt
notionally allocated to WorldCom group. See Note 1 for a more
detailed description of how the Company allocates debt to the
groups and Note 5 of the Company's consolidated financial
statements for additional debt descriptions.

(5) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE
INTEREST DEBENTURES OF THE COMPANY AND OTHER REDEEMABLE PREFERRED
SECURITIES -

The Company has outstanding $750 million aggregate principal amount
of 8% Cumulative Quarterly Income Preferred Securities, Series A,
representing 30 million shares outstanding ("preferred securities")
due June 30, 2026 which were previously issued by MCI Capital I, a
wholly owned Delaware statutory business trust (the "Trust"). The
Trust exists for the sole purpose of issuing the preferred
securities and investing the proceeds in the Company's 8% Junior
Subordinated Deferrable Interest Debentures, Series A
("Subordinated Debt Securities") due June 30, 2026, the only assets
of the Trust.

Holders of the preferred securities are entitled to receive
preferential cumulative cash distributions from the Trust on a
quarterly basis, provided the Company has not elected to defer the

F-128

<PAGE>

payment of interest due on the Subordinated Debt Securities to the
Trust. The Company may elect this deferral from time to time,
provided that the period of each such deferral does not exceed five
years. The preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Subordinated
Debt Securities at maturity or earlier in an amount equal to the
amount of Subordinated Debt Securities maturing or being repaid.
In addition, in the event the Company terminates the Trust, the
Subordinated Debt Securities will be distributed to the then
holders of the preferred securities of the Trust.

The Company has executed various guarantee agreements and
supplemental indentures which agreements, when taken together with
the issuance of the Subordinated Debt Securities, constitute a
full, irrevocable, and unconditional guarantee by the Company of
all of the Trust's obligations under the preferred securities (the
"Guarantee"). A Guarantee Agreement and Supplement No. 1 thereto
covers payment of the preferred securities' quarterly distributions
and payments on maturity or redemption of the preferred securities,
but only in each case to the extent of funds held by the Trust. If
the Company does not make interest payments on the Subordinated
Debt Securities held by the Trust, the Trust will have insufficient
funds to pay such distributions. The obligations of the Company
under the Guarantee and the Subordinated Debt Securities are
subordinate and junior in right of payment to all senior debt of
the Company.

OTHER REDEEMABLE PREFERRED SECURITIES:

WorldCom Synergies Management Company, Inc. ("SMC"), a wholly owned
subsidiary of the Company, has issued 475 shares of an authorized
500 shares of 6.375% cumulative preferred stock, Class A ("SMC
Class A Preferred Stock") in a private placement. Each share of
SMC Class A Preferred Stock has a par value of $0.01 per share and
a liquidation preference of $100,000 per share. The SMC Class A
Preferred Stock is mandatorily redeemable by SMC at the redemption
price of $100,000 per share plus accumulated and unpaid dividends
on January 1, 2019. Dividends on the SMC Class A Preferred Stock
are cumulative from the date of issuance and are payable quarterly
at a rate per annum equal to 6.375% of the liquidation preference
of $100,000 per share when, as and if declared by the Board of
Directors of SMC.

(6) PREFERRED STOCK -

The Company Series B Convertible Preferred Stock (the "Series B
Preferred Stock") is convertible into shares of Company common
stock at any time at a conversion rate of 0.1460868 shares of

F-129
<PAGE>

Company common stock for each share of Series B Preferred Stock.
Dividends on the Series B Preferred Stock accrue at the rate of
$0.0775 per share, per annum and are payable in cash. Dividends
will be paid only when, as and if declared by the Board of
Directors. The Company has not declared any dividends on the
Series B Preferred Stock to date and anticipates that future
dividends will not be declared but will continue to accrue. Upon
conversion, accrued but unpaid dividends are payable in cash or
shares of Company common stock at the Company's election. To
date, the Company has elected to pay all accrued dividends in cash,
upon conversion.

The Series B Preferred Stock is also redeemable at the option of
the Company at any time after September 30, 2001 at a redemption
price of $1.00 per share, plus accrued and unpaid dividends. The
redemption price will be payable in cash or shares of Company
common stock at the Company's election.

The Series B Preferred Stock is entitled to one vote per share with
respect to all matters. The Series B Preferred Stock has a
liquidation preference of $1.00 per share plus all accrued and
unpaid dividends thereon to the date of liquidation. There is no
established market for the Series B Preferred Stock.

In January 2000, each outstanding share of Series C Preferred Stock
was redeemed by the Company for $50.75 in cash, or approximately
$190 million in the aggregate.

(7) SHAREHOLDER RIGHTS PLAN -

Under the Company's existing shareholder rights plan, each share of
Company common stock has associated with it one preferred stock
purchase right entitling its holder to purchase a designated number
of shares of Company preferred stock under the circumstances
provided for in the rights agreement. Upon shareholder approval of
the Recapitalization, the Company will amend and restate the
shareholder rights plan to provide shareholder rights to both
WorldCom group and MCI group shareholders with generally the same
terms and conditions as the current rights agreement. See Note 8
to the Company's consolidated financial statements for a more
detailed description of the existing shareholder rights plan.

F-130

<PAGE>

(8) LEASES AND OTHER COMMITMENTS -

The Company leases office facilities and certain equipment under
non-cancelable operating and capital leases and is also obligated
under various right-of-way agreements having initial or remaining
terms of more than one year and allocates rent expense on such
leases attributable to WorldCom group and MCI group in accordance
with the Company's allocation policies. Rental expense allocated
to WorldCom group under these operating leases was $160 million in
1999.

WorldCom group is an integrated business of the Company and is
therefore subject to all the Company's liabilities and obligations,
including lease and other commitments. See Note 9 to the Company's
consolidated financial statements for a description of the
Company's leases and other commitments.

(9) CONTINGENCIES -

WorldCom group shareholders are subject to all of the risks related
to an investment in the Company and WorldCom group, including the
effects of any legal proceedings and claims against MCI group. See
Note 10 to the Company's consolidated financial statements for
information related to the Company's contingencies.

(10) EMPLOYEE BENEFIT PLANS -

STOCK OPTION PLANS:

The Company has several stock option plans under which options to
acquire shares of Company common stock may be granted to directors,
officers and certain employees of WorldCom group and MCI group.
The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost is recognized. Terms and
conditions of the Company's options, including exercise price and
the period in which options are exercisable, generally are at the
discretion of the Compensation and Stock Option Committee of the
Board of Directors; however, no options are exercisable for more
than 10 years after date of grant.

401(K) PLANS:

The Company offers its qualified employees the opportunity to
participate in one of its defined contribution retirement plans
qualifying under the provisions of Section 401(k) of the Internal

F-131

<PAGE>

Revenue Code. Each employee may contribute on a tax deferred basis
a portion of annual earnings not to exceed $10,000. The Company
matches individual employee contributions in certain plans, up to a
maximum level which in no case exceeds 6% of the employee's
compensation. Expenses allocated to WorldCom group relating to the
Company's 401(k) plans were $45 million for the year ended December
31, 1999.

PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS:

The Company maintains various defined benefit plans and other
post-retirement benefit plans that cover selected eligible
employees of WorldCom group and MCI group. Annual service cost is
determined using the Projected Unit Credit actuarial method, and
prior service cost is amortized on a straight-line basis over the
average remaining service period of employees.

See Notes 11 and 12 to the Company's consolidated financial
statements for additional disclosures related to employee benefit
plans.

(11) INCOME TAXES:

The WorldCom group combined balance sheet reflects the anticipated
tax impact of future taxable income or deductions implicit in the
combined balance sheet in the form of temporary differences. These
temporary differences reflect the difference between the basis in
the assets and liabilities for financial reporting purposes and
amounts used for income tax purposes and the impact of available
net operating loss ("NOL") carryforwards as measured in WorldCom
group's financial statements and as measured by tax laws using
enacted tax rates.

F-132

<PAGE>

The provision for income taxes is composed of the following (in
millions):

Current $ (654)
Deferred 2,510
------
Total provision for income taxes $1,856
======

The following is a reconciliation of the provision for income taxes
to the expected amounts using the statutory rate:

Expected statutory amount 35.0%
Nondeductible amortization
of excess of cost
over net tangible assets
acquired 6.7
State income taxes 2.5
Valuation allowance (2.5)
Other 0.4
-------
Actual tax provision 42.1%
=======

At December 31, 1999, WorldCom group was attributed unused NOL
carryforwards for federal income tax purposes of approximately $2.3
billion which expire in various amounts during the years 2011
through 2018. These NOL carryforwards together with state and
other NOL carryforwards within the United States result in a
deferred tax asset of approximately $875 million at December 31,
1999. A valuation allowance of $109 million was reversed during
1999 as a result of a change in tax regulations and recorded as a
reduction in goodwill.

In addition, at December 31, 1999 WorldCom group was attributed
unused NOL carryforwards of $127 million outside the United States
which generally do not expire. These carryforwards result in a $51
million deferred tax asset for which a valuation allowance has been
established.

F-133

<PAGE>

Approximately $279 million of WorldCom group's allocated deferred
tax assets are related to preacquisition NOL carryforwards
attributable to entities acquired in transactions accounted for as
purchases. Accordingly, any future reductions in the valuation
allowance related to such deferred tax assets will result in a
corresponding reduction in goodwill. If, however, subsequent
events or conditions dictate an increase in the need for a
valuation allowance attributable to such deferred tax assets, the
income tax expense for that period will be increased accordingly.

The following is a summary of the significant components of
WorldCom group's attributed deferred tax assets and liabilities as
of December 31, 1999 (in millions):

Assets Liabilities
------ -----------

Fixed assets $ - $ (2,556)
Goodwill and other - (132)
intangibles
Investments 90 -
Line installation costs - (400)
Accrued liabilities 375 -
NOL carryforwards 926 -
Tax credits 189 -
Other - (105)
------- --------
1,580 (3,193)
Valuation allowance (51) -
------ --------
$1,529 $(3,193)
======= =========

F-134
<PAGE>

(12) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -

Interest paid by WorldCom group during the year ended December 31,
1999 amounted to $816 million. Income taxes paid, net of refunds,
during the year ended December 31, 1999 were $35 million.

In conjunction with business combinations, assets acquired and
liabilities assumed, including revisions to previously recorded
acquisitions, and Company common stock issued were as follows (in
millions):

Fair value of assets
acquired $ (92)
Goodwill and other
intangible assets 2,041
Liabilities assumed (935)
Company common stock
issued (228)
--------
Net cash paid $ 786
========

(13) SEGMENT AND GEOGRAPHIC INFORMATION -

Based on its organizational structure, WorldCom group operated in
six reportable segments: Commercial voice and data, Internet,
International operations, Embratel, Operations and technology and
Other. WorldCom group's reportable segments represent business
units that primarily offer similar products and services; however,
the business units are managed separately due to the type and class
of customer as well as the geographic dispersion of their
operations. The Commercial voice and data segment includes voice,
data and other types of domestic communications services for
commercial customers. The Internet segment provides Internet
services including dedicated access and web and application hosting
services. International operations provide voice, data, Internet
and other similar types of communications services to customers
primarily in Europe and the Asia Pacific region. Embratel provides
communications services in Brazil. Operations and technology
includes network operations, information services, engineering and
technology and customer service. Other includes primarily the
operations of MCI Systemhouse Corp. and SHL Systemhouse Co.
(collectively, "SHL") and other non-communications services. In
April 1999, SHL was sold to Electronic Data Systems Corporation.

F-135
<PAGE>

The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Information about WorldCom group's segments is as follows (in
million):

Selling,
Revenues from General and
External Administrative Capital
Customers Expenses Expenditures
-------------- -------------- --------------
<S> <C> <C> <C>

Voice and data $13,263 $1,279 $4,186
Internet 1,554 261 1,346
International operations 1,624 307 1,494
Operations and technology - 1,384 -
Other 523 170 10
Corporate - 198 -
-------- -------- --------
Total before Embratel $16,964 3,599 7,036
Embratel 2,854 610 893
Elimination of intersegment
revenues (82) (14) -
-------- -------- --------
Total $19,736 $4,195 $7,929
======== ======== ========

</TABLE>

F-136

<PAGE>

The following is a reconciliation of the segment information to income
before income taxes and minority interests (in millions):

Revenues $19,736
Operating expenses 15,105
-------
Operating income 4,631
Other income (expense):
Interest expense (460)
Miscellaneous 237
Income before income taxes $ 4,408
and minority interests ========

Information about WorldCom group's operations by geographic areas
are as follows (in millions):

Long-lived
Revenues Assets
----------- ------------
<S> <C> <C>
United States $14,372 $19,635
Brazil 2,854 4,017
All other international 2,510 2,575
-------- --------
Total $19,736 $26,227
======== ========
</TABLE>

F-137

<PAGE>

(14) Unaudited Quarterly Financial Data -

<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------
Mar 31, Jun 30, Sep 30, Dec 31,
1999 1999 1999 1999
------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>

Revenues $4,938 $4,848 $4,862 $5,088
Operating income 686 992 1,332 1,621
Net income 292 469 636 897
</TABLE>

F-138

<PAGE>

WORLDCOM GROUP (an integrated business of WorldCom, Inc.)
COMBINED BALANCE SHEETS
(Unaudited. In Millions)

<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 806 $ 840
Account receivable, net of allowance for bad debts 3,737 4,601
of $440 in 1999 and $1,219 in 2000
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . 2,565 2,541
Receivable from MCI group, net . . . . . . . . . . . . . . . . . . 976 1,456
Other current assets . . . . . . . . . . . . . . . . . . . . . . . 953 1,521
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . 9,037 10,959
-------- --------
Property and equipment:
Transmission equipment . . . . . . . . . . . . . . . . . . . . . . 14,312 17,874
Communications equipment . . . . . . . . . . . . . . . . . . . . . 4,323 5,367
Furniture, fixtures and other . . . . . . . . . . . . . . . . . . . 6,765 8,176
Construction in progress . . . . . . . . . . . . . . . . . . . . . 5,179 7,196
-------- --------
30,579 38,613
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . (4,352) (5,575)
-------- --------
26,227 33,038
-------- --------
Goodwill and other intangible assets . . . . . . . . . . . . . . . . 37,252 36,736

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,717 5,730
-------- --------
$77,233 $86,463
======== ========

F-139

<PAGE>

LIABILITIES AND ALLOCATED NET WORTH
Current liabilities:
Short-term debt and current maturities of long-term debt . . . . . $ 5,015 $ 4,289
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,333 1,275
Accrued line costs . . . . . . . . . . . . . . . . . . . . . . . . 2,110 1,598
Other current liabilities . . . . . . . . . . . . . . . . . . . . . 4,236 4,967
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . 12,694 12,129
-------- --------
Long-term liabilities, less current portion:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 7,128 12,700
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . 4,229 4,770
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,047 974
-------- --------
Total long-term liabilities . . . . . . . . . . . . . . . . 12,404 18,444
-------- --------
Commitments and contingencies
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . 2,599 2,696

Company obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely junior subordinated
deferrable interest debentures of the Company and other
redeemable preferred securities . . . . . . . . . . . . . . . . . . . 798 798

Allocated net worth . . . . . . . . . . . . . . . . . . . . . . . . . 48,738 52,396
--------- -------
$77,233 $86,463
========= =======

</TABLE>

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

F-140

<PAGE>

WORLDCOM GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENTS OF OPERATIONS
(Unaudited. In Millions)

Nine months ended Nine months ended
September 30, 1999 September 30, 2000
------------------- -------------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,648 $16,918
-------- --------
Operating expenses:
Line costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,145 6,407
Selling, general and administrative . . . . . . . . . . . . . . . 3,206 4,205
2,287 2,388
Depreciation and amortization . . . . . . . . . . . . . . . . . .
-------- --------
Total 11,638 13,000
-------- --------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . 3,010 3,918
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . (369) (318)
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 48 327
-------- --------
Income before income taxes and minority interests . . . . . . . . . 2,689 3,927
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . 1,146 1,615
-------- --------
Income before minority interests . . . . . . . . . . . . . . . . . . 1,543 2,312
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . (92) (216)
-------- --------
Net income before distributions on subsidiary
trust and other mandatorily redeemable
preferred securities and preferred dividend
requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 1,451 2,096
Distributions on subsidiary trust and other
mandatorily redeemable preferred securities . . . . . . . . . . . 47 48
Preferred dividend requirements . . . . . . . . . . . . . . . . . . 7 1
-------- --------
Net income $ 1,397 $ 2,047
======== ========
</TABLE>

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

F-141
<PAGE>
<TABLE>
<CAPTION> WORLDCOM GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited. In Millions)

For the Nine Months
Ended September 30,
------------------------

<S> <S> <S>
1999 2000
-------- --------
Cash flows from operating activities:
Net income before distributions on
subsidiary trust and other mandatorily
redeemable preferred securities and
preferred dividend requirements . . . . . . . . . . . . . . . . . $1,451 $2,096
Adjustments to reconcile net income
before distributions on subsidiary
trust and other mandatorily redeemable
preferred securities and preferred
dividend requirements to net cash . . . . . . . . . . . . . . . .
provided by operating activities:
Minority interests . . . . . . . . . . . . . . . . . . . . . . 92 216
Depreciation and amortization . . . . . . . . . . . . . . . . . 2,668 2,852
Provision for losses on accounts receivable . . . . . . . . . . 286 888
Provision for deferred income taxes . . . . . . . . . . . . . . 1,405 693
Change in assets and liabilities,
net of effect of business combinations:
Accounts receivable . . . . . . . . . . . . . . . . . . . . (525) (1,744)

F-142

<PAGE>

Receivable from MCI group, net . . . . . . . . . . . . . . (408) (480)
Other current assets . . . . . . . . . . . . . . . . . . . (235) (451)
Accrued line costs . . . . . . . . . . . . . . . . . . . . (159) (581)
Accounts payable and other current liabilities . . . . . . 370 1,190
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 (372)
-------- --------
Net cash provided by operating activities . . . . . . . . . . . . . 5,046 4,307
-------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . (5,287) (8,407)
Acquisitions and related costs . . . . . . . . . . . . . . . . . (412) (14)
Increase in intangible assets . . . . . . . . . . . . . . . . . . (292) (643)
Proceeds from disposition of marketable
securities and other long-term assets . . . . . . . . . . . . . 2,910 613
Increase in other assets . . . . . . . . . . . . . . . . . . . . (1,305) (999)
Decrease in other liabilities . . . . . . . . . . . . . . . . . . (246) (613)
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . (4,632) (10,063)
-------- --------
Cash flows from financing activities:
Principal borrowings (repayments) on debt, net . . . . . . . . . (3,941) 4,467
Attributed stock activity of WorldCom, Inc. . . . . . . . . . . . 814 551
Distributions on subsidiary trust mandatorily
redeemable preferred securities . . . . . . . . . . . . . . . . (47) (48)
Dividends paid on preferred stock . . . . . . . . . . . . . . . . (7) (1)
Redemption of Series C preferred stock . . . . . . . . . . . . . - (190)
Advances from MCI group, net . . . . . . . . . . . . . . . . . . 1,571 1,082
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (75)
------- --------

F-143

<PAGE>

Net cash provided by (used in) financing activities . . . . . . . . (1,610) 5,786
Effect of exchange rate changes on cash . . . . . . . . . . . . . . (242) 4
-------- --------

Net increase (decrease) in cash and cash equivalents . . . . . . . (1,438) 34
Cash and cash equivalents at beginning of period . . . . . . . . . 1,703 806
------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . $ 265 $ 840
======= ========

</TABLE>

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

F-144

<PAGE>

WorldCom Group (an integrated business of WorldCom, Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS

(A) GENERAL

References herein to the "Company" refer to WorldCom, Inc., a Georgia
corporation, and its subsidiaries. Prior to May 1, 2000, the Company was
named MCI WORLDCOM, Inc.

The Company's Board of Directors has approved a proposal which, if
approved by shareholders, will amend the Company's articles of
incorporation to effect a recapitalization that will replace existing
Company common stock with two new series of common stock: WorldCom group
stock ("WorldCom stock") and MCI group stock ("MCI stock"). WorldCom
stock is intended to reflect, or track, the performance of the Company's
data, Internet, international and commercial voice businesses (the
"WorldCom group"), and MCI stock is intended to reflect the performance
of the Company's consumer, wholesale, small business and dial-up Internet
businesses (the "MCI group"). If this proposal is approved, each
outstanding share of the Company's existing common stock will convert
into one share of WorldCom stock and one twenty-fifth of a share of MCI
stock (the "Recapitalization"). All assets reported in the accompanying
combined financial statements are owned by the Company or one of its
subsidiaries. These unaudited combined financial statements are based on
the operations, attributed assets and attributed liabilities of WorldCom
group and are not representative of any separately incorporated entity.

The WorldCom group combined financial statements will provide WorldCom
group shareholders with financial information about WorldCom group's
operations. Investors in WorldCom stock and MCI stock will be
shareholders of the Company and will be subject to risks related to all
of the Company's businesses, assets and liabilities. The Company retains
ownership and control of the assets and operations of WorldCom group and
MCI group. Financial effects of either group that affect the Company's
results of operations or financial condition could affect the results of
operations or financial position of the other group or the market price
of the other group's stock. Net losses of either WorldCom group or MCI
group and any dividends or distributions on, or repurchases of, WorldCom
stock or MCI stock will reduce Company funds legally available for
dividends on WorldCom stock or MCI stock. As a result, the WorldCom
group combined financial statements should be read along with the
Company's consolidated financial statements.

F-145
<PAGE>

for the periods presented. The financial information included herein,
however, may not necessarily reflect the combined results of operations,
financial position and cash flows of WorldCom group had it been a
separate, stand-alone entity during the periods presented.

For financial reporting purposes, the Company has attributed all of its
consolidated assets, liabilities, shareholders' investment, revenues,
expenses and cash flows to either WorldCom group or MCI group. The
separate financial statements give effect to the intergroup allocation
policies adopted by the Company. Allocation and related party
transaction policies adopted by the Company's Board of Directors can be
rescinded or amended or new policies may be adopted, at the discretion of
the Board of Directors, without any prior approval of shareholders,
although no such changes are currently contemplated.

As integrated businesses, the Company has not historically prepared
separate financial statements of WorldCom group and MCI group. The
combined financial statements of WorldCom group reflect certain assets,
liabilities, revenues and expenses directly attributable to WorldCom
group as well as allocations based on methodologies deemed reasonable by
management; however, the costs of such allocated services charged between
WorldCom group and MCI group may not necessarily be indicative of the
costs that would have been incurred if WorldCom group and MCI group had
performed these functions entirely as stand-alone entities. The
Company's Board of Directors will have the ability to control transfers
of funds or other assets between WorldCom group and MCI group. The
financial statements of WorldCom group are presented to provide
additional disclosure related to the underlying businesses that comprise
WorldCom group. Management anticipates providing annual audited
financial statements and unaudited interim financial statements prepared
in accordance with United States generally accepted accounting principles
("GAAP") for WorldCom group as long as WorldCom stock is outstanding.

The financial statements included herein, are unaudited and have been
prepared in accordance with GAAP for interim financial reporting and
Securities and Exchange Commission ("SEC") regulations. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or
omitted pursuant to such rules and regulations. In the opinion of
management, the financial statements reflect all adjustments (of a normal
and recurring nature) which are necessary to present fairly the financial
position, results of operations and cash flows for the interim periods.
These combined financial statements should be read in conjunction with
the Annual Report of the Company on Form 10-K for the year ended December
31, 1999 (the "Form 10-K"), the combined financial statements of WorldCom
group for the year ended December 31, 1999, and the consolidated
financial statements of the Company for the nine months ended September

F-146

<PAGE>

30, 1999 and 2000. The results for the nine-month period ended September
30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.

(B) BUSINESS COMBINATIONS

On October 5, 1999, the Company announced that it had entered into an
Agreement and Plan of Merger dated as of October 4, 1999, which was
amended and restated on March 8, 2000 (the "Sprint Merger Agreement"),
with Sprint Corporation ("Sprint"). On July 13, 2000, the Company and
Sprint announced that they had agreed to terminate the Sprint Merger
Agreement, effective immediately.

On September 5, 2000, the Company announced that it had entered into an
Agreement and Plan of Merger dated as of September 1, 2000 (the
"Intermedia Merger Agreement"), between the Company, Wildcat Acquisition
Corp., a wholly owned subsidiary of the Company, and Intermedia
Communications Inc. ("Intermedia"). Shareholders of Intermedia voted to
approve the transaction on December 18, 2000. As a result of the merger
(the "Intermedia Merger"), the Company will acquire a controlling
interest in Digex, Incorporated ("Digex"), a leading provider of managed
web and application hosting services for some of the world's fastest
growing companies.

Under the Intermedia Merger Agreement, each outstanding share of
Intermedia common stock will be exchanged for common stock, par value,
$.01 per share of the Company ("Common Stock") valued at $39.00, subject
to a collar. The actual number of shares of Common Stock to be exchanged
for each share of Intermedia common stock will be determined based on the
average closing price of Common Stock for 15 days randomly selected from
the 30 trading days ending on the third trading day prior to closing, but
will not be less than 0.8904 (if the average trading price of Common
Stock exceeds $43.80) or more than 1.1872 (if the average trading price
of Common Stock equals or is less than $32.85). If the Common Stock
falls below $36.50, the Company may exercise a cash election right to
cause the exchange ratio to be fixed at 1.0685 and pay the value in cash
of the difference between what the exchange ratio otherwise would have
been and 1.0685. On November 1, 2000, there were 54,724,625 shares of
Intermedia common stock outstanding. Holders of Intermedia preferred
stock, other than Intermedia series B preferred stock, will receive one
share of a class or series of the Company's preferred stock, with
substantially identical terms, which will be established in connection
with the Intermedia Merger. The Intermedia Merger will be accounted for
as a purchase.

F-147

<PAGE>

Consummation of the Intermedia Merger is subject to various conditions
set forth in the Intermedia Merger Agreement, including adoption of the
Intermedia Merger Agreement by stockholders of Intermedia, certain U.S.
regulatory approvals and other customary conditions. It is anticipated
that the Intermedia Merger will close in the first half of 2001.

After the implementation of the Recapitalization, the consolidated
financial statements of the Company will present basic and diluted
earnings per share for WorldCom stock and MCI stock using the two-class
method. The two-class method is an earnings formula that determines the
earnings per share for WorldCom stock and MCI stock according to
participation rights in undistributed earnings. The combined interim
financial statements of WorldCom group will not present earnings per
share because WorldCom stock is a series of common stock of the Company
and WorldCom group is not a legal entity with a capital structure.

For purposes of the consolidated financial statements of the Company,
basic earnings per share for WorldCom stock will be computed by dividing
net income for the period by the number of weighted-average shares of
WorldCom stock then outstanding. Diluted earnings per share of WorldCom
stock will be computed by dividing net income for the period by the
weighted-average number of shares of WorldCom stock outstanding,
including the dilutive effect of WorldCom stock equivalents.

(D) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest paid by WorldCom group during the nine months ended September
30, 1999 and 2000, amounted to $544 million and $366 million,
respectively. Income taxes paid during the nine months ended September
30, 1999 and 2000, totaled $35 million and $135 million, respectively.

In conjunction with business combinations during the nine months ended
September 30, 1999 and 2000, assumed assets and liabilities, including
revisions to previously recorded acquisitions, were as follows (in
millions):

F-148
<PAGE>

[CAPTION]
<TABLE>
1999 2000
----------- ------------
<S> <C> <C>
Fair value of assets $ 517 $ -
acquired
Excess of cost over net 2,022 43
tangible assets acquired
Liabilities assumed (1,899) (29)
Common Stock issued (228) -
------- -------
Net cash paid $ 412 $ 14
======= =======
</TABLE>

(E) COMPREHENSIVE INCOME

The following table reflects the calculation of comprehensive income for
WorldCom group for the nine months ended September 30, 1999 and 2000 (in
millions):

[CAPTION]
<TABLE>
For the Nine
Months Ended
September 30,
------------------------
1999 2000
------ ------
<S> <C> <C>
Net income $ 1,397 $ 2,047
-------- -------

F-149
<PAGE>

Other comprehensive income (loss):
Foreign currency translation
losses (334) (358)
Unrealized holding gains:
Unrealized holding gains
during the period 457 805
Reclassification adjustment for
gains included in
net income (81) (382)
-------- --------
Other comprehensive income before tax 42 65
Income tax expense (141) (159)
-------- --------
Other comprehensive loss (99) (94)
Comprehensive income $1,298 $1,953
======== ========
</TABLE>

(F) RECLASSIFICATIONS

Revenues and line costs for prior periods reflect a classification change
for reciprocal compensation which is now being treated as an offset to
cost of sales. Previously, WorldCom group recorded reciprocal
compensation on a gross basis as revenue.

The effects of these reclassifications on the accompanying combined
statements of operations for the nine months ended September 30, 1999 and
2000 are as follows (in millions):

F-150

<PAGE>

New Presentation
---------------------------
1999 2000
-------- --------
Revenues $14,648 $16,918
Line costs $6,145 $6,407

Old Presentation
----------------------------
1999 2000
-------- --------
Revenues $14,941 $17,245
Line costs $6,438 $6,734

(G) SEGMENT INFORMATION

Based on its organizational structure, WorldCom group operated in six
reportable segments: Commercial voice and data, Internet, International
operations, Embratel Participacoes S.A. ("Embratel"), Operations and
technology and Other. WorldCom group's reportable segments represent
business units that primarily offer similar products and services;
however, the business units are managed separately due to the type and
class of customer as well as the geographic dispersion of their
operations. The Commercial voice and data segment includes voice, data
and other types of domestic communications services for commercial
customers. The Internet segment provides Internet services including
dedicated access and web and application hosting services. International
operations provide voice, data, Internet and other similar types of
communications services to customers primarily in Europe and the Asia
Pacific region. Embratel provides communications services in Brazil.
Operations and technology includes network operations, information
services, engineering and technology and customer service. Other
includes primarily the operations of MCI Systemhouse Corp. and SHL
Systemhouse Co. and other non-communications services. In April 1999,
SHL was sold to Electronic Data Systems Corporation.

F-151

<PAGE>

distinction between the types of services. Profit and loss information
is reported only on a combined basis to the chief operating
decision-maker and the Company's Board of Directors.

Information about WorldCom group's segments for the nine months ended
September 30, 1999 and 2000, is as follows (in millions):

<TABLE>
<CAPTION>
Revenues from
External Customers
-----------------------
1999 2000
-------- --------
<S> <C> <C>
Commercial voice and data $ 9,852 $ 10,802
Internet 1,069 1,777
International operations 1,167 1,740
Operations and technology - -
Other 523 -
Corporate - -
-------- --------
Total before Embratel 12,611 14,319
Embratel 2,091 2,711
Elimination of intersegment revenues (54) (112)
-------- --------
Total $ 14,648 $ 16,918
======== ========
</TABLE>

F-152

<PAGE>

Selling, General
and Administrative
Exp.
-----------------------
1999 2000
------ -------
Commercial voice and data $ 987 $ 1,216
Internet 202 247
International operations 184 440
Operations and technology 1,086 1,117
Other 170 --
Corporate 135 117
Corporate - Sprint merger -- 433
costs and other charges -------- --------
Total before Embratel 2,764 3,570
Embratel 449 662
Elimination of intersegment expenses (7) (27)
-------- --------
Total $ 3,206 $ 4,205
======== ========

The following is a reconciliation of the segment information to income
before income taxes and minority interests for the nine months ended
September 30, 1999 and 2000 (in millions):

F-153

<PAGE>

1999 2000
-------- --------
Revenues $ 14,648 $ 16,918
Operating expenses 11,638 13,000
-------- --------
Operating income 3,010 3,918
Other income
(expense):
Interest expense (369) (318)
Miscellaneous 48 327
-------- -------
Income before income taxes
and minority interests $ 2,689 $3,927
======== =======

(H) LONG-TERM DEBT

As of January 1, 1999, $6.0 billion of the Company's outstanding debt was
notionally allocated to MCI group with the remaining balance of the
Company's outstanding debt notionally allocated to WorldCom group. The
Company's debt was allocated between WorldCom group and MCI group based
upon a number of factors including estimated future cash flows and the
ability to pay debt service and dividends. In addition, the Company
considered certain measures of creditworthiness, such as coverage ratios
and various tests of liquidity in the allocation process. Management
believes that the initial allocation is equitable and supportable by both
MCI group and WorldCom group. The debt allocated to MCI group will bear
interest at a rate indicative of the rate at which MCI group would borrow
from third parties if it was a wholly owned subsidiary of the Company but
did not have the benefit of any guarantee by the Company. Interest rates
will be calculated on a quarterly basis. For purposes of these
historical financial statements, debt allocated to MCI group was
determined to bear an interest rate equal to the weighted-average
interest rate of the Company. Interest allocated to WorldCom group will
reflect the difference between the Company's actual interest expense and
the interest expense charged to MCI group. WorldCom group's debt will
increase or decrease by the amount of any net cash generated by, or
required to fund, the group's operating activities, investing activities,
share repurchases and other financing activities.

F-154

<PAGE>

The following table sets forth the outstanding debt of the Company as of
September 30, 2000 (in millions):

Commercial paper and credit facilities $3,703
Floating rate notes due 2001 through 2002 1,560
7.88% - 8.25% Notes Due 2003-2010 3,500
6.13% - 6.95% Notes Due 2001-2028 6,100
7.13% - 7.75% Notes Due 2004-2027 2,000
8.88% - 9.38% Senior Notes Due 2004-2006 672
7.13% - 8.25% Senior Debentures due 2023-2027 1,437
6.13% - 7.50% Senior Notes Due 2004-2012 1,936
Capital lease obligations
(maturing through 2002) 437
Other debt (maturing through
2008) 1,644
-------
22,989
Notional debt allocated to (6,000)
-------
MCI group
National debt allocated to 16,989
WorldCom group

F-155

<PAGE>

Short-term debt and current (4,289)
maturities of allocated
WorldCom group long-term
debt
$12,700

See Note H of the Company's interim consolidated financial statements for
additional debt descriptions.

(I) CONTINGENCIES

WorldCom group shareholders are subject to all of the risks related to an
investment in the Company and WorldCom group, including the effects of
any legal proceedings and claims against MCI group. See Note I to the
Company's interim consolidated financial statements for information
related to the Company's contingencies.

(J) RELATED PARTY TRANSACTIONS

See Note J to the Company's interim consolidated financial statements for
information pertaining to the Company's related party transactions.

(K) RECENTLY ISSUED ACCOUNTING STANDARDS

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In June 2000,
the SEC issued an amendment to SAB 101 which allows registrants to wait
until the fourth quarter of their fiscal year beginning after December
15, 1999 to implement SAB 101. SAB 101 provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. The deferral of telecommunications
service activation fees and certain related costs are specifically
addressed in SAB 101. The Company is currently assessing the impact of
SAB 101 on its consolidated results of operations and financial position
and there can be no assurance as to the effect on WorldCom group's
combined financial statements.

F-156

<PAGE>

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet
as either an asset or liability measured at its fair value. This
statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires a company to formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. This statement is currently effective for
fiscal years beginning after June 15, 2000 and cannot be applied
retroactively, although earlier adoption is encouraged. SFAS No. 133 must
be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the Company's
election, before January 1, 1998). The Company believes that the
adoption of this standard will not have a material effect on WorldCom
group's combined results of operations or financial position.

(L) SUBSEQUENT EVENT

On November 1, 2000, the Company announced the Recapitalization proposal
as more fully discussed in Note A to these interim combined financial
statements.

The Company intends to initially pay a quarterly dividend of
approximately $75 million ($300 million per year) on MCI stock. MCI
group will initially be allocated notional debt of $6 billion and the
remaining Company debt will be allocated on a notional basis to WorldCom
group. The Company will report separate financial results for WorldCom
group and MCI group in addition to the consolidated Company results. The
Company does not expect that this transaction will have any impact on its
credit ratings.

Voting rights of WorldCom group and MCI group shareholders will be
prorated based on the relative market values of WorldCom stock and MCI
stock. The Company will conduct shareholder meetings that encompass all
holders of voting stock. WorldCom group and MCI group shareholders will
vote together as a single class on all matters brought to a vote of
shareholders, including the election of the Company's directors.

F-157

<PAGE>

The Company's Board of Directors may convert each outstanding share of
MCI stock into shares of WorldCom stock at 110% of the relative trading
value of the MCI stock for the 20 days prior to the announcement of the
conversion. No premium will be paid on a conversion that occurs three
years after the issuance of the MCI stock.

If all or substantially all of WorldCom group or MCI group attributed
assets are sold, the relevant shareholders will receive either: (i) a
distribution equal to the fair value of the net proceeds of the sale,
either by special dividend or by redemption of shares; or (ii) a number
of shares of the Company's stock having been calculated in accordance
with a predetermined conversion premium.

The Company expects to hold its shareholder meeting to vote on the
tracking stock plan in the first half of 2001, and to effect the
implementation of the Recapitalization shortly after shareholder
approval. No regulatory approvals are expected to be required.

F-158

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of WorldCom, Inc.:

We have audited the accompanying combined balance sheet of MCI group (an
integrated business of WorldCom, Inc.) (as described in Note 1) as of
December 31, 1999, and the related combined statements of operations,
changes in allocated net worth and cash flows for the year ended December
31, 1999. These financial statements are the responsibility of WorldCom,
Inc.'s management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 MCI group combined financial statements referred to
above present fairly, in all material respects, the combined financial
position of MCI group as of December 31, 1999, and the combined results
of its operations and its cash flows for the year ended December 31,
1999, in conformity with accounting principles generally accepted in the
United States.

MCI group is a fully integrated business of WorldCom, Inc. Accordingly,
as described in Note 1, the MCI group's combined financial statements
have been derived from the consolidated financial statements and
accounting records of WorldCom, Inc. and, therefore, reflect certain
assumptions and allocations. As more fully discussed in Note 1, the
combined financial statements of MCI group should be read in conjunction
with the audited consolidated statements of WorldCom, Inc.

ARTHUR ANDERSEN LLP

Jackson, Mississippi,
November 21, 2000

F-159

<PAGE>

MCI GROUP (an integrated business of WorldCom, Inc.)
COMBINED BALANCE SHEET
(In Millions)

<TABLE>
<CAPTION>
December 31,
1999
----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 70
Accounts receivable,
net of allowance for
bad debts of $682 . . . . . . . . . . . . . 2,009
Other current assets . . . . . . . . . . . . . 184
-------
Total current assets . . . . . . . . . . 2,263
-------
Property and equipment:
Transmission equipment . . . . . . . . . . . . 377
Communications equipment . . . . . . . . . . . 1,895
Furniture, fixtures and other . . . . . . . . . 659
Construction in progress . . . . . . . . . . . 218
-------
3,149

F-160

<PAGE>

Accumulated depreciation . . . . . . . . . . . (758)
---------
2,391
---------
Goodwill and other intangible assets . . . . . . 10,056
Other assets . . . . . . . . . . . . . . . . . . 105
---------
$ 14,815
=========
LIABILITIES AND ALLOCATED NET WORTH
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . $1,224
Accrued line costs . . . . . . . . . . . . . . 1,611
Payable to Worldcom group, net . . . . . . . . 976
Other current liabilities . . . . . . . . . . . 1,680
---------
Total current liabilities . . . . . . . 5,491
---------
Long-term liabilities, less current portion:
Long-term debt . . . . . . . . . . . . . . . . 6,000
Deferred tax liability . . . . . . . . . . . . 648
Other liabilities . . . . . . . . . . . . . . . 176
---------
Total long-term liabilities . . . . . . 6,824
---------
Commitments and contingencies
Allocated net worth . . . . . . . . . . . . . . . 2,500
---------
$14,815
=========
</TABLE>

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

F-161

<PAGE>

MCI GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENT OF OPERATIONS
(In Millions)
<TABLE>
<CAPTION>
For the Year
Ended December 31,
1999
----------------
<S> <C>
Revenues
$ 16,172
Operating expenses:
Line costs 7,087
Selling, general and administrative 5,071
Depreciation and amortization 757
-------
Total 12,915
-------
Operating income 3,257
Other income (expense):
Interest expense (506)
Miscellaneous 5
-------
Income before income taxes 2,756
Provision for income taxes 1,109
-------
Net income $ 1,647
=======
</TABLE>

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

F-162

<PAGE>

MCI GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENT OF ALLOCATED NET WORTH
For the Year Ended December 31, 1999
(In Millions)

Allocated net worth at December 31, 1998 $ 2,950
Net income 1,647
Advances to WorldCom group, net (2,097)
-------
Allocated net worth at December 31, 1999 $ 2,500
========

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

F-163
<PAGE>

MCI GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENT OF CASH FLOWS
(In Millions)

<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
--------------------
<S> <C>
Cash flows from operating activities:
Net income $ 1,647
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests
Depreciation and amortization 821
Provision for losses on accounts receivable 621
Provision for deferred income taxes 393
Change in assets and liabilities,
net of effect of
business combinations:
Accounts receivable (885)
Other current assets 24
Accrued line costs 9
Accounts payable and other
current liabilities 457
Payable to WorldCom group, net 555
Other 11
----

F-164

<PAGE>

Net cash provided by operating activities 3,653
-------
Cash flows from investing activities:
Capital expenditures - dial modems (178)
Capital expenditures - pagers (87)
Capital expenditures - all other (522)
Sale of short-term investments, net 4
Acquisitions and related costs (292)
Increase in intangible assets (354)
Increase in other assets 4
Decrease in other liabilities (85)
---------
Net cash used in investing activities (1,510)
---------
Cash flows from financing activities:
Advances to WorldCom group, net (2,097)
---------
Net cash used in financing activities (2,097)
---------
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents 46
Cash and cash equivalents at beginning of
period 24
--------
Cash and cash equivalents at end of period $ 70
========
</TABLE>

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

F-165

MCI Group (an integrated business of WorldCom, Inc.)
Notes to Combined Financial Statements
December 31, 1999

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -

DESCRIPTION OF BUSINESS AND ORGANIZATION:

Organized in 1983, WorldCom, Inc., a Georgia corporation (the
"Company") provides a broad range of communications, outsourcing,
and managed network services to both U.S. and non-U.S. based
corporations. The Company is a global communications company
utilizing a facilities-based, on-net strategy throughout the world.
The on-net approach allows the Company's customers to send data
streams or voice traffic across town, across the U.S., or to any of
our facilities-based networks in Europe or Asia, without ever
leaving the confines of the Company's network. The on-net approach
provides the Company's customers with superior reliability and low
operating costs. Prior to May 1, 2000, the Company was named MCI
WORLDCOM, Inc.

BASIS OF COMBINATION AND PRESENTATION:

The Company's Board of Directors has approved a proposal which, if
approved by the Company's shareholders, will amend the Company's
articles of incorporation to effect a recapitalization that will
replace existing Company common stock with two new series of common
stock: WorldCom group stock ("WorldCom stock") and MCI group stock
("MCI stock"). WorldCom stock is intended to reflect, or track,
the performance of the Company's data, Internet, international and
commercial voice businesses (the "WorldCom group"), and MCI stock
is intended to reflect the performance of the Company's consumer,
small business, wholesale long distance, wireless messaging and
dial-up Internet businesses (the "MCI group"). If this proposal is
approved by the Company's shareholders, each outstanding share of
the Company's existing common stock will convert into one share of
WorldCom stock and one twenty-fifth of a share of MCI stock (the
"Recapitalization"). All assets reported in the accompanying
combined financial statements are owned by the Company or one of
its subsidiaries. These combined financial statements are based on
the operations, attributed assets and attributed liabilities of MCI
group and are not representative of any separately incorporated
entity.

The MCI group combined financial statements will provide MCI group
shareholders with financial information about MCI group's
operations. Investors in MCI stock and WorldCom stock will be
shareholders of the Company and will be subject to risks related to
all of the Company's businesses, assets and liabilities. The

F-166
<PAGE>

Company retains ownership and control of the attributed assets,
attributed liabilities and operations of MCI group and WorldCom
group. Financial effects of either group that affect the Company's
consolidated results of operations or financial condition could
affect the results of operations or financial position of the other
group or the market price of the other group's stock. Net losses
of either MCI group or WorldCom group, and any dividends or
distributions on, or repurchases of, MCI stock or WorldCom stock
will reduce Company funds legally available for dividends on MCI
stock or WorldCom stock. As a result, the MCI group combined
financial statements should be read along with the Company's
consolidated financial statements.

The combined financial statements of MCI group reflect the results
of operations, financial position, changes in allocated net worth
and cash flows of MCI group as if MCI group was a separate group
for the period presented. The financial information included
herein, however, may not necessarily reflect the combined results
of operations, financial position, changes in allocated net worth
and cash flows of MCI group had it been a separate, stand-alone
group during the period presented.

As integrated businesses, the Company has not historically prepared
separate financial statements of WorldCom group and MCI group. The
combined financial statements of MCI group reflect certain assets,
liabilities, revenues and expenses directly attributable to MCI
group as well as allocations based on methodologies deemed
reasonable by management; however, the costs of such allocated
services charged between WorldCom group and MCI group may not
necessarily be indicative of the costs that would have been
incurred if WorldCom group and MCI group had performed these
functions entirely as stand-alone entities. The Company's Board of
Directors will have the ability to control transfers of funds or
other assets between WorldCom group and MCI group. The combined
financial statements of MCI group are presented to provide
additional disclosure related to the underlying businesses that
comprise MCI group. Management intends on providing audited
financial statements prepared in accordance with United States
generally accepted accounting principles ("GAAP") for MCI group as
long as MCI stock is outstanding.

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<PAGE>

RELATED PARTY TRANSACTIONS / INTERGROUP ALLOCATION POLICIES:

POLICY STATEMENT BETWEEN THE COMPANY, WORLDCOM GROUP AND MCI GROUP

THE TERMS OF INTERGROUP TRANSACTIONS. All material transactions
which are determined by the Company's Board of Directors to be in
the ordinary course of business between WorldCom group and MCI
group, except for those described in the paragraphs below, are
intended to be on terms consistent with terms that would be
applicable to arm's-length dealings with unrelated third parties.

CASH MANAGEMENT. The Company maintains a centralized cash
management function utilized by both WorldCom group and MCI group.
Under a centralized cash management system, cash balances are generally
not maintained at a subsidiary level. As an integrated business of the
Company, MCI group generally maintains no cash balances and no
centralized cash balance has been allocated to MCI group in the
accompanying combined balance sheet. Historically, the Company
determined the amount of funding provided to MCI group based on

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<PAGE>

actual cash used for capital and operating expenses, net of
WorldCom group and MCI group cash receipts. Cash advances required
by MCI group are subject to the ongoing approval and budgeting
processes of the Company.

CORPORATE ALLOCATIONS

Certain corporate allocations have been attributed and/or allocated
to WorldCom group or MCI group based upon identification of such
services specifically benefiting each group. The total of these
expenses allocated to MCI group was $2.1 billion in 1999. Such
corporate allocations may change at the discretion of the Company
and do not require shareholder approval. Management believes that
the allocation methodologies applied are reasonable. However, it
is not practical to determine whether the allocated amounts
represent amounts that would have been incurred on a stand alone
basis. Management believes that the allocation methods developed
will be comparable to the expected future allocation methods.
Explanations of the composition and the method of allocation for
such items are described below.

LINE COSTS. Allocated costs and related liabilities within this
caption include the costs of the telecommunications network
provided by WorldCom group to MCI group and the costs of the business
voice switched services provided by MCI group to WorldCom group.
The line costs allocated to MCI group for the transit capacity
requirements provided by WorldCom group equals a proportion of WorldCom
group's network costs based on usage. The line costs allocated to
WorldCom group for the business voice switched services provided by MCI
group equals a proportion of MCI group's long distance switch costs based
on Worldcom group's usage.

ALLOCATION OF INTANGIBLE ASSETS. Intangible assets consist of the
excess consideration paid over the fair value of net tangible
assets acquired by the Company in business combinations accounted
for under the purchase method and include goodwill, channel rights,
developed technology and tradenames. These assets have been
attributed to the respective groups based on specific
identification and where acquired companies have been divided
between WorldCom group and MCI group, the intangible assets have
been attributed based on the respective fair values at date of
purchase of the related operations allocated to each group.
Management believes that this method of allocation is equitable and
provides a reasonable estimate of the intangible assets

F-169

<PAGE>

attributable to WorldCom group and MCI group. All of the
tradenames, including the MCI tradename and the other related MCI
tradenames, have been attributed to WorldCom group. MCI group will
pay an annual fee to WorldCom group for the use of the MCI
tradenames for the next five years based on the following fee
schedule:

Year 1: $27.5 million
Year 2: $30.0 million
Year 3: $35.0 million
Year 4: $40.0 million
Year 5: $45.0 million

Any renewal or termination of use of the MCI tradename by MCI group
will be subject to the general policy that our board of directors
will act in the best interests of WorldCom.

FINANCING ARRANGEMENTS. At January 1, 1999, $6.0 billion of the
Company's outstanding debt was notionally allocated to MCI group
with the remaining balance of the Company's outstanding debt
notionally allocated to WorldCom group. The Company's debt was
allocated between WorldCom group and MCI group based upon a number
of factors including estimated future cash flows and the ability to
pay debt service and dividends. In addition, the Company
considered certain measures of creditworthiness, such as coverage
ratios and various tests of liquidity in the allocation process.
Management believes that the initial allocation is equitable and
supportable by both WorldCom group and MCI group. The debt
allocated to MCI group will bear interest at a rate indicative of
the rate at which MCI group would borrow from third parties if it
was a wholly owned subsidiary of the Company but did not have the
benefit of any guarantee by the Company. Interest rates will be
calculated on a quarterly basis. For purposes of these historical
combined financial statements, debt allocated to MCI group was
determined to bear an interest rate equal to the weighted average
interest rate of the Company plus 1 1/4 percent. Interest
allocated to WorldCom group will reflect the difference between the
Company's actual interest expense and the interest expense charged
to MCI group. Upon recapitalization, each group's debt will increase or
decrease by the amount of any net cash generated by, or required to fund,
the group's operating activities, investing activities, share repurchases
and other financing activities.

As of December 31, 1999, the Company's receivables purchase program
consisted of a $3.8 billion pool of receivables in which the
purchaser had an undivided interest which includes the $1.9 billion
sold, of which $2.2 billion and $1.4 billion relate to MCI group,
respectively. The receivables sold were assigned based on specific
identification where practical, or allocated based on total
revenues. Management believes that this method of allocation is
equitable and provides a reasonable estimate of the receivables
attributable to the groups.

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<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The Company estimates the fair value of attributed MCI group
financial instruments using available market information and
appropriate valuation methodologies. The carrying amounts for
cash, accounts receivable, notes receivable, accounts payable,
accrued liabilities and long-term debt approximate their fair
value. The fair value of long-term debt is determined based on
quoted market rates or the cash flows from such financial
instruments discounted at the Company's estimated current interest
rate to enter into similar financial instruments.

CASH AND CASH EQUIVALENTS:

The Company considers cash in banks and short-term investments with
original maturities of three months or less as cash and cash
equivalents.

PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost. Depreciation is
provided for financial reporting purposes using the straight-line
method over the following estimated useful lives:

Transmission equipment 5 to 10 years
Communications equipment 5 to 20 years
Furniture, fixtures,
buildings and other 4 to 40 years

The Company evaluates the recoverability of property and equipment
when events and circumstances indicate that such assets might be
impaired. The Company determines impairment by comparing the
undiscounted future cash flows estimated to be generated by these
assets to their respective carrying amounts. In the event an
impairment exists on property and equipment attributed to MCI
group, a loss will be recognized by MCI group based on the amount
by which the carrying value exceeds the fair value of the asset.
If quoted market prices for an asset are not available, fair market
value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved. Losses
in property and equipment to be disposed of are determined in a
similar manner, except that fair market values are reduced for the
cost to dispose.

GOODWILL AND OTHER INTANGIBLE ASSETS:

The major classes of intangible assets attributed to MCI group as
of December 31, 1999 are summarized below (in millions):

F-171

<PAGE>

Amortization
Period
------------
Goodwill 10 to 40 years $ 9,284
Developed technology 5 to 10 years 510
Other intangibles 5 to 10 years 803
------
10,597
Less: accumulated amortization 541
------
Goodwill and other intangible assets, net $10,056
-------

Intangible assets are amortized using the straight-line method for
the periods noted above.

Also included in other intangibles are costs incurred to develop
software for internal use. Such costs were $356 million for the
year ended December 31, 1999.

RECOGNITION OF REVENUES:

MCI group records revenues for telecommunications services at the
time of customer usage. Service discounts and incentives are
accounted for as a reduction of revenues when granted or, where a
service continuation contract exists, ratably over the contract
period.

INCOME TAXES:

The federal income taxes of the Company and the subsidiaries that
own assets directly attributed to or allocated between WorldCom
group and MCI group are determined on a consolidated basis.
Consolidated federal income tax provisions and related tax payments
or refunds are allocated between the groups based principally on
the taxable income and tax credits directly attributable to each
group. Such allocations reflect each group's contribution
(positive or negative) to the Company's consolidated federal
taxable income and the consolidated federal tax liability and tax
credit position. Tax benefits that cannot be used by the group
generating those benefits, but can be used on a consolidated basis,
are credited to the group that generated such benefits. Had
WorldCom group and MCI group filed separate tax returns, the
provision for income taxes and net income for each group would not
have significantly differed from the amounts reported on the
group's statement of operations for the year ended December 31,

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<PAGE>

1999. However, the amounts of current and deferred taxes and taxes
payable or refundable attributed to each group on the historical
financial statements may differ from those that would have been
allocated had WorldCom group or MCI group filed separate income tax
returns.

Deferred tax assets and liabilities are based on temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and their respective tax bases.

EARNINGS PER SHARE:

After the implementation of the Recapitalization, the consolidated
financial statements of the Company will present basic and diluted
earnings per share for WorldCom stock and MCI stock using the
two-class method. The two-class method is an earnings formula that
determines the earnings per share for WorldCom stock and MCI stock
according to participation rights in undistributed earnings. The
combined financial statements of MCI group will not present
earnings per share because MCI stock is a series of common stock of
the Company and MCI group is not a legal group with a capital
structure.

For purposes of the consolidated financial statements of the
Company, basic earnings per share for MCI stock will be computed by
dividing net income for the period by the number of weighted
average shares of MCI stock then outstanding. Diluted earnings per
share of MCI stock will be computed by dividing net income for the
period by the weighted-average number of shares of MCI stock
outstanding, including the dilutive effect of MCI stock
equivalents.

CONCENTRATION OF CREDIT RISK:

A portion of MCI group's revenues is derived from services provided
to others in the telecommunications industry, mainly resellers of
long distance telecommunications service and Internet online
services. As a result, MCI group has some concentration of credit
risk among its customer base. MCI group performs ongoing credit
evaluations of its larger customers' financial condition and, at
times, requires collateral from its customers to support its
receivables, usually in the form of assignment of its customers'
receivables to MCI group in the event of nonpayment.

RECLASSIFICATION:

Revenues and line costs reflect a classification change for
reciprocal compensation and COBRA (central office based remote
access) equipment sales which are now being treated as offsets to
cost of sales. Previously, these items were recorded on a gross
basis as revenue. Revenues and line costs have also been adjusted
to reflect the elimination of small business and consumer PICC
(primary interexchange carrier charges) from both revenues and line

F-173

<PAGE>

costs as a result of the Coalition for Affordable Local and Long
Distance Services ("CALLS") legislation which eliminated single
line PICC as of July 1, 2000. Operating income, net income
available to common shareholders and the balance sheet are not
affected by these reclassifications.

RECENTLY ISSUED ACCOUNTING STANDARDS:

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In June
2000, the SEC issued an amendment to SAB 101 which allows
registrants to wait until the fourth quarter of their fiscal year
beginning after December 15, 1999 to implement SAB 101. SAB 101
provides guidance on the recognition, presentation and disclosure
of revenue in financial statements filed with the SEC. The
deferral of telecommunications service activation fees and certain
related costs are specifically addressed in SAB 101. The Company
is currently assessing the impact of SAB 101 on its combined
results of operations or financial position and there can be no
assurance as to the effect on MCI group's combined financial
statements.

In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its
fair value. This statement requires that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income statement, and
requires a company to formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. This
statement is effective for fiscal years beginning after June 15,
2000 and cannot be applied retroactively, although earlier adoption
is encouraged. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the Company's election,
before January 1, 1998). The Company believes that the adoption of
this standard will not have a material effect on MCI group's
combined results of operations or financial position.

USE OF ESTIMATES:

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<PAGE>

statements and revenues and expenses during the period reported.
Actual results could differ from those estimates.

(2) BUSINESS COMBINATIONS -

The Company has acquired other telecommunications companies
offering similar or complementary services to those offered by MCI
group. Such acquisitions have been accomplished through the
purchase of the outstanding stock or assets of the acquired entity
for cash, notes, shares of the Company's common stock, or a
combination thereof. The cash portion of acquisition costs has
generally been financed through the Company's bank credit
facilities. In addition to the business combinations described
below, the Company or its predecessors completed smaller
acquisitions during the year ended December 31, 1999.

On September 14, 1998, the Company acquired MCI Communications
Corporation ("MCI") for approximately $40 billion, pursuant to the
merger (the "MCI Merger") of MCI with and into TC Investments Corp.
("Acquisition Subsidiary"), a wholly owned subsidiary of the
Company. Upon consummation of the MCI Merger, the Acquisition
Subsidiary was renamed MCI Communications Corporation. Through the
MCI Merger, the Company acquired one of the world's largest and
most advanced digital networks, connecting local markets in the
United States to more than 280 countries and locations worldwide.

The purchase price in the MCI Merger was allocated based on
estimated fair values at the date of acquisition. This resulted in
an excess of purchase price over net assets acquired of which, on a
Company consolidated basis, $3.1 billion was allocated to
in-process research and development ("IPR&D") and $1.7 billion to
developed technology, which will be depreciated over 10 years on a
straight-line basis. The remaining excess of $29.3 billion, as of
December 31, 1999, has been allocated to goodwill and tradename,
which are being amortized over 40 years on a straight-line basis.
Such amounts have been allocated to WorldCom group and MCI group
based on the respective fair values of the related operations
allocated to each group. Accordingly, MCI group has been allocated
$775 million, $425 million and $7.0 billion of such IPR&D,
developed technology and goodwill, respectively.

During 1999, the Company recorded other liabilities of $582
million, related to estimated costs of unfavorable commitments of
acquired entities, and other non-recurring costs arising from
various acquisitions and mergers. At December 31, 1999, other
liabilities attributed to MCI group related to these accruals
totaled $160 million.

(3) LONG-TERM DEBT -

The Company's outstanding debt as of December 31, 1999 consists of
the following (in millions):

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<PAGE>

<TABLE>
<CAPTION>
Excluding Embratel Embratel Consolidated
------------------ -------- ------------

Commercial paper and credit facilities $2,875 $ - $ 2,875

Floating rate notes due 2000 1,000 - 1,000
6.13% - 6.95% Notes Due 2001-2028 6,100 - 6,100
7.55% - 7.75% Notes Due 2004-2027 2,000 - 2,000
8.88% - 13.5 % Senior Notes Due 2002-2006 689 - 689
7.13% - 8.25% MCI Senior Debentures Due 1,438 - 1,438
2023-2027
6.13% - 7.50% MCI Senior Notes Due 1999-2012 2,142 - 2,142
15% note payable due in annual installments - 440 440
through 2000
Capital lease obligations, 7.00% - 11.00% 483 - 483
(maturing through 2002)
Other debt (maturing through 2008) 148 828 976
------ ------ ------
16,875 1,268 18,143

(10,875) (1,268) (12,143)
Notional debt allocated to WorldCom group ------ ------ ------

$ 6,000 $ $ 6,000
======= ====== =======
</TABLE>

(4) SHAREHOLDER RIGHTS PLAN -

F-176

<PAGE>

terms and conditions as the current rights agreement. See Note 8
to the Company's consolidated financial statements for a more
detailed description of the existing shareholder rights plan.

(5) LEASES AND OTHER COMMITMENTS -

The Company leases office facilities and certain equipment under
non-cancelable operating and capital leases and is also obligated
under various rights-of-way agreements having initial or remaining
terms of more than one year and allocates rent expense on such
leases attributable to WorldCom group and MCI group in accordance
with the Company's allocation policies. Rental expense allocated
to MCI group under these operating leases was $163 million in 1999.

The MCI group is an integrated business of the Company and is
therefore subject to all the Company's liabilities and obligations,
including lease and other commitments. See Note 9 to the Company's
consolidated financial statements for a description of the
Company's leases and other commitments.

(6) CONTINGENCIES -

MCI group shareholders are subject to all of the risks related to
an investment in the Company and MCI group, including the effects
of any legal proceedings and claims against WorldCom group. See
Note 10 to the Company's consolidated financial statements for
information related to the Company's contingencies.

(7) EMPLOYEE BENEFIT PLANS -

STOCK OPTION PLANS:

The Company has several stock option plans under which options to
acquire shares of Company common stock may be granted to directors,
officers and certain employees of WorldCom group and MCI group.
The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost is recognized. Terms and
conditions of the Company's options, including exercise price and
the period in which options are exercisable, generally are at the
discretion of the Compensation and Stock Option Committee of the
board of directors; however, no options are exercisable for more
than 10 years after date of grant.

401(K) PLANS:

The Company offers its qualified employees the opportunity to
participate in one of its defined contribution retirement plans
qualifying under the provisions of Section 401(k) of the Internal
Revenue Code. Each employee may contribute on a tax deferred basis
a portion of annual earnings not to exceed $10,000. The Company
matches individual employee contributions in certain plans, up to a
maximum level which in no case exceeds 6% of the employee's
compensation. Expenses allocated to MCI group relating to the

F-177

<PAGE>

Company's 401(k) plans were $63 million for the year ended December
31, 1999.

PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS:

See Notes 11 and 12 to the Company's consolidated financial
statements for additional disclosures related to employee benefit
plans.

(8) INCOME TAXES -

The MCI group combined balance sheet reflects the anticipated tax
impact of future taxable income or deductions implicit in the
combined balance sheet in the form of temporary differences. These
temporary differences reflect the difference between the basis in
the assets and liabilities for financial reporting purposes and
amounts used for income tax purposes and the impact of available
net operating loss ("NOL") carryforwards as measured in MCI group's
combined financial statements and as measured by tax laws using
enacted tax rates.

The provision for income taxes is composed of the following (in
millions):

Current $ 716
Deferred 393
------
Total provision for income taxes $1,109
======

The following is a reconciliation of the provision for income taxes
to the expected amounts using the statutory rate:

Expected statutory amount 35.0%
Nondeductible amortization of excess of cost
over net tangible assets acquired 3.0
State income taxes 2.5
Other (0.3)
----
Actual tax provision 40.2%
====

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<PAGE>

The following is a summary of the significant components of MCI
group's attributed deferred tax assets and liabilities as of
December 31, 1999 (in millions):
Assets Liabilities
----------- -----------
Fixed assets $ - $ (611)
Goodwill and other intangibles 64 -
Accrued liabilities - (102)
Tax credits 31 -
Other - (30)
------ ---------
$ 95 $ (743)
======= =======

(9) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -

Interest paid by MCI group during the year ended December 31, 1999
amounted to $490 million. Income taxes paid, net of refunds,
during the year ended December 31, 1999 were $71 million.

In conjunction with business combinations, assets acquired and
liabilities assumed, including revisions to previously recorded
acquisitions, were as follows (in millions):

Fair value of assets acquired $154
Goodwill and other intangible assets 190
Liabilities assumed (52)
----
Net cash paid $292
====

(10) SEGMENT AND GEOGRAPHIC INFORMATION -

Based on its organizational structure, MCI group operates in five
reportable segments: Consumer, Wholesale, Alternative channels and
small business, Dial-up Internet, and Operations and technology.
MCI group's reportable segments represent business units that
primarily offer similar products and services; however, the
business units are managed separately due to the type and class of
customer as well as the geographic dispersion of their operations.
Consumer includes domestic voice communications services for
consumer customers. Wholesale includes voice and data domestic
communications services for wholesale customers. Alternative
channels and small business includes domestic long distance voice
and data, agents, prepaid calling cards and paging services
provided to alternative wholesale and small business customers.
Dial-up Internet includes dial-up Internet access services.
Operations and technology includes network operations, information
services, engineering and technology and customer service.

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<PAGE>

The Company's chief operating decision-maker utilizes revenue
information in assessing performance and making overall operating
decisions and resource allocations. Communications services are
generally provided utilizing the Company's network facilities,
which do not make a distinction between the types of services.
Profit and loss information is reported only on a combined basis to
the chief operating decision-maker and the Company's Board of
Directors.

The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Information about MCI group's segments is as follows (in millions):

<TABLE>
<CAPTION>
Selling,
Revenues General and
from External Administrative Capital
Customers Expenses Expenditures
------------- -------------- ------------
<S> <C> <C> <C>
Consumer $7,590 $2,418 $235
Wholesale 3,943 197 192
Alternative channels and small 3,142 555 181
business
Dial-up Internet 1,497 256 179
Operations and technology - 1,311 --
Corporate - 334 --
------- ------- ------
Total $16,172 $ 5,071 $ 787
======= ======= ======
</TABLE>

The following is a reconciliation of the segment information to
income before income taxes (in millions):

Revenues $16,172

Operating expenses 12,915
-------
Operating income 3,257
Other income (expense):
Interest expense (506)
Miscellaneous 5
-------
Income before income taxes $ 2,756
=======

Information about MCI group's operations by geographic areas are as
follows (in millions):

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<PAGE>

Long-lived
Revenues Assets
--------- ----------

United States $15,961 $2,330
International 211 61
------- ------
Total $16,172 $2,391
======= ======

(11) UNAUDITED QUARTERLY FINANCIAL DATA -

Mar 31, Jun 30, Sep 30, Dec 31,
1999 1999 1999 1999

(in millions)

Revenues $3,879 $3,925 $4,134 $4,234
Operating income 824 790 867 776
Net income 419 397 443 388

MCI GROUP (an integrated business of WorldCom, Inc.)
COMBINED BALANCE SHEETS
(Unaudited. In Millions)

December 31,1999 September 30,2000
---------------- -----------------
[S] [C] [C]
ASSETS
Current assets:
Cash and cash equivalents $70 $76
Accounts receivable, net of
allowance for bad debts of
$682 in 1999 and $648 in 2000 2,009 2,044
Deferred tax asset - 71
Other current assets 184 390
----- -----
Total current assets 2,263 2,581
----- -----
Property and equipment:
Transmission equipment 377 369
Communications equipment 1,895 2,164
Furniture, fixtures and other 659 701
Construction in progress 218 164
----- -----
3,149 3,398

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<PAGE>

Accumulated depreciation 758) (1,132)
------- --------
2,391 2,266
------- -------
Goodwill and other intangible assets 10,056 9,934
Other assets 105 105
------- -------
$14,815 $14,886
======= =======
LIABILITIES AND ALLOCATED NET WORTH

Current liabilities:

Accounts payable $1,224 $790
Accrued line costs 1,611 1,405
Payable to Worldcom group, net 976 1,456
Other current liabilities 1,680 1,362
------ -----
Total current liabilities 5,491 5,013
----- -----
Long-term liabilities, less current portion:

Long-term debt 6,000 6,000
Deferred tax liability 648 876
Other liabilities 176 116
------ -------
Total long-term liabilities 6,824 6,992
------ ------
Commitments and contingencies

Allocated net worth 2,500 2,881
------ ------
$14,815 $14,886
------- -------

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

F-182

<PAGE>

MCI GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENTS OF OPERATIONS
(Unaudited. In Millions)

Nine months ended Nine months ended
September 30, 1999 September 30, 2000
------------------ ------------------

Revenues $11,938 $12,565
------- ------
Operating expenses:
Line costs 5,131 5,312
Selling, general and
administrative 3,776 3,790
Depreciation and amortization 550 654
------- ------
Total 9,457 9,756
------- ------
Operating income 2,481 2,809
Other income (expense):
Interest expense (379) (381)
Miscellaneous 5 -
------ -----
Income before income taxes 2,107 2,428
Provision for income taxes 848 965
------ ------
Net income and comprehensive income $ 1,259 $ 1,463
======= =======

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

F-183

<PAGE>

MCI GROUP (an integrated business of WorldCom, Inc.)
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited. In Millions)

For the Nine Months
Ended September 30,
-------------------
1999 2000
------ ------
Cash flows from operating activities:

Net income $1,259 $1,463
Adjustments to reconcile net income to net cash
provided by operating activities:

Depreciation and amortization 598 718
Provision for losses on accounts receivable 388 627
Provision for deferred income taxes 322 157

Change in assets and liabilities, net of effect
of business combinations:

Accounts receivable (470) (661)
Other current assets 18 (210)
Accrued line costs 112 (206)
Payable and other current liabilities 170 (752)
Accounts payable to Worldcom group, net 408 480
----- -----
Net cash provided by operating activities 2,805 1,616
----- -----
Cash flows from investing activities:

Capital expenditures - dial modems (133) (128)
Capital expenditures - pagers (64) (8)
Capital expenditures - all other (404) (234)
Acquisitions and related costs (357) -
Increase in intangible assets (236) (82)
Proceeds from disposition of marketable - 4
securities
(Increase) decrease in other assets 8 (21)

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<PAGE>

Decrease in other liabilities (19) (59)
------ -----
Net cash used in investing activities (1,205) (528)
------ -----
Cash flows from financing activities:
Advances to WorldCom group, net (1,571) (1,082)
Net cash used in financing activities (1,571) (1,082)
------ ------
Net increase in cash and cash equivalents 29 6
Cash and cash equivalents at beginning of period 24 70
----- ----
Cash and cash equivalents at end of period $ 53 $ 76
===== ====

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

F-185

<PAGE>

MCI Group (an integrated business of WorldCom, Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS

(A) GENERAL

References herein to the "Company" refer to WorldCom, Inc., a
Georgia corporation, and its subsidiaries. Prior to May 1, 2000,
the Company was named MCI WORLDCOM, Inc.

The Company's Board of Directors has approved a proposal which, if
approved by the Company's shareholders, will amend the Company's
articles of incorporation to effect a recapitalization that will
replace existing Company common stock with two new series of common
stock: WorldCom group stock ("WorldCom stock") and MCI group stock
("MCI stock"). WorldCom stock is intended to reflect, or track,
the performance of the Company's data, Internet, international and
commercial voice businesses (the "WorldCom group"), and MCI stock
is intended to reflect the performance of the Company's consumer,
small business, wholesale long distance, wireless messaging and
dial-up Internet businesses (the "MCI group"). If this proposal is
approved by the Company's shareholders, each outstanding share of
the Company's existing common stock will convert into one share of
WorldCom stock and one twenty-fifth of a share of MCI stock (the
"Recapitalization"). All assets reported in the accompanying
combined financial statements are owned by the Company or one of
its subsidiaries. These unaudited combined financial statements
are based on the operations, attributed assets and attributed
liabilities of MCI group and are not representative of any
separately incorporated group.

The MCI group combined financial statements will provide MCI group
shareholders with financial information about MCI group's
operations. Investors in WorldCom stock and MCI stock will be
shareholders of the Company and will be subject to risks related to
all of the Company's businesses, assets and liabilities. The
Company retains ownership and control of the assets and operations
of WorldCom group and MCI group. Financial effects of either group
that affect the Company's results of operations or financial
condition could affect the results of operations or financial
position of the other group or the market price of the other
group's stock. Net losses of either WorldCom group or MCI group
and any dividends or distributions on, or repurchases of, WorldCom
stock or MCI stock will reduce Company funds legally available for
dividends on WorldCom stock or MCI stock. As a result, the MCI
group combined financial statements should be read along with the
Company's consolidated financial statements.

The combined financial statements of MCI group reflect the results
of operations, financial position, changes in allocated net worth
and cash flows of MCI group as if MCI group was a separate group
for the periods presented. The financial information included
herein may not necessarily reflect the combined results of
operations, financial position, changes in allocated net worth and

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cash flows of MCI group had it been a separate, stand-alone group
during the periods presented.

For financial reporting purposes, the Company has attributed all of
its consolidated assets, liabilities, shareholders' investment,
revenues, expenses and cash flows to either WorldCom group or MCI
group. The separate financial statements give effect to the
intergroup allocation policies adopted by the Company. Allocation
and related party transaction policies adopted by the Company's
Board of Directors can be rescinded or amended or new policies may
be adopted at the discretion of the Board of Directors, without any
prior approval of shareholders, although no such changes are
currently contemplated.

As integrated businesses, the Company has not historically prepared
separate financial statements of WorldCom group and MCI group. The
combined financial statements of MCI group reflect certain assets,
liabilities, revenues and expenses directly attributable to MCI
group as well as allocations based on methodologies deemed
reasonable by management; however, the costs of such allocated
services charged between WorldCom group and MCI group may not
necessarily be indicative of the costs that would have been
incurred if WorldCom group and MCI group had performed these
functions entirely as stand-alone entities. The Company's Board of
Directors will have the ability to control transfers of funds or
other assets between WorldCom group and MCI group. The financial
statements of MCI group are presented to provide additional
disclosure related to the underlying businesses that comprise MCI
group. Management anticipates providing annual audited financial
statements and unaudited interim financial statements prepared in
accordance with United States generally accepted accounting
principles ("GAAP") for MCI group as long as MCI stock is
outstanding.

The financial statements included herein, are unaudited and have
been prepared in accordance with GAAP for interim financial
reporting and Securities and Exchange Commission ("SEC")
regulations. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP
have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial
statements reflect all adjustments (of a normal and recurring
nature) which are necessary to present fairly the financial
position, results of operations and cash flows for the interim
periods. These combined financial statements should be read in
conjunction with the Annual Report of the Company on Form 10-K for
the year ended December 31, 1999 (the "Form 10-K"), the
consolidated financial statements of the Company for the nine
months ended September 30, 1999 and 2000, and the combined
financial statements of MCI group for the year ended December 31,
1999. The results for the nine-month period ended September 30,
2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.

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(B) BUSINESS COMBINATIONS

On September 5, 2000, the Company announced that it had entered
into an Agreement and Plan of Merger dated as of September 1, 2000
(the "Intermedia Merger Agreement"), between the Company, Wildcat
Acquisition Corp., a wholly owned subsidiary of the Company, and
Intermedia Communications Inc. ("Intermedia"). As a result of the
merger (the "Intermedia Merger"), the Company will acquire a
controlling interest in Digex, Incorporated ("Digex"), a leading
provider of managed web and application hosting services for some
of the world's fastest growing companies.

After the implementation of the Recapitalization, the consolidated
financial statements of the Company will present basic and diluted
earnings per share for WorldCom stock and MCI stock using the

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two-class method. The two-class method is an earnings formula that
determines the earnings per share for WorldCom stock and MCI stock
according to participation rights in undistributed earnings. The
combined interim financial statements of MCI group will not present
earnings per share because MCI stock is a series of common stock of
the Company and MCI group is not a legal group with a capital
structure.

For purposes of the consolidated financial statements of the
Company, basic earnings per share for MCI stock will be computed by
dividing net income for the period by the number of
weighted-average shares of MCI stock then outstanding. Diluted
earnings per share of MCI stock will be computed by dividing net
income for the period by the weighted-average number of shares of
MCI stock outstanding, including the dilutive effect of MCI stock
equivalents.

(D) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest paid by MCI group during the nine months ended September
30, 1999 and 2000, amounted to $365 million and $427 million,
respectively. Income taxes paid during the nine months ended
September 30, 1999 and 2000, totaled $40 million and $48 million,
respectively.

In conjunction with business combinations during the nine months
ended September 30, 1999 and 2000, assumed assets and liabilities,
including revisions to previously recorded acquisitions, were as
follows (in millions):

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1999 2000
---- ----

Fair value of assets acquired $ 94 $ -
Excess of cost over net tangible assets 302 -
acquired
Liabilities assumed (39) -
Net cash paid $357 $ -
==== ====

(E) RECLASSIFICATIONs

The effects of these reclassifications on the accompanying combined
statements of operations for the nine months ended September 30,
1999 and 2000 are as follows (in millions):

New Presentation
----------------
1999 2000
------- -------
Revenues $11,938 $12,565
Line costs $5,131 $5,312

Old Presentation
----------------
1999 2000
------- -------
Revenues $12,554 $13,229
Line costs $5,747 $5,976

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(F) SEGMENT INFORMATION

The Company's chief operating decision-maker utilizes revenue
information in assessing performance and making overall operating
decisions and resource allocations. Communications services are
generally provided utilizing the Company's network facilities,
which do not make a distinction between the types of services.
Profit and loss information is reported only on a combined basis to
the chief operating decision-maker and the Company's Board of
Directors.

Information about MCI group's segments for the nine months ended
September 30, 1999 and 2000, is as follows (in millions):

Revenues
From External
Customers
------------------------
1999 2000
------- -------
Wholesale $2,965 $2,655
Consumer 5,594 5,893
Alternative channels and small 2,310 2,792
business
Dial-up Internet 1,069 1,225
Operations and technology - -
Corporate - -
------- -------
Total $11,938 $12,565
======= =======
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<PAGE>

Selling General
and Administrative
Expenses
------------------

1999 2000
------ ------
Wholesale $116 $90
Consumer 1,909 1,608
Alternative channels and small 403 392
business
Dial-up Internet 191 188
Operations and technology 906 885
Corporate 251 282
Corporate - Other charges - 345
------ ------
Total $3,776 $3,790
====== ======

The following is a reconciliation of the segment information to
income before income taxes for the nine months ended September 30,
1999 and 2000 (in millions):
1999 2000
------ ------
Revenues $11,938 $12,565
Operating expenses 9,457 9,756
------ ------
Operating income 2,481 2,809
Other income (expense):
Interest expense (379) (381)
Miscellaneous 5
------ ------
Income before income taxes $2,107 $2,428
====== ======

(G) LONG-TERM DEBT

As of January 1, 1999, $6.0 billion of the Company's outstanding
debt was notionally allocated to MCI group with the remaining

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<PAGE>

balance of the Company's outstanding debt notionally allocated to
WorldCom group. The Company's debt was allocated between WorldCom
group and MCI group based upon a number of factors including
estimated future cash flows and the ability to pay debt service and
dividends. In addition, the Company considered certain measures of
creditworthiness, such as coverage ratios and various tests of
liquidity in the allocation process. Management believes that the
initial allocation is equitable and supportable by both WorldCom
group and MCI group. The debt allocated to MCI group will bear
interest at a rate indicative of the rate at which MCI group would
borrow from third parties if it was a wholly owned subsidiary of
the Company but did not have the benefit of any guarantee by the
Company. Interest rates will be calculated on a quarterly basis.
For purposes of these historical financial statements, debt
allocated to MCI group was determined to bear an interest rate
equal to the weighted average interest rate of the Company.
Interest allocated to WorldCom group will reflect the difference
between the Company's actual interest expense and the interest
expense charged to MCI group. MCI group's debt will increase or
decrease by the amount of any net cash generated by, or required to
fund, the group's operating activities, investing activities, share
repurchases and other financing activities.

The following table sets forth the outstanding debt of the Company
as of September 30, 2000 (in millions):

Commercial paper and credit facilities $3,703
Floating rate notes due 2001 through 2002 1,560
7.88% - 8.25% Notes Due 2003-2010 3,500
6.13% - 6.95% Notes Due 2001-2028 6,100
7.13% - 7.75% Notes Due 2004-2027 2,000
8.88% - 9.38% Senior Notes Due 2004-2006 672
7.13% - 8.25% Senior Debentures due 2023-2027 1,437
6.13% - 7.50% Senior Notes Due 2004-2012 1,936
Capital lease obligations (maturing through 2002) 437
Other debt (maturing through 2008) 1,644
--------
22,989
Notional debt allocated to WorldCom group (16,989)
--------
Notional debt allocated to MCI group $6,000
========

See Note H of the Company's interim consolidated financial
statements for additional debt descriptions.

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<PAGE>

(H) CONTINGENCIES

MCI group shareholders are subject to all of the risks related to
an investment in the Company and MCI group, including the effects
of any legal proceedings and claims against WorldCom group.

See Note I to the Company's interim consolidated financial
statements for information related to the Company's contingencies.

(I) RELATED PARTY TRANSACTIONS

See Note J to the Company's interim consolidated financial
statements for information pertaining to the Company's related
party transactions.

(J) RECENTLY ISSUED ACCOUNTING STANDARDS

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In June
2000, the SEC issued an amendment to SAB 101 which allows
registrants to wait until the fourth quarter of their fiscal year
beginning after December 15, 1999 to implement SAB 101. SAB 101
provides guidance on the recognition, presentation and disclosure
of revenue in financial statements filed with the SEC. The
deferral of telecommunications service activation fees and certain
related costs are specifically addressed in SAB 101. The Company
is currently assessing the impact of SAB 101 on its consolidated
results of operations and financial position and there can be no
assurance as to the effect on the MCI group's combined financial
statements.

In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability
measured at its fair value. This statement requires that changes
in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement, and requires a company to formally document, designate
and assess the effectiveness of transactions that receive hedge
accounting. This statement is currently effective for fiscal years
beginning after June 15, 2000 and cannot be applied retroactively,
although earlier adoption is encouraged. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997 (and,
at the Company's election, before January 1, 1998). The Company
believes that the adoption of this standard will not have a

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<PAGE>

material effect on MCI group's combined results of operations or
financial position.

(K) SUBSEQUENT EVENT

On November 1, 2000, the Company announced the Recapitalization
proposal as more fully discussed in Note A to these interim
combined financial statements.

If all or substantially all of the WorldCom group or MCI group
attributed assets are sold, the relevant shareholders will receive
either: (i) a distribution equal to the fair value of the net
proceeds of the sale, either by special dividend or by redemption
of shares; or (ii) a number of shares of the Company's stock having
been calculated in accordance with a predetermined conversion
premium.

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<PAGE>

ANNEX I

ARTICLES OF AMENDMENT
TO THE SECOND
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF WORLDCOM, INC.

1. The name of the Corporation is WorldCom, Inc.

2. Effective the date hereof, Section A of Article Four of the
Second Amended and Restated Articles of Incorporation of the
Corporation is hereby amended by deleting the text thereof and
substituting therefor the text of the amendments attached hereto
as Exhibit A.

3. All other provisions of the Second Amended and Restated Articles
of Incorporation shall remain in full force and effect.

4. The provisions of Section A of Article Four of the Second
Amended and Restated Articles of Incorporation were duly
approved by the shareholders of the Corporation in accordance
with the provisions of Section 14-2-1003 of the Georgia Business
Corporation Code on the day of ,
2001.

5. The provisions of Section A of Article Four of the Second
Amended and Restated Articles of Incorporation were duly adopted
and authorized by the Board of Directors of the Corporation on
, 2001.

IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed by its duly authorized officer, this
day of , 2001.

WORLDCOM, INC.

By:________________________
Name:
Title:

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<PAGE>

EXHIBIT A

A. COMMON STOCK. There shall be two series of common stock
created, having the number of shares and the voting powers,
preferences, designations, rights, qualifications, limitations or
restrictions set forth below:

(i) WORLDCOM STOCK. One series of common stock of the
Corporation is hereby created and designated as "WorldCom, Inc. --
WorldCom Group Common Stock" ("WorldCom Stock") consisting of
shares.

(ii) MCI STOCK. One series of common stock of the Corporation
is hereby created and designated as "WorldCom, Inc. -- MCI Group
Common Stock" ("MCI Stock") consisting of shares.

(iii) Upon the date on which this Section A of Article 4 shall
become effective, and without any further action on the part of the
Corporation or its stockholders, each share of the Corporation's
common stock, par value $0.01 per share, that is issued and
outstanding shall be changed into one share of WorldCom Stock and
1/25 (0.04) of a share of MCI Stock.

(iv) For the purpose of making "lawful and adequate provision" to
implement the existing right of the holders of the Company's Series
B Convertible Preferred Stock to acquire and receive upon the
conversion of the Series B Convertible Preferred Stock such shares
of stock issuable with respect to or in exchange for each
outstanding share of the Company's "Common Stock" (as such term is
defined in Exhibit B to these Second Amended and Restated Articles
of Incorporation) as would have been received upon conversion of
the Series B Convertible Preferred Stock at the "Conversion Rate"
(as such term is defined in Section 5(a) of said Exhibit B) then in
effect, all references to a share of "Common Stock" of the Company
in Section 5 and Section 7 of Exhibit B shall be deemed, from and
after the date on which this Section A of Article 4 shall become
effective, to refer to one share of WorldCom Stock and 0.04 of a
share of MCI Stock (or such other number and designation of shares
as may then be applicable following lawful adjustment pursuant to
Section 6 of Exhibit B).

SECTION 1. DISTRIBUTIONS AND SHARE DIVIDENDS. Subject to
the prior and superior or other rights of the holders of the preferred
stock or any other shares of the Corporation and subject to the
limitations provided for below in this Section 1, distributions
and share dividends may be declared and paid upon either series
of common stock, as the board of directors may determine and
with the effects provided for in these Second Amended and
Restated Articles of Incorporation.

A-2

<PAGE>

(A) DISTRIBUTIONS ON WORLDCOM STOCK. Distributions on WorldCom
Stock may be declared and paid only out of the lesser of:

(i) the funds legally available for that purpose; and

(ii) the WorldCom Group Available Distribution Amount.

(B) DISTRIBUTIONS ON MCI STOCK. Distributions on MCI Stock may be
declared and paid only out of the lesser of:

(i) the funds legally available for that purpose; and

(ii) the MCI Group Available Distribution Amount.

(C) ADDITIONAL LIMITATIONS ON DISTRIBUTIONS AND SHARE DIVIDENDS.
The board of directors may declare and pay share dividends of WorldCom
Stock and MCI Stock (or distributions of Convertible Securities
convertible into or exchangeable or exercisable for shares of WorldCom
Stock or MCI Stock) or distributions of assets (including securities) or
properties attributed to the WorldCom Group or the MCI Group on shares of
common stock only as follows or as permitted by Section 4:

(i) on shares of WorldCom Stock-share dividends of WorldCom
Stock (or distributions of Convertible Securities convertible into or
exchangeable or exercisable for shares of WorldCom Stock) or
distributions of assets (including securities) or properties
attributed to the WorldCom Group;

(ii) on shares of MCI Stock-share dividends of MCI Stock (or
distributions of Convertible Securities convertible into or
exchangeable or exercisable for shares of MCI Stock) or distributions
of assets (including securities) or properties attributed to the
MCI Group;

(iii) on shares of MCI Stock-share dividends of WorldCom Stock
(or distributions of Convertible Securities convertible into or
exchangeable or exercisable for shares of WorldCom Stock), but only
if (x) the MCI Group is a Holder Group holding an Inter-Group Interest
in the WorldCom Group and (y) the sum of:

(1) the number of shares of WorldCom Stock to be so issued
(or the number of such shares that would be issuable upon
conversion, exchange or exercise of any Convertible Securities
to be so issued); and

A-3

<PAGE>

(2) the number of shares of WorldCom Stock that are
issuable upon conversion, exchange or exercise of any Convertible
Securities then outstanding that are attributed as a liability
to, or an equity interest in, the MCI Group

is less than or equal to the Number of Shares Issuable with Respect
to the Inter-Group Interest in the WorldCom Group held by the MCI
Group;

(iv) on shares of WorldCom Stock-share dividends of MCI Stock
(or distributions of Convertible Securities convertible into or
exchangeable or exercisable for shares of MCI Stock), but only if
(x) the WorldCom Group is a Holder Group holding an Inter-Group
Interest in the MCI Group and (y) the sum of:

(1) the number of shares of MCI Stock to be so issued (or
the number of such shares that would be issuable upon conversion,
exchange or exercise of any Convertible Securities to be so
issued); and

(2) the number of shares of MCI Stock that are issuable
upon conversion, exchange or exercise of any Convertible
Securities then outstanding that are attributed as a liability
to, or an equity interest in, the WorldCom Group

is less than or equal to the Number of Shares Issuable with Respect
to the Inter-Group Interest in the MCI Group held by the WorldCom
Group;

(v) on shares of MCI Stock-distributions of assets (including
securities) or properties attributed as an asset to the WorldCom
Group, but only if the number or amount of such assets (including
securities) or properties to be so paid is less than or equal to the
product of:

(1) the number or amount of such assets (including
securities) or properties to be paid concurrently to holders of
outstanding WorldCom Stock; and

(2) a fraction (which may be greater than one), the
numerator of which is equal to the Number of Shares Issuable
with Respect to the Inter-Group Interest in the WorldCom Group
held by the MCI Group and the denominator of which is equal to
the number of outstanding shares of WorldCom Stock, in each case,
on the record date for such distribution; and

A-4

<PAGE>

(vi) on shares of WorldCom Stock-distributions of assets
(including securities) or properties attributed as an asset to the MCI
Group, but only if the number or amount of such assets (including
securities) or properties to be so paid is less than or equal to the
product of:

(1) the number or amount of such assets (including
securities) or properties to be paid concurrently to holders of
outstanding MCI Stock; and

(2) a fraction (which may be greater than one), the
numerator of which is equal to the Number of Shares Issuable
with Respect to the Inter-Group Interest in the MCI Group held
by the WorldCom Group and the denominator of which is equal to
the number of outstanding shares of MCI Stock, in each case, on
the record date for such distribution.

For purposes of this Section 1(C), any outstanding Convertible
Securities that are convertible into or exchangeable or exercisable
for any other Convertible Securities which are themselves
convertible into or exchangeable or exercisable for any series of
common stock (or other Convertible Securities that are so
convertible, exchangeable or exercisable) shall be deemed to have
been converted, exchanged or exercised in full for such Convertible
Securities.

(D) DISCRIMINATION BETWEEN SERIES OF COMMON STOCK. The board of
directors, subject to the provisions of this Section 1, may at any time
declare and pay distributions and share dividends exclusively on WorldCom
Stock or exclusively on MCI Stock, in equal or unequal amounts,
notwithstanding the relationship between the Available Distribution
Amount with respect to either Group, the amount of distributions and
share dividends previously declared or paid on either series, the
respective voting or liquidation rights of either series or other factor.

SECTION 2. VOTING RIGHTS.

(A) GENERAL. Except as otherwise provided by law, by the terms of
any outstanding preferred stock or by any provision in these Second
Amended and Restated Articles of Incorporation allocating the power to
vote on a specified matter to other shareholders or in a different manner,
the common stock shall together have unlimited voting rights. Both series
of common stock shall vote on all matters together as a single voting
group, except as otherwise provided by law or by any provision in these
Second Amended and Restated Articles of Incorporation.

A-5

<PAGE>

(B) NUMBER OF VOTES FOR EACH SERIES OF COMMON STOCK. On each matter
to be voted on by the holders of each series of common stock voting
together as a single voting group, the number of votes per share of each
series shall be as follows:

(i) each outstanding share of WorldCom Stock shall have one
vote; and

(ii) each outstanding share of MCI Stock shall have a number of
votes (including a fraction of one vote) equal to the quotient,
rounded to the nearest 1/10,000 (.0001), of (1) the average Market
Value of one share of MCI Stock during the 20-Trading Day period
ending on the tenth Trading Day prior to the record date for
determining the shareholders entitled to vote, divided by (2) the
average Market Value of one share of WorldCom Stock during such
20-Trading Day period.

Notwithstanding the foregoing provisions of this Section 2(B), if
shares of only one series of common stock are outstanding on the
record date for determining the holders of common stock entitled to
vote on any matter, then each share of that series shall be
entitled to one vote and, if either series of common stock is
entitled to vote as a separate voting group with respect to any
matter, each share of that series shall, for the purpose of such
vote, be entitled to one vote on such matter.

SECTION 3. LIQUIDATION RIGHTS.

(A) GENERAL. In the event of any voluntary or involuntary
dissolution of the Corporation, after payment or provision for payment of
the debts and other liabilities of the Corporation and after making
provision for any outstanding preferred stock and any other shares prior
and superior to common stock as to payments upon dissolution (regardless
of the Group to which such shares are attributed), the holders of WorldCom
Stock and MCI Stock shall be entitled to receive the net assets of the
Corporation remaining for distribution to holders of the common stock
(regardless of the Group to which such assets are then attributed) in an
amount determined on a per share basis in proportion to the liquidation
units per share of such series.

For purposes of this Section 3, neither (x) the voluntary sale,
lease, exchange or other disposition of all or substantially all of
the property or assets of the Corporation; (y) a merger of the
Corporation or a share exchange by the Corporation with one or more
other corporations (whether or not the Corporation is the
corporation surviving such merger or the acquiring company in such
share exchange); nor (z) any transaction or event pursuant to

A-6

<PAGE>

Section 4 shall be deemed a voluntary or involuntary dissolution of
the Corporation.

(B) LIQUIDATION UNITS FOR EACH SERIES OF COMMON STOCK. The
liquidation units per share of each series of common stock shall be
as follows:

(i) each share of WorldCom Stock shall have one liquidation
unit; and

(ii) each share of MCI Stock shall have 1/25 of one
liquidation unit.

provided that, if the Corporation shall in any manner subdivide (by
stock split, reclassification or otherwise) or combine (by reverse
stock split, reclassification or otherwise) the outstanding shares
of either series of common stock, or declare and pay a share
dividend of either series of common stock to holders of such
series, the per share liquidation units of the series of common
stock, as adjusted from time to time, shall be appropriately
adjusted, as determined by the board of directors, so as to avoid
any dilution in the aggregate, relative liquidation rights of the
shares of either series of common stock.

SECTION 4. SPECIAL DISTRIBUTIONS ON, AND CONVERSION OR REDEMPTION
OF, WORLDCOM STOCK AND MCI STOCK.

(A) SPECIAL DISTRIBUTIONS ON, AND CONVERSION OR REDEMPTION OF,
WORLDCOM STOCK IF A DISPOSITION OF ALL OR SUBSTANTIALLY ALL ASSETS OF THE
WORLDCOM GROUP OCCURS. (i) In the event of the Disposition, in one
transaction or a series of related transactions (other than in one or a
series of Excluded Transactions), by the Corporation and/or its
subsidiaries of all or substantially all of the businesses, assets,
properties and liabilities attributed to the WorldCom Group, the
Corporation shall, on or prior to the 120th Trading Day after the
Disposition Date, as determined by the board of directors in its sole
discretion:

(1) provided that there are funds legally available for
the purpose:

(a) subject to compliance with Section 1, pay to the
holders of the shares of WorldCom Stock a distribution
pro rata in accordance with the number of shares of
WorldCom Stock held by each such holder in cash and/or
securities or other property having a Fair Value as of
the Disposition Date in the aggregate equal to the
product of:

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<PAGE>

(x) the Outstanding Interest Fraction with
respect to WorldCom Stock as of the record date for
determining holders entitled to receive such
distribution; and

(y) the Fair Value as of the Disposition Date
of the Net Proceeds of such Disposition; or

(b) (I) subject to the last sentence of this
Section 4(A)(i), if such Disposition involves all (not
merely substantially all) of the businesses, assets,
properties and liabilities attributed to the WorldCom
Group, redeem or exchange as of the Redemption Date,
determined as provided by Section 4(G)(iii)(2), all
outstanding shares of WorldCom Stock in exchange for, on
a pro rata basis, cash and/or securities (other than
shares of a series of common stock) or other property
having a Fair Value as of the Disposition Date in the
aggregate equal to the product of:

(x) the Outstanding Interest Fraction with
respect to WorldCom Stock as of the record date for
determining holders entitled to receive such
distribution; and

(y) the Fair Value of the Disposition Date of the
Net Proceeds of such Disposition; or

(II) subject to the last sentence of this Section
4(A)(i), if such Disposition involves substantially all
(but not all) of the businesses, assets, properties and
liabilities attributed to the WorldCom Group, redeem or
exchange as of the Redemption Date, determined as
provided by Section 4(G)(iv)(2), the number of whole
shares of WorldCom Stock equal to the lesser of:

(x) the number of shares of WorldCom Stock
outstanding; and

(y) such number of shares of WorldCom Stock as
have in the aggregate an average Market Value during
the period of ten consecutive Trading Days beginning on
the 51st Trading Day immediately succeeding the
Disposition Date closest to the product of:

A-8

<PAGE>

(AA) the Outstanding Interest Fraction with
respect to WorldCom Stock as of the record date
for determining such shares selected for
redemption or exchange; and

(BB) the Fair Value as of the Disposition
Date of the Net Proceeds of such Disposition,

in exchange for, on a pro rata basis, cash and/or securities (other than
shares of a series of the Corporation's common stock) or other property
having a Fair Value as of the Disposition Date in the aggregate equal to
such product; or

(2) declare that each outstanding share of MCI Stock shall
be converted as of the Conversion Date, determined as provided by
Section 4(G)(v)(2), into a number of fully paid and nonassessable
shares of WorldCom Stock, equal to the ratio, rounded to the
nearest 1/10,000 (.0001), of the average Market Value of one
share of MCI Stock over the period of ten consecutive Trading
Days beginning on the 51st Trading Day following the Disposition
Date to the average Market Value of one share of WorldCom Stock
during such ten-Trading Day period.

Notwithstanding the foregoing provisions of this Section 4(A)(i), the
Corporation shall redeem or exchange shares of WorldCom Stock as provided
by Section 4(A)(i)(1)(b)(I) or (II) only if the amount to be paid in
redemption or exchange of such stock is less than or equal to the WorldCom
Group Available Distribution Amount as of the Redemption Date.

(ii) For purposes of this Section 4(A):

(1) as of any date, "substantially all of the businesses,
assets, properties and liabilities" attributed to the WorldCom
Group shall mean a portion of such businesses, assets, properties
and liabilities that represents at least 80% of the Fair Value of
the businesses, assets, properties and liabilities attributed to
the WorldCom Group as of such date;

(2) in the case of a Disposition of the businesses, assets,
properties and liabilities attributed to the WorldCom Group in a
series of related transactions, such Disposition shall not be
deemed to have been consummated until the consummation of the
last of such transactions; and

(3) the board of directors may pay any distribution or
redemption price referred to in Section 4(A)(i)(1) in cash,
securities (other than shares of a series of the Corporation's

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common stock) or other property, regardless of the form or nature
of the proceeds of the Disposition.

(iii) After the payment of any distribution or redemption price
with respect to the WorldCom Stock as provided for by Section
4(A)(i)(1), the board of directors may declare that each share
of WorldCom Stock remaining outstanding shall be converted as of
a Conversion Date, determined as provided by Section 4(G)(v)(2),
into a number of fully paid and nonassessable shares of MCI
Stock equal to the ratio, rounded to the nearest 1/10,000
(.0001), of the average Market Value of one share of WorldCom
Stock during the period of 20 consecutive Trading Days ending on
the fifth Trading Day immediately preceding the date of the
notice of such conversion required by Section 4(G)(v) to the
average Market Value of one share of MCI Stock during such
20-Trading Day period.

(B) SPECIAL DISTRIBUTIONS ON, AND CONVERSION AND REDEMPTION OF, MCI
STOCK IF A DISPOSITION OF ALL OR SUBSTANTIALLY ALL ASSETS OF THE MCI GROUP
OCCURS. (i) In the event of the Disposition, in one transaction or a
series of related transactions (other than in one or a series of Excluded
Transactions), by the Corporation and/or its subsidiaries of all or
substantially all of the businesses, assets, properties and liabilities
attributed to the MCI Group, the Corporation shall, on or prior to the
120th Trading Day after the Disposition Date, as determined by the
board of directors in its sole discretion:

(1) provided that there are funds legally available for
the purpose:

(a) subject to compliance with Section 1, pay to the
holders of the shares of MCI Stock a distribution pro rata
in accordance with the number of shares of MCI Stock held by
each such holder, in cash and/or securities or other
property having a Fair Value as of the Disposition Date in
the aggregate equal to the product of:

(x) the Outstanding Interest Fraction with
respect to MCI Stock as of the record date for
determining holders entitled to receive such
distribution; and

(y) the Fair Value as of the Disposition Date of
the Net Proceeds of such Disposition; or

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(b) (I) subject to the last sentence of this Section
4(B)(i), if such Disposition involves all (not merely
substantially all) of the businesses, assets, properties
and liabilities attributed to the MCI Group, redeem or
exchange as of the Redemption Date, determined as provided
by Section 4(G)(iii)(2), all outstanding shares of MCI
Stock in exchange for, on a pro rata basis, cash and/or
securities (other than shares of a series of common stock)
or other property having a Fair Value as of the
Disposition Date in the aggregate equal to the product of:

(x) the Outstanding Interest Fraction with
respect to MCI Stock as of such Redemption Date; and

(y) the Fair Value as of the Disposition Date of
the Net Proceeds of such Disposition; or

(II) subject to the last sentence of this Section
4(B)(i), if such Disposition involves substantially all (but
not all) of the businesses, assets, properties and
liabilities attributed to the MCI Group, redeem or exchange
as of the Redemption Date, determined as provided by Section
4(G)(iv)(2), the number of whole shares of MCI Stock equal
to the lesser of:

(x) the number of shares of MCI Stock
outstanding; and

(y) such number of MCI Stock as have in the
aggregate an average Market Value during the period of
ten consecutive Trading Days beginning on the 51st
Trading Day immediately succeeding the Disposition Date
closest to the product of:

(AA) the Outstanding Interest Fraction with
respect to MCI Stock as of the record date for
determining such shares selected for redemption
or exchange; and

(BB) the Fair Value as of the Disposition
Date of the Net Proceeds of such Disposition,

in exchange for, on a pro rata basis, cash and/or securities
(other than shares of a series of the Corporation's common
stock) or other property having a Fair Value as of the
Disposition Date in the aggregate equal to such product; or

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(2) declare that each outstanding share of MCI Stock shall
be converted as of the Conversion Date, determined as provided by
Section 4(G)(v)(2), into a number of fully paid and nonassessable
shares of WorldCom Stock equal to 110% (if the disposition is
consummated within three years of the date of the Initial
Issuance Date or 100% thereafter), of the ratio, rounded to the
nearest 1/10,000 (.0001), of the average Market Value of one
share of MCI Stock over the period of ten consecutive Trading
Days beginning on the 51st Trading Day following the Disposition
Date to the average Market Value of one share of WorldCom Stock
during such ten-Trading Day period.

Notwithstanding the foregoing provisions of this Section 4(B)(i),
the Corporation shall redeem or exchange shares of MCI Stock as
provided by Section 4(B)(i)(1)(b)(I) or (II) only if the amount to
be paid in redemption or exchange of such stock is less than or
equal to the MCI Group Available Distribution Amount as of the
Redemption Date.

(ii) For purposes of this Section 4(B):

(1) as of any date, "substantially all of the businesses,
assets, properties and liabilities" attributed to the MCI Group
shall mean a portion of such businesses, assets, properties and
liabilities that represents at least 80% of the Fair Value of the
businesses, assets, properties and liabilities attributed to the
MCI Group as of such date;

(2) in the case of a Disposition of the businesses, assets,
properties and liabilities attributed to the MCI Group in a
series of related transactions, such Disposition shall not be
deemed to have been consummated until the consummation of the
last of such transactions; and

(3) the board of directors may pay any distribution or
redemption price referred to in Section 4(B)(i)(1) in cash,
securities (other than shares of a series of the Corporation's
common stock) or other property, regardless of the form or
nature of the proceeds of the Disposition.

(C) CONVERSION OF MCI STOCK AT CORPORATION'S OPTION AT ANY TIME OR IF
A TAX EVENT OCCURS. (i) The Board of Directors may at any time declare
that each outstanding share of MCI Stock shall be converted, as of the
Conversion Date, determined as provided by Section 4(G)(v)(2), into a
number of fully paid and nonassessable shares of WorldCom Stock, equal to
the applicable percentage set forth in the following sentence of the
ratio, rounded to the nearest 1/10,000 (.0001), of the average Market

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<PAGE>

Value of one share of MCI Stock over the period of 20 consecutive Trading
Days ending on the fifth Trading Day immediately preceding the date of
the notice of conversion required by Section 4(G)(v) to the average Market
Value of one share of WorldCom Stock during such 20-Trading Day period.
The applicable percentage referred to in the preceding sentence shall
equal:

(1) prior to the third anniversary of the Initial Issuance
Date, 110%; and

(2) on or after the third anniversary of the Initial
Issuance Date, 100%.

(ii) If a Tax Event occurs, the board of directors may at any
time declare that each outstanding share of MCI Stock shall be
converted, as of the Conversion Date, determined as provided by
Section 4(G)(v)(2), into a number of fully paid and nonassessable
shares of WorldCom Stock equal to 100% of the ratio, rounded to the
nearest 1/10,000 (.0001), of the average Market Value of one share of
MCI Stock over the period of 20 consecutive Trading Days ending on
the fifth Trading Day immediately preceding the date of the notice of
conversion required by Section 4(G)(v) to the average Market Value of
one share of WorldCom Stock or Additional Group Stock, as applicable,
during such 20-Trading Day period.

(D) REDEMPTION OF WORLDCOM STOCK FOR WORLDCOM SUBSIDIARY STOCK. At
any time at which all of the businesses, assets, properties and
liabilities attributed to the WorldCom Group (and no other businesses,
assets, properties or liabilities of the Corporation or any subsidiary
thereof) are held directly or indirectly by one or more wholly owned
subsidiaries of the Corporation (each, a "WorldCom Subsidiary"), the
board of directors may, subject to the satisfaction of such conditions
that it determines are appropriate, provided that there are funds legally
available for the purpose:

(i) if neither Group holds an Inter-Group Interest in the other
Group, redeem or exchange all of the outstanding shares of WorldCom
Stock, on a Redemption Date of which notice is delivered in accordance
with Section 4(G)(vi), in exchange for all of the shares of common
stock of each WorldCom Subsidiary as will be outstanding immediately
following such exchange of shares; such shares of common stock of each
WorldCom Subsidiary shall be delivered to the holders of shares of
WorldCom Stock on the Redemption Date either directly or indirectly
through the delivery of shares of another WorldCom Subsidiary that
owns directly or indirectly all such shares, and shall be divided
among the holders of WorldCom Stock pro rata in accordance with the

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<PAGE>

number of shares of WorldCom Stock held by each such holder on such
Redemption Date; each share of common stock of such WorldCom
Subsidiary shall be, upon such delivery, fully paid and nonassessable;

(ii) if the MCI Group holds an Inter-Group Interest in the
WorldCom Group, redeem or exchange all of the outstanding shares of
WorldCom Stock, on a Redemption Date of which notice is delivered in
accordance with Section 4(G)(vi), in exchange for the number of shares
of common stock of each WorldCom Subsidiary equal to the product of:

(x) the Outstanding Interest Fraction with
respect to WorldCom Stock; and

(y) the number of shares of common stock of such
WorldCom Subsidiary as will be outstanding immediately
following such exchange of shares;

such shares of common stock of each WorldCom Subsidiary shall be
delivered to the holders of shares of WorldCom Stock on the
Redemption Date either directly or indirectly through the delivery
of shares of another WorldCom Subsidiary that owns directly or
indirectly all such shares, and shall be divided among the holders
of WorldCom Stock pro rata in accordance with the number of shares
of WorldCom Stock held by each such holder on such Redemption Date;
each share of common stock of such WorldCom Subsidiary shall be,
upon such delivery, fully paid and nonassessable; or

(iii) if the WorldCom Group holds an Inter-Group Interest in the
MCI Group, either:

(1) redeem or exchange all of the outstanding shares of
WorldCom Stock, on a Redemption Date of which notice is delivered
in accordance with Section 4(G)(vi), in exchange for:

(a) all of the shares of common stock of each WorldCom
Subsidiary as will be outstanding immediately following such
exchange of shares; and

(b) with respect to the MCI Group, a number of shares
of MCI Stock equal to the related Number of Shares Issuable
with Respect to the Inter-Group Interest in the MCI Group
held by the WorldCom Group;

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<PAGE>

indirectly all such shares, and the shares of common stock of each
WorldCom Subsidiary and the shares of MCI Stock equal to the
related Number of Shares Issuable with Respect to the Inter-Group
Interest in the MCI Group held by the WorldCom Group shall be
divided among the holders of WorldCom Stock pro rata in accordance
with the number of shares of WorldCom Stock held by each such
holder on such Redemption Date; each share of common stock of each
WorldCom Subsidiary and share of MCI Stock in respect of such
Number of Shares Issuable with Respect to the Inter-Group Interest
shall be, upon such delivery, fully paid and nonassessable; or

(2) (a) redeem or exchange all of the outstanding shares of
WorldCom Stock as contemplated by clause (1)(a) above and
(b) issue to one or more of the WorldCom Subsidiaries a number of
shares of MCI Stock equal to the Number of Shares Issuable with
Respect to the Inter-Group Interest in the MCI Group held by the
WorldCom Group.

(E) REDEMPTION OF MCI STOCK FOR MCI SUBSIDIARY STOCK. At any time at
which all of the businesses, assets, properties and liabilities attributed
to the MCI Group (and no other businesses, assets, properties or
liabilities of the Corporation or any subsidiary thereof) are held
directly or indirectly by one or more wholly owned subsidiaries of the
Corporation (each, a "MCI Subsidiary"), the Board of Directors may,
subject to the satisfaction of such conditions that it determines are
appropriate, provided that there are funds legally available for the
purpose:

(i) if neither Group holds an Inter-Group Interest in the other
Group, redeem or exchange all of the outstanding shares of MCI Stock,
on a Redemption Date of which notice is delivered in accordance with
Section 4(G)(vi), in exchange for all of the shares of common stock of
each MCI Subsidiary as will be outstanding immediately following such
exchange of shares; such shares of common stock of each MCI Subsidiary
shall be delivered to the holders of shares of MCI Stock on the
Redemption Date either directly or indirectly through the delivery of
shares of another MCI Subsidiary that owns directly or indirectly all
such shares, and shall be divided among the holders of MCI Stock pro
rata in accordance with the number of shares of MCI Stock held by each
such holder on such Redemption Date; each share of common stock of
such MCI Subsidiary shall be, upon such delivery, fully paid and
nonassessable;

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<PAGE>

(ii) if the WorldCom Group holds an Inter-Group Interest in the
MCI Group, redeem or exchange all of the outstanding shares of MCI
Stock, on a Redemption Date of which notice is delivered in accordance
with Section 4(G)(vi), in exchange for the number of shares of common
stock of each MCI Subsidiary equal to the product of:

(x) the Outstanding Interest Fraction with
respect to MCI Stock; and

(y) the number of shares of common stock of such
MCI Subsidiary as will be outstanding immediately
following such exchange of shares;

such shares of common stock of each MCI Subsidiary shall be
delivered to the holders of shares of MCI Stock on the Redemption
Date either directly or indirectly through the delivery of shares
of another MCI Subsidiary that owns directly or indirectly all such
shares, and shall be divided among the holders of MCI Stock pro
rata in accordance with the number of shares of MCI Stock held by
each such holder on such Redemption Date; each share of common
stock of such MCI Subsidiary shall be, upon such delivery, fully
paid and nonassessable; or

(iii) if the MCI Group holds an Inter-Group Interest in the
WorldCom Group, either:

(1) redeem or exchange all of the outstanding shares of MCI
Stock, on a Redemption Date of which notice is delivered in
accordance with Section 4(G)(vi), in exchange for:

(a) all of the shares of common stock of each MCI
Subsidiary as will be outstanding immediately following such
exchange of shares; and

(b) with respect to the WorldCom Group, a number of
shares of WorldCom Stock equal to the related Number of
Shares Issuable with Respect to the Inter-Group Interest in
the WorldCom Group held by the MCI Group;

such shares of common stock of each MCI Subsidiary shall be
delivered to the holders of shares of MCI Stock on the Redemption
Date either directly or indirectly through the delivery of shares
of another MCI Subsidiary that owns directly or indirectly all such
shares, and the shares of common stock of each MCI Subsidiary and
the shares of common stock of each series equal to the related

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<PAGE>

Number of Shares Issuable with Respect to the Inter-Group Interest
in the WorldCom Group held by the MCI Group shall be divided among
the holders of MCI Stock pro rata in accordance with the number of
shares of MCI Stock held by each such holder on such Redemption
Date; each share of common stock of each MCI Subsidiary and share
of common stock in respect of such Number of Shares Issuable with
Respect to the Inter-Group Interest shall be, upon such delivery,
fully paid and nonassessable; or

(2) (a) redeem or exchange all of the outstanding shares of
MCI Stock as contemplated by clause (1)(a) above and (b) issue to
one or more of the MCI Subsidiaries a number of shares of
WorldCom Stock equal to the Number of Shares Issuable with
Respect to the Inter-Group Interest in the WorldCom Group held by
the MCI Group.

(F) TREATMENT OF CONVERTIBLE SECURITIES. After any Redemption Date
or Conversion Date on which all outstanding shares of either WorldCom
Stock or MCI Stock are redeemed or converted, any share of any series of
common stock of the Corporation that is to be issued on exchange,
conversion or exercise of any Convertible Securities shall, immediately
upon such exchange, conversion or exercise and without any notice from or
to, or any other action on the part of, the Corporation or its board of
directors or the holder of such Convertible Security:

(i) in the event the shares of such series of common stock
outstanding on such Redemption Date were redeemed pursuant to
Section 4(A)(i)(1)(b)(I), Section 4(B)(i)(1)(b)(I), Section 4(D) or
Section 4(E), be redeemed, to the extent of funds legally available
therefor, for $.01 per share in cash for each share of such series of
common stock that otherwise would be issued upon such exchange,
conversion or exercise; or

(ii) in the event the shares of such series of common stock
outstanding on such Conversion Date were converted into shares of
another series of common stock pursuant to Section 4(A)(i)(2),
Section 4(A)(iii), Section 4(B)(i)(2) or Section 4(C), be converted
into the amount of cash and/or the number of shares of the kind of
capital stock and/or other securities or property of the Corporation
that shares of such series of common stock would have received had
such shares been converted and outstanding on such Conversion Date.

The provisions of the immediately preceding sentence of this
Section 4 shall not apply to the extent that other adjustments or
alternative provisions in respect of such conversion, exchange or
redemption of a series of common stock are otherwise made or
applied pursuant to the provisions of such Convertible Securities.

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<PAGE>

(G) NOTICE AND OTHER PROVISIONS. (i) Not later than the 45th
Trading Day following the Disposition Date referred to in Section 4(A)(i)
(in the case of WorldCom Stock) or Section 4(B)(i) (in the case of MCI
Stock), the Corporation shall announce publicly by press release:

(1) the Net Proceeds of such Disposition;

(2) the number of shares outstanding of the series of
common stock relating to the Group subject to such Disposition;

(3) the number of shares of such series of common stock
into or for which Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or
exercise price thereof; and

(4) if applicable for the Group subject to such
Disposition, the Outstanding Interest Fraction for the series of
common stock relating to such Group on the date of such notice.

Not earlier than the 61st Trading Day and not later than the 65th
Trading Day following the Disposition Date, the Corporation shall
announce publicly by press release which of the actions specified
in Section 4(A)(i) or Section 4(B)(i), as the case may be, it has
irrevocably determined to take in respect of such Disposition.

(ii) If the Corporation determines to pay a distribution
pursuant to Section 4(A)(i)(1)(a) (in the case of WorldCom Stock) or
Section 4(B)(i)(1)(a) (in the case of MCI Stock), the Corporation
shall, not later than the 65th Trading Day following the
Disposition Date, cause notice to be given to each holder of shares of
the series of common stock relating to the Group subject to such
Disposition and to each holder of Convertible Securities that are
convertible into or exchangeable or exercisable for shares of such
series of common stock (unless alternate provision for such notice to
the holders of such Convertible Securities is made pursuant to the
terms of such Convertible Securities), setting forth:

(1) the record date for determining holders entitled to
receive such distribution, which shall be not earlier
than the tenth Trading Day and not later than the 20th
Trading Day following the date of such notice;

(2) the anticipated payment date of such distribution
(which shall not be more than 120 Trading Days following the
Disposition Date);

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<PAGE>

(3) the type of property to be paid as such distribution in
respect of the outstanding shares of such series of common stock;

(4) the Net Proceeds of such Disposition;

(5) if applicable for the Group subject to such Disposition,
the Outstanding Interest Fraction for the series of common stock
relating to such Group on the date of such notice;

(6) the number of outstanding shares of such series of
common stock and the number of shares of such series of common
stock into or for which outstanding Convertible Securities are
then convertible, exchangeable or exercisable and the conversion,
exchange or exercise price thereof; and

(7) in the case of notice to be given to holders of
Convertible Securities, a statement to the effect that a holder
of such Convertible Securities shall be entitled to receive such
distribution only if such holder properly converts, exchanges or
exercises such Convertible Securities on or prior to the record
date referred to in clause (1) of this sentence.

(iii) If the Corporation determines to undertake a redemption
pursuant to Section 4(A)(i)(1)(b)(I) (in the case of WorldCom Stock)
or Section 4(B)(i)(1)(b)(I) (in the case of MCI Stock), the
Corporation shall, not earlier than the 45th Trading Day and not later
than the 35th Trading Day prior to the Redemption Date, cause notice
to be given to each holder of shares of the series of common stock
relating to the Group subject to the Disposition referred to in such
Section and to each holder of Convertible Securities convertible into
or exchangeable or exercisable for shares of such series of common
stock (unless alternate provision for such notice to the holders of
such Convertible Securities is made pursuant to the terms of such
Convertible Securities), setting forth:

(1) a statement that all shares of such series of common
stock outstanding on the Redemption Date shall be redeemed;

(2) the Redemption Date (which shall not be more than 120
Trading Days following the Disposition Date);

(3) the type of property in which the redemption price for
the shares of such series of common stock to be redeemed is to
be paid;

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<PAGE>

(4) the Net Proceeds of such Disposition;

(5) if applicable for the Group subject to such
Disposition, the Outstanding Interest Fraction for the
series of common stock relating to such Group on the date of such
notice;

(6) the place or places where certificates for shares of
such series of common stock, properly endorsed or assigned for
transfer (unless the Corporation shall waive such requirement),
are to be surrendered for delivery of cash and/or securities or
other property;

(7) the number of outstanding shares of such series of
common stock and the number of shares of such series of common
stock into or for which outstanding Convertible Securities are
then convertible, exchangeable or exercisable and the conversion,
exchange or exercise price thereof;

(8) in the case of notice to be given to holders of
Convertible Securities, a statement to the effect that a holder
of such Convertible Securities shall be entitled to participate
in such redemption only if such holder properly converts,
exchanges or exercises such Convertible Securities on or prior to
the Redemption Date referred to in clause (1) of this sentence
and a statement as to what, if anything, such holder will be
entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, this Section 4 if such holder
thereafter converts, exchanges or exercises such Convertible
Securities; and

(9) a statement to the effect that, except as otherwise
provided by Section 4(G)(x), distributions on shares of such
series of common stock shall cease to be paid as of such
Redemption Date.

(iv) If the Corporation determines to undertake a redemption
pursuant to Section 4(A)(i)(1)(b)(II) (in the case of WorldCom Stock)
or Section 4(B)(i)(1)(b)(II) (in the case of MCI Stock), the
Corporation shall, not later than the 65th Trading Day following the
Disposition Date referred to in such Section, cause notice to be given
to each holder of shares of the series of common stock relating to the
Group subject to such Disposition and to each holder of Convertible
Securities that are convertible into or exchangeable or exercisable
for shares of such series of common stock (unless alternate provision
for such notice to the holders of such Convertible Securities is made
pursuant to the terms of such Convertible Securities) setting forth:

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<PAGE>

(1) a date not earlier than the tenth Trading Day and not
later than the 20th Trading Day following the date of such notice
on which shares of such series of common stock shall be selected
for redemption;

(2) the anticipated Redemption Date (which shall not be
more than 120 Trading Days following the Disposition Date);

(3) the type of property in which the redemption price for
the shares of such series of common stock to be redeemed is to
be paid;

(4) the Net Proceeds of such Disposition;

(5) if applicable for the Group subject to such
Disposition, the Outstanding Interest Fraction for the series of
common stock relating to such Group on the date of such notice;

(7) in the case of notice to be given to holders of
Convertible Securities, a statement to the effect that a holder
of such Convertible Securities shall be eligible to participate
in such selection for redemption only if such holder properly
converts, exchanges or exercises such Convertible Securities on
or prior to the record date referred to in clause (1) of this
sentence, and a statement as to what, if anything, such holder
will be entitled to receive pursuant to the terms of such
Convertible Securities or, if applicable, this Section 4 if such
holder thereafter converts, exchanges or exercises such
Convertible Securities; and

(8) a statement that the Corporation will not be required
to register a transfer of any shares of such series of common
stock for a period of 15 Trading Days next preceding the date
referred to in clause (1) of this sentence.

Promptly following the date referred to in clause (1) of the
preceding sentence, the Corporation shall cause a notice to be
given to each holder of record of shares of such series of common
stock to be redeemed setting forth:

(1) the number of shares of such series of common stock
held by such holder to be redeemed;

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(2) a statement that such shares of such series of common
stock shall be redeemed;

(3) the Redemption Date;

(4) the kind and per share amount of cash and/or securities
or other property to be received by such holder with respect to
each share of such series of common stock to be redeemed,
including details as to the calculation thereof;

(5) the place or places where certificates for shares of
such series of common stock, properly endorsed or assigned for
transfer (unless the Corporation shall waive such requirement),
are to be surrendered for delivery of such cash and/or securities
or other property;

(6) if applicable, a statement to the effect that the
shares being redeemed may no longer be transferred on the
transfer books of the Corporation after the Redemption Date; and

(7) a statement to the effect that, subject to
Section 4(G)(x), dividends on such shares of such series of
common stock shall cease to be paid as of the Redemption Date.

(v) If the Corporation determines to convert WorldCom Stock or
MCI Stock into the other series of common stock pursuant to
Section 4(A)(iii) (in the case of WorldCom Stock) or
Section 4(A)(i)(2), Section 4(B)(i)(2), Section 4(B)(iii) or
Section 4(C) (in the case of MCI Stock), the Corporation shall, not
earlier than the 45th Trading Day and not later than the 35th Trading
Day prior to the Conversion Date, cause notice to be given to each
holder of shares of the series of common stock to be so converted and
to each holder of Convertible Securities that are convertible into or
exchangeable or exercisable for shares of such series of common stock
(unless alternate provision for such notice to the holders of such
Convertible Securities is made pursuant to the terms of such
Convertible Securities) setting forth:

(1) a statement that all outstanding shares of such series
of common stock shall be converted;

(2) the Conversion Date (which, in the case of a conversion
after a Disposition, shall not be more than 120 Trading Days
following the Disposition Date);

(3) the number of shares of the series of common stock to
be received with respect to each share of such series of common
stock, including details as to the calculation thereof;

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(4) the place or places where certificates for shares of
such series of common stock, properly endorsed or assigned for
transfer (unless the Corporation shall waive such requirement),
are to be surrendered for delivery of certificates for shares of
such series of common stock;

(5) the number of outstanding shares of such series of
common stock and the number of shares of such series of common
stock into or for which outstanding Convertible Securities are
then convertible, exchangeable or exercisable and the conversion,
exchange or exercise price thereof;

(6) a statement to the effect that, subject to
Section 4(G)(x), dividends on shares of such series of common
stock shall cease to be paid as of such Conversion Date; and

(7) in the case of notice to holders of such Convertible
Securities, a statement to the effect that a holder of such
Convertible Securities shall be entitled to receive shares of
such series of common stock upon such conversion only if such
holder properly converts, exchanges or exercises such Convertible
Securities on or prior to such Conversion Date and a statement
as to what, if anything, such holder will be entitled to receive
pursuant to the terms of such Convertible Securities or, if
applicable, this Section 4 if such holder thereafter converts,
exchanges or exercises such Convertible Securities.

(vi) If the Corporation determines to redeem shares of WorldCom
Stock pursuant to Section 4(D) or MCI Stock pursuant to Section 4(E),
the Corporation shall, not earlier than the 45th Trading Day and not
later than the 35th Trading Day prior to the Redemption Date, cause
notice to be given to each holder of shares of such series of common
stock to be redeemed and to each holder of Convertible Securities that
are convertible into or exchangeable or exercisable for shares of such
series of common stock (unless alternate provision for such notice to
the holders of such Convertible Securities is made pursuant to the
terms of such Convertible Securities), setting forth:

(1) a statement that all shares of such series of common
stock outstanding on the Redemption Date shall be redeemed in
exchange for shares of common stock of each WorldCom Subsidiary
or MCI Subsidiary, as applicable (and, if such redemption is
pursuant to Section 4(D)(iii)(1) or Section 4(D)(iv)(1) (in the
case of WorldCom Stock) or pursuant to Section 4(E)(iii)(1) or
Section 4(E)(iv)(1) (in the case of MCI Stock), shares of the
series of common stock specified in such Sections);

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(2) if such redemption is conditioned upon the satisfaction
of one or more conditions on or prior to the Redemption Date, a
description of such conditions and whether such conditions may be
waived by the Corporation or another Person;

(3) the Redemption Date;

(4) if applicable for the series of common stock subject to
such redemption, the Outstanding Interest Fraction for such
series of common stock on the date of such notice;

(5) the place or places where certificates for shares of
the series of common stock to be redeemed, properly endorsed or
assigned for transfer (unless the Corporation shall waive such
requirement), are to be surrendered for delivery of certificates
for shares of common stock of each WorldCom Subsidiary or MCI
Subsidiary, as applicable (and, if such redemption is pursuant to
Section 4(D)(iii)(1) or Section 4(D)(iv)(1) (in the case of
WorldCom Stock) or pursuant to Section 4(E)(iii)(1) or
Section 4(E)(iv)(1) (in the case of MCI Stock), shares of the
series of common stock specified in such Sections);

(6) a statement to the effect that, subject to
Section 4(G)(x), dividends on shares of such series of common
stock shall cease to be paid as of such Redemption Date;

(8) in the case of notice to holders of Convertible
Securities, a statement to the effect that a holder of
Convertible Securities shall be entitled to receive shares of
common stock of each WorldCom Subsidiary or MCI Subsidiary, as
applicable (and, if such redemption is pursuant to Section
4(D)(iii)(1) or Section 4(D)(iv)(1) (in the case of a redemption
of WorldCom Stock) or pursuant to Section 4(E)(iii)(1) or
Section 4(E)(iv)(1) (in the case of a redemption of MCI Stock),
shares of the series of common stock specified in such Sections),
upon redemption only if such holder properly converts, exchanges
or exercises such Convertible Securities on or prior to the
Redemption Date and a statement as to what, if anything, such
holder will be entitled to receive pursuant to the terms of such
Convertible Securities or, if applicable, this Section 4, if such
holder thereafter converts, exchanges or exercises such
Convertible Securities.

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<PAGE>

(vii) Any notice required to be given each holder of shares of
common stock or Convertible Securities pursuant to this Section 4(G)
shall be sent by first-class mail, postage prepaid, to each such
holder at such holder's address as the same appears on the transfer
books of the Corporation or the Corporation's transfer agent or
registrar on the record date fixed for such notice. Neither the
failure to mail any notice required by this Section 4(G) to any
particular holder of the common stock or of Convertible Securities nor
any defect therein shall affect the sufficiency thereof with respect
to any other holder of outstanding shares of the common stock or of
Convertible Securities or the validity of any such redemption or
conversion.

(viii) If less than all of the outstanding shares of either
series of common stock are to be redeemed pursuant to Section 4(A)(i)
(1)(b)(II) (in the case of WorldCom Stock) or Section 4(B)(i)(1)(b)
(II) (in the case of MCI Stock), the shares to be redeemed by the
Corporation shall be selected from among the holders of shares of such
series of common stock outstanding at the close of business on the
record date for such redemption on a pro rata basis among all such
holders or by lot or by such other method as may be determined by the
Board of Directors to be equitable.

(ix) The Corporation shall not be required to issue or deliver
fractional shares of any capital stock or of any other securities to
any holder of either series of common stock upon any dividend or other
distribution, redemption or conversion pursuant to this Section 4. If
more than one share of a series of common stock shall be held at the
same time by the same holder, the Corporation may aggregate the number
of shares of any capital stock that shall be issuable or any other
securities or property that shall be distributable in respect of such
series to such holder upon any dividend or other distribution,
redemption or conversion (including any fractional shares). If there
are fractional shares of any capital stock or of any other securities
remaining to be issued or distributed to the holders of any series of
common stock, the Corporation shall, if such fractional shares are
not issued or distributed to the holder, pay cash in respect of such
fractional shares in an amount equal to the Fair Value thereof
(without interest).

(x) No adjustments in respect of dividends shall be made upon
the redemption or conversion of shares of either series of common
stock; provided, however, that if the Redemption Date or Conversion
Date, as the case may be, with respect to shares of either series of
common stock shall be subsequent to the record date for the payment of
a dividend or other distribution thereon or with respect thereto, the
holders of such series of common stock at the close of business on
such record date shall be entitled to receive the dividend or other
distribution payable on or with respect to such shares on the date set
for payment of such dividend or other distribution, in each case
without interest, notwithstanding the subsequent conversion or
redemption of such shares.

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<PAGE>

(xi) Before any holder of shares of either series of common
stock shall be entitled to receive any cash payment and/or
certificates or instruments representing shares of any capital stock
and/or other securities or property to be distributed to such holder
with respect to such series of common stock pursuant to this Section
4, such holder shall surrender at such place as the Corporation shall
specify certificates for such shares of the common stock, properly
endorsed or assigned for transfer (unless the Corporation shall waive
such requirement). The Corporation shall as soon as practicable after
receipt of certificates representing such shares of the common stock
deliver to the person for whose account such shares of the common
stock were so surrendered, or to such person's nominee or nominees,
the cash and/or the certificates or instruments representing the
number of whole shares of the kind of capital stock and/or other
securities or property to which such person shall be entitled as
aforesaid, together with any payment in respect of fractional shares
contemplated by Section 4(G)(ix), in each case without interest. If
less than all of the shares of either series of common stock
represented by any one certificate are to be redeemed, the Corporation
shall issue and deliver a new certificate for the shares of such
series of common stock not redeemed.

(xii) From and after any applicable Redemption Date or
Conversion Date, as the case may be, all rights of a holder of shares
of either series of common stock that were converted or redeemed shall
cease except for the right, upon surrender of the certificates
representing such shares of the common stock as required by Section
4(G)(xi), to receive the certificates representing shares of the kind
and amount of capital stock and/or other securities or property for
which such shares were redeemed or converted, together with any
payment in respect of fractional shares contemplated by Section 4(G)
(ix) and rights to dividends as provided in Section 4(G)(x), in each
case without interest. No holder of a certificate that immediately
prior to the applicable Redemption Date or Conversion Date represented
shares of a series of common stock shall be entitled to receive any
dividend or other distribution or interest payment with respect to
shares of any kind of capital stock or other security or instrument
for which such series of common stock was redeemed or converted until
the surrender as required by this Section 4 of such certificate in
exchange for a certificate or certificates or instrument or
instruments representing such capital stock or other security. Upon
such surrender, there shall be paid to the holder the amount of any

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<PAGE>

dividends or other distributions (without interest) which theretofore
became payable on any class or series of capital stock of the
Corporation as of a record date after the Conversion Date, but that
were not paid by reason of the foregoing, with respect to the number
of whole shares of the kind of capital stock represented by the
certificate or certificates issued upon such surrender. From and
after a Redemption Date or Conversion Date, the Corporation shall be
entitled, however, to treat the certificates for a series of common
stock that have not yet been surrendered for conversion as evidencing
the ownership of the number of whole shares of the kind or kinds of
capital stock of the Corporation for which the shares of such series
of common stock represented by such certificates shall have been
converted, notwithstanding the failure to surrender such certificates.

(xiii) The Corporation shall pay any and all documentary, stamp
or similar issue or transfer taxes that may be payable in respect of
the issuance or delivery of any shares of capital stock and/or other
securities upon redemption or conversion of shares of any series of
common stock pursuant to this Section 4. The Corporation shall not,
however, be required to pay any tax that may be payable in respect of
any transfer involved in the issuance or delivery of any shares of
capital stock and/or other securities in a name other than that in
which the shares of such series of common stock so redeemed or
converted were registered, and no such issuance or delivery shall be
made unless the person requesting such issuance or delivery has paid
to the Corporation the amount of any such tax or has established to
the satisfaction of the Corporation that such tax has been paid.

(xiv) The board of directors may establish such rules and
requirements to facilitate the effectuation of the transactions
contemplated by this Section 4 as the Board of Directors shall
determine to be appropriate.

SECTION 5. INTER-GROUP INTEREST AND RELATED TRANSFERS BETWEEN AND AMONG
GROUPS.

(A) CHANGES IN INTER-GROUP INTEREST. The Number of Shares Issuable
with Respect to the Inter-Group Interest in any Issuer Group held by any Holder
Group shall from time to time be:

(i) adjusted, if before such adjustment such number is greater
than zero, as determined by the board of directors to be appropriate
to reflect equitably any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of the series of
common stock related to such Issuer Group;

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<PAGE>
(ii) decreased (but to not less than zero), if before such
adjustment such number is greater than zero, by action of the board
of directors by:

(1) such the number of shares of the series of common
stock related to such Issuer Group issued or sold by the
Corporation that, immediately prior to such issuance or sale,
was included in the Number of Shares Issuable with Respect to
the Inter-Group Interest in such Issuer Group held by such
Holder Group;

(2) the number of shares of such series of common stock
issued upon the conversion, exchange or exercise of any
Convertible Securities that, immediately prior to the issuance or
sale of such Convertible Securities, were included in the Number
of Shares Issuable with Respect to the Inter-Group Interest in
such Issuer Group held by such Holder Group;

(3) the number of shares of such series of common stock
issued by the Corporation as a share dividend or in connection
with any reclassification or exchange of shares, including an
exchange offer, to holders of the series of common stock related
to such Holder Group;

(4) the number of shares of such series of common stock
issued upon the conversion, exchange or exercise of any
Convertible Securities issued by the Corporation as a distribution
or in connection with any reclassification or exchange of shares,
including an exchange offer, to holders of the series of common
stock related to such Holder Group;

(5) the number of shares (rounded, if necessary, to the
nearest whole number) of such series of common stock equal to the
product of (x) the number of shares of such series of common stock

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<PAGE>

redeemed or exchanged pursuant to Section 4(A)(i)(1)(b)(I) or (II)
or Section 4(B)(i)(1)(b)(I) or (II) and (y) a fraction (which may
be greater than one), the numerator of which is the Number of
Shares Issuable with Respect to the Inter-Group Interest in such
Issuer Group held by such Holder Group, and the denominator of
which is the number of shares of series of common stock
outstanding, in each case, on the record date for determining
such shares selected for such redemption or exchange; and

(6) the number of shares (rounded, if necessary, to the
nearest whole number) of such series of common stock equal to the
quotient of (x) the aggregate Fair Value as of the date of
transfer of (i) businesses, assets (including cash) or properties
transferred from such Issuer Group to such Holder Group or (ii)
liabilities transferred from such Holder Group to such Issuer
Group, in either case, for the purpose of reducing the Number of
Shares Issuable with Respect to the Inter-Group Interest in such
Issuer Group held by such Holder Group, divided by (y) the
average Market Value of one share of the series of common stock
related to such Issuer Group during the period of 20 consecutive
Trading Days ending on the date of such contribution or transfer,

(iii) increased by action of the Board of Directors by:

(1) the number of outstanding shares of the series of
common stock related to such Issuer Group repurchased by the
Corporation for consideration that was attributed as an asset as
provided by Section 7(O) or 7(CC) to such Holder Group;

(2) the number of shares of such series of common stock
equal to the product of (x) the quotient of (i) the number of
shares of such series of common stock issued by the Corporation
as a share dividend or in connection with any reclassification to
holders of such series of common stock divided by (ii) the number
of shares of such series of common stock outstanding on the record
date for such share dividend or reclassification and (y) the
Number of Shares Issuable with Respect to the Inter-Group Interest
in such Issuer Group on such record date;

(3) the number of shares of such series of common stock
into or for which Convertible Securities attributed as a liability
to, or equity interest in, such Issuer Group are deemed converted,
exchanged or exercised by such Holder Group pursuant to Section
5(C); and

(4) the number of shares (rounded to the nearest whole
number) of such series of common stock equal to the quotient of
(x) the aggregate Fair Value as of the date of (i) contribution
of businesses, assets (including cash) or properties transferred
from such Holder Group to such Issuer Group or (ii) transfer of
liabilities from such Issuer Group to such Holder Group, in
consideration of an increase in the Number of Shares Issuable with
Respect to the Inter-Group Interest in such Issuer Group held by
such Holder Group, divided by (y) the average Market Value of one
share of the series of common stock related to such Issuer Group
during the period of 20 consecutive Trading Days ending on the
date of such contribution or transfer;

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<PAGE>

(iv) increased or decreased under such other circumstances as
the board of directors determines appropriate to reflect the economic
substance of any other event or circumstance; provided that, in each
case, the adjustment shall be made in a manner that is fair and
equitable to holders of common stock and intended to reflect the
relative economic interest in one Group held by the other Group.

(B) REATTRIBUTION UPON CERTAIN DISTRIBUTIONS. (i) If the
Corporation shall make a distribution with respect to shares of either series
of common stock (payable in consideration other than securities of the
Corporation), effective on the payment date of such distribution, the Holder
Group holding an Inter-Group Interest in the Issuer Group in respect of which
such distribution has been paid shall be attributed as an asset an amount of
assets or properties, previously attributed to such Issuer Group, of the same
kind as were paid in such distribution, as have a Fair Value on the record date
for such distribution equal to the product of:

(1) the Fair Value on such record date of the aggregate
distribution to holders of shares of such series of common stock;
and

(2) a fraction (which may be greater than one), the
numerator of which is equal to the Number of Shares Issuable with
Respect to the Inter-Group Interest in such Issuer Group held by
such Holder Group and the denominator of which is equal to the
number of outstanding shares of the series of common stock related
to such Issuer Group, in each case, on the record date for such
distribution.

(ii) If the Corporation shall make a distribution with respect
to shares of either series of common stock payable in securities of
the Corporation that are attributed to the related Issuer Group as a
liability of, or an equity interest in, such Issuer Group, the Holder
Group holding an Inter-Group Interest in such Issuer Group shall be
attributed as assets the number or amount of such securities
equivalent to such liability or equity interest that is equal to
the product of:

(x) the number or amount of securities so
distributed to holders of outstanding shares of the series
of common stock related to such Issuer Group; and

(y) a fraction (which may be greater than one),
the numerator of which is equal to the Number of Shares
Issuable with Respect to the Inter-Group Interest in such
Issuer Group held by such Holder Group and the denominator
of which is equal to the number of outstanding shares of
the series of common stock related to such Issuer Group,
in each case, on the record date for such dividend or
other distribution;

and, to the extent interest is or distributions are paid on the
securities so distributed, the Holder Group shall be attributed at
the time of such payment a corresponding ratable amount of the kind
of assets paid as such interest or distributions as would have been
paid in respect of such securities so deemed to be held by such
Holder Group if such securities were outstanding.

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<PAGE>

(C) DEEMED CONVERSION OF CERTAIN CONVERTIBLE SECURITIES HELD BY THE
HOLDER GROUP. To the extent Convertible Securities are paid as a distribution
to the holders of either series of common stock, the Corporation may (in
addition to making an adjustment pursuant to Section 5(B)(ii)) when at any
time such Convertible Securities are convertible into or exchangeable or
exercisable for shares of such series of common stock, treat such Convertible
Securities as converted, exchanged or exercised for purposes of determining the
increase in the Number of Shares Issuable with Respect to the Inter-Group
Interest in such Issuer Group pursuant to Section 5(A)(iii)(3), and must do so
to the extent such Convertible Securities are mandatorily converted, exchanged
or exercised (and to the extent the terms of such Convertible Securities
require payment of consideration for such conversion, exchange or exercise,
such Holder Group shall then no longer be attributed as an asset an amount of
the kind of assets or properties required to be paid as such consideration for
the amount of Convertible Securities deemed converted, exchanged or exercised
(and such Issuer Group shall be attributed such assets or properties)), in
which case, from and after such time, the shares of common stock into or for
which such Convertible Securities were so considered converted, exchanged or
exercised shall be deemed held by such Holder Group and such Convertible
Securities shall no longer be deemed to be held by such Holder Group. A
statement setting forth the election to effectuate any such deemed conversion,
exchange or exercise of Convertible Securities and the assets or properties,
if any, to be attributed to the other Group in consideration of such
conversion, exchange or exercise shall be filed in the records of the actions
of the board of directors and, upon such filing, such deemed conversion,
exchange or exercise shall be effectuated.

(D) PERMITTED INTER-GROUP INTERESTS. Either Group may hold an
Inter-Group Interest in the other Group; provided that neither Group may hold
an Inter-Group Interest in the other Group if, immediately after the creation
of such Inter-Group Interest, the Groups would hold Inter-Group Interests in
each other.

SECTION 6. APPLICATION OF THE PROVISIONS OF SECTION A OF ARTICLE 4.

(A) CERTAIN DETERMINATIONS BY THE BOARD OF DIRECTORS. The board of
directors shall make such determinations with respect to (a) the businesses,
assets, properties and liabilities to be attributed to the WorldCom Group and
the MCI Group, (b) the application of the provisions of these Second Amended
and Restated Articles of Incorporation to transactions to be engaged in by the
Corporation and (c) the voting powers, preferences, designations, rights,
qualifications, limitations or restrictions of either series of common stock or
of the holders thereof, as may be or become necessary or appropriate to the
exercise of, or to give effect to, such voting powers, preferences, desig-
nations, rights, qualifications, limitations or restrictions, including,
without limiting the foregoing, the determinations referred to in this
Section 6. A record of any such determination shall be filed with the records
of the actions of the board of directors.

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<PAGE>

(i) Upon any acquisition by the Corporation or its subsidiaries
of any businesses, assets or properties, or any assumption of
liabilities, outside of the ordinary course of business of either
Group, the board of directors shall determine whether such businesses,
assets, properties and liabilities (or an interest therein) shall be
for the benefit of the WorldCom Group or the MCI Group or both and,
accordingly, shall be attributed to such Group or Groups, in
accordance with Section 7(O) or 7(CC), as the case may be.

(ii) Upon any issuance of shares of any series of common stock
at a time when the Number of Shares Issuable with Respect to the
Inter-Group Interest in the Issuer Group related to such series is
greater than zero, the Board of Directors shall determine, based on
the use of the proceeds of such issuance and any other relevant
factors, whether all or any part of the shares of such series so
issued shall reduce such Number of Shares Issuable with Respect to
the Inter-Group Interest.

(iii) Upon any issuance by the Corporation or any subsidiary
thereof of any Convertible Securities that are convertible into or
exchangeable or exercisable for shares of either series of common
stock, if at the time such Convertible Securities are issued the
Number of Shares Issuable with Respect to the Inter-Group Interest in
the Issuer Group related to such series is greater than zero, the
board of directors shall determine, based on the use of the proceeds
of such issuance and any other relevant factors, whether, upon con-
version, exchange or exercise thereof, the issuance of shares of such
series of common stock pursuant thereto shall, in whole or in part,
reduce such Number of Shares Issuable with Respect to the Inter-Group
Interest.

(iv) Upon any issuance of any shares of preferred stock (or
stock other than common stock) of any series, the board of directors
shall attribute, based on the use of proceeds of such issuance of
shares of preferred stock (or stock other than common stock) in the
business of either Group and any other relevant factors, the shares
so issued entirely to the WorldCom Group, entirely to the MCI Group,
or partly to both Groups, in such proportion as the Board of Directors
shall determine.

(v) Upon any redemption or repurchase by the Corporation or any
subsidiary thereof of shares of preferred stock (or stock other than
common stock) of any class or series or of other securities or debt
obligations of the Corporation, the board of directors shall
determine, based on the property used to redeem or purchase such
shares, other securities or debt obligations, which, if any, of such
shares, other securities or debt obligations redeemed or repurchased
shall be attributed to the WorldCom Group, to the MCI Group, or both,
and, accordingly, how many of the shares of such series or class of
preferred stock (or stock other than common stock) or of such other
securities, or how much of such debt obligations, that remain
outstanding, if any, are thereafter attributed to each Group.

(vi) Upon any transfer to either Group of businesses, assets,
properties or liabilities attributed to either Group to the other
Group, the consideration therefor to be attributed to the transferring

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Group in exchange therefor, including, without limitation, cash,
securities or other property of such other Group or, if permitted by Section
5(D), a decrease or an increase in the Number of Shares of Shares Issuable with
Respect to the Inter-Group Interest in such other Group, as described in
Section 5(A)(ii)(6) or Section 5(A)(iii)(4).

(B) CERTAIN DETERMINATIONS NOT REQUIRED. Notwithstanding the fore-
going provisions of this Section 6 or any other provision in these Second
Amended and Restated Articles of Incorporation, at any time when there are not
outstanding more than one series of common stock (or Convertible Securities
convertible into or exchangeable or exercisable for more than one series of
common stock), the Corporation need not:

(i) attribute any of the businesses, assets, properties or
liabilities of the Corporation or any of its subsidiaries to the
WorldCom Group or the MCI Group; or

(ii) make any determination required in connection therewith, nor
shall the board of directors be required to make any of the deter-
minations otherwise required by this Section A of Article 4,

and in such circumstances the holders of the shares of WorldCom Stock and MCI
Stock outstanding, as the case may be, shall (unless otherwise specifically
provided in these Second Amended and Restated Articles of Incorporation) be
entitled to all the voting powers, preferences, designations, rights,
qualifications, limitations or restrictions of common stock of the Corporation.

(C) BOARD DETERMINATIONS BINDING. Any determinations made in good
faith by the board of directors of the Corporation under any provision of this
Section 6 or otherwise in furtherance of the application of this Article 4A
shall be final and binding on all shareholders.

SECTION 7. CERTAIN DEFINITIONS AND RULES OF INTERPRETATION. As used in
this Section A of Article 4, the following terms shall have the following
meanings (with terms defined in the singular having comparable meaning when
used in the plural and vice versa), unless the context otherwise requires. For
purposes of this Section A of Article 4, the WorldCom Stock, when issued,
shall be considered issued in respect of or related to the WorldCom Group,
and the MCI Stock, when issued, shall be considered issued in respect of or
related to the MCI Group. As used in this Section 7, a "contribution" or
"transfer" of businesses, assets, properties or liabilities from one Group to
the other shall refer to the reattribution of such businesses, assets,
properties or liabilities from the contributing or transferring Group to the
other Group and correlative phrases shall have correlative meanings.

(A) "Available Distribution Amount" shall mean, as the context
requires, a reference to the WorldCom Group Available Distribution Amount and
MCI Group Available Distribution Amount.

(B) "Conversion Date" shall mean the date fixed by the board of
directors as the effective date for the conversion of shares of WorldCom Stock
into shares of MCI Stock or shares of MCI Stock into shares of WorldCom Stock,
as shall be set forth in the notice to holders of shares of the series of
common stock subject to such conversion and to holders of any Convertible
Securities that are convertible into or exchangeable or exercisable for shares
of the series of common stock subject to such conversion requirements pursuant
to Section 4(G)(v).

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(C) "Convertible Securities" shall mean, at any time, any securities
of the Corporation or of any subsidiary thereof (other than shares of common
stock), including warrants and options, outstanding at such time that by their
terms are convertible into or exchangeable or exercisable for or evidence the
right to acquire any shares of any series of common stock, whether convertible,
exchangeable or exercisable at such time or a later time or only upon the
occurrence of certain events, but in respect of antidilution provisions of such
securities only upon the effectiveness thereof.

(D) "Disposition" shall mean a sale, conveyance, assignment or other
disposition (whether by merger, share exchange, sale or contribution of assets
or stock or otherwise) of businesses, assets (including stock, other securities
and goodwill), properties or liabilities.

(E) "Disposition Date," with respect to the WorldCom Group or the MCI
Group, shall mean the date of consummation of the Disposition of such Group
referred to in Section 4(A)(i) or Section 4(C)(i), as applicable.

(F) "Distribution" shall mean a direct or indirect transfer of money
or other property (except its own shares or rights to acquire its own shares)
or incurrence of indebtedness by the Corporation to or for the benefit of its
shareholders in respect of any of its shares. A distribution may be in the
form of: (i) a declaration or payment of a dividend; (ii) a purchase,
redemption, or other acquisition of shares; (iii) a distribution of
indebtedness; or otherwise; provided that for purposes of this Section A of
Article 4 a distribution shall not include (x) payments made pursuant to
Section 3 or (y) for purposes of Section 1(C)(v) and 1(C)(vi), a repurchase of
shares of common stock.

(G) "Excluded Transaction" shall mean, with respect to the WorldCom
Group or the MCI Group, as applicable:

(i) the Disposition by the Corporation of all or substantially
all of its businesses, assets, properties and liabilities in one
transaction or a series of related transactions in connection with the
dissolution of the Corporation and the distribution of assets to
shareholders as referred to in Section 3;

(ii) the Disposition of the businesses, assets, properties and
liabilities of such Group as contemplated by Section 4(D) or 4(E) or
otherwise (x) to all holders of shares of the series of common stock
related to such Group, divided among such holders on a pro rata basis
in accordance with the number of shares of common stock of such series
outstanding or (y) if the Number of Shares Issuable with Respect to the
Inter-Group Interest in such Group is greater than zero, to all holders
of shares of the series of common stock related to such Group and the
Corporation or subsidiaries thereof, divided among such holders

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and the Corporation or subsidiaries thereof on a pro rata basis in
accordance with the number of shares of common stock of such series
outstanding and the Number of Shares Issuable with Respect to the Inter-
Group Interest in such Group;

(iii) the Disposition to any person or entity controlled (as
determined by the board of directors) by the Corporation;

(iv) the Disposition in connection with a Related Business
Transaction in respect of such Group; or

(v) a Disposition conditioned upon the approval of the holders of
common stock related to such Group, voting as a separate voting group.

(H) "Fair Value" shall mean:

(i) in the case of equity securities or debt securities of a
class or series that has previously been Publicly Traded for a period
of at least 15 months, the Market Value thereof (if such Market Value,
as so defined, can be determined);

(ii) in the case of an equity security or debt security that has
not been Publicly Traded for at least 15 months or the Market Value of
which cannot be determined, the fair value per share of stock or per
other unit of such security, on a fully distributed basis, as
determined by an independent investment banking firm experienced in the
valuation of securities selected in good faith by the board of
directors, or, if no such investment banking firm is, as determined in
the good faith judgment of the board of directors, available to make
such determination, in good faith by the board of directors;

(iii) in the case of cash denominated in U.S. dollars, the face
amount thereof and in the case of cash denominated in other than U.S.
dollars, the face amount thereof converted into U.S. dollars at the
rate published in The Wall Street Journal on the date for the
determination of Fair Value or, if not so published, at such rate as
shall be determined in good faith by the board of directors based upon
such information as the board of directors shall in good faith
determine to be appropriate; and

(iv) in the case of property other than securities or cash, the
"Fair Value" thereof shall be determined in good faith by the board of
directors based upon such appraisals, valuation reports or opinions of
such experts as the board of directors shall in good faith determine to
be appropriate.

Any such determination of Fair Value shall be described in a statement filed
with the records of the actions of the board of directors.

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<PAGE>

(I) "Group" shall mean, as of any date, the WorldCom Group or the
MCI Group.

(J) "Holder Group" shall mean any Group which holds or, as a result
of the issuance of Convertible Securities, may hold an Inter-Group Interest in
the other Group.

(K) "Initial Issuance Date" shall mean the date of first issuance of
WorldCom Stock and MCI Stock.

(L) "Inter-Group Interest" shall mean, as of any date, the Number of
Shares Issuable with Respect to the Inter-Group Interest in either Issuer Group
that are held or permitted to be held, as applicable, as of such date by the
other Holder Group.

(M) "Issuer Group" shall mean any Group in which the other Group
holds or, as a result of the issuance of Convertible Securities, may hold an
Inter-Group Interest.

(N) "Market Value" shall mean, with respect to a share of any class
or series of capital stock of the Corporation on any day,

(i) the average of the high and low reported sales prices of a
share of such class or series on such Trading Day, as reported on
the Nasdaq National Market; or

(ii) in case no such reported sale takes place on such Trading
Day, the average of the reported closing bid and asked prices
regular way of a share of such class or series on such Trading Day,
as reported on the Nasdaq National Market; or

(iii) if the shares of such class or series are not listed or
admitted to trading on the Nasdaq National Market on such Trading
Day, on the principal national securities exchange in the United
States on which the shares of such class or series are listed or
admitted to trading; or

(iv) if the shares of such class or series are not listed or
admitted to trading on any national securities exchange or quoted on
the Nasdaq National Market on such Trading Day, the average of the
closing bid and asked prices of a share of such class or series in
the over-the-counter market on such Trading Day, as furnished by any
New York Stock Exchange member firm selected from time to time by
the Corporation; or

(v) if such closing bid and asked prices are not made available
by any such Nasdaq National Market broker/dealer on such Trading Day,
the Fair Value of a share of such class or series as set forth in
clause (ii) of the definition of Fair Value;

provided that, for purposes of determining the market value of a share of any
class or series of capital stock for any period:

(x) the "Market Value" of a share of capital
stock on any day prior to any "ex-dividend" date or any
similar date occurring during such period for any
dividend or distribution (other than any dividend or
distribution contemplated by clause (y)(2) of this
sentence) paid or to be paid with respect to such
capital stock shall be reduced by the Fair Value of

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<PAGE>

the per share amount of such dividend or distribution;
and

(y) the "Market Value" of any share of capital
stock on any day prior to:

(1) the effective date of any subdivision (by stock split
or otherwise) or combination (by reverse stock split or
otherwise) of outstanding shares of such class or series of
capital stock occurring during such period; or

(2) any "ex-dividend" date or any similar date occurring
during such period for any dividend or distribution with respect
to such capital stock to be made in shares of such class or
series of capital stock or Convertible Securities that are
convertible, exchangeable or exercisable for such class or
series of capital stock;

shall be appropriately adjusted, as determined by the board of directors, to
reflect such subdivision, combination, dividend or distribution.

(O) "MCI Group" shall mean, as of any date:

(i) the interest of the Corporation and any of its subsidiaries
on such date in all of the businesses, assets, properties and
liabilities reflected in the combined financial statements of the MCI
Group as of September 30, 2000, which were publicly filed by the
Corporation with the Securities and Exchange Commission in
Registration Statement on Form S-4, as amended (File No. 333-- );

(ii) the interest of the Corporation or any of its subsidiaries
in any business, asset or property acquired and any liabilities
assumed by the Corporation or any of its subsidiaries and attributed
to the MCI Group, as determined by the board of directors as
contemplated by Section 6(A);

(iii) all businesses, assets, properties and liabilities
transferred to the MCI Group from the WorldCom Group (other than in a
transaction pursuant to clause (v) or (vi) of this Section 7(O))
pursuant to transactions in the ordinary course of business of the
MCI Group and the WorldCom Group or otherwise as the board of
directors may have directed as permitted by these Second Amended
and Restated Articles of Incorporation;

(iv) a proportionate undivided interest in each and every
business, asset, property and liability attributed to the WorldCom
Group equal to the Inter-Group Interest in the WorldCom Group held by
the MCI Group as of such date;

(v) all businesses, assets, properties and liabilities
transferred to the MCI Group from the WorldCom Group in connection
with an increase in the Inter-Group Interest in the MCI Group held by
the WorldCom Group;

(vi) all businesses, assets, properties and liabilities
transferred to the MCI Group from the WorldCom Group in connection
with a decrease in the Inter-Group Interest in the WorldCom Group
held by the MCI Group;

(vii) any assets (including securities) or properties attributed to
the MCI Group pursuant to Section 5(B) or Section 5(C); and

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<PAGE>

(viii) all net income and net losses arising in respect of the
foregoing and proceeds of the Disposition thereof;

provided that from and after any transfer of any businesses, assets, properties
or liabilities from the MCI Group to the WorldCom Group as permitted by these
Second Amended and Restated Articles of Incorporation, the MCI Group shall no
longer include such businesses, assets, properties or liabilities so
contributed or transferred (other than as reflected, to the extent applicable,
in respect of such a transfer by the Inter-Group Interest in the WorldCom Group
held by the MCI Group).

(P) "MCI Group Available Distribution Amount" shall mean, on any date
the product of:

(i) the Outstanding Interest Fraction with respect to MCI Stock;
and

(ii) the lesser of:

(x) any amount in excess of the minimum amount
necessary to pay debts attributed to the MCI Group as
they become due in the usual course of business; and

(y) the total assets attributed to the MCI Group,
less the sum of its total liabilities plus (unless
these Second Amended and Restated Articles of
Incorporation provide otherwise) the amount that would
be needed, if the Corporation were to be dissolved at
the time of the distribution, to satisfy the
preferential rights upon dissolution of shares of
stock attributed to the MCI Group superior to the MCI
Stock.

Notwithstanding the foregoing provisions of this Section 7(P), and consistent
with Section 6(B), at any time when there are not outstanding both:

(i) one or more shares of MCI Stock or Convertible Securities
convertible into or exchangeable or exercisable for MCI Stock; and

(ii) one or more shares of WorldCom Stock or Convertible
Securities convertible into or exchangeable or exercisable for
WorldCom Stock,

the "Available Distribution Amount," on any calculation date during such time
period, with respect to the MCI Stock or the WorldCom Stock (depending on which
of such series of common stock or Convertible Securities convertible into or
exchangeable or exercisable for such series of common stock is outstanding),
shall mean the amount available for the payment of dividends on such common
stock in accordance with law.

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<PAGE>

(Q) "NET PROCEEDS" shall mean, as of any date with respect to any
Disposition of any of the businesses, assets, properties and liabilities
attributed to either the WorldCom Group or the MCI Group, an amount, if any,
equal to what remains of the gross proceeds of such Disposition after payment
of, or reasonable provision is made as determined by the board of directors
for:

(i) any taxes the Corporation estimates will be payable by the
Corporation (or which the Corporation estimates would have been
payable but for the utilization of tax benefits attributable to the
other Group) in respect of such Disposition or in respect of any
resulting dividend or redemption pursuant to Section 4(A)(i)(1)(a),
Section 4(A)(i)(1)(b), Section 4(B)(i)(1)(a) or Section 4(B)(i)(1)(b);

(ii) any transaction costs, including, without limitation, any
legal, investment banking and accounting fees and expenses; and

(iii) any liabilities (contingent or otherwise) of or attributed to
such Group, including, without limitation, any liabilities for
deferred taxes or any indemnity or guarantee obligations of the
Corporation incurred in connection with the Disposition or otherwise,
and any liabilities for future purchase price adjustments and
any preferential amounts plus any accumulated and unpaid
dividends in respect of the preferred stock attributed to such Group.

For purposes of this definition, any businesses, properties and assets
attributed to the Group, the businesses, assets, properties and liabilities
of which are subject to such Disposition, remaining after such Disposition
shall constitute "reasonable provision" for such amount of taxes, costs and
liabilities (contingent or otherwise) as the Board of Directors determines can
be expected to be supported by such businesses, properties and assets.

A-39

<PAGE>

(R) "NUMBER OF SHARES ISSUABLE WITH RESPECT TO THE INTER-GROUP
INTEREST" shall mean with respect to any Issuer Group, a number of shares of
the series of common stock related to such Issuer Group that are deemed to be
held by a Holder Group. The Number of Shares Issuable with Respect to the
Inter-Group Interest with respect to the WorldCom Stock and MCI Stock shall
initially each be zero and in each case shall be adjusted, increased or
decreased from time to time pursuant to Section 5.

(S) "OUTSTANDING INTEREST FRACTION" shall mean, as of any date with
respect to WorldCom Stock or MCI Stock, the fraction (which may simplify to
1/1), the numerator of which shall be the number of outstanding shares of such
series of common stock on such date and the denominator of which shall be the
sum of the number of outstanding shares of such series of common stock on such
date and the Number of Shares Issuable with Respect to the Inter-Group Interest
in the Group related to such series of common stock on such date. A statement
setting forth the Outstanding Interest Fraction for any series of common stock
as of the record date for the payment of any distribution or share dividend on
any series of common stock shall be filed by the secretary of the Corporation
in the records of the actions of the board of directors not later than ten days
after such date.

(T) "PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization, government or agency or political
subdivision thereof, or other entity, whether acting in an individual,
fiduciary or other capacity.

(U) "PUBLICLY TRADED" shall mean, with respect to any security:

(i) registered under Section 12 of the Securities
Exchange Act of 1934, as amended (or any successor provision of
law); and

(ii) listed for trading on the New York Stock Exchange or the
American Stock Exchange (or any national securities exchange
registered under Section 7 of the Securities Exchange Act of 1934,

A-40

<PAGE>

as amended (or any successor provision of law), that is the successor
to either such exchange) or quoted in the Nasdaq National Market (or
any successor market system).

(V) "REDEMPTION DATE" shall mean the date fixed by the board of
directors as the effective date for a redemption of shares of any series
of common stock, as set forth in a notice to holders thereof required
pursuant to Section 4(G)(iii), Section 4(G)(iv) or Section 4(G)(vi).

(W) "RELATED BUSINESS TRANSACTION" shall mean any Disposition of all
or substantially all of the businesses, assets, properties and liabilities
attributed to the WorldCom Group or the MCI Group, as the case may be, in
a transaction or series of related transactions that result in the
Corporation, one or more of its Subsidiaries or the holders of common
stock receiving in consideration of such businesses, assets, properties
and liabilities primarily equity securities (including, without
limitation, capital stock, debt securities convertible into or
exchangeable for equity securities or interests in a general or limited
partnership or limited liability company, without regard to the voting
power or other management or governance rights associated therewith) of
any entity which:

(i) acquires such assets or properties or succeeds
(by merger, formation of a joint venture or otherwise) to the
business conducted with such assets or properties or controls such
acquiror or successor; and

(ii) the board of directors determines is primarily engaged or
proposes to engage primarily in one or more businesses similar or
complementary to the businesses conducted by such Group prior to
such Disposition.

(X) "SHARE DIVIDEND" shall have the meaning contained in the Georgia
Business Corporation Code, as in effect on the Initial Issuance Date.

(Y) "SUBSIDIARY" shall mean, with respect to any Person, any
corporation, limited liability company or partnership 50% or more of whose

A-41

<PAGE>

outstanding voting securities or membership or partnership interests,
as the case may be, are, directly or indirectly, owned by such Person.

(Z) "SUBSTANTIALLY ALL OF THE BUSINESSES, ASSETS, PROPERTIES AND
LIABILITIES" shall have the meaning specified in Section 4(A)(ii) or
Section 4(B)(ii), as applicable.

(AA) "TAX EVENT" shall mean receipt by the Corporation of an opinion
of its tax counsel to the effect that, as a result of any amendment
to, clarification of, or change or proposed change in, the laws (or any
interpretation or application of the laws) of the United States or
any political subdivision or taxing authority thereof or therein
(including, but not limited to, the enactment of any legislation, the
publication of any judicial or regulatory decision, determination or
pronouncement or any announced proposed change in law by an applicable
legislative committee or the chair thereof), regardless of whether such
amendment, clarification, change or proposed change is issued to or in
connection with a proceeding involving the Corporation, the WorldCom Group
or the MCI Group and whether or not subject to appeal, there is more than
an insubstantial risk that:

(i) for tax purposes, any issuance of WorldCom Stock or MCI
Stock would be treated as a sale or other taxable disposition by the
Corporation or any of its subsidiaries of any of the assets,
operations or relevant subsidiaries to which the WorldCom Stock or
MCI Stock relates;

(ii) the issuance or existence of WorldCom Stock or MCI Stock
would subject the Corporation, its subsidiaries or affiliates, or any
of their respective successors or shareholders to the imposition of
tax or to other adverse tax consequences; or

(iii) for tax purposes, either WorldCom Stock or MCI Stock is
not or, at any time in the future will not be, treated solely as
common stock of the Corporation.

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<PAGE>

For purposes of rendering such opinion, tax counsel shall assume
that any legislative or administrative proposals will be adopted or
enacted as proposed.

(BB) "TRADING DAY" shall mean each weekday other than any day
on which the relevant series of common stock is not traded on any national
securities exchange or quoted on the Nasdaq National Market or otherwise
in the over-the-counter market.

(CC) "WORLDCOM GROUP" shall mean, as of any date:

(i) the interest of the Corporation and any of its
subsidiaries on such date in all of the businesses, assets,
properties and liabilities of the Corporation and any of its
subsidiaries (and any successor companies), other than any
businesses, assets, properties and liabilities attributed in
accordance with these Second Amended and Restated Articles of
Incorporation to the MCI Group pursuant to Section 7(O)(i);

(ii) the interest of the Corporation or any of its
subsidiaries in any business, asset or property acquired and any
liabilities assumed by the Corporation or any of its subsidiaries and
attributed to the WorldCom Group, as determined by the board of
directors as contemplated by Section 6(A);

(iii) all businesses, assets, properties and liabilities
transferred to the WorldCom Group from the MCI Group (other than in a
transaction pursuant to clause (v) and (vi) of this Section 7(CC))
pursuant to transactions in the ordinary course of business of the
WorldCom Group and the MCI Group or otherwise as the board of
directors may have directed as permitted by these Second Amended and
Restated Articles of Incorporation;

(iv) a proportionate undivided interest in each and every
business, asset, property and liability attributed to the MCI Group
equal to the Inter-Group Interest in the MCI Group held by the
WorldCom Group as of such date;

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<PAGE>

(v) all businesses, assets, properties and liabilities
transferred to the WorldCom Group from the MCI Group in connection
with an increase in the Inter-Group Interest in the WorldCom
Group held by the MCI Group;

(vi) all businesses, assets, properties and liabilities
transferred to the WorldCom Group from the MCI Group in connection
with a decrease in the Inter-Group Interest in the MCI Group
held by the WorldCom Group;

(vii) any assets (including securities) or properties
attributed to the WorldCom Group pursuant to Section 5(B) or Section
5(C); and

(viii) all net income and net losses arising in respect of
the foregoing and proceeds of the Disposition thereof;

provided that from and after any transfer of any businesses,
assets, properties or liabilities from the WorldCom Group to the
MCI Group as permitted by these Second Amended and Restated
Articles of Incorporation, the WorldCom Group shall no longer
include such businesses, assets, properties or liabilities so
contributed or transferred (other than as reflected, to the extent
applicable, in respect of such a transfer by the Inter-Group
Interest in the MCI Group held by the WorldCom Group).

(DD) "WORLDCOM GROUP AVAILABLE DISTRIBUTION AMOUNT" shall mean,
on any date, the product of:

(i) the Outstanding Interest Fraction with respect to
WorldCom Stock; and

(ii) the lesser of:

(x) any amount in excess of the minimum amount
necessary for the WorldCom Group to pay debts attributed to the
WorldCom Group as they become due in the usual course of
business; and

(y) the total assets attributed to the WorldCom
Group, less the sum of its total liabilities plus (unless these
Second Amended and Restated Articles of Incorporation provide
otherwise) the amount that would be needed if the Corporation
were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of shares of stock
attributed to the WorldCom Group superior to the WorldCom Stock.

A-44

<PAGE>

Notwithstanding the foregoing provisions of this Section 7(DD), and
consistent with Section 6(B), at any time when there are not
outstanding both:

(i) one or more shares of WorldCom Stock or Convertible
Securities convertible into or exchangeable or exercisable for
WorldCom Stock; and

(ii) one or more shares of MCI Stock or Convertible Series
convertible into or exchangeable or exercisable for MCI Stock,

the "Available Distribution Amount," on any calculation date during
such time period, with respect to the WorldCom Stock or the MCI
Stock (depending on which of such series of common stock or
Convertible Securities convertible into or exchangeable or
exercisable for such series of common stock is outstanding), shall
mean the amount available for the payment of dividends on such
common stock in accordance with law.

SECTION 8. SEVERABILITY OF PROVISIONS. If any term of any
provision with respect to voting powers, preferences, designations,
rights, qualifications, limitations or restrictions of the WorldCom Stock
or the MCI Stock set forth in this Section A of Article 4 (as it may be
amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule of law or public policy, all other terms
and provisions with respect to voting powers, preferences, designations,
rights, qualifications, limitations or restrictions of the WorldCom Stock
or the MCI Stock set forth in this Section A of Article 4 (as it may be
amended from time to time) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences, designations,
rights, qualifications, limitations or restrictions of such series shall,
nevertheless, remain in full force and effect, and no term of such series
of common stock herein set forth shall be deemed dependent upon any other
terms with respect to such voting powers, preferences, designations,
rights, qualifications, limitations or restrictions of the WorldCom Stock
or the MCI Stock unless so expressed herein.

A-45

<PAGE>

ANNEX II

ARTICLES OF AMENDMENT TO THE SECOND AMENDED AND RESTATED ARTICLES OF
INCORPORATION OF WORLDCOM, INC.

The name of the Corporation is WorldCom, Inc.

Effective the date hereof, Article Eleven of the Second Amended and
Restated Articles of Incorporation of the Corporation is hereby
amended by deleting the text thereof and substituting therefor the
text of the amendments attached hereto as Exhibit A.

All other provisions of the Second Amended and Restated Articles of
Incorporation shall remain in full force and effect.

The provisions of Article Eleven of the Second Amended and Restated
Articles of Incorporation were duly approved by the shareholders of
the Corporation in accordance with the provisions of Section
14-2-1003 of the Georgia Business Corporation Code on the
day of , 2001.

The provisions of Article Eleven of the Second Amended and Restated
Articles of Incorporation were duly adopted and authorized by the
Board of Directors of the Corporation on , 2001.

IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed by its duly authorized officer, this
day of , 2001.

WORLDCOM, INC.

By: __________________
Name:
Title:

B-1

<PAGE>

Exhibit A

ELEVEN

(a) In addition to the requirements of the provisions of any
series of preferred stock which may be outstanding, and whether or
not a vote of the shareholders is otherwise required, the
affirmative vote of the holders of not less than seventy percent
(70%) of the voting power of the Corporation's Voting Stock shall
---------------------------------
be required for the approval or authorization of any Business
Transaction with a Related Person, or any Business Transaction in
which a Related Person has an interest (other than only a
proportionate interest as a shareholder of the corporation);
provided, however, that the seventy percent (70%) voting
requirement shall not be applicable if (i) the Business Transaction
is Duly Approved by the Continuing Directors, or (ii) all of the
following conditions are satisfied:

(i) the aggregate amount of cash and the fair market value
of the property, securities or other consideration to be received per
share for a particular class or series of a class if there is more
------------------------------------------------------------
than one series in a class (on the date of effectiveness of such
--------------------------
Business Transaction) by holders of capital stock of the
Corporation (other than such Related Person) in connection with
such Business Transaction is at least equal in value to such
Related Person's Highest Stock Purchase Price for such class or
-------- -----------------
series;
------

(ii) the consideration to be received by holders of capital
stock of the Corporation in connection with such Business
Transaction is in (a) cash, or (b) if the majority of the shares of
any particular class or series of stock of the Corporation as to
which the Related Person is the Beneficial Owner shall have been
acquired for a consideration in a form other than cash, in the same
form of consideration used by the Related Person to acquire the
largest number of shares of such class or series of stock;

(iii) after such Related Person has become a Related Person
and prior to the consummation of such Business Transaction, such
Related Person shall not have become the Beneficial Owner of any
additional shares of capital stock of the Corporation or securities
convertible into capital stock of the Corporation, except (i) as a
part of the transaction which resulted in such Related Person
becoming a Related Person or (ii) as a result of a pro rata stock
dividend or stock split;

(iv) prior to the consummation of such Business Transaction,
such Related Person shall not have, directly or indirectly, except
as Duly Approved by the Continuing Directors (i) received the
benefit (other than only a proportionate benefit as a shareholder
of the corporation) of any loans, advances, guarantees, pledges or
other financial assistance or tax credits or tax advantages
provided by the Corporation or any of its subsidiaries, (ii) caused

B-2

<PAGE>

any material change in the Corporation's business or equity capital
structure, including, without limitation, the issuance of shares of
capital stock of the Corporation, or other securities convertible
into or exercisable for such shares, or (iii) caused the
Corporation to fail to declare and pay at the regular date therefor
quarterly cash dividends on the outstanding capital stock of the
Corporation entitled to receive dividends, on a per share basis at
least equal to the cash dividends being paid thereon by the
corporation immediately prior to the date on which the Related
Person became a Related Person; and

(v) a proxy or information statement describing the proposed
Business Transaction and complying with the requirements of the
Securities Exchange Act of 1934, as amended (the "Act"), and the
rules and regulations thereunder (or any subsequent provisions
replacing the Act or such rules or regulations) shall be mailed to
shareholders of the Corporation at least thirty (30) days prior to
the consummation of such Business Transaction (whether or not such
proxy or information statement is required to be mailed pursuant to
the Act and such rules and regulations or subsequent provisions).

(b) For the purpose of this Article ELEVEN:

(i) The term "Affiliate", used to indicate a relationship to
a specified person, shall mean a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by,
or is under common control with, such specified person.

(ii) The term "Associate", used to indicate a relationship
with a specified person, shall mean (A) any corporation, partnership
or other organization of which such specified person is an officer or
partner, (B) any trust or other estate in which such specified
person has a substantial beneficial interest or as to which such
specified person serves as trustee or in a similar fiduciary
capacity, (C) any relative or spouse of such specified person who
has the same home as such specified person or who is a director or
officer of the corporation or any of its subsidiaries, and (D) any
person who is a director, officer or partner of such specified
person or of any corporation (other than the corporation or any
wholly-owned subsidiary of the corporation), partnership or other
entity which is an Affiliate of such specified person.

(iii) The term "Beneficial Owner" shall be defined by
reference to Rule 13d-3 under the Act as in effect on September 15,
1993; provided, however, that any individual, corporation,
partnership, group, association or other person or entity which has
the right to acquire any capital stock of the corporation having
voting power at any time in the future, whether such right is
contingent or absolute, pursuant to any agreement, arrangement or
understanding or upon exercise of conversion rights, warrants or
options, or otherwise, shall be deemed the Beneficial Owner of such
capital stock.

B-3

<PAGE>

(iv) The term "Business Transaction" shall mean: (A) any
merger, share exchange or consolidation involving the Corporation
or a subsidiary of the Corporation; (B) any sale, lease, exchange,
transfer or other disposition (in one transaction or a series of
related transactions), including, without limitation, a mortgage,
pledge or any other security device of all or any Substantial Part
of the assets either of the Corporation or of a subsidiary of the
Corporation; (C) any sale, lease, exchange, transfer or other
disposition (in one transaction or a series of related
transactions) of all or any Substantial Part of the assets of any
entity to the Corporation or a subsidiary of the Corporation; (D)
the issuance, sale, exchange, transfer or other disposition (in one
transaction or a series of related transactions) by the Corporation
or a subsidiary of the Corporation of any securities of the
Corporation or any subsidiary of the Corporation in exchange for
cash, securities or other property, or a combination thereof,
having an aggregate fair market value of $15 million or more; (E)
any merger, share exchange or consolidation of the Corporation with
any of its subsidiaries or any similar transaction in which the
Corporation is not the survivor and the charter or certificate or
articles of incorporation of the consolidated or surviving
Corporation do not contain provisions substantially similar to
those in this Article ELEVEN; (F) any recapitalization or
reorganization of the Corporation or any reclassification of the
securities of the Corporation (including, without limitation, any
reverse stock split) or other transaction that would have the
effect of increasing the voting power of a Related Person or
reducing the number of shares of each class of voting securities
outstanding; (G) any liquidation, spin-off, split-off, split-up or
dissolution of the Corporation; and (H) any agreement, contract or
other arrangement providing for any of the transactions described
in this definition of Business Transaction or having a similar
purpose or effect.

(v) The term "Continuing Director" shall mean a director who
either was a member of the Board of Directors of the Corporation on
September 15, 1993, or who became a director of the Corporation
subsequent to such date and whose election or nomination for
election by the Corporation's shareholders was Duly Approved by the
Continuing Directors then on the Board, either by a specific vote
or by approval of the proxy statement issued by the Corporation on
behalf of the Board of Directors in which such person is named as
nominee for director; provided, however, that in no event shall a
director be considered a "Continuing Director" if such director is
a Related Person and the Business Transaction to be voted upon is
with such Related Person or is one in which such Related Person has
an interest (other than only a proportionate interest as a
shareholder of the Corporation).

(vi) The term "Duly Approved by the Continuing Directors"
shall mean an action approved by the vote of at least a majority of
the Continuing Directors then on the Board; provided, however, that
if the votes of such Continuing Directors in favor of such action

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would be insufficient to constitute an act of the Board of
Directors (if a vote by the entire Board of Directors were to have
been taken), then such term shall mean an action approved by the
unanimous vote of the Continuing Directors so long as there are at
least three (3) Continuing Directors on the Board of Directors at
the time of such unanimous vote.

(vii) The term "Fair Market Value", in the case of stock, means
the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange Listed Stocks, or, if
such stock is not listed on such Exchange, on the principal United
States securities exchange registered under the Act on which such
stock is listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share
of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or if no
such quotations are available, the fair market value on the date in
question of a share of such stock as determined by a majority of
the Continuing Directors in good faith.

(viii) The term "Highest Stock Purchase Price" with respect to
shares of a particular class, or series of a class if there are
more than one series in a class, shall mean the greatest of the
following:

(A) the highest amount of consideration paid by a Related
Person for a share of such class or series of capital stock of
the Corporation (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) in the transaction which
resulted in such Related Person becoming a Related Person or
within two years prior to the first public announcement of the
Business Transaction (the "Announcement Date"), whichever is
higher; provided, however, that the Highest Stock Purchase Price
calculated under this subsection (A) shall be appropriately
adjusted to reflect the occurrence of any reclassification,
recapitalization, stock-split, reverse stock-split or other
similar corporate readjustment in the number or kind of
outstanding shares of capital stock of the Corporation between
the last date upon which such Related Person paid the Highest
Stock Purchase Price up to the effective date of the merger,
share exchange or consolidation or the date of distribution to
shareholders of the Corporation of the proceeds from the sale of
substantially all of the assets of the Corporation referred to
in subparagraph (i) of Section (a)(ii) of this Article Eleven;

(B) the Fair Market Value per share of such classes or
series of stock of the Corporation on the Announcement Date;

(C) the Fair Market Value per share of such classes or
series of stock of the Corporation on the date that the Related
Person becomes a Related Person;

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(D) if applicable, the Fair Market Value per share
determined pursuant to subsection (b)(viii)(B) or (C) of this
Article ELEVEN, whichever is higher, multiplied by the ratio of
(i) the highest price per share (including any brokerage
commissions, transfer taxes or soliciting dealers' fees and
adjusted for any subsequent stock dividends, splits,
combinations, recapitalizations, reclassifications or other such
reorganizations) paid to acquire any shares of such classes or
series Beneficially Owned by the Related Person within the two
years prior to the Announcement Date, to (ii) the Fair Market
Value per share (adjusted for any subsequent stock dividends,
splits, combinations, recapitalizations, reclassifications or
other such reorganizations) of shares of such classes or series
on the first day in the two-year period ending on the
Announcement Date on which such shares Beneficially Owned by the
Related Person were acquired; or

(E) the amount per share of any preferential payment to
which holders of shares of such classes or series are entitled
in the event of a liquidation, dissolution or winding up of the
Corporation.

(ix) The phrase "property, securities or other consid-
eration to be received", for the purpose of subparagraph (i) of
Section (a)(ii) of this Article ELEVEN and in the event of a
merger in which the corporation is the surviving corporation,
shall include, without limitation, common stock of the
Corporation retained by its shareholders (other than such Related
Person).

(x) The term "Related Person" shall mean and include (A) any
individual, corporation, partnership, group, association or other
person or entity which, together with its Affiliates and
Associates, is the Beneficial Owner of not less than ten percent
(10%) of the voting power of the issued and outstanding capital
stock of the Corporation entitled to vote or was the Beneficial
Owner of not less than ten percent (10%) of the voting power of the
issued and outstanding capital stock of the Corporation entitled to
vote (x) at the time the definitive agreement providing for the
Business Transaction (including any amendment thereof) was entered
into, (y) at the time a resolution approving the Business
Transaction was adopted by the Board of Directors of the
Corporation, or (z) as of the record date for the determination of
shareholders entitled to notice of and to vote on or consent to the
Business Transaction, and (B) any Affiliate or Associate of any
such individual, corporation, partnership, group, association or
other person or entity; provided, however, and notwithstanding any
thing in the foregoing to the contrary, that the term "Related
Person" shall not include the Corporation, a more than 90% owned
subsidiary of the Corporation, any employee stock ownership or
other employee benefit plan of either the Corporation or any more
than 90% owned subsidiary of the Corporation, or any trustee of or
fiduciary with respect to any such plan when acting in such
capacity.

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(xi) The term "Substantial Part" shall mean more than twenty
percent (20%) of the total assets of the entity in question, as
reflected on the most recent consolidated balance sheet of such
entity existing at the time the shareholders of the Corporation
would be required to approve or authorize the Business Transaction
involving the assets constituting any such Substantial Part.

(xii) The term "Voting Stock" shall mean all outstanding shares
of capital stock of the Corporation whose holders are present at a
meeting of shareholders, in person or by proxy, and which entitle
their holders to vote generally in the election of directors, and
considered for the purpose of this Article ELEVEN as one class.

(c) For the purpose of this Article ELEVEN, so long as Continuing
Directors constitute at least two-thirds (2/3) of the entire Board
of Directors of the Corporation, the Board of Directors shall have
the power to make a good faith determination, on the basis of
information known to them, of (i) the number of shares of Voting
Stock of which any person is the Beneficial Owner, (ii) whether a
person is a Related Person or is an Affiliate or Associate of
another, (iii) whether a person has an agreement, arrangement or
understanding with another as to the matters referred to in the
definition of Beneficial Owner herein, (iv) whether the assets
subject to any Business Transaction constitute a Substantial Part,
(v) whether any Business Transaction is with a Related Person or is
one in which a Related Person has an interest (other than only a
proportionate interest as a shareholder of the corporation), (vi)
whether a Related Person has, directly or indirectly, received the
benefits or caused any of the changes referred to in subparagraph
(iv) of clause (ii) of Section (a) of this Article ELEVEN, (vii)
the fair market value of any consideration to be received in a
Business Transaction and (viii) such other matters with respect to
which a determination is required under this Article ELEVEN; and
such determination by the Board of Directors shall be conclusive
and binding for all purposes of this Article ELEVEN.

(d) Nothing contained in this Article ELEVEN shall be construed to
relieve any Related Person of any fiduciary obligation imposed by
law.

(e) The fact that any Business Transaction complies with the
provisions of Section (a) of this Article ELEVEN shall not be
construed to impose any fiduciary duty, obligation or
responsibility on the Board of Directors, or any member thereof, to
approve such Business Transaction or recommend its adoption or
approval to the shareholders of the corporation.

(f) Notwithstanding any other provisions of these Second Amended
and Restated Articles of Incorporation or the Bylaws of the
corporation (and notwithstanding that a lesser percentage may be
permitted by law), the provisions of this Article ELEVEN may not be
repealed or amended, directly or indirectly in any respect, unless
such action is approved by the affirmative vote of the holders of

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not less than seventy percent (70%) of the voting power of the
Corporation's Voting Stock.

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<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 14-2-202(b)(4) of the Georgia Business Corporation Code
(the "GBCC") provides that a corporation's articles of
incorporation may include a provision that eliminates or limits the
personal liability of directors for monetary damages to the
corporation or its shareholders for any action taken, or any
failure to take any action, as a director; provided, however, that
the Section does not permit a corporation to eliminate or limit the
liability of a director for appropriating, in violation of his or
her duties, any business opportunity of the corporation, for acts
or omissions including intentional misconduct or a knowing
violation of law, receiving from any transaction an improper
personal benefit, or voting for or assenting to an unlawful
distribution (whether as a dividend, stock repurchase or
redemption, or otherwise) as provided in Section 14-2-832 of the
GBCC. Section 14-2-202(b)(4) also does not eliminate or limit the
rights of WorldCom or any shareholder to seek an injunction or
other no monetary relief in the event of a breach of a director's
duty to the corporation and its shareholders. Additionally, Section
14-2-202(b)(4) applies only to claims against a director arising
out of his or her role as a director, and does not relieve a
director from liability arising from his or her role as an officer
or in any other capacity.

The provisions of Article Ten of WorldCom's Second Amended and
Restated Articles of Incorporation, as amended, are similar in all
substantive respects to those contained in Section 14-2-202(b)(4)
of the GBCC as outlined above. Article Ten further provides that
the liability of directors of WorldCom shall be limited to the
fullest extent permitted by amendments to Georgia law. Sections
14-2-850 to 14-2-859, inclusive, of the GBCC govern the
indemnification of directors, officers, employees, and agents.
Section 14-2-851 of the GBCC permits indemnification of an
individual for liability incurred by him or her in connection with
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and
whether formal or informal (including, subject to certain
limitations, civil actions brought as derivative actions by or in
the right of WorldCom) in which the individual is made a party
because he or she is or was a director of WorldCom, or, while a
director of WorldCom, such individual is or was serving at the
request of WorldCom, as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise. This Section permits indemnification if the director
acted in good faith and reasonably believed (a) in the case of
conduct in his or her official capacity, that such conduct was in
the best interests of the corporation, (b) in all other cases, that
such conduct was at least not opposed to the best interests of the

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<PAGE>

corporation, and (c) in the case of a criminal proceeding, that he
or she had no reasonable cause to believe his or her conduct was
unlawful. If the required standard of conduct is met,
indemnification may include judgments, settlements, penalties,
fines or reasonable expenses (including attorneys' fees) incurred
with respect to a proceeding.

A Georgia corporation may not indemnify a director under Section
14-2-851: (1) in connection with a proceeding by or in the right of
the corporation, except for reasonable expenses incurred by such
director in connection with the proceeding, provided it is
determined that such director met the relevant standard of conduct
set forth above, or (2) in connection with any proceeding with
respect to conduct for which such director was adjudged liable on
the basis that he or she received an improper personal benefit,
whether or not involving action in his or her official capacity.

Prior to indemnifying a director under Section 14-2-851 of the
GBCC, a determination must be made that the director has met the
relevant standard of conduct. Such determination must be made under
Section 14-2-855 of the GBCC by: (1) a majority vote of a quorum
consisting of disinterested directors; (2) a duly designated
committee of disinterested directors; (3) duly selected special
legal counsel; or (4) a vote of the shareholders, excluding shares
owned by or voted under the control of directors who do not qualify
as disinterested directors.

Section 14-2-856 of the GBCC provides that a Georgia corporation
may, before final disposition of a proceeding, advance funds to pay
for or reimburse the reasonable expenses incurred by a director who
is a party to a proceeding because he or she is a director,
provided that such director delivers to the corporation a written
affirmation of his or her good faith belief that he or she met the
relevant standard of conduct described in Section 14-2-851 of the
GBCC, and a written undertaking by the director to repay any funds
advanced if it is ultimately determined that such director was not
entitled to such indemnification. Section 14-2-852 of the GBCC
provides that directors who are successful with respect to any
claim brought against them, which claim is brought because they are
or were directors of WorldCom, are entitled to mandatory
indemnification against reasonable expenses incurred in connection
therewith.

The GBCC also allows a Georgia corporation to indemnify directors
made a party to a proceeding without regard to the above-referenced
limitations, if authorized by the articles of incorporation or a
bylaw, contract, or resolution duly adopted by a vote of the
shareholders of the corporation by a majority of votes entitled to
be cast, excluding shares owned or voted under the control of the
director or directors who are not disinterested, and to advance
funds to pay for or reimburse reasonable expenses incurred in the
defense thereof, subject to restrictions similar to the
restrictions described in the preceding paragraph; provided,

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<PAGE>

however, that the corporation may not indemnify a director adjudged
liable: (1) for any appropriation, in violation of his or her
duties, of any business opportunity of WorldCom; (2) for acts or
omissions which involve intentional misconduct or a knowing
violation of law; (3) for unlawful distributions under Section
14-2-832 of the GBCC; or (4) for any transaction in which the
director obtained an improper personal benefit.

Section 14-2-857 of the GBCC provides that an officer of WorldCom
(but not an employee or agent generally) who is not a director has
the mandatory right of indemnification granted to directors under
Section 14-2-852, subject to the same limitations as described
above. In addition, WorldCom may, as provided by either WorldCom's
Second Amended and Restated Articles of Incorporation, as amended,
WorldCom's Restated Bylaws, general or specific actions by its
board of directors, or by contract, indemnify and advance expenses
to an officer, employee or agent who is not a director to the
extent that such indemnification is consistent with public policy.

The indemnification provisions of Article X of WorldCom's Restated
bylaws and Article Twelve of WorldCom's Second Amended and Restated
Articles of Incorporation, as amended, are consistent with the
foregoing provisions of the GBCC. However, WorldCom's Second
Amended and Restated Articles of Incorporation, as amended,
prohibit indemnification of a director who did not believe in good
faith that his or her actions were in, or not opposed to,
WorldCom's best interests, or to have improperly received a
personal benefit, or in the case of a criminal proceeding, if such
director had reasonable cause his or her conduct was unlawful, or
in the case of a proceeding by or in the right of WorldCom, to
which such director was adjudged liable to WorldCom, unless a court
shall determine that the director is fairly and reasonably entitled
to indemnification in view of all the circumstances. WorldCom's
Restated Bylaws extend the indemnification available to officers
under the GBCC to employees and agents.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

2.1 Agreement and Plan of Merger between WorldCom, Inc.,
Wildcat Acquisition Corp. and Intermedia
Communications, Inc. dated as of September 1, 2000
(filed as Annex A to the Proxy Statement/Prospectus
included in WorldCom's Registration Statement on Form
S-4, Registration No. 333-48012 and incorporated herein
by reference).

3.1 Form of Articles of Amendment to the Second Amended and
Restated Articles of Incorporation of WorldCom, Inc. (included
as Annex I and Annex II to the Proxy Statement/Prospectus).

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<PAGE>

3.2 Second Amended and Restated Articles of Incorporation of
WorldCom (including preferred stock designations), as
amended as of May 1, 2000 (incorporated herein by
reference to Exhibit 4.1 of WorldCom's Quarterly Report
on Form 10-Q dated March 31, 2000 (File No.0-11258).

3.3 Restated bylaws of WorldCom. (incorporated by reference
to Exhibit 3.2 to WorldCom's Current Report on Form 8-K
dated September 14, 1998) (filed September 29, 1998))
(File No. 0-11258).

4.1 Rights Agreement dated as of August 25, 1996, between
WorldCom and The Bank of New York, which includes the
form of Certificate of Designations, setting forth the
terms of the Series 3 Junior Participating Preferred
Stock, par value $.01 per share, as Exhibit A, the form
of Rights Certificate as Exhibit B and the Summary of
Preferred Stock Purchase Rights as Exhibit C
(incorporated herein by reference to Exhibit 4 to the
Current Report on Form 8-K dated August 26, 1996 filed
by the Company with the Securities and Exchange
Commission on August 26, 1996 (as amended on Form 8-K/A
filed on August 31, 1996) (File No. 0-11258)).

4.2 Amendment No. 1 to Rights Agreement dated as of May 22,
1997, by and between WorldCom and The Bank of New York,
as Rights Agent (incorporated herein by reference to
Exhibit 4.2 of the Company's Current Report on Form 8-K
dated May 22, 1997 (filed June 5, 1997) (File No.
0-11258)).

4.3* Form of Restated Rights Agreement.

5.1* Opinion of Alston & Bird LLP as to the validity of the
WorldCom group stock and MCI group stock.

8.1* Opinion of Simpson Thacher & Bartlett as to tax matters.

10.1 Amended and Restated Facility A Revolving Credit
Agreement among WorldCom, NationsBank, N.A., NationsBanc
Montgomery Securities LLC, Bank of America NT & SA,
Barclays Bank PLC, The Chase Manhattan Bank, Citibank,
N.A., Morgan Guaranty Trust Company of New York, and
Royal Bank of Canada and the lenders named therein dated
as of August 6, 1998 (incorporated herein by reference
to Exhibit 10.1 to WorldCom's Current Report on Form 8-K
dated August 6, 1998 (filed August 7, 1998) (File No.
0-011258)).

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<PAGE>

10.2 Amended and Restated 364-Day Revolving Credit and Term
Loan Agreement among the Company and Bank of America,
N.A., Administrative Agent; Bank of America Securities,
LLC, Sole Lead Arranger and Book Manager; Barclays Bank
PLC, The Chase Manhattan Bank, Citibank, N.A., Morgan
Guaranty Trust Company of New York, and Royal Bank of
Canada, Co-Syndication Agents; and the lenders named
therein dated as of August 5, 1999 (incorporated herein
by reference to Exhibit 10.1 of WorldCom's Quarterly
Report on Form 10-Q for the quarterly period ended June
30, 1999) (File No. 0-11258)).

10.3 First Amendment and Renewal of the Amended and Restated
364-Day Revolving Credit and Term Loan Agreement entered
into as of August 3, 2000, among WorldCom, certain
Purchasing Lenders named therein, certain Increasing
Lenders as named therein, Bank of America, N.A., as a
Lender and as Administration Agent for itself and the
Accepting Lenders (as therein defined) with Banc of
America Securities, LLC, as the Sole Lead Arranger and
Book Manager (incorporated herein by reference to
Exhibit 10.3 of WorldCom's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000) (File No. 0-11258).

10.4 WorldCom 1999 Stock Option Plan (incorporated herein by
reference to Exhibit A to WorldCom's Proxy Statement
dated April 23, 1999 (File No. 0-11258)) (compensatory
plan).

10.5 WorldCom, Inc. Third Amended and Restated 1990 Stock
Option Plan (incorporated herein by reference to Exhibit
A to WorldCom's Proxy Statement dated April 22, 1996
(File No. 0-11258)) (compensatory plan).

10.6 LDDS Communications, Inc. 1988 Nonqualified Stock Option
Plan (incorporated herein by reference to the exhibits
to LDDS-TN's Registration Statement on Form S-4 (File
No. 33-29051) (compensatory plan).

10.7 LDDS Annual Performance Bonus Plan (incorporated by
reference to WorldCom's Proxy Statement used in
connection with WorldCom's 1994 Annual Meeting of
Shareholders (File No. 1-10415)) (compensatory plan).

10.8 WorldCom, Inc. Special Performance Bonus Plan
(incorporated herein by reference to Exhibit B to
WorldCom's Proxy Statement dated April 22, 1996 used in
connection with WorldCom's 1996 Annual Meeting of the
Shareholders (File No. 0-11258)) (compensatory plan).

10.9 WorldCom, Inc. Performance Bonus Plan (incorporated
herein by reference to Exhibit A to WorldCom's Proxy
Statement dated April 21, 1997 (File No. 0-11258))
(compensatory plan).

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<PAGE>

10.10 WorldCom/MFS/UUNET 1995 Performance Option Plan
(incorporated herein by reference to Exhibit 10.17 to
WorldCom's Annual Report on Form 10-K for the period
ended December 31, 1996 (File No. 0-11258))
(compensatory plan).

10.11 WorldCom/MFS/UUNET Equity Incentive Plan (incorporated
herein by reference to Exhibit 10.18 to WorldCom's
Annual Report on Form 10-K for the period ended December
31, 1996 (File No. 0-11258)) (compensatory plan).

10.12 WorldCom/MFS/UUNET Incentive Stock Plan (incorporated
herein by reference to Exhibit 10.19 to WorldCom's
Annual Report on Form 10-K for the period ended December
31, 1996 (File No. 0-11258)) (compensatory plan).

10.13 MCI 1979 Stock Option Plan as amended and restated
(incorporated by reference to Exhibit 10(a) to MCI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 (File No. 0-6457)) (compensatory
plan).

10.14 Supplemental Retirement Plan for Employees of MCI
Communications Corporation and Subsidiaries, as amended
(incorporated by reference to Exhibit 10(b) to MCI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (File No. 0-6457)) (compensatory
plan).

10.15 Description of Executive Life Insurance Plan for MCI
Communications Corporation and Subsidiaries
(incorporated by reference to "Remuneration of Officers"
in MCI's Proxy Statement for its 1992 Annual Meeting of
Stockholders (File No. 0-6457)) (compensatory plan).

10.16 MCI Communications Corporation Executive Incentive
Compensation Plan (incorporated by reference to Exhibit
10(e) to MCI's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 (File No. 0-6457))
(compensatory plan).

10.17 Amendment No. 1 to MCI Communications Corporation
Executive Incentive Compensation Plan (incorporated by
reference to Exhibit 10(e) to MCI's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996
(File No. 0-6457)) (compensatory plan).

10.18 1988 Directors' Stock Option Plan of MCI (incorporated
by reference to Exhibit D to MCI's Proxy Statement for
its 1989 Annual Meeting of Stockholders (File No.
0-6457)) (compensatory plan).

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<PAGE>

10.19 Amendment No. 1 to the 1988 Directors' Stock Option Plan
of MCI (incorporated by reference to Appendix D to MCI's
Proxy Statement for its 1996 Annual Meeting of
Stockholders (File No. 0-6457)) (compensatory plan).

10.20 Amendment No. 2 to 1988 Directors' Stock Option Plan of
MCI (incorporated by reference to Exhibit 10(i) to MCI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996) (File No. 0-6457)) (compensatory
plan).

10.21 Amendment No. 3 to 1988 Directors' Stock Option Plan of
MCI (incorporated by reference to Exhibit 10(j) to MCI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-6457)) (compensatory
plan).

10.22 Stock Option Plan of MCI (incorporated by reference to
Exhibit C to MCI's Proxy Statement for its 1989 Annual
Meeting of Stockholders (File No. 0-6457)) (compensatory
plan).

10.23 Amendment No. 1 to the Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(l) to MCI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-6457)) (compensatory
plan).

10.24 Amendment No. 2 to the Stock Option Plan of MCI
(incorporated by reference to Appendix B to MCI's Proxy
Statement for its 1996 Annual Meeting of Stockholders
(File No. 0-6457)) (compensatory plan).

10.25 Amendment No. 3 to the Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(n) to MCI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-6457)) (compensatory
plan).

10.26 Amendment No. 4 to the Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(o) to MCI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-6457)) (compensatory
plan).

10.27 Amendment No. 5 to the Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(p) to MCI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-6457)) (compensatory
plan).

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<PAGE>

10.28 Board of Directors Deferred Compensation Plan of MCI
(incorporated by reference to Exhibit 10(i) to MCI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-6457)) (compensatory
plan).

10.29 The Senior Executive Incentive Compensation Plan of MCI
(incorporated by reference to Appendix A to MCI's Proxy
Statement for its 1996 Annual Meeting of Stockholders
(File No.0-6457)) (compensatory plan).

10.30 Amendment No. 1 to the Senior Executive Incentive
Compensation Plan of MCI (incorporated by reference to
Exhibit 10(s) to MCI's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (File No.
0-6457)) (compensatory plan).

10.31 Executive Severance Policy (incorporated by reference to
Exhibit 10(a) to MCI's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 (File No. 0-6457))
(compensatory plan).

10.32 Form of employment agreement, effective as of November
2, 1996, between MCI and Messrs. Bert C. Roberts and
Timothy F. Price (incorporated by reference to Exhibit
10(u) to MCI's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-6457))
(compensatory plan).

10.33 Employment Agreement between UUNET and John W. Sidgmore
dated May 13, 1994 (incorporated herein by reference to
UUNET's Registration on Form S-1 (Registration
No.33-91028)) (compensatory plan).

10.34 Amendment to employment agreement dated February 29,
2000 between WorldCom and Timothy F. Price.

10.35 Change of Control Severance Agreement effective April 8,
1997 between Brooks Fiber Properties, Inc. ("BFP") and
James C. Allen (incorporated herein by reference from
Exhibit 10.1 to BFP's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997 (File No.
0-28036)) (compensatory plan).

10.36 Promissory Note dated September 8, 2000 between Bernard
J. Ebbers (the "Borrower") and the Company (incorporated
herein by reference from Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000) (File No. 0-11258).

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<PAGE>

10.37 Promissory Note dated November 1, 2000 between the
Borrower and the Company (incorporated herein by
reference from Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the first quarter ended
September 30, 2000) (File No. 0-11258).

10.38 Letter Agreement dated November 1, 2000 between Borrower
and the Company (incorporated herein by reference from
Exhibit 10.6 to the Company's Quarterly Report on Form
10-Q for the first quarter ended September 30, 2000)
(File No. 0-11258).

23.1 Consent of Arthur Andersen LLP.

23.2 Consent of KPMG LLP.

23.3 Consent of Alston & Bird LLP (contained in Exhibit 5.1).

23.4 Consent of Simpson Thacher & Bartlett (contained in
Exhibit 8.1)

24.1 Powers of Attorney (included on signature pages hereof).

99.1* Form of Proxy.

_________________
* To be filed by amendment.

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ITEM 22. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement;

(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in the volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
Table in the effective registration statement;

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or
Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated in the registration
statement.

(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.

(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of

II-10

<PAGE>

1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(c)(1) The undersigned registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of the
applicable form.

(2) The registrant undertakes that every prospectus: (i)
that is filed pursuant to paragraph (1) immediately preceding, or
(ii) that purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(d) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.

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<PAGE>

(e) The undersigned registrant here y undertakes to respond
to requests for information that is incorporated by reference into
the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the registration statement
through the date corresponding to the request.

(f) The undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.

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<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the
City of Clinton, State of Mississippi, on December 28, 2000.

WORLDCOM, Inc.

By: /s/ Scott D. Sullivan
-----------------------
Scott D. Sullivan
Chief Financial Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and
appoints Bernard J. Ebbers, Scott D. Sullivan, and each of them
(with full power to each of them to act alone), his or her true and
lawful attorneys in fact and agents for him or her and on his or
her behalf and in his or her name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same,
with exhibits and any and all other documents filed with respect
thereto, with the Securities and Exchange Commission (or any other
governmental or regulatory authority), granting unto said
attorneys, and each of them, full power and authority to do and to
perform each and every act and thing requisite and necessary to be
done in and about the premises in order to effectuate the same as
fully to all intents and purposes as he or she might or could do if
personally present, hereby ratifying and confirming all that said
attorneys in fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

Name Title Date

/s/ Clifford L. Alexander, Jr. Director December 28, 2000
--------------------------
Clifford L. Alexander, Jr.

/s/ James C. Allen Director December 28, 2000
---------------------------
James C. Allen

/s/ Judith Areen Director December 28, 2000
---------------------------
Judith Areen

/s/ Carl J. Aycock Director December 28, 2000
---------------------------
Carl J. Aycock

/s/ Max E. Bobbitt Director December 28, 2000
---------------------------
Max E. Bobbitt

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<PAGE>

/s/ Bernard J. Ebbers
-------------------------- Director, December 28, 2000
Bernard J. Ebbers President and
Chief Executive
Officer
(Principal
Executive
Officer)

/s/ Francesco Galesi Director December 28, 2000
--------------------------
Francesco Galesi

/s/ Stiles A. Kellett, Jr. Director December 28, 2000
--------------------------
Stiles A. Kellett, Jr.

/s/ Gordon S. Macklin Director December 28, 2000
--------------------------
Gordon S. Macklin

/s/ Bert C. Roberts, Jr. Director December 28, 2000
--------------------------
Bert C. Roberts, Jr.

/s/ John W. Sidgmore Director December 28, 2000
--------------------------
John W. Sidgmore

/s/ Scott D. Sullivan Director and December 28, 2000
-------------------------- Chief Financial
Scott D. Sullivan Officer
(Principal
Financial
Officer and
Principal
Accounting
Officer)

II-14

<PAGE>

EXHIBIT INDEX

2.1 Agreement and Plan of Merger between WorldCom, Inc.,
Wildcat Acquisition Corp. and Intermedia Communications,
Inc., dated as of September 1, 2000 (filed as Annex A to
the Proxy Statement/Prospectus included in WorldCom's
Registration Statement on Form S-4, Registration No.
333-48012 and incorporated herein by reference).

3.1 Form of Articles of Amendment to the Second Amended and
Restated Articles of Incorporation of WorldCom, Inc.
(included as Annex I and Annex II to the Proxy Statement/
Prospectus).

3.2 Second Amended and Restated Articles of Incorporation of
WorldCom (including preferred stock designations), as
amended as of May 1, 2000 (incorporated herein by reference
to Exhibit 4.1 of WorldCom's Quarterly Report on Form 10-Q
dated March 31, 2000) (Filed May 15, 2000) (File No.
0-11258)).

3.3 Restated bylaws of WorldCom. (incorporated by reference to
Exhibit 3.2 to WorldCom's Current Report on Form 8-K dated
September 14, 1998) (filed September 29, 1998) (File
No. 0-11258)).

4.1 Rights Agreement dated as of August 25, 1996, between
WorldCom and the Bank of New York, which includes the form
of Certificate of Designations, setting forth the terms of
the Series 3 Junior Participating Preferred Stock, par
value $.01 per share, as Exhibit A, the form of Rights
Certificate as Exhibit B and the Summary of Preferred Stock
Purchase Rights as Exhibit C (incorporated herein by
reference to Exhibit 4 to the Current Report on Form 8-K
dated August 26, 1996 filed by the Company with the
Securities and Exchange Commission on August 26, 1996 (as
amended on Form 8-K/A filed on August 31, 1996) (File No.
0-11258))

4.2 Amendment No. 1 to Rights Agreement dated as of May 22,
1997, by and between WorldCom and The Bank of New York, as
Rights Agent (incorporated herein by reference to Exhibit
4.2 of the Company's Current Report on Form 8-K dated May
22, 1997 (filed June 5, 1997) (File No. 9-11258))

4.3* Form of Restated Rights Agreement.

5.1* Opinion of Alston & Bird LLP as to the validity of the
WorldCom group stock and MCI group stock.
8.1* Opinion of Simpson Thacher & Bartlett as to tax matters.

II-15

<PAGE>

10.1 Amended and Restated Facility A Revolving Credit Agreement
among WorldCom, NationsBank, N.A., NationsBanc Montgomery
Securities LLC, Bank of America NT & SA, Barclays Bank PLC,
The Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty
Trust Company of New York, and Royal Bank of Canada and the
lenders named therein dated as of August 6, 1998
(incorporated herein by reference to Exhibit 10.1 to
WorldCom's Current Report on Form 8-K dated August 6, 1998
(filed August 7, 1998) (File No. 0-011258)).

10.2 Amended and Restated 364-Day Revolving Credit and Term Loan
Agreement among the Company and Bank of America, N.A.,
Administrative Agent; Bank of America Securities, LLC, Sole
Lead Arranger and Book Manager; Barclays Bank PLC, The
Chase Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust
Company of New York, and Royal Bank of Canada,
Co-Syndication Agents; and the lenders named therein dated
as of August 5, 1999 (incorporated herein by reference to
Exhibit 10.1 of WorldCom's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1999) (File No.
0-11258)).

10.3 First Amendment and Renewal of the Amended and Restated
364-Day Revolving Credit and Term Loan Agreement entered
into as of August 3, 2000, among WorldCom, certain
Purchasing Lenders named therein, certain Increasing
Lenders as named therein, Bank of America, N.A., as a
Lender and as Administration Agent for itself and the
Accepting Lenders (as therein defined) with Banc of America
Securities, LLC, as the Sole Lead Arranger and Book Manager
(incorporated herein by reference to Exhibit 10.3 of
WorldCom's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000) (File No. 0-11258).

10.4 WorldCom 1999 Stock Option Plan (incorporated herein by
reference to Exhibit A to WorldCom's Proxy Statement dated
April 23, 1999 (File No. 0-11258)) (compensatory plan).

10.5 WorldCom, Inc. Third Amended and Restated 1990 Stock Option
Plan (incorporated herein by reference to Exhibit A to
WorldCom's Proxy Statement dated April 22, 1996 (File
No. 0-11258)) (compensatory plan).

10.6 LDDS Communications, Inc. 1988 Nonqualified Stock Option
Plan (incorporated herein by reference to the exhibits to
LDDS-TN's Registration Statement on Form S-4 (File
No. 33-29051) (compensatory plan).

10.7 LDDS Annual Performance Bonus Plan (incorporated by
reference to WorldCom's Proxy Statement used in connection
with WorldCom's 1994 Annual Meeting of Shareholders (File
No. 1-10415)) (compensatory plan).

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<PAGE>

10.8 WorldCom, Inc. Special Performance Bonus Plan (incorporated
herein by reference to Exhibit B to WorldCom's Proxy
Statement dated April 22, 1996 used in connection with
WorldCom's 1996 Annual Meeting of the Shareholders (File
No. 0-11258)) (compensatory plan).

10.9 WorldCom, Inc. Performance Bonus Plan (incorporated herein
by reference to Exhibit A to WorldCom's Proxy Statement
dated April 21, 1997 (File No. 0-11258)) (compensatory
plan).

10.10 WorldCom/MFS/UUNET 1995 Performance Option Plan
(incorporated herein by reference to Exhibit 10.17 to
WorldCom's Annual Report on Form 10-K for the period ended
December 31, 1996 (File No. 0-11258)) (compensatory plan).

10.11 WorldCom/MFS/UUNET Equity Incentive Plan (incorporated
herein by reference to Exhibit 10.18 to WorldCom's Annual
Report on Form 10-K for the period ended December 31, 1996
(File No. 0-11258)) (compensatory plan).

10.12 WorldCom/MFS/UUNET Incentive Stock Plan (incorporated
herein by reference to Exhibit 10.19 to WorldCom's Annual
Report on Form 10-K for the period ended December 31, 1996
(File No. 0-11258)) (compensatory plan).

10.13 MCI 1979 Stock Option Plan as amended and restated
(incorporated by reference to Exhibit 10(a) to MCI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1988 (File No. 0-6457)) (compensatory plan).

10.14 Supplemental Retirement Plan for Employees of MCI
Communications Corporation and Subsidiaries, as amended
(incorporated by reference to Exhibit 10(b) to MCI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993 (File No. 0-6457)) (compensatory plan).

10.15 Description of Executive Life Insurance Plan for MCI
Communications Corporation and Subsidiaries (incorporated
by reference to "Remuneration of Officers" in MCI's Proxy
Statement for its 1992 Annual Meeting of Stockholders (File
No. 0-6457)) (compensatory plan).

10.17 Amendment No. 1 to MCI Communications Corporation Executive
Incentive Compensation Plan (incorporated by reference to
Exhibit 10(e) to MCI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (File No. 0-6457))
(compensatory plan).

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<PAGE>

10.18 1988 Directors' Stock Option Plan of MCI (incorporated by
reference to Exhibit D to MCI's Proxy Statement for its
1989 Annual Meeting of Stockholders (File No. 0-6457))
(compensatory plan).

10.19 Amendment No. 1 to the 1988 Directors' Stock Option Plan of
MCI (incorporated by reference to Appendix D to MCI's Proxy
Statement for its 1996 Annual Meeting of Stockholders (File
No. 0-6457)) (compensatory plan).

10.20 Amendment No. 2 to 1988 Directors' Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(i) to MCI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996) (File No. 0-6457)) (compensatory plan).

10.21 Amendment No. 3 to 1988 Directors' Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(j) to MCI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 0-6457)) (compensatory plan).

10.22 Stock Option Plan of MCI (incorporated by reference to
Exhibit C to MCI's Proxy Statement for its 1989 Annual
Meeting of Stockholders (File No. 0-6457)) (compensatory
plan).

10.23 Amendment No. 1 to the Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(l) to MCI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 0-6457)) (compensatory plan).

10.25 Amendment No. 3 to the Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(n) to MCI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 0-6457)) (compensatory plan).

10.26 Amendment No. 4 to the Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(o) to MCI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 0-6457)) (compensatory plan).

10.27 Amendment No. 5 to the Stock Option Plan of MCI
(incorporated by reference to Exhibit 10(p) to MCI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 0-6457)) (compensatory plan).

10.28 Board of Directors Deferred Compensation Plan of MCI
(incorporated by reference to Exhibit 10(i) to MCI's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 (File No. 0-6457)) (compensatory plan).

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<PAGE>

10.30 Amendment No. 1 to the Senior Executive Incentive
Compensation Plan of MCI (incorporated by reference to
Exhibit 10(s) to MCI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (File No. 0-6457))
(compensatory plan).

10.31 Executive Severance Policy (incorporated by reference to
Exhibit 10(a) to MCI's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 (File No. 0-6457))
(compensatory plan).

10.32 Form of employment agreement, effective as of November 2,
1996, between MCI and Messrs. Bert C. Roberts and Timothy
F. Price (incorporated by reference to Exhibit 10(u) to
MCI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-6457)) (compensatory plan).

10.33 Employment Agreement between UUNET and John W. Sidgmore
dated May 13, 1994 (incorporated herein by reference to
UUNET's Registration on Form S-1 (Registration
No.33-91028)) (compensatory plan).

10.34 Amendment to employment agreement dated February 29, 2000
between WorldCom and Timothy F. Price.

10.35 Change of Control Severance Agreement effective April 8,
1997 between Brooks Fiber Properties, Inc. ("BFP") and
James C. Allen (incorporated herein by reference from
Exhibit 10.1 to BFP's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997 (File No. 0-28036))
(compensatory plan).

10.36 Promissory Note dated September 8, 2000 between Bernard J.
Ebbers (the "Borrower") and the Company (incorporated
herein by reference from Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000) (File No. 0-11258).

10.37 Promissory Note dated November 1, 2000 between the Borrower
and the Company (incorporated herein by reference from
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the first quarter ended September 30, 2000) (File No.
0-11258).

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<PAGE>

10.38 Letter Agreement dated November 1, 2000 between Borrower
and the Company (incorporated herein by reference from
Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q
for the first quarter ended September 30, 2000) (File No.
0-11258).

23.1 Consent of Arthur Andersen LLP.

23.2 Consent of KPMG LLP.

23.3 Consent of Alston & Bird LLP (contained in Exhibit 5.1).

23.4 Consent of Simpson Thacher & Bartlett (contained in Exhibit
8.1).

24.1 Powers of Attorney (included on signature pages hereof).

99.1* Form of Proxy.

________________
* To be filed by amendment.

II-20