<PAGE>
 

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

                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

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

                                   FORM 10-Q

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


[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
     Exchange Act of 1934 for the quarterly period ended September 30, 1998.

                                 or

[ ]  Transition report pursuant to Section 13 or 15 (d) of the Securities
     Exchange Act of 1934 for the transition period           from to          .
     

                        Commission file number 1-14595


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


                         FOX ENTERTAINMENT GROUP, INC.
            (Exact Name of Registrant as Specified in Its Charter)

          DELAWARE                                   95-4577574
 (State or Other Jurisdiction of                 (I.R.S. Employer
  Incorporation or Organization)                 Identification No.)


                1211 AVENUE OF THE AMERICAS, NEW YORK, NY 10036
                   (Address of Principal Executive Offices)

      Registrant's Telephone Number, Including Area Code: (212) 852-7111


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


     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes              No  X
                                     ---             ---

     As of December 22, 1998, 124,800,000 shares of Class A Common Stock, par
value $.01 per share, and 547,500,000 shares of Class B Common Stock, par value
$.01 per share, were outstanding.

================================================================================
<PAGE>
 
                         FOX ENTERTAINMENT GROUP, INC.

                                   FORM 10-Q

                               TABLE OF CONTENTS
                               -----------------
<TABLE>
<CAPTION>
                                                                                   PAGE
                                                                                   ---- 

Part I.  Financial Information
 
<S>            <C>                                                                 <C>
     Item 1.   Financial Statements..............................................   1
                                                                                 
     Item 2.   Management's Discussion and Analysis of Financial Condition       
               and Results of Operations.........................................   7
                                                                                 
Part II. Other Information                                                       
                                                                                 
     Item 2.   Changes in Securities and Use of Proceeds.........................  12
                                                                                 
Signature........................................................................  14
                                                                                 
Exhibit Index....................................................................  15
</TABLE>
<PAGE>
 
                         FOX ENTERTAINMENT GROUP, INC.

          INDEX TO UNAUDITED COMBINED CONDENSED FINANCIAL STATEMENTS


PART 1
 
<TABLE>
<CAPTION>
ITEM 1 - FINANCIAL STATEMENTS

<S>                                                                                   <C>
Combined Condensed Balance Sheets at June 30, 1998 and                                
 September 30, 1998 (unaudited)                                                        2
                                                                                      
Unaudited Combined Condensed Statements of Operations for the three months ended      
 September 30, 1997 and 1998                                                           3
                                                                                       
Unaudited Combined Condensed Statements of Cash Flows for the three months ended      
 September 30, 1997 and 1998                                                           4
                                                                                      
Notes to the Unaudited Combined Condensed Financial Statements                         5
</TABLE>

                                       1
<PAGE>
 
                         FOX ENTERTAINMENT GROUP, INC

                      COMBINED CONDENSED BALANCE SHEETS 
                                 (in millions)

<TABLE>
<CAPTION>
                                                                June 30,      September 30,
                                                                  1998            1998
                                                               -----------    ------------- 
<S>                                                            <C>            <C>
                                                                               (unaudited)
 ASSETS
 Cash and cash equivalents                                        $   101         $   177
 Accounts receivable, net                                           1,949           1,994
 Filmed entertainment and television programming costs, net         2,071           2,414
 Investments in equity affiliates                                     791             794
 Property and equipment, net                                        1,111           1,155
 Intangible assets, net                                             5,941           5,912
 Other assets and investments                                         666             692
                                                              -------------   -------------
                                                                                          
    Total assets                                                  $12,630         $13,138  
                                                              =============   =============
                                                                                          
 LIABILITIES                                                                              
 Accounts payable and accrued liabilities                         $ 1,613         $ 1,708  
 Participations, residuals and royalties payable                    1,153           1,040  
 Television programming rights payable                                513             651  
 Deferred revenue                                                     238             279  
 Borrowings                                                           375             369  
 Deferred income taxes                                                874             897  
 Other liabilities                                                    221             244  
                                                              -------------   -------------
                                                                    4,987           5,188  
 Due to intercompany affiliates                                     3,702           3,952  
                                                              -------------   -------------
                                                                                          
    Total liabilities                                               8,689           9,140  
                                                              -------------   -------------
                                                                                          
                                                                                          
  SHAREHOLDERS' EQUITY                                                                    
  Preferred stock                                                       1               1  
  Common stock                                                          -               -  
  Paid-in capital                                                   3,132           3,132  
  Retained earnings and other comprehensive income                    808             865  
                                                              -------------   -------------
    Total shareholders' equity                                      3,941           3,998  
                                                              -------------   -------------
                                                                                          
    Total liabilities and shareholders' equity                    $12,630        $ 13,138  
                                                              =============   =============
</TABLE> 

The accompanying notes are an integral part of these combined condensed 
financial statements

                                       2
<PAGE>
 
                         FOX ENTERTAINMENT GROUP, INC.

             UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS
                    (in millions except per share amounts)

<TABLE> 
<CAPTION> 
 
                                                                 For the three months ended
                                                                        September 30,
                                                                 --------------------------
                                                                     1997            1998
                                                                  ---------       ---------                          
<S>                                                               <C>             <C> 
Revenue                                                           $ 1,478         $ 1,802
Expenses:
   Operating                                                        1,117           1,344
   Selling, general and administrative                                182             185 
   Depreciation and amortization                                       56              71
                                                                  ---------       ---------                          

Operating income                                                      123             202
                                                                  ---------       ---------                          
 
Other income (expense):
   Intercompany interest expense, net                                 (35)            (47)
   External interest expense, net                                     (20)            (18)
   Equity losses of affiliates                                        (18)            (42)
                                                                  ---------       ---------                          
Income before income taxes                                             50              95
Income tax expense on a stand-alone basis                             (22)            (38)
                                                                  ---------       ---------                          
Net income                                                        $    28         $    57
                                                                  =========       =========                          

Basic and diluted earnings per share                                $0.05           $0.10
                                                                  ==========      =========                          

Basic and diluted weighted average number of common equivalent
shares outstanding (in millions)                                      548             548
                                                                  =========       =========                          

</TABLE> 

The accompanying notes are an integral part of these combined condensed 
financial statements

                                       3
<PAGE>
 
                          FOX ENTERTAINMENT GROUP, INC.

              UNAUDITED COMBINED CONDENSED STATEMENTS OF CASH FLOWS
                                  (in millions)



<TABLE>
<CAPTION>
 
  
                                                                      For the three months ended
                                                                            September 30,
                                                                     ----------------------------
                                                                         1997           1998
                                                                     ----------------------------
<S>                                                              <C>            <C>
Operating Activities
  Net income                                                         $     28        $    57
  Adjustments to reconcile net income to net cash provided by
     operating activities:
    Depreciation and amortization                                          56             71
    Equity in losses of affiliates                                         18             42
   Change in operating assets and liabilities:
    Accounts receivable and other assets                                 (227)           (80)
    Filmed entertainment and television programming costs                (106)          (305)
    Accounts payable and accrued liabilities                              230            337
    Participations, residuals and royalties payable                        59           (151)

                                                                     ----------------------------
Net cash provided by (used in) operating activities                        58            (29)
                                                                     ----------------------------
 
Investing Activities
  Purchases of property and equipment                                     (89)           (68)
  Investments in equity affiliates                                         (9)           (46)
  Other investments                                                        (6)            (7)
                                                                               
                                                                     ----------------------------
Net cash used in investing activities                                    (103)          (121)
                                                                     ----------------------------
                                                                               
Financing Activities                                                           
  Borrowings                                                               98             78
  Repayment of borrowings                                                 (52)           (84)
  Advances from affiliates, net                                            42            232
                                                                               
                                                                     ----------------------------
Net cash provided by financing activities                                  88            226
                                                                     ----------------------------
                                                                               
Net increase in cash and cash equivalents                                  43             76
Cash and cash equivalents, beginning of period                            256            101
 
                                                                     ----------------------------
Cash and cash equivalents, end of period                             $    299        $   177
                                                                     ============================
</TABLE> 


The accompanying notes are an integral part of these combined condensed
financial statements

                                       4
<PAGE>

                         FOX ENTERTAINMENT GROUP, INC.

               NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

Prior to the transaction referred to in Note 3, The News Corporation Limited
("News Corporation") will effect a reorganization (the "Reorganization") by
contributing to the Fox Entertainment Group, Inc. (the "Company") at book value
certain of its assets and subsidiaries engaged in the production and
distribution of feature films and television programming. Included in this
contribution will be Twentieth Century Fox Film Corporation, which was acquired
by News Corporation in 1985, News Corporation's interest in Fox Family
Worldwide, Inc. and Fox/Liberty Networks, LLC, International Sports Programming
Partners, Fox/Liberty Ventures, LLC and other cable network programming and
related interests. During the period covered by these financial statements these
businesses were under common control as an integral part of News Corporation's
overall operations. These Combined Financial Statements have been prepared from
News Corporation's historical accounting records and present all of the
operations of the businesses that will be owned and operated by the Company
after the Reorganization as if the Company had been a separate entity for all
periods presented.

The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position, changes in shareholders'
equity and cash flows of the Company in the future or what they would have been
had it been a separate, stand-alone entity during the periods presented.

The accompanying unaudited condensed combined financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been reflected in these condensed
combined financial statements. Operating results for the three month period
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ending June 30, 1999.

These interim condensed combined financial statements and notes thereto should
be read in conjunction with the audited combined financial statements and notes
thereto included in the Company's Registration Statement on Form S-1 (File No.
333-61515) as declared effective by the Securities and Exchange Commission on
November 9, 1998.

The preparation of combined 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 at the
date of the condensed combined financial statements and the reported amounts of
revenues and expenses during the reporting period.  Because of the use of
estimates inherent in the financial reporting process, actual results could
differ from those estimates.

NOTE 2 - GUARANTEES OF NEWS CORPORATION DEBT

News Corporation and certain of its subsidiaries, including the Company and
certain subsidiaries of the Company (collectively, the "Fox Guarantors") are
guarantors of various debt obligations of News Corporation and certain of its
subsidiaries. The principal amount of indebtedness outstanding under such debt
instruments at September 30, 1998 was approximately $9.3 billion, which amount
includes approximately $1 billion of obligations under Exchangeable Trust
Originated Preferred Securities SM due 2016. The debt instruments limit the
ability of News Corporation and the Fox Guarantors to subject their properties
to liens, and certain of the debt instruments impose limitations on the ability
of News Corporation and its subsidiaries, including the Fox Guarantors, to incur
indebtedness in certain circumstances. Such debt instruments mature at various
times between 1999 and 2096, with a weighted average maturity of over 20 years.
Additional subsidiaries of the Company may from time to time be required to
become guarantors of certain debt obligations.

                                       5
<PAGE>
 
                         FOX ENTERTAINMENT GROUP, INC.

               NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS

In the case of any event of default under such debt obligations the Fox
Guarantors will be directly liable to the creditors or debtholders. News
Corporation has agreed to indemnify the Fox Guarantors from and against any
obligations they may incur by reason of their guarantees of such debt
obligations.

NOTE 3 - SUBSEQUENT EVENTS

In November 1998, the Company consummated an initial public offering through the
issuance of 124,800,000 shares of Class A Common Stock.  The newly issued shares
of Class A Common Stock represent approximately 18.6% of the Company's
outstanding common stock.  The net proceeds from the public offering were
approximately $2.7 billion and have been used to reduce intercompany
indebtedness.  Prior to the initial public offering, the Company effected a
Reorganization and a recapitalization that gave effect to the following 
transactions: (i) the elimination of certain outstanding intercompany debt as of
September 30, 1998 against Paid-in capital, (ii) the concurrent payment of
dividends to a subsidiary of News Corporation such that after (i) and (ii) $4.5
billion of intercompany debt is outstanding, (iii) the authorization of the new
Class A and Class B Common Stock and the conversion of the Company's outstanding
common stock into 547,500,000 shares of Class B Common Stock, and (iv) the
adjustment to increase the interest rate from 5% to 8% under the terms of the
$4.5 billion of intercompany indebtedness after the Reorganization. For the
three months ended September 30, 1998, after giving effect to the initial public
offering, Reorganization and recapitalization, the pro forma net income and
earnings per share would have been $63 million and $0.09, respectively, as a
result of a decrease in intercompany interest expense of $10 million and an
increase in income taxes of $4 million.

In November 1998, for purposes of governing certain on-going relationships
between the Company and News Corporation and to facilitate the Reorganization,
the Company and News Corporation entered into a Master Intercompany Agreement
which includes various agreements relating to cash management and financing,
executive officer services, the provision of services of certain Company
employees to News Corporation and its subsidiaries, facility arrangements,
employee matters, insurance, services, trademarks, indemnities by the Company
and News Corporation and also entered into a Tax Sharing Agreement.  These
agreements were negotiated in the context of a parent-subsidiary relationship
and therefore are not the result of arm's length negotiations between
independent parties.  There can be no assurance, therefore, that each of such
agreements, or the transactions provided for therein, or any amendments thereof,
will be effected on terms at least as favorable to the Company as could have
been obtained from unaffiliated third parties.

                                       6
<PAGE>

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 
This filing contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended.  The words
"expect," "estimate," "anticipate," "predict," "believe" and similar expressions
and variations thereof are intended to identify forward-looking statements.
These statements appear in a number of places in this filing and include
statements regarding the intent, belief or current expectations of the Fox
Entertainment Group, Inc. ("Company"), its directors or its officers with
respect to, among other things, trends affecting the Company's financial
condition or results of operations.  The readers of this filing are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in this filing, including, without
limitation, those risks and uncertainties discussed under the headings "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in the Company's Registration Statement Form S-1 as
declared effective by the Securities and Exchange Commission on November 9,
1998, as well as the information set forth below. The Company does not
ordinarily make projections of its future operating results and undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.  Readers should
carefully review the risk factors referred to above and the other documents
filed by the Company with the Securities and Exchange Commission. This section
should be read in conjunction with the unaudited consolidated condensed
financial statements of the Company and related notes set forth elsewhere
herein.

Prior to the initial public offering of Class A Common Stock of the Company,
News Corporation effected a Reorganization by contributing to the Company, at
book value, certain of its subsidiaries engaged in the production and
distribution of feature films and television programming. The Combined Financial
Statements of the Company, which are discussed below, reflect the historical
results of operations, financial position and cash flows of the Company's wholly
owned subsidiaries prior to the Reorganization combined with the historical
financial information of the businesses to be contributed to the Company from
News Corporation as part of the Reorganization. Management believes the
assumptions underlying the Company's Combined Financial Statements to be
reasonable. The combined financial information included herein is not
necessarily indicative of the consolidated results of operations, financial
position and cash flows of the Company had the Reorganization occurred as of the
beginning of the periods presented, and had the Company operated as a separate,
stand-alone entity during these periods. The combined financial information
included herein does not reflect the changes that will occur in the funding and
operations of the Company as a result of the Reorganization, recapitalization
and the initial public offering.


                                       7
<PAGE>
 
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 VS. THREE MONTHS
ENDED SEPTEMBER 30, 1998

The following table sets forth the Company's operating results, by segment, for
the three months ended September 30, 1997 as compared to the three months ended
September 30, 1998:

<TABLE>
<CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                        September 30,
                                                                                        ------------
                                                                             1997            1998           CHANGE
                                                                             ----            ----           ------
                                                                                    (DOLLARS IN MILLIONS)
<S>                                                                     <C>             <C>             <C>
Revenues:
  Filmed Entertainment................................................         $  803          $1,062            $259
  Television Broadcasting and Related Businesses......................            661             713              52
  Cable Network Programming...........................................             14              27              13
                                                                               ------          ------            ----
Total Revenues........................................................         $1,478          $1,802            $324
                                                                               ======          ======            ====
 
Operating Income (Loss):
  Filmed Entertainment................................................         $   50          $  125            $ 75
  Television Broadcasting and Related Businesses......................            111             108              (3)
  Cable Network Programming...........................................            (38)            (31)              7
                                                                               ------          ------            ----
Total Operating Income................................................            123             202              79
Intercompany interest expense, net....................................            (35)            (47)            (12)
External interest expense, net........................................            (20)            (18)              2
Equity losses of affiliates...........................................            (18)            (42)            (24)
                                                                               ------          ------            ----
Income before income taxes............................................             50              95              45
Income tax expense on a stand-alone basis.............................            (22)            (38)            (16)
                                                                               ------          ------            ----
Net Income............................................................         $   28          $   57            $ 29
                                                                               ======          ======            ====
 
OTHER DATA:
Operating Income (Loss) Before Depreciation and Amortization:
  Filmed Entertainment................................................         $   57          $  134            $ 77
  Television Broadcasting and Related Businesses......................            151             157               6
  Cable Network Programming...........................................            (29)            (18)             11
                                                                               ------          ------            ----
Total Operating Income Before
               Depreciation and Amortization (1)......................         $  179          $  273            $ 94
                                                                               ======          ======            ====
</TABLE>

(1) Operating Income Before Depreciation and Amortization is defined as
    operating income (loss) before depreciation and amortization. Operating
    Income Before Depreciation and Amortization is presented supplementally as
    management believes it allows for the most appropriate measure for
    evaluating operating performance. The Company believes Operating Income
    Before Depreciation and Amortization is a standard measure commonly reported
    and widely used by analysts, investors and others associated with the media
    and entertainment industry. Operating Income Before Depreciation and
    Amortization eliminates the uneven effect across business segments of
    considerable amounts of depreciation and amortization primarily resulting
    from the value of intangible assets acquired in business combinations
    accounted for by the purchase method of accounting. While many in the
    financial community consider Operating Income Before Depreciation and
    Amortization to be an important measure of comparative operating
    performance, it should be considered in addition to, but not as a substitute
    for, operating income, net income, cash flow and other measures of financial
    performance prepared in accordance with GAAP which are presented in the
    Company's Registration Statement Form S-1 as declared effective by the 
    Securities and Exchange Commission on November 9, 1998.
    Additionally, the Company's calculation of Operating Income Before
    Depreciation and Amortization may be different than the calculation used by
    other companies and therefore, comparability may be affected.

Filmed Entertainment. For the first quarter of fiscal 1999, revenues increased
32%, operating income increased 150% and operating income before depreciation
and amortization increased 135% versus the corresponding period of the preceding
fiscal year.  Twentieth Century Fox Film captured the largest share of the U.S.
summer box office receipts with the release of several successful pictures,
including The X-Files, Dr. Dolittle, Ever After and There's Something About
Mary, which has generated box office receipts of approximately $170 million
domestically to date. Also included in the first quarter of fiscal 1999 were a
portion of the domestic video sales of Titanic, which has already achieved
record video sales. Subsequent periods will include the international video
release of Titanic as well as the worldwide video releases of this past summer's
theatrical hits.

                                       8
<PAGE>
 
Television Broadcasting and Related Businesses. For the first quarter of fiscal
1999, revenues increased 8% above levels for the corresponding period of the
preceding fiscal year, while operating income decreased by 3% and operating
income before depreciation and amortization increased by 4%. The results of the
Fox Television Stations declined slightly from the corresponding period in of
the preceding fiscal year reflecting softness in the U.S. television advertising
market due in part to significantly reduced General Motors advertising as a
result of its prolonged labor strike. The resumption of historical automotive
advertising levels this fall, in conjunction with the November elections, raised
October and November pacings above year ago levels. The Company reported
improved results from the corresponding period in the preceding fiscal year,
primarily due to higher pricing reflecting the prior season's ratings momentum.
These results were partially offset by the weak performance of several new Fall
1998 series.

Cable Network Programming. Fox News Channel reported a first quarter revenue
increase of 93%, an 18% reduction in operating losses and a 38% reduction in
operating losses before depreciation and amortization compared to the
corresponding period of the preceding fiscal year. Fox News Channel continues to
expand its distribution and is currently in 36 million homes, an increase of
over 50% since the end of the first quarter of fiscal 1998. Consistent with this
subscriber increase, combined advertising and affiliate revenues almost doubled,
while total operating costs remained constant.

Equity Losses of Affiliates. In the first quarter of fiscal 1999, equity losses
of affiliates increased to $42 million from $18 million in the corresponding
period of the preceding fiscal year. These increased losses are primarily due to
higher interest expense and amortization related to the acquisition of
International Family Entertainment by Fox Family Worldwide, which was completed
in September 1997, and the acquisition of a 40% interest in Rainbow Media's
regional sports networks and certain other businesses by Fox/Liberty Networks in
December 1997.

Interest Expense. Results for the first quarter of fiscal 1999 also reflect
increases in intercompany interest expense, primarily due to higher average debt
balances from the corresponding period of the preceding fiscal year.

Income Tax Expense on a Stand-alone Basis. The Company has not provided for or
paid current income taxes due to its net taxable losses. Deferred income tax
expense on a stand-alone basis represents the federal, state and foreign taxes
on earnings before income taxes. The effective income tax rate for the three
months ended September 30, 1998 was 40% compared with 44% in the corresponding
period of the preceding fiscal year. The lower effective tax rate resulted from
the relationship of non-deductible items to lower taxable income in the
corresponding period of the preceding fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows used in operating activities during the three months ended
September 30, 1998 were $29 million as compared to $58 million provided by
operating activities in the corresponding period of the preceding fiscal year.
The decrease was primarily attributable to increased payments for filmed
entertainment and television programming costs and participations, residuals and
royalties.

Net cash flows used in investing activities were $103 million and $121 million
during the three months ended September 30, 1997 and 1998, respectively.  The
increase was primarily attributable to investments in equity affiliates which
reflects additional funding of Fox/Liberty Networks and Fox Family Worldwide
offset by a $21 million decrease in capital expenditures.

Financing activities primarily reflect advances received from News Corporation.

In November 1998, the Company consummated an initial public offering through the
issuance of 124,800,000 shares of Class A Common Stock.  The newly issued shares
of Class A Common Stock represent approximately 18.6% of the Company's
outstanding common stock.  The net proceeds from the initial public offering
were approximately $2.7 billion and were used to reduce intercompany
indebtedness.  Prior to the initial public offering, the Company effected a 
Reorganization and a recapitalization that gave effect to the following 
transactions: (i) the elimination of certain outstanding intercompany debt as of
September 30, 1998 against Paid-in capital, (ii) the concurrent payment of 
dividends to a subsidiary of News Corporation such that after (i) and (ii) $4.5 
billion of intercompany debt is outstanding, (iii) the authorization of the new 
Class A and Class B Common Stock and the conversion of the Company's outstanding
common stock into 547,500,000 shares of Class B Common Stock, and (iv) the
adjustment to increase the interest rate from 5% to 8% under the terms of the
$4.5 billion of intercompany indebtness after the Reorganization. For the three
months ended September 30, 1998, after giving effect to the initial public
offering, Reorganization and recapitalization, the pro forma net income and
earnings per share would have been $63 million and $0.09, respectively, as a
result of a decrease in intercompany interest expense of $10 million and an
increase in income taxes of $4 million.

In November 1998, for purposes of governing certain on-going relationships 
between the Company and News Corporation and to facilitate the Reorganization, 
the Company and News Corporation entered into a Master Intercompany Agreement 
which includes various agreements relating to cash management and financing, 
executive officer services, the provision of services of certain Company 
employees to News Corporation and its subsidiaries, facility arrangements, 
employee matters, insurance, services, trademarks, indemnities by the Company 
and News Corporation and also entered into a Tax Sharing Agreement. These 
agreements were negotiated in the context of a parent-subsidiary relationship 
and therefore are not the result of arm's length negotiations between 
independent parties. There can be no assurance, therefore, that each of such 
agreements, or the transactions provided for therein, or any amendments thereof,
will be effected on terms at least as favorable to the Company as could have 
been obtained from unaffiliated third parties.

News Corporation and certain of its subsidiaries, including the Company and 
certain subsidiaries of the Company (collectively, the "Fox Guarantors") are 
guarantors of various debt obligations of News Corporation and certain of its 
subsidiaries. The principal amount of indebtness outstanding under such debt 
instruments at September 30, 1998 was approximately $9.3 billion, which amount 
includes approximately $1 billion of obligations under Exchangeable Trust 
Originated Preferred Securities (SM) due 2016. The debt instruments limit the 
ability of News Corporation and the Fox Guarantors to subject their properties 
to liens, and certain of the debt instruments impose limitations on the ability 
of News Corporation and its subsidiaries, including the Fox Guarantors, to incur
indebtness in certain circumstances. Such debt instruments mature at various 
times between 1999 and 2096, with a weighted average maturity of over 20 years. 
Additional subsidiaries of the Company may from time to time be required to 
become guarantors of certain debt obligations.

In the case of any event of default under such debt obligations the Fox 
Guarantors will be directly liable to the creditors or debtholders. News
Corporation has agreed to indemnify the Fox Guarantors from and against any 
obligations the may incur by reason of their guarantees of such debt 
obligations.


YEAR 2000

The following disclosure is a Year 2000 readiness disclosure statement pursuant
to the Year 2000 Readiness and Disclosure Act.


                                       9
<PAGE>
 
The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by its computerized
information systems. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Certain programs may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in miscalculations or system failures.

The Company has been focused on the Year 2000 issue for several years since its
normal capital spending plan requires it to ensure that significant investments
in technology in the periods prior to December 31, 1999, would be for systems
which would be operational after December 31, 1999. As a result of its
assessment and capital planning, no acceleration of material planned systems
replacements were made due to Year 2000 issues.

Between now and January 1, 2000, the Company will proceed through its various
phases of assessment, strategy, detailed planning, implementation, testing and
management. The Company expects to be fully Year 2000 compliant with respect to
all significant business systems during the first half of calendar 1999.

The Company has in place a Year 2000 program in each of its operating divisions.
These programs, which are executed by project teams, do not rely to a
significant degree on outside consultants. The objectives of these Year 2000
programs are to determine and assess the risks of the Year 2000 issue and to
plan and institute mitigating actions to minimize those risks to acceptable
levels.

The Company's standard for compliance requires that for a computer system or a
business process to be Year 2000 compliant, it must be designed to be used prior
to, on and after January 1, 2000. Such systems or processes must be able to
operate without error in dates and date-related data, including without
limitation, calculating, comparing, indexing and sequencing prior to, on and
after January 1, 2000.

The Company's Year 2000 project teams are focusing on the following major areas:

Core Computer Systems. Information technology systems account for much of the
Year 2000 work and include all computer systems and technology managed by the
Company. All core systems have been assessed, plans are in place and work is
being undertaken to test and implement changes where required. No major
remediation has been identified. In Filmed Entertainment, in-house systems play
a limited role in the development and distribution of product. In Television and
Cable Network Programming, the core systems relate to the broadcasting of
programming and the placement of advertising, with respect to both of which the
Company relies on standard package systems developed by vendors whose products
are widely used in the industry. Information Technology vendors and suppliers
have been contacted as to their Year 2000 compliance and their responses have
been factored into the Company's plans.

Equipment and Facilities. An inventory of all critical broadcast equipment,
office equipment and building infrastructure has been completed for all major
sites including the Company's Los Angeles lot and television stations.

Customers and Vendors. The Company is communicating with its significant
customers and vendors to understand their Year 2000 issues and how they might
prepare themselves to manage those issues as they relate to the Company. To
date, no significant customers or vendors have informed the Company that a
material Year 2000 issue exists which will have a material effect on the
Company.

The Company will continually review its progress against its Year 2000 plans and
conclude on the appropriate and feasible contingency plans to reduce its
exposure to Year 2000 related issues.

Based on the Company's current assessment, the costs of addressing potential
problems are not currently expected to have a material adverse impact on the
Company's financial position, results of operations or cash flows in future
periods. However, if the Company, its customers or vendors identify Year 2000
issues in the future and are unable to resolve such issues in a timely manner,
it could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant Year 2000 issues in a
timely manner.

The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of the Company's Year 2000 compliance project. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, timely responses to and
corrections by third parties and suppliers, the ability to implement interfaces
between the new 

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<PAGE>
 
systems and the systems not being replaced, and similar uncertainties. Due to
the general uncertainty inherent in the Year 2000 readiness of third parties and
the interconnection of national and international businesses, the Company cannot
ensure that its ability to timely and cost effectively resolve problems
associated with the Year 2000 issue will not affect its operations and business,
or expose it to third-party liability.


ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

       Not Applicable

                                       11
<PAGE>
 
Part II.  Other Information

Item 1.   Legal Proceedings.

          Not Applicable

Item 2.   Changes in Securities and Use of Proceeds.

          On November 9, 1998, the Securities and Exchange Commission (the
"Commission") declared effective the Company's Registration Statement on 
Form S-1 (File No. 333-61515) (the "Initial Registration Statement") relating to
the offering by the Company of up to 97,500,000 shares of the Company's Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"). On November
10, 1998, the Company filed a Registration Statement pursuant to Rule 462(b) of
the Securities Exchange Act of 1933, as amended, (File No. 333-67099) (the
"Abbreviated Registration Statement"), which was effective upon filing with the
Commission and registered an additional 27,300,000 shares of Class A Common
Stock. The Initial Registration Statement, together with the Abbreviated
Registration Statement, relate to the offering by the Company of an aggregate of
124,800,000 shares of Class A Common Stock, of which 106,808,000 shares were
offered for sale initially in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 18,720,000 shares were offered for sale
initially outside the United States and Canada by the International Managers
(the "International Offering," and, together with the U.S. Offering, the
"Offerings").

          In the U.S. Offering, Merrill Lynch & Co.; Allen & Company
Incorporated; Goldman, Sachs & Co.; Morgan Stanley Dean Witter; Bear, Stearns &
Co. Inc.; Donaldson, Lufkin & Jenrette; J.P. Morgan & Co.; NationsBanc
Montgomery Securities LLC; and Salomon Smith Barney acted as representatives of
the U.S. Underwriters. In the International Offering, Merrill Lynch
International; Allen & Company Incorporated; Goldman Sachs International; Morgan
Stanley Dean Witter; Bear, Stearns International Limited; Donaldson, Lufkin &
Jenrette; J.P. Morgan Securities Ltd.; NationsBanc Montgomery Securities LLC;
and Salomon Smith Barney International acted as the International Managers.

          The Offerings commenced on November 10, 1998, and the Company's Class
A Common Stock began trading on the New York Stock Exchange on November 11,
1998, under the symbol "FOX". The Offerings consisted of an aggregate of
124,800,000 shares of Class A Common Stock issued at $22.50 per share. The net
proceeds from the Offerings, after deducting the underwriting discounts and
other expenses payable by the Company, were approximately $2.7 billion.

          Prior to the consummation of the Offerings, News Corporation and its
subsidiaries eliminated certain of the intercompany borrowings owed by the
Company, and the Company issued notes (the "Intercompany Notes") to a subsidiary
of News Corporation in an aggregate amount of $4.5 billion, representing the
remaining intercompany borrowings and payment of dividends by a subsidiary of
the Company to a subsidiary of News Corporation.  The Intercompany Notes
constitute unsecured, general obligations of the Company and mature on 

                                       12
<PAGE>
 
June 30, 2003. The Intercompany Notes bear interest at a rate equal to the
average cost of long-term debt of News Corporation (currently approximately 8%
per annum), adjusted annually and payable quarterly. The Company used the entire
net proceeds of the Offerings to repay a portion of the indebtedness owed by the
Company to News Corporation and certain of its subsidiaries under the
Intercompany Notes. Immediately following consummation of the Offerings and the
application of the net proceeds therefrom, the aggregate amount outstanding
under the Intercompany Notes was approximately $1.8 billion.

          News Corporation indirectly owns all issued and outstanding shares of
the Company's Class B Common Stock, par value $.01 per share, which, after the
consummation of the Offerings, represented approximately 81.4% of the equity and
97.8% of the voting power of the Company.

Item 3.   Defaults Upon Senior Securities.

          Not Applicable

Item 4.   Submission of Matters to a Vote of Security Holders.

          Not Applicable

Item 5.   Other Information.

          Not Applicable


Item 6.   Exhibits and Reports on Form 8-K.

          The exhibit index filed with the Form 10-Q follows on page 15.

                                       13
<PAGE>
 
                                 SIGNATURE

   Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


Date: December 22, 1998              FOX ENTERTAINMENT GROUP, INC.
                                          /s/ Arthur M. Siskind
                                     By:  ______________________________
                                          Name: Arthur M. Siskind
                                          Title: Senior Executive Vice President

                                       14
<PAGE>
 
                                 Exhibit Index


Exhibit
Number    Description

3.1       Restated Certificate of Incorporation of Fox Entertainment Group, Inc.

3.2       By-Laws of Fox Entertainment Group, Inc.

                                       15