<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

[x]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       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: 0-14508

                        ENSTAR INCOME PROGRAM II-1, L.P.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

            GEORGIA                                            58-1628877
----------------------------------------                 ----------------------
   (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                        Identification Number)

10900 WILSHIRE BOULEVARD - 15TH FLOOR
      LOS ANGELES, CALIFORNIA                                    90024
----------------------------------------                 ----------------------
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code:         (310) 824-9990
                                                   ----------------------------

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

Securities registered pursuant to Section 12 (g) of the Act:

                                                     Name of each exchange
      Title of each Class                             on which registered
      -------------------                             -------------------

UNITS OF LIMITED PARTNERSHIP INTEREST                       NONE


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

Yes   X   No
   ------   ------

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

         State the aggregate market value of the voting equity securities held
by non-affiliates of the registrant - all of the registrant's 29,936 units of
limited partnership interests, its only class of equity securities, are held by
non-affiliates. There is no public trading market for the units, and transfers
of units are subject to certain restrictions; accordingly, the registrant is
unable to state the market value of the units held by non-affiliates.


================================================================================
                    The Exhibit Index is located at Page E-1.

<PAGE>   2

                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

         Enstar Income Program II-1, L.P., a Georgia limited partnership (the
"Partnership"), is engaged in the ownership, operation and development, and,
when appropriate, sale or other disposition, of cable television systems in
small to medium-sized communities. The Partnership was formed on July 3, 1984.
The general partners of the Partnership are Enstar Communications Corporation, a
Georgia corporation (the "Corporate General Partner"), and Robert T. Graff, Jr.
(the "Individual General Partner" and, together with the Corporate General
Partner, the "General Partners"). On September 30, 1988, ownership of the
Corporate General Partner was acquired by Falcon Cablevision, a California
limited partnership that has been engaged in the ownership and operation of
cable television systems since 1984 ("Falcon Cablevision"). The general partner
of Falcon Cablevision is Falcon Holding Group, L.P. ("FHGLP"), which provides
certain management services to the Partnership. The general partner of FHGLP is
Falcon Holding Group, Inc., a California corporation ("FHGI"). See Item 13.,
"Certain Relationships and Related Transactions". The General Partner, FHGLP and
affiliated companies are responsible for the day to day management of the
Partnership and its operations. See "Employees" below.

         A cable television system receives television, radio and data signals
at the system's "headend" site by means of over-the-air antennas, microwave
relay systems and satellite earth stations. These signals are then modulated,
amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to customers who pay a fee for this service. Cable
television systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.

         The Partnership's cable television systems (the "systems") offer
customers various levels (or "tiers") of cable services consisting of broadcast
television signals of local network, independent and educational stations, a
limited number of television signals from so-called "super stations" originating
from distant cities (such as WGN), various satellite-delivered, non-broadcast
channels (such as Cable News Network ("CNN"), MTV: Music Television ("MTV"), the
USA Network ("USA"), ESPN, Turner Network Television ("TNT") and The Disney
Channel), programming originated locally by the cable television system (such as
public, educational and governmental access programs) and informational displays
featuring news, weather, stock market and financial reports, and public service
announcements. A number of the satellite services are also offered in certain
packages. For an extra monthly charge, the systems also offer "premium"
television services to their customers. These services (such as Home Box Office
("HBO") and Showtime) are satellite channels that consist principally of feature
films, live sporting events, concerts and other special entertainment features,
usually presented without commercial interruption. See "Legislation and
Regulation."

         A customer generally pays an initial installation charge and fixed
monthly fees for basic, expanded basic, other tiers of satellite services and
premium programming services. Such monthly service fees constitute the primary
source of revenues for the systems. In addition to customer revenues, the
systems receive revenue from the sale of available advertising spots on
advertiser-supported programming. The systems also offer to their customers home
shopping services, which pay the systems a share of revenues from sales of
products in the systems' service areas, in addition to paying the systems a
separate fee in return for carrying their shopping service. Certain other new
channels have also recently offered the cable systems managed by FHGLP,
including those of the Partnership, fees in return for carrying their service.
Due to a general lack of channel capacity available for adding new channels, the
Partnership's management cannot predict the impact of such potential payments on
the Partnership's business. See Item 7., "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."





                                       -2-

<PAGE>   3

         The Partnership owns and operates two cable television systems that
provide service to customers in the cities of Taylorville, Litchfield and
Gillespie, Illinois and portions of unincorporated Christian County, Illinois.
As of December 31, 1997, the Partnership served approximately 6,900 basic
subscribers in these areas. The Partnership does not expect to make any
additional material acquisitions during the remaining term of the Partnership.

         FHGLP receives a management fee and reimbursement of expenses from the
Corporate General Partner for managing the Partnership's cable television
operations. See Item 11., "Executive Compensation."

         The Chief Executive Officer of FHGLP is Marc B. Nathanson. Mr.
Nathanson has managed FHGLP or its predecessors since 1975. Mr. Nathanson is a
veteran of more than 28 years in the cable industry and, prior to forming
FHGLP's predecessors, held several key executive positions with some of the
nation's largest cable television companies. The principal executive offices of
the Partnership, the Corporate General Partner and FHGLP are located at 10900
Wilshire Boulevard, 15th Floor, Los Angeles, California 90024, and their
telephone number is (310) 824-9990. See Item 10., "Directors and Executive
Officers of the Registrant."

BUSINESS STRATEGY

         Historically, the Partnership has followed a systematic approach to
acquiring, operating and developing cable television systems based on the
primary goal of increasing operating cash flow while maintaining the quality of
services offered by its cable television systems. The Partnership's business
strategy has focused on serving small to medium-sized communities. The
Partnership believes that given a similar rate, technical, and channel
capacity/utilization profile, its cable television systems generally involve
less risk of increased competition than systems in large urban cities. In the
Partnership's market, consumers have access to only a limited number of
over-the-air broadcast television signals. In addition, this market typically
offers fewer competing entertainment alternatives than large cities. As a
result, the Partnership's cable television systems generally have a more stable
customer base than similar systems in large cities. Nonetheless, the Partnership
believes that all cable operators will face increased competition in the future
from alternative providers of multi-channel video programming services. See
"Competition."

         Adoption of rules implementing certain provisions of the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") by the Federal Communications Commission (the "FCC") has had a negative
impact on the Partnership's revenues and cash flow. These rules are subject to
further amendment to give effect to the Telecommunications Act of 1996 (the
"1996 Telecom Act"). Among other changes, the 1996 Telecom Act provides that the
regulation of certain cable programming service tier ("CPST") rates will be
phased out altogether in 1999. Because cable service rate increases have
continued to outpace inflation under the FCC's existing regulations, the
Partnership expects Congress and the FCC to explore additional methods of
regulating cable service rate increases, including deferral or repeal of the
March 31, 1999 sunset of CPST rate regulations and legislation recently was
introduced in Congress to repeal the sunset provision. There can be no assurance
as to what, if any, further action may be taken by the FCC, Congress or any
other regulatory authority or court, or the effect thereof on the Partnership's
business. See "Legislation and Regulation" and Item 7., "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

         Clustering

         The Partnership has sought to acquire cable television operations in
communities that are proximate to other owned or affiliated systems in order to
achieve the economies of scale and operating efficiencies associated with
regional "clusters." The Partnership believes clustering can reduce marketing
and personnel costs and can also reduce capital expenditures in cases where
cable service can be delivered through a central headend reception facility.






                                      -3-
<PAGE>   4


         Capital Expenditures

         As noted in "Technological Developments," the Partnership's systems
have no available channel capacity with which to add new channels or to provide
pay-per-view offerings to customers. As a result, significant amounts of capital
for future upgrades will be required in order to increase available channel
capacity, improve quality of service and facilitate the expansion of new
services such as advertising, pay-per-view, new unregulated tiers of
satellite-delivered services and home shopping, so that the systems remain
competitive within the industry.

         The Partnership's management has selected a technical standard that
incorporates the use of fiber optic technology where applicable in its
engineering design for the majority of its systems that are to be rebuilt. A
system built with this type of architecture can provide for future channels of
analog service as well as new digital services. Such a system will also permit
the introduction of high speed data transmission and telephony services in the
future after incurring incremental capital expenditures related to these
services. The Partnership is also evaluating the use of digital compression
technology in its systems. See "Technological Developments" and "Digital
Compression."

         The Partnership is rebuilding its cable system in Taylorville, Illinois
and neighboring communities at an estimated total cost of approximately
$4,300,000. Rebuild construction began in October 1996 and is expected to be
completed in 1998. Other capital expenditures budgeted for 1998 include
approximately $200,000 for the improvement and upgrade of other assets. The
Partnership is required to upgrade its system in the community of Gillespie,
Illinois under a provision of its franchise agreement. Expenditures for an
upgrade beginning in 1999 are budgeted at a total estimated cost of
approximately $725,000. Additionally, the Partnership expects to begin an
upgrade of its cable plant in Litchfield, Illinois in 1999 at a total estimated
cost of approximately $1,300,000. See "Legislation and Regulation" and Item 7.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources."

         Decentralized Management

         The Corporate General Partner manages the Partnership's systems on a
decentralized basis. The Corporate General Partner believes that its
decentralized management structure, by enhancing management presence at the
system level, increases its sensitivity to the needs of its customers, enhances
the effectiveness of its customer service efforts, eliminates the need for
maintaining a large centralized corporate staff and facilitates the maintenance
of good relations with local governmental authorities.

         Marketing

         The Partnership has made substantial changes in the way in which it
packages and sells its services and equipment in the course of its
implementation of the FCC's rate regulations promulgated under the 1992 Cable
Act. Pursuant to the FCC's rules, the Partnership has set rates for cable
related equipment (e.g., converter boxes and remote control devices) and
installation services based upon actual costs plus a reasonable profit and has
unbundled these charges from the charges for the provision of cable service. In
addition, in some systems, the Partnership began offering programming services
on an a la carte basis that were previously offered only as part of a package.
Services offered on an a la carte basis typically were made available for
purchase both individually and on a combined basis at a lower rate than the
aggregate a la carte rates. The FCC subsequently amended its rules to exclude
from rate regulation newly created packages of program services consisting only
of programming new to a cable system. The FCC also decided that newly-created
packages containing previously offered non-premium programming services will
henceforth be subject to rate regulation, whether or not the services also are
available on an existing a la carte basis. With respect to a la carte
programming packages created by the Partnership and numerous other cable
operators, the FCC decided that where only a few services had been moved from
regulated tiers to a non-premium programming package, the package will be
treated as if it were a tier of new program services, and thus not





                                      -4-

<PAGE>   5

subject to rate regulation. Substantially all of the a la carte programming
packages offered by the Partnership have received this desirable treatment.
These amendments to the FCC's rules have allowed the Partnership to resume its
core marketing strategy and reintroduce program service packaging. As a result,
in addition to the basic service package, customers in substantially all of the
systems may purchase an expanded group of regulated services, additional
unregulated packages of satellite-delivered services, and premium services. The
premium services may be purchased on either an a la carte or a discounted
packaged basis. See "Legislation and Regulation."

         The Partnership has employed a variety of targeted marketing techniques
to attract new customers by focusing on delivering value, choice, convenience
and quality. The Partnership employs direct mail, radio and local newspaper
advertising, telemarketing and door-to-door selling utilizing demographic
"cluster codes" to target specific messages to target audiences. In certain
systems, the Partnership offers discounts to customers who purchase premium
services on a limited trial basis in order to encourage a higher level of
service subscription. The Partnership also has a coordinated strategy for
retaining customers that includes televised retention advertising to reinforce
the initial decision to subscribe and encourage customers to purchase higher
service levels.

         Customer Service and Community Relations

         The Partnership places a strong emphasis on customer service and
community relations and believes that success in these areas is critical to its
business. The Partnership has developed and implemented a wide range of monthly
internal training programs for its employees, including its regional managers,
that focus on the Partnership's operations and employee interaction with
customers. The effectiveness of the Partnership's training program as it relates
to the employees' interaction with customers is monitored on an ongoing basis,
and a portion of the regional manager's compensation is tied to achieving
customer service targets. The Partnership conducts an extensive customer survey
on a periodic basis and uses the information in its efforts to enhance service
and better address the needs of its customers. In addition, the Partnership is
participating in the industry's Customer Service Initiative which emphasizes an
on-time guarantee program for service and installation appointments. The
Partnership's corporate executives and regional manager lead the Partnership's
involvement in a number of programs benefiting the communities the Partnership
serves, including, among others, Cable in the Classroom, Drug Awareness, Holiday
Toy Drive and the Cystic Fibrosis Foundation. Cable in the Classroom is the
cable television industry's public service initiative to enrich education
through the use of commercial-free cable programming. In addition, a monthly
publication, Cable in the Classroom magazine provides educational program
listings by curriculum area, as well as feature articles on how teachers across
the country use the programs.





                                       -5-

<PAGE>   6

DESCRIPTION OF THE PARTNERSHIP'S SYSTEMS

         The table below sets forth certain operating statistics for the
Partnership's cable systems as of December 31, 1997.


<TABLE>
<CAPTION>
                                                                                                       Average
                                                                                                       Monthly
                                                                        Premium                        Revenue
                          Homes           Basic           Basic         Service         Premium       Per Basic
System                   Passed(1)     Subscribers     Penetration(2)    Units(3)    Penetration(4)  Subscriber(5)
------                   -------       -----------     ------------      ------      ------------    -----------
<S>                      <C>             <C>              <C>             <C>            <C>          <C>
Taylorville, IL           5,481           3,914            71.4%           937            23.9%        $   36.70


Litchfield, IL            5,199           2,964            57.0%           563            19.0%        $   36.04
                          -----           -----                           ----

Total                    10,680           6,878            64.4%         1,500            21.8%        $   36.41
                          =====           =====                           ====
</TABLE>


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

         (1) Homes passed refers to estimates by the Partnership of the
approximate number of dwelling units in a particular community that can be
connected to the distribution system without any further extension of principal
transmission lines. Such estimates are based upon a variety of sources,
including billing records, house counts, city directories and other local
sources.

         (2) Basic subscribers as a percentage of homes passed by cable.

         (3) Premium service units include only single channel services offered
for a monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee.

         (4) Premium service units as a percentage of homes subscribing to cable
service. A customer may purchase more than one premium service, each of which is
counted as a separate premium service unit. This ratio may be greater than 100%
if the average customer subscribes for more than one premium service.


         (5) Average monthly revenue per basic subscriber has been computed
based on revenue for the year ended December 31, 1997.





                                      -6-
<PAGE>   7

CUSTOMER RATES AND SERVICES

         The Partnership's cable television systems offers customers packages of
services that include the local area network, independent and educational
television stations, a limited number of television signals from distant cities,
numerous satellite-delivered, non-broadcast channels (such as CNN, MTV, USA,
ESPN TNT and The Disney Channel) and certain information and public access
channels. For an extra monthly charge, the systems provide certain premium
television services, such as HBO and Showtime. The Partnership also offers other
cable television services to its customers. For additional charges, the
Partnership also rents remote control devices and VCR compatible devices
(devices that make it easier for a customer to tape a program from one channel
while watching a program on another).

         The service options offered by the Partnership depend upon channel
capacity and viewer interests. Rates for services are based upon the type of
services selected.

         Pursuant to the 1992 Cable Act, most cable television systems are
subject to rate regulation of the basic service tier, the non-basic service
tiers other than premium (per channel or program) services, the charges for
installation of cable service, and the rental rates for customer premises
equipment such as converter boxes and remote control devices. These rate
regulation provisions affect all of the Partnership's systems not deemed to be
subject to effective competition under the FCC's definition. Currently, none of
the Partnership's systems are subject to effective competition. See "Legislation
and Regulation."

         At December 31, 1997, the Partnership's monthly rates for basic cable
service for residential customers, excluding special senior citizen discount
rates, ranged from $23.54 to $25.51 and its premium service rate was $11.95,
excluding special promotions offered periodically in conjunction with the
Partnership's marketing programs. A one-time installation fee, which the
Partnership may wholly or partially waive during a promotional period, is
usually charged to new customers. Commercial customers, such as hotels, motels
and hospitals, are charged a negotiated, non-recurring fee for installation of
service and monthly fees based upon a standard discounting procedure. Most
multi-unit dwellings are offered a negotiated bulk rate in exchange for
single-point billing and basic service to all units. These rates are also
subject to regulation.

EMPLOYEES

         The various personnel required to operate the Partnership's business
are employed by the Partnership, the Corporate General Partner, its subsidiary
corporation and FHGLP. As of February 6, 1998, the Partnership had two
employees, the cost of which is charged directly to the Partnership. The
employment costs incurred by the Corporate General Partner, its subsidiary
corporation and FHGLP are allocated and charged to the Partnership for
reimbursement pursuant to the partnership agreement and management agreement.
The amounts of these reimbursable costs are set forth below in Item 11.,
"Executive Compensation."

TECHNOLOGICAL DEVELOPMENTS

         As part of its commitment to customer service, the Partnership
emphasizes high technical standards and prudently seeks to apply technological
advances in the cable television industry to its systems on the basis of cost
effectiveness, capital availability, enhancement of product quality and service
delivery and industry-wide acceptance. The Partnership's present plan is to
upgrade the technical quality of its systems' cable plant and to increase
channel capacity for the delivery of additional programming and new services.
Currently, the Partnership's systems have an average channel capacity of 37,
substantially all of which is presently utilized. The Partnership believes that
system upgrades will enable it to provide customers with greater programming
diversity, better picture quality and alternative communications delivery
systems made possible by the introduction of fiber optic technology and by the
possible future application of digital




                                       -7-
<PAGE>   8

compression. See "Legislation and Regulation" and Item 7., "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

         The use of fiber optic cable as an alternative to coaxial cable is
playing a major role in expanding channel capacity and improving the performance
of cable television systems. Fiber optic cable is capable of carrying hundreds
of video, data and voice channels and, accordingly, its utilization is essential
to the enhancement of a cable television system's technical capabilities. The
Partnership's current policy is to utilize fiber optic technology where
applicable in rebuild projects which it undertakes. The benefits of fiber optic
technology over traditional coaxial cable distribution plant include lower
ongoing maintenance and power costs and improved picture quality and
reliability.

DIGITAL COMPRESSION

         The Partnership has been closely monitoring developments in the area of
digital compression, a technology that is expected to enable cable operators to
increase the channel capacity of cable television systems by permitting a
significantly increased number of video signals to fit in a cable television
system's existing bandwidth. Depending on the technical characteristics of the
existing system, the Partnership believes that the utilization of digital
compression technology in the future could enable its systems to increase
channel capacity in certain systems in a manner that could, in the short term,
be more cost efficient than rebuilding such systems with higher capacity
distribution plant. However, unless the system has sufficient unused channel
capacity and bandwidth, the use of digital compression to increase channel
offerings is not a substitute for the rebuild of the system, which will improve
picture quality, system reliability and quality of service. The use of digital
compression in the systems also could expand the number and types of services
these systems offer and enhance the development of current and future revenue
sources. Equipment vendors are beginning to market products to provide this
technology, but the Partnership's management has no plans to install it at this
time based on the current technological profile of its systems and its present
understanding of the costs as compared to the benefits of the digital equipment
currently available. This issue is under frequent management review.

PROGRAMMING

         The Partnership purchases basic and premium programming for its systems
from Falcon Cablevision. In turn, Falcon Cablevision charges the Partnership for
these costs based on an estimate of what the Corporate General Partner could
negotiate for such services for the 15 partnerships managed by the Corporate
General Partner as a group (approximately 92,700 basic subscribers at December
31, 1997), which is generally based on a fixed fee per customer or a percentage
of the gross receipts for the particular service. Certain other new channels
have also recently offered Cablevision and the Partnership's systems fees in
return for carrying their service. Due to a lack of channel capacity available
for adding new channels, the Partnership's management cannot predict the impact
of such potential payments on its business. In addition, the FCC may require
that certain such payments from programmers be offset against the programming
fee increases which can be passed through to subscribers under the FCC's rate
regulations. Falcon Cablevision's programming contracts are generally for a
fixed period of time and are subject to negotiated renewal. Falcon Cablevision
does not have long-term programming contracts for the supply of a substantial
amount of its programming. Accordingly, no assurance can be given that its, and
correspondingly the Partnership's, programming costs will not continue to
increase substantially in the near future, or that other materially adverse
terms will not be added to Falcon Cablevision's programming contracts.
Management believes, however, that Falcon Cablevision's relations with its
programming suppliers generally are good.

         The Partnership's cable programming costs have increased in recent
years and are expected to continue to increase due to additional programming
being provided to basic customers, requirements to carry channels under
retransmission carriage agreements entered into with certain programming
sources, increased costs to produce or purchase cable programming generally
(including sports programming), inflationary



                                      -8-

<PAGE>   9

increases and other factors. The 1996 retransmission carriage agreement
negotiations were completed with essentially no change to the previous
agreements. Under the FCC's rate regulations, increases in programming costs for
regulated cable services occurring after the earlier of March 1, 1994, or the
date a system's basic cable service became regulated, may be passed through to
customers. See "Legislation and Regulation - Federal Regulation - Carriage of
Broadcast Television Signals." Generally, programming costs are charged among
systems on a per customer basis.

FRANCHISES

         Cable television systems are generally constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as time limitations on
commencement and completion of construction; conditions of service, including
number of channels, types of programming and the provision of free service to
schools and certain other public institutions; and the maintenance of insurance
and indemnity bonds. The provisions of local franchises are subject to federal
regulation under the Cable Communications Policy Act of 1984 (the "1984 Cable
Act"), the 1992 Cable Act and the 1996 Telecom Act. See "Legislation and
Regulation."

         As of December 31, 1997, the Partnership held 6 franchises. These
franchises, all of which are non-exclusive, provide for the payment of fees to
the issuing authority. Annual franchise fees imposed on the Partnership systems
range up to 5% of the gross revenues generated by a system. The 1984 Cable Act
prohibits franchising authorities from imposing franchise fees in excess of 5%
of gross revenues and also permits the cable system operator to seek
renegotiation and modification of franchise requirements if warranted by changed
circumstances.

         The following table groups the franchises of the Partnership's cable
television systems by date of expiration and presents the number of franchises
for each group of franchises and the approximate number and percentage of homes
subscribing to cable service for each group as of December 31, 1997.


<TABLE>
<CAPTION>
                                                            Number of           Percentage of
               Year of                Number of               Basic                 Basic
         Franchise Expiration        Franchises            Subscribers           Subscribers
         --------------------        ----------            -----------           -----------
<S>                                   <C>                  <C>                   <C>
         Prior to 1999                      1                 1,943                   28.2%
         1999 - 2003                        1                 3,481                   50.6%
         2004 and after                     4                 1,319                   19.2%
                                        -----                 -----                   ----
         Total                              6                 6,743                   98.0%
                                        =====                 =====                   ====
</TABLE>


         The Partnership operates cable television systems which serve multiple
communities and, in some circumstances, portions of such systems extend into
jurisdictions for which the Partnership believes no franchise is necessary. In
the aggregate, approximately 135 customers, representing approximately 2.0% of
the Partnership's customers, are served by unfranchised portions of such
systems. In certain instances, where a single franchise comprises a large
percentage of the customers in an operating region, the loss of such franchise
could decrease the economies of scale achieved by the Partnership's clustering
strategy. The Partnership has never had a franchise revoked for any of its
systems and believes that it has satisfactory relationships with substantially
all of its franchising authorities.

         The 1984 Cable Act provides, among other things, for an orderly
franchise renewal process in which franchise renewal will not be unreasonably
withheld or, if renewal is denied and the franchising authority acquires
ownership of the system or effects a transfer of the system to another person,
the operator



                                      -9-

<PAGE>   10

generally is entitled to the "fair market value" for the system covered by such
franchise, but no value attributed to the franchise itself. In addition, the
1984 Cable Act, as amended by the 1992 Cable Act, establishes comprehensive
renewal procedures which require that an incumbent franchisee's renewal
application be assessed on its own merit and not as part of a comparative
process with competing applications. See "Legislation and Regulation."

COMPETITION

         Cable television systems compete with other communications and
entertainment media, including over-the-air television broadcast signals which a
viewer is able to receive directly using the viewer's own television set and
antenna. The extent to which a cable system competes with over-the-air
broadcasting depends upon the quality and quantity of the broadcast signals
available by direct antenna reception compared to the quality and quantity of
such signals and alternative services offered by a cable system. Cable systems
also face competition from alternative methods of distributing and receiving
television signals and from other sources of entertainment such as live sporting
events, movie theaters and home video products, including videotape recorders
and videodisc players. In recent years, the FCC has adopted policies providing
for authorization of new technologies and a more favorable operating environment
for certain existing technologies that provide, or may provide, substantial
additional competition for cable television systems. The extent to which cable
television service is competitive depends in significant part upon the cable
television system's ability to provide an even greater variety of programming
than that available over the air or through competitive alternative delivery
sources.

         Individuals presently have the option to purchase home satellite
dishes, which allow the direct reception of satellite-delivered broadcast and
nonbroadcast program services formerly available only to cable television
subscribers. Most satellite-distributed program signals are being electronically
scrambled to permit reception only with authorized decoding equipment for which
the consumer must pay a fee. The 1992 Cable Act enhances the right of cable
competitors to purchase nonbroadcast satellite-delivered programming. See
"Legislation and Regulation-Federal Regulation."

         Television programming is now also being delivered to individuals by
high-powered direct broadcast satellites ("DBS") utilizing video compression
technology. This technology has the capability of providing more than 100
channels of programming over a single high-powered DBS satellite with
significantly higher capacity available if, as is the case with DIRECTV,
multiple satellites are placed in the same orbital position. Unlike cable
television systems, however, DBS satellites are limited by law in their ability
to deliver local broadcast signals. One DBS provider, EchoStar, has announced
plans to deliver a limited number of local broadcast signals in a limited number
of markets. DBS service can be received virtually anywhere in the continental
United States through the installation of a small rooftop or side-mounted
antenna, and it is more accessible than cable television service where cable
plant has not been constructed or where it is not cost effective to construct
cable television facilities. DBS service is being heavily marketed on a
nationwide basis by several service providers. In addition, medium-power
fixed-service satellites can be used to deliver direct-to-home satellite
services over small home satellite dishes, and one provider, PrimeStar,
currently provides service to subscribers using such a satellite.

         Multichannel multipoint distribution systems ("wireless cable") deliver
programming services over microwave channels licensed by the FCC received by
subscribers with special antennas. Wireless cable systems are less capital
intensive, are not required to obtain local franchises or to pay franchise fees,
and are subject to fewer regulatory requirements than cable television systems.
To date, the ability of wireless cable services to compete with cable television
systems has been limited by channel capacity (35-channel maximum) and the need
for unobstructed line-of-sight over-the-air transmission. Although relatively
few wireless cable systems in the United States are currently in operation or
under construction, virtually all markets have been licensed or tentatively
licensed. The use of digital compression technology may enable wireless cable
systems to deliver more channels.






                                      -10-

<PAGE>   11

         Private cable television systems compete for service to condominiums,
apartment complexes and certain other multiple unit residential developments.
The operators of these private systems, known as satellite master antenna
television ("SMATV") systems, often enter into exclusive agreements with
apartment building owners or homeowners' associations which preclude franchised
cable television operators from serving residents of such private complexes.
However, the 1984 Cable Act gives franchised cable operators the right to use
existing compatible easements within their franchise areas upon
nondiscriminatory terms and conditions. Accordingly, where there are preexisting
compatible easements, cable operators may not be unfairly denied access or
discriminated against with respect to the terms and conditions of access to
those easements. There have been conflicting judicial decisions interpreting the
scope of the access right granted by the 1984 Cable Act, particularly with
respect to easements located entirely on private property. Under the 1996
Telecom Act, SMATV systems can interconnect non-commonly owned buildings without
having to comply with local, state and federal regulatory requirements that are
imposed upon cable systems providing similar services, as long as they do not
use public rights-of-way.

         The FCC has initiated a new interactive television service which will
permit non-video transmission of information between an individual's home and
entertainment and information service providers. This service will provide an
alternative means for DBS systems and other video programming distributors,
including television stations, to initiate the new interactive television
services. This service may also be used by the cable television industry.

         The FCC has allocated spectrum in the 28 GHz range for a new
multichannel wireless video service that can be used to provide video and
telecommunications services. The FCC is in the process of awarding licenses to
use this spectrum via a market-by-market auction. It cannot be predicted at this
time whether such a service will have a material impact on the operations of
cable television systems.

         The 1996 Telecom Act eliminates the restriction against ownership and
operation of cable systems by local telephone companies within their local
exchange service areas. Telephone companies are now free to enter the retail
video distribution business through any means, such as DBS, wireless cable,
SMATV or as traditional franchised cable system operators. Alternatively, the
1996 Telecom Act authorizes local telephone companies to operate "open video
systems" without obtaining a local cable franchise, although telephone companies
operating such systems can be required to make payments to local governmental
bodies in lieu of cable franchise fees. Up to two-thirds of the channel capacity
on an "open video system" must be available to programmers unaffiliated with the
local telephone company. The open video system concept replaces the FCC's video
dialtone rules. The 1996 Telecom Act also includes numerous provisions designed
to make it easier for cable operators and others to compete directly with local
exchange telephone carriers.

         The cable television industry competes with radio, television, print
media and the Internet for advertising revenues. As the cable television
industry continues to develop programming designed specifically for distribution
by cable, advertising revenues may increase. Premium programming provided by
cable systems is subject to the same competitive factors which exist for other
programming discussed above. The continued profitability of premium services may
depend largely upon the continued availability of attractive programming at
competitive prices.

         Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the competitive effect that
ongoing or future developments might have on the cable industry. See
"Legislation and Regulation."






                                      -11-
<PAGE>   12

                           LEGISLATION AND REGULATION

         The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past materially affected, and
may in the future materially affect, the Partnership and the cable television
industry. The following is a summary of federal laws and regulations affecting
the growth and operation of the cable television industry and a description of
certain state and local laws. The Partnership believes that the regulation of
its industry remains a matter of interest to Congress, the FCC and other
regulatory authorities. There can be no assurance as to what, if any, future
actions such legislative and regulatory authorities may take or the effect
thereof on the Partnership.

FEDERAL REGULATION

         The primary federal statute dealing with the regulation of the cable
television industry is the Communications Act of 1934 (the "Communications
Act"), as amended. The three principal amendments to the Communications Act that
shaped the existing regulatory framework for the cable television industry were
the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act.

         The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations to implement the provisions
contained in the Communications Act. The FCC has the authority to enforce these
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of other administrative sanctions, such
as the revocation of FCC licenses needed to operate certain transmission
facilities often used in connection with cable operations. A brief summary of
certain of these federal regulations as adopted to date follows.

         RATE REGULATION

         The 1992 Cable Act replaced the FCC's previous standard for determining
effective competition, under which most cable systems were not subject to local
rate regulation, with a statutory provision that resulted in nearly all cable
television systems becoming subject to local rate regulation of basic service.
The 1996 Telecom Act expanded the definition of effective competition to include
situations where a local telephone company or its affiliate, or any multichannel
video provider using telephone company facilities, offers comparable video
service by any means except DBS. A finding of effective competition exempts both
basic and nonbasic tiers from regulation. Additionally, the 1992 Cable Act
required the FCC to adopt a formula, enforceable by franchising authorities, to
assure that basic cable rates are reasonable; allowed the FCC to review rates
for nonbasic service tiers (other than per-channel or per-program services) in
response to complaints filed by franchising authorities and/or cable customers;
prohibited cable television systems from requiring subscribers to purchase
service tiers above basic service in order to purchase premium services if the
system is technically capable of doing so; required the FCC to adopt regulations
to establish, on the basis of actual costs, the price for installation of cable
service, remote controls, converter boxes and additional outlets; and allowed
the FCC to impose restrictions on the retiering and rearrangement of cable
services under certain limited circumstances. The 1996 Telecom Act limits the
class of complainants regarding nonbasic tier rates to franchising authorities
only and ends FCC regulation of nonbasic tier rates on March 31, 1999. Because
cable service rate increases have continued to outpace inflation under the FCC's
existing regulations, Congress and the FCC can be expected to explore additional
methods of addressing this issue, including deferral or repeal of the March 31,
1999 sunset of CPST rate regulations and legislation recently was introduced in
Congress to repeal the sunset provision.

         The FCC's regulations contain standards for the regulation of basic and
nonbasic cable service rates (other than per-channel or per-program services).
Local franchising authorities and/or the FCC are empowered to order a reduction
of existing rates which exceed the maximum permitted level for either




                                      -12-

<PAGE>   13

basic and/or nonbasic cable services and associated equipment, and refunds can
be required. The rate regulations adopt a benchmark price cap system for
measuring the reasonableness of existing basic and nonbasic service rates.
Alternatively, cable operators have the opportunity to make cost-of-service
showings which, in some cases, may justify rates above the applicable
benchmarks. The rules also require that charges for cable-related equipment
(e.g., converter boxes and remote control devices) and installation services be
unbundled from the provision of cable service and based upon actual costs plus a
reasonable profit. The regulations also provide that future rate increases may
not exceed an inflation-indexed amount, plus increases in certain costs beyond
the cable operator's control, such as taxes, franchise fees and increased
programming costs. Cost-based adjustments to these capped rates can also be made
in the event a cable operator adds or deletes channels. In addition, new product
tiers consisting of services new to the cable system can be created free of rate
regulation as long as certain conditions are met such as not moving services
from existing tiers to the new tier. These provisions currently provide limited
benefit to the Partnership's systems due to the lack of channel capacity
previously discussed. There is also a streamlined cost-of-service methodology
available to justify a rate increase on basic and regulated nonbasic tiers for
"significant" system rebuilds or upgrades.

         Franchising authorities have become certified by the FCC to regulate
the rates charged by the Partnership for basic cable service and for associated
basic cable service equipment.

         The Partnership has adjusted its regulated programming service rates
and related equipment and installation charges in a majority of its service
areas so as to bring these rates and charges into compliance with the applicable
benchmark or equipment and installation cost levels.

         FCC regulations adopted pursuant to the 1992 Cable Act require cable
systems to permit customers to purchase video programming on a per channel or a
per program basis without the necessity of subscribing to any tier of service,
other than the basic service tier, unless the cable system is technically
incapable of doing so. Generally, this exemption from compliance with the
statute for cable systems that do not have such technical capability is
available until a cable system obtains the capability, but not later than
December 2002.

         CARRIAGE OF BROADCAST TELEVISION SIGNALS

         The 1992 Cable Act adopted new television station carriage
requirements. These rules allow commercial television broadcast stations which
are "local" to a cable system, i.e., the system is located in the station's Area
of Dominant Influence, to elect every three years whether to require the cable
system to carry the station, subject to certain exceptions, or whether the cable
system will have to negotiate for "retransmission consent" to carry the station.
Local non-commercial television stations are also given mandatory carriage
rights, subject to certain exceptions, within the larger of: (i) a 50 mile
radius from the station's city of license; or (ii) the station's Grade B contour
(a measure of signal strength). Unlike commercial stations, noncommercial
stations are not given the option to negotiate retransmission consent for the
carriage of their signal. In addition, cable systems will have to obtain
retransmission consent for the carriage of all "distant" commercial broadcast
stations, except for certain "superstations," i.e., commercial
satellite-delivered independent stations such as WGN. The Partnership has thus
far not been required to pay cash compensation to broadcasters for
retransmission consent or been required by broadcasters to remove broadcast
stations from the cable television channel line-ups. The Partnership has,
however, agreed to carry some services in specified markets pursuant to
retransmission consent arrangements which it believes are comparable to those
entered into by most other large cable operators, and for which it pays monthly
fees to the service providers, as it does with other satellite providers. The
second election between must-carry and retransmission consent for local
commercial television broadcast stations was October 1, 1996. The Partnership
was once again able to reach agreements with broadcasters who elected
retransmission consent or to negotiate extensions to the December 31, 1996
deadline and has therefore continued not to have been required to pay cash
compensation to broadcasters for retransmission consent or been required by
broadcasters to remove broadcast stations from the cable television channel
line-ups. The next election





                                      -13-

<PAGE>   14

between must-carry and retransmission consent for local commercial television
broadcast stations will be October 1, 1999.

         NONDUPLICATION OF NETWORK PROGRAMMING

         Cable television systems that have 1,000 or more customers must, upon
the appropriate request of a local television station, delete the simultaneous
or nonsimultaneous network programming of certain lower priority distant
stations affiliated with the same network as the local station.

         DELETION OF SYNDICATED PROGRAMMING

         FCC regulations enable television broadcast stations that have obtained
exclusive distribution rights for syndicated programming in their market to
require a cable system to delete or "black out" such programming from other
television stations which are carried by the cable system. The extent of such
deletions will vary from market to market and cannot be predicted with
certainty. However, it is possible that such deletions could be substantial and
could lead the cable operator to drop a distant signal in its entirety.

         PROGRAM ACCESS

         The 1992 Cable Act contains provisions that are intended to foster the
development of competition to traditional cable systems by regulating the access
of competing video providers to vertically integrated, satellite-distributed
cable programming services. The FCC has commenced a rulemaking proceeding to
seek comment on proposed modifications to its existing rules implementing the
statute, including: (1) establishing specific deadlines for resolving program
access complaints; (2) improving the discovery process, such as requiring the
disclosure of the rates that vertically integrated programmers charge cable
operators; (3) imposing monetary damages for program access violations; (4)
possibly applying the program access rules to certain situations in which
programming is moved from satellite delivery to terrestrial delivery; and (5)
revising the manner in which the rules apply to program buying cooperatives. It
is not clear to what extent, if any, the provisions of the 1992 Cable Act cover
programming distributed by means other than satellite or by programmers
unaffiliated with multiple system operators. Legislation also is expected to be
introduced shortly in Congress to strengthen the program access provisions of
the 1992 Cable Act.

         FRANCHISE FEES

         Franchising authorities may impose franchise fees, but such payments
cannot exceed 5% of a cable system's annual gross revenues. Under the 1996
Telecom Act, franchising authorities may not exact franchise fees from revenues
derived from telecommunications services.

         RENEWAL OF FRANCHISES

         The 1984 Cable Act established renewal procedures and criteria designed
to protect incumbent franchisees against arbitrary denials of renewal. While
these formal procedures are not mandatory unless timely invoked by either the
cable operator or the franchising authority, they can provide substantial
protection to incumbent franchisees. Even after the formal renewal procedures
are invoked, franchising authorities and cable operators remain free to
negotiate a renewal outside the formal process. Nevertheless, renewal is by no
means assured, as the franchisee must meet certain statutory standards. Even if
a franchise is renewed, a franchising authority may impose new and more onerous
requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements.

               The 1992 Cable Act makes several changes to the process under
which a cable operator seeks to enforce his renewal rights which could make it
easier in some cases for a franchising authority to deny renewal. While a cable
operator must still submit its request to commence renewal proceedings within
thirty





                                      -14-

<PAGE>   15

to thirty-six months prior to franchise expiration to invoke the formal renewal
process, the request must be in writing and the franchising authority must
commence renewal proceedings not later than six months after receipt of such
notice. The four-month period for the franchising authority to grant or deny the
renewal now runs from the submission of the renewal proposal, not the completion
of the public proceeding. Franchising authorities may consider the "level" of
programming service provided by a cable operator in deciding whether to renew.
For alleged franchise violations occurring after December 29, 1984, franchising
authorities are no longer precluded from denying renewal based on failure to
substantially comply with the material terms of the franchise where the
franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped if, after giving the cable
operator notice and opportunity to cure, it fails to respond to a written notice
from the cable operator of its failure or inability to cure. Courts may not
reverse a denial of renewal based on procedural violations found to be "harmless
error."

         CHANNEL SET-ASIDES

         The 1984 Cable Act permits local franchising authorities to require
cable operators to set aside certain channels for public, educational and
governmental access programming. The 1984 Cable Act further requires cable
television systems with thirty-six or more activated channels to designate a
portion of their channel capacity for commercial leased access by unaffiliated
third parties. While the 1984 Cable Act allowed cable operators substantial
latitude in setting leased access rates, the 1992 Cable Act requires leased
access rates to be set according to a formula determined by the FCC. The FCC has
recently changed the formula in order to produce lower rates and thereby
encourage the use of leased access.

         COMPETING FRANCHISES

         The 1992 Cable Act prohibits franchising authorities from unreasonably
refusing to grant franchises to competing cable television systems and permits
franchising authorities to operate their own cable television systems without
franchises.

         OWNERSHIP

         The 1996 Telecom Act repealed the 1984 Cable Act's prohibition against
local exchange telephone companies ("LECs") providing video programming directly
to customers within their local telephone exchange service areas. However, with
certain limited exceptions, a LEC may not acquire more than a 10% equity
interest in an existing cable system operating within the LEC's service area.
The 1996 Telecom Act also authorized LECs and others to operate "open video
systems" without obtaining a local cable franchise. See "Competition."

         The 1984 Cable Act and the FCC's rules prohibit the common ownership,
operation, control or interest in a cable system and a local television
broadcast station whose predicted grade B contour (a measure of a television
station's signal strength as defined by the FCC's rules) covers any portion of
the community served by the cable system. The 1996 Telecom Act eliminates the
statutory ban and directs the FCC to review its rule within two years. Finally,
in order to encourage competition in the provision of video programming, the FCC
adopted a rule prohibiting the common ownership, affiliation, control or
interest in cable television systems and wireless cable facilities having
overlapping service areas, except in very limited circumstances. The 1992 Cable
Act codified this restriction and extended it to co-located SMATV systems.
Permitted arrangements in effect as of October 5, 1992 are grandfathered. The
1996 Telecom Act exempts cable systems facing effective competition from the
wireless cable and SMATV restriction. In addition, a cable operator can purchase
a SMATV system serving the same area and technically integrate it into the cable
system. The 1992 Cable Act permits states or local franchising authorities to
adopt certain additional restrictions on the ownership of cable television
systems.





                                      -15-

<PAGE>   16

         Pursuant to the 1992 Cable Act, the FCC has imposed limits on the
number of cable systems which a single cable operator can own. In general, no
cable operator can have an attributable interest in cable systems which pass
more than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder of
more than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from a U.S. District Court decision holding
the multiple ownership limit provision of the 1992 Cable Act unconstitutional.

         The FCC has also adopted rules which limit the number of channels on a
cable system which can be occupied by programming in which the entity which owns
the cable system has an attributable interest. The limit is 40% of the first 75
activated channels.

         The FCC also recently commenced a rulemaking proceeding to examine,
among other issues, whether any limitations on cable-DBS cross-ownership are
warranted in order to prevent anticompetitive conduct in the video services
market.

         FRANCHISE TRANSFERS

         The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.

         TECHNICAL REQUIREMENTS

         The FCC has imposed technical standards applicable to the cable
channels on which broadcast stations are carried, and has prohibited franchising
authorities from adopting standards which are in conflict with or more
restrictive than those established by the FCC. Those standards are applicable to
all classes of channels which carry downstream National Television System
Committee (NTSC) video programming. The FCC also has adopted additional
standards applicable to cable television systems using frequencies in the
108-137 MHz and 225-400 MHz bands in order to prevent harmful interference with
aeronautical navigation and safety radio services and has also established
limits on cable system signal leakage. Periodic testing by cable operators for
compliance with the technical standards and signal leakage limits is required
and an annual filing of the results of these measurements is required. The 1992
Cable Act requires the FCC to periodically update its technical standards to
take into account changes in technology. Under the 1996 Telecom Act, local
franchising authorities may not prohibit, condition or restrict a cable system's
use of any type of subscriber equipment or transmission technology.

         The FCC has adopted regulations to implement the requirements of the
1992 Cable Act designed to improve the compatibility of cable systems and
consumer electronics equipment. Among other things, these regulations, inter
alia, generally prohibit cable operators from scrambling their basic service
tier. The 1996 Telecom Act directs the FCC to set only minimal standards to
assure compatibility between television sets, VCRs and cable systems, and to
rely on the marketplace. The FCC must adopt rules to assure the competitive
availability to consumers of customer premises equipment, such as converters,
used to access the services offered by cable systems and other multichannel
video programming distributors.

         POLE ATTACHMENTS

         The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles unless state public service commissions
are able to demonstrate that they regulate the rates, terms and conditions of
cable television pole attachments. The state of Illinois where the Partnership
operates its cable system has certified to the FCC that it regulates the rates,
terms and conditions for pole attachments.





                                      -16-

<PAGE>   17

In the absence of state regulation, the FCC administers such pole attachment
rates through use of a formula which it has devised. As directed by the 1996
Telecom Act, the FCC has adopted a new rate formula for any attaching party,
including cable systems, which offer telecommunications services. This new
formula will result in significantly higher attachment rates for cable systems
which choose to offer such services, but does not begin to take effect until
2001.

         OTHER MATTERS

         Other matters subject to FCC regulation include certain restrictions on
a cable system's carriage of local sports programming; rules governing political
broadcasts; customer service standards; obscenity and indecency; home wiring;
EEO; privacy; closed captioning; sponsorship identification; system
registration; and limitations on advertising contained in nonbroadcast
children's programming.

         COPYRIGHT

         Cable television systems are subject to federal copyright licensing
covering carriage of broadcast signals. In exchange for making semi-annual
payments to a federal copyright royalty pool and meeting certain other
obligations, cable operators obtain a statutory license to retransmit broadcast
signals. The amount of this royalty payment varies, depending on the amount of
system revenues from certain sources, the number of distant signals carried, and
the location of the cable system with respect to over-the-air television
stations. Any future adjustment to the copyright royalty rates will be done
through an arbitration process supervised by the U.S. Copyright Office.

         Cable operators are liable for interest on underpaid and unpaid royalty
fees, but are not entitled to collect interest on refunds received for
overpayment of copyright fees.

         Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) is licensed by the networks through private agreements with the
American Society of Composers and Publishers ("ASCAP") and BMI, Inc. ("BMI"),
the two major performing rights organizations in the United States. As a result
of extensive litigation, both ASCAP and BMI now offer "through to the viewer"
licenses to the cable networks which cover the retransmission of the cable
networks' programming by cable systems to their customers.

         Copyrighted music performed by cable systems themselves, e.g., on local
origination channels or in advertisements inserted locally on cable networks,
must also be licensed. Cable industry negotiations with ASCAP, BMI and SESAC,
Inc. (a third and smaller performing rights organization) are in progress.

LOCAL REGULATION

         Because a cable television system uses local streets and rights-of-way,
cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and in
many cases are terminable if the franchise operator fails to comply with
material provisions. Although the 1984 Cable Act provides for certain procedural
protections, there can be no assurance that renewals will be granted or that
renewals will be made on similar terms and conditions. Upon receipt of a
franchise, the cable system owner usually is subject to a broad range of
obligations to the issuing authority directly affecting the business of the
system. The terms and conditions of franchises vary materially from jurisdiction
to jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome. The specific terms
and conditions of a franchise and the laws and regulations under which it was
granted directly affect the profitability of the cable television system. Cable
franchises generally contain provisions governing charges for basic cable
television services, fees to be paid to the





                                      -17-

<PAGE>   18

franchising authority, length of the franchise term, renewal, sale or transfer
of the franchise, territory of the franchise, design and technical performance
of the system, use and occupancy of public streets and number and types of cable
services provided. The 1996 Telecom Act prohibits a franchising authority from
either requiring or limiting a cable operator's provision of telecommunications
services.

         The 1984 Cable Act places certain limitations on a franchising
authority's ability to control the operation of a cable system operator and the
courts have from time to time reviewed the constitutionality of several general
franchise requirements, including franchise fees and access channel
requirements, often with inconsistent results. On the other hand, the 1992 Cable
Act prohibits exclusive franchises, and allows franchising authorities to
exercise greater control over the operation of franchised cable television
systems, especially in the area of customer service and rate regulation.
Moreover, franchising authorities are immunized from monetary damage awards
arising from regulation of cable television systems or decisions made on
franchise grants, renewals, transfers and amendments.

         The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which cable television systems operate. Neither the outcome of
these proceedings nor their impact upon the cable television industry can be
predicted at this time.

ITEM 2.  PROPERTIES

         The Partnership owns or leases parcels of real property for signal
reception sites (antenna towers and headends), microwave facilities and business
offices, and owns or leases its service vehicles. The Partnership believes that
its properties, both owned and leased, are in good condition and are suitable
and adequate for the Partnership's business operations.

         The Partnership owns substantially all of the assets related to its
cable television operations, including its program production equipment, headend
(towers, antennae, electronic equipment and satellite earth stations), cable
plant (distribution equipment, amplifiers, customer drops and hardware),
converters, test equipment and tools and maintenance equipment.

ITEM 3.  LEGAL PROCEEDINGS

         The Partnership is periodically a party to various legal proceedings.
Such legal proceedings are ordinary and routine litigation proceedings that are
incidental to the Partnership's business and management believes that the
outcome of all pending legal proceedings will not, in the aggregate, have a
material adverse effect on the financial condition of the Partnership.

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

         None.





                                      -18-

<PAGE>   19

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED SECURITY
         HOLDER MATTERS

LIQUIDITY

         While the Partnership's equity securities, which consist of units of
limited partnership interests, are publicly held, there is no established public
trading market for the units and it is not expected that a market will develop.
The approximate number of equity security holders of record was 1,008 as of
December 31, 1997. In addition to restrictions on the transferability of units
contained in the Partnership Agreement, the transferability of units may be
affected by restrictions on resales imposed by federal or state law.

DISTRIBUTIONS

         The amended Partnership Agreement generally provides that all cash
distributions (as defined) be allocated 1% to the general partners and 99% to
the limited partners until the limited partners have received aggregate cash
distributions equal to their original capital contributions ("Capital Payback").
The Partnership Agreement also provides that all Partnership profits, gains,
operational losses, and credits (all as defined) be allocated 1% to the general
partners and 99% to the limited partners until the limited partners have been
allocated net profits equal to the amount of cash flow required for Capital
Payback. After the limited partners have received cash flow equal to their
initial investments, the general partners will receive a 1% allocation of cash
flow from sale or liquidation of a system until the limited partners have
received an annual simple interest return of at least 18% of their initial
investments less any distributions from previous system sales and cash
distributions from operations after Capital Payback. Thereafter, the respective
allocations will be made 15% to the general partners and 85% to the limited
partners. Any losses from system sales or exchanges shall be allocated first to
all partners having positive capital account balances (based on their respective
capital accounts) until all such accounts are reduced to zero and thereafter to
the Corporate General Partner. All allocations to individual limited partners
will be based on their respective limited partnership ownership interests.

         Upon the disposition of substantially all of the Partnership's assets,
gain shall be allocated first to the limited partners having negative capital
account balances until their capital accounts are increased to zero, next
equally among the general partners until their capital accounts are increased to
zero, and thereafter as outlined in the preceding paragraph. Upon dissolution of
the Partnership, any negative capital account balances remaining after all
allocations and distributions are made must be funded by the respective
partners.

         The policy of the Corporate General Partner (although there is no
contractual obligation to do so) is to cause the Partnership to make cash
distributions on a quarterly basis throughout the operational life of the
Partnership, assuming the availability of sufficient cash flow from Partnership
operations. The amount of such distributions, if any, will vary from quarter to
quarter depending upon the Partnership's results of operations and the Corporate
General Partner's determination of whether otherwise available funds are needed
for the Partnership's ongoing working capital and other liquidity requirements.
However, on February 22, 1995, the FCC announced significant amendments to its
rules implementing certain provisions of the 1992 Cable Act. Compliance with
these rules has had a negative impact on the Partnership's revenues and cash
flow.





                                      -19-
<PAGE>   20

         The Partnership began making periodic cash distributions to limited
partners from operations during 1986, and distributed an aggregate of $374,200
($12.50 per unit) to limited partners in each year during 1995, 1996 and 1997.
The Partnership will continue to determine the Partnership's ability to pay
distributions on a quarter-by-quarter basis.

         The Partnership's ability to pay distributions, the actual level of
distributions and the continuance of distributions will depend on a number of
factors, including the amount of cash flow from operations, projected capital
expenditures, provision for contingent liabilities, regulatory or legislative
developments governing the cable television industry, and growth in customers.
Some of these factors are beyond the control of the Partnership, and
consequently, no assurances can be given regarding the level or timing of future
distributions.





                                      -20-

<PAGE>   21

ITEM 6.  SELECTED FINANCIAL DATA

         Set forth below is selected financial data of the Partnership for the
five years ended December 31, 1997. This data should be read in conjunction with
the Partnership's financial statements included in Item 8 hereof and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7.


<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                  -----------------------------------------------------------------------
OPERATIONS STATEMENT DATA             1993           1994           1995           1996          1997
                                  -----------    -----------    -----------    -----------    -----------
<S>                               <C>            <C>            <C>            <C>            <C>
  Revenues                        $ 2,601,600    $ 2,574,000    $ 2,603,700    $ 2,797,500    $ 2,994,500
  Costs and expenses               (1,386,700)    (1,418,500)    (1,390,900)    (1,525,400)    (1,567,100)
  Depreciation and amortization      (367,200)      (368,000)      (694,200)      (310,600)      (326,000)
                                  -----------    -----------    -----------    -----------    -----------
  Operating income                    847,700        787,500        518,600        961,500      1,101,400
  Interest expense                    (17,800)        (6,100)        (9,000)        (9,100)        (1,600)
  Interest income                      34,100         66,400        109,000        118,000        128,800
  Gain on sale of cable assets           --             --             --            2,700           --
                                  -----------    -----------    -----------    -----------    -----------
  Net income                      $   864,000    $   847,800    $   618,600    $ 1,073,100    $ 1,228,600
                                  ===========    ===========    ===========    ===========    ===========
  Distributions to partners       $   378,000    $   378,000    $   378,000    $   378,000    $   378,000
                                  ===========    ===========    ===========    ===========    ===========

PER UNIT OF LIMITED
  PARTNERSHIP INTEREST:
  Net income                      $     28.57    $     28.04    $     20.46    $     35.49    $     40.63
                                  ===========    ===========    ===========    ===========    ===========
  Distributions                   $     12.50    $     12.50    $     12.50    $     12.50    $     12.50
                                  ===========    ===========    ===========    ===========    ===========

OTHER OPERATING DATA

  Net cash provided by operating
    activities                    $ 1,183,300    $ 1,221,800    $ 1,173,000    $ 1,446,400    $ 1,505,100
  Net cash used in investing         (170,500)      (515,700)      (465,200)      (876,100)    (2,198,400)
  activities
  Net cash used in financing         (478,000)      (378,000)      (378,000)      (378,000)      (378,000)
  activities
  EBITDA(1)                         1,214,900      1,155,500      1,212,800      1,272,100      1,427,400
  EBITDA to revenues                     46.7%          44.9%          46.6%          45.5%          47.7%
  Capital expenditures            $   154,000    $   503,000    $   408,200    $   869,300    $ 2,182,700
</TABLE>


<TABLE>
<CAPTION>
                                                            As of December 31,
                                  -----------------------------------------------------------------------
BALANCE SHEET DATA                   1993           1994            1995           1996          1997
                                  -----------    -----------    -----------    -----------    -----------
<S>                               <C>            <C>            <C>            <C>            <C>
  Total assets                    $ 3,513,000    $ 3,979,800    $ 4,118,200    $ 4,918,400    $ 6,015,100
  General partners' deficit           (42,800)       (38,100)       (35,700)       (28,800)       (20,300)
  Limited partners' capital         3,152,000      3,617,100      3,855,300      4,543,500      5,385,600
</TABLE>


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

         (1) EBITDA is calculated as operating income before depreciation and
amortization. Based on its experience in the cable television industry, the
Partnership believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. EBITDA should not be considered by the reader as an alternative to net
income, as an indicator of the Partnership's financial performance or as an
alternative to cash flows as a measure of liquidity.





                                      -21-
<PAGE>   22

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

INTRODUCTION

         The 1992 Cable Act required the FCC to, among other things, implement
extensive regulation of the rates charged by cable television systems for basic
and programming service tiers, installation, and customer premises equipment
leasing. Compliance with those rate regulations has had a negative impact on the
Partnership's revenues and cash flow. The 1996 Telecom Act substantially changed
the competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the 1996 Telecom Act
provides that the regulation of CPST rates will be phased out altogether in
1999. Because cable service rate increases have continued to outpace inflation
under the FCC's existing regulations, the Partnership expects Congress and the
FCC to explore additional methods of regulating cable service rate increases,
including deferral or repeal of the March 31, 1999 sunset of CPST rate
regulations and legislation recently was introduced in Congress to repeal the
sunset provision. There can be no assurance as to what, if any, further action
may be taken by the FCC, Congress or any other regulatory authority or court, or
the effect thereof on the Partnership's business. Accordingly, the Partnership's
historical financial results as described below are not necessarily indicative
of future performance.

         This Report includes certain forward looking statements regarding,
among other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing cable
television operators such as the Partnership, as discussed more fully elsewhere
in this Report.

RESULTS OF OPERATIONS

         1997 COMPARED TO 1996

         The Partnership's revenues increased from $2,797,500 to $2,994,500, or
by 7.0%, for the year ended December 31, 1997 compared to 1996. Of the $197,000
increase, $180,400 was due to increases in regulated service rates that were
implemented by the Partnership in the second and fourth quarters of 1996 and the
fourth quarter of 1997, $45,500 was due to the July 1, 1996 restructuring of The
Disney Channel from a premium channel to a tier channel and $13,000 was due to
an increase in the number of subscriptions, primarily for basic service. These
increases were partially offset by a $41,900 decrease in other revenue producing
items. As of December 31, 1997, the Partnership had approximately 6,900 basic
subscribers and 1,500 premium service units.

         Service costs increased from $786,500 to $846,300, or by 7.6%, for the
year ended December 31, 1997 compared to 1996. Service costs represent costs
directly attributable to providing cable services to customers. Programming fees
accounted for the majority of the increase. Programming expense increased
primarily due to increases in rates charged by program suppliers and due to the
restructuring of The Disney Channel discussed above.

         General and administrative expenses decreased from $317,500 to
$248,000, or by 21.9%, for the year ended December 31, 1997 compared to 1996,
primarily due to decreases in personnel costs, insurance premiums and marketing
expense.

         Management fees and reimbursed expenses increased from $421,400 to
$472,800, or by 12.2%, for the year ended December 31, 1997 compared to 1996.
Management fees increased in direct






                                      -22-
<PAGE>   23

relation to increased revenues as described above. Reimbursed expenses increased
due to higher allocated personnel costs resulting from staff additions and wage
increases.

         Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues increased from
45.5% during 1996 to 47.7% in 1997. The increase was primarily due to increased
revenues and lower personnel, insurance and marketing costs as described above.
EBITDA increased from $1,272,100 to $1,427,400, or by 12.2%, during 1997
compared to 1996. EBITDA should be considered in addition to and not as a
substitute for net income and cash flows determined in accordance with generally
accepted accounting principles as an indicator of financial performance and
liquidity.

         Depreciation and amortization expense increased from $310,600 to
$326,000, or by 5.0%, for the year ended December 31, 1997 compared to 1996,
primarily due to the rebuild of the Partnership's plant. Depreciation expense
will continue to increase significantly in future periods as remaining portions
of the system rebuild are placed into service.

         Operating income increased from $961,500 to $1,101,400, or by 14.6%,
for the year ended December 31, 1997 compared to 1996, principally due to
increases in revenues and decreases in personnel, insurance and marketing costs
as described above.

         Interest income increased from $118,000 to $128,800, or by 9.2%, for
the year ended December 31, 1997 compared to 1996, due to a change in investment
policy that yielded a greater return on invested cash.

         Due to the factors described above, the Partnership's net income
increased from $1,073,100 to $1,228,600, or by 14.5%, for the year ended
December 31, 1997 compared to 1996.

         1996 COMPARED TO 1995

         The Partnership's revenues increased from $2,603,700 to $2,797,500, or
by 7.4%, for the year ended December 31, 1996 compared to 1995. Of the $193,800
increase, $156,400 was due to increases in regulated service rates that were
implemented by the Partnership in the second and fourth quarters of 1996,
$82,500 was due to increases in other revenue producing items including rebates
from programmers and advertising sales revenue and $46,700 was due to the July
1, 1996 restructuring of The Disney Channel from a premium channel to a tier
channel. These increases were partially offset by a $91,800 decrease due to a
decrease in the number of subscriptions, primarily for basic and premium
services. As of December 31, 1996, the Partnership had approximately 6,800 basic
subscribers and 1,800 premium service units.

         Service costs remained relatively unchanged, decreasing from $791,800
to $786,500 (less than one percent) for the year ended December 31, 1996
compared to 1995. Service costs represent costs directly attributable to
providing cable services to customers. Capitalization of labor and overhead
costs related to the rebuild of the Partnership's Taylorville, Illinois cable
system accounted for the majority of the decrease. An increase in programming
fees charged by program suppliers partially offset the decrease and included an
increase related to the restructuring of The Disney Channel discussed above.

         General and administrative expenses increased from $233,800 to
$317,500, or by 35.8%, for the year ended December 31, 1996 compared to 1995,
due primarily to an increase in marketing expense. Higher insurance premiums
also accounted for the increase in 1996.

         Management fees and reimbursed expenses increased from $365,300 to
$421,400, or by 15.4%, for the year ended December 31, 1996 compared to 1995.
Management fees increased in direct





                                      -23-
<PAGE>   24

relation to increased revenues as described above. Reimbursable expenses
increased primarily due to higher allocated advertising sales commissions and
personnel costs resulting from staff additions and wage increases.

         Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues decreased from
46.6% in 1995 to 45.5% in 1996. The decrease was primarily caused by higher
marketing costs, reimbursed expenses and programming fees. EBITDA increased from
$1,212,800 to $1,272,100, or by 4.9%, during 1996 compared to 1995. EBITDA
should be considered in addition to and not as a substitute for net income and
cash flows determined in accordance with generally accepted accounting
principles as an indicator of financial performance and liquidity.

         Depreciation and amortization expense decreased from $694,200 to
$310,600, or by 55.3%, for the year ended December 31, 1996 compared to 1995
primarily due to the rebuild of the Partnership's plant which became fully
depreciated in 1995. Additional decreases in depreciation and amortization
expense were due to other plant assets becoming fully depreciated in 1996.

         Operating income increased from $518,600 to $961,500, or by 85.4%, for
the year ended December 31, 1996 compared to 1995, principally due to decreases
in depreciation and amortization expense and increases in revenues as described
above.

         Interest income increased from $109,000 to $118,000, or by 8.3%, for
the year ended December 31, 1996 compared to 1995, due to higher cash balances
available for investment.

         Due to the factors described above, the Partnership's net income
increased from $618,600 to $1,073,100, or by 73.5%, for the year ended December
31, 1996 compared to 1995.

         DISTRIBUTIONS TO PARTNERS

         Partnership operations generated income exclusive of depreciation and
amortization of $1,312,800, $1,383,700 and $1,554,600 in 1995, 1996 and 1997,
respectively. As provided in the partnership agreement, distributions to
partners are funded from such amounts after providing for working capital and
other liquidity requirements, including debt service and capital expenditures
not otherwise funded by borrowings. In each of 1995, 1996 and 1997, the
Partnership paid distributions of $378,000 to its partners.

LIQUIDITY AND CAPITAL RESOURCES

         The Partnership's primary objective, having invested its net offering
proceeds in cable systems, is to distribute to its partners all available cash
flow from operations and proceeds from the sale of cable systems, if any, after
providing for expenses and capital requirements relating to the expansion,
improvement and upgrade of its cable systems.

         At December 31, 1997, the Partnership had no debt outstanding. The
Partnership relies upon cash flow from operations to meet operating requirements
and fund necessary capital expenditures. Although the Partnership currently has
a significant cash balance, there can be no assurance that the Partnership's
cash flow will be adequate to meet its future liquidity requirements. The
Partnership is required to rebuild its Taylorville, Illinois cable system at an
estimated total cost of $2,508,000 as a condition of its franchise agreement and
is also rebuilding portions of its cable systems in surrounding communities at
an estimated additional cost of approximately $1,800,000. Rebuild construction
began in October 1996 and is expected to be completed in 1998. The Partnership
has budgeted expenditures of approximately $1,500,000 in 1998 to complete the
entire rebuild. Construction costs related to the rebuild approximated
$1,965,300 during 1997.





                                      -24-

<PAGE>   25

Other capital expenditures in 1997 included approximately $217,400 for the
improvement and upgrade of other assets. The Partnership is required to upgrade
its system in the community of Gillespie, Illinois under a provision of its
franchise agreement. Expenditures for the upgrade, beginning in 1999, are
projected to total approximately $725,000. The Partnership expects to complete
the project by the required deadline of December 31, 1999. Additionally, the
Partnership is planning to upgrade its cable system in Litchfield, Illinois
beginning in 1999 at an estimated cost of approximately $1,250,000. As a result,
the Partnership intends, if possible, to maintain cash reserves. In the future,
the Partnership may also need to borrow.

         The Corporate General Partner had engaged in discussions with a number
of possible financing sources regarding the availability and terms of a bank
facility for the Partnership. These discussions were not successful. The
Corporate General Partner was generally advised that an individual facility of
the size needed by the Partnership is too small to interest most banks which
lend to the cable television industry. Accordingly, on June 6, 1997, the
Corporate General Partner and an affiliated partnership formed Enstar Finance
Company, LLC ("EFC"). On September 30, 1997, EFC obtained a secured bank
facility of $35 million from two agent banks in order to obtain funds that would
in turn be advanced to the Partnership and certain of the other partnerships
managed by the Corporate General Partner. The Partnership's maximum loan
commitment will approximate $799,600, which it becomes eligible to borrow at
such time as the Partnership enters into a loan agreement with EFC. The
partnership agreement requires borrowings from an affiliate to be repaid within
12 months. Such funds would be used to provide capital to fund future rebuild
and upgrade requirements.

         Based on discussions with prospective lenders, the Corporate General
Partner believes that this structure provides capital to the Partnership on
terms more favorable than could be obtained on a "stand-alone" basis, with the
possible exception of the short-term period permitted by the partnership
agreement. Advances by EFC under its partnership loan facilities are
independently collateralized by the individual partnership borrowers so that no
partnership is liable for advances made to other partnerships. Borrowings bear
interest at the lender's base rate (8.5% at December 31, 1997), as defined, plus
0.625%, or at an offshore rate, as defined, plus 1.875%. The Partnership will be
permitted to prepay amounts outstanding under the facility at any time without
penalty, and will be able to reborrow throughout the term of the facility up to
the maximum commitment then available so long as no event of default exists. The
Partnership will also be required to pay a commitment fee of 0.5% per annum on
the unused portion of its facility when it becomes eligible to borrow, and an
annual administrative fee.

         The facility will contain certain financial tests and other covenants
including, among others, restrictions on incurrence of indebtedness,
investments, sale of assets, acquisitions and other covenants, defaults and
conditions. The facility will not restrict the payment of distributions to
partners unless an event of default exists thereunder.

         The Partnership paid distributions totaling $378,000 during the year
ended December 31, 1997, and expects to continue to pay distributions at this
level during 1998. There can, however, be no assurances regarding the level,
timing or continuation of future distributions.

         Beginning in August 1997, the Corporate General Partner elected to
self-insure the Partnership's cable distribution plant and subscriber
connections against property damage as well as possible business interruptions
caused by such damage. The decision to self-insure was made due to significant
increases in the cost of insurance coverage and decreases in the amount of
insurance coverage available.

         While the Corporate General Partner has made the election to
self-insure for these risks based upon a comparison of historical damage
sustained over the past five years with the cost and amount of insurance
currently available, there can be no assurance that future self-insured losses
will not exceed prior costs of maintaining insurance for these risks. All of the
Partnership's subscribers are served by its system in Taylorville, Illinois and
neighboring communities. Significant damage to the system due to seasonal
weather




                                      -25-

<PAGE>   26

conditions or other events could have a material adverse effect on the
Partnership's liquidity and cash flows. The Partnership continues to purchase
insurance coverage in amounts its management views as appropriate for all other
property, liability, automobile, workers' compensation and other types of
insurable risks.

         The "Year 2000" issue refers to certain contingencies that could result
from computer programs being written using two digits rather than four to define
the year. Many existing computer systems, including certain of the Partnership's
systems, process transactions based on two digits for the year of the
transaction (for example, "97" for 1997). These computer systems may not operate
effectively when the last two digits become "00," as will occur on January 1,
2000.

         The Corporate General Partner has commenced an assessment of its Year
2000 business risks and its exposure to computer systems, to operating equipment
which is date sensitive and to its vendors and service providers. Based on a
preliminary study, the Corporate General Partner has concluded that certain of
its information systems were not Year 2000 compliant and has elected to replace
such software and hardware with Year 2000 compliant applications and equipment,
although the decision to replace major portions of such software and hardware
had previously been made without regard to the Year 2000 issue based on
operating and performance criteria. The Corporate General Partner expects to
install substantially all of the new systems in 1998, with the remaining systems
to be installed in the first half of 1999. The total anticipated cost, including
replacement software and hardware, will be borne by FHGLP.

         In addition to evaluating its internal systems, the Corporate General
Partner has also initiated communications with its third party vendors and
service suppliers to determine the extent to which the Partnership's interface
systems are vulnerable should those third parties fail to solve their own Year
2000 problems on a timely basis. There can be no assurance that the systems of
other companies on which the Partnership's systems rely will be timely converted
and that the failure to do so would not have an adverse impact on the
Partnership's systems. The Partnership continues to closely monitor developments
with its vendors and service suppliers.

         1997 VS. 1996

         Cash provided by operating activities increased by $58,700 in 1997 as
compared with 1996. The Partnership used $141,000 less cash to pay liabilities
owed to affiliates and third party creditors in 1997 than in 1996. Changes in
receivables, prepaid expenses and other assets used $255,900 more cash in 1997
due to differences in the timing of receivable collections and the payment of
prepaid expenses.

         The Partnership used $1,322,300 more cash in investing activities
during 1997 than in 1996, due to a $1,313,400 increase in expenditures for
tangible assets, partially offset by a $2,100 decrease in spending for
intangible assets. The Partnership received proceeds from the sale of property,
plant and equipment of $11,000 in the first half of 1996.

         1996 VS. 1995

         Cash provided by operating activities increased by $273,400 in 1996 as
compared with 1995. The Partnership used $207,300 less cash to pay amounts owed
to the General Partner and third party creditors in 1996 due to the timing of
payments. Changes in receivables and prepaid expenses used $2,100 more cash in
1996 than in 1995.

         The Partnership used $410,900 more cash in investing activities during
1996 due to a $461,100 increase in expenditures for tangible assets which was
partially offset by a $39,200 decrease in expenditures for intangible assets.
The Partnership received proceeds of $11,000 from the sale of property, plant
and equipment.




                                      -26-
<PAGE>   27

INFLATION

         Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation in a
material way, provided that the Partnership is able to increase its service
rates periodically, of which there can be no assurance. See "Legislation and
Regulation."

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and related financial information required to
be filed hereunder are indexed on Page F-1.

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

         Not applicable.








                                      -27-



<PAGE>   28

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The General Partners of the Partnership may be considered, for certain
purposes, the functional equivalents of directors and executive officers. The
Corporate General Partner is Enstar Communications Corporation, and Robert T.
Graff, Jr. is the Individual General Partner. As part of Falcon Cablevision's
September 30, 1988 acquisition of the Corporate General Partner, Falcon
Cablevision received an option to acquire Mr. Graff's interest as Individual
General Partner of the Partnership and other affiliated cable limited
partnerships that he previously co-sponsored with the Corporate General Partner,
and Mr. Graff received the right to cause Falcon Cablevision to acquire such
interests. These arrangements were modified and extended in an amendment dated
September 10, 1993 pursuant to which, among other things, the Corporate General
Partner obtained the option to acquire Mr. Graff's interest in lieu of the
purchase right described above which had been previously granted to Falcon
Cablevision. Since its incorporation in Georgia in 1982, the Corporate General
Partner has been engaged in the cable/telecommunications business, both as a
general partner of 15 limited partnerships formed to own and operate cable
television systems and through a wholly-owned operating subsidiary. As of
December 31, 1997, the Corporate General Partner managed cable television
systems serving approximately 92,700 basic subscribers.

         Falcon Cablevision was formed in 1984 as a California limited
partnership and has been engaged in the ownership and operation of cable
television systems since that time. Falcon Cablevision is a wholly-owned
subsidiary of FHGLP. FHGI is the sole general partner of FHGLP. FHGLP currently
operates cable systems through a series of subsidiaries and also controls the
general partners of the 15 limited partnerships which operate under the Enstar
name (including the Partnership). Although these limited partnerships are
affiliated with FHGLP, their assets are owned by legal entities separate from
the Partnership.

         Set forth below is certain general information about the Directors and
Executive Officers of the Corporate General Partner:

NAME                     POSITION
----                     --------
Marc B. Nathanson        Director, Chairman of the Board and Chief Executive
                         Officer

Frank J. Intiso          Director, President and Chief Operating Officer

Stanley S. Itskowitch    Director, Executive Vice President and General Counsel

Michael K. Menerey       Director, Executive Vice President, Chief Financial
                         Officer and Secretary

Joe A. Johnson           Executive Vice President - Operations

Thomas J. Hatchell       Executive Vice President - Operations

Jon W. Lunsford          Executive Vice President - Finance

Abel C. Crespo           Controller


MARC B. NATHANSON, 52, has been Chairman of the Board and Chief Executive
Officer of FHGI and its predecessors since 1975, and prior to September 19, 1995
also served as President. He has been Chairman of the Board and Chief Executive
Officer of Enstar Communications Corporation since October 1988, and also served
as its President prior to September 1995. Prior to 1975, Mr. Nathanson was Vice
President of Marketing for Teleprompter Corporation, at that time the largest
multiple-system cable operator in the United States. He also held executive
positions with Warner Cable and Cypress Communications Corporation. He is a
former President of the California Cable Television Association and a member of
Cable Pioneers. He is currently a Director of the National Cable Television
Association ("NCTA"). At the 1986 NCTA convention, Mr. Nathanson was honored by
being named the recipient of the Vanguard Award for outstanding





                                      -28-

<PAGE>   29

contributions to the growth and development of the cable television industry.
Mr. Nathanson is a 28-year veteran of the cable television industry. He is a
founder of the Cable Television Administration and Marketing Society ("CTAM")
and the Southern California Cable Television Association. Mr. Nathanson is also
a Director of TV Por Cable Nacional, S.A. de C.V., an Advisory Board Member of
TVA, (Brazil) and a Director of GRB Entertainment. Mr. Nathanson is also
Chairman of the Board and Chief Executive Officer of Falcon International
Communications, LLC ("FIC"). Mr. Nathanson was appointed by President Clinton
and confirmed by the U.S. Senate on August 14, 1995 for a three year term on the
Board of Governors of International Broadcasting of the United States
Information Agency. He also serves on the Board of Radio Free Asia, Radio Free
Europe and Radio Liberty. Mr. Nathanson is a trustee of the Annenburg School of
Communications at the University of Southern California and a member of the
Board of Visitors of the Anderson School of Management at the University of
California, Los Angeles ("UCLA"). In addition, he serves on the Board of the
UCLA Foundation and the UCLA Center for Communications Policy and is on the
Board of Governors of AIDS Project Los Angeles and Cable Positive. Mr. Nathanson
received the "Entrepreneur of the Year Award" from Inc. Magazine in 1994.

FRANK J. INTISO, 51, was appointed President and Chief Operating Officer of FHGI
in September 1995, and between 1982 and that date held the positions of
Executive Vice President and Chief Operating Officer. He has been President and
Chief Operating Officer of Enstar Communications Corporation since September
1995, and between October 1988 and September 1995 held the positions of
Executive Vice President and Chief Operating Officer. Mr. Intiso is responsible
for the day-to-day operations of all cable television systems under the
management of FHGI. Mr. Intiso has a Masters Degree in Business Administration
from UCLA, and is a Certified Public Accountant. He serves as chair of the
California Cable Television Association, and is on the boards of Cable
Advertising Bureau, Cable In The Classroom, Community Antenna Television
Association and California Cable Television Association. He is a member of the
American Institute of Certified Public Accountants, the American Marketing
Association, the American Management Association, and the Southern California
Cable Television Association.

STANLEY S. ITSKOWITCH, 59, has been a Director of FHGI and its predecessors
since 1975, and Senior Vice President and General Counsel from 1987 to 1990 and
has been Executive Vice President and General Counsel since February 1990. He
has been Executive Vice President and General Counsel of Enstar Communications
Corporation since October 1988. He has been President and Chief Executive
Officer of F.C. Funding, Inc. (formerly Fallek Chemical Company), which is a
marketer of chemical products, since 1980. He is a Certified Public Accountant
and a former tax partner in the New York office of Touche Ross & Co. (now
Deloitte & Touche). He has a J.D. Degree and an L.L.M. Degree in Tax from New
York University School of Law. Mr. Itskowitch is also Executive Vice President
and General Counsel of FIC.

MICHAEL K. MENEREY, 46, has been Executive Vice President, Chief Financial
Officer and Secretary of FHGI and Enstar Communications Corporation since
February 1998. Prior to that time, he had been Chief Financial Officer and
Secretary of FHGI and its predecessors since 1984 and of Enstar Communications
Corporation since October 1988. Mr. Menerey is a Certified Public Accountant and
is a member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants.

JOE A. JOHNSON, 53, has been Executive Vice President - Operations of FHGI since
September 1995. He has been Executive Vice President-Operations of Enstar
Communications Corporation since January 1996. He was a Divisional Vice
President of FHGI between 1989 and 1992. From 1982 to 1989, he held the
positions of Vice President and Director of Operations for Sacramento Cable
Television, Group W Cable of Chicago and Warner Amex. From 1975 to 1982, Mr.
Johnson held cable system and regional manager positions with Warner Amex and
Teleprompter.

THOMAS J. HATCHELL, 48, has been Executive Vice President - Operations of FHGI
and Enstar Communications Corporation since February 1998. From October 1995 to
February 1998, he was Senior Vice President of Operations of Falcon
International Communications, L.P. and its predecessor company and





                                      -29-

<PAGE>   30

was a Senior Vice President of FHGI from January 1992 to September 1995. Mr.
Hatchell was a Divisional Vice President of FHGI between 1989 and 1992. From
1981 to 1989, he served as Vice President and Regional Manager for Falcon's San
Luis Obispo, California region. He was Vice President - Construction of an
affiliate of Falcon from June 1980 to June 1981. In addition, he served as a
General Manager of the cable system in Tulare County, California, from 1977 to
1980. Prior to that time, Mr. Hatchell served as a cable executive with the
Continental Telephone Company.

JON W. LUNSFORD, 38, has been Executive Vice President - Finance of FHGI and
Enstar Communications Corporation since February 1998. Prior to that time, he
had been Vice President - Finance and Corporate Development of FHGI since
September 1994 and of Enstar Communications Corporation since January 1996. From
1991 to 1994, he served as Director of Corporate Finance at Continental
Cablevision, Inc. Prior to 1991, Mr. Lunsford was a Vice President with Crestar
Bank.

ABEL C. CRESPO, 38, has been Controller of FHGI and Enstar Communications
Corporation since January 1997. Mr. Crespo joined Falcon in December 1984, and
has held various accounting positions during that time, most recently that of
Senior Assistant Controller. Mr. Crespo holds a Bachelor of Science degree in
Business Administration from California State University, Los Angeles.

CERTAIN KEY PERSONNEL

         The following sets forth, as of December 31, 1997, biographical
information about certain officers of FHGI who share certain responsibilities
with the officers of the Corporate General Partner with respect to the operation
and management of the Partnership.

LYNNE A. BUENING, 44, has been Vice President of Programming of FHGI since
November 1993. From 1989 to 1993, she served as Director of Programming for
Viacom Cable, a division of Viacom International Inc. Prior to that, Ms. Buening
held programming and marketing positions in the cable, broadcast, and newspaper
industries.

OVANDO COWLES, 44, has been Vice President of Advertising Sales and Production
of FHGI since January 1992. From 1988 to 1991, he served as a Director of
Advertising Sales and Production at Cencom Cable Television in Pasadena,
California. He was an Advertising Sales Account Executive at Choice TV, an
affiliate of Falcon, from 1985 to 1988. From 1983 to 1985, Mr. Cowles served in
various sales and advertising positions.

HOWARD J. GAN, 51, has been Vice President of Regulatory Affairs of FHGI and its
predecessors since 1988. He was General Counsel at Malarkey-Taylor Associates, a
Washington, DC based telecommunications consulting firm, from 1986 to 1988. He
was Vice President and General Counsel at the Cable Television Information
Center from 1978 to 1983. In addition, he was an attorney and an acting Branch
Chief of the Federal Communications Commission's Cable Television Bureau from
1975 to 1978.

R.W. ("SKIP") HARRIS, 50, has been Vice President of Marketing of FHGI since
June 1991. He is a member of the CTAM Premium Television Committee. Mr. Harris
was National Director of Affiliate Marketing for The Disney Channel from 1985 to
1991. He was also a sales manager, regional marketing manager and director of
marketing for Cox Cable Communications from 1978 to 1985.

JOAN SCULLY, 62, has been Vice President of Human Resources of FHGI and its
predecessors since May 1988. From 1987 to May 1988, she was self-employed as a
Management Consultant to cable and transportation companies. She served as
Director of Human Resources of a Los Angeles based cable company from 1985
through 1987. Prior to that time she served as a human resource executive in the
entertainment and aerospace industries. Ms. Scully holds a Masters Degree in
Human Resources Management from Pepperdine University.



                                      -30-

<PAGE>   31


RAYMOND J. TYNDALL, 50, has been Vice President of Engineering of FHGI since
October 1989. From 1975 to September 1989, he held various technical positions
with Choice TV and its predecessors. From 1967 to 1975, he held various
technical positions with Sammons Communications. He is a certified National
Association of Radio and Television Engineering ("NARTE") engineer in lightwave,
microwave, satellite and broadband and is a member of the Cable Pioneers.

         In addition, FHGI has six Divisional Vice Presidents who are based in
the field. They are Donald L. Amick, Daniel H. DeLaney, Ron L. Hall, Michael E.
Kemph, Michael D. Singpiel and Robert S. Smith.

         Each director of the Corporate General Partner is elected to a one-year
term at the annual shareholder meeting to serve until the next annual
shareholder meeting and thereafter until his respective successor is elected and
qualified. Officers are appointed by and serve at the discretion of the
directors of the Corporate General Partner.

ITEM 11. EXECUTIVE COMPENSATION

MANAGEMENT FEE

         The Partnership has a management agreement (the "Management Agreement")
with Enstar Cable Corporation, a wholly owned subsidiary of the Corporate
General Partner (the "Manager"), pursuant to which Enstar Cable Corporation
manages the Partnership's systems and provides all operational support for the
activities of the Partnership. For these services, the Manager receives a
management fee of 5% of the Partnership's gross revenues, excluding revenues
from the sale of cable television systems or franchises, calculated and paid
monthly. In addition, the Partnership reimburses the Manager for certain
operating expenses incurred by the Manager in the day-to-day operation of the
Partnership's cable systems. The Management Agreement also requires the
Partnership to indemnify the Manager (including its officers, employees, agents
and shareholders) against loss or expense, absent negligence or deliberate
breach by the Manager of the Management Agreement. The Management Agreement is
terminable by the Partnership upon sixty (60) days written notice to the
Manager. The Manager has engaged FHGLP to provide certain management services
for the Partnership and pays FHGLP a portion of the management fees it receives
in consideration of such services and reimburses FHGLP for expenses incurred by
FHGLP on its behalf. The Corporate General Partner also performs certain
supervisory and administrative services for the Partnership, for which it is
reimbursed.

         For the fiscal year ended December 31, 1997, the Manager charged the
Partnership management fees of approximately $149,700 and reimbursed expenses of
$323,100. In addition, certain programming services are purchased through Falcon
Cablevision. The Partnership paid Falcon Cablevision approximately $609,400 for
these programming services for fiscal year 1997.

PARTICIPATION IN DISTRIBUTIONS

         The General Partners are entitled to share in distributions from, and
profit and losses in, the Partnership. See Item 5., "Market for Registrant's
Equity Securities and Related Security Holder Matters."






                                      -31-
<PAGE>   32

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         As of March 3, 1998, the common stock of FHGI was owned as follows:
78.5% by Falcon Cable Trust, a grantor trust of which Marc B. Nathanson is
trustee and he and members of his family are beneficiaries; 20% by Greg A.
Nathanson; and 1.5% by Stanley S. Itskowitch. In 1989, FHGI issued to Hellman &
Friedman Capital Partners, A California Limited Partnership ("H&F"), a
$1,293,357 convertible debenture due 1999 convertible under certain
circumstances into 10% of the common stock of FHGI and entitling H&F to elect
one director to the board of directors of FHGI. H&F elected Marc B. Nathanson
pursuant to such right. In 1991 FHGI issued to Hellman & Friedman Capital
Partners II, A California Limited Partnership ("H&FII"), additional convertible
debentures due 1999 in the aggregate amount of $2,006,198 convertible under
certain circumstances into approximately 6.3% of the common stock of FHGI and
entitling H&FII to elect one director to the board of directors of FHGI. As of
March 3, 1998, H&FII had not exercised this right. FHGLP also held 12.1% of the
interests in the General Partner, and Falcon Cable Trust, Frank Intiso and H&FII
held 58.9%, 12.1% and 16.3% of the General Partner, respectively. Such interests
entitle the holders thereof to an allocable share of cash distributions and
profits and losses of the General Partner in proportion to their ownership. Greg
A. Nathanson is Marc B. Nathanson's brother.

         As of March 3, 1998, Marc B. Nathanson and members of his family owned,
directly or indirectly, outstanding partnership interests (comprising both
general partner interests and limited partner interests) aggregating
approximately 0.46% of Falcon Classic Cable Income Properties, L.P. ("Falcon
Classic") and 2.58% of Falcon Video Communications ("Falcon Video"). In
accordance with the respective partnership agreements of these two partnerships,
after the return of capital to and the receipt of certain preferred returns by
the limited partners of such partnerships, FHGLP and certain of its officers and
directors had rights to future profits greater than their ownership interests of
capital in such partnerships. See Item 13., "Certain Relationships and Related
Transactions."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CONFLICTS OF INTEREST

         In March 1993, FHGLP, a new entity, assumed the management services
operations of FHGI. Effective March 29, 1993, FHGLP began receiving management
fees and reimbursed expenses which had previously been paid by the Partnership,
as well as the other affiliated entities mentioned above, to FHGI. The
management of FHGLP is substantially the same as that of FHGI.

         FHGLP also manages the operations of Falcon Classic, Falcon Video and,
through its management of the operation of Falcon Cablevision (a subsidiary of
FHGLP), the partnerships of which Enstar Communications Corporation is the
Corporate General Partner, including the Partnership. On September 30, 1988,
Falcon Cablevision acquired all of the outstanding stock of Enstar
Communications Corporation. Certain members of management of the Corporate
General Partner have also been involved in the management of other cable
ventures. FHGLP contemplates entering into other cable ventures, including
ventures similar to the Partnership.

         On March 6, 1998, FHGLP acquired four of the five Falcon Classic cable
systems. FHGLP intends to acquire the fifth system as soon as regulatory
approvals can be obtained, at which point Falcon Classic will be liquidated.
FHGLP executed various agreements on December 30, 1997 related to a series of
transactions that, if successfully consummated in 1998, would involve the
contribution by Falcon Video of its assets into the newly-formed entity of which
FHGLP would be the managing general partner. The consummation of transactions is
subject to, among other things, the satisfaction of customary closing conditions
and obtaining required regulatory and other third-party consents, including the
consent of franchising authorities, and to obtaining satisfactory financing
arrangements on acceptable terms.





                                      -32-

<PAGE>   33

Accordingly, there can be no assurance that the transactions will be
successfully completed, or if successfully completed, when they might be
completed. The Corporate General Partner cannot determine at this time the
potential impact from these Falcon Classic and Falcon Video transactions on the
Partnership, but it is possible that certain programming costs could increase.

         Conflicts of interest involving acquisitions and dispositions of cable
television systems could adversely affect Unitholders. For instance, the
economic interests of management in other affiliated partnerships are different
from those in the Partnership and this may create conflicts relating to which
acquisition opportunities are preserved for which partnerships.

         These affiliations subject FHGLP and the Corporate General Partner and
their management to certain conflicts of interest. Such conflicts of interest
relate to the time and services management will devote to the Partnership's
affairs and to the acquisition and disposition of cable television systems.
Management or its affiliates may establish and manage other entities which could
impose additional conflicts of interest.

         FHGLP and the Corporate General Partner will resolve all conflicts of
interest in accordance with their fiduciary duties.

FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION OF THE GENERAL PARTNERS

         A general partner is accountable to a limited partnership as a
fiduciary and consequently must exercise good faith and integrity in handling
partnership affairs. Where the question has arisen, some courts have held that a
limited partner may institute legal action on his own behalf and on behalf of
all other similarly situated limited partners (a class action) to recover
damages for a breach of fiduciary duty by a general partner, or on behalf of the
partnership (a partnership derivative action) to recover damages from third
parties. Section 14-9-1001 of the Georgia Revised Uniform Limited Partnership
Act also allows a partner to maintain a partnership derivative action if general
partners with authority to do so have refused to bring the action or if an
effort to cause those general partners to bring the action is not likely to
succeed. Certain cases decided by federal courts have recognized the right of a
limited partner to bring such actions under the Securities and Exchange
Commission's Rule 10b-5 for recovery of damages resulting from a breach of
fiduciary duty by a general partner involving fraud, deception or manipulation
in connection with the limited partner's purchase or sale of partnership units.

         The partnership agreement provides that the General Partners will be
indemnified by the Partnership for acts performed within the scope of their
authority under the partnership agreement if such general partners (i) acted in
good faith and in a manner that it reasonably believed to be in, or not opposed
to, the best interests of the Partnership and the partners, and (ii) had no
reasonable grounds to believe that their conduct was negligent. In addition, the
partnership agreement provides that the General Partners will not be liable to
the Partnership or its limited partners for errors in judgment or other acts or
omissions not amounting to negligence or misconduct. Therefore, limited partners
will have a more limited right of action than they would have absent such
provisions. In addition, the Partnership maintains, at its expense and in such
reasonable amounts as the Corporate General Partner shall determine, a liability
insurance policy which insures the Corporate General Partner, FHGI and its
affiliates (which includes FHGLP), officers and directors and such other persons
as the Corporate General Partner shall determine, against liabilities which they
may incur with respect to claims made against them for certain wrongful or
allegedly wrongful acts, including certain errors, misstatements, misleading
statements, omissions, neglect or breaches of duty. To the extent that the
exculpatory provisions purport to include indemnification for liabilities
arising under the Securities Act of 1933, it is the opinion of the Securities
and Exchange Commission that such indemnification is contrary to public policy
and therefore unenforceable.





                                      -33-

<PAGE>   34

                                     PART IV


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


(a)      1.  Financial Statements

             Reference is made to the Index to Financial Statements on page
             F-1.



(a)      2.  Financial Statement Schedules

             Reference is made to the Index to Financial Statements on page
             F-1.



(a)      3.  Exhibits

             Reference is made to the Index to Exhibits on Page E-1.



(b)          Reports on Form 8-K

             None.





                                      -34-
<PAGE>   35

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 30, 1998.


                                    ENSTAR INCOME PROGRAM II-1, L.P.

                                    By: Enstar Communications Corporation,
                                        Corporate General Partner


                                    By: /s/ Marc B. Nathanson
                                        --------------------------------------
                                        Marc B. Nathanson
                                        Chairman of the Board and
                                            Chief Executive Officer




         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on the 30th day of March 1998.


<TABLE>
<CAPTION>
                        Signatures                                       Title(*)
             ---------------------------------        -------------------------------------------------
<S>                                                  <C>
             /s/ Marc B. Nathanson                    Chairman of the Board and Chief Executive Officer
             ---------------------------------        (Principal Executive Officer)
             Marc B. Nathanson


             /s/ Michael K. Menerey                   Executive Vice President, Chief Financial Officer,
             ---------------------------------        Secretary and Director
             Michael K. Menerey                       (Principal Financial and Accounting Officer)


             /s/ Frank J. Intiso                      President, Chief Operating Officer
             ---------------------------------        and Director
             Frank J. Intiso


             /s/ Stanley S. Itskowitch                Executive Vice President, General Counsel
             ---------------------------------        and Director
             Stanley S. Itskowitch
</TABLE>


(*) Indicates position(s) held with Enstar Communications Corporation, the
Corporate General Partner of the Registrant.





                                      -35-

<PAGE>   36

                          INDEX TO FINANCIAL STATEMENTS


                                                                        PAGE
                                                                        ----

Report of Independent Auditors                                           F-2

Balance Sheets - December 31, 1996 and 1997                              F-3

Financial Statements for each of
  the three years in the period
  ended December 31, 1997:

    Statements of Operations                                             F-4

    Statements of Partnership Capital (Deficit)                          F-5

    Statements of Cash Flows                                             F-6

Notes to Financial Statements                                            F-7


All schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.





                                      F-1

<PAGE>   37

                         REPORT OF INDEPENDENT AUDITORS



Partners
Enstar Income Program II-1, L.P.  (A Georgia Limited Partnership)


We have audited the accompanying balance sheets of Enstar Income Program II-1,
L.P. (A Georgia Limited Partnership) as of December 31, 1996 and 1997, and the
related statements of operations, partnership capital (deficit), and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Income Program II-1,
L.P. at December 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.





                                               /s/   ERNST & YOUNG LLP



Los Angeles, California
February 20, 1998



                                      F-2
<PAGE>   38

                        ENSTAR INCOME PROGRAM II-1, L.P.

                                 BALANCE SHEETS

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



<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                          ------------------------------
                                                                              1996               1997
                                                                          -----------        -----------
<S>                                                                       <C>                <C>
ASSETS:
   Cash and cash equivalents                                              $ 2,849,600        $ 1,778,300


   Accounts receivable, less allowance of $4,700 and
      $11,000 for possible losses                                              75,000             48,800

   Prepaid expenses and other assets                                           29,200            351,000

  Property, plant and equipment, less accumulated
      depreciation and amortization                                         1,891,100          3,765,500

  Franchise cost, less accumulated
      amortization of $17,500 and $26,800                                      64,600             64,700

  Deferred charges, net                                                         8,900              6,800
                                                                          -----------        -----------

                                                                          $ 4,918,400        $ 6,015,100
                                                                          ===========        ===========

                      LIABILITIES AND PARTNERSHIP CAPITAL
                      -----------------------------------

LIABILITIES:
   Accounts payable                                                       $   229,800        $   457,600
   Due to affiliates                                                          173,900            192,200
                                                                          -----------        -----------

          TOTAL LIABILITIES                                                   403,700            649,800
                                                                          -----------        -----------

COMMITMENTS AND CONTINGENCIES

PARTNERSHIP CAPITAL (DEFICIT):
   General partners                                                           (28,800)           (20,300)
   Limited partners                                                         4,543,500          5,385,600
                                                                          -----------        -----------

          TOTAL PARTNERSHIP CAPITAL                                         4,514,700          5,365,300
                                                                          -----------        -----------

                                                                          $ 4,918,400        $ 6,015,100
                                                                          ===========        ===========
</TABLE>





                 See accompanying notes to financial statements.



                                      F-3
<PAGE>   39

                        ENSTAR INCOME PROGRAM II-1, L.P.

                            STATEMENTS OF OPERATIONS

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


<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                               -------------------------------------------------
                                                  1995                1996                1997
                                               -----------        -----------        -----------
<S>                                            <C>                <C>                <C>
REVENUES                                       $ 2,603,700        $ 2,797,500        $ 2,994,500
                                               -----------        -----------        -----------

OPERATING EXPENSES:
  Service costs                                    791,800            786,500            846,300
  General and administrative expenses              233,800            317,500            248,000
  General Partner management fees
   and reimbursed expenses                         365,300            421,400            472,800
  Depreciation and amortization                    694,200            310,600            326,000
                                               -----------        -----------        -----------

                                                 2,085,100          1,836,000          1,893,100
                                               -----------        -----------        -----------

         Operating income                          518,600            961,500          1,101,400
                                               -----------        -----------        -----------

OTHER INCOME (EXPENSE):
  Interest expense                                  (9,000)            (9,100)            (1,600)
  Interest income                                  109,000            118,000            128,800
  Gain on sale of cable assets                        --                2,700               --
                                               -----------        -----------        -----------

                                                   100,000            111,600            127,200
                                               -----------        -----------        -----------

NET INCOME                                     $   618,600        $ 1,073,100        $ 1,228,600
                                               ===========        ===========        ===========

Net income allocated to General Partners       $     6,200        $    10,700        $    12,300
                                               ===========        ===========        ===========

Net income allocated to Limited Partners       $   612,400        $ 1,062,400        $ 1,216,300
                                               ===========        ===========        ===========

NET INCOME PER UNIT OF LIMITED
  PARTNERSHIP INTEREST                         $     20.46        $     35.49        $     40.63
                                               ===========        ===========        ===========

WEIGHTED AVERAGE LIMITED
  PARTNERSHIP UNITS OUTSTANDING
   DURING THE YEAR                                  29,936             29,936             29,936
                                               ===========        ===========        ===========
</TABLE>




                 See accompanying notes to financial statements.


                                      F-4
<PAGE>   40

                        ENSTAR INCOME PROGRAM II-1, L.P.

                   STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT)

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



<TABLE>
<CAPTION>
                                                            General           Limited
                                                           Partners           Partners            Total
                                                         -----------        -----------        -----------
<S>                                                      <C>                <C>                <C>
PARTNERSHIP CAPITAL (DEFICIT),
  January 1, 1995                                        $   (38,100)       $ 3,617,100        $ 3,579,000

     Distributions to partners                                (3,800)          (374,200)          (378,000)
     Net income for year                                       6,200            612,400            618,600
                                                         -----------        -----------        -----------

PARTNERSHIP CAPITAL (DEFICIT),
  December 31, 1995                                          (35,700)         3,855,300          3,819,600

     Distributions to partners                                (3,800)          (374,200)          (378,000)
     Net income for year                                      10,700          1,062,400          1,073,100
                                                         -----------        -----------        -----------

PARTNERSHIP CAPITAL (DEFICIT),
  December 31, 1996                                          (28,800)         4,543,500          4,514,700

     Distributions to partners                                (3,800)          (374,200)          (378,000)
     Net income for year                                      12,300          1,216,300          1,228,600
                                                         -----------        -----------        -----------

PARTNERSHIP CAPITAL (DEFICIT),
  December 31, 1997                                      $   (20,300)       $ 5,385,600        $ 5,365,300
                                                         ===========        ===========        ===========
</TABLE>





                 See accompanying notes to financial statements.


                                      F-5
<PAGE>   41

                        ENSTAR INCOME PROGRAM II-1, L.P.

                            STATEMENTS OF CASH FLOWS

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



<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                            -------------------------------------------------
                                                               1995                1996               1997
                                                            -----------        -----------        -----------
<S>                                                         <C>                <C>                <C>
Cash flows from operating activities:
  Net income                                                $   618,600        $ 1,073,100        $ 1,228,600
  Adjustments to reconcile net income to
   net cash provided by operating activities:
     Depreciation and amortization                              694,200            310,600            326,000
     Gain on sale of cable assets                                  --               (2,700)              --
     Increase (decrease) from changes in:
      Accounts receivable, prepaid expenses
        and other assets                                        (37,600)           (39,700)          (295,600)
      Accounts payable and due to affiliates                   (102,200)           105,100            246,100
                                                            -----------        -----------        -----------

        Net cash provided by operating activities             1,173,000          1,446,400          1,505,100
                                                            -----------        -----------        -----------

Cash flows from investing activities:
  Capital expenditures                                         (408,200)          (869,300)        (2,182,700)
  Increase in intangible assets                                 (57,000)           (17,800)           (15,700)
  Proceeds from sale of property, plant and equipment              --               11,000               --
                                                            -----------        -----------        -----------

        Net cash used in investing activities                  (465,200)          (876,100)        (2,198,400)
                                                            -----------        -----------        -----------

Cash flows from financing activities:
  Distributions to partners                                    (378,000)          (378,000)          (378,000)
                                                            -----------        -----------        -----------

Net increase (decrease) in cash and cash equivalents            329,800            192,300         (1,071,300)

Cash and cash equivalents at beginning of year                2,327,500          2,657,300          2,849,600
                                                            -----------        -----------        -----------

Cash and cash equivalents at end of year                    $ 2,657,300        $ 2,849,600        $ 1,778,300
                                                            ===========        ===========        ===========
</TABLE>








                 See accompanying notes to financial statements.


                                      F-6

<PAGE>   42

                        ENSTAR INCOME PROGRAM II-1, L.P.

                          NOTES TO FINANCIAL STATEMENTS

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


NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

FORM OF PRESENTATION

         Enstar Income Program II-1, L.P., a Georgia limited partnership (the
"Partnership"), owns and operates cable television systems in rural areas of
Illinois.

         The financial statements do not give effect to any assets that the
partners may have outside of their interest in the Partnership, nor to any
obligations, including income taxes of the partners.

CASH EQUIVALENTS

         For purposes of the statements of cash flows, the Partnership considers
all highly liquid debt instruments purchased with an initial maturity of three
months or less to be cash equivalents. The carrying value of cash and cash
equivalents approximates fair value due to the short maturity of these
instruments.

         Cash equivalents at December 31, 1996 include $2,782,000 of short-term
investments in commercial paper.

PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION

         Property, plant and equipment are stated at cost. Direct costs
associated with installations in homes not previously served by cable are
capitalized as part of the distribution system, and reconnects are expensed as
incurred. For financial reporting, depreciation and amortization is computed
using the straight-line method over the following estimated useful lives:

<TABLE>
     <S>                                                                                 <C>
     Cable television systems                                                               5-15 years
     Vehicles                                                                                  3 years
     Furniture and equipment                                                                 5-7 years
     Leasehold improvements                                                              Life of lease
</TABLE>

FRANCHISE COST

         The excess of cost over the fair values of tangible assets and customer
lists of cable television systems acquired represents the cost of franchises. In
addition, franchise cost includes capitalized costs incurred in obtaining new
franchises and the renewal of existing franchises. These costs are amortized
using the straight-line method over the lives of the franchises, ranging up to
15 years. The Partnership periodically evaluates the amortization periods of
these intangible assets to determine whether events or circumstances warrant
revised estimates of useful lives. Costs relating to unsuccessful franchise
applications are charged to expense when it is determined that the efforts to
obtain the franchise will not be successful.

DEFERRED CHARGES

         Deferred charges are amortized using the straight-line method over two
years.




                                       F-7

<PAGE>   43

                        ENSTAR INCOME PROGRAM II-1, L.P.

                          NOTES TO FINANCIAL STATEMENTS

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


NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

RECOVERABILITY OF ASSETS

         The Partnership assesses on an ongoing basis the recoverability of
intangible and capitalized plant assets based on estimates of future
undiscounted cash flows compared to net book value. If the future undiscounted
cash flow estimate were less than net book value, net book value would then be
reduced to estimated fair value, which would generally approximate discounted
cash flows. The Partnership also evaluates the amortization periods of
intangible assets to determine whether events or circumstances warrant revised
estimates of useful lives.

REVENUE RECOGNITION

         Revenues from cable services are recognized as the services are
provided.

INCOME TAXES

         As a partnership, Enstar Income Program II-1, L.P. pays no income
taxes. All of the income, gains, losses, deductions and credits of the
Partnership are passed through to its partners. The basis in the Partnership's
assets and liabilities differs for financial and tax reporting purposes. At
December 31, 1997, the book basis of the Partnership's net assets exceeded its
tax basis by $749,700.

         The accompanying financial statements, which are prepared in accordance
with generally accepted accounting principles, differ from the financial
statements prepared for tax purposes due to the different treatment of various
items as specified in the Internal Revenue Code. The net effect of these
accounting differences is that net income for 1997 in the financial statements
is $429,900 more than tax income of the Partnership for the same period, caused
principally by timing differences in depreciation expense.

EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST

         Earnings and losses have been allocated 99% to the limited partners and
1% to the general partners. Earnings and losses per unit of limited partnership
interest is based on the weighted average number of units outstanding during the
year. The General Partners do not own units of partnership interest in the
Partnership, but rather hold a participation interest in the income, losses and
distributions of the Partnership.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.





                                      F-8
<PAGE>   44

                        ENSTAR INCOME PROGRAM II-1, L.P.

                          NOTES TO FINANCIAL STATEMENTS

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


NOTE 2 - PARTNERSHIP MATTERS

         The Partnership was formed in 1984 to acquire, construct, improve,
develop and operate cable television systems. The partnership agreement provides
for Enstar Communications Corporation (the "Corporate General Partner") and
Robert T. Graff, Jr. to be the general partners and for the admission of limited
partners through the sale of interests in the Partnership. The Partnership
raised capital of $7,500,000 (the maximum) during 1985.

         On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the Corporate
General Partner.

         The partnership agreement generally provides that all cash
distributions (as defined) be allocated 1% to the general partners and 99% to
the limited partners until the limited partners have received aggregate cash
distributions equal to their original capital contributions ("Capital Payback").
The partnership agreement also provides that all partnership profits, gains,
operational losses, and credits (all as defined) be allocated 1% to the general
partners and 99% to the limited partners until the limited partners have been
allocated net profits equal to the amount of cash flow required for Capital
Payback. After the limited partners have received cash flow equal to Capital
Payback, the general partners will receive a 1% allocation of cash flow from
sale or liquidation of a system until the limited partners have received an
annual simple interest return of at least 18% of their initial investments less
any distributions from previous system sales and cash distributions from
operations after Capital Payback. Thereafter, allocations will be made 15% to
the general partners and 85% to the limited partners. Any losses from system
sales or exchanges shall be allocated first to all partners having positive
capital account balances until all such accounts are reduced to zero and
thereafter to the Corporate General Partner. All allocations to individual
limited partners will be based on their respective limited partnership ownership
interests.

         Upon the disposition of substantially all of the Partnership's assets,
gains shall be allocated first to the limited partners having negative capital
account balances until their capital accounts are increased to zero, next
equally among the general partners until their capital accounts are increased to
zero, and thereafter as outlined in the preceding paragraph. Upon dissolution of
the Partnership, any negative capital account balances remaining after all
allocations and distributions are made must be funded by the respective
partners.

         The partnership agreement limits the amount of debt the Partnership may
incur.




                                      F-9

<PAGE>   45

                        ENSTAR INCOME PROGRAM II-1, L.P.

                          NOTES TO FINANCIAL STATEMENTS

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


NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consist of:


<TABLE>
<CAPTION>
                                                                             December 31,
                                                                    -------------------------------
                                                                        1996                1997
                                                                    -----------         -----------
<S>                                                                 <C>                 <C>
Cable television systems                                            $ 5,840,100         $ 7,914,100
Vehicles, furniture and equipment,
  and leasehold improvements                                            196,800             270,700
                                                                    -----------         -----------

                                                                      6,036,900           8,184,800

Less accumulated depreciation
  and amortization                                                   (4,145,800)         (4,419,300)
                                                                    -----------         -----------

                                                                    $ 1,891,100         $ 3,765,500
                                                                    ===========         ===========
</TABLE>


NOTE 4 - COMMITMENTS AND CONTINGENCIES

         Pole rentals amounted to $22,800, $14,900 and $26,200 in 1995, 1996 and
1997, respectively. Rentals, other than pole rentals, charged to operations
amounted to $7,800, $7,700 and $4,200 in 1995, 1996 and 1997, respectively. The
Partnership is not individually committed under any lease agreement for building
space. A wholly-owned subsidiary of the Corporate General Partner (the
"Manager") provides management services to the Partnership and has signed lease
agreements for regional office space for which the Partnership is charged its
allocable portion.

         Other commitments include approximately $393,000 at December 31, 1997
to complete a rebuild of the Partnership's Taylorville cable system. The
Partnership is also rebuilding portions of its other cable systems in
surrounding communities and anticipates additional costs of approximately
$1,117,000 in 1998 to complete the project. The Partnership is required to
upgrade its system in the community of Gillespie, Illinois under a provision of
its franchise agreement. Expenditures for the upgrade are budgeted, beginning in
1999, at a total estimated cost of approximately $725,000. The Partnership
expects to complete the project by the required deadline of December 31, 1999.

         The Partnership is subject to regulation by various federal, state and
local government entities. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") provides for, among other things,
federal and local regulation of rates charged for basic cable service, cable
programming service tiers ("CPSTs") and equipment and installation services.
Regulations issued in 1993 and significantly amended in 1994 by the Federal
Communications Commission (the "FCC") have resulted in changes in the rates
charged for the Partnership's cable services. The Partnership believes that
compliance with the 1992 Cable Act has had a significant negative impact on its
operations and cash flow. It also believes that any potential future liabilities
for refund claims or other related actions would not be material. The
Telecommunications Act of 1996 (the "1996 Telecom Act") was signed into law on
February 8, 1996. As it pertains to cable television, the 1996 Telecom Act,
among other things, (i) ends the regulation of certain CPSTs in 1999; (ii)
expands the definition of effective competition, the existence of which
displaces rate




                                      F-10

<PAGE>   46
                        ENSTAR INCOME PROGRAM II-1, L.P.

                          NOTES TO FINANCIAL STATEMENTS

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


NOTE 4 - COMMITMENTS AND CONTINGENCIES

regulation; (iii) eliminates the restriction against the ownership and operation
of cable systems by telephone companies within their local exchange service
areas; and (iv) liberalizes certain of the FCC's cross-ownership restrictions.
Because cable service rate increases have continued to outpace inflation under
the FCC's existing regulations, the Partnership expects Congress and the FCC to
explore additional methods of regulating cable service rate increases, including
deferral or repeal of the March 31, 1999 sunset of CPST rate regulations and
legislation recently was introduced in Congress to repeal the sunset provision.

         Beginning in August 1997, the Corporate General Partner elected to
self-insure the Partnership's cable distribution plant and subscriber
connections against property damage as well as possible business interruptions
caused by such damage. The decision to self-insure was made due to significant
increases in the cost of insurance coverage and decreases in the amount of
insurance coverage available.

         While the Corporate General Partner has made the election to
self-insure for these risks based upon a comparison of historical damage
sustained over the past five years with the cost and amount of insurance
currently available, there can be no assurance that future self-insured losses
will not exceed prior costs of maintaining insurance for these risks. All of the
Partnership's subscribers are served by its system in Taylorville, Illinois and
neighboring communities. Significant damage to the system due to seasonal
weather conditions or other events could have a material adverse effect on the
Partnership's liquidity and cash flows. The Partnership continues to purchase
insurance coverage in amounts its management views as appropriate for all other
property, liability, automobile, workers' compensation and other types of
insurable risks.

NOTE 5 - EMPLOYEE BENEFIT PLAN

         The Partnership has a cash or deferred profit sharing plan (the "Profit
Sharing Plan") covering substantially all of its employees. The Profit Sharing
Plan provides that each participant may elect to make a contribution in an
amount up to 20% of the participant's annual compensation which otherwise would
have been payable to the participant as salary. The Partnership's contribution
to the Profit Sharing Plan, as determined by management, is discretionary but
may not exceed 15% of the annual aggregate compensation (as defined) paid to all
participating employees. There were no contributions charged against operations
for the Profit Sharing Plan in 1995, 1996 or 1997.

NOTE 6 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES

         The Partnership has a management and service agreement with the Manager
for a monthly management fee of 5% of gross receipts, as defined, from the
operations of the Partnership. Management fee expense was $130,200, $139,900 and
$149,700 during 1995, 1996 and 1997, respectively.

         In addition to the monthly management fee, the Partnership reimburses
the Manager for direct expenses incurred on behalf of the Partnership and for
the Partnership's allocable share of operational costs associated with services
provided by the Manager. All cable television properties managed by the
Corporate General Partner and its subsidiaries are charged a proportionate share
of these expenses. Corporate office allocations and district office expenses are
charged to the properties served based primarily on the respective percentage of
basic customers or homes passed (dwelling units within a system) within the
designated service areas. The total amount charged to the Partnership for these
services was $235,100, $281,500 and $323,100 during 1995, 1996 and 1997,
respectively.





                                      F-11

<PAGE>   47

                        ENSTAR INCOME PROGRAM II-1, L.P.

                          NOTES TO FINANCIAL STATEMENTS

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


NOTE 6 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)

         Certain programming services have been purchased through Falcon
Cablevision. In turn, Falcon Cablevision charges the Partnership for these costs
based on an estimate of what the Corporate General Partner could negotiate for
such programming services for the 15 partnerships managed by the Corporate
General Partner as a group. The Partnership recorded programming fees expense of
$504,000, $543,200 and $609,400 in 1995, 1996 and 1997, respectively.
Programming fees are included in service costs in the statements of operations.

NOTE 7 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

         During the years ended December 31, 1995, 1996 and 1997, cash paid for
interest amounted to $9,000, $9,100 and $1,600, respectively.







                                      F-12

<PAGE>   48

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER       DESCRIPTION
        ------       -----------
<S>                 <C>
         3           Second Amended and Restated Agreement of Limited
                     Partnership of Enstar Income Program II-1, L.P., dated
                     as of August 1, 1988.(3)

         10.1        Management Agreement between Enstar Income Program II-1
                     and Enstar Cable Corporation.(1)

         10.2        Revolving Credit and Term Loan Agreement dated
                     February 28, 1986 between Enstar Income Program II-1 and
                     Rhode Island Hospital Trust National Bank.(2)

         10.3        Franchise ordinance and related documents thereto
                     granting a non-exclusive community antenna television
                     franchise for the City of Taylorville, IL.(2)

         10.4        Franchise ordinance and related documents thereto
                     granting a non-exclusive community antenna television
                     franchise for the City of Litchfield, IL.(2)

         10.5        Franchise ordinance and related documents thereto
                     granting a non-exclusive community antenna television
                     franchise for the City of Gillespie, IL.(2)

         10.6        Franchise ordinance and related documents thereto
                     granting a non-exclusive community antenna television
                     franchise for the County of Christian, IL.(2)

         10.7        Service agreement between Enstar Communications
                     Corporation, Enstar Cable Corporation and Falcon
                     Holding Group, Inc. dated as of October 1, 1988.(4)

         10.8        Amendment No. 3 to Revolving Credit and Term Loan
                     Agreement dated February 28, 1986 between Enstar
                     Income Program 1984-1 and Rhode Island Hospital Trust
                     National Bank, dated October 15, 1990.(5)

         10.9        A resolution of the City Council of Taylorville, Illinois
                     extending the Cable Television Franchise of Enstar Income
                     Program II-1. Passed and adopted January 4, 1993.(6)

         10.10       Ordinance No. 92-9 of the City Council of Gillespie,
                     Illinois authorizing an extension of the Cable
                     Television Franchise between the City of Gillespie and
                     Enstar Cable Corporation. Passed and approved
                     November 9, 1992.(6)

         10.11       Ordinance No. 2497 of the City of Taylorville, Illinois
                     extending the Cable Television Franchise of Enstar Income
                     Program II-1. Passed and adopted June 14, 1993.(7)

         10.12       A resolution of the County Board of Christian County
                     extending the Cable Television Franchise of Enstar
                     Income Program II-1. Passed and adopted November 15,
                     1994.(8)

         10.13       A resolution of the City Council of Litchfield, Illinois
                     extending the Cable Television Franchise of Enstar Income
                     Program II-1. Passed and adopted December 8, 1994.(8)

         10.14       Ordinance No. 94-16 of the City of Gillespie, Illinois
                     granting a non-exclusive community antenna television
                     system franchise to Enstar Income Program II-1. Passed
                     and adopted December 12, 1994.(8)

         10.15       Franchise agreement between Enstar Income Program II-1,
                     L.P. and the City of Taylorville, IL.(9)

         10.16       Agreement with Respect to Franchise Fees and Reimbursable
                     Fees between Enstar Income Program II-1, L.P.
                     and the City of Taylorville, IL. (9)
</TABLE>


                                      E-1
<PAGE>   49

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
       EXHIBIT
        NUMBER       DESCRIPTION
        ------       -----------
<S>                 <C>
         10.17       Franchise ordinance granting a non-exclusive community
                     antenna television franchise for the City of
                     Taylorville, IL. (9)

         10.18       Franchise agreement between Enstar Communications
                     Corporation and County of Christian, Illinois. (10)

         21.1        Subsidiaries: None
</TABLE>


                               FOOTNOTE REFERENCES

(1)      Incorporated by reference to the exhibits to the Registrant's Annual
         Report on Form 10-K, File No. 0-14508 for the fiscal year ended
         December 31, 1986.

(2)      Incorporated by reference to the exhibits to the Registrant's Annual
         Report on Form 10-K, File No. 0-14508 for the fiscal year ended
         December 31, 1987.

(3)      Incorporated by reference to the exhibits to the Registrant's Annual
         Report on Form 10-K, File No. 0-14508 for the fiscal year ended
         December 31, 1988.

(4)      Incorporated by reference to the exhibits to the Registrant's Annual
         Report on Form 10-K, File No. 0-14508 for the fiscal year ended
         December 31, 1989.

(5)      Incorporated by reference to the exhibits to the Registrant's Annual
         Report on Form 10-K, File No. 0-14508 for the fiscal year ended
         December 31, 1990.

(6)      Incorporated by reference to the exhibits to the Registrant's Annual
         Report on Form 10-K, File No. 0-14508 for the fiscal year ended
         December 31, 1991.

(7)      Incorporated by reference to the exhibits to the Registrant's Quarterly
         Report on Form 10-Q, File No. 0-14508 for the quarter ended September
         30, 1993.

(8)      Incorporated by reference to the exhibits to the Registrant's Annual
         Report on Form 10-K, File No. 0-14508 dated December 31, 1994.

(9)      Incorporated by reference to the exhibits to the Registrant's Quarterly
         Report on Form 10-Q, File No. 0-14508 for the quarter ended September
         30, 1995.

(10)     Incorporated by reference to the exhibits to the Registrant's Quarterly
         Report on Form 10-Q, File No. 0-14508 for the quarter ended September
         30, 1997.










                                      E-2