<PAGE>   1
                                  UNITED STATES

                       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, 1998

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934 [No Fee Required]
     For the transition period from ____ to ____

Commission File Number 0-20421


                            TELE-COMMUNICATIONS, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)


         State of Delaware                              84-1260157
-------------------------------         ------------------------------------
(State or other jurisdiction of         (I.R.S. Employer Identification No.)
incorporation or organization)

         5619 DTC Parkway
         Englewood, Colorado                              80111
----------------------------------------               ------------
(Address of principal executive offices)                (Zip Code)

         Registrant's telephone number, including area code:  (303) 267-5500

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

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

         Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
                         Stock, par value $.01 per share

         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 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.
                             ---

         The aggregate market value of the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock held by nonaffiliates of
Tele-Communications, Inc., computed by reference to the last sales price of such
stock, as of the close of trading on January 29, 1999, was approximately
$114,000,000.


<PAGE>   2

                                     PART I.

Item 1.  Business.

         (a)      General Development of Business

         Tele-Communications, Inc. ("TCI" or the "Company"), through its
subsidiaries and affiliates, is principally engaged in the construction,
acquisition, ownership, and operation of cable television systems and the
provision of satellite-delivered video entertainment, information and home
shopping programming services to various video distribution media, principally
cable television systems. The Company also has investments in cable and
telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies. The Company is a Delaware corporation and was
incorporated in 1994. TCI Communications, Inc. ("TCIC"), a subsidiary of TCI,
and its predecessors have been engaged in the cable television business since
the early 1950's.

         The Company's assets and operations were previously included in three
separate groups, each of which was tracked separately by public equity
securities. These groups were known as the "Liberty Media Group", the "TCI
Ventures Group" and the "TCI Group".

         The Liberty Media Group was intended to reflect the separate
performance of TCI's assets which produce and distribute programming services.
For additional information concerning the Liberty Media Group, see "Narrative
Description of Business - LIBERTY MEDIA GROUP."

         The TCI Ventures Group was intended to reflect the separate performance
of TCI's principal international assets and businesses and substantially all of
TCI's non-cable and non-programming assets. For additional information
concerning the TCI Ventures Group, see "Narrative Description of Business - TCI
VENTURES GROUP."

         The TCI Group was intended to reflect the separate performance of TCI
and its subsidiaries and assets not attributed to Liberty Media Group or TCI
Ventures Group. Such subsidiaries and assets are comprised primarily of TCI's
domestic cable and communications business. For additional information
concerning the TCI Group, see "Narrative Description of Business - TCI GROUP."



                                      I-1
<PAGE>   3

         The TCI Group was tracked separately through the Tele-Communications,
Inc. Series A TCI Group Common Stock (the "TCI Group Series A Stock") and Series
B TCI Group Common Stock (the "TCI Group Series B Stock," and together with the
TCI Group Series A Stock, the "TCI Group Stock"). The Liberty Media Group was
tracked separately through the Tele-Communications, Inc. Series A Liberty Media
Group Common Stock ("Liberty Group Series A Stock") and Series B Liberty Media
Group Common Stock ("Liberty Group Series B Stock" and together with the Liberty
Group Series A Stock, the "Liberty Group Stock"). The TCI Ventures Group was
tracked separately through the Tele-Communications Inc. Series A TCI Ventures
Group Common Stock ("TCI Ventures Group Series A Stock") and Series B TCI
Ventures Group Common Stock ("TCI Ventures Group Series B Stock" and together
with the TCI Ventures Group Series A Stock, the "TCI Ventures Group Stock").

         The TCI Group Series A Stock, TCI Ventures Group Series A Stock and the
Liberty Group Series A Stock are sometimes collectively referred to herein as
the "Series A Stock," and the TCI Group Series B Stock, TCI Ventures Group
Series B Stock and Liberty Group Series B Stock are sometimes collectively
referred to herein as the "Series B Stock."

         On March 9, 1999, AT&T Corporation ("AT&T") acquired TCI in a merger
(the "AT&T Merger") in which Italy Merger Corp., a wholly-owned subsidiary of
AT&T, merged with and into TCI, and TCI thereby became a wholly-owned subsidiary
of AT&T. As a result of the AT&T Merger, (i) each share of TCI Group Series A
Stock was converted into 0.7757 of a share of common stock, par value $1.00 per
share, of AT&T ("AT&T Common Stock"), (ii) each share of TCI Group Series B
Stock was converted into 0.8533 of a share of AT&T Common Stock, (iii) each
share of Liberty Group Series A Stock was converted into one share of a newly
created class of AT&T common stock designated as the Class A Liberty Media Group
Common Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
Stock"), (iv) each share of Liberty Group Series B Stock was converted into one
share of a newly created class of AT&T common stock designated as the Class B
Liberty Media Group Common Stock, par value $1.00 per share (the "AT&T Liberty
Class B Tracking Stock" and together with the AT&T Liberty Class A Tracking
Stock, the "AT&T Liberty Tracking Stock"), (v) each share of TCI Ventures Group
Series A Stock was converted into 0.52 of a share of AT&T Liberty Class A
Tracking Stock, (vi) each share of TCI Ventures Group Series B Stock was
converted into 0.52 of a share of AT&T Liberty Class B Tracking Stock, (vii)
each share of TCI's Convertible Preferred Stock, Series C-TCI Group was
converted into 103.059502 shares of AT&T Common Stock, (viii) each share of
TCI's Convertible Preferred Stock Series C-Liberty Media Group was converted
into 56.25 shares of AT&T Liberty Class A Tracking Stock, (ix) each share of
TCI's Redeemable Convertible TCI Group Preferred Stock, Series G was converted
into 0.923083 shares of AT&T Common Stock and (x) each share of TCI's Redeemable
Convertible Liberty Media Group Preferred Stock, Series H was converted into
0.590625 of a share of AT&T Liberty Class A Tracking Stock. Following the AT&T
Merger, each share of TCI's Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock ("Class B Preferred Stock") continues to be outstanding as the
Class B Preferred Stock with the same rights and preferences such stock had
prior to the AT&T Merger. In general, the holders of shares of AT&T Liberty
Class A Tracking Stock and the holders of shares of AT&T Liberty Class B
Tracking Stock will vote together as a single class with the holders of shares
of AT&T Common Stock on all matters presented to such stockholders, with the
holders being entitled to one-tenth (1/10th) of a vote for each share of AT&T
Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty Class B
Tracking Stock held and 1 vote per share of AT&T Common Stock held.



                                      I-2
<PAGE>   4

         The shares of AT&T Liberty Tracking Stock issued in the AT&T Merger are
intended to reflect the separate performance of the businesses and assets
attributed to "Liberty/Ventures Group," which following the AT&T Merger, is
comprised of the businesses and assets attributed to Liberty Media Group and TCI
Ventures Group at the time of the AT&T Merger (the "Liberty/Ventures
Combination"). Pursuant to, and subject to the terms and conditions set forth
in, the Agreement and Plan of Restructuring and Merger, dated as of June 23,
1998 (the "Merger Agreement"), immediately prior to the AT&T Merger, certain
assets previously attributed to TCI Ventures Group (including, among others, the
shares of AT&T Common Stock received in the merger of AT&T and Teleport
Communications Group, Inc. ("TCG"), the stock of At Home Corporation ("@Home")
attributed to TCI Ventures Group, the assets and business of the National
Digital Television Center, Inc. ("NDTC") and TCI Ventures Group's equity
interest in Western Tele-Communications, Inc. ("WTCI")) were transferred to TCI
Group in exchange for approximately $5.5 billion in cash. Also, upon
consummation of the AT&T Merger, through a new tax sharing agreement between
Liberty/Ventures Group and AT&T, Liberty/Ventures Group became entitled to the
benefit of approximately $2.0 billion of net operating loss carryforwards
attributable to all entities included in TCI's consolidated federal income tax
return as of the date of the AT&T Merger. Such net operating loss carryforwards
are subject to adjustment by the Internal Revenue Service and are subject to
limitations on usage which may affect the ultimate amount utilized.
Additionally, certain warrants previously attributed to TCI Group were
transferred to Liberty/Ventures Group in exchange for approximately $176 million
in cash. Certain agreements entered into at the time of the AT&T Merger provide,
among other things, for preferred vendor status to Liberty/Ventures Group for
digital basic distribution on AT&T's systems of new programming services created
by Liberty/Ventures Group and for a renewal of existing affiliation agreements.
The transfer of certain other immaterial assets was also effected.

         Pursuant to amended corporate governance documents for the entities
included in Liberty/Ventures Group and certain agreements among AT&T and TCI,
the business of Liberty/Ventures Group will continue to be managed by certain
persons who were members of TCI's management prior to the AT&T Merger. AT&T will
initially designate one third of the directors of such entities and its rights
as the sole shareholder of the common stock of such entities following the AT&T
Merger will, in accordance with Delaware law, be limited to actions which will
require shareholder approval. Therefore, management has concluded that TCI does
not have a controlling financial interest (as that term is used in Statement of
Financial Accounting Standards No. 94) in the entities comprising the
Liberty/Ventures Group following the AT&T Merger, and will account for its
investment in such entities under the equity method.



                                      I-3
<PAGE>   5

         Pursuant to a proposed final judgment (the "Final Judgment") agreed to
by TCI, AT&T and the United States Department of Justice (the "DOJ") on December
30, 1998, Liberty/Ventures Group prior to the AT&T Merger transferred all of the
equity securities of Sprint Corporation ("Sprint") beneficially owned by the
Liberty/Ventures Group (the "Sprint Securities") to a trust with an independent
trustee (the "Trustee"), pursuant to a trust agreement approved by the DOJ (the
"Trust Agreement"). The Final Judgment, if entered at the United States District
Court for the District of Columbia, would require the Trustee, on or before May
23, 2002, to dispose of a portion of the Sprint Securities held by the trust and
beneficially owned by Liberty/Ventures Group sufficient to cause
Liberty/Ventures Group to own beneficially no more than 10% of the outstanding
Series 1 PCS Stock of Sprint on a fully diluted basis (assuming the issuance of
all shares of Series 1 PCS Stock of Sprint ultimately issuable in respect of the
applicable securities of Sprint upon the exercise, conversion or other issuance
thereof in accordance with the terms of such securities) on such date. On or
before May 23, 2004, the Trustee must divest the remainder of the Sprint
Securities beneficially owned by Liberty/Ventures Group.

         The Trust Agreement grants the Trustee the sole right to sell the
Sprint Securities and provides that all decisions regarding such divestiture
will be made by the Trustee without discussion or consultation with AT&T or the
entities in the Liberty/Ventures Group; however, the Final Judgment would
provide that the Trustee shall consult with the board of directors of the
Liberty/Ventures Group entity that owns the Sprint Securities regarding such
divestiture (other than certain directors appointed by AT&T following the AT&T
Merger and any director, officer or shareholder that owns more than 0.10% of the
outstanding AT&T Common Stock). The Trustee has the power and authority to
accomplish such divestiture only in a manner reasonably calculated to maximize
the value of the Sprint Securities beneficially owned by Liberty/Ventures Group.

         The Final Judgment would provide that the Trustee vote the Sprint
Securities beneficially owned by Liberty/Ventures Group in the same proportion
as other holders of Sprint's PCS Stock so long as such securities are held by
the trust. The Final Judgment also would prohibit the acquisition by
Liberty/Ventures Group of additional Sprint Securities (other than in connection
with the exercise or conversion, as applicable, of certain Sprint Securities)
without the prior written consent of the DOJ.

         Immediately prior to the AT&T Merger, TCI restructured its ownership of
certain of its subsidiaries. This restructuring included merging TCI's cable
subsidiary, TCIC, into TCI. As a result of TCIC's merger with TCI, all assets
and liabilities of TCIC have been assumed by TCI, including TCIC's public debt.
In connection with TCIC's merger with TCI, each share of TCIC's Cumulative
Exchangeable Preferred Stock, Series A was converted into 2.119 shares of TCI
Group Series A Stock, and such shares of TCI Group Series A Stock were
subsequently converted into AT&T Common Stock in connection with the AT&T
Merger. All other public securities issued by subsidiaries of TCIC (other than
TCI Pacific Communications, Inc. ("Pacific")) otherwise remained unaffected.
Furthermore, as part of the restructuring, (i) certain asset transfers were made
between TCI and its subsidiaries, (ii) 123,896 shares of the Company's
Convertible Redeemable Participating Preferred Stock, Series F ("Series F
Preferred Stock"), which were held by subsidiaries of TCI, were converted into
185,428,946 shares of TCI Group Series A Stock (which in turn were converted
into 143,837,233 shares of AT&T Common Stock in the AT&T Merger and continue to
be held by subsidiaries of TCI), (iii) the remaining 154,411 shares of Series F
Preferred Stock which were formerly held by subsidiaries of TCI were distributed
to TCI through a series of liquidations and canceled, and (iv) 125,728,816
shares of TCI Group Series A Stock, 9,154,134 shares of TCI Group Series B
Stock, 6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of
Liberty Group Series B Stock, and 67,536 shares of Class B Preferred Stock, each
formerly held by subsidiaries of TCI, were distributed to TCI through a series
of liquidations and canceled.



                                      I-4
<PAGE>   6

         After the AT&T Merger, under the terms of the 5% Class A Senior
Cumulative Exchangeable Preferred Stock of Pacific (the "Exchangeable Preferred
Stock"), each share of that preferred stock is exchangeable, from and after
August 1, 2001, for approximately 4.225 shares of AT&T Common Stock, subject to
certain anti-dilution adjustments. Additionally, after the AT&T Merger, Pacific
may elect to make any dividend, redemption or liquidation payment on the
Exchangeable Preferred Stock in cash, by delivery of shares of AT&T Common Stock
or by a combination of the foregoing forms of consideration.

         On June 16, 1997, (a) the Company issued 30,545,864 shares of TCI Group
Series A Stock (which shares are entitled to one vote per share) to the Estate
of Bob Magness (the "Magness Estate"), the late founder and former Chairman of
the Board of TCI in exchange (the "Exchange") for an equal number of shares of
TCI Group Series B Stock (which shares are entitled to ten votes per share)
owned by the Magness Estate, (b) the Magness Estate sold (the "Sale") the shares
of TCI Group Series A Stock received in the Exchange, together with
approximately 1.5 million shares of TCI Group Series A Stock that the Magness
Estate previously owned (collectively, the "Option Shares"), to two investment
banking firms (the "Investment Bankers") for approximately $530 million (the
"Sale Price") and (c) TCI entered into an agreement with the Investment Bankers
whereby TCI would have the option, but not the obligation, to purchase the
Option Shares at any time on or before June 16, 1999 (the "Option Period"). The
preceding transactions are referred to collectively as the "June 16 Stock
Transaction". During the Option Period, the Company and the Investment Bankers
would settle quarterly any increase or decrease in the market value of the
Option Shares. If the market value of the Option Shares should exceed the
Investment Bankers' cost, Option Shares with a fair value equal to the
difference between the market value and cost would be segregated from the other
Option Shares in an account at the Investment Bankers. If the market value of
the Option Shares should be less than the Investment Bankers' cost, the Company,
at its option, would settle such difference with shares of TCI Group Series A
Stock or TCI Ventures Group Series A Stock or, subject to certain conditions,
with cash or letters of credit. In addition, the Company would be required to
pay the Investment Bankers a quarterly fee equal to the London Interbank Offered
Rate plus 1% on the Sale Price, as adjusted for payments made by the Company
pursuant to any quarterly settlement with the Investment Bankers. Due to the
Company's ability to settle quarterly price fluctuations and fees with shares of
TCI Group Series A Stock or TCI Ventures Group Series A Stock, the Company
records all amounts received or paid under this arrangement as increases or
decreases, respectively, to equity. During the fourth quarter of 1997, the
Company repurchased 4 million shares of TCI Group Series A Stock from one of the
Investment Bankers for an aggregate cash purchase price of $66 million.
Additionally, as a result of the Exchange Offers and certain open market
transactions that were completed to obtain the desired weighting of TCI Group
Series A Stock and TCI Ventures Group Series A Stock, the Investment Bankers
disposed of 4,210,308 shares of TCI Group Series A Stock and acquired 23,407,118
shares of TCI Ventures Group Series A Stock during the last half of 1997. As a
result of the foregoing transactions and certain transactions related to the
January 5, 1998 settlement of litigation involving the Magness Estate, as
described below, the Option Shares were comprised of 6,201,042 shares of TCI
Group Series A Stock and 11,740,610 shares of TCI Ventures Group Series A Stock
at December 31, 1998. At December 31, 1998, the market value of the Option
Shares exceeded the Investment Bankers' cost by $421 million.



                                      I-5
<PAGE>   7

         Pursuant to a certain letter agreement, dated June 16, 1997, between
Dr. Malone, TCI's Chairman and Chief Executive Officer, and the Magness Estate,
Dr. Malone agreed to waive certain rights of first refusal with respect to
shares of TCI Group Series B Stock beneficially owned by the Magness Estate.
Such rights of first refusal arise from a letter agreement, dated June 17, 1988,
among Bob Magness, Kearns-Tribune Corporation and Dr. Malone, pursuant to which
Dr. Malone was granted a right of first refusal to acquire any shares of TCI
Group Series B Stock which the other parties proposed to sell. As a result of
Dr. Malone's rights under such June 17, 1988 letter agreement, such waiver was
necessary in order for the Magness Estate to consummate the Exchange and the
Sale.

         In consideration for such waiver, TCI granted Dr. Malone the right (the
"Malone Right") to acquire from time to time until June 30, 1999, from TCI up to
30,545,864 shares of the TCI Group Series B Stock acquired by TCI from the
Magness Estate pursuant to the Exchange. Such acquisition may be made in
exchange for either, or any combination of, shares of TCI Group Series A Stock
owned by Dr. Malone (exchanged on a one for one basis), or cash in an amount
equal to the average closing sale price of the TCI Group Series B Stock for the
five trading days preceding the acquisition.

         In connection with certain legal proceedings relative to the probate of
the Magness Estate, one or more of Gary Magness and Kim Magness, Bob Magness'
sons, Sharon Magness, Bob Magness' surviving second wife and the original
personal representatives of the Magness Estate advanced various claims, causes
of action, demands, complaints and requests against one or more of the others.
In addition, Kim Magness and Gary Magness, in a Complaint And Request To Void
Sale Of TCI Stock, And For Damages And Surcharge, filed on October 29, 1997 (the
"Voiding Action"), advanced various claims relating to the June 16 Stock
Transaction against TCI, Dr. Malone and the original personal representatives of
the Magness Estate. Among other matters, the Voiding Action challenged the June
16 Stock Transaction on various fiduciary bases and requested rescission of such
transaction and damages.

         Pursuant to an agreement effective as of January 5, 1998, TCI, Gary
Magness, Kim Magness, Sharon Magness, the Magness Estate, the Estate of Betsy
Magness (the first wife of Bob Magness) and Dr. Malone agreed to settle their
respective claims against each other relating to the Magness Estate and the June
16 Stock Transaction, in each case without any of those parties admitting any of
the claims or allegations against that party (the "Magness Settlement").

         In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that (i) 10,201,041 shares of TCI Group Series A Stock
and 11,666,506 shares of TCI Ventures Group Series A Stock were returned to TCI
as authorized but unissued shares, (ii) the Magness Estate returned to the
Investment Bankers the portion of the Sale Price attributable to such returned
shares and (iii) the Magness Estate paid $11 million to TCI representing a
reimbursement of the Exchange fees incurred by TCI from June 16, 1997 through
February 9, 1998 with respect to such returned shares. TCI then issued to the
Magness Estate 10,017,145 shares of TCI Group Series B Stock and 12,034,298
shares of TCI Ventures Group Series B Stock. In addition, as part of the Magness
Settlement, TCI issued 1,339,415 shares of TCI Group Series B Stock to the
Estate of Betsy Magness in exchange for an equal number of shares of TCI Group
Series A Stock and issued 1,531,834 shares of TCI Ventures Group Series B Stock
for an equal number of shares of TCI Ventures Group Series A Stock.



                                      I-6
<PAGE>   8

         On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr. Malone and
Dr. Malone's wife (together with Dr. Malone, the "Malones"), under which the
Malones granted to TCI the right to acquire any shares of TCI stock which are
entitled to cast more than one vote per share (the "High-Voting Shares") owned
by the Malones, which at December 31, 1998 consisted of an aggregate of
approximately 69 million High-Voting Shares upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal amount) to
third persons. In either such event, TCI has the right to acquire the shares at
a maximum price equal to the then relevant market price of shares of
"low-voting" Series A Stock plus a ten percent premium. The Malones also agreed
that if TCI were ever to be sold to another entity, then the maximum premium
that the Malones would receive on their High-Voting Shares would be no greater
than a ten percent premium over the price paid for the relevant shares of Series
A Stock. TCI paid $150 million to the Malones in consideration of their entering
into the Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain cases, on
behalf of the Estate of Betsy Magness and the Magness Estate (collectively, the
"Magness Family") also entered into a call agreement with TCI (with
substantially the same terms as the one entered into by the Malones, including a
call on the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's, which at December 31, 1998
consisted of an aggregate of approximately 55 million High-Voting Shares. The
Magness Family was paid $124 million by TCI in consideration of their entering
into the Magness Call Agreement.



                                      I-7
<PAGE>   9

         Additionally, on February 9, 1998, the Magness Family entered into a
Shareholders' Agreement (the "Shareholders' Agreement") with the Malones and TCI
under which (i) the Magness Family and the Malones agree to consult with each
other in connection with matters to be brought to the vote of TCI's
stockholders, subject to the proviso that if they cannot mutually agree on how
to vote the shares, Dr. Malone has an irrevocable proxy to vote the High-Voting
Shares owned by the Magness Family, (ii) the Magness Family may designate a
nominee for the Board of Directors of TCI and Dr. Malone has agreed to vote his
High-Voting Shares for such nominee and (iii) certain "tag along rights" have
been created in favor of the Magness Family and certain "drag along rights" have
been created in favor of the Malones. In addition, the Malone Right granted by
TCI to Dr. Malone to acquire 30,545,864 shares of TCI Group Series B Stock was
reduced to an option to acquire 14,511,570 shares of TCI Group Series B Stock.
Pursuant to the terms of the Shareholders' Agreement, the Magness Family has the
right to participate in the reduced Malone Right on a proportionate basis with
respect to 12,406,238 shares of the 14,511,570 shares subject to the Malone
Right. On June 24, 1998, Dr. Malone delivered notice to TCI exercising his right
to purchase (subject to the Magness Family proportionate right) up to 14,511,570
shares of TCI Group Series B Stock at a per share price of $35.5875 pursuant to
the Malone Right. In addition, a representative of the Magness Family advised
Dr. Malone that the Magness Family would participate in such purchase up to the
Magness Family's proportionate right. On October 14, 1998, 8,718,770 shares of
TCI Group Series B Stock were issued to Dr. Malone upon payment of cash
consideration totaling $310 million. On October 16, 1998, 5,792,800 shares of
TCI Group Series B Stock were issued to the Magness Family upon payment of cash
consideration totaling $206 million. In connection with the acquisition of the
TCI Group Series B Stock by Dr. Malone, TCI executed certain waivers to the
Malone Call Agreement and TCI and the Magness Family executed a waiver to the
Shareholders' Agreement to, among other things, permit (subject to certain
limitations) the pledge of TCI Group Series B Stock owned by Dr. Malone as
collateral to the lenders who provided the funds for his purchase of shares of
TCI Group Series B Stock. In connection with the AT&T Merger, Liberty Media
Corporation ("Liberty") became entitled to exercise TCI's rights under each Call
Agreement and the Shareholders' Agreement with respect to the AT&T Liberty Class
B Tracking Stock acquired by the Malones and the Magness Family as a result of
the AT&T Merger and the Malones and the Magness Family agreed that the
Shareholders' Agreement would continue to apply to the AT&T Liberty Class B
Tracking Stock.

         On February 1, 1999, the Company began to terminate the transactions
under the agreements with the Investment Bankers described above, and as of
March 5, 1999, such transactions were terminated. In connection with the
termination of such transactions the Company received an aggregate cash payment
of $509 million.

         On March 4, 1998, the Company contributed to Cablevision Systems
Corporation ("CSC") certain of its cable television systems serving
approximately 830,000 customers in exchange for approximately 48.9 million newly
issued CSC Class A common shares (the "CSC Transaction"). CSC also assumed and
repaid approximately $574 million of debt owed by TCI to external parties and
$95 million of debt owed to the Company. The Company has also entered into
letters of intent with CSC which provide for the Company to acquire a cable
system in Michigan and an additional 4% of CSC's Class A common shares and for
CSC to (i) acquire cable systems serving approximately 250,000 customers in
Connecticut and (ii) assume $110 million of the Company's debt. The ability of
the Company to sell or increase its investment in CSC is subject to certain
restrictions and limitations set forth in a stockholders agreement with CSC.



                                      I-8
<PAGE>   10

         In addition to the CSC Transaction, the Company also completed, during
1998, eight transactions whereby TCI contributed cable television systems
serving in the aggregate approximately 1,924,000 customers to eight separate
joint ventures (collectively, the "1998 Joint Ventures") in exchange for
non-controlling ownership interests in each of the 1998 Joint Ventures, and the
assumption and repayment by the 1998 Joint Ventures of debt owed by the Company
to external parties aggregating $323 million and intercompany debt owed to the
Company aggregating $2,374 million. The Company has agreed to take certain steps
to support compliance by certain of the 1998 Joint Ventures with their payment
obligations under certain debt instruments, up to an aggregate contingent
commitment of $980 million. The CSC Transaction and the formation of the 1998
Joint Ventures are collectively referred to herein as the "1998 Contribution
Transactions." During the year ended December 31, 1998, the Company's revenue
and operating cash flow (defined by the Company as operating income before
depreciation, amortization, other non-cash items, year 2000 costs, AT&T merger
costs and stock compensation) included $622 million and $278 million,
respectively from the cable television systems included in the 1998 Contribution
Transactions.

         In addition to the 1998 Contribution Transactions, the Company, as of
December 31, 1998, has signed agreements or letters of intent to contribute
within the next twelve months, certain cable television systems (the "Pending
Contribution Cable Systems") serving approximately 1.2 million basic customers
to joint ventures in which the Company will retain non-controlling ownership
interests (the "Pending Contribution Transactions"). Following the completion of
the Pending Contribution Transactions, the Company will no longer consolidate
the Pending Contribution Cable Systems. Accordingly it is anticipated that the
completion of the Pending Contribution Transactions, as currently contemplated,
will result in aggregate estimated reductions (based on 1998 amounts) to the
Company's debt, annual revenue and annual operating cash flow of $1.5 billion,
$500 million and $200 million, respectively. No assurance can be given that any
of the Pending Contribution Transactions will be consummated.

         On March 1, 1999, TV Guide, Inc. (formerly United Video Satellite
Group, Inc. ("UVSG")) and The News Corporation Limited ("News Corp.") completed
a transaction whereby News Corp.'s TV Guide properties were combined with UVSG
to create a platform for offering television guide services and advertising to
consumers. As part of this combination, a unit of News Corp. received
consideration consisting of $800 million in cash and 60 million shares of UVSG's
stock, including 22.5 million shares of its Class A common stock and 37.5
million shares of its Class B common stock. In addition, News Corp. elected to
purchase approximately 6.5 million additional shares of UVSG Class A common
stock for $129 million in order to equalize its ownership with that of the
Company. Prior to such transactions, UVSG was a subsidiary of the Company. As a
result of these transactions, and another transaction completed on the same
date, News Corp., TCI and UVSG's public stockholders own, on an economic basis,
approximately 44%, 44% and 12%, respectively, of UVSG. Following such
transactions, News Corp. and TCI each have approximately 49% of the voting power
of UVSG's outstanding stock. Upon consummation, TCI began accounting for its
interest in UVSG under the equity method of accounting.



                                      I-9
<PAGE>   11
         On November 19, 1998, the Company exchanged, in a merger transaction,
0.58 of a share of Liberty Group Series A Stock for each share of the issued and
outstanding Series A common stock of its then majority-owned subsidiary,
Tele-Communications International, Inc. ("TINTA") not beneficially owned by TCI
(the "TINTA Merger"). Such transaction was accounted for as an acquisition of a
minority interest. The aggregate value assigned to the 10,086,594 shares of
Liberty Group Series A Stock issued by TCI was based upon the market value of
Liberty Group Series A Stock at the time the TINTA Merger was announced.

         Prior to November 23, 1998, the "PCS Ventures" included Sprint Spectrum
Holding Company, L. P. and MinorCo, L.P. (collectively, "Sprint PCS") and
PhillieCo Partnership I, L.P. ("PhillieCo"). The partners of each of the Sprint
PCS partnerships were subsidiaries of Sprint, Comcast Corporation ("Comcast"),
Cox Communications, Inc. ("Cox") and the Company. The partners of PhillieCo were
subsidiaries of Sprint, Cox and the Company. The Company had a 30% partnership
interest in each of the Sprint PCS partnerships and a 35% partnership interest
in PhillieCo.

         On November 23, 1998, the Company, Comcast, and Cox exchanged their
respective interests in Sprint PCS and PhillieCo (the "PCS Exchange") for shares
of "Sprint PCS Group Stock" which, tracks the performance of Sprint's newly
created "PCS Group" (consisting initially of the PCS Ventures and certain PCS
licenses which were separately owned by Sprint). The Sprint PCS Group Stock
collectively represents an approximate 17% voting interest in Sprint. As a
result of the PCS Exchange, the Company holds shares of Sprint PCS Group Stock,
as well as certain additional securities of Sprint exercisable for or
convertible into such securities, (the "Sprint Securities") representing
approximately 24% of the equity value of Sprint attributable to its PCS Group
and less than 1% of the voting interest in Sprint. In connection with the March
9, 1999 AT&T Merger, the Liberty/Ventures Group consented to divest its interest
in the Sprint Securities.

         On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T,
was consummated. As a result of such merger, the Company received in exchange
for all of its interest in TCG, approximately 47 million shares of AT&T Common
Stock. Such AT&T Common Stock was transferred from TCI Ventures Group to TCI
Group in connection with the AT&T Merger.

         On January 19, 1999, @Home entered into a merger agreement with Excite,
Inc. ("Excite"), a global internet media company that offers consumers and
advertisers comprehensive internet navigation services with extensive
personalization capabilities. Under the terms of the merger agreement, @Home
will issue approximately 55 million shares of its common stock for all of the
outstanding common stock of Excite based on an exchange ratio of 1.041902 shares
of @Home's common stock for each share of Excite's common stock. @Home may issue
up to approximately 15 million additional shares of common stock in connection
with the assumption of obligations under Excite's stock option and employer
stock purchase plans and outstanding warrants. @Home will account for the
transaction as a purchase. @Home's preliminary estimate of the total purchase
consideration is approximately $7 billion, based on the fair value at the time
of announcement of the merger, of common stock to be issued and stock option,
stock purchase plan and warrant obligations assumed, plus estimated transaction
costs. As a result of the proposed merger, the Company's economic interest in
@Home would decrease from 39% to 27%, which would represent an approximate 58%
voting interest. The merger is subject to several conditions, including approval
by both companies' stockholders and the expiration of applicable waiting periods
under certain antitrust laws. TCI Ventures Group's investment in @Home was
transferred to TCI Group in connection with the AT&T Merger.



                                      I-10
<PAGE>   12

         Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under the captions "Business" and "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations," are forward-looking. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company (or entities in which the Company has interests), or
industry results, to differ materially from future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other factors include, among others: general economic
and business conditions and industry trends; the regulatory and competitive
environment of the industries in which the Company, and the entities in which
the Company has interests, operate; uncertainties inherent in new business
strategies; uncertainties inherent in the changeover to the year 2000, including
the Company's projected state of readiness, the projected costs of remediation,
the expected date of completion of each program or phase, the projected worst
case scenarios, and the expected contingency plans associated with such worst
case scenarios; new product launches and development plans; rapid technological
changes; the acquisition, development and/or financing of telecommunications
networks and services; the development and provision of programming for new
television and telecommunications technologies; future financial performance,
including availability, terms and deployment of capital; the ability of vendors
to deliver required equipment, software and services; availability of qualified
personnel; changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the Federal
Communications Commission ("FCC"), and adverse outcomes from regulatory
proceedings; changes in the nature of key strategic relationships with partners
and joint venturers; competitor responses to the Company's products and
services, and the products and services of the entities in which the Company has
interests, and the overall market acceptance of such products and services; and
other factors. These forward-looking statements (and such risks, uncertainties
and other factors) speak only as of the date of this Report, and the Company
expressly disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein, to reflect any
change in the Company's expectations with regard thereto, or any other change in
events, conditions or circumstances on which any such statement is based. Any
statement contained within Management's Discussion and Analysis of Financial
Condition and Results of Operations on this Form 10-K related to year 2000 are
hereby denominated as "Year 2000 Statements" within the meaning of the Year 2000
Information and Readiness Disclosure Act.

         (b)      Financial Information about Operating Segments

         The Company had significant operations principally in two operating
segments: domestic cable and communications services and programming services.
The Company's domestic cable and communications businesses and assets were
included in TCI Group, and the Company's domestic programming businesses and
assets were included in Liberty Media Group. The Company's principal
international businesses and assets and the Company's remaining non-cable and
non-programming domestic businesses and assets were included in TCI Ventures
Group. No individual business or asset within TCI Ventures Group constitutes a
reportable segment of the Company as contemplated by Statement of Financial
Accounting Standard No. 131, Disclosures about Segments of an Enterprise and
Related Information. Financial information related to the Company's operating
segments can be found in note 22 to the Company's consolidated financial
statements found in Part II of this report.



                                      I-11
<PAGE>   13
         (c)      Narrative Description of Business

         TCI GROUP

         Domestic Cable and Communications

         General. Cable television systems receive video, audio and data signals
transmitted by nearby television and radio broadcast stations, terrestrial
microwave relay services and communications satellites. Such signals are then
amplified and distributed by coaxial cable and optical fiber to the premises of
customers who pay a fee for the service. In many cases, cable television systems
also originate and distribute local programming.

         Cable operators use a combination of coaxial cable and optical fiber
for transmission of television signals to customers. Optical fiber is a
technologically advanced transmission medium capable of carrying cable
television signals via light waves generated by a laser. Optical fiber, when
used as an alternative to coaxial cable, can improve system reliability and
provide for additional capacity which should enable the provision of incremental
revenue-producing services.

         At December 31, 1998, approximately 66% of TCI Group's cable television
systems had bandwidth capacities ranging from 450 megahertz to 750 megahertz.
The Company's cable television systems generally carry up to 78 analog channels.
Compressed digital video technology converts on average as many as twelve analog
signals (now used to transmit video and voice) into a digital format and
compresses such signals (which is accomplished primarily by eliminating the
redundancies in television imagery) into the space normally occupied by one
analog signal. The digitally compressed signal is uplinked to a satellite, which
retransmits the signal to a customer's satellite dish or to a cable system's
headend to be distributed, via optical fiber and coaxial cable, to the
customer's home. At the home, a set-top video terminal converts the digital
signal into analog channels that can be viewed on a normal television set.

         TCI Group began offering digital cable television service to selected
markets in 1997. In February 1998, TCI Group initiated broader marketing efforts
intended to increase the number of digital cable television customers. Such
marketing efforts encompass multi-media, product enhancements, sales promotions
and sales incentives.



                                      I-12
<PAGE>   14

         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators that may be designated from time to time by NDTC, entered into
an agreement (the "Digital Terminal Purchase Agreement") with General Instrument
Corporation ("GI") to purchase advanced digital set-top devices. The hardware
and software incorporated into these devices are designed and manufactured to be
compatible and interoperable with the OpenCable(TM) architecture specifications
adopted by CableLabs, the cable television industry's research and development
consortium, in November 1997. NDTC has agreed that Approved Purchasers will
purchase, in the aggregate, a minimum of 6.5 million set-top devices during
calendar years 1998, 1999 and 2000 at an average price of $318 per set-top
device. Through December 31, 1998, approximately 1.6 million set-top devices had
been purchased pursuant to this commitment. GI agreed to provide NDTC and its
Approved Purchasers the most favorable prices, terms and conditions made
available by GI to any customer purchasing advanced digital set-top devices. In
connection with NDTC's purchase commitment, GI agreed to grant warrants to
purchase its common stock proportional to the number of devices ordered by each
organization, which as of the effective date of the Digital Terminal Purchase
Agreement, would have represented at least a 10% equity interest in GI (on a
fully diluted basis). Such warrants vest as annual purchase commitments are met.
On December 31, 1998, the Company vested in 4,928,000 warrants pursuant to such
arrangements. NDTC has the right to terminate the Digital Terminal Purchase
Agreement if, among other reasons, GI fails to meet a material milestone
designated in the Digital Terminal Purchase Agreement with respect to the
development, testing and delivery of advanced digital set-top devices.

         Service Charges. TCI Group offers a limited "basic service"
("Basic-TV") (primarily comprised of local broadcast signals and public,
educational and governmental ("PEG") access channels) and an "expanded tier"
(primarily comprised of specialized programming services, in such areas as
health, family entertainment, religion, news, weather, public affairs,
education, shopping, sports and music). The monthly fee for basic service
generally ranges from $9.00 to $12.00, and the monthly service fee for the
expanded tier generally ranges from $13.00 to $19.00. TCI Group offers "premium
services" (referred to in the cable television industry as "Pay-TV" and
"pay-per-view") to its customers. Such services consist principally of feature
films, as well as live and taped sports events, concerts and other programming.
TCI Group offers Pay-TV services for a monthly fee generally ranging from $6.00
to $15.00 per service, except for certain movie services (such as certain Pay-TV
channels) offered at $1.00 to $2.00 per month, pay-per-view movies offered
separately at $1.00 to $4.00 per movie and certain pay-per-view events offered
separately at $6.00 to $50.00 per event. Charges are usually discounted when
multiple Pay-TV services are ordered. In most markets, customers may also elect
to subscribe to digital video services comprised of up to 36 additional video
and 10 additional audio channels featuring additional specialized programming
and premium services at an average incremental monthly charge of $10.

         As further enhancements to their cable services, customers may
generally rent converters or converters with remote control devices for a
monthly charge ranging from $.71 to $3.50 each, as well as purchase a channel
guide for a monthly charge ranging from $1.35 to $3.00. Also a nonrecurring
installation charge (which is limited by rules of the FCC which regulate hourly
service charges for each individual cable system) ranging from $33.00 to $58.00
is usually charged.

         Monthly fees for Basic-TV and Pay-TV services to commercial customers
vary widely depending on the nature and type of service. Except under the terms
of certain contracts to provide service to commercial accounts, customers are
free to discontinue service at any time without penalty.



                                      I-13
<PAGE>   15

         The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") and the Telecommunications Act of 1996 (the "1996 Telecom
Act"), together with the 1992 Cable Act (the "Cable Acts"), established rules
under which TCI Group's basic service and expanded tier service rates and
equipment and installation charges are regulated if a complaint is filed or if
the appropriate franchise authority is certified. For additional information see
"Regulation and Legislation" below.

         Customer Data. TCI Group operates its cable television systems either
through its operating divisions or through certain other subsidiaries of TCI
attributed to TCI Group. Domestic Basic-TV cable customers served by TCI Group
are summarized as follows (amounts in millions):

<TABLE>
<CAPTION>
                                                                        Basic-TV customers at December 31,
                                                              ---------------------------------------------------
                                                                 1998       1997       1996      1995       1994
                                                                 ----       ----       ----      ----       ----

<S>                                                           <C>        <C>        <C>        <C>        <C> 
Managed through TCI Group's operating divisions                  11.4       14.2       13.4       11.9       10.7
Other non-managed subsidiaries of TCI
  attributed to TCI Group                                         0.5        0.2        0.5        0.6        0.5
                                                              -------    -------    -------    -------    -------

                                                                 11.9       14.4       13.9       12.5       11.2
                                                              =======    =======    =======    =======    =======
</TABLE>

         The decline in total Basic-TV customers between 1997 and 1998 is
attributable to the 1998 Contribution Transactions.

         TCI Group had approximately 1 million digital customers at December 31,
1998.

         TCI Group operates cable television systems throughout the United
States.

         Local Franchises. Cable television systems generally are constructed
and operated under the authority of nonexclusive permits or "franchises" granted
by local and/or state governmental authorities. Federal law, including the Cable
Communications Policy Act of 1984 (the "1984 Cable Act") and the 1992 Cable Act,
limits the power of the franchising authorities to impose certain conditions
upon cable television operators as a condition of the granting or renewal of a
franchise.

         Franchises contain varying provisions relating to construction and
operation of cable television systems, such as time limitations on commencement
and/or completion of construction; quality of service, including (in certain
circumstances) requirements as to the number of channels and broad categories of
programming offered to customers; rate regulation; provision of service to
certain institutions; provision of channels for public access and commercial
leased-use; and maintenance of insurance and/or indemnity bonds. TCI Group's
franchises also typically provide for periodic payments of fees, not to exceed
5% of revenue, to the governmental authority granting the franchise.
Additionally, many franchises require payments to the franchising authority for
the funding of PEG access channels. Franchises usually require the consent of
the franchising authority prior to a transfer of the franchise or a transfer or
change in ownership or operating control of the franchisee.



                                      I-14
<PAGE>   16

         Subject to applicable law, a franchise may be terminated prior to its
expiration date if the cable television operator fails to comply with the
material terms and conditions thereof. Under the 1984 Cable Act, if a franchise
is lawfully terminated, and if the franchising authority acquires ownership of
the cable television system or effects a transfer of ownership to a third party,
such acquisition or transfer must be at an equitable price or, in the case of a
franchise existing on the effective date of the 1984 Cable Act, at a price
determined in accordance with the terms of the franchise, if any.

         In connection with a renewal of a franchise, the franchising authority
may require the cable operator to comply with different and more stringent
conditions than those originally imposed, subject to the provisions of the 1984
Cable Act and other applicable federal, state and local law. The 1984 Cable Act,
as supplemented by the renewal provisions of the 1992 Cable Act, establishes an
orderly process for franchise renewal which protects cable operators against
unfair denials of renewals when the operator's past performance and proposal for
future performance meet the standards established by the 1984 Cable Act. TCI
Group believes that its cable television systems generally have been operated in
a manner which satisfies such standards and allows for the renewal of such
franchises; however, there can be no assurance that the franchises for such
systems will be successfully renewed as they expire.

         Most of TCI Group's present franchises had initial terms of
approximately 10 to 15 years. The duration of TCI Group's outstanding franchises
presently varies from a period of months to an indefinite period of time.
Approximately 1,090 of TCI Group's franchises expire within the next five years.
This represents approximately twenty-five percent of the franchises held by TCI
Group and involves approximately 4.6 million basic customers.

         Competition. Cable television competes for customers in local markets
with other providers of entertainment, news and information. The competitors in
these markets include broadcast television and radio, newspapers, magazines and
other printed material, motion picture theatres, video cassettes and other
sources of information and entertainment including directly competitive cable
television operations and internet service providers. The Cable Acts are
designed to increase competition in the cable television industry. See
"Regulation and Legislation" below.

         There are alternative methods of distributing the same or similar video
programming offered by cable television systems. Further, these technologies
have been encouraged by the United States Congress ("Congress") and the FCC to
offer services in direct competition with existing cable systems.

         DBS. Direct broadcast satellite ("DBS") has emerged as the most
significant competition to cable television systems. Earlier direct-to-home
("DTH") satellite services required the subscriber to purchase a large and
expensive "dish" antenna, but newer medium and high powered alternatives
currently allow the subscriber to receive video services directly via satellite
using a relatively small dish. Moreover, digital compression technology allows
DBS providers to offer more than 100 digital channels, thereby surpassing the
typical cable system. DBS providers offer most of the same programming as cable
television, but also offer certain sports packages not currently available
through cable television systems. DBS currently faces technical and legal
obstacles to providing popular local broadcast signals, although at least one
DBS provider is now attempting to provide this programming in certain major
markets, and Congress and the FCC are considering proposals that would remove
existing legal obstacles. The DBS industry has grown rapidly over the last
several years and now serves approximately 9 million subscribers nationwide.
Recently announced mergers could strengthen the surviving DBS companies.



                                      I-15
<PAGE>   17

         Telephone Company Entry. The 1996 Telecom Act eliminated the statutory
and regulatory restrictions that prevented local telephone companies from
competing with cable operators for the provision of video services by any means.
See Regulation and Legislation below. The 1996 Telecom Act allows local
telephone companies, including the regional bell operating companies ("RBOCs"),
to compete with cable television operators both inside and outside their
telephone service areas. TCI Group expects that it could face competition from
telephone companies for the provision of video services, whether it is through
wireless cable, or through upgraded telephone networks. TCI Group assumes that
all major telephone companies have already entered or may enter the business of
providing video services. TCI Group is aware that telephone companies have
already built, or are in the process of building, competing cable system
facilities in a number of TCI Group's franchise areas. The 1992 Cable Act
ensures that telephone company providers of video services will have access to
acquiring all of the significant cable television programming services. The
specific manner in which telephone company provision of video services will be
regulated is described under "Regulation and Legislation" below.

         Utility Company Entry. The 1996 Telecom Act eliminates certain federal
restrictions on utility holding companies and thus frees all utility companies
to provide cable television services. TCI Group expects this could result in
another source of competition in the delivery of video services. As an example,
in the Washington, D.C. metropolitan market, the local power utility has entered
into a partnership with an experienced cable television and open video system
company and is proposing to provide video and telecommunications services
throughout the Washington, D.C. metropolitan market.

         MMDS/LMDS. Another alternative method of distribution is multi-channel
multi-point distribution systems ("MMDS"), which deliver programming services
over microwave channels received by customers with special antennas. MMDS
systems are less capital intensive, are not required to obtain local franchises
or pay franchise fees, and are subject to fewer regulatory requirements than
cable television systems. The 1992 Cable Act also ensures that MMDS operators
have the opportunity to acquire all significant cable television programming
services. Although there are relatively few MMDS systems in the United States
currently in operation, virtually all markets have been licensed or tentatively
licensed. Developments in digital compression technology will significantly
increase the number of channels that can be made available from MMDS. Finally,
an emerging technology, local multipoint distribution services ("LMDS"), could
also pose a significant threat to the cable television industry, if and when it
becomes established. LMDS, sometimes referred to as cellular television, could
have the capability of delivering more than 100 channels of video programming to
a customer's home. The potential impact of LMDS is difficult to assess due to
the recent development of the technology and the absence of any current
fully-operational LMDS systems.

         Cable System Overbuilds. Cable operators may compete with other cable
operators or new entities seeking franchises for competing cable television
systems at any time during the terms of existing franchises. The 1992 Cable Act
promotes the granting of competitive franchises and TCI cable systems operate
under non-exclusive franchises. Recently, there has been a significant increase
in the number of cities that have constructed their own cable television systems
in a manner similar to city-provided utility services. These systems typically
will compete directly with the existing cable operator without the burdens of
franchise fees or other local regulation. Although the total number of municipal
overbuild cable systems remains relatively small, recent developments would
indicate an increasing trend in cities authorizing such direct municipal
competition with cable operators.



                                      I-16
<PAGE>   18

         Private Cable. TCI Group also competes with Satellite Master Antenna
Television ("SMATV") systems, which provide multichannel program services
directly to hotel, motel, apartment, condominium and similar multi-unit
complexes within a cable television system's franchise area, generally free of
any regulation by state and local governmental authorities. Further, the FCC in
1997, adopted new rules that restrict the ability of cable operators to maintain
ownership of cable wiring inside multi-unit buildings, thereby making it less
expensive for SMATV competitors to reach those customers. See "Regulation and
Legislation" below. Finally, the FCC in 1998 ruled that private cable operators
can lease video distribution capacity from local telephone companies and,
thereby, distribute cable programming services over the public rights-of-way
without obtaining a franchise. This could provide a significant regulatory
advantage for private cable operators in the future.

         In addition to competition for customers, the cable television industry
competes with broadcast television, radio, the print media and other sources of
information and entertainment for advertising revenue. As the cable television
industry has developed additional programming, its advertising revenue has
increased. Cable operators sell advertising spots primarily to local and
regional advertisers.

         TCI Group has no basis upon which to estimate the number of cable
television companies and other entities with which it competes or may
potentially compete. The full extent to which other media or home delivery
services will compete with cable television systems may not be known for some
time and there can be no assurance that existing, proposed or as yet undeveloped
technologies will not become dominant in the future.

         Regulation and Legislation. The operation of cable television systems
is extensively regulated by the FCC, some state governments and most local
governments. On February 8, 1996, the President of the United States signed into
law the 1996 Telecom Act. This new law alters the regulatory structure governing
the nation's telecommunications providers. It removes barriers to competition in
both the cable television market and the local telephone market.
Among other things, it reduces the scope of cable rate regulation.

         The 1996 Telecom Act requires the FCC to implement numerous
rulemakings, the final outcome of which cannot yet be determined due to court
challenges. Moreover, Congress and the FCC have frequently revisited the subject
of cable television regulation and may do so again. Future legislative and
regulatory changes could adversely affect TCI Group's operations. This section
briefly summarizes key laws and regulations currently affecting the growth and
operation of TCI Group's cable systems.

         Cable Rate Regulation. The 1992 Cable Act imposed extensive rate
regulation on the cable television industry. All cable systems are subject to
rate regulation of their basic and upper tier programming services, as well as
their provision of customer equipment used to receive basic tier services,
unless they face "effective competition" in their local franchise area. Under
the 1992 Cable Act, the incumbent cable operator can demonstrate effective
competition by showing either low penetration (less than 30% of the occupied
households in the franchise area subscribe to basic service), or the presence
(measured collectively as 50% availability, 15% customer penetration) of other
multichannel video programming distributors ("MVPDs"). The 1996 Telecom Act
expands the existing definition of effective competition to create a special
test for a competing MVPD (other than a DBS distributor) affiliated with a local
exchange carrier ("LEC"). There is no penetration minimum for a LEC affiliate to
qualify as an effective competitor, but it must offer comparable programming
services in the franchise area.



                                      I-17
<PAGE>   19

         Although the FCC establishes all cable rate rules, local government
units (commonly referred to as local franchising authorities or "LFAs") are
primarily responsible for administering the regulation of the lowest level of
cable -- the basic service tier ("BST"), which typically contains local
broadcast stations and PEG access channels. Before an LFA begins BST rate
regulation, it must certify to the FCC that it will follow applicable federal
rules, and many LFAs have voluntarily declined to exercise this authority. LFAs
also have primary responsibility for regulating cable equipment rates. Under
federal law, charges for various types of cable equipment must be unbundled from
each other and from monthly charges for programming services, and priced no
higher than the operator's actual cost, plus an 11.25% rate of return.

         The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two complaints from local customers within 90
days of a CPST rate increase and then files a formal complaint with the FCC.
When new CPST rate complaints are filed, the FCC now considers only whether the
incremental increase is justified and will not reduce the previously established
CPST rate.

         Under the FCC's rate regulations, TCI Group was required to reduce its
BST and CPST rates in 1993 and 1994, and has since had its rate increases
governed by a complicated price structure that allows for the recovery of
inflation and certain increased costs, as well as providing some incentive for
expanding channel carriage. The FCC has modified its rate adjustment regulations
to allow for annual rate increases and to minimize previous problems associated
with delays in implementing rate increases. Operators also have the opportunity
of bypassing this "benchmark" structure in favor of traditional cost-of-service
regulation in cases where the latter methodology appears favorable. However, the
FCC significantly limited the inclusion in the rate base of acquisition costs in
excess of the historical cost of tangible assets. As a result, TCI Group pursued
cost of service justifications in only a few cases. Premium cable services
offered on a per channel or per program basis remain unregulated, as do
affirmatively marketed packages consisting entirely of new programming product.

         The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. However, certain members of
Congress and FCC officials have called for the delay of this regulatory sunset
and further have urged more rigorous rate regulation (including limits on
programming cost pass-throughs to cable customers) until a greater degree of
competition to incumbent cable operators has developed. The 1996 Telecom Act
also relaxes existing uniform rate requirements by specifying that uniform rate
requirements do not apply where the operator faces effective competition, and by
exempting bulk discounts to multiple dwelling units ("MDUs"), although
complaints about predatory pricing in MDUs still may be made to the FCC.



                                      I-18
<PAGE>   20
         Cable Entry Into Telecommunications. The 1996 Telecom Act provides that
no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way.
Although the 1996 Telecom Act clarifies that traditional cable franchise fees
may be based only on revenues related to the provision of cable television
services, it also provides that LFAs may require reasonable, competitively
neutral compensation for management of the public rights-of-way when cable
operators provide telecommunications service. The 1996 Telecom Act prohibits
LFAs from requiring cable operators to provide telecommunications service or
facilities as a condition of a franchise grant, renewal or transfer, except that
LFAs argue they can seek "institutional networks" as part of such franchise
negotiations. The favorable pole attachment rates afforded cable operators under
federal law can be increased by utility companies owning the poles during a five
year phase-in period beginning in 2001, if the cable operator provides
telecommunications service, as well as cable service, over its plant.

         Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act intended to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. This requires, for
example, that the incumbent local telephone company must allow new competing
telecommunications providers to connect to the local telephone distribution
system. In a January 1999 decision, the United States Supreme Court upheld the
FCC's fundamental interconnection requirements. However, the court ordered the
FCC to reconsider to what extent the local telephone company must make available
for resale separate components of its local telephone system.

         Telephone Company Entry Into Cable Television. The 1996 Telecom Act
allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable company cross-ownership ban and the FCC's
video dialtone regulations. This will allow LECs, including the RBOCs, to
compete with cable operators both inside and outside their telephone service
areas. Because of their resources, LECs could be formidable competitors to
traditional cable operators, and certain LECs have begun offering cable service.

         Under the 1996 Telecom Act, a LEC or other entity providing video
programming to customers will be regulated as a traditional cable operator
(subject to local franchising and federal regulatory requirements), unless it
elects to provide its programming via an "open video system" ("OVS"). It was
anticipated that the primary benefit of using an OVS regulatory model was to
avoid the need to obtain a local franchise prior to providing services. However,
a January 1999 federal court of appeals decision held that OVS providers can be
required to obtain such a franchise. To be eligible for OVS status, the provider
cannot occupy more than one-third of the system's activated channels when demand
for channels exceeds supply. Nor can it discriminate among programmers or
establish unreasonable rates, terms or conditions for service.

         Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibitions remain on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable systems,
cable operator buyouts of co-located LEC systems, and joint ventures among cable
operators and LECs in the same market. The 1996 Telecom Act provides a few
limited exceptions to this buyout prohibition.



                                      I-19
<PAGE>   21

         Electric Utility Entry Into Telecommunications/Cable Television. The
1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services, information services, and
other services or products subject to the jurisdiction of the FCC,
notwithstanding the Public Utilities Holding Company Act. Electric utilities
must establish separate subsidiaries, known as "exempt telecommunications
companies" and must apply to the FCC for operating authority. Again, because of
their resources, electric utilities could be formidable competitors to
traditional cable systems.

         Additional Ownership Restrictions. Pursuant to the 1992 Cable Act, the
FCC adopted regulations establishing a 30% limit on the number of homes
nationwide that a cable operator may reach through cable systems in which it
holds an attributable interest with an increase to 35% if the additional cable
systems are minority controlled. The FCC stayed the effectiveness of its
ownership limits pending the appeal of a September 16, 1993 decision by the
United States District Court for the District of Columbia which, among other
things, found unconstitutional the provision of the 1992 Cable Act requiring the
FCC to establish such ownership limits. If the ownership limits are determined
on appeal to be constitutional, they may affect TCI Group's ability to acquire
attributable interests in additional cable systems. The FCC is currently
conducting a reconsideration of its national customer limit rules, and it is
possible the FCC will revise both the national customer reach percentage
limitation and/or the manner in which it attributes ownership to a cable
operator. Either of these revisions, which are expected to be completed in 1999,
could adversely affect various joint ventures, partnerships and equity ownership
arrangements announced by TCI Group in 1997 and 1998 in TCI Group's effort to
reduce the number of cable systems over which it has control and management
responsibility.

         The FCC also adopted regulations limiting carriage by a cable operator
of national programming services in which that operator holds an attributable
interest (using the same attribution standards as were adopted for its limits on
the number of homes nationwide that a cable operator may reach through its cable
systems) to 40% of the activated channels on each of the cable operator's
systems. The rules provide for the use of two additional channels or a 45%
limit, whichever is greater, provided that the additional channels carry
minority controlled programming services. The regulations also grandfather
existing carriage arrangements which exceed the channel limits, but require new
channel capacity to be devoted to unaffiliated programming services until the
system achieves compliance with the regulations. These channel occupancy limits
apply only up to 75 activated channels on the cable system, and the rules do not
apply to local or regional programming services.

         The 1996 Telecom Act eliminates statutory restrictions on
broadcast/cable cross-ownership (including broadcast network/cable
restrictions), but leaves in place existing FCC regulations prohibiting local
cross-ownership between television stations and cable systems. The 1996 Telecom
Act leaves in place existing restrictions on cable cross-ownership with SMATV
and MMDS facilities, but lifts those restrictions where the cable operator is
subject to effective competition. In January 1995, however, the FCC adopted
regulations which permit cable operators to own and operate SMATV systems within
their franchise area, provided that such operation is consistent with local
cable franchise requirements.



                                      I-20
<PAGE>   22

         Must Carry/Retransmission Consent. The 1992 Cable Act contains
broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect must carry, and more popular
stations typically elect retransmission consent. Must carry requests can dilute
the appeal of a cable system's programming offerings, and retransmission consent
demands may require substantial payments or other concessions (e.g. a
requirement that the cable system also carry the local broadcaster's affiliated
cable programming service). Either option has a potentially adverse effect on
TCI Group's business. The burden associated with must-carry obligations could
dramatically increase if television broadcast stations proceed with planned
conversions to digital transmissions and if the FCC determines in a pending
rulemaking that cable systems must carry all analog and digital signals
transmitted by the television stations. For more information see "LIBERTY MEDIA
GROUP - Regulation - Programming Companies" and " - Regulation of Carriage of
Broadcast Stations," below.

         Access Channels. LFAs can include franchise provisions requiring cable
operators to set aside certain channels for PEG access programming. Federal law
also requires a cable system with 36 or more channels to designate a portion of
its activated channel capacity (either 10% or 15%) for commercial leased access
by unaffiliated third parties. The FCC has adopted rules regulating the terms,
conditions and maximum rates a cable operator may charge for use of this
designated channel capacity, but use of commercial leased access channels has
been relatively limited. In February of 1997, the FCC released revised rules
which mandated a modest rate reduction that has made commercial leased access a
more attractive option for third party programmers, particularly for part-time
leased access carriage.

         "Anti-Buy Through" Provisions. Federal law requires each cable system
to permit customers to purchase premium or pay-per-view video programming
offered by the operator 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 system's lack of addressable converter boxes or other
technological limitations does not permit it to do so. The statutory exemption
for cable systems that do not have the technological capability to comply
expires in October 2002, but the FCC may extend that period if deemed necessary.

         Access to Programming. To spur the development of independent cable
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes satellite video programmers affiliated with cable
operators from favoring cable operators over competing multichannel video
programming distributors (such as DBS and MMDS distributors). This provision
limits the ability of vertically integrated satellite cable programmers to offer
exclusive programming arrangements to TCI Group. Recently, both Congress and the
FCC have considered proposals that would expand the program access rights of
cable's competitors, including the possibility of subjecting both terrestrially
delivered video programming and video programmers who are not affiliated with
cable operators to all program access requirements. For more information see
"LIBERTY MEDIA GROUP - Regulation of Program Licensing," below.



                                      I-21
<PAGE>   23

         Inside Wiring. In a 1997 Order, the FCC established rules that require
an incumbent cable operator upon expiration or termination of an MDU service
contract to sell, abandon, or remove "home run" wiring that was installed by the
cable operator in a MDU building. These inside wiring rules will assist building
owners in their attempts to replace existing cable operators with new video
programming providers who are willing to pay the building owner a higher fee.
Additionally, the FCC has proposed abrogating all exclusive MDU contracts held
by cable operators, but at the same time allowing competitors to cable to enter
into exclusive MDU service contracts.

         Internet Service Regulation. Although there is no significant federal
regulation of cable system delivery of internet services at the current time,
and the FCC recently issued a report to Congress finding no immediate need to
impose such regulation, this situation may change as cable systems expand their
broadband delivery of internet services. In particular, proposals have been
advanced at the FCC that would require cable operators to provide access to
unaffiliated internet service providers and online service providers. Certain
internet service providers also are attempting to use existing commercial leased
access provisions of the 1996 Telecom Act to gain access to cable system
delivery. Finally, some local franchising authorities are considering the
imposition of mandatory internet access requirements as part of cable franchise
renewals or transfer approvals.

         Other FCC Regulations. In addition to the FCC regulations noted above,
there are other FCC regulations covering such areas as equal employment
opportunity, customer privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. FCC requirements
imposed in 1997 for Emergency Alert Systems and for hearing-impaired Closed
Captioning on programming will result in new and potentially significant costs
for TCI Group. The FCC has the authority to enforce its 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 used in connection
with cable operations.

         The FCC recently completed a rulemaking designed to encourage and
facilitate third-party sale of cable converters to cable customers.
Specifically, the FCC requires cable operators to segregate security functions
of set top boxes from all other functions by July 1, 2000. Additionally, as of
January 1, 2005, cable operators can no longer lease or sell converter set top
boxes that have integrated security and navigation functions. The result of this
rulemaking is that cable subscribers will not necessarily obtain their set top
boxes from the cable operator, but, instead, may purchase such set top boxes
from third-party vendors. Such third-party sales of previously unmodified cable
set top boxes could make it more difficult for cable operators to combat theft
of service.



                                      I-22
<PAGE>   24

         Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenue to a federal copyright royalty pool (such percentage varies depending on
the size of the system and the number of distant broadcast television signals
carried), cable operators can obtain blanket permission to retransmit
copyrighted material on broadcast signals. The possible modification or
elimination of this compulsory copyright license is subject to continuing review
and could adversely affect TCI Group's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to
Broadcast Music, Inc. and is negotiating a similar arrangement with the American
Society of Composers, Authors and Publishers. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations. For
more information, see discussion under "LIBERTY MEDIA GROUP - Copyright
Regulations," below.

         State and Local Regulation. Cable television systems generally are
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity. The 1996 Telecom Act clarified that the need
for an entity providing cable services to obtain a local franchise depends
solely on whether the entity crosses public rights of way. Federal law now
prohibits franchise authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable
system's service area. Cable franchises generally are granted for fixed terms
and in many cases are terminable if the franchisee fails to comply with material
provisions. Non-compliance by the cable operator with franchise provisions may
also result in monetary penalties.

         The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of
the system's gross revenue, cannot dictate the particular technology used by the
system, and cannot specify video programming other than identifying broad
categories of programming.

         Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees and funding for PEG channels as a condition of renewal.
Similarly, if a franchise authority's consent is required for the purchase or
sale of a cable system or franchise, such authority may attempt to impose more
burdensome or onerous franchise requirements in connection with a request for
consent. Historically, franchises have been renewed for cable operators that
have provided satisfactory services and have complied with the terms of their
franchises.

         Proposed Changes in Regulation. The regulation of cable television
systems at the federal, state and local levels is subject to the political
process and has been in constant flux over the past decade. Material changes in
the law and regulatory requirements must be anticipated and there can be no
assurance that TCI Group's business will not be affected adversely by future
legislation, new regulation or deregulation.



                                      I-23
<PAGE>   25

LIBERTY MEDIA GROUP

         On March 9, 1999, TCI combined the businesses and assets of Liberty
Media Group and of TCI Ventures Group in conjunction with the AT&T Merger.
Subsequent to the AT&T Merger, TCI does not have a controlling financial
interest in Liberty/Ventures Group and accordingly TCI will de-consolidate
Liberty/Ventures Group and will account for its investment in Liberty/Media
Group under the equity method. For more information, see "Business - General
Development of Business." The following information about Liberty Media Group is
dated as of March 1, 1999 and does not reflect the effects of the
Liberty/Ventures Combination.

         Liberty Media Group, through Liberty Media Corporation, and its
attributed subsidiaries and affiliates, produces, acquires and distributes
entertainment, sports and informational programming services, as well as
electronic retailing services. Such programming is delivered via cable
television and other distribution technologies to viewers in the United States
and overseas. Liberty Media Group's assets also include video and telephony
distribution businesses which operate in countries outside the United States.
Liberty Media Group's principal assets include interests in Encore Media Group
LLC ("EMG"), Discovery Communications, Inc., ("Discovery") Fox/Liberty regional
and national sports networks, Time Warner Inc. ("Time Warner"), QVC, Inc.
("QVC"), and USA Networks, Inc. Liberty Media Group also has interests in
certain other domestic and international programming networks and businesses as
indicated on the table below. This table sets forth Liberty Media Group's
attributed programming interests which are held directly and indirectly through
partnerships, joint ventures, common stock investments and instruments
convertible or exchangeable into common stock. Ownership percentages in the
table are approximate, calculated as of March 1, 1999 and, where applicable and
except as otherwise noted, assume conversion to common equity by Liberty Media
Group and, to the extent known by Liberty Media Group, other holders. In some
cases, Liberty Media Group's interest may be subject to buy/sell procedures,
repurchase rights or, under certain circumstances, dilution.



                                      I-24
<PAGE>   26


<TABLE>
<CAPTION>
                                                                                                    ATTRIBUTED
                                                           SUBSCRIBERS AT                            OWNERSHIP
                                                              12/31/98             YEAR              INTEREST AT
                     ENTITY                                    (000's)           LAUNCHED              3/1/99
                     ------                                    -------           --------              ------

<S>                        <C>                                     <C>              <C>                 <C>
                                          ENTERTAINMENT AND INFORMATION

  Encore Media Group LLC                                                                               100%
     Encore                                                     12,671              1991
     MOVIEplex                                                   7,473              1995
     Thematic Multiplex (aggregate units)                       17,854              1994
          Love Stories
          Westerns
          Mystery
          Action
          True Stories
          WAM! Americas Kidz Network
          STARZ!                                                 8,779              1994
          STARZ!2                                                4,386              1996
          BET Movies/STARZ!3                                       359              1997                88%
  ACTV, Inc. (Nasdaq: IATV)                                        N/A                                   8%
  Bay TV                                                                            1994                49%
  BET Holdings II, Inc.                                                                                 35%
     BET Cable Network                                          56,002              1980
     BET Action Pay-Per-View                                    10,800(1)           1990
     BET on Jazz                                                 4,000              1996
  Canales n                                                           (2)           1998               100%
  Court TV                                                      31,432              1991                50%
  Discovery Communications, Inc.                                                                        49%
     Discovery Channel                                          75,481              1985
     The Learning Channel                                       67,749              1980
     Discovery Travel Channel                                   21,355              1987                35%
     Animal Planet                                              44,839              1996                40%
     Animal Planet Asia                                            353              1998                25%
     Animal Planet Europe                                        6,748              1998
     Animal Planet Latin America                                 3,342              1998                25%
     Discovery People                                            8,900
     Discovery Science                                                (2)           1996
     Discovery Civilization                                           (2)           1996
     Discovery Travel & Living                                        (2)           1996
     Discovery Kids                                                   (2)           1996
     Discovery Health                                                 (2)           1998
     Discovery Wings                                                  (2)           1998
     Discovery Asia                                             23,207              1994
     Discovery India                                             9,500              1996
     Discovery Japan                                               840              1996                29%(3)
     Discovery Europe                                           16,882              1989
     Discovery Germany                                             284              1996                25%
     Discovery Italy/Africa                                        736              1996
     Discovery Latin America                                    10,146              1996
     Discovery Latin America Kids Network                        6,163              1996
     People & Arts (Latin America)                               7,622              1995                25%
     Discovery Channel Online                                   Online              1995
</TABLE>



                                      I-25
<PAGE>   27

<TABLE>
<CAPTION>
                                                                                                    ATTRIBUTED
                                                           SUBSCRIBERS AT                            OWNERSHIP
                                                              12/31/98             YEAR              INTEREST AT
                     ENTITY                                    (000's)           LAUNCHED              3/1/99
                     ------                                    -------           --------              ------

<S>                        <C>                                     <C>              <C>                 <C>

                    ENTERTAINMENT AND INFORMATION (Continued)

  E! Entertainment Television                                   53,707              1990                10%
  Fox Kids Worldwide, Inc.                                                                                  (4)
  Health TV                                                         20              1997               100%
     Kaleidoscope                                                8,141              1995                12%
     Recovery Net                                               Online              1997                50%
  International Channel                                          7,778              1990                90%
  MacNeil/Lehrer Productions                                       N/A               N/A                67%
  Odyssey                                                       28,700              1988                33%
  TCI Music, Inc. (Nasdaq: TUNE/TUNEP)
        Digital Music Express                                    4,234(5)           1991                86%
        THE BOX                                                 31,689              1985
        THE BOX SET                                                771              1997
        THE BOX--International Services                         25,707
     SonicNet                                                   Online              1997
     Addicted to Noise                                          Online              1997
     Streamland                                                 Online              1997
  Telemundo Network                                                    (6)                              50%
  Telemundo Station Group                                              (7)                              25%
  Time Warner Inc. (NYSE: TWX)                                                                           9%
     Time Warner/Turner Programming Services(8)

  USA Networks, Inc. (Nasdaq: USAI)                                                                     21% (9)
     HSN                                                        69,325 (10)         1985
     America's Store                                             9,500 (10)         1986
     ISN                                                        Online              1995
     HSN en Espanol                                              2,500              1998                11%
     HOT (Germany)                                              16,100              1995                 9%
     Shop Channel (Japan)                                        4,375              1996                11% (11)
     SciFi Channel                                              52,551              1992
     USA Network                                                75,115              1980
     Ticketmaster                                                 N/A
     Studios USA                                                  N/A
     USA Broadcasting                                           37,025 (12)         1986
  TV Guide, Inc. (f/k/a United Video Satellite
     Group, Inc.)
     (Nasdaq: TVGIA)                                               N/A                                  17% (13)
     TV Guide Channel                                           49,211              1988
     Sneak Prevue                                               34,983              1991
     TV Guide Magazine
     TV Guide Online                                            Online
     Superstar/Netlink Group LLC                                 1,155               N/A                35%
     UVTV                                                       54,869 (14)
</TABLE>



                                      I-26
<PAGE>   28

<TABLE>
<CAPTION>
                                                                                                    ATTRIBUTED
                                                           SUBSCRIBERS AT                            OWNERSHIP
                                                              12/31/98             YEAR              INTEREST AT
                     ENTITY                                    (000's)           LAUNCHED              3/1/99
                     ------                                    -------           --------              ------

<S>                        <C>                                     <C>              <C>                 <C>
  QVC, Inc.                                                                                             43%
     QVC Network                                                64,201              1986
     QVC-The Shopping Channel (UK)                               7,050              1993
     QVC-Germany                                                12,797              1996
     iQVC                                                       Online              1995

                                 SPORTS SERVICES
  Regional Sports Networks
     Fox Sports Arizona                                          1,112              1996                50%
     Fox Sports Bay Area                                         2,824              1990                35%
     Fox Sports Chicago                                          3,125              1984                35%
     Fox Sports Cincinnati                                       2,447              1989                20%
     Fox Sports Detroit                                          2,315              1984                50%
     Fox Sports Intermountain West                                 624              1990                50%
     Fox Sports Midwest                                          1,528              1989                50%
     Fox Sports New England                                      3,060              1984                20%
     Fox Sports New York                                         4,315              1982                19%
     Fox Sports Northwest                                        2,146              1988                50%
     Fox Sports Ohio                                             2,082              1989                20%
     Fox Sports Pittsburgh                                       2,009              1985                50%
     Fox Sports Rocky Mountain                                   2,060              1988                50%
     Fox Sports South                                            6,274              1990                44%
     Fox Sports Southwest                                        5,081              1983                50%
     Fox Sports West                                             4,034              1985                50%
     Fox Sports West 2                                           2,467              1997                50%
     Home Team Sports                                            4,000              1984                17%
     MSG Network                                                 6,789              1969                19%
     SportsChannel Florida                                       2,964              1993                 6%
     Sunshine Network                                            3,848              1988                27%
     Metro Learning                                              2,082              1998                20%
     Metro Guide                                                 2,082              1998                20%
     Metro Traffic                                               2,082              1998                20%
  National Sports Networks
     FiT TV                                                      8,300              1993                45%
     Fox Sports World Espanol (US)                               2,270              1993                29% (15)
     Fox Sports Direct                                           4,366              1989                50%
     Fox Sports Net                                             62,034              1996                25%
     FX                                                         38,101              1994                50%
     Outdoor Life                                               16,976              1995                17%
     Speedvision                                                17,122              1995                17%
  International Sports Programming
     Fox Sports Americas (Latin America)                         8,865              1995                29% (15)
     Fox Sports World                                            1,712              1997                29% (15)
     Fox Sports Middle East                                         96              1998                29% (15)
</TABLE>



                                      I-27
<PAGE>   29

<TABLE>
<CAPTION>
                                                                                                    ATTRIBUTED
                                                           SUBSCRIBERS AT                            OWNERSHIP
                                                              12/31/98             YEAR              INTEREST AT
                     ENTITY                                    (000's)           LAUNCHED              3/1/99
                     ------                                    -------           --------              ------

<S>                        <C>                                     <C>              <C>                 <C>
                           SPORTS SERVICES (Continued)

     STAR TV(16)                                               220,000 (16)                              4% (17)
     Torneos y Competencias, SA. (Argentina)                       N/A                                  23% (17)
     J-Sports (Japan)                                              N/A              1998                39% (18)
  Other
     New York Knicks                                                                                    19%
     New York Rangers                                                                                   19%
     Madison Square Garden Arena                                                                        19%
     Radio City Music Hall                                                                              19%
     Pepsi Center                                                                                        7%
     Colorado Avalanche                                                                                  7% (19)
     Denver Nuggets                                                                                      7% (19)
     Staples Center                                                                                     20%

                                    INTERNATIONAL PROGRAMMING, CABLE & TELEPHONY

     Tele-Communications International, Inc.
                                                                   N/A              N/A                 15% (20)
</TABLE>

----------

(1)      Number of subscribers to whom service is available.

(2)      Digital services. Subscriber information not currently available.

(3)      Jupiter Programming Co., Ltd. ("Jupiter Programming"), of which TINTA
         owns 50%, has a 50% interest in Discovery Japan.

(4)      Liberty's interest consists of shares of 30-year 9% preferred stock
         which have a stated aggregate value of $345 million and are not
         convertible into common stock.

(5)      Includes residential and commercial addressable digital cable and
         direct broadcast satellite subscribers.

(6)      Telemundo Network is a 24-hour broadcast network serving 61 markets in
         the United States, including the 37 largest Hispanic markets.



                                      I-28
<PAGE>   30

(7)      Telemundo Station Group, Inc. owns and operates seven full power
         broadcast stations serving the seven largest Hispanic markets in the
         United States.

(8)      Includes CNN, Cartoon Network, Headline News, TNT, Turner Classic
         Movies, TBS Superstation, CNNfn, CNN/SI, CNN International, TNT Latin
         America, Cartoon Network Latin America, TNT & Cartoon Network Europe,
         TNT and Cartoon Network Asia, HBO, Cinemax, Comedy Central, HBO Ole,
         HBO Asia, TVKO and WB Television Network. Following consummation of the
         Time Warner/Turner Broadcasting System, Inc. ("TBS") merger (the
         "TBS/Time Warner Merger") on October 10, 1996, Liberty Media Group is
         no longer reporting subscriber numbers for these programming services.

(9)      Liberty Media Group owns direct and indirect interests in various USA
         Networks, Inc. ("USAi") and Home Shopping Network, Inc. ("HSN")
         securities which may be exchanged for USAi common stock. Assuming the
         exchange of such securities and the exchange of certain securities
         owned by Universal Studios, Inc. and certain of its affiliates for USAi
         common stock, Liberty Media Group would own approximately 21% of USAi.

(10)     Includes broadcast households and cable subscribers.

(11)     Jupiter Programming holds a 70% interest in Shop Channel.

(12)     Number of television households in areas of USA Broadcasting's owned
         and operated broadcast stations.

(13)     The TCI Ventures Group owns an approximate 27% equity interest and a
         32% voting interest in TV Guide, Inc.

(14)     Aggregate number of subscribers to WGN, KTLA and WPIX, three
         "Superstations" and 6 Denver broadcast stations marketed and
         distributed by UVTV.

(15)     Held by a 50/50 joint venture between News Corp. and a 50/50 joint
         venture between Liberty Media Group and TINTA ("Liberty/TINTA").

(16)     "STAR TV" is a satellite-delivered television platform. Programming
         services on STAR TV'S platform include STAR Sports, STAR Plus, Phoenix
         Chinese Channel, STAR Movies and ZEE TV, among others. STAR TV reaches
         approximately 220 million people in Asia, India and the Middle East.

(17)     Held by Liberty/TINTA. The ownership interest in the table reflects
         only the attributed interest of Liberty Media Group.

(18)     The remaining interest is held by Jupiter Programming.

(19)     Interests represent rights to receive payments equal to approximately
         6.5% of distributions by, and approximately 6.5% of proceeds from the
         sale of, the entities owning the Colorado Avalanche and the Denver
         Nuggets, rather than ownership interests in those entities.

(20)     The remaining interest in TINTA is attributed to the TCI Ventures
         Group.



                                      I-29
<PAGE>   31

         Cable television networks distribute their programming via cable and
other distribution technologies, including DTH companies, broadcast television
stations, SMATV systems, MMDS, and the internet. Both basic cable networks and
pay television programming services generally enter into separate multi-year
agreements, known as "affiliation agreements," with operators of cable
television systems, SMATV systems, MMDS and DTH distribution companies that have
agreed to carry such networks. With the proliferation of new cable networks and
services, competition for cable carriage on the limited available channel
capacity has intensified. Basic cable networks generate their revenue
principally from the sale of advertising time on the networks and from receipt
of monthly per subscriber fees paid by cable operators, DTH distribution
companies and other customers, who have contracted to receive and distribute
such networks. Pay-TV networks do not sell advertising and generate their
revenue principally from monthly subscriber fees.

         Relationship with TCI Group. Most of the networks affiliated with
Liberty Media Group have entered into affiliation agreements with Satellite
Services, Inc. ("SSI") a company within TCI Group. SSI purchases programming
services from programming suppliers and then makes such services available to
cable television systems owned by or affiliated with TCI Group ("SSI
Affiliates"). Customers served by SSI Affiliates ("SSI Subscribers") represented
approximately 24% of U.S. households which received cable or satellite delivered
programming at December 31, 1998. The following details each national network
which had a number of SSI Subscribers, as a percentage of total subscribers, in
excess of 24% as of December 31, 1998: FX (28%), Fox Sports World (64%), Fox
Sports World Espanol (35%), and International Channel (26%). Regional networks,
such as Bay TV and the regional sports networks may be disproportionately
dependent on the predominant cable provider in their region, whether an SSI
Affiliate or an unaffiliated cable operator. Therefore, where an SSI Affiliate
is the predominant cable provider in the region, the ratio of SSI Subscribers to
overall subscribers to such networks significantly exceeds 24%. For example, at
December 31, 1998, approximately 87% of the subscribers of Bay TV, a regional
network for the San Francisco region, were SSI Affiliates. Each of EMG and TCI
Music, Inc. ("TCI Music") has entered into long term, fixed rate affiliation
agreements with TCI Group pursuant to which TCI Group pays monthly fixed amounts
in exchange for unlimited access to certain programming services of such
companies. For the year ended December 31, 1998, such fixed rate affiliation
fees represented approximately 41% and 24% of the total revenues of EMG and TCI
Music, respectively.

Description of Liberty Media Group 

         The principal assets attributed to Liberty Media Group are described in
greater detail below.

   Programming Services

         Encore Media Group LLC. EMG provides 25 channels of cable and
satellite-delivered premium movie services, including Encore, which
predominantly airs hit movies from the `60's, `70's and `80's as well as first
run movies; six thematic multiplexed channels--Love Stories, Westerns, Mystery,
Action, True Stories and WAM!, a 24-hour youth oriented education and
entertainment service; STARZ! a first-run movie service; STARZ!2, offering
"prime time movies all the time," and BET Movies/STARZ!3 featuring African
American actors and directors. EMG also offers MOVIEplex, a "theme by day"
channel featuring a different Encore or thematic multiplex channel each day, on
a weekly rotation.



                                      I-30
<PAGE>   32

         Discovery Communications, Inc. Discovery is the largest originator of
documentary, non-fiction programming in the world. Discovery operates several
business units. The first of these, Discovery Networks, US, consists of four
basic cable networks: Discovery Channel, The Learning Channel, Animal Planet,
and the recently acquired Travel Channel, and six networks created for the
digital platform: Discovery Science, Discovery Civilization, Discovery Home &
Leisure, Discovery Kids, Discovery Health and Discovery Wings. Discovery Channel
and The Learning Channel provide nature, science, technology and other
non-fiction programming, and are distributed in virtually all U.S.
pay-television homes. Animal Planet offers a range of animal programming,
including children's programs, game shows, feature films, wildlife documentaries
and how-to pet shows.

         Discovery Networks International distributes various Discovery networks
in Latin America, Europe, Asia and Africa. Discovery's international networks
serve more than 66 million customers in more than 50 countries outside the
United States. Discovery Retail operates over 115 retail stores in the United
States and the United Kingdom. These include The Nature Company stores,
Discovery Channel Stores and one Discovery Channel Destination flagship store.
Discovery also markets and distributes BBC America, which launched in March
1998. Discovery recently purchased Eye on People, a 24-hour cable channel
focused on people and personalities, from CBS Corporation.

         Time Warner Inc. Time Warner has interests in four fundamental areas of
business: Entertainment, consisting primarily of interests in filmed
entertainment, television production, television broadcasting, recorded music
and music publishing; Cable Networks, consisting principally of interests in
cable television programming; Publishing, consisting principally of interests in
magazine publishing, book publishing and direct marketing; and Cable, consisting
principally of interests in cable television systems. Time Warner is a holding
company which derives its operating income and cash flow from its investments in
its direct subsidiaries, Time Warner Companies, Inc. and TBS.

         In connection with the TBS/Time Warner Merger in which Liberty Media
Group received Time Warner common shares, Time Warner, TBS, TCI and Liberty
Media Group entered into an Agreement Containing Consent Order with the Federal
Trade Commission ("FTC"), dated August 14, 1996, as amended on September 4, 1996
(the "FTC Consent Decree"). Pursuant to the FTC Consent Decree, among other
things, Liberty Media Group agreed to exchange its shares of Time Warner common
stock for shares of a separate series of Time Warner common stock with limited
voting rights designated as Series LMCN-V common stock (the "TW Exchange
Stock"). The TW Exchange Stock entitles the holder to one one-hundredth
(1/100th) of a vote for each share with respect to the election of directors.
Liberty Media Group holds approximately 114 million shares of the TW Exchange
Stock, which represent less than 1% of the voting power of Time Warner's
outstanding common stock. Each share of TW Exchange Stock is exchangeable, under
certain circumstances, for one share of Time Warner common stock.

         ACTV, Inc. On September 21, 1998 Liberty Media Group purchased a 7.5%
interest in ACTV, Inc., a company which produces tools for the creation of
programming that allows viewer participation for both television and internet
platforms.



                                      I-31
<PAGE>   33

         BET Holdings II, Inc. ("BET") BET's primary operations are conducted by
BET Cable Network, an advertiser-supported basic cable network which provides a
broad mix of music videos, off-network situation comedies and original
programming targeted to the interests and concerns of African-American viewers.
BET also operates BET on Jazz featuring jazz concerts and music videos, as well
as BET Action Pay-Per-View, which distributes films produced by major studios
and independent film companies. In addition, BET has interests in magazine and
book publishing, as well as motion picture production.

         Court TV. Court TV is a basic cable network which provides live and/or
tape delayed coverage and analysis of selected criminal and civil legal
proceedings.

         TCI Music, Inc. TCI Music is a diversified music entertainment company
delivering audio and video music services to commercial and residential
customers via television, the internet and other distribution technologies. TCI
Music's principal services include THE BOX, an interactive all music video
channel; Digital Music Express, a premium digital audio music service; and
SonicNet, a leading music site on the internet.

         E! Entertainment Television. E! Entertainment Television is a 24-hour
basic cable network devoted to the world of celebrities and entertainment. The
network's programming mix includes entertainment news reports, original
programs, and exclusive live coverage of major awards shows and celebrity
events.

         International Cable Channels Partnership, Ltd. ("ICCP") ICCP
distributes and markets ethnic programming in the United States. Its basic
network, International Channel, provides news, sports, music, movies and general
entertainment programming from around the world in more than 20 different
languages. ICCP also operates Premium Networks, a digital tier of
single-language channels, such as Chinese and French. In addition, ICCP markets
and distributes Canales n, a newly launched digital tier of Spanish-language
cable television channels designed to serve the growing Latino market in the
United States.

         Odyssey. Odyssey, a national basic cable network, provides viewers with
non-denominational religious and values-based entertainment and informational
programming. Hallmark Entertainment and The Jim Henson Company, both leaders in
the production of family entertainment, recently invested in Odyssey, reducing
Liberty Media Group's ownership interest from 49% to approximately 33%. Both
Hallmark Entertainment and The Jim Henson Company will make their programming
available to Odyssey.

         MacNeil/Lehrer Productions. MacNeil/Lehrer Productions is the primary
producer of the News Hour on the Public Broadcasting System and a producer of
other high-quality documentary and public affairs programming.

         TV Guide, Inc. (formerly United Video Satellite Group, Inc.) is a media
and communications company engaged predominantly in providing print, passive and
interactive program listings guides to households, distributing superstation
programming to cable television systems and DTH satellite providers, and
marketing satellite delivered programming to C-band satellite dish owners.



                                      I-32
<PAGE>   34

         On March 1, 1999, UVSG acquired Liberty Media Group's 40% interest in
Superstar/Netlink Group LLC ("SNG"), and Liberty Media Group's 100% interest in
Netlink USA in exchange for 12,750,000 shares of UVSG Class B Common Stock (the
"Netlink Transaction"). As a result of the Netlink Transaction, UVSG owns
approximately 80% of SNG which markets packages of satellite entertainment
programming to C-band satellite dish owners in North America. Netlink USA
uplinks the signals of six broadcast television stations to C-band packagers
such as SNG.

         On the same date, UVSG acquired from TVG Holdings, Inc., an indirect
subsidiary of News Corp., the stock of News America Publications, Inc. and TVSM,
Inc. (the "TV Guide Transaction"). These entities publish TV Guide Magazine and
other printed television program listings guides and distribute, through the
internet, an entertainment service known as TV Guide Online. News Corp. received
consideration consisting of approximately 22.5 million shares of UVSG Class A
common stock, approximately 37.5 million shares of UVSG Class B common stock and
$800 million in cash. News Corp. then elected to purchase approximately 6.5
million additional shares of UVSG Class A Common Stock for approximately $129
million in cash to equalize its ownership with that of TCI.

         Upon closing of the foregoing transactions, UVSG's name was changed to
TV Guide, Inc. TCI and News Corp. each owned approximately 44% of the issued and
outstanding common stock of UVSG and each owned approximately 49% of the total
voting power of UVSG. TCI's entire interest in UVSG is attributed to Liberty
Media Group and TCI Ventures Group.

         USA Networks, Inc. USAi, formerly known as HSN, Inc., is a diversified
media and electronic commerce company that is engaged in five principal areas of
business: HSN, which primarily engages in the electronic retailing business;
Networks and television production, which operates the USA Network, a general
entertainment basic cable television network, and The Sci-Fi Channel, which
features classic science fiction movies, science fact, fiction, movies and
original production; Studios USA, which produces and distributes television
programming; USA Broadcasting, which owns and operates a group of UHF and low
power television stations; Ticketmaster Group, Inc., which is the leading
provider of automated ticketing services in the United States; and internet
services.

         Liberty Media Group's interest in USAi consists of shares of USAi
common stock held by Liberty Media Group and its subsidiaries, shares of USAi
common stock held by certain entities in which Liberty Media Group has an equity
interest but only limited voting rights, and securities of certain subsidiaries
of USAi which are exchangeable for shares of USAi common stock. In general,
until the occurrence of certain events and with the exception of certain
negative controls, Mr. Barry Diller has voting power over Liberty Media Group's
interest in USAi.

         Fox Sports Networks. In April 1996, Liberty Media Group and News Corp.,
formed Fox/Liberty Networks ("Fox Sports"), a joint venture to hold Liberty
Media Group's national and regional sports networks and the FX network. In
December 1997, Fox Sports completed a series of transactions (the "Rainbow
Transactions") with Rainbow Media Sports Holdings, Inc. ("Rainbow") in which Fox
Sports acquired a 40% interest in Rainbow's eight regional sports networks, the
Madison Square Garden entertainment complex, Radio City Productions LLC, the New
York Rangers, a professional hockey team, and the New York Knicks, a
professional basketball team. As of December 31, 1998, Fox Sports owned
interests in, or was affiliated with, 24 regional sports networks, 17 of which
operate under the Fox Sports name. These regional sports networks have rights to
telecast live games of professional sports teams in the National Basketball
Association, the National Hockey League and/or Major League Baseball, and
numerous collegiate sports teams.



                                      I-33
<PAGE>   35

         As part of the Rainbow Transaction, Fox Sports and Rainbow established
a 50-50 partnership to operate Fox Sports Net, which provides affiliated
regional sports networks, 24 hours per day, with national sports programming to
supplement their regional sports offerings. Fox Sports Net features live and
replayed sporting events, as well as other original sports programming,
including a national sports news program, Fox Sports News. Fox Sports and
Rainbow also established a national advertising representative firm to sell
advertising time during both the regional affiliates' local programming and
national network programming provided by Fox Sports Net.

         Fox Sports also operates several national networks in addition to Fox
Sports Net, including FX, a general entertainment network which also carries
various sporting events; FiT TV, which features health and fitness programming;
Speedvision, which provides coverage of the automotive, motorcycle, aviation and
marine industries; and Outdoor Life Network, which is devoted to adventure,
wildlife and environmental issues and the outdoor lifestyle.

         At the international level, Liberty Media Group and TINTA formed a
joint venture with News Corp. to hold their international sports interests.
These include Fox Sports World Espanol, a Spanish language sports network,
distributed in the United States and in Latin America, and STAR TV, a
satellite-delivered programming platform available to 220 million viewers in
Asia, India and the Middle East. Outside of the venture with News Corp., Liberty
Media Group and TINTA own an interest in J-Sports, a sports network in Japan
featuring coverage of SUMO wrestling, soccer, baseball and other international
sporting events; and Torneos y Competencias S.A. ("TyC"), Argentina's dominant
sports programming service. TyC also owns an interest in Canal 9, a general
entertainment broadcast channel in Buenos Aires, Argentina which has become an
international superchannel, providing programming to the United States and, via
cable, to outlying areas of Argentina.

         The sports programming networks typically enter into rights agreements
with one or more professional sports teams in their regions and acquire rights
to collegiate and other sporting events through arrangements with regional
conferences, individual schools, programming syndicators and event organizers.
Fox Sports also acquires national rights agreements with professional leagues,
such as Major League Baseball, and with regional collegiate conferences.
Programming acquired under national rights agreements may be exhibited on Fox
Sports Net and FX in addition to the regional sports networks. The duration of
the rights agreements with the professional teams ranges from one to 20 years.
The rights agreements for collegiate sporting events typically range from two to
10 years. Certain factors such as player strikes, bankruptcy of leagues or
individual teams or team relocations may have an adverse effect on the revenue
of the regional sports networks.

         Telemundo. On August 12, 1998, Liberty Media Group, in a 50-50
partnership with Sony Pictures Entertainment, acquired 100% of the Telemundo
network and approximately 50% of the Telemundo station group. The Telemundo
network is a broadcast network which provides 24-hour Hispanic language
programming to 61 markets in the United States, including the 37 largest
Hispanic markets, and reaches approximately 85% of all Hispanic households in
the United States. The Telemundo station group owns and operates eight full
power UHF stations and 15 low power television stations serving some of the
largest Hispanic markets in the United States and Puerto Rico. While Liberty
Media Group has approximately a 25% interest in the Telemundo station group, its
voting power is less than 5% to meet certain regulatory requirements.



                                      I-34
<PAGE>   36

         Electronic Retailing. Liberty Media Group has significant investments
in the two largest home shopping companies in the United States--QVC and HSN.
These companies market and sell a wide variety of consumer products and services
primarily by means of televised shopping programs on the QVC and HSN networks
and via the Internet through iQVC and Internet Shopping Network. QVC also
operates shopping networks in the United Kingdom and Germany, while HSN operates
home shopping networks in Japan and Germany.

         TINTA. On November 19, 1998 TINTA completed its merger with a wholly
owned subsidiary of TCI and, as a result, TCI now owns 100% of TINTA. Prior to
the TINTA Merger TCI Ventures Group owned approximately 83% of TINTA's Series A
common stock and all of TINTA's Series B common stock. Following the TINTA
Merger, approximately 85% of TINTA was attributed to TCI Ventures Group and 15%
was attributed to Liberty Media Group. See "TCI VENTURES GROUP Description of
TCI Ventures Group" for more details on the business of TINTA.

   Regulation-Programming Companies

         The FCC regulates the providers of satellite communications services
and facilities for the transmission of programming services, the cable
television systems that carry such services, and, to some extent, the
availability of the programming services themselves through its regulation of
program licensing. Cable television systems are also regulated by municipalities
or other state and local government authorities. Continued rate regulation or
other franchise conditions could place downward pressure on subscriber fees
earned by the programming companies described above in which Liberty Media Group
has interests (the "Programming Companies") and regulatory carriage requirements
could adversely affect the number of channels available to carry the Programming
Companies. For more information on rate regulation, see "TCI GROUP - Regulation
and Legislation" and " - Cable Rate Regulations," above.

         Regulation of Program Licensing. The 1992 Cable Act directed the FCC to
promulgate regulations regarding the sale and acquisition of cable programming
between multi-channel video programming distributors (including cable operators)
and satellite-delivered programming services in which a cable operator has an
attributable interest. The legislation and the implementing regulations adopted
by the FCC preclude virtually all exclusive programming contracts between cable
operators and satellite programmers affiliated with any cable operator (unless
the FCC first determines the contract serves the public interest) and generally
prohibit a cable operator that has an attributable interest in a satellite
programmer from improperly influencing the terms and conditions of sale to
unaffiliated multi-channel video programming distributors. Further, the 1992
Cable Act requires that such affiliated programmers make their programming
services available to cable operators and competing multi-channel video
programming distributors such as MMDS and direct broadcast satellite
distributors on terms and conditions that do not unfairly discriminate among
such distributors. The 1996 Telecom Act has extended these rules to programming
services in which telephone companies and other common carriers have
attributable ownership interests. The FCC recently revised its program licensing
rules, by implementing a damages remedy in situations where the defendant
knowingly violates the regulations and by establishing a timeline for the
resolution of such complaints, among other things.

         Regulation of Carriage of Programming. Under the 1996 Telecom Act, the
FCC has adopted regulations prohibiting cable operators from requiring a
financial interest in a programming service as a condition to carriage of such
service, coercing exclusive rights in a programming service or favoring
affiliated programmers so as to restrain unreasonably the ability of
unaffiliated programmers to compete.



                                      I-35
<PAGE>   37

         Regulation of Ownership. The 1992 Cable Act required the FCC, among
other things, (a) to prescribe rules and regulations establishing reasonable
limits on the number of channels on a cable system that will be allowed to carry
programming in which the owner of such cable system has an attributable interest
and (b) to consider the necessity and appropriateness of imposing limitations on
the degree to which multi-channel video programming distributors (including
cable operators) may engage in the creation or production of video programming.
In 1993, the FCC adopted regulations limiting carriage by a cable operator of
national programming services in which that operator holds an attributable
interest to 40% of the first 75 activated channels on each of the cable
operator's systems. The rules provide for the use of two additional channels or
a 45% limit, whichever is greater, provided that the additional channels carry
minority-controlled programming services. The regulations also grandfather
existing carriage arrangements that exceed the channel limits, but require new
channel capacity to be devoted to unaffiliated programming services until the
system achieves compliance with the regulations. These channel occupancy limits
apply only up to 75 activated channels on the cable system, and the rules do not
apply to local or regional programming services. These rules may limit carriage
of the Programming Companies on certain systems of affiliated cable operators.
In the same rulemaking, the FCC concluded that additional restrictions on the
ability of multi-channel distributors to engage in the creation or production of
video programming were then unwarranted.

         Regulation of Carriage of Broadcast Stations. The 1992 Cable Act
granted broadcasters a choice of must carry rights or retransmission consent
rights. The rules adopted by the FCC generally provided for mandatory carriage
by cable systems of all local full-power commercial television broadcast signals
selecting must carry rights and, depending on a cable system's channel capacity,
non-commercial television broadcast signals. Such statutorily mandated carriage
of broadcast stations coupled with the provisions of the 1984 Cable Act, which
require cable television systems with 36 or more "activated" channels to reserve
a percentage of such channels for commercial use by unaffiliated third parties
and permit franchise authorities to require the cable operator to provide
channel capacity, equipment and facilities for PEG access channels, could
adversely affect some or substantially all of the Programming Companies by
limiting the carriage of such services in cable systems with limited channel
capacity. The FCC recently initiated a proceeding asking to what extent cable
operators must carry all digital signals transmitted by broadcasters. The
imposition of such additional must carry regulation, in conjunction with the
current limited cable system channel capacity, would make it likely that cable
operators will be forced to drop cable programming services, which may have an
adverse impact on the Programming Companies' programming interests.

         Closed Captioning Regulation. The 1992 Cable Act also required the FCC
to establish rules and an implementation schedule to ensure that video
programming is fully accessible to the hearing impaired through closed
captioning. The rules adopted by the FCC will require substantial closed
captioning over an eight to 10 year phase-in period with only limited
exemptions. As a result, the Programming Companies are expected to incur
significant additional costs for closed captioning.



                                      I-36
<PAGE>   38

         Copyright Regulation. Under regulations adopted by the Copyright
Office, satellite carriers such as Netlink USA are not "cable systems" within
the meaning of the Copyright Revision Act of 1976 as amended. Accordingly,
satellite carriers are not permitted to provide superstation or network station
broadcast signals to home satellite dish owners under the separate compulsory
license extended to cable systems. Instead, Congress granted a statutory
copyright license to satellite carriers retransmitting the broadcast signals of
"superstations," such as KWGN and WGN, and of network stations to the public for
private home viewing under the Satellite Home Viewer Act of 1994 (the "SHV
Act"), which license is scheduled to expire on December 31, 1999. Although
bills, which, among other things, would extend the license granted under the SHV
Act, have been introduced in Congress, if the license is not further extended,
satellite carriers will be required to negotiate private licenses for the
retransmission of copyright material to home satellite dish owners after 1999.
Satellite carriers may only distribute the signals of network broadcast
stations, as distinguished from superstations, to "unserved households" that are
outside the Grade B contours of a primary station affiliated with such network.
The FCC released new rules on February 2, 1999 for determining whether
households are unserved. Netlink USA entered into an agreement with the National
Association of Broadcasters, the ABC, CBS, FOX and NBC networks, their affiliate
associations, and several hundred broadcast stations, effective May 1, 1998, to
identify by zip code those geographic areas which are "unserved" by network
affiliated stations. Depending upon the implementation of the agreement and such
identification, Netlink USA may be required, after expiration of a transition
period on August 31, 1999, to disconnect a substantial number of existing
subscribers. Under the SHV Act, satellite carriers must pay a monthly fee for
each subscriber. To the extent that satellite carriers transmit superstation or
network station signals to cable operators, such cable operators pay the
copyright fee under the separate compulsory license.

         Satellites and Uplink. In general, authorization from the FCC must be
obtained for the construction and operation of a communications satellite. The
FCC authorizes utilization of satellite orbital slots assigned to the United
States by the World Administrative Radio Conference. Such slots are finite in
number, thus limiting the number of carriers that can provide satellite
transponders and the number of transponders available for transmission of
programming services. At present, however, there are numerous competing
satellite service providers that make transponders available for video services
to the cable industry.

         Proposed Changes in Regulation. The regulation of programming services,
cable television systems, satellite carriers and television stations is subject
to the political process and has been in constant flux over the past decade.
Further material changes in the law and regulatory requirements must be
anticipated and there can be no assurance that Liberty Media Group's business
will not be affected adversely by future legislation, new regulation or
deregulation.

   Competition-Programming Companies

         The business of distributing programming for cable television is highly
competitive. The Programming Companies directly compete with other programming
services for distribution on a limited number of cable television channels and
on other distribution media. In addition to competition for cable distribution,
viewers and advertisers, the Programming Companies also compete, to varying
degrees, for programming content.

         HSN and QVC operate in direct competition with businesses which are
engaged in retail merchandising.




                                      I-37
<PAGE>   39

TCI VENTURES GROUP 

         On March 9, 1999, TCI combined the businesses and assets of Liberty
Media Group and of TCI Ventures Group in conjunction with the AT&T Merger.
Subsequent to the AT&T Merger, TCI does not have a controlling financial
interest in Liberty/Ventures Group and accordingly TCI will deconsolidate
Liberty/Ventures Group and will account for its investment in Liberty Media
Group under the equity method. For more information, see "Business - General
Development of Business". The following information about TCI Ventures Group is
dated as of March 1, 1999 and does not reflect the effects of the
Liberty/Ventures Combination.

         In connection with the AT&T Merger and immediately prior thereto,
certain of the assets attributed to TCI Ventures Group were transferred to TCI
Group in exchange for approximately $5.5 billion cash. The transferred assets
are identified in the table below with an asterisk.

         The assets attributed to TCI Ventures Group, the business unit created
in 1997, include interests in internet services; satellite communications; wired
and wireless domestic telephony; international cable, telephony and programming;
digital services; and other technology investments, listed in the table below.
Such assets are held directly and indirectly through partnerships, joint
ventures, common stock investments and instruments convertible or exchangeable
into common stock. In some cases, TCI Ventures Group's interest may be subject
to buy-sell procedures, repurchase rights, performance guarantees and other
restrictions. Ownership percentages in the table are approximate, calculated as
of March 1, 1999.

<TABLE>
<CAPTION>
                                                              Attributed
                      Company                                 Ownership(1)                  Business
---------------------------------------------------           ------------     ----------------------------------

                                                INTERNET SERVICES

<S>                                                           <C>              <C>
At Home Corporation*                                          39% equity       High-speed multimedia Internet
(Nasdaq: ATHM)                                                71% voting       services

Sportsline USA, Inc.                                              3%           Internet provider of branded
(Nasdaq: SPLN)                                                                 inter-active sports information,
                                                                               programming and merchandise

iVillage, Inc.                                                    4%           Developer and Internet and on-line
                                                                               provider of branded communications
                                                                               and information services for adult
                                                                               women

KPCB Java Fund, L.P.                                              5%           Investor in Java application
                                                                               development

                                       DIVERSIFIED SATELLITE COMMUNICATIONS

TV Guide, Inc. (f/k/a United Video Satellite Group,           27% equity       Satellite distribution of video,
Inc.)(Nasdaq: TVGIA)                                          32% voting       audio, data and program promotion
                                                                               services
</TABLE>



                                      I-38
<PAGE>   40

<TABLE>
<CAPTION>
                                                              Attributed
                      Company                                 Ownership (1)                 Business
---------------------------------------------------           -------------    ----------------------------------

                                                DOMESTIC TELEPHONY

<S>                                                      <C>                   <C>
Sprint PCS Group                                             22% equity (2)    Digital PCS under the "Sprint"
(NYSE: PCS)                                              less than 1% voting   brand name

Western Tele-Communications, Inc.*                               100%          Provider of microwave and
                                                                               wireline transport of
                                                                               telecommunications services

AT&T (NYSE: T)*                                                   3%           Telecommunications

                                  INTERNATIONAL CABLE, TELEPHONY AND PROGRAMMING

Tele-Communications International, Inc.                       85% equity       International cable, telephony and
                                                                               programming

                                                 DIGITAL SERVICES

National Digital Television Center,                              100%          Provider of television production,
Inc.*                                                                          digital compression, and
                                                                               transmission and authorization
                                                                               services to programmers, cable
                                                                               systems and other video
                                                                               distributors
                                                   OTHER ASSETS

Academic Systems Corporation                                      5%           Provider of higher education
                                                                               multimedia instruction manuals

Antec Corporation                                                19%           Manufacturer of products for
(NASDAQ/NM: ANTC)                                                              hybrid fiber/coaxial broadband
                                                                               networks

CSG Systems International, Inc.                                 5.5% (3)       Provider of processing software
(NYSE: CSG)                                                                    and other customer management
                                                                               services to video and data
                                                                               distributors

General Instrument Corporation                                   13% (4)       World-wide supplier of systems and
(NYSE: GIC)                                                                    equipment for high performance
                                                                               networks delivering video, voice
                                                                               and data/Internet services
</TABLE>



                                      I-39
<PAGE>   41

<TABLE>
<CAPTION>
                                                              Attributed
                      Company                                 Ownership (1)                 Business
---------------------------------------------------           -------------    ----------------------------------

<S>                                                           <C>              <C>
Intessera, Inc.                                                  100%          Provider of database management
                                                                               software

The Lightspan Partnership, Inc.                                   8%           Developer of educational
                                                                               programming

MCNS Holdings, L.P.                                              25%           Developer of multimedia
                                                                               communications network and
                                                                               associated technologies
</TABLE>

----------
(1)      Unless otherwise noted, ownership percentages represent both equity and
         voting interests.

(2)      TCI Ventures Group holds securities of Sprint which are exercisable for
         or convertible into Sprint PCS stock. The percentage in the table
         assumes exercise and conversion of such securities and is calculated on
         a fully diluted basis.

(3)      The percentage in the table assumes the exercise of warrants which are
         exercisable for 1.5 million shares of common stock and which are
         subject to certain vesting requirements.

(4)      Excludes warrants to purchase approximately 21.4 million additional
         shares of GI common stock at $14.25 per share, subject to certain
         vesting requirements.

Description of the TCI Ventures Group 

         The principal assets attributed to TCI Ventures Group are described in
greater detail below.

   Internet Service

         The primary internet service asset attributed to TCI Ventures Group
prior to the AT&T Merger was its investment in @Home.

         At Home Corporation. @Home, which became a public company in July 1997,
is a leading provider of broadband internet services that delivers data to homes
and businesses through the cable television infrastructure and a cable modem at
speeds up to 100 times faster than traditional telephone dial-up alternatives.



                                      I-40
<PAGE>   42

         @Home currently offers two internet services: @Home for residential
consumers and @Work for businesses and tele-commuters. @Home's primary offering
"the @Home service" allows residential subscribers to connect their personal
computers via cable modem to a high-speed internet "backbone" network developed
and managed by @Home. @Home has entered into distribution arrangements with
cable companies whose cable systems pass approximately 57.3 million homes.
@Home's residential offering had approximately 331,000 cable modem subscribers
across North America at December 31, 1998 representing an increase of
approximately 158% from the 210,000 subscribers reported at September 30, 1998.
As of December 31, 1998, approximately 13.2 million of the homes served by the
cable companies with which @Home has distribution agreements are passed by
upgraded two-way hybrid fiber co-axial cable. For businesses, @Home's @Work
service provides a platform for internet, intranet and extranet connectivity
solutions and networked business applications over both cable infrastructure and
digital telecommunications lines. As of December 31, 1998, @Work had over 1,700
corporate customers, and the @Work service was available in 22 metropolitan
markets.

         TCI was a founding partner of @Home and currently holds a 39% equity
interest and a 71% voting interest in @Home. Four officers or directors of TCI
currently serve on @Home's 11 member board; however, TCI has the right, at any
time, to increase the size of @Home's Board of Directors (the "@Home Board") and
elect a majority of the directors of the @Home Board. TCI's controlling position
in @Home is, however, subject to certain protective rights held by @Home. TCI
has agreed that @Home will be the exclusive high-speed internet service provider
distributed over TCI's cable systems, subject to certain exceptions, until at
least June 4, 2002, subject to early termination in certain circumstances. In
February 1998, NDTC, on behalf of TCI, entered into a Memorandum of
Understanding with @Home pursuant to which @Home agreed to develop software and
provide integration services for TCI's advanced set top devices that will
deliver both digital television and data services.

   Diversified Satellite Communications

         TV Guide, Inc. (formerly UVSG) Following completion of the Netlink and
TV Guide Transactions which are described in "LIBERTY MEDIA GROUP - Description
of Liberty Media Group - Programming Services," TCI had approximately a 44%
equity interest and a 49% voting interest in UVSG of which a 27% equity interest
and a 32% voting interest was attributed to TCI Ventures Group and the balance
of which was attributed to Liberty Media Group. UVSG is a media and
communications company engaged predominantly in providing print, passive and
interactive program listings guides to households, distributing superstation
programming to cable television systems and DTH satellite providers, and
marketing satellite delivered programming to C-band satellite dish owners. UVSG
has been organized into three operating groups: Magazine Group; Entertainment
Group; and United Video Group. The Magazine Group publishes and distributes TV
Guide Magazine and customized monthly programming guides for cable and satellite
operators in the US and internationally. The Entertainment Group supplies
satellite-delivered on-screen program promotion and guide services, including TV
Guide Channel and Sneak Prevue. The United Video Group provides DTH satellite
services, satellite distribution of video entertainment services, software
development and systems integration services and satellite transmission services
for private networks. This group includes SNG and Netlink USA in addition to
UVSG's UVTV division which markets and distributes to cable television systems
and other multi-channel video distributors WGN (Chicago), KTLA (Los Angeles) and
WPIX (New York), three independent "superstations".



                                      I-41
<PAGE>   43

   Domestic Telephony

         Prior to the AT&T Merger, TCI Ventures Group's telephony assets
consisted primarily of its ownership of (a) an approximately 22% equity interest
(on a fully diluted basis) in the "Sprint PCS Group," consisting of shares of
Series 2 Sprint PCS stock (which have limited voting rights) and certain
warrants and shares of convertible preferred stock exercisable for or
convertible into such shares; (b) 100% of WTCI; and (c) approximately 47 million
shares of AT&T Common Stock.

         The Sprint PCS Group, which markets its wireless telephony products and
services under the "Sprint"(R) and "Sprint PCS"(R) brand names, operates the
only 100% digital personal communications system ("PCS") wireless network in the
United States, with licenses to provide service nationwide utilizing a single
frequency band and a single technology. The Sprint PCS Group owns licenses to
provide service to the entire United States population, including Puerto Rico
and the U.S. Virgin Islands.

         Pursuant to the Final Judgment agreed to by TCI, AT&T and the DOJ on
December 31, 1998, Liberty/Ventures Group prior to the AT&T Merger transferred
all of the Sprint Securities to a trust with the Trustee, pursuant to a trust
agreement approved by the DOJ. The Final Judgment, if entered by the United
States District Court for the District of Columbia, would require the Trustee,
on or before May 23, 2002, to dispose of a portion of the Sprint Securities held
by the trust and beneficially owned by Liberty/Ventures Group sufficient to
cause Liberty/Ventures Group to own beneficially no more than 10% of the
outstanding Series 1 PCS stock of Sprint on a fully diluted basis (assuming the
issuance of all shares of Series 1 PCS stock of Sprint ultimately issuable in
respect of the applicable securities of Sprint upon the exercise, conversion or
other issuance thereof in accordance with the terms of such securities) on such
date. On or before May 23, 2004, the Trustee must divest the remainder of the
Sprint Securities beneficially owned by Liberty/Ventures Group. For additional
information, see note 2 to the Company's consolidated financial statements
included in Part II of this report.

         WTCI provides long-distance transport of video, voice and data traffic
and other telecommunications services to telecommunications carriers on a
wholesale basis. WTCI provides these services primarily through a digital
broadband microwave network located in a 12-state region.

   International Cable and Programming and Telephony

         TINTA. TCI owns 100% of the equity in TINTA, of which 85% is attributed
to TCI Ventures Group and 15% is attributed to Liberty Media Group. TINTA
provides diversified programming services and operates broadband cable
television and telephony distribution networks in selected markets outside the
United States. At December 31, 1998, TINTA had ownership interests in or managed
61 cable and satellite programming services, which are received by subscribers
in various countries outside the United States. TINTA also has ownership
interests in companies operating broadband networks that, at December 31, 1998,
provided cable television service to an aggregate of approximately 4.5 million
basic subscribers and, primarily in the United Kingdom, provided telephone
service over approximately 1.5 million telephone lines.

         TINTA has recently placed greater emphasis on the acquisition and
development of multi-channel programming businesses, while maintaining
meaningful and complementary interests in cable distribution assets. TINTA's
distribution and programming ventures are concentrated in the United Kingdom,
Europe, Latin America, Asia and the Caribbean, with particular focus, at
present, on the United Kingdom, Argentina and Japan.



                                      I-42
<PAGE>   44

         Included among TINTA's cable and telephony distribution assets are an
indirect 22% interest in Telewest Communications plc ("Telewest") and a 40%
interest in Jupiter Telecommunications Co. Ltd ("Jupiter"). Telewest is a
leading provider of cable television and cable telephony services in the United
Kingdom providing cable television services over a broadband (i.e., high
capacity) network and uses such network, together with twisted-pair copper wire
connections for final delivery to the customer premises, to provide telephony
services to its customers. Jupiter provides residential and business cable
television and cable telephony in Japan.

         TINTA also currently has an approximate 28% ownership interest and
certain conditional management rights in Cablevision S.A. ("Cablevision"), which
is one of the two largest cable television companies in Argentina. At December
31, 1998, Cablevision provided cable television service to an aggregate of
approximately 1.5 million subscribers.

         TINTA's programming interests include a 37% equity interest
(representing a 50% voting interest) in Flextech p.l.c. ("Flextech"), a 30%
interest in MultiThematiques, S.A. ("MultiThematiques") and a 50% interest in
Jupiter Programming. Through its subsidiaries and affiliates, Flextech creates,
packages and markets entertainment and information programming for distribution
on cable television and DTH satellite providers throughout the United Kingdom
and parts of continental Europe. Flextech's ordinary shares trade on the London
Stock Exchange. MultiThematiques and Jupiter Programming provide multi-channel
programming to cable television and DTH satellite providers in continental
Europe and Japan, respectively. In addition, in August 1998, TINTA purchased
Pramer S.C.A., an Argentine company which programs, markets and distributes 16
cable channels in Argentina, of which 10 are distributed throughout Latin
America, and which markets one terrestrial station to operators in Argentina and
neighboring countries.

         Liberty/TINTA, through a 50/50 joint venture with News Corp., holds
international sports interests. These include Fox Sports World Espanol, a
Spanish language sports network, distributed in the United States and in Latin
America, and STAR TV, a satellite-delivered programming platform available to
220 million viewers in Asia, India and the Middle East. Outside of the venture
with News Corp., Liberty Media Group and TINTA own an interest in J-Sports, a
sports network in Japan featuring coverage of SUMO wrestling, soccer, baseball
and other international sporting events; and TyC, Argentina's dominant sports
programming service. TyC also owns an interest in Canal 9, a general
entertainment broadcast channel in Buenos Aires, Argentina which has become an
international superchannel, providing programming to the United States and, via
cable, to outlying areas of Argentina.

         Competition. The various cable operators in which TINTA has interests
directly compete for customers and advertisers in local markets with other
providers of entertainment, news and information. Such cable operators also
compete with companies who use alternative methods of distributing the same or
similar video programming offered by cable television systems.

         The business of distributing programming for cable and satellite
television is also highly competitive. TINTA's programming subsidiaries and
affiliates directly compete with other programming services for distribution on
a limited number of television channels and, when distribution is obtained, they
compete for viewers and advertisers with other programming services.



                                      I-43
<PAGE>   45

         Government Regulation. Substantially every country in which TINTA has,
or proposes to make, an investment regulates, in varying degrees, (a) the
granting of cable and telephony franchises, the construction of cable and
telephony systems and the operations of cable, other multi-channel television
operators and telephony operators and service providers, as well as the
acquisition of, and foreign investments in, such operators and service
providers, and (b) the broadcast and content of programming and internet
services and foreign investment in programming companies. Regulations or laws
may cover wireline and wireless telephony, satellite and cable communications
and internet services, among others. Regulations or laws that exist at the time
TINTA makes an investment in a subsidiary or affiliate may thereafter change,
and there can be no assurance that material and adverse changes in the
regulation of the services provided by TINTA's subsidiaries and affiliates will
not occur in the future. Regulation can take the form of price controls, service
requirements and programming and other content restrictions, among others.
Moreover, some countries do not issue exclusive licenses to provide
multi-channel television services within a geographic area, and in those
instances TINTA may be adversely affected by an overbuild by a competing cable
operator. In certain countries where multi-channel television is less developed,
there is minimal regulation of cable television, and, hence, the protections of
the cable operator's investment available in the United States and other
countries (such as rights to renewal of franchises and utility pole attachment)
may not be available in these countries.

         National Digital Television Center, Inc., NDTC, which operates through
a number of wholly owned subsidiaries of TCI, provides a wide range of analog
and digital television services to programmers, cable operators and satellite
distributors.

         NDTC's Video Services unit, through its state-of-the-art facilities
outside of Denver and additional facilities in New York, Los Angeles and Hong
Kong, provides services such as studio production, post-production, on-air
origination, digital compression, encryption and authorization, and satellite
uplink services. NDTC's Headend in the Sky ("HITS") unit manages a package of
compressed digital signals and sells this service along with GI's authorization
services to United States cable operators. The HITS programming lineup consists
of over 130 program channels and 40 digital music channels. HITS currently has
approximately 1.3 million digital subscribers. NDTC's Technology unit manages a
team developing an advanced digital settop terminal. This team consists
primarily of GI, Microsoft Corporation, Sun Mircrosystems, Inc., TV Guide
Networks, Inc. and @Home. Scheduled for delivery in late 1999, the advanced
digital settop terminal is expected to combine traditional television services
with high-speed internet-like services.

         On July 17, 1998, NDTC acquired approximately 21.4 million shares of
restricted common stock of GI in exchange for (a) certain assets of NDTC's
settop authorization business, (b) the license of certain related technology to
GI, (c) a $50 million promissory note from TCI Ventures Group, and (iv) a
nine-year revenue guarantee in favor of GI. NDTC has also entered into a service
agreement pursuant to which it provides certain services to GI's settop
authorization business.

         Pursuant to an agreement between NDTC and GI, TCI Group held warrants
to purchase approximately 21.4 million additional shares of GI common stock at
$14.25 per share which vest upon the purchase of certain quantities of advanced
digital settop terminals. In connection with the AT&T Merger, Liberty/Ventures
Group paid TCI Group an aggregate of approximately $176 million in cash and TCI
Ventures Group retained these warrants. If any warrants are forfeited solely
because TCI Group fails to purchase the required number of advanced digital
settop terminals, TCI Group will pay to the Liberty/Ventures Group an amount
equal to $8.25 for each warrant forfeited, adjusted as appropriate for any
changes in the capitalization of GI.

Item 2.  Properties.

         The Company currently leases its executive offices in a suburb of
Denver, Colorado, and leases most of its regional and local operating offices.
During 1999, the Company will relocate its executive offices to a suburb in
Denver, Colorado to properties owned by the Company. The Company owns many of
its head-end and antenna sites. Its physical cable television properties, which
are located throughout the United States, consist of system components, motor
vehicles, miscellaneous hardware, spare parts and other components.

         The Company's cable television facilities are, in the opinion of
management, suitable and adequate by industry standards. Physical properties of
the Company are not held subject to any major encumbrance.



                                      I-44
<PAGE>   46

Item 3.  Legal Proceedings.

         There are no material pending legal proceedings to which the Company is
a party or to which any of its property is subject, except as follows:

         Intellectual Property Development Corporation v. UA-Columbia
Cablevision of Westchester, Inc. and Tele-Communications, Inc. On September 1,
1994, plaintiff filed suit in federal court in New York for the alleged
infringement of a patent for an invention used in broadcasting systems with
fiber optic transmission lines. Plaintiff seeks injunctive relief and
unspecified treble damages. The patent at issue expired on January 16, 1996,
thereby eliminating any claim for injunctive relief by plaintiff. The issues now
center around whether defendants owe past damages up to the time the patent
expired. Discovery is currently ongoing. Based upon the facts available,
management believes that, although no assurance can be given as to the outcome
of this action, the ultimate disposition of this action should not have a
material adverse effect upon the financial condition of Tele-Communications,
Inc. ("TCI" or the "Company").

         Time Warner Stockholder Litigation. In November 1995, two lawsuits on
behalf of and for the benefit of Time Warner, Inc. ("Time Warner") were filed in
the Court of Chancery of the State of Delaware ("the Delaware Chancery Court")
by purported stockholders of Time Warner. These actions, which have identical
claims and allegations, are styled as Bernard v. Time Warner, Inc., Civil Action
("C.A.") No. 14651, and Parnes v. Time Warner, Inc., C.A. No. 14660,
respectively. The defendants named in both complaints are Time Warner, Inc.,
Tele-Communications, Inc., and the following individuals who are directors of
Time Warner: Gerald M. Levin, Merv Adelson, Beverly Sills Greenough, Michael A.
Miles, Donald S. Perkins, Raymond S. Trough, Edward S. Finkelstein, Carla A.
Hills, Henry Luce, III, Reuben Mark, Francis T. Vincent, Jr., Lawrence B.
Buttenweiser, David T. Kearns, J. Richard Munro, and Richard D. Parsons. In both
cases, plaintiffs allege among other things that the Time Warner directors
breached their fiduciary duties in establishing the terms of Time Warner's
proposed merger with Turner Broadcasting System, Inc. ("TBS") Specifically,
plaintiffs contend in both cases that the Time Warner directors impermissibly
sought to entrench themselves and that TCI aided and abetted the Time Warner
directors' alleged breaches of fiduciary duty. Plaintiffs complain in both cases
that, in connection with the proposed merger between TBS and Time Warner (the
"TBS-Time Warner Merger"), TCI will receive (i) a premium for its TBS stock with
a value of nearly 7% over the value of the merger consideration to be received
by other TBS stockholders, (ii) exclusive programming benefits at discounted
prices from TBS, (iii) an agreement to purchase TBS's and Time Warner's
interests in two regional sports networks, and (iv) five million additional
shares of Time Warner stock in exchange for giving Time Warner an option to
purchase a subsidiary of TCI. In exchange for these alleged benefits, TCI
allegedly facilitated efforts by the Time Warner directors and Time Warner's
management to entrench themselves by allowing the Time Warner voting stock to be
received by TCI upon consummation of the TBS-Time Warner Merger to be placed in
a voting trust controlled by defendant Levin, who is the chairman and chief
executive officer of Time Warner. Plaintiffs seek in both actions to enjoin the
consummation of the proposed TBS-Time Warner Merger, to rescind the TBS-Time
Warner Merger if it is consummated, and to enjoin the transfer of Time Warner's
assets or stock to TCI in connection with the TBS-Time Warner Merger. TCI moved
to dismiss these actions on November 22, 1995. Discovery has not commenced in
these actions. On December 5, 1995, plaintiffs in both actions agreed to stay
any proceedings pending regulatory developments regarding the proposed TBS-Time
Warner Merger. The TBS-Time Warner Merger was consummated on October 10, 1996.
This case has been voluntarily dismissed and will not be reported in future
filings.



                                      I-45
<PAGE>   47


         DMX Shareholders Litigation. In September 1996, a putative class action
complaint was filed with the Delaware Chancery Court in C.A. No 15206 by a
stockholder of DMX Inc. ("DMX"). The complaint was filed following the
announcement of a proposed business combination in which TCI Music, Inc. ("TCI
Music"), a newly formed entity, would acquire DMX (the "TCI Music-DMX Merger").
The proposed business combination contemplates that the shareholders of DMX,
including subsidiaries of TCI that currently own approximately 45% of DMX's
outstanding stock, would receive shares of TCI Music Class A common stock having
one vote per share and representing approximately 19% of TCI Music's outstanding
shares. TCI would hold TCI Music Class B common stock having ten votes per share
and representing approximately 81% of the TCI Music common equity outstanding
immediately after the transaction. TCI would acquire those shares in exchange
for consideration that includes DMX subscriber accounts held by TCI subsidiaries
and equipment used by those subsidiaries to distribute the DMX music service to
TCI customers. The defendants in the action include DMX, TCI and the directors
of DMX (Jerold H. Rubinstein, Donne F. Fisher, Leo J. Hindery, Jr., James R.
Shaw, Sr., Kent Burkhart, J.C. Sparkman and Menon Bhaskar). Mr. Fisher is a
director of and a consultant to TCI. Mr. Hindery is a director and an executive
officer of TCI. Mr. Sparkman is a director of TCI.

         The gravamen of the complaint is that the DMX directors would breach
their fiduciary duties by approving the proposed business combination.
Specifically, plaintiff alleges that, due to TCI's alleged control over the DMX
board, the DMX directors are unwilling to negotiate with TCI to maximize the
value for the public stockholders of DMX. Plaintiff claims that the proposed
consideration to be paid the public stockholders of DMX is grossly unfair,
inadequate and substantially below the fair value of DMX. Plaintiff seeks to
enjoin the consummation of proposed business combination or, should the proposed
transaction proceed, to rescind the transaction. Plaintiff also seeks
unspecified rescissory and compensatory damages, fees and costs. The action
remains pending and discovery has not commenced. The TCI Music-DMX Merger was
consummated on July 11, 1997. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of this
action, the ultimate disposition should not have a material adverse effect upon
the financial condition of the Company.

         Clarence L. Elder, both individually and as the group Representative
vs. Tele-Communications, Inc. et al. On December 11, 1995, plaintiff filed suit
in the Circuit Court for Baltimore City, Case No. 95345001/CL205580 against UCTC
L.P. Company, UCTC of Baltimore, Inc., UTI Purchase Company, Inc. and
Tele-Communications, Inc. The allegations made in the complaint pertain to
plaintiff's interest in United Cable Television of Baltimore Limited
Partnership. Plaintiff claims he was wrongfully denied certain preference
distributions, rights to purchase stock, rights to escrow funds, and tax
distributions. The Court granted defendants' Motion for Summary Judgment and
plaintiff has filed an appeal. On September 24, 1997, the Maryland Court of
Special Appeals affirmed in all but one respect the Circuit Court's summary
judgment in favor of the defendants. The court found that the settlement
agreement at issue is ambiguous concerning the number of Limited Partnership
units the plaintiffs were entitled to purchase (186.6 or 311), but ruled in
favor of defendants concerning the price at which the units must be sold and all
other issues.

         Plaintiffs have filed a motion for reconsideration, and have filed a
petition for certiorari in the Court of Appeals on December 24, 1997 if their
motion for reconsideration is denied. If the Court of Special Appeals decision
is not disturbed, the only issue for trial will be the number of units
Plaintiffs are entitled to purchase at fair market value, as determined in
accordance with the appraisal previously obtained by defendants. Based upon the
facts available, management believes that, although no assurance can be given as
to the outcome of this action, the ultimate disposition should not have a
material adverse effect upon the financial condition of the Company.



                                      I-46
<PAGE>   48

         Donald E. Watson v. Tele-Communications, Inc., et al. On March 10,
1995, Donald Watson, doing business under the name of Tri-County Cable, filed
suit in Superior Court for the District of Columbia against TCI, TCI East, Inc.,
District Cablevision Limited Partnership, District Cablevision, Inc., TCI of
D.C., Inc., TCI of Maryland, Inc., TCI Development Corporation, United Cable
Television of Baltimore Limited Partnership, TCI of Pennsylvania, Inc. and two
individuals, Richard Bushey and Roy Harbert. The action alleges breach of
settlement agreement, intentional misrepresentations, tortious interference with
prospective advantage, tortious interference with contract, tortious
interference with economic relations, and discrimination on the basis of race.
Three counts in the Complaint each seek compensatory damages of $2.5 million and
punitive damages of $25 million; one count seeks compensatory damages of $2.5
million and punitive damages of $40 million; and two counts each seek
compensatory damages of $20 million and punitive damages of $40 million. In an
order dated September 25, 1997, the Court granted summary judgment in favor of
defendants on the claims of intentional misrepresentations, tortious
interference with prospective advantage, tortious interference with contract,
and discrimination on the basis of race. The remaining claims of breach of
contract and tortious interference with economic relations will be tried on
March 2, 1999. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.

         C. Lamont Smith, et al. v. Mile Hi Cable Partners, et al. On December
9, 1996, C. Lamont Smith and The Black Movie Channel, LLC filed suit in the
District Court for the City and County of Denver against subsidiaries of
Tele-Communications, Inc. (TCI Communications, Inc.; Mile Hi Cable Partners, LP;
Liberty Media Corporation and Encore Media Corporation); Black Entertainment
Television; Steve Santamaria; Media Management Group, Inc. and Virginia Butler.
Plaintiffs assert, in part, that the defendants misappropriated plaintiffs'
concept for the development of a 24 hours a day, seven days a week, cable or
satellite premium channel which would broadcast movies made by or featuring
African Americans, as well as educational programming and community oriented
programming of interest to both the Hispanic and Black communities. Plaintiffs
claim anticipated annual net profits from such a network would exceed $600
million. Plaintiffs also assert that the franchise agreement with the City and
County of Denver has been breached for alleged implied covenants of good faith
and fair dealing under the Denver franchise; promissory estoppel and breach of
implied contract; misappropriation of confidential information and trade
secrets; breach of confidence; breach of fiduciary duty; as well as unjust
enrichment; fraud; negligent misrepresentation; non-disclosure and concealment;
civil conspiracy; and violation of the Colorado Antitrust Act of 1992.
Plaintiffs seek an award of consequential, special and restitutionary damages in
an unspecified amount as well as exemplary damages, prejudgment interest, expert
witness fees, attorneys fees and costs. On August 5, 1997, the trial court
entered an Order dismissing all of plaintiffs' claims against defendants Liberty
Media Corporation and Encore Media Corporation as well as plaintiffs' first,
second, fifth, and a portion of the twelfth claim for relief against the
remaining Company defendants. The partnership's motion for judgment on the
pleadings was denied with respect to plaintiffs' remaining claims. The trial
court certified its rulings for an immediate appeal, which was filed by
plaintiffs and will take from 12 to 18 months for a decision from the appellate
court. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of this action, the ultimate
disposition should not have a material adverse effect upon the financial
condition of the Company.



                                      I-47
<PAGE>   49

         James Dalton, et al. v. Tele-Communications, Inc., et al. On February
24, 1997, James Dalton, et al. filed suit in District Court for Arapahoe County,
Colorado, Case No. 97-CV421, against TCI and certain current and former officers
of TCI and its subsidiary, TCIC (John C. Malone, Brendan R. Clouston, Barry P.
Marshall, Camille K. Jayne, Sadie N. Decker, Bruce W. Ravenel, Gerald W. Gaines,
Bernard W. Schotters, II) and Daniel L. Ritchie and Donne F. Fisher, in their
capacity as co-personal representatives of the estate of Bob Magness. Plaintiffs
filed this action under the Colorado Securities Act and Colorado common law on
behalf of all persons who purchased TCI securities from January 10, 1996 through
October 24, 1996 ("the class period"). Plaintiffs claim, in part, that the
defendants made false and misleading statements during the class period
concerning TCI's revenue and cash flow growth, customer growth, and expansion
and diversification into a multi-business platform; and that TCI failed to
disclose the performance of its various operations. Plaintiffs claim further, in
part, that TCI's cash flow growth was weak and below levels necessary to fund a
multi-business diversification program and that TCI was competitively
disadvantaged and would likely be threatened by adverse conditions impacting its
business. Plaintiffs are seeking nationwide class certification and claim that
the amount in controversy is less than $75,000 per named plaintiff, exclusive of
interest and costs. On September 3, 1997, defendants motion to dismiss was
denied. Defendants answered the Complaint on October 3, 1997. Settlement has
been reached in principle, which settlement requires further documentation,
notice and court approval. Based upon the facts available, management believes
that, although no assurances can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.

         IMedia Corporation v. Western Tele-Communications, Inc. On August 12,
1997, in the United States District Court for the Northern District of
California, Case No. C 97-2960 CAL, Plaintiff Imedia Corporation ("Imedia")
filed suit against Western Tele-Communications, Inc. ("WTCI"). The Plaintiff
alleged that Defendant WTCI breached its contract to pay IMedia $5,000,000 for
the use of IMedia's StatMux software, developed for multiplexing digitally
compressed video signals. Plaintiff also claimed for loss of per-subscriber fees
through September 30, 2004, pursuant to the contract. Additionally, Plaintiff
requested an injunction against WTCI or any affiliated company prohibiting use
by WTCI of any multiplexing software other than IMedia's. This case was settled
and dismissed in December of 1998 with prejudice. The settlement did not have a
material adverse effect upon the financial condition of the Company. This case
will not be reported on in the future.

         Teleport Communications Group Shareholder Litigation. In December of
1997 and January of 1998, in the Delaware Chancery Court, the following three
actions were filed: Sternberg v. TCI Communications, Inc., et al., Case No.
16092, Cirillo v. Tele-Communications, Inc., et al., Case No. 16139, and Blain
v. Tele-Communications, Inc., et al., Case No. 16161. The complaints were filed
in response to public reports of a proposed merger between Teleport
Communications Group ("TCG") and AT&T Corporation ("AT&T") whereby each share of
TCG common stock would be exchanged for 0.943 shares of AT&T Common Stock.
Common to the three complaints are the following defendants: TCG, TCG
shareholders, TCI, Comcast Corporation, ("Comcast") and Cox Communications, Inc.
("Cox"); and the following TCG directors: Brian L. Roberts, Brendan R. Clouston,
Larry E. Romrell, Lawrence S. Smith, Robert Annunziata, James O. Robbins, Jimmy
W. Hayes, David M. Woodrow, John R. Dillon, Bernard W. Schotters, Gerald W.
Gaines, James Bruce Llewellyn and C.B. Rogers, Jr. Additionally, the Cirillo
complaint names AT&T as a defendant. Messrs. Clouston, Romrell and Schotters
were affiliated with TCI during the period relevant to the allegations in the
complaints.



                                      I-48
<PAGE>   50

         The gravamen of the complaints is that the price at which AT&T proposed
to acquire TCG shares was inadequate and that, in causing TCG to pursue the
merger with AT&T, the defendant directors, TCI, Cox and Comcast were acting in
their own self-interest rather than in the interests of TCG and its
stockholders. Specifically, the complaints allege that the defendants controlled
TCG, had access to internal financial information concerning TCG's true value,
and used such information to the detriment of TCG's public stockholders. The
Cirillo complaint additionally alleges that AT&T has aided and abetted the
alleged wrongdoing. The complaints seek to enjoin the proposed merger, to
rescind the merger should it be consummated, and to recover unspecified
compensatory damages for the public holders of TCG common stock, or their
successors in interest, who are being or will be harmed by the defendants'
actions. In addition, the Sternberg complaint seeks an order requiring the
defendants to undertake actions to maximize the value of TCG's stock in
furtherance of their fiduciary duties. The merger between TCG & AT&T was
consummated in July 1998. Discovery has not commenced in these actions. Based
upon the facts available, management believes that, although no assurances can
be given as to the outcome of this action, the ultimate disposition of this
matter should not have a material adverse effect upon the financial condition of
the Company.

         Magness Shareholder Litigation. On January 8, 1998, seven putative
derivative actions on behalf of and for the benefit of TCI were filed in the
Delaware Chancery Court by purported shareholders of TCI: Morgan, et al. v.
Tele-Communications, Inc., et al., C.A. No. 16128-NC; Steiner v.
Tele-Communications, Inc., et al., C.A. No. 16130-NC; Weisberg v.
Tele-Communications, Inc., et al., C.A. No. 16131-NC; Pan v.
Tele-Communications, Inc., et al., C.A. No. 16133; Klein v. Tele-Communications,
Inc., et al., C.A. No. 16135; Crandon Capital Partners v. Tele-Communications,
Inc., et al., C.A. No. 16136; and Deutsch v. Tele-Communications, Inc., et al.,
C.A. No. 16148. Also named as defendants in these cases are John C. Malone, John
W. Gallivan, Donne F. Fisher, Leo J. Hindery, Jr., J.C. Sparkman, Paul A. Gould,
Jerome H. Kern, Kim Magness, and Robert A. Naify. These are derivative
shareholder actions challenging the Magness estate settlement and the related
payment to John C. Malone. Plaintiffs allege, among other things, the following
claims for relief: breach of fiduciary duties, self-dealing and unjust
enrichment, and waste of Company assets. The complaints seek repayment of
amounts paid for call agreements, injunctive relief, attorney fees, costs and
unspecified compensatory damages. These actions have been consolidated for all
purposes under the current caption styled as In Re: TCI - Magness Estate
Derivative Litigation, Consolidated C.A. No. 16128. The plaintiffs have not
demanded a jury trial. On June 26, 1998, plaintiffs filed an amended complaint
to add claims arising from the proposed merger between TCI and AT&T (the
"TCI-AT&T Merger") substantially similar to those alleged in the TCI-AT&T Merger
litigation described below.




                                      I-49
<PAGE>   51


         The gravamen of the amended complaint is that the TCI directors
breached their fiduciary duties by approving the Magness estate settlement,
pursuant to which (i) the 1997 sale by the Magness estate of approximately 32
million shares of TCI Group Series A Stock to affiliates of Merrill Lynch & Co.
and Lehman Brothers was partially voided; (ii) the Magness estate and Dr. Malone
agreed to vote their TCI stock as a single group; and (iii) TCI acquired the
rights to purchase separately the shares of TCI Group Series B Stock currently
held by Dr. Malone and the Magness estate in exchange for the respective payment
by TCI to Dr. Malone and the Magness estate of $150 million and $124 million,
respectively. Specifically, the plaintiffs allege that the TCI directors sought
to entrench themselves through the Magness estate settlement, and the TCI
directors' approval of the settlement constituted waste of TCI assets.
Plaintiffs also allege that Dr. Malone would be unjustly enriched by the
proposed TCI-AT&T Merger, announced on June 24, 1998, because the merger
exchange ratio provides a premium for the shares of TCI Group Series B Stock
over the shares of TCI Group Series A Stock, and the Magness estate settlement
unjustly increased Dr. Malone's holdings of TCI Group Series B Stock. In the
amended complaint, plaintiffs seek a declaratory judgment that the defendants
breached their fiduciary duties to the Company, an accounting by the TCI
director defendants to TCI for the damages allegedly sustained by the Company,
an accounting by Dr. Malone to TCI for the damages allegedly sustained by the
Company, an accounting by Dr. Malone of his profits from the Magness estate
settlement, the rescission of the Magness estate settlement, the repayment by
Dr. Malone of any payments he has received under the Magness estate settlement
and an award of unspecified compensatory damages. Discovery has not commenced in
this action. The TCI-AT&T Merger was consummated on March 9, 1999. Based upon
the facts available, management believes that, although no assurances can be
given as to the outcome of this action, the ultimate disposition of this matter
should not have a material adverse effect upon the financial condition of the
Company.



                                      I-50
<PAGE>   52

         Tele-Communications International, Inc. Stockholder Litigation. On July
13, 1998, two putative class action complaints were filed by certain
stockholders of Tele-Communications International, Inc. ("TINTA") in the
Delaware Chancery Court. The actions, which have identical claims and
allegations, are styled as Berkowitz v. Tele-Communications, Inc., et al., C.A.
No. 16533, and Chetkov v. Tele-Communications, Inc., et al., C.A. No. 16534,
respectively. The complaints were filed following the announcement of a proposed
business combination in which Liberty Media Group would acquire all outstanding
public shares of TINTA not already owned by TCI Ventures Group. The defendants
named in both complaints are TCI, TINTA, and the Board of Directors of TINTA:
Leo J. Hindery, Jr., John C. Malone, Gary S. Howard, David J. Evans, Pierre
Lescure, Paul A. Gould, Fred A. Vierra, and Jerome H. Kern. The gravamen of both
complaints is that the TINTA directors will breach their fiduciary duties by
approving the merger and undervaluing the proposed merger consideration to the
detriment of the TINTA public stockholders. Plaintiffs in both actions seek to
enjoin the consummation or closing of the proposed merger, or the rescission of
the merger in the event it is consummated, and unspecified compensatory damages,
fees and costs. The Company and the plaintiffs have reached an agreement in
principle to settle the class action litigation in exchange for TCI's
willingness to include a pricing provision in the merger agreement providing TCI
with the option of either increasing the merger exchange ratio to yield at least
$22.00 per share of TINTA common stock or to terminate the merger agreement. The
merger was consummated on November 19, 1998. The tentative settlement is subject
to numerous conditions, including the execution of definitive settlement
documents, court approval of the settlement and consummation of the merger.
Based upon the facts available, management believes that, although no assurances
can be given as to the outcome of this action, the ultimate disposition of this
matter should not have a material adverse effect upon the financial condition of
the Company.

         AT&T-TCI Group Series A Stockholder Litigation. Between June 24 and
July 1, 1998, thirteen purported class action complaints were filed by holders
of TCI Group Series A Stock in the Delaware Chancery Court under the captions
Nieto v. Tele-Communications, Inc., et al., C.A. No. 16470; Martin, et al., v.
Tele-Communications, Inc., et al., C.A. No. 16471; Bove v. Tele-Communications,
Inc., et al., C.A. No. 16473; Freiman v. Tele-Communications, Inc., et al., C.A.
No. 16474; Great Neck Capital Appreciation Investment Partnership, L.P. v.
Tele-Communications, Inc., et al., C.A. No. 16477; Cohen v. Tele-Communications,
Inc., et al., C.A. No. 16478; Silvert v. Tele-Communications, Inc., et al., C.A.
No. 16479; Alex Cooper Profit Sharing Trust v. Tele-Communications, Inc., et
al., C.A. No. 16482; Satz v. Tele-Communications, Inc., et al., C.A. No. 16489;
Stefansky, et al., v. Tele-Communications, Inc., et al., C.A. No. 16490; Hushing
v. Tele-Communications, Inc., et al., C.A. No. 16491; Krim v.
Tele-Communications, Inc., et al., C.A. No. 16495; and Hirsch v.
Tele-Communications, Inc., et al., C.A. No. 16501. The complaints were filed in
response to the announcement of the proposed TCI-AT&T Merger and allege
substantially similar claims. On December 4, 1998, the Delaware Chancery Court
consolidated these actions under the caption In re Tele-Communications, Inc.,
Shareholders Litigation, Consolidated C.A. No. 16470. On February 10, 1999,
plaintiffs filed a consolidated amended complaint (the "TCI Group Consolidated
Complaint"). The defendants named in the consolidated action are TCI and the
following TCI directors: Donne F. Fisher, John W. Gallivan, Paul A. Gould, Leo
J. Hindery, Jr., Jerome H. Kern, Kim Magness, John C. Malone, Robert A. Naify
and J.C. Sparkman. AT&T was also named as a defendant in the consolidated
action.



                                      I-51
<PAGE>   53

         The gravamen of the TCI Group Consolidated Complaint is that the TCI
directors breached their fiduciary duties to the holders of TCI Group Series A
Stock because Dr. Malone, the largest holder of TCI Group Series B Stock, with
the acquiescence of the other TCI directors, has obtained under the TCI-AT&T
Merger agreement a premium in the merger consideration for the stockholders of
TCI Group Series B Stock over the amount of merger consideration that would be
received by the stockholders of TCI Group Series A Stock. Plaintiffs also allege
that the TCI proxy statement relating to the proposed TCI-AT&T Merger, dated
January 11, 1999, contains inadequate disclosures regarding the value under the
TCI-AT&T Merger of the stock options, stock appreciation rights and restricted
stock awards held by the officers and directors of TCI, the correct premium that
will be paid for shares of TCI Group Series B Stock pursuant to the merger
agreement, the factors relied upon by the TCI directors determining that the 10%
premium to be received by the stockholders of TCI Group Series B Stock was
acceptable, and the existence of various lawsuits attacking the TCI-AT&T Merger
and related transactions. Plaintiffs in the consolidated action seek to enjoin
the proposed TCI-AT&T Merger, or rescind the TCI-AT&T Merger in the event it is
consummated, and request unspecified compensatory damages, fees and costs.
Plaintiffs have filed discovery requests in this action. The TCI-AT&T Merger was
consummated on March 9, 1999. Based on the facts available, management believes
that, although no assurance can be given as to the outcome of this action, the
ultimate disposition of this matter should not have a material adverse effect
upon the financial condition of the Company.

         TCI Ventures Group Shareholder Litigation re: TCI Ventures Group
consolidation into Liberty Media Group: Donald I. Gettinger v.
Tele-Communications, Inc., et al., C.A. No. 16502 NC; Bart Landau, as Trustee
for LFS/RGP Profit Sharing Plan v. Tele-Communications, Inc., et al., C.A. No.
16492 NC. On July 1, 1998, two putative class action complaints were filed by
stockholders of TCI Ventures Group Series A Stock in the Delaware Chancery
Court. These complaints were filed in response to the public announcement by TCI
that, in conjunction with the TCI-AT&T Merger, TCI intends to combine the assets
and businesses of Liberty Media Group and TCI Ventures Group and reclassify each
share of TCI Ventures Group Series A Stock as 0.52 of a share of Liberty Group
Series A Stock. Thereafter, upon completion of the TCI-AT&T Merger, all holders
of Liberty Group Series A Stock would receive AT&T Liberty Class A Tracking
Stock. On December 4, 1998, the Delaware Chancery Court consolidated these
actions and directed that all future filings be made in C.A. No. 16492. On
February 2, 1999, the plaintiffs filed a consolidated amended complaint (the
"TCI Ventures Group Consolidated Complaint"). The defendants named in the
consolidated action are AT&T, TCI, and the following TCI directors: John C.
Malone, John W. Gallivan, Paul A. Gould, Leo J. Hindery, Jr., Robert A. Naify,
Donne F. Fisher, Kim Magness, J.C. Sparkman and Jerome H. Kern.

         The gravamen of the TCI Ventures Group Consolidated Complaint is that
the TCI directors breached their fiduciary duties by failing to ensure that the
stockholders' interests of TCI Ventures Group Series A Stock would be properly
represented in the series of transactions leading up to and including the
TCI-AT&T Merger. Specifically, the plaintiffs allege that AT&T will acquire
certain assets of TCI Ventures Group, including TCI Ventures Group's ownership
interest in At Home Corporation ("@Home"), National Digital Television Center,
Inc. ("NDTC") and Western Tele-Communications, Inc. ("WTCI") and approximately
46.95 million shares of AT&T Common Stock, for inadequate cash consideration
totaling approximately $5.5 billion. Plaintiffs in the consolidated action seek
to enjoin the proposed transfer of assets to AT&T, or rescind the transfer or
award rescissory damages to the plaintiff class in the event that the asset
transfer is consummated, and request unspecified compensatory damages, fees and
costs. Plaintiffs have filed discovery requests in this actions. The TCI-AT&T
Merger was consummated on March 9, 1999. Based on the facts available,
management believes that, although no assurance can be given as to the outcome
of this action, the ultimate disposition of this matter should not have a
material adverse effect upon the financial condition of the Company.



                                      I-52
<PAGE>   54

         Liberty Media Group Shareholder Litigation re: TCI Ventures Group
consolidation into Liberty Media Group: Michael Chetkof v. John C. Malone; John
W. Gallivan; Paul A. Gould; Leo J. Hindery, Jr.; Robert A. Naify; Donne F.
Fisher; Kim Magness; J.C. Sparkman; Jerome H. Kern; Tele-Communications, Inc.;
and AT&T Corporation, C.A. No. 16868 NC. In January 1999, an identical suit was
filed encaptioned: Gwen Werbowksy v. same defendants, C.A. No. 16886 NC. In
December 1998 and January 1999, these putative class action complaints were
filed by stockholders of Liberty Group Series A Stock in the Delaware Chancery
Court. These complaints were filed in response to the public announcement by TCI
that, in conjunction with the TCI-AT&T Merger, TCI intends to combine the assets
and businesses of Liberty Media Group and TCI Ventures Group and reclassify each
share of TCI Ventures Group Series A Stock as 0.52 of a share of Liberty Group
Series A Stock. Thereafter, upon completion of the TCI-AT&T Merger, all holders
of Liberty Group Series A Stock would receive AT&T Liberty Class A Tracking
Stock. On February 3, 1999, the Delaware Chancery Court consolidated these
actions under the caption Chetkoff v. Tele-Communications, Inc., et al.,
Consolidated C.A. No. 16868. The defendants named in the consolidated action are
AT&T, TCI, and the following TCI directors: John C. Malone, John W. Gallivan,
Paul A. Gould, Leo J. Hindery, Jr., Robert A. Naify, Donne F. Fisher, Kim
Magness, J. C. Sparkman and Jerome H. Kern.

          The gravamen of the complaints is that the TCI directors breached
their fiduciary duties by failing to ensure that the stockholders' interests of
Liberty Group Series A Stock would be properly represented in the series of
transactions leading up to and including the TCI-AT&T Merger. Specifically,
plaintiffs allege that the approximately $5.5 billion in cash that new
"Liberty/Ventures Group" will receive from TCI for the sale to TCI of certain
TCI Ventures Group assets (including TCI Ventures Group's ownership interests in
@Home, NDTC and WTCI, and approximately 46.95 million shares of AT&T Common
Stock held by TCI Ventures Group) is inadequate. Additionally, plaintiffs
contend that, unlike the holders of TCI Group Stock, stockholders of Liberty
Group Series A Stock will not receive a premium over the pre-announcement market
price in the exchange of their Liberty Group Series A Stock for AT&T Liberty
Class A Tracking Stock. Plaintiffs seek to enjoin the proposed transfer of
assets to TCI and the proposed TCI-AT&T Merger, or the proposed transfer of
assets to TCI and rescind the TCI-AT&T Merger in the event that it is
consummated, and request unspecified compensatory damages fees and costs.
Discovery has not commenced in this action. The TCI-AT&T Merger was consummated
on March 9, 1999. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.

         Late Fee Litigation. The Company has been named in a number of
purported and certified class actions in various jurisdictions concerning late
fee charges and practices. Certain cable systems directly or indirectly owned or
managed by the Company charge late fees to customers who do not pay their cable
bills on time. These late fee cases challenge the amount of the late fees and
the practices under which they are imposed. The Plaintiffs raise claims under
state consumer protection statutes, other state statutes, and the common law.
Plaintiffs generally allege that the late fees charged by various cable systems
are not reasonably related to the costs incurred by the cable systems as a
result of the late payment. Plaintiffs seek to require cable systems to reduce
their late fees on a prospective basis and to provide compensation for alleged
excessive late fee charges for past periods. These cases are at various stages
of the litigation process. Based upon the facts available management believes
that, although no assurances can be given as to the outcome of these actions,
the ultimate disposition of these matters should not have a material adverse
effect upon the financial condition of the Company.

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

         None.


                                      I-53
<PAGE>   55

                                    PART II.


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

         Tele-Communications, Inc. ("TCI" or the "Company") had six series of
common stock. Tele-Communications, Inc. Series A TCI Group Common Stock, par
value $1.00 per share ("TCI Group Series A Stock") and Tele-Communications, Inc.
Series B TCI Group Common Stock, par value $1.00 per share ("TCI Group Series B
Stock", and together with the TCI Group Series A Stock, the "TCI Group Stock").
The TCI Group Stock was intended to reflect the separate performance of the "TCI
Group," which was substantially comprised of TCI's domestic cable and
communications assets. Tele-Communications, Inc. Series A Liberty Media Group
Common Stock, par value $1.00 per share ("Liberty Group Series A Stock") and
Tele-Communications, Inc. Series B Liberty Media Group Common Stock, par value
$1.00 per share ("Liberty Group Series B Stock", and together with the Liberty
Group Series A Stock, the "Liberty Group Stock"). The Liberty Group Stock was
intended to reflect the separate performance of TCI's assets which produce and
distribute programming services ("Liberty Media Group"). Tele-Communications,
Inc. Series A TCI Ventures Group Common Stock, par value $1.00 per share (the
"TCI Ventures Group Series A Stock") and Tele-Communications, Inc. Series B TCI
Ventures Group Common Stock, par value $1.00 per share (the "TCI Ventures Group
Series B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
Ventures Group Stock"). The TCI Ventures Group Stock was intended to reflect the
separate performance of the "TCI Ventures Group," which was comprised of TCI's
principal international assets and businesses and substantially all of TCI's
non-cable and non-programming assets.

         On March 9, 1999, AT&T Corporation ("AT&T") acquired TCI in a merger
(the "AT&T Merger") in which Italy Merger Corp., a wholly-owned subsidiary of
AT&T, merged with and into TCI, and TCI thereby became a wholly-owned subsidiary
of AT&T. As a result of the AT&T Merger, (i) each share of TCI Group Series A
Stock was converted into 0.7757 of a share of common stock, par value $1.00 per
share, of AT&T ("AT&T Common Stock"), (ii) each share of TCI Group Series B
Stock was converted into 0.8533 of a share of AT&T Common Stock, (iii) each
share of Liberty Group Series A Stock was converted into one share of a newly
created class of AT&T common stock designated as the Class A Liberty Media Group
Common Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
Stock"), (iv) each share of Liberty Group Series B Stock was converted into one
share of a newly created class of AT&T common stock designated as the Class B
Liberty Media Group Common Stock, par value $1.00 per share (the "AT&T Liberty
Class B Tracking Stock" and together with the AT&T Liberty Class A Tracking
Stock, the "AT&T Liberty Tracking Stock"), (v) each share of TCI Ventures Group
Series A Stock was converted into 0.52 of a share of AT&T Liberty Class A
Tracking Stock, (vi) each share of TCI Ventures Group Series B Stock was
converted into 0.52 of a share of AT&T Liberty Class B Tracking Stock. For
additional information, see note 2 to the accompanying consolidated financial
statements of the Company.


                                      II-1
<PAGE>   56

         As of December 31, 1998, TCI Group Series A Stock, TCI Group Series B
Stock, Liberty Group Series A Stock, Liberty Group Series B Stock, TCI Ventures
Group Series A Stock and TCI Ventures Group Series B Stock were traded on the
Nasdaq National Market Tier of the Nasdaq Stock Market ("Nasdaq") under the
symbols TCOMA, TCOMB, LBTYA, LBTYB, TCIVA and TCIVB, respectively. The table
below sets forth the range of high and low sales prices in United States dollars
of shares of common stock of TCI for the periods indicated as furnished by
Nasdaq. The prices have been rounded up to the nearest eighth, and do not
include retail markups, markdowns, or commissions.

<TABLE>
<CAPTION>
           TCI Group Stock
                                                                        Series A                  Series B
                                                                  -------------------       -------------------
                                                                  High          Low         High          Low
                                                                  ----          ---         ----          ---
<S>                                                               <C>          <C>          <C>          <C>
           1997:
           First quarter                                          14-7/8       11-7/8       14-3/4       12
           Second quarter                                         17-1/8       10-3/4       18           10-1/4
           Third quarter                                          21-1/8       14-1/8       22           15-1/2
           Fourth quarter                                         29-1/8       19-1/2       29-1/2       21

           1998:
           First quarter                                          33-1/8       26-1/4       33-1/2       26-1/4
           Second quarter                                         44           30-1/2       47-7/8       30-3/4
           Third quarter                                          42-5/8       30-3/8       46-3/4       33-1/2
           Fourth quarter                                         56-3/4       35-7/8       62           38-3/8
</TABLE>


<TABLE>
<CAPTION>
           Liberty Group Stock 
                                                                      Series A                   Series B
                                                                  -------------------       -------------------
                                                                  High          Low         High          Low
                                                                  ----          ---         ----          ---

<S>                                                               <C>          <C>          <C>          <C>
           1997:
           First quarter                                          15-7/8       12           15-1/2       12-3/8
           Second quarter                                         18           12-1/2       17-7/8       12-3/8
           Third quarter                                          20-1/8       15-7/8       19-3/4       16-1/4
           Fourth quarter                                         24-5/8       19-5/8       25           20-1/4

           1998:
           First quarter                                          35           22-1/8       35-1/8       22-1/8
           Second quarter                                         40-1/8       30-3/8       41           31-3/8
           Third quarter                                          44           31-3/4       47-3/4       33-1/2
           Fourth quarter                                         46-3/4       31-1/2       48-1/4       34-1/4
</TABLE>


<TABLE>
<CAPTION>
           TCI Ventures Group Stock 
                                                                       Series A                   Series B
                                                                  -------------------       -------------------
                                                                  High          Low         High          Low
                                                                  ----          ---         ----          ---
<S>                                                               <C>          <C>          <C>          <C>
           1997:
           Third quarter (from September 10, 1997 (on 
           September 10, 1997 TCI issued shares of 
           TCI Ventures Group Stock in exchange 
           for certain shares of TCI Group Stock, 
           "the TCI Ventures Exchange") through
           September 30, 1997)                                    10-3/4        9-5/8       10-7/8       10-1/8
           Fourth quarter                                         14-7/8        9-7/8       14-3/8       10-1/8

           1998:
           First quarter                                          18           13-1/2       18           13-1/2
           Second quarter                                         20-1/4       15-3/4       20-1/8       15-1/2
           Third quarter                                          22-1/8       15-7/8       22-3/4       16-3/8
           Fourth quarter                                         24           15-3/8       24-1/8       16
</TABLE>


                                      II-2
<PAGE>   57

         As of December 31, 1998, there were 5,579 holders of record of TCI
Group Series A Stock, 349 of TCI Group Series B Stock, 4,364 of Liberty Group
Series A Stock, 292 of Liberty Group Series B Stock, 1,244 of TCI Ventures Group
Series A Stock and 123 of TCI Ventures Group Series B Stock (which amounts do
not include the number of stockholders whose shares are held of record by
brokerage houses but include each brokerage house as one stockholder).

         Subsequent to the AT&T Merger, all of the Company's common stock is
owned by AT&T. The Company has not paid cash dividends on its common stock and
has no present intention of so doing. Payment of cash dividends, if any, in the
future will be determined by the Board of Directors of TCI (the "Board") in
light of the Company's earnings, financial condition and other relevant
considerations. The Company is a holding company and its assets consist almost
entirely of investments in its subsidiaries. As a holding company, the Company's
ability to pay dividends on any classes or series of its stock is dependent on
the earnings of, or other funds available to, the Company's subsidiaries and the
distribution or other payment of such earnings or other funds to the Company in
the form of dividends, loans or other advances, payment or reimbursement of
management fees and expenses and repayment of loans and advances from the
Company. Certain of the Company's subsidiaries are subject to loan agreements
that prohibit or limit the transfer of funds by such subsidiaries to the Company
in the form of dividends, loans, or advances, and require that such
subsidiaries' indebtedness to the Company be subordinate to the indebtedness
under such loan agreements. At December 31, 1998, the amount of net assets of
subsidiaries subject to such restrictions exceeded the Company's consolidated
net assets.


                                      II-3
<PAGE>   58

Item 6.  Selected Financial Data.

         The following tables present selected historical information relating
to the financial condition and results of operations of Tele-Communications,
Inc. for the past five years. The following data should be read in conjunction
with the Company's consolidated financial statements. This information has not
been adjusted for the March 9, 1999 AT&T Merger, the related combination of
Liberty Media Group and TCI Ventures Group, or the merger of TCI Communications,
Inc. ("TCIC") into TCI and related restructuring transactions. See note 2 to
accompanying consolidated financial statements of the Company.

<TABLE>
<CAPTION>
                                                                                December 31,
                                               --------------------------------------------------------------------------
                                                   1998            1997             1996          1995            1994
                                               ------------    ------------     ------------   -----------     ----------
                                                                            amounts in millions

<S>                                            <C>             <C>              <C>            <C>             <C>  
Summary Balance Sheet Data:

Property and equipment, net                    $      7,153           7,679            7,528          7,409         5,876

Franchise costs, net                           $     12,068          15,147           15,436         12,230         9,444

Total assets                                   $     41,851          32,477           30,169         25,429        19,148

Debt                                           $     14,052          15,250           14,926         13,211        11,162

Minority interests in equity of 
     consolidated subsidiaries                 $      1,460           1,664            1,493            651           429

Redeemable securities                          $        322             660              658            478           170

Company-obligated 
     mandatorily redeemable 
     preferred securities of 
     subsidiary trusts ("Trust 
     Preferred Securities") 
     holding solely subordinated 
     debt securities of TCI 
     Communications, Inc.                      $      1,500           1,500            1,000             --            --

Stockholders' equity                           $     10,868           4,506            4,178          4,461         2,578

Common shares outstanding 
     (net of treasury shares and 
     shares held by subsidiaries):
      Class A common stock                               --              --               --             --           491
      Class B common stock                               --              --               --             --            85
      TCI Group Series A Stock                          474             469              579            572            --
      TCI Group Series B Stock                           64              38               85             85            --
      Liberty Group Series A Stock                      336             313              342            337            --
      Liberty Group Series B Stock                       32              32               32             32            --
      TCI Ventures Group Series A Stock                 377             377               --             --            --
      TCI Ventures Group Series B Stock                  45              32               --             --            --
</TABLE>


                                      II-4
<PAGE>   59


<TABLE>
<CAPTION>
                                                                      Years ended December 31,
                                               -------------------------------------------------------------------------
                                                  1998            1997              1996          1995           1994
                                               ----------      ----------        ---------      --------       ---------
                                                                amounts in millions, except per share data
<S>                                            <C>             <C>               <C>            <C>            <C>  
Summary Statement of 
 Operations Data:

Revenue                                        $    7,351           7,570            8,022         6,506           4,682

Operating income (loss)                        $      (59)            849              632           542             788

Interest expense                               $   (1,061)         (1,160)          (1,096)       (1,010)           (785)

Share of losses of affiliates, other than
 Liberty Media Corporation, net                $   (1,384)           (930)            (450)         (213)            (64)

Gains (losses) on disposition of 
  assets, net                                  $    5,760             401            1,593            49             (10)

Net earnings (loss)                            $    1,943            (561)             292          (183)             91

Net earnings (loss) attributable 
 to common stockholders:
      TCI Class A and Class B 
       common stock                            $       --              --               --           (78)(a)          83
      TCI Group Stock                                (240)           (537)            (799)         (112)(b)          --
      Liberty Group Stock                             156             125            1,056           (27)(b)          --
      TCI Ventures Group Stock                      2,003            (191)(c)           --            --              --
                                               ----------      ----------        ---------      --------       ---------
                                               $    1,919            (603)             257          (217)             83
                                               ==========      ==========        =========      ========       =========

Basic earnings (loss) 
 attributable to common 
 stockholders per common 
 share:
   TCI Class A and Class B 
     common stock                              $       --              --               --          (.12)(a)         .15
      TCI Group Stock                          $     (.46)           (.85)           (1.20)         (.17)(b)          --
      Liberty Group Stock                      $      .43             .34             2.82          (.07)(b)          --
      TCI Ventures Group Stock                 $     4.75            (.47) (c)           --            --             --

Diluted earnings (loss) 
 attributable to common 
 stockholders per common 
 and potential common share:
   TCI Class A and Class B 
     common stock                              $        --              --               --         (.12)(a)         .15
   TCI Group Stock                             $     (.49)           (.85)           (1.20)         (.17)(b)          --
   Liberty Group Stock                         $      .39             .31             2.58          (.07)(b)          --
   TCI Ventures Group Stock                    $     4.44            (.47) (c)           --            --             --
</TABLE>

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

(a)  From January 1, 1995 through August 10, 1995 (on August 10, 1995, TCI
     distributed in the form of a dividend, 2.25 shares (as adjusted) of Liberty
     Group Stock for each four shares of TCI Group Stock owned, the "Liberty
     Distribution").

(b)  From the date of the Liberty Distribution through December 31, 1995.

(c)  From the date of the TCI Ventures Exchange through December 31, 1997.


                                      II-5
<PAGE>   60

Item 7.       Management's Discussion and Analysis of Financial Condition and
              Results of Operations.
 
         The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company. Such
discussion should be read in conjunction with the accompanying consolidated
financial statements and notes thereto.

         Targeted Stock

         The Company, through its subsidiaries and affiliates, is principally
engaged in the construction, acquisition, ownership, and operation of cable
television systems and the provision of satellite-delivered video entertainment,
information and home shopping programming services to various video distribution
media, principally cable television systems. The Company also has investments in
cable and telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies.

         The Company's assets and operations were previously included in three
separate groups, each of which was tracked separately by public equity
securities. These groups were known as the Liberty Media Group, the TCI Ventures
Group and the TCI Group.

         The Liberty Media Group was intended to reflect the separate
performance of TCI's assets which produce and distribute programming services.
For additional information, see note 1 to the accompanying consolidated
financial statements of the Company.

         The TCI Ventures Group was intended to reflect the separate performance
of TCI's principal international assets and businesses and substantially all of
TCI's non-cable and non-programming assets. For additional information, see note
1 to the accompanying consolidated financial statements of the Company.

         The TCI Group was intended to reflect the separate performance of TCI
and its subsidiaries and assets not attributed to Liberty Media Group or TCI
Ventures Group. Such subsidiaries and assets are comprised primarily of TCI's
domestic cable and communications business. For additional information, see note
1 to the accompanying consolidated financial statements of the Company.

         The TCI Group was tracked separately through the TCI Group Series A
Stock and the TCI Group Series B Stock. The Liberty Media Group was tracked
separately through the Liberty Group Series A Stock and Liberty Group Series B
Stock. The TCI Ventures Group was tracked separately through the TCI Ventures
Group Series A Stock and TCI Ventures Group Series B Stock.

         The TCI Group Series A Stock, TCI Ventures Group Series A Stock and the
Liberty Group Series A Stock are sometimes collectively referred to herein as
the "Series A Stock," and the TCI Group Series B Stock, TCI Ventures Group
Series B Stock and Liberty Group Series B Stock are sometimes collectively
referred to herein as the "Series B Stock."


                                      II-6
<PAGE>   61

Merger and Restructuring

         On March 9, 1999, AT&T acquired TCI in the AT&T Merger in which Italy
Merger Corp., a wholly-owned subsidiary of AT&T, merged with and into TCI, and
TCI thereby became a wholly-owned subsidiary of AT&T. As a result of the AT&T
Merger, (i) each share of TCI Group Series A Stock was converted into 0.7757 of
a share of AT&T Common Stock, (ii) each share of TCI Group Series B Stock was
converted into 0.8533 of a share of AT&T Common Stock, (iii) each share of
Liberty Group Series A Stock was converted into one share of a newly created
class of AT&T common stock designated as the AT&T Liberty Class A Tracking
Stock, (iv) each share of Liberty Group Series B Stock was converted into one
share of a newly created class of AT&T common stock designated as the AT&T
Liberty Class B Tracking Stock, (v) each share of TCI Ventures Group Series A
Stock was converted into 0.52 of a share of AT&T Liberty Class A Tracking Stock,
(vi) each share of TCI Ventures Group Series B Stock was converted into 0.52 of
a share of AT&T Liberty Class B Tracking Stock, (vii) each share of TCI's
Convertible Preferred Stock, Series C-TCI Group was converted into 103.059502
shares of AT&T Common Stock, (viii) each share of TCI's Convertible Preferred
Stock Series C-Liberty Media Group was converted into 56.25 shares of AT&T
Liberty Class A Tracking Stock, (ix) each share of TCI's Redeemable Convertible
TCI Group Preferred Stock, Series G was converted into 0.923083 shares of AT&T
Common Stock and (x) each share of TCI's Redeemable Convertible Liberty Media
Group Preferred Stock, Series H was converted into 0.590625 of a share of AT&T
Liberty Class A Tracking Stock. Following the AT&T Merger, each share of TCI's
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock ("Class B
Preferred Stock") continues to be outstanding as the Class B 6% Preferred Stock
with the same rights and preferences such stock had prior to the AT&T Merger. In
general, the holders of shares of AT&T Liberty Class A Tracking Stock and the
holders of shares of AT&T Liberty Class B Tracking Stock will vote together as a
single class with the holders of shares of AT&T Common Stock on all matters
presented to such stockholders, with the holders being entitled to one-tenth
(1/10th) of a vote for each share of AT&T Liberty Class A Tracking Stock held, 1
vote per share of AT&T Liberty Class B Tracking Stock held and 1 vote per share
of AT&T Common Stock held.


                                      II-7
<PAGE>   62

         The shares of AT&T Liberty Tracking Stock issued in the AT&T Merger are
intended to reflect the separate performance of the businesses and assets
attributed to "Liberty/Ventures Group," which following the AT&T Merger, is
comprised of the businesses and assets attributed to Liberty Media Group and TCI
Ventures Group at the time of the AT&T Merger. Pursuant to, and subject to the
terms and conditions set forth in, the Agreement and Plan of Restructuring and
Merger, dated as of June 23, 1998 (the "Merger Agreement"), immediately prior to
the AT&T Merger, certain assets previously attributed to TCI Ventures Group
(including, among others, the shares of AT&T Common Stock received in the merger
of AT&T and Teleport Communications Group, Inc. ("TCG"), the stock of At Home
Corporation ("@Home") attributed to TCI Ventures Group, the assets and business
of the National Digital Television Center, Inc. ("NDTC") and TCI Ventures
Group's equity interest in Western Tele-Communications, Inc.("WTCI")) were
transferred to TCI Group in exchange for approximately $5.5 billion in cash.
Also, upon consummation of the AT&T Merger, through a new tax sharing agreement
between Liberty/Ventures Group and AT&T, Liberty/Ventures Group became entitled
to the benefit of approximately $2.0 billion of net operating loss carryforwards
attributable to all entities included in TCI's consolidated federal income tax
return as of the date of the AT&T Merger. Such net operating loss carryforwards
are subject to adjustment by the Internal Revenue Service and are subject to 
limitations on usage which may affect the ultimate amount utilized. See note 19
to the accompanying consolidated financial statements of the Company.
Additionally, certain warrants previously attributed to TCI Group were
transferred to Liberty/Ventures Group in exchange for approximately $176 million
in cash. Certain agreements entered into at the time of the AT&T Merger provide,
among other things, for preferred vendor status to Liberty/Ventures Group for
digital basic distribution on AT&T's systems of new programming services created
by Liberty/Ventures Group and for a renewal of existing affiliation agreements.
The transfer of certain other immaterial assets was also effected.

         Pursuant to amended corporate governance documents for the entities
included in Liberty/Ventures Group and certain agreements among AT&T and TCI,
the business of Liberty/Ventures Group will continue to be managed by certain
persons who were members of TCI's management prior to the AT&T Merger. AT&T will
initially designate one third of the directors of such entities and its rights
as the sole shareholder of the common stock of such entities following the AT&T
Merger will, in accordance with Delaware law, be limited to actions which will
require shareholder approval. Therefore, management has concluded that TCI does
not have a controlling financial interest (as that term is used in Statement of
Financial Accounting Standards No. 94) in the entities comprising the
Liberty/Ventures Group following the AT&T Merger, and will account for its
investment in such entities under the equity method.


                                      II-8
<PAGE>   63

         Accordingly, effective with the AT&T Merger, the results of operations
of the entities attributed to Liberty/Ventures Group (exclusive of @Home, NDTC
and WTCI which were transferred to TCI Group immediately prior to the AT&T
Merger) will no longer be consolidated in the TCI consolidated financial
statements. The following table presents certain combined operating information
of Liberty/Ventures Group (inclusive of the operating information of @Home, NDTC
and WTCI) for the indicated periods:

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                               -----------------------------------------------
                                                                  1998                1997            1996
                                                               -----------        ------------     -----------
                                                                               amounts in millions
<S>                                                            <C>                <C>              <C>  
       Revenue:
           Unaffiliated parties                                $     1,301               1,104           1,136
           TCI Group                                                   258                 195             117
           Net sales from electronic retailing services                 --                  --             984
                                                               -----------        ------------     -----------
                                                                     1,559               1,299           2,237
                                                               -----------        ------------     -----------

       Cost of sales, operating costs and expenses:
           Cost of sales                                                --                  --             605
           Operating                                                   882                 682             750
           Selling, general and administrative                         427                 348             563
           Charges from related parties                                 28                  75              63
           Cost of distribution agreements                              50                  --              --
           Stock compensation                                          518                 296              10
           Depreciation and amortization                               243                 196             210
                                                               -----------        ------------     -----------
                                                                     2,148               1,597           2,201
                                                               -----------        ------------     -----------

                Operating income (loss)                               (589)               (298)             36

       Other income (expense):
           Interest expense                                           (116)                (57)            (68)
           Interest expense to related parties                         (10)                (18)             --
           Dividend and interest income                                100                  57              39
           Interest income from related parties                         --                   6              14
           Share of losses of affiliates, net                       (1,034)               (850)           (372)
           Minority interests in losses of attributed
              subsidiaries                                             102                  25              26
           Gains on dispositions, net                                4,738                 420           1,558
           Gains on issuance of equity by affiliates and
              subsidiaries                                             357                 172              13
           Other, net                                                    6                   2               9
                                                               -----------        ------------     -----------
                                                                     4,143                (243)          1,219
                                                               -----------        ------------     -----------

              Earnings (loss) before income 
                taxes                                                3,554                (541)          1,255

       Income tax benefit (expense)                                 (1,397)                130            (457)
                                                               -----------        ------------     -----------

              Net earnings (loss)                              $     2,157                (411)            798
                                                               ===========        ============     ===========
</TABLE>

If the transfer of @Home, NDTC and WTCI from Liberty/Ventures Group to TCI Group
had occurred on January 1, 1998, TCI Group's revenue, operating cash flow (as
defined by the Company) and operating loss would have increased (decreased) by
$182 million, $7 million and ($159 million), respectively.

                                      II-9
<PAGE>   64

         Pursuant to a proposed final judgment (the "Final Judgment") agreed to
by TCI, AT&T and the United States Department of Justice (the "DOJ") on December
30, 1998, Liberty/Ventures Group prior to the AT&T Merger transferred all of the
equity securities of Sprint Corporation ("Sprint") beneficially owned by the
Liberty/Ventures Group (the "Sprint Securities") to a trust with an independent
trustee (the "Trustee"), pursuant to a trust agreement approved by the DOJ (the
"Trust Agreement"). The Final Judgment, if entered by the United States District
Court for the District of Columbia, would require the Trustee, on or before May
23, 2002, to dispose of a portion of the Sprint Securities held by the trust and
beneficially owned by Liberty/Ventures Group sufficient to cause
Liberty/Ventures Group to own beneficially no more than 10% of the outstanding
Series 1 PCS Stock of Sprint on a fully diluted basis (assuming the issuance of
all shares of Series 1 PCS Stock of Sprint ultimately issuable in respect of the
applicable securities of Sprint upon the exercise, conversion or other issuance
thereof in accordance with the terms of such securities) on such date. On or
before May 23, 2004, the Trustee must divest the remainder of the Sprint
Securities beneficially owned by Liberty/Ventures Group.

         The Trust Agreement grants the Trustee the sole right to sell the
Sprint Securities and provides that all decisions regarding such divestiture
will be made by the Trustee without discussion or consultation with AT&T or the
entities in the Liberty/Ventures Group; however, the Final Judgment would
provide that the Trustee shall consult with the board of directors of the
Liberty/Ventures Group entity that owns Sprint Securities regarding such
divestiture (other than certain directors appointed by AT&T following the AT&T
Merger and any director, officer or shareholder that owns more than 0.10% of the
outstanding AT&T Common Stock). The Trustee has the power and authority to
accomplish such divestiture only in a manner reasonably calculated to maximize
the value of the Sprint Securities beneficially owned by Liberty/Ventures Group.

         The Final Judgment would provide that the Trustee vote the Sprint
Securities beneficially owned by Liberty/Ventures Group in the same proportion
as other holders of Sprint's PCS stock so long as such securities are held by
the trust. The Final Judgment also would prohibit the acquisition by
Liberty/Ventures Group of additional Sprint Securities (other than in connection
with the exercise or conversion, as applicable, of certain Sprint Securities)
without the prior written consent of the DOJ.

         Immediately prior to the AT&T Merger, TCI restructured its ownership of
certain of its subsidiaries. This restructuring included merging TCI's cable
subsidiary, TCIC, into TCI. As a result of TCIC's merger with TCI, all assets
and liabilities of TCIC have been assumed by TCI, including TCIC's public debt.
In connection with TCIC's merger with TCI, each share of TCIC's Cumulative
Exchangeable Preferred Stock, Series A was converted into 2.119 shares of TCI
Group Series A Stock, and such shares of TCI Group Series A Stock were
subsequently converted into AT&T Common Stock in connection with the AT&T
Merger. All other public securities issued by subsidiaries of TCIC (other than
TCI Pacific Communications, Inc. ("Pacific")) otherwise remained unaffected.
Furthermore, as part of the restructuring, (i) certain asset transfers were made
between TCI and its subsidiaries, (ii) 123,896 shares of the Company's
Convertible Redeemable Participating Preferred Stock, Series F ("Series F
Preferred Stock"), which were held by subsidiaries of TCI, were converted into
185,428,946 shares of TCI Group Series A Stock (which in turn were converted
into 143,837,233 shares of AT&T Common Stock in the AT&T Merger and continue to
be held by subsidiaries of TCI), (iii) the remaining 154,411 shares of Series F
Preferred Stock which were formerly held by subsidiaries of TCI were distributed
to TCI through a series of liquidations and canceled, and (iv) 125,728,816
shares of TCI Group Series A Stock, 9,154,134 shares of TCI Group Series B
Stock, 6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of
Liberty Group Series B Stock, and 67,536 shares of Class B Preferred Stock, each
formerly held by subsidiaries of TCI, were distributed to TCI through a series
of liquidations and canceled.


                                     II-10
<PAGE>   65


         After the AT&T Merger, under the terms of the 5% Class A Senior
Cumulative Exchangeable Preferred Stock of Pacific (the "Exchangeable Preferred
Stock"), each share of that preferred stock is exchangeable, from and after
August 1, 2001, for approximately 4.225 shares of AT&T Common Stock, subject to
certain anti-dilution adjustments. Additionally, after the AT&T Merger, Pacific
may elect to make any dividend, redemption or liquidation payment on the
Exchangeable Preferred Stock in cash, by delivery of shares of AT&T Common Stock
or by a combination of the foregoing forms of consideration.

         Magness Settlement

         On June 16, 1997, (a) the Company issued 30,545,864 shares of TCI Group
Series A Stock (which shares are entitled to one vote per share) to the Estate
of Bob Magness (the "Magness Estate"), the late founder and former Chairman of
the Board of TCI in exchange (the "Exchange") for an equal number of shares of
TCI Group Series B Stock (which shares are entitled to ten votes per share)
owned by the Magness Estate, (b) the Magness Estate sold (the "Sale") the shares
of TCI Group Series A Stock received in the Exchange, together with
approximately 1.5 million shares of TCI Group Series A Stock that the Magness
Estate previously owned (collectively, the "Option Shares"), to two investment
banking firms (the "Investment Bankers") for approximately $530 million (the
"Sale Price") and (c) TCI entered into an agreement with the Investment Bankers
whereby TCI would have the option, but not the obligation, to purchase the
Option Shares at any time on or before June 16, 1999 (the "Option Period"). The
preceding transactions are referred to collectively as the "June 16 Stock
Transaction". During the Option Period, the Company and the Investment Bankers
would settle quarterly any increase or decrease in the market value of the
Option Shares. If the market value of the Option Shares should exceed the
Investment Bankers' cost, Option Shares with a fair value equal to the
difference between the market value and cost would be segregated from the other
Option Shares in an account at the Investment Bankers. If the market value of
the Option Shares should be less than the Investment Bankers' cost, the Company,
at its option, would settle such difference with shares of TCI Group Series A
Stock or TCI Ventures Group Series A Stock or, subject to certain conditions,
with cash or letters of credit. In addition, the Company would be required to
pay the Investment Bankers a quarterly fee equal to the London Interbank Offered
Rate ("LIBOR") plus 1% on the Sale Price, as adjusted for payments made by the
Company pursuant to any quarterly settlement with the Investment Bankers. Due to
the Company's ability to settle quarterly price fluctuations and fees with
shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock, the
Company records all amounts received or paid under this arrangement as increases
or decreases, respectively, to equity. During the fourth quarter of 1997, the
Company repurchased 4 million shares of TCI Group Series A Stock from one of the
Investment Bankers for an aggregate cash purchase price of $66 million.
Additionally, as a result of the Exchange Offers and certain open market
transactions that were completed to obtain the desired weighting of TCI Group
Series A Stock and TCI Ventures Group Series A Stock, the Investment Bankers
disposed of 4,210,308 shares of TCI Group Series A Stock and acquired 23,407,118
shares of TCI Ventures Group Series A Stock during the last half of 1997. As a
result of the foregoing transactions and certain transactions related to the
January 5, 1998 settlement of litigation involving the Magness Estate, as
described below, the Option Shares were comprised of 6,201,042 shares of TCI
Group Series A Stock and 11,740,610 shares of TCI Ventures Group Series A Stock
at December 31, 1998. At December 31, 1998, the market value of the Option
Shares exceeded the Investment Bankers' cost by $421 million.


                                     II-11
<PAGE>   66

         Pursuant to a certain letter agreement, dated June 16, 1997, between
Dr. Malone, TCI's Chairman and Chief Executive Officer, and the Magness Estate,
Dr. Malone agreed to waive certain rights of first refusal with respect to
shares of TCI Group Series B Stock beneficially owned by the Magness Estate.
Such rights of first refusal arise from a letter agreement, dated June 17, 1988,
among Bob Magness, Kearns-Tribune Corporation and Dr. Malone, pursuant to which
Dr. Malone was granted a right of first refusal to acquire any shares of TCI
Group Series B Stock which the other parties proposed to sell. As a result of
Dr. Malone's rights under such June 17, 1988 letter agreement, such waiver was
necessary in order for the Magness Estate to consummate the Exchange and the
Sale.

         In consideration for such waiver, TCI granted Dr. Malone the right (the
"Malone Right") to acquire from time to time until June 30, 1999, from TCI up to
30,545,864 shares of the TCI Group Series B Stock acquired by TCI from the
Magness Estate pursuant to the Exchange. Such acquisition may be made in
exchange for either, or any combination of, shares of TCI Group Series A Stock
owned by Dr. Malone (exchanged on a one for one basis), or cash in an amount
equal to the average closing sale price of the TCI Group Series B Stock for the
five trading days preceding the acquisition.

         In connection with certain legal proceedings relative to the probate of
the Magness Estate, one or more of Gary Magness and Kim Magness, Bob Magness'
sons, Sharon Magness, Bob Magness' surviving second wife and the original
personal representatives of the Magness Estate advanced various claims, causes
of action, demands, complaints and requests against one or more of the others.
In addition, Kim Magness and Gary Magness, in a Complaint And Request To Void
Sale Of TCI Stock, And For Damages And Surcharge, filed on October 29, 1997 (the
"Voiding Action"), advanced various claims relating to the June 16 Stock
Transaction against TCI, Dr. Malone and the original personal representatives of
the Magness Estate. Among other matters, the Voiding Action challenged the June
16 Stock Transaction on various fiduciary bases and requested rescission of such
transaction and damages.

         Pursuant to an agreement effective as of January 5, 1998, TCI, Gary
Magness, Kim Magness, Sharon Magness, the Magness Estate, the Estate of Betsy
Magness (the first wife of Bob Magness) and Dr. Malone agreed to settle their
respective claims against each other relating to the Magness Estate and the June
16 Stock Transaction, in each case without any of those parties admitting any of
the claims or allegations against that party (the "Magness Settlement").

         In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that (i) 10,201,041 shares of TCI Group Series A Stock
and 11,666,506 shares of TCI Ventures Group Series A Stock were returned to TCI
as authorized but unissued shares, (ii) the Magness Estate returned to the
Investment Bankers the portion of the Sale Price attributable to such returned
shares and (iii) the Magness Estate paid $11 million to TCI representing a
reimbursement of the Exchange fees incurred by TCI from June 16, 1997 through
February 9, 1998 with respect to such returned shares. TCI then issued to the
Magness Estate 10,017,145 shares of TCI Group Series B Stock and 12,034,298
shares of TCI Ventures Group Series B Stock. In addition, as part of the Magness
Settlement, TCI issued 1,339,415 shares of TCI Group Series B Stock to the
Estate of Betsy Magness in exchange for an equal number of shares of TCI Group
Series A Stock and issued 1,531,834 shares of TCI Ventures Group Series B Stock
for an equal number of shares of TCI Ventures Group Series A Stock.


                                     II-12
<PAGE>   67

         On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr. Malone and
Dr. Malone's wife (together with Dr. Malone, the "Malones"), under which the
Malones granted to TCI the right to acquire any shares of TCI stock which are
entitled to cast more than one vote per share (the "High-Voting Shares") owned
by the Malones, which at December 31, 1998 consisted of an aggregate of
approximately 69 million High-Voting Shares upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal amount) to
third persons. In either such event, TCI has the right to acquire the shares at
a maximum price equal to the then relevant market price of shares of
"low-voting" Series A Stock plus a ten percent premium. The Malones also agreed
that if TCI were ever to be sold to another entity, then the maximum premium
that the Malones would receive on their High-Voting Shares would be no greater
than a ten percent premium over the price paid for the relevant shares of Series
A Stock. TCI paid $150 million to the Malones in consideration of their entering
into the Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain cases, on
behalf of the Estate of Betsy Magness and the Magness Estate (collectively, the
"Magness Family") also entered into a call agreement with TCI (with
substantially the same terms as the one entered into by the Malones, including a
call on the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's, which at December 31, 1998
consisted of an aggregate of approximately 55 million High-Voting Shares. The
Magness Family was paid $124 million by TCI in consideration of their entering
into the Magness Call Agreement.


                                     II-13
<PAGE>   68

         Additionally, on February 9, 1998, the Magness Family entered into a
Shareholders' Agreement (the "Shareholders' Agreement") with the Malones and TCI
under which (i) the Magness Family and the Malones agree to consult with each
other in connection with matters to be brought to the vote of TCI's
stockholders, subject to the proviso that if they cannot mutually agree on how
to vote the shares, Dr. Malone has an irrevocable proxy to vote the High-Voting
Shares owned by the Magness Family, (ii) the Magness Family may designate a
nominee for the Board and Dr. Malone has agreed to vote his High-Voting Shares
for such nominee and (iii) certain "tag along rights" have been created in favor
of the Magness Family and certain "drag along rights" have been created in favor
of the Malones. In addition, the Malone Right granted by TCI to Dr. Malone to
acquire 30,545,864 shares of TCI Group Series B Stock was reduced to an option
to acquire 14,511,570 shares of TCI Group Series B Stock. Pursuant to the terms
of the Shareholders' Agreement, the Magness Family has the right to participate
in the reduced Malone Right on a proportionate basis with respect to 12,406,238
shares of the 14,511,570 shares subject to the Malone Right. On June 24, 1998,
Dr. Malone delivered notice to TCI exercising his right to purchase (subject to
the Magness Family proportionate right) up to 14,511,570 shares of TCI Group
Series B Stock at a per share price of $35.5875 pursuant to the Malone Right. In
addition, a representative of the Magness Family advised Dr. Malone that the
Magness Family would participate in such purchase up to the Magness Family's
proportionate right. On October 14, 1998, 8,718,770 shares of TCI Group Series B
Stock were issued to Dr. Malone upon payment of cash consideration totaling $310
million. On October 16, 1998, 5,792,800 shares of TCI Group Series B Stock were
issued to the Magness Family upon payment of cash consideration totaling $206
million. In connection with the acquisition of the TCI Group Series B Stock by
Dr. Malone, TCI executed certain waivers to the Malone Call Agreement and TCI
and the Magness Family executed a waiver to the Shareholders' Agreement to,
among other things, permit (subject to certain limitations) the pledge of TCI
Group Series B Stock owned by Dr. Malone as collateral to the lenders who
provided the funds for his purchase of shares of TCI Group Series B Stock. In
connection with the AT&T Merger, Liberty Media Corporation ("Liberty") became
entitled to exercise TCI's rights under each Call Agreement and the
Shareholders' Agreement with respect to the AT&T Liberty Class B Tracking Stock
acquired by the Malones and the Magness Family as a result of the AT&T Merger
and the Malones and the Magness Family agreed that the Shareholders' Agreement
would continue to apply to the AT&T Liberty Class B Tracking Stock.

         On February 1, 1999, the Company began to terminate the transactions
under the agreements with the Investment Bankers described above, and as of
March 5, 1999, such transactions were terminated. In connection with the
termination of such transactions the Company received an aggregate cash payment
of $509 million.

         Inflation

         Inflation has not had a significant impact on TCI's results of
operations during the three-year period ended December 31, 1998.


                                     II-14
<PAGE>   69

         Accounting Standards

         Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"). The Company has reclassified its prior period consolidated
balance sheet and consolidated statements of operations to conform to the
requirements of SFAS 130. SFAS 130 requires that all items which are components
of comprehensive earnings or losses be reported in a financial statement in the
period in which they are recognized. The Company has included cumulative foreign
currency translation adjustments and unrealized holding gains and losses on
available-for-sale securities in other comprehensive earnings that are recorded
directly in stockholders' equity. Pursuant to SFAS 130, these items are
reflected, net of related tax effects, as components of comprehensive earnings
in the Company's consolidated statements of operations and comprehensive
earnings, and are included in accumulated other comprehensive earnings in the
Company's consolidated balance sheets and statements of stockholders' equity.

         During 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, ("SFAS 133"), which is effective for all fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments and hedging activities by requiring that
all derivative instruments be reported as assets or liabilities and measured at
their fair values. Under SFAS 133, changes in the fair values of derivative
instruments are recognized immediately in earnings unless those instruments
qualify as hedges of the (1) fair values of existing assets, liabilities, or
firm commitments, (2) variability of cash flows of forecasted transactions, or
(3) foreign currency exposures of net investments in foreign operations.
Although management of the Company has not completed its assessment of the
impact of SFAS 133 on its consolidated results of operations and financial
position, management currently estimates that the impact of SFAS 133 will not be
material.

         Year 2000

         During 1998, the Company continued its enterprise-wide, comprehensive
efforts to assess and remediate its computer systems and related software and
equipment to ensure such systems, software and equipment recognize, process and
store information in the year 2000 and thereafter. The Company's year 2000
remediation efforts include an assessment of its most critical systems, such as
customer service and billing systems, headends and other cable plant systems
that support the Company's programming services, business support operations,
and other equipment and facilities. The Company also continued its efforts to
verify the year 2000 readiness of its significant suppliers and vendors and
continued to communicate with significant business partners and affiliates to
assess such partners and affiliates' year 2000 status.

         The Company has a year 2000 Program Management Office (the "PMO") to
organize and manage its year 2000 remediation efforts. The PMO is responsible
for overseeing, coordinating and reporting on the Company's year 2000
remediation efforts. At December 31, 1998, it was comprised of a 119-member,
full-time staff, accountable to executive management of the Company.


                                     II-15
<PAGE>   70

         The PMO has defined a four-phase approach to determining the year 2000
readiness of the Company's systems, software and equipment. Such approach is
intended to provide a detailed method for tracking the evaluation, repair and
testing of the Company's critical systems, software and equipment. Phase 1,
Assessment, involves the inventory of all critical systems, software and
equipment and the identification of any year 2000 issues. Phase 1 also includes
the preparation of the workplans needed for remediation. Phase 2, Remediation,
involves repairing, upgrading and/or replacing any non-compliant critical
equipment and systems. Phase 3, Testing, involves testing the Company's critical
systems, software, and equipment for year 2000 readiness, or in certain cases,
relying on test results provided to the Company. Phase 4, Implementation,
involves placing compliant systems, software and equipment into production or
service.

         At December 31, 1998, TCI's overall progress by phase was as follows:

<TABLE>
<CAPTION>
                                               Percentage of year 2000                 Expected Completion
                                                      Projects                         Date - All year 2000
         Phase                                   Completed by Phase*                         Projects
         -----                                   -------------------                   --------------------

<S>                                            <C>                                     <C> 
Phase 1-Assessment                                       69%                                April 1999
Phase 2-Remediation                                      28%                                June 1999
Phase 3-Testing                                          16%                                July 1999
Phase 4-Implementation                                   11%                              September 1999
</TABLE>


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

*The percentages set forth above were calculated by dividing the number of year
2000 projects that have completed a given phase by the total number of year 2000
projects.

         The completion dates set forth above are based on the Company's current
expectations. However, due to the uncertainties inherent in year 2000
remediation, no assurances can be given as to whether such projects will be
completed on such dates.

         The Company is completing an inventory of critical systems with
embedded technologies that impact its operations and is currently determining
the correct remediation approach. The embedded technologies assessments are
expected to be complete by April of 1999.

         During 1998, the Company continued its survey of significant
third-party vendors and suppliers whose systems, services or products are
important to the Company's operations (e.g., suppliers of addressable
controllers and set-top devices, and the provider of the Company's billing
services). The year 2000 readiness of such providers is critical to continued
provision of the Company's cable service. The Company has received information
that critical systems, services or products supplied to the Company by third
parties are either year 2000 ready or are expected to be year 2000 ready by
mid-1999.

         In addition to the survey process described above, management of the
Company has identified its most critical supplier/vendor relationships and has
instituted a verification process to determine the vendor's year 2000 readiness.
Such verification includes, as deemed necessary, reviewing vendors' test and
other data and engaging in regular conferences with vendors' year 2000 teams.
The Company is also requiring testing to validate the year 2000 compliance of
certain critical products and services.


                                     II-16
<PAGE>   71

         Significant market value is associated with the Company's investments
in certain public and private corporations, partnerships and other businesses.
Accordingly, the Company is monitoring the public disclosure of such
publicly-held business entities to determine their year 2000 readiness,
including Cablevision Systems Corporation ("CSC"), Time Warner, Inc. ("Time
Warner"), and AT&T. In addition, the Company has surveyed and monitored the year
2000 status of certain privately-held business entities in which the Company has
significant investments. For updated information related to such companies' year
2000 programs, please refer to the most recent periodic filings with the
Securities and Exchange Commission of CSC, Time Warner and AT&T.

         Year 2000 expenses and capital expenditures incurred during the year
ended December 31, 1998 were $11 million and $2 million, respectively.
Management of the Company currently estimates the remaining costs to be not less
than $113 million, bringing the total estimated cost associated with the
Company's year 2000 remediation efforts to be not less than $126 million
(including $33 million for replacement of noncompliant information technology
("IT") Systems). Also included in this estimate is $14 million in future
payments to be made pursuant to unfulfilled executory contracts or commitments
with vendors for year 2000 remediation services. Although no assurances can be
given, management currently expects that (i) cash flow from operations will fund
the costs associated with year 2000 compliance and (ii) the total projected cost
associated with the Company's year 2000 program will not be material to the
Company's financial position, results of operations or cash flows.

         The Company is a widely distributed enterprise in which allocation of
certain resources, including IT support is decentralized. Accordingly, the
Company does not consolidate an IT budget. Therefore, total estimated year 2000
costs as a percentage of an IT budget are not available. There are currently no
planned IT projects being deferred due to year 2000 costs.

         The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. Management
believes that its year 2000 program will significantly reduce the Company's
risks associated with the changeover to the year 2000 and has implemented
certain contingency plans to minimize the effect of any potential year 2000
related disruptions. The risks and the uncertainties discussed below and the
associated contingency plans relate to systems, software, equipment, and
services that the Company has deemed critical in regard to customer service,
business operations, financial impact or safety.

         The failure of addressable controllers contained in the cable system
headends could disrupt the delivery of premium services to customers and could
necessitate crediting customers for failure to receive such premium services. In
this unlikely event, management expects that it will identify and transmit the
lowest cost programming tier. Unless other contingency plans are developed with
the programmers, premium and adult content channels would not likely be
transmitted until the addressable controller had been repaired.

         Customer service networks and/or automated voice response systems
failure could prevent access to customer account information, hamper
installation scheduling and disable the processing of pay-per-view requests. The
Company plans to have its customer service representatives answer telephone
calls from customers in the event of outages and expects to retrieve needed
customer information manually from the billing service provider.


                                     II-17
<PAGE>   72

         A failure of the services provided by billing systems service providers
could result in a loss of customer records which could disrupt the ability to
bill customers for a protracted period. The Company plans to prepare electronic
backup records of its customer billing information prior to the year 2000 to
allow for data recovery. In addition, the Company continues to monitor the year
2000 readiness of its key customer-billing suppliers.

         Advertising revenue could be adversely affected by the failure of
certain equipment which could impede or prevent the insertion of advertising
spots in the Company's programming. The Company anticipates that it can minimize
such effect by manually resetting the dates each day until the equipment is
repaired.

         The Company owns investments in numerous cable programming operators
and other businesses. The market value of the Company's investment in these
entities could be adversely impacted by material failures of such entities to
address year 2000 remediation issues (including supplier and vendor issues)
related to their programming services and businesses. Further, due to tax and
strategic considerations, the Company has a limited ability to dispose of these
investments if year 2000 issues develop. Therefore, as a contingency plan, the
Company has undertaken an extensive effort to verify and in certain cases assist
in the year 2000 remediation efforts of companies in which it has significant
investments.

         Security and fire protection systems failure could leave facilities
vulnerable to intrusion and fire. The Company expects to return such systems to
normal functioning by turning the power off and then on again ("power off/on").
The Company also plans to have additional security staff on site and plans to
implement a backup plan for communicating with local fire and police
departments. Also, certain personal computers interface with and control
elevators, escalators, wireless systems, public access systems and certain
telephony systems. In the event such computers cease operating, conducting a
power off/on is expected to resume normal functioning. If a power off/on does
not resume normal functioning, management expects to resolve the problem by
resetting the computer to a pre-designated date which precedes the year 2000.

         In the event that the local public utility cannot supply power, the
Company expects to supply power for a limited time to the Company's cable
headends, the NDTC and office sites through backup generators.

         The financial impact of any or all of the above worst-case scenarios
has not been and cannot be estimated by the Company due to the numerous
uncertainties and variables associated with such scenarios.

         If critical systems related to the Company's cable TV and programming
services are not successfully remediated, the Company could face claims of
breach of contract from customers of the NDTC, from parties to cable system sale
or exchange agreements, from certain programming providers and from other cable
TV businesses that rely on the Company's programming services. The Company has
not determined the possible losses from any such claims of breach of contract.


                                     II-18
<PAGE>   73

         SUMMARY OF OPERATIONS

         Summarized operating data with respect to TCI is presented below for
the indicated periods:

<TABLE>
<CAPTION>
                                                                              Years ended December 31,
                                                                    ---------------------------------------------
                                                                       1998              1997             1996
                                                                    -----------       ----------       ----------
                                                                               amounts in millions

<S>                                                                 <C>               <C>              <C>  
Revenue                                                             $     7,351           7,570             8,022

Operating expenses                                                       (2,997)         (2,995)           (3,677)
Selling, general and administrative expenses                             (1,642)         (1,600)           (2,069)
Year 2000 costs                                                             (11)             --                --
AT&T merger costs                                                           (14)             --                --
Stock compensation                                                         (866)           (488)               13
Reserve for loss arising from contingent obligation                         (90)             --                --
Cost of distribution agreements                                             (50)             --                --
Impairment of assets                                                         (5)            (15)               --
Restructuring charges                                                        --              --               (41)
Depreciation                                                             (1,121)         (1,077)           (1,093)
Amortization                                                               (614)           (546)             (523)
                                                                    -----------       ----------       ----------

     Operating income (loss)                                                (59)            849               632

Interest expense                                                         (1,061)         (1,160)           (1,096)
Interest and dividend income                                                122              88                64
Share of losses of affiliates, net                                       (1,384)           (930)             (450)
Loss on early extinguishment of debt                                        (60)            (39)              (71)
Minority interests in earnings of consolidated
  subsidiaries, net                                                         (88)           (154)              (56)
Gains on issuance of equity interests by subsidiaries                        89              60                --
Gains on issuance of stock by equity investees                              268             112                12
Gains on disposition of assets, net                                       5,760             401             1,593
Other, net                                                                  (49)            (22)              (65)
                                                                    -----------       ----------       ----------

    Earnings (loss) before income taxes                                   3,538            (795)              563

Income tax benefit (expense)                                             (1,595)            234              (271)
                                                                    -----------       ---------        ----------

     Net earnings (loss)                                            $     1,943            (561)              292
                                                                    ===========       =========        ==========
</TABLE>

         The Company's domestic cable and communications businesses and assets
were attributed to TCI Group, and the Company's programming businesses and
assets were attributed to Liberty Media Group. The Company's principal
international businesses and assets and the Company's remaining non-cable and
non-programming domestic businesses and assets were included in TCI Ventures
Group.


                                     II-19
<PAGE>   74

         Acquisitions and Dispositions

         The Company has completed a number of acquisitions and dispositions
during the three years ended December 31, 1998 which have affected the
comparability of operating results between periods. The acquisitions and
dispositions which had a significant impact on the Company's operating results
are discussed below.

         On March 4, 1998, the Company contributed to CSC certain of its cable
television systems serving approximately 830,000 customers in exchange for
approximately 48.9 million newly issued CSC Class A common shares (the "CSC
Transaction"). For additional information concerning the CSC Transaction, see
note 6 to the accompanying consolidated financial statements. In addition to the
CSC Transaction, the Company also completed, during 1998, eight transactions
whereby TCI contributed cable television systems serving in the aggregate
approximately 1,924,000 customers to eight separate joint ventures
(collectively, the "1998 Joint Ventures") in exchange for non-controlling
ownership interests in each of the 1998 Joint Ventures, and the assumption and
repayment by the 1998 Joint Ventures of debt owed by the Company to external
parties aggregating $323 million and intercompany debt owed to the Company
aggregating $2,374 million. The CSC Transaction and the formation of the 1998
Joint Ventures are collectively referred to herein as the "1998 Contribution
Transactions." During the year ended December 31, 1998, the Company's revenue
and operating cash flow (defined by the Company as operating income before
depreciation, amortization, other non-cash items, year 2000 costs, AT&T merger
costs and stock compensation) included $622 million and $278 million,
respectively, from the cable television systems included in the 1998
Contribution Transactions.

         In addition to the 1998 Contribution Transactions, the Company, as of
December 31, 1998, has signed agreements or letters of intent to contribute
within the next twelve months, certain cable television systems (the "Pending
Contribution Cable Systems") serving approximately 1.2 million basic customers
to joint ventures in which the Company will retain non-controlling ownership
interests (the "Pending Contribution Transactions"). Following the completion of
the Pending Contribution Transactions, the Company will no longer consolidate
the Pending Contribution Cable Systems. Accordingly it is anticipated that the
completion of the Pending Contribution Transactions, as currently contemplated,
will result in aggregate estimated reductions (based on 1998 amounts) to the
Company's debt, annual revenue and annual operating cash flow of $1.5 billion,
$500 million and $200 million, respectively. No assurance can be given that any
of the Pending Contribution Transactions will be consummated.

         Pursuant to an Agreement and Plan of Exchange and Merger entered into
in August 1996, Silver King Communications Inc. ("Silver King") acquired Home
Shopping Network, Inc. ("HSN") by merger of HSN with a subsidiary of Silver King
in December 1996 (the "HSN Merger") where HSN is the surviving corporation and a
subsidiary of Silver King following the HSN Merger. As a result of the HSN
Merger, HSN is no longer included in the consolidated financial results of the
Company. Subsequent to the HSN Merger, Silver King was renamed HSN, Inc.
("HSNI"). Revenue and expenses related to HSNI are included under the captions
"Net sales from electronic retailing services" and "cost of sales from
electronic retailing services", respectively, in the accompanying consolidated
Statement of Operations and Comprehensive Earnings for the year ended December
31, 1996. For additional information on the HSN Merger, see note 6 to the
accompanying consolidated financial statements of the Company.


                                     II-20
<PAGE>   75

         On July 31, 1996, the Company acquired an entity from Viacom, Inc. that
owned cable television assets valued at $2.326 billion at the acquisition date.
Upon consummation of such acquisition (the "Viacom Acquisition"), the acquired
entity was renamed TCI Pacific Communications, Inc. For additional information
concerning the Viacom Acquisition, see note 10 to the accompanying consolidated
financial statements of the Company.

         Through December 4, 1996, the Company had an investment in Primestar
Partners L.P. ("Primestar"). Primestar provided programming and marketing
support to each of its cable partners, including the Company, who provided
satellite television service to their customers. On December 4, 1996, TCI
distributed (the "Satellite Spin-off") to the holders of shares of TCI Group
Stock all of the issued and outstanding common stock of TCI Satellite
Entertainment, Inc. ("Satellite"). At the time of the Satellite Spin-off,
Satellite's assets and operations included the Company's interest in Primestar,
the Company's business of distributing Primestar programming and two
communications satellites. As a result of the Satellite Spin-off, Satellite's
operations subsequent to December 4, 1996 are not consolidated with those of the
Company. For additional information on the Satellite Spin-Off, see note 11 to
the accompanying consolidated financial statements.

         The Company has also completed certain other acquisitions and
dispositions during the three years ended December 31, 1998. See note 10 to the
accompanying consolidated financial statements of the Company. The timing and
magnitude of such acquisitions and dispositions may also affect the
comparability of financial results between periods. Consequently, the historical
amounts included in the accompanying consolidated financial statements are not
comparable year to year. The following table presents adjustments to remove the
effects of the aforementioned acquisitions and dispositions from selected
operating items.

<TABLE>
<CAPTION>
                                                                               Effect of
                                                                             acquisitions
                                                      Historical           and dispositions           As adjusted
                                                      ----------           ----------------           -----------
Year ended December 31, 1998:                                            amounts in millions

<S>                                                  <C>                   <C>                        <C>
Revenue                                                $    7,351                  (1,499)                  5,852
Operating expenses                                     $   (2,997)                    644                  (2,353)
Selling, general and administrative expenses           $   (1,642)                    336                  (1,306)
                                                        
Year ended December 31, 1997:                           
                                                        
Revenue                                                $    7,570                  (1,962)                  5,608
Operating expenses                                     $   (2,995)                    816                  (2,179)
Selling, general and administrative expenses           $   (1,600)                    402                  (1,198)
                                                        
Year ended December 31, 1996:                           
                                                        
Revenue                                                $    8,022                  (2,422)                  5,600
Operating expenses                                     $   (3,677)                  1,231                  (2,446)
Selling, general and administrative expenses           $   (2,069)                    708                  (1,361)
</TABLE>


                                     II-21
<PAGE>   76

         Revenue and Expenses

         The Company's revenue decreased $219 million or 3% and $452 million or
6% for the years ended December 31, 1998 and 1997, respectively, as compared to
the prior year. Exclusive of the effects of acquisitions and dispositions,
revenue increased $244 million or 4% and $8 million or less than 1% during 1998
and 1997, respectively.

         Exclusive of the effects of acquisitions and dispositions, revenue from
domestic cable operations increased 2% during 1998 as compared to 1997. Revenue
from domestic cable customers accounted for this 2% increase, primarily due to
the net effect of a 5% increase in basic revenue, an increase in revenue from
digital products and a 10% decrease in premium revenue. The Company experienced
a 5% increase in its average basic rate, an increase of less than 1% in the
number of average basic customers, a 5% decrease in its average rate for
traditional premium services and a 5% decrease in the number of average
traditional premium subscriptions. Additionally, the December 31, 1997
termination of an agreement pursuant to which the Company provided fulfillment
services to a third party resulted in a 1% decrease, and advertising sales and
other revenue accounted for a 1% increase, in revenue from domestic cable
operations. A significant portion of the increase in advertising sales is
attributable to arrangements with programming suppliers that may not continue at
current levels in future periods.

         Exclusive of the effects of acquisitions and dispositions, revenue from
domestic cable operations increased 6% during 1997 as compared to 1996. Revenue
from domestic cable customers accounted for 3% of the 1997 increase in revenue
from domestic cable operations, primarily as a result of the net effect of a 7%
increase in basic revenue and a 4% decrease in premium revenue. The Company
experienced a 9% increase in its average basic rate, a 1% decrease in the number
of average basic customers, a 7% increase in its average premium rate and an 11%
decrease in the number of average premium subscriptions. Advertising sales and
other revenue accounted for the remaining 3% increase in revenue from domestic
cable operations.

         Exclusive of the effects of acquisitions and dispositions, revenue from
programming services increased 15% and 29% for the years ended December 31, 1998
and 1997, respectively, as compared to the prior year. The increases related
primarily to higher revenue from the distribution of "Encore" premium movie
services to cable operators, including TCI Group, and higher revenue from TV
Guide, Inc. (formerly United Video Satellite Group, Inc. ("UVSG")).
Additionally, Netlink International had increased revenue during 1998 compared
to the same period in 1997, primarily due to increased rates as a result of
increased copyright fees.

         Operating expenses increased $2 million or less than 1% and decreased
$682 million or 19% for the years ended December 31, 1998 and 1997,
respectively, as compared to the prior year. Exclusive of the effects of
acquisitions and dispositions, operating expenses increased $174 million or 8%
and decreased $267 million or 11% during 1998 and 1997, respectively.

         Exclusive of the effects of acquisitions and dispositions, operating
expenses from domestic cable operations increased 5% during each of 1998 and
1997, respectively, as compared to the prior year. Such changes relate primarily
to higher programming and labor costs, which in 1998 were partially offset by
reductions attributable to higher capitalized labor and overhead resulting
primarily from increased installation and construction activities. It is
anticipated that the Company's programming costs will increase in future
periods.


                                     II-22
<PAGE>   77

         Exclusive of the effects of acquisitions and dispositions, operating
expenses from programming operations increased 73% and 85% during 1998 and 1997,
respectively, as compared to the prior year. The increases relate primarily to
higher costs to acquire programming content from suppliers due primarily to an
increase in first run movie content as a percent of Encore's total movie content
in both 1998 and 1997. Such first run movies are generally obtained at higher
costs than movies which are not first run. Other miscellaneous increases include
higher music rights costs and higher copyright fees.

         Selling, general and administrative expenses increased $42 million or
3% and decreased $469 million or 23% for the years ended December 31, 1998 and
1997, respectively, as compared to the prior year. Exclusive of the effects of
acquisitions and dispositions, the expenses increased $108 million or 9% and
decreased $163 million or 12% during 1998 and 1997, respectively.

         Exclusive of the effects of acquisitions and dispositions, selling,
general and administrative expenses from domestic cable operations increased 12%
and decreased 6% during 1998 and 1997, respectively, as compared to the prior
year. The 1998 increase is due primarily to general increases in expenses
relating to the launch of digital products and other initiatives, which
increases were partially offset by an increase in marketing incentives received
from programming suppliers. The majority of such marketing incentives are
associated with the Company's launch of digital services and accordingly may not
continue at current levels in the future periods. The 1997 decrease is due
primarily to lower marketing costs due primarily to launch and other incentives
from programming suppliers, a reduction in salaries and related payroll expenses
due to work force reductions in the fourth quarter of 1996, and other reductions
in general and administrative expenses in 1997.

         Exclusive of the effects of acquisitions and dispositions, selling,
general and administrative expenses from programming operations increased 3% and
less than 1% during 1998 and 1997, respectively, as compared to the prior year.
The increase relates primarily to higher contract labor, marketing and marketing
support costs.

         Year 2000 costs include fees and other expenses incurred directly in
connection with TCI's comprehensive efforts to review and correct computer
systems, equipment and related software to ensure readiness for the year 2000.
See detailed discussion above.

         AT&T merger costs include investment advisory, legal and accounting
fees, and other incremental pre-closing costs directly related to the AT&T
Merger. See note 2 to the accompanying consolidated financial statements of the
Company.

         The Company records stock compensation relating to restricted stock
awards, options and/or stock appreciation rights granted by the Company to
certain employees and directors. The amount of expense associated with stock
compensation is based on the vesting of the related stock options and stock
appreciation rights and the market price of the underlying common stock as of
the date of the accompanying consolidated financial statements. The estimated
compensation liability relating to stock appreciation rights has been recorded
as of December 31, 1998, and is subject to future adjustment based upon vesting
and market values and, ultimately, on the final determination of market values
when such rights are exercised.

         During the fourth quarter of 1998, the Company recorded a $90 million
charge to provide for the estimated losses that are expected to result from the
Company's obligation under a certain contribution agreement. See note 20 to the
accompanying consolidated financial statements of the Company.


                                     II-23
<PAGE>   78

         During 1998, @Home issued performance-based warrants to certain cable
operators to purchase up to 10.3 million shares of @Home Series A common stock
at an exercise price of $10.50 per share. Warrants to purchase approximately
920,000 shares of @Home's Series A common stock became exercisable in 1998.
@Home recorded non-cash charges to operations of $50 million for the fair value
of these warrants. Such charges are included in cost of distribution agreements
in the accompanying consolidated statements of operations and comprehensive
earnings of the Company. In the event the performance milestones are met with
respect to the remaining unexercisable performance based warrants, @Home will
record non-cash charges to operations in future periods based on the difference
between the then fair market value of @Home's Series A common stock and the
exercise price of $10.50 per share.

         During the fourth quarter of 1996, the Company restructured certain of
its operating and accounting functions. In connection with such restructuring,
the Company recognized a charge of $41 million related primarily to work force
reductions. As of December 31, 1998, all of such charges had been paid.

         Depreciation expense increased $44 million or 4% and decreased $16
million or 1% for the years ended December 31, 1998 and 1997, respectively, as
compared to the prior year. The 1998 increase represents the net effect of (i)
increases attributable to acquisitions, capital expenditures and differences in
the composition of TCI's depreciable property and equipment and (ii) decreases
attributable to the 1998 Contribution Transactions and other dispositions. The
1997 decrease represents the net effect of a decrease due to the Satellite
Spin-off and another disposition that more than offset increases attributable to
acquisitions and capital expenditures.

         Amortization expense increased $68 million or 12% and $23 million or 4%
for the years ended December 31, 1998 and 1997, respectively, as compared to the
prior year. Such increases are primarily attributable to the net effects of
acquisitions and dispositions and the amortization of certain intangible assets
arising from certain distribution agreements entered into in 1997 and 1998 by
@Home. See note 18 to the accompanying consolidated financial statements of the
Company.

         Due to the effects of purchase accounting, the Company anticipates that
its depreciation and amortization expenses will increase significantly following
the AT&T Merger.

         Other Income and Expenses

         The Company's interest expense decreased $99 million or 9% from 1997 to
1998 and increased $64 million or 6% from 1996 to 1997. The decrease in 1998 is
primarily the result of debt reductions attributable to the 1998 Contribution
Transactions and a lower effective borrowing rate as compared to the prior year.
The increase in 1997 is primarily the result of higher average debt balances, as
a result of the Viacom Acquisition on July 31, 1996. The Company's weighted
average interest rate on borrowings was 7.32%, 7.71% and 7.75% during 1998, 1997
and 1996, respectively.


                                     II-24
<PAGE>   79


         Interest and dividend income increased $34 million or 39% and $24
million or 38% during 1998 and 1997, respectively, as compared to the prior
year. The 1998 increase is attributable to (i) higher dividend income due
primarily to dividends received on AT&T Common Stock that was acquired in July
1998 and dividends received on preferred stock of Fox Kids Worldwide, Inc. ("FKW
Preferred Stock") that was acquired in August 1997, and (ii) increased interest
income due primarily to increases in the Company's cash and restricted cash
balances and other interest-earning assets. Subsequent to the AT&T Merger, any
dividends received on AT&T Common Stock ($31 million during 1998) will not be
recognized as income, but instead will be recorded as increases to the Company's
additional paid-in capital. The 1997 increase is attributable to (i) higher
dividend income due to dividends received on a series of Time Warner, Inc.
common stock with limited voting rights that was acquired in October 1996 and
dividends received on FKW Preferred Stock that was acquired in August 1997, and
(ii) increased interest income due to higher balances of interest-earning assets
in 1997, as compared to 1996. See notes 5, 7, 8 and 10 to the accompanying
consolidated financial statements of the Company.

         TCI's investments in affiliates are comprised of limited partnerships
and other entities that are primarily engaged in the domestic cable television
business or other communications services businesses. TCI's share of earnings
(losses) of affiliates were ($1,384 million), ($930 million) and ($450 million)
in 1998, 1997 and 1996, respectively. Of these earnings (losses), ($352
million), ($90 million) and ($79 million), respectively, relate to the Company's
domestic cable operations, ($67 million), ($12 million) and $8 million,
respectively, relate to the Company's programming operations and ($965 million),
($828 million) and ($379 million), respectively, relate to the Company's other
businesses.

         The majority of the 1998 increase in the Company's share of losses of
its domestic cable affiliates is attributable to the Company's share of losses
of CSC, which was partially offset by the Company's share of 1998 gains
recognized by two affiliates on the sale of certain assets. The 1997 increase is
primarily due to the Company's share of losses of a 49%-owned cable television
partnership that was acquired by the Company in July 1996.

         The 1998 increase in the Company's share of losses of its programming
affiliates is primarily attributable to an $83 million increase in the Company's
share of Fox/Liberty Networks' ("Fox Sports") losses, offset in part by a $33
million increase in the Company's share of the earnings of QVC, Inc. ("QVC").
Prior to the first quarter of 1998, the Company had no obligation, nor
intention, to fund Fox Sports. During 1998, the Company made the determination
to provide funding to Fox Sports based on specific transactions consummated by
Fox Sports. Consequently, the Company's share of losses of Fox Sports for 1998
includes previously unrecognized losses of Fox Sports of approximately $64
million. Losses for Fox Sports were not recognized in prior periods due to the
fact that the Company's investment in Fox Sports was less than zero. The 1997
change in the Company's share of earnings (losses) of its programming affiliates
is attributable to a $30 million decrease in the Company's share of Discovery's
earnings, offset in part by a $7 million increase in the Company's share of
QVC's earnings.


                                     II-25
<PAGE>   80

         The Company's share of losses of its other affiliates is primarily
comprised of the Company's share of the losses of the PCS Ventures and various
foreign affiliates. During the years ended December 31, 1998, 1997 and 1996, the
Company's share of the PCS Ventures' losses was $629 million, $493 million and
$167 million, respectively. During the years ended December 31, 1998, 1997 and
1996, the Company's share of losses from its foreign affiliates was $282
million, $264 million and $184 million, respectively. The increases in the
losses of the PCS Ventures are primarily attributable to increases in (i)
selling, general and administrative costs associated with Sprint Spectrum
Holding Company L.P.'s ("Sprint Spectrum") efforts to increase its customer
base, (ii) depreciation expense resulting from capital expenditures made to
expand its PCS network and (iii) interest expense associated with higher amounts
of outstanding debt. As a result of a November 1998 transaction, the Company no
longer accounts for its investment in the PCS Ventures under the equity method.
See notes 2, 6 and 9 to the accompanying consolidated financial statements of
the Company.

         In connection with certain repurchases of notes payable, TCI recognized
losses on early extinguishment of debt of $60 million, $39 million and $62
million during the years ended December 31, 1998, 1997 and 1996, respectively.
Such losses related to prepayment penalties amounting to $52 million, $33
million and $60 million for the years ended December 31, 1998, 1997 and 1996,
respectively, and the retirement of deferred loan costs. Also, during the year
ended December 31, 1996, certain TCI subsidiaries terminated, at such
subsidiaries' option, certain revolving bank credit facilities with aggregate
commitments of approximately $2 billion and refinanced certain other bank credit
facilities. In connection with such termination and refinancings, TCI recognized
a loss on early extinguishment of debt of $9 million related to the retirement
of deferred loan costs.

         Minority interests in earnings of consolidated subsidiaries aggregated
$88 million, $154 million and $56 million for the years ended December 31, 1998,
1997 and 1996, respectively. Such amounts include dividends on preferred
securities of the Company's subsidiaries of $191 million, $180 million and $86
million, respectively, offset in part by the minority interests share of the
losses of @Home and certain other majority-owned subsidiaries of the Company.
During the years ended December 31, 1998 and 1997, the minority interests' share
of @Home's net losses was approximately $89 million and $34 million,
respectively. See notes 6, 10 and 18 to the accompanying consolidated financial
statements of the Company.

         Gains on issuance of equity interests by subsidiaries were $89 million
and $60 million during the years ended December 31, 1998 and 1997, respectively.
The gains relate to the 1998 and 1997 public offering of securities by the
Company's @Home subsidiary and the February 1998 equity issuance by the
Company's then subsidiary, Superstar/Netlink Group LLC. See note 18 to the
accompanying consolidated financial statements of the Company.

         Gains on issuance of stock by equity investees were $268 million, $112
million and $12 million during the years ended December 31, 1998, 1997 and 1996,
respectively. The gains relate to the dilution of the Company's interest in
various equity method investments. See notes 6, 8 and 18 to the accompanying
consolidated financial statements of the Company.


                                     II-26
<PAGE>   81

         Gains on disposition of assets of $5,760 million during 1998 include
(i) a $2.3 billion gain (excluding related deferred income tax expense of $883
million) attributable to the June 23, 1998 consummation of a merger in which TCG
was acquired by AT&T, (ii) a $1.9 billion gain (excluding related deferred
income tax expense of $647 million) attributable to the November 23, 1998
exchange of the Company's interest in the PCS Ventures, and (iii) an aggregate
gain of $898 million gain attributable to the March 4, 1998 contribution of
cable television systems to CSC and certain other of the 1998 Contribution
Transactions. See notes 6, 7, 8, 9 and 10 to the accompanying consolidated
financial statements of the Company.

         Net Earnings (Loss)

         As a result of the above-described fluctuations in the Company's
results of operations, (i) TCI's net earnings (before preferred stock dividend
requirements) of $1,943 million for the year ended December 31, 1998 changed by
$2,504 million, as compared to TCI's net loss (before preferred stock dividend
requirements) of $561 million for the year ended December 31, 1997, and (ii)
TCI's net loss (before preferred stock dividend requirements) of $561 million
for the year ended December 31, 1997 changed by $853 million, as compared to
TCI's net earnings (before preferred stock dividend requirements) of $292
million for the year ended December 31, 1996.

         LIQUIDITY AND CAPITAL RESOURCES

         As described in greater detail in note 2 to the accompanying
consolidated financial statements of the Company, on March 9, 1999, TCI was
acquired by AT&T in a merger and TCI thereby became a wholly-owned subsidiary of
AT&T. The AT&T Merger also resulted in the deconsolidation of the businesses and
assets attributed to the Liberty/Ventures Group (exclusive of @Home, NDTC and
WTCI which were transferred to TCI Group immediately prior to the AT&T Merger)
at the time of the AT&T Merger.

         Pursuant to the Merger Agreement, immediately prior to the AT&T Merger,
certain assets previously attributed to TCI Ventures Group (including, among
others, the shares of AT&T Common Stock received in the merger of AT&T and TCG,
the stock of @Home attributed to TCI Ventures Group, the assets and business of
NDTC and TCI Ventures Group's equity interest in WTCI) were transferred to TCI
Group in exchange for approximately $5.5 billion in cash. Also, upon
consummation of the AT&T Merger, through a new tax sharing agreement between
Liberty/Ventures Group and AT&T, Liberty/Ventures Group became entitled to the
benefit of approximately $2.0 billion of net operating loss carryforwards
attributable to all entities included in TCI's consolidated federal income tax
return as of the date of the AT&T Merger. Such net operating loss carryforwards
are subject to adjustment by the Internal Revenue Service and are subject to
limitations on usage which may affect the ultimate amount utilized. See note 19
to the accompanying consolidated financial statements of the Company.
Additionally, certain warrants previously attributed to TCI Group were
transferred to Liberty/Ventures Group in exchange for approximately $176 million
in cash. TCI funded the $5.5 billion payment to Liberty/Ventures Group through
borrowings from AT&T. Such borrowings are evidenced by a note payable to AT&T in
the amount of $5.5 billion (the "AT&T Note"). The AT&T Note accrues interest at
LIBOR, plus 15 basis points, and is due and payable on demand on or before March
9, 2004.


                                     II-27
<PAGE>   82

         Immediately prior to the AT&T Merger, TCI restructured its ownership of
certain of its subsidiaries. This restructuring included merging TCI's cable
subsidiary, TCIC, into TCI. As a result of TCIC's merger with TCI, all assets
and liabilities of TCIC have been assumed by TCI, including TCIC's public debt.
In connection with TCIC's merger with TCI, each share of TCIC's Cumulative
Exchangeable Preferred Stock, Series A, was converted into 2.119 shares of TCI
Group Series A Stock, and such shares of TCI Group Series A Stock were
subsequently converted into AT&T Common Stock in connection with the AT&T
Merger. All other public securities issued by subsidiaries of TCIC (other than
Pacific) otherwise remained unaffected. Furthermore, as part of the
restructuring, (i) certain asset transfers were made between TCI and its
subsidiaries, (ii) 123,896 shares of Series F Preferred Stock, which were held
by subsidiaries of TCI, were converted into 185,428,946 shares of TCI Group
Series A Stock (which in turn were converted into 143,837,233 shares of AT&T
Common Stock in the AT&T Merger and continue to be held by subsidiaries of TCI),
(iii) the remaining 154,411 shares of Series F Preferred Stock which were
formerly held by subsidiaries of TCI were distributed to TCI through a series of
liquidations and canceled, and (iv) 125,728,816 shares of TCI Group Series A
Stock, 9,154,134 shares of TCI Group Series B Stock, 6,654,367 shares of Liberty
Group Series A Stock, 3,417,187 shares of Liberty Group Series B Stock, and
67,536 shares of Class B Preferred Stock, each formerly held by subsidiaries of
TCI, were distributed to TCI through a series of liquidations and canceled.

         After the AT&T Merger, under the terms of the Exchangeable Preferred
Stock of Pacific, each share of that preferred stock is exchangeable, from and
after August 1, 2001, for approximately 4.225 shares of AT&T Common Stock,
subject to certain anti-dilution adjustments. Additionally, after the AT&T
Merger, Pacific may elect to make any dividend, redemption or liquidation
payment on the Exchangeable Preferred Stock in cash, by delivery of shares of
AT&T Common Stock or by a combination of the foregoing forms of consideration.

         As a result of the deconsolidation of Liberty/Ventures Group in
connection with the AT&T Merger, Liberty/Ventures Group's liquidity sources
(including the $5.5 billion payment from TCI) will be used towards the liquidity
requirements of Liberty/Ventures Group and will not represent a source of
liquidity to TCI. Conversely, TCI anticipates that Liberty/Ventures Group will
not require funds from TCI to satisfy the Liberty/Ventures Group's liquidity
requirements.

         At December 31, 1998, the Company had approximately $3.7 billion of
availability in unused lines of credit (excluding amounts related to lines of
credit which provide availability to support commercial paper). At December 31,
1998, $999 million of such unused lines of credit related to Liberty/Ventures
Group (inclusive of @Home, NDTC and WTCI). Following the AT&T Merger, it is
anticipated that such unused lines of credit of Liberty/Ventures Group will not
represent a source of liquidity to the Company. It is anticipated that TCI's
remaining lines of credit will be terminated in the first half of 1999 and,
accordingly, will no longer provide a source of liquidity for the Company
(exclusive of @Home, NDTC and WTCI). To the extent that funds generated by the
Company's operating activities are not sufficient to meet its liquidity needs,
the Company anticipates that it would obtain additional financing from AT&T or
external sources. No assurance can be given that any such additional financing
could be obtained on terms acceptable to the Company.

         At December 31, 1998, the Company held cash and cash equivalents of
$419 million which were held entirely by @Home. The cash balances of @Home are
intended to be applied towards the liquidity needs of @Home, accordingly @Home's
cash balances will not be made available to TCI. TCI's restricted cash is
primarily comprised of proceeds received in connection with certain asset
dispositions. Such proceeds, which aggregated $162 million and $34 million
December 31, 1998 and 1997, respectively, are designated to be reinvested in
certain identified assets for income tax purposes.


                                     II-28
<PAGE>   83

         During the years ended December 31, 1998, 1997 and 1996 the Company had
"operating cash flow" (as defined by the Company as operating income before
depreciation, amortization, other non-cash items, year 2000 costs, AT&T merger
costs and stock compensation) of $2,712 million, $2,975 million and $2,276
million, respectively. Operating cash flow is a measure of value and borrowing
capacity within the cable television industry and is not intended to be a
substitute for cash flows provided by operating activities, a measure of
performance prepared in accordance with generally accepted accounting
principles, and should not be relied upon as such. Operating cash flow, as
defined, does not take into consideration substantial costs of doing business,
such as interest expense, and should not be considered in isolation to other
measures of performance.

         The Company's operating activities provided cash of $1,223 million,
$1,710 million and $1,278 million during the years ended December 31, 1998, 1997
and 1996, respectively. Net cash provided by operating activities generally
reflects net cash from operations of TCI available for TCI's liquidity needs
after taking into consideration the aforementioned additional substantial costs
of doing business not reflected in operating cash flow. Following the
deconsolidation of Liberty/Ventures Group in connection with the AT&T Merger,
Liberty/Ventures Group's cash flows will no longer be included in the Company's
consolidated statements of cash flows. Liberty/Ventures Group's operating
activities provided cash of $66 million, $172 million and $245 million during
the years ended December 31, 1998, 1997 and 1996, respectively (inclusive of the
operating activities of @Home, NDTC and WTCI).

         Cash used by the Company's investing activities aggregated $637
million, $1,156 million and $2,508 million during the years ended December 31,
1998, 1997 and 1996, respectively. Cash used by Liberty/Ventures Group's
investing activities aggregated $1,234 million, $497 million and $770 million
during the years ended December 31, 1998, 1997 and 1996, respectively (inclusive
of the investing activities of @Home, NDTC and WTCI). Following the
deconsolidation of Liberty/Ventures Group in connection with the AT&T Merger,
Liberty/Ventures Group's cash flows (exclusive of the cash flows of @Home, NDTC
and WTCI) will no longer be included in the Company's consolidated statements of
cash flows.

         The amount of capital expended by TCI for property and equipment was
$1,917 million, $709 million and $2,055 million during 1998, 1997 and 1996,
respectively. Such expenditures primarily relate to TCI's cable distribution
systems. TCI estimates that it will expend approximately $5 billion over the
next two years to expand the capacity of its cable distribution systems to allow
for the provision of two-way service offerings. No assurance can be given that
actual capital costs will not exceed such estimated capital costs. Additionally,
the foregoing estimate does not include customer specific capital costs required
to deliver local telephony services. TCI cannot reasonably estimate such costs
since such costs are dependent upon the extent of customer increases and the
average per-unit-cost to install customer premise equipment. As described below,
TCI is obligated to purchase a significant number of digital set-top devices
over the next three years.


                                     II-29
<PAGE>   84

         On March 4, 1998, the Company contributed to CSC certain of its cable
television systems serving approximately 830,000 customers in exchange for
approximately 48.9 million newly issued CSC Class A common shares. CSC also
assumed and repaid approximately $574 million of debt owed by TCI to external
parties and $95 million of debt owed to the Company. The Company has also
entered into letters of intent with CSC which provide for the Company to acquire
a cable system in Michigan and an additional 4% of CSC's Class A common shares
and for CSC to (i) acquire cable systems serving approximately 250,000 customers
in Connecticut and (ii) assume $110 million of the Company's debt. The ability
of the Company to sell or increase its investment in CSC is subject to certain
restrictions and limitations set forth in a stockholders agreement with CSC. At
December 31, 1998, the Company owned 49,982,572 shares of CSC Class A common
stock, which had a closing market price of $50.13 per share on such date. Such
shares represented an approximate 33.0% equity interest in CSC's total
outstanding shares and an approximate 9% voting interest in CSC in all matters
except for (i) the election of directors, in which case the Company effectively
has the right to designate two of CSC's directors, and (ii) any increase in
authorized shares, in which case the Company has agreed to vote its interest in
proportion with the public holders of CSC Class A common shares. For additional
information concerning the CSC Transaction, see note 6 to the accompanying
consolidated financial statements of the Company.

         In addition to the CSC Transaction, the Company also completed, during
1998, eight transactions whereby TCI contributed cable television systems
serving in the aggregate approximately 1,924,000 customers to the 1998 Joint
Ventures in exchange for non-controlling ownership interests in each of the 1998
Joint Ventures, and the assumption and repayment by the 1998 Joint Ventures of
debt owed by the Company to external parties aggregating $323 million and
intercompany debt owed to the Company aggregating $2,374 million. The Company
has agreed to take certain steps to support compliance by certain of the 1998
Joint Ventures with their payment obligations under certain debt instruments, up
to an aggregate contingent commitment of $980 million. In light of such
contingent commitments, the Company has deferred any gains on the formation of
such 1998 Joint Ventures. During the year ended December 31, 1998, the Company's
revenue and operating cash flow (defined by the Company as operating income
before depreciation, amortization, other non-cash items, year 2000 costs, AT&T
merger costs and stock compensation) included $622 million and $278 million,
respectively, from the cable television systems included in the 1998
Contribution Transactions.

         In addition to the 1998 Contribution Transactions, the Company, as of
December 31, 1998, has signed agreements or letters of intent to contribute
within the next twelve months, the Pending Contribution Cable Systems serving
approximately 1.2 million basic customers to joint ventures in which the Company
will retain non-controlling ownership interests. Following the completion of the
Pending Contribution Transactions, the Company will no longer consolidate the
Pending Contribution Cable Systems. Accordingly it is anticipated that the
completion of the Pending Contribution Transactions, as currently contemplated,
will result in aggregate estimated reductions (based on 1998 amounts) to the
Company's debt, annual revenue and annual operating income of $1.5 billion, $500
million and $200 million, respectively. No assurance can be given that any of
the Pending Contribution Transactions will be consummated


                                     II-30
<PAGE>   85

         During the year ended December 31, 1998, the Company contributed cash
to various equity affiliates of the Liberty/Ventures Group and participated in
other transactions with respect to such Liberty/Ventures Group equity
affiliates. Following the AT&T Merger, transactions between Liberty/Ventures
Group and its equity affiliates will no longer be reflected in the Company's
consolidated financial statements. For additional information concerning the
historical effects on liquidity and capital resources of transactions involving
the Liberty/Ventures Group's equity affiliates, see notes 6, 9 and 10 to the 
accompanying consolidated financial statements of the Company.

         On November 19, 1998, the Company exchanged, in a merger transaction,
0.58 of a share of Liberty Group Series A Stock for each share of the issued and
outstanding Series A Common Stock of its then majority-owned subsidiary,
Tele-Communications International, Inc. ("TINTA"), not beneficially owned by the
Company. Such transaction was accounted for as an acquisition of a minority
interest. The aggregate value assigned to the 10,086,594 shares of Liberty Group
Series A stock issued by TCI was based upon the market value of Liberty Group
Series A Stock at the time the merger was announced. TINTA is attributed to the
Liberty/Ventures Group.

         On January 19, 1999, @Home entered into a merger agreement with Excite,
Inc. ("Excite"), a global internet media company that offers consumers and
advertisers comprehensive internet navigation services with extensive
personalization capabilities. Under the terms of the merger agreement, @Home
will issue approximately 55 million shares of its common stock for all of the
outstanding common stock of Excite based on an exchange ratio of 1.041902 shares
of @Home's common stock for each share of Excite's common stock. @Home may issue
up to approximately 15 million additional shares of common stock in connection
with the assumption of obligations under Excite's stock option and employer
stock purchase plans and outstanding warrants. @Home will account for the
transaction as a purchase. @Home's preliminary estimate of the total purchase
consideration is approximately $7 billion, based on the fair value at the time
of announcement of the merger, of common stock to be issued and stock option,
stock purchase plan and warrant obligations assumed, plus estimated transaction
costs. As a result of the proposed merger, the Company's economic interest in
@Home would decrease from 39% to 27%. The merger is subject to several
conditions, including approval by both companies' stockholders and the
expiration of applicable waiting periods under certain antitrust laws. TCI
Ventures Group's investment in @Home was transferred to TCI Group in connection
with the AT&T Merger.

         During the year ended December 31, 1998, pursuant to a stock repurchase
program, 66,041 shares of TCI Group Series A Stock, 145,450 shares of TCI
Ventures Group Series A Stock, 94,000 shares of TCI Ventures Group Series B
Stock and 766,783 shares of Liberty Group Series A Stock were repurchased at an
aggregate cost of $31 million.

         As security for borrowings under one of Liberty/Ventures Group's credit
facilities, Liberty/Ventures Group has pledged a portion of its shares of Time
Warner common stock with limited voting rights. At December 31, 1998 such
pledged portion had an aggregate fair value of approximately $2.7 billion. As
collateral for borrowings under another one of Liberty/Ventures Group's credit
facilities the banks lend against certain assets designated by Liberty/Ventures
Group (the "Designated Assets"). The carrying amount of the Designated Assets at
December 31, 1998 was $617 million. Following the deconsolidation of
Liberty/Ventures Group in connection with the AT&T Merger, Liberty/Ventures
Group's assets and liabilities (exclusive of @Home, NDTC, and WTCI) will not be
included in the Company's consolidated financial statements.


                                     II-31
<PAGE>   86

         On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T,
was consummated. As a result of such merger, the Company received in exchange
for all of its interest in TCG, approximately 47 million shares of AT&T Common
Stock. Such AT&T Common Stock was transferred from TCI Ventures Group to TCI
Group in connection with the AT&T Merger. Following the AT&T Merger, TCI will
treat its investment in AT&T Common Stock as an investment in its parent.
Accordingly, the fair value of TCI's investment in AT&T Common Stock will be
reflected as a reduction of TCI's equity, and any dividends received on such
AT&T Common Stock will be recorded as an increase to TCI's additional paid-in
capital. During 1998, TCI recognized dividends of $31 million on its investment
in AT&T Common Stock.

         In connection with the Magness Settlement TCI paid $274 million during
1998 pursuant to certain call agreements. Additionally, on February 1, 1999, the
Company began to terminate the transactions under the agreements with the
Investment Bankers described above, and as of March 5, 1999, such transactions
were terminated. In connection with the termination of such transactions the
Company received an aggregate cash payment of $509 million. For additional
information see note 17 to the accompanying consolidated financial statements of
the Company.

         During the fourth quarter of 1997, TCI entered into a total return
equity swap facility (the "Equity Swap Facility"). Pursuant to the Equity Swap
Facility, TCI would have the right to direct the counterparty (the
"Counterparty") to use the Equity Swap Facility to purchase Equity Swap Shares
of TCI Group Series A Stock and TCI Ventures Group Series A Stock with an
aggregate purchase price of up to $300 million. TCI would have the right, but
not the obligation, to purchase Equity Swap Shares through the September 30,
2000 termination date of the Equity Swap Facility. During such period, TCI would
settle periodically any increase or decrease in the market value of the Equity
Swap Shares. If the market value of the Equity Swap Shares should exceed the
Counterparty's cost, Equity Swap Shares with a fair value equal to the
difference between the market value and cost would be segregated from the other
Equity Swap Shares. If the market value of the Equity Swap Shares should be less
than the Counterparty's cost, TCI, at its option, would settle such difference
with shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock or,
subject to certain conditions, with cash or letters of credit. In addition, TCI
would be required to periodically pay the Counterparty a fee equal to a
LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap Shares.
Due to TCI's ability to issue shares to settle periodic price fluctuations and
fees under the Equity Swap Facility, TCI records all amounts received or paid
under this arrangement as increases or decreases, respectively, to equity. As of
December 31, 1998, the Equity Swap Facility had acquired 4,935,780 shares of TCI
Group Series A Stock and 1,171,800 shares of TCI Ventures Group Series A Stock
at an aggregate cost that was approximately $135 million less than the fair
value of such Equity Swap Shares at December 31, 1998. From February 10, 1999 to
March 5, 1999, the Company terminated all transactions under the Equity Swap
Facility and the related swap agreement. In connection with the termination of
such transactions the Company received an aggregate cash payment of $170
million.

         The Company's programming and other business segments have investments
in certain entities which will require significant additional capital in order
to develop their respective businesses and assets, to fund future operating
losses and to fund future growth. In certain cases, the Company has contractual
commitments pursuant to which (subject to certain conditions) it may be required
to make significant additional capital contributions to the entities in which it
has investments. The majority of such investments are included in
Liberty/Ventures Group. Following the deconsolidation of Liberty/Ventures Group
in connection with the AT&T Merger, any capital contributions or fundings to
such entities will be made using Liberty/Ventures Group's liquidity sources.


                                     II-32
<PAGE>   87

         Many of the Company's subsidiaries operate in industries, primarily the
telecommunications industry and the internet services industry, which have
experienced and are expected to continue to experience (i) rapid and significant
changes in technology, (ii) ongoing improvements in the capacity and quality of
such services, (iii) frequent and new product and service introductions, and
(iv) enhancements and changes in end-user requirements and preferences. The
degree to which these changes will affect such entities and the ability of such
entities to compete in their respective businesses cannot be predicted. If
markets fail to develop, develop more slowly than expected, or become highly
competitive, the Company's operating results and financial condition may be
materially adversely affected.

         TCI is committed to purchase billing services from an unaffiliated
third party pursuant to three successive five year agreements. Pursuant to such
arrangement, TCI is obligated at December 31, 1998 to make minimum payments
aggregating approximately $1.6 billion through 2012. Such minimum payments are
subject to inflation and other adjustments pursuant to the terms of the
underlying agreements.

         Prior to the AT&T Merger, transactions between TCI Group and
Liberty/Ventures Group were eliminated in TCI's consolidated financial
statements. Following the deconsolidation of Liberty/Ventures Group in
connection with the AT&T Merger, Liberty/Ventures Group's results of operations
(exclusive of the results of operations of @Home, NDTC and WTCI) will no longer
be included in the consolidated operating income of TCI. In this regard, TCI has
agreed to make fixed monthly payments to an entity attributed to
Liberty/Ventures Group pursuant to an affiliation agreement. The fixed annual
commitments increase annually from $220 million in 1998 to $315 million in 2003,
and will increase with inflation through 2022. In addition, pursuant to certain
agreements between TCI and an entity attributed to Liberty/Ventures Group, TCI
is obligated at December 31, 1998 to make minimum revenue payments through 2017
and minimum license fee payments through 2007 aggregating approximately $405
million to such attributed entity. Such minimum payments are subject to
inflation and other adjustments pursuant to the terms of the underlying
agreements.

         The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $415
million at December 31, 1998, of which $391 million relates to amounts
guaranteed by entities attributed to Liberty/Ventures Group. Following the
deconsolidation of Liberty/Ventures Group in connection with the AT&T Merger,
notes payable and other obligations guaranteed by entities attributed to
Liberty/Ventures Group (exclusive of @Home, NDTC and WTCI) will no longer be
included with those of TCI. As described in note 10 to the accompanying
consolidated financial statements, the Company also has provided certain credit
enhancements with respect to the 1998 Joint Ventures. The Company also has
guaranteed the performance of certain affiliates and other parties with respect
to such parties' contractual and other obligations. Although there can be no
assurance, management of the Company believes that it will not be required to
meet its obligations under such guarantees, or if it is required to meet any of
such obligations, that they will not be material to the Company.

         Subsequent to December 31, 1998, a subsidiary of the Company agreed to
enter into a contribution agreement (the "Contribution Agreement") with certain
shareholders of Primestar pursuant to which the Company would, to the extent it
is relieved of $166 million of contingent liabilities currently owed to certain
creditors of Primestar and its subsidiaries, contribute up to $166 million to
Primestar to the extent necessary to satisfy liabilities of Primestar. During
the fourth quarter of 1998, the Company recorded a $90 million charge to provide
for the estimated losses that are expected to result from the Contribution
Agreement. The Company's obligation under the Contribution Agreement will expire
in 2001.


                                     II-33
<PAGE>   88

         Liberty/Ventures Group is obligated to pay fees for the rights to
exhibit certain films that are released by various producers through 2017 and
has made certain financial commitments related to the acquisition of
programming. Based on customer levels at December 31, 1998, these agreements
require minimum payments aggregating approximately $808 million. Following the
deconsolidation of Liberty/Ventures Group in connection with the AT&T Merger
such rights fee obligations will no longer be included with TCI's financial
commitments. However, TCI Group's guarantee of $320 million of such rights fee
obligations of Liberty/Ventures Group will continue to be included with TCI's
contingent obligations. The amount of the total obligation under these license
agreements is not currently estimable because such amount is dependent upon the
number of qualifying films released theatrically by certain motion picture
studios as well as the domestic theatrical exhibition receipts upon the release
of such qualifying films. Nevertheless, it is anticipated that the required
payments under these obligations will be significant. In addition, an entity
attributed to Liberty/Ventures Group has guaranteed the obligation of an
affiliate to pay fees for the license to exhibit certain films through 2000. If
such entity were to fail to fulfill its obligations under the guarantee, the
beneficiaries have the right to demand an aggregate payment from such entity of
approximately $26 million.

         TCI is a party to affiliation agreements with programming suppliers.
Pursuant to certain of such agreements, TCI is committed to carry such
suppliers' programming on its cable systems. Additionally, certain of such
agreements provide for penalties and charges in the event the programming is not
carried or not delivered to a contractually specific number of customers.

         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators that may be designated from time to time by NDTC ("Approved
Purchasers"), entered into an agreement (the "Digital Terminal Purchase
Agreement") with General Instrument Corporation ("GI") to purchase advanced
digital set-top devices. The hardware and software incorporated into these
devices are designed and manufactured to be compatible and interoperable with
the OpenCable(TM) architecture specifications adopted by CableLabs, the cable
television industry's research and development consortium, in November 1997.
NDTC has agreed that Approved Purchasers will purchase, in the aggregate, a
minimum of 6.5 million set-top devices during calendar years 1998, 1999 and 2000
at an average price of $318 per set-top device. Through December 31, 1998,
approximately 1.6 million set-top devices had been purchased pursuant to this
commitment. GI agreed to provide NDTC and its Approved Purchasers the most
favorable prices, terms and conditions made available by GI to any customer
purchasing advanced digital set-top devices. In connection with NDTC's purchase
commitment, GI agreed to grant warrants to purchase its common stock
proportional to the number of devices ordered by each organization, which as of
the effective date of the Digital Terminal Purchase Agreement, would have
represented at least a 10% equity interest in GI (on a fully diluted basis).
Such warrants vest as annual purchase commitments are met. On December 31, 1998,
the Company vested in 4,928,000 warrants pursuant to such arrangements, which
were recorded at their fair value of $64 million on such date. Vested warrants
are accounted for as available-for-sale securities in the Company's consolidated
financial statements. NDTC has the right to terminate the Digital Terminal
Purchase Agreement if, among other reasons, GI fails to meet a material
milestone designated in the Digital Terminal Purchase Agreement with respect to
the development, testing and delivery of advanced digital set-top devices. In
connection with the AT&T Merger, the above described warrants were transferred
to Liberty/Ventures Group in exchange for approximately $176 million in cash. To
the extent that such warrants do not vest because TCI fails to meet its purchase
commitments, TCI is required to repay a proportional amount of such cash to
Liberty/Ventures Group.


                                     II-34
<PAGE>   89

         The Company leases business offices, has entered into converter lease
agreements, pole rental agreements, transponder lease agreements and uses
certain equipment under lease arrangements. For additional information on the
Company's future minimum lease payments under noncancellable operating losses,
see note 20 to the accompanying consolidated financial statements of the
Company.

         The Company's various partnerships and other affiliates accounted for
by the equity method generally fund their acquisitions, required debt repayments
and capital expenditures through borrowings under and refinancing of their own
credit facilities (which are generally not guaranteed by the Company), through
net cash provided by their own operating activities and in certain circumstances
through required capital contributions from their partners.

         In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company may enter into interest rate exchange agreements
("Interest Rate Swaps") pursuant to which it (i) pays fixed interest rates (the
"Fixed Rate Agreements") and receives variable interest rates and (ii) pays
variable interest rates (the "Variable Rate Agreements") and receives fixed
interest rates. During 1998, 1997 and 1996, the Company's net payments pursuant
to the Fixed Rate Agreements were less than $1 million, $7 million and $14
million, respectively; and the Company's net receipts (payments) pursuant to the
Variable Rate Agreements were $10 million, (less than $1 million) and $15
million, respectively. At December 31, 1998, all of the Company's Fixed Rate
Agreements had expired. At December 31, 1998, the Company would be entitled to
receive $63 million upon termination of the Variable Rate Agreements.

         In addition to the Variable Rate Agreements, the Company entered into
fixed Interest Rate Swaps pursuant to which it pays a variable rate based on
LIBOR (5.5% at December 31, 1998) and receives a variable rate based on Constant
Maturity Treasury Index ("CMT") (4.9% at December 31, 1998) on a notional amount
of $400 million through September 2000; and pays a variable rate based on LIBOR
(5.4% at December 31, 1998) and receives a variable rate based on CMT (5.0% at
December 31, 1998) on notional amounts of $95 million through February 2000.
During the years ended December 31, 1998 and 1997, the Company's net payments
(receipts) pursuant to such agreements were $2 million and (less than $1
million), respectively. At December 31, 1998, the Company would be required to
pay an estimated $4 million to terminate such Interest Rate Swaps.

         The Company is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of nonperformance by the
other parties to the agreements. However, the Company does not anticipate that
it will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, as of December 31, 1998, the
Company does not anticipate material near-term losses in future earnings, fair
values or cash flows resulting from derivative financial instruments. See note
12 to the accompanying consolidated financial statements of the Company for
additional information regarding Interest Rate Swaps.


                                     II-35
<PAGE>   90


         At December 31, 1998, after considering the net effect of the
aforementioned Interest Rate Swaps, the Company had $8.0 billion (or 57%) of
fixed rate debt and $6.1 billion (or 43%) of variable-rate debt. At December 31,
1998, Liberty/Ventures Group (inclusive of @Home, NDTC and WTCI) had $2.0
billion of variable rate debt and $700 million of fixed rate debt. Following the
deconsolidation of Liberty/Ventures Group in connection with the AT&T Merger,
Liberty/Ventures Group's debt (exclusive of @Home, NDTC and WTCI) will no longer
be included in TCI's debt. TCI's interest rate exposure was primarily to changes
in LIBOR rates. The aggregate hypothetical decrease in the fair value of TCI's
fixed rate debt and interest rate swaps as of December 31, 1998 that would have
resulted from a hypothetical adverse change of 10% in the related LIBOR rates is
estimated to be $504 million. The aggregate hypothetical loss in earnings and
cash flows on an annual basis on TCI's variable rate debt and interest rate
swaps as of December 31, 1998 that would have resulted from a hypothetical
adverse change of 10% in the related LIBOR rates, sustained for one year, is
estimated to be $26 million.

         Approximately twenty-five percent of the cable television franchises
held by TCI, involving approximately 4.6 million basic customers, expire within
five years. In connection with a renewal of a franchise, the franchising
authority may require the cable operator to comply with different and more
stringent conditions than those originally imposed, subject to the provisions of
the Cable Television Consumer Protection and Competition Act of 1992 and the
Telecommunications Act of 1996 and other applicable federal, state and local
law. Such provisions establish an orderly process for franchise renewal which
protects cable operators against unfair denials of renewals when the operator's
past performance and proposal for future performance meet established standards.
TCI believes that its cable television systems generally have been operated in a
manner which satisfies such standards and allows for the renewal of such
franchises; however, there can be no assurance that the franchises for such
systems will be successfully renewed as they expire.

         During 1998, TCI has continued to experience a competitive impact from
medium power and high power direct broadcast satellite ("DBS") operators that
use high frequencies to transmit signals that can be received by home satellite
dishes ("HSDs") much smaller in size than traditional HSDs. DBS operators have
the right to distribute substantially all of the significant cable television
programming services currently carried by cable television systems. The DBS
industry has grown rapidly over the last several years and now serves
approximately 9 million subscribers nationwide. Recently announced mergers could
strengthen the surviving DBS companies. TCI is unable to predict what effect
such competition will have on TCI's financial position.

Item 8.       Financial Statements and Supplementary Data.

         The consolidated financial statements of Tele-Communications, Inc. are
filed under this Item, beginning on Page II-38. The financial statement
schedules required by Regulation S-X are filed under Item 14 of this Annual
Report on Form 10-K.


                                     II-36
<PAGE>   91

Item 9.       Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure.

         In view of the AT&T Merger, described in detail under Item 1, Business
- General Development of Business, it has been determined that it will be more
efficient and effective for the Company to have its independent auditing
function performed by AT&T's external auditors, PricewaterhouseCoopers LLP. For
that reason, the Company has notified KPMG LLP that the Company will no longer
retain that firm as its independent auditor, effective upon the completion of
the audits of the Company's financial statements for the fiscal year ended
December 31, 1998 and for the two-month period ended February 28, 1999. The
Company retained PricewaterhouseCoopers, LLP effective as of March 9, 1999 for
the audit of the Company's financial statements for the period ending December
31, 1999. The Company maintains high regard for KPMG LLP and is grateful for the
work it has performed over the years.

         During the Company's two most recent fiscal years ended December 31,
1998 and December 31, 1997, the reports of KPMG LLP on the Company's financial
statements contained no adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.

         During the Company's two most recent fiscal years ended December 31,
1998 and December 31, 1997, and interim periods thereafter:

         (1) No disagreements with KPMG LLP have occurred on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
KPMG LLP, would have caused it to make reference to the subject matter of the
disagreement in connection with its reports on the Company's financial
statements.

         (2) No reportable events involving KPMG LLP have occurred that must be
disclosed under Item 304(a)(1)(v) of Regulation S-K.

         (3) The Company has not consulted with PricewaterhouseCoopers LLP on
items that concerned the application of accounting principles to a specific
transaction, either completed or proposed, or on the type of audit opinion that
might be rendered on the Company's financial statements.

         The Company requested, and KPMG LLP has furnished, a letter addressed
to the Securities and Exchange Commission (the "Commission") stating that KPMG
LLP agrees with the statements set forth in the second paragraph above and in
numbered paragraphs (1) and (2) above. A copy of the letter from KPMG LLP to the
Commission is filed as Exhibit 16.1 to this Form 10-K.



                                     II-37
<PAGE>   92

                          INDEPENDENT AUDITORS' REPORT





The Board of Directors and Stockholders
Tele-Communications, Inc.:


We have audited the accompanying consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive earnings,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tele-Communications,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.



                                          KPMG LLP



Denver, Colorado
March 9, 1999


                                     II-38
<PAGE>   93

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets

                           December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                                 1998                     1997
                                                                               ---------                --------
                                                                                      amounts in millions
<S>                                                                            <C>                      <C>
Assets

Cash and cash equivalents                                                      $     419                   244

Restricted cash (note 5)                                                             185                    40

Trade and other receivables, net                                                     593                   529

Prepaid program rights                                                               146                   104

Committed program rights                                                             117                   115

Investments in affiliates, accounted for under the 
  equity method, and related receivables (notes 6 
  and 17)                                                                          4,765                 3,063

Investment in Time Warner, Inc. ("Time Warner") (note 7)                           7,118                 3,555

Investment in AT&T Corp. ("AT&T") (note 8)                                         3,556                    --

Investment in Sprint Corporation ("Sprint") (notes 2 and 9)                        2,446                    --

Property and equipment, at cost:
  Land                                                                                63                    96
  Distribution systems                                                            10,107                10,784
  Support equipment and buildings                                                  1,769                 1,558
                                                                               ---------             ---------
                                                                                  11,939                12,438
  Less accumulated depreciation                                                    4,786                 4,759
                                                                               ---------             ---------
                                                                                   7,153                 7,679
                                                                               ---------             ---------
Franchise costs                                                                   14,658                17,910
  Less accumulated amortization                                                    2,590                 2,763
                                                                               ---------             ---------
                                                                                  12,068                15,147
                                                                               ---------             ---------
                                                                                
Other assets, net of accumulated amortization (note 18)                            3,285                 2,001
                                                                               ---------             ---------
                                                                                
                                                                               $  41,851                32,477
                                                                               =========             =========
</TABLE>


                                                                     (continued)


                                     II-39
<PAGE>   94
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                            Balance Sheets, continued

                           December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                          1998            1997
                                                                        --------        --------
                                                                          amounts in millions
<S>                                                                     <C>             <C>
Liabilities and Stockholders' Equity

Accounts payable                                                        $    229             169

Accrued interest                                                             253             258

Accrued programming expense                                                  471             399

Other accrued expenses                                                     1,128             997

Deferred option premium (note 7)                                            --               306

Debt (note 12)                                                            14,052          15,250

Deferred income taxes (note 19)                                            9,749           6,104

Other liabilities                                                          1,819             664
                                                                        --------        --------
      Total liabilities                                                   27,701          24,147
                                                                        --------        --------
Minority interests in equity of consolidated subsidiaries                  1,460           1,664

Redeemable securities:
  Preferred stock (note 13)                                                  300             655
  Common stock (note 3)                                                       22               5

Company-obligated mandatorily redeemable preferred
  securities of subsidiary trusts ("Trust Preferred
  Securities") holding solely subordinated debt securities
  of TCI Communications, Inc. ("TCIC") (note 14)                           1,500           1,500

Stockholders' equity (note 15):
    Series Preferred Stock, $.01 par value                                  --              --
    Class B 6% Cumulative Redeemable Exchangeable Junior
      Preferred Stock, $.01 par value                                       --              --
    Common stock, $1 par value:
      Series A TCI Group. Authorized 1,750,000,000 shares;
        issued 610,748,188 shares in 1998 and 605,616,143
        shares in 1997                                                       611             606
      Series B TCI Group. Authorized 150,000,000 shares;
        issued 73,929,229 shares in 1998 and 78,203,044
        shares in 1997                                                        74              78
      Series A Liberty Media Group. Authorized 750,000,000
        shares; issued 367,890,546 shares in 1998 and
        344,962,521 shares in 1997                                           368             345
      Series B Liberty Media Group. Authorized 75,000,000
        shares; issued 35,198,156 shares in 1998 and
        35,180,385 shares in 1997                                             35              35
      Series A TCI Ventures Group. Authorized 750,000,000
        shares; issued 377,253,230 shares in 1998 and
        377,386,032 shares in 1997                                           377             377
      Series B TCI Ventures Group. Authorized 75,000,000
        shares; issued 45,750,534 shares in 1998 and
        32,532,800 shares in 1997                                             46              33
    Additional paid-in capital                                             5,987           5,063
    Accumulated other comprehensive earnings, net of taxes (notes
      1 and 16)                                                            3,749             772
    Retained earnings (accumulated deficit)                                1,124            (812)
                                                                        --------        --------
                                                                          12,371           6,497
    Treasury stock and common stock held by subsidiaries, at cost
      (note 15)                                                           (1,503)         (1,991)
                                                                        --------        --------
          Total stockholders' equity                                      10,868           4,506
                                                                        --------        --------
Commitments and contingencies (notes 2, 6, 10, 20 and 21)               $ 41,851          32,477
                                                                        ========        ========
</TABLE>


See accompanying notes to consolidated financial statements.


                                     II-40
<PAGE>   95

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

        Consolidated Statements of Operations and Comprehensive Earnings

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                           1998          1997          1996
                                                         --------      --------      --------
                                                                 amounts in millions,
                                                               except per share amounts
<S>                                                      <C>           <C>           <C>  
Revenue:
   Communications and programming services               $  7,351         7,570         7,038
   Net sales from electronic retailing services              --            --             984
                                                         --------      --------      --------
                                                            7,351         7,570         8,022
                                                         --------      --------      --------
Operating costs and expenses:
   Operating                                                2,997         2,995         3,072
   Cost of sales from electronic retailing
     services                                                --            --             605
   Selling, general and administrative                      1,642         1,600         2,069
   Year 2000 costs (note 21)                                   11          --            --
   AT&T merger costs (note 2)                                  14          --            --
   Stock compensation                                         866           488           (13)
   Reserve for loss arising from contingent
     obligation (note 20)                                      90          --            --
   Cost of distribution agreements (note 18)                   50          --            --
   Impairment of assets                                         5            15          --
   Restructuring charges                                     --            --              41
   Depreciation                                             1,121         1,077         1,093
   Amortization                                               614           546           523
                                                         --------      --------      --------
                                                            7,410         6,721         7,390
                                                         --------      --------      --------
       Operating income (loss)                                (59)          849           632

Other income (expense):
   Interest expense                                        (1,061)       (1,160)       (1,096)
   Interest and dividend income                               122            88            64
   Share of losses of affiliates, net (note 6)             (1,384)         (930)         (450)
   Loss on early extinguishment of debt (note 12)             (60)          (39)          (71)
   Minority interests in earnings of consolidated
     subsidiaries, net (note 14)                              (88)         (154)          (56)
   Gains on issuance of equity interests by
     subsidiaries (notes 10 and 18)                            89            60          --
   Gains on issuance of stock by equity investees
     (notes 6, 8 and 18)                                      268           112            12
   Gains on disposition of assets, net (notes 6, 7
     8, 9 and 10)                                           5,760           401         1,593
   Other, net                                                 (49)          (22)          (65)
                                                         --------      --------      --------
                                                            3,597        (1,644)          (69)
                                                         --------      --------      --------
     Earnings (loss) before income taxes                    3,538          (795)          563

Income tax benefit (expense) (note 19)                     (1,595)          234          (271)
                                                         --------      --------      --------
     Net earnings (loss)                                    1,943          (561)          292

Dividend requirements on preferred stocks                     (24)          (42)          (35)
                                                         --------      --------      --------
     Net earnings (loss) attributable to common
       stockholders                                      $  1,919          (603)          257
                                                         ========      ========      ========
</TABLE>


                                                                    (continued)


                                     II-41
<PAGE>   96

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

  Consolidated Statements of Operations and Comprehensive Earnings, continued

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                              1998           1997           1996
                                                                            --------       --------       --------
                                                                                      amounts in millions,
                                                                                    except per share amounts
<S>                                                                         <C>            <C>            <C>  
Net earnings (loss) attributable to common stockholders:
     TCI Group Series A and Series B common stock                           $   (240)          (537)          (799)
     Liberty Media Group Series A and Series B common stock                      156            125          1,056
     TCI Ventures Group Series A and Series B common stock
                                                                               2,003           (191)          --
                                                                            --------       --------       --------
                                                                            $  1,919           (603)           257
                                                                            ========       ========       ========
Basic earnings (loss) attributable to common stockholders
   per common share (note 4):
     TCI Group Series A and Series B common stock                           $   (.46)          (.85)         (1.20)
                                                                            ========       ========       ========
     Liberty Media Group Series A and Series B common stock                 $    .43            .34           2.82
                                                                            ========       ========       ========
     TCI Ventures Group Series A and Series B common stock                  $   4.75           (.47)          --
                                                                            ========       ========       ========
Diluted earnings (loss) attributable to common
   stockholders per common and potential common share
   (note 4): TCI Group Series A and Series B common stock                   $   (.49)          (.85)         (1.20)
                                                                            ========       ========       ========
     Liberty Media Group Series A and Series B common stock                 $    .39            .31           2.58
                                                                            ========       ========       ========
     TCI Ventures Group Series A and Series B common stock                  $   4.44           (.47)          --
                                                                            ========       ========       ========
Net earnings (loss)                                                         $  1,943           (561)           292
                                                                            --------       --------       --------
Other comprehensive earnings, net of taxes (note 16):
     Foreign currency translation adjustments                                      2            (22)            35
     Unrealized gains on securities:
        Unrealized holding gains arising during period                         2,977            753             41
        Less: reclassification adjustment for gains
           included in net earnings                                               (2)          --             (364)
                                                                            --------       --------       --------
Other comprehensive earnings                                                   2,977            731           (288)
                                                                            --------       --------       --------
Comprehensive earnings                                                      $  4,920            170              4
                                                                            ========       ========       ========
</TABLE>


See accompanying notes to consolidated financial statements.


                                     II-42
<PAGE>   97

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                 Consolidated Statement of Stockholders' Equity

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                  Common Stock
                                                     ----------------------------------------
                                           Class B        TCI Group       Liberty Media Group
                                          Preferred  -------------------  -------------------
                                            Stock    Series A   Series B  Series A   Series B
                                          ---------  --------   --------  --------   --------
                                                           amounts in millions
<S>                                       <C>        <C>        <C>       <C>        <C>

Balance at January 1, 1996                $    --         672         85       337         32
   Net earnings                                --        --         --        --         --   
   Issuance of common stock for
     acquisition                               --          11       --           6       --   
   Issuance of common stock upon
     conversion of notes                       --           2       --           2       --   
   Issuance of common stock upon
     conversion of preferred stock             --           1       --        --         --   
   Exchange of cost investment for
     TCI Group and Liberty Media
     Group common stock                        --          (6)      --          (3)      --   
   Contribution of common stock to
     subsidiary                                --          16       --        --         --   
   Spin-off of TCI Satellite
     Entertainment, Inc.                       --        --         --        --         --   
   Accreted dividends on all classes
     of preferred stock                        --        --         --        --         --   
   Accreted dividends on all classes
     of preferred stock not subject to
     mandatory redemption requirements         --        --         --        --         --   
   Payment of preferred stock dividends        --        --         --        --         --   
   Foreign currency translation
     adjustments, net of taxes (note 16)       --        --         --        --         --   
   Unrealized gains on securities, net
     of taxes and reclassification
     adjustment (note 16)                      --        --         --        --         --   
                                          ---------  --------   --------  --------   --------
Balance at December 31, 1996              $    --         696         85       342         32
                                          =========  ========   ========  ========   ========

<CAPTION>
                                                                                        Treasury
                                                                                        stock and
                                                        Accumulated                      common
                                                           other         Retained         stock
                                          Additional   comprehensive     earnings        held by          Total   
                                           paid-in       earnings,     (accumulated    subsidiaries,   stockholders'
                                           capital     net of taxes      deficit)        at cost          equity    
                                          ----------   -------------   ------------   -------------   -------------
                                                                    amounts in millions
                                                                                                                                
<S>                                       <C>        <C>        <C>       <C>        <C>
                                               3,863           329             (543)          (314)           4,461
   Net earnings                                 --              --              292            --               292
   Issuance of common stock for
     acquisition                                 248            --              --              --              265
   Issuance of common stock upon
     conversion of notes                          (2)           --              --              --                2
   Issuance of common stock upon
     conversion of preferred stock                15            --              --              --               16
   Exchange of cost investment for
     TCI Group and Liberty Media
     Group common stock                         (121)           --              --              --             (130)
   Contribution of common stock to
     subsidiary                                  (16)           --              --              --              --
   Spin-off of TCI Satellite
     Entertainment, Inc.                        (405)           --              --              --             (405)
   Accreted dividends on all classes
     of preferred stock                          (35)           --              --              --              (35)
   Accreted dividends on all classes
     of preferred stock not subject to
     mandatory redemption requirements            10            --              --              --               10
   Payment of preferred stock dividends          (10)           --              --              --              (10)
   Foreign currency translation
     adjustments, net of taxes (note 16)        --                35            --              --               35
   Unrealized gains on securities, net
     of taxes and reclassification
     adjustment (note 16)                       --              (323)           --              --             (323)
                                          ----------   -------------   ------------   -------------   -------------
Balance at December 31, 1996                   3,547              41           (251)           (314)          4,178
                                          ==========   =============   ============   =============   =============
</TABLE>


                                                                    (continued)


                                     II-43
<PAGE>   98
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholders' Equity, continued

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                                                                
                                                                                                                                
                                                                                        Common Stock                            
                                                           ----------------------------------------------------------------------
                                                 Class B         TCI Group          Liberty Media Group      TCI Ventures Group  
                                                Preferred  ----------------------  --------------------   -----------------------
                                                  Stock     Series A     Series B   Series A   Series B    Series A     Series B 
                                                ---------  ----------   ---------   ---------  --------    --------     -------- 
                                                                                    amounts in millions

<S>                                             <C>        <C>          <C>         <C>        <C>         <C>          <C>
Balance at December 31, 1996                       $ --          696           85       342          32         --           --  
    Net loss                                         --          --           --        --          --          --           --  
    Issuance of TCI Ventures Group
      common stock in exchange for 
      TCI Group common stock (note 1)                --         (189)         (16)      --          --          377           33 
    Costs associated with TCI Ventures
      Exchange                                       --          --           --        --          --          --           --  
    Exchange of common stock with an
      officer/director (note 17)                     --          --             7       --            3         --           --  
    Issuance of common stock for 
      acquisitions and investment                    --           63            2         2         --          --           --  
    Issuance of Series A TCI Group 
      common stock in exchange for Series
      B TCI Group common stock (the 
      "Exchange") (note 17)                          --           31          --        --          --          --           --  
    Recognition of fees related to the 
      Exchange (note 17)                             --          --           --        --          --          --           --  
    Repurchase of common stock                       --          --           --        --          --          --           --  
    Cancellation of common stock                     --          --           --        --          --          --           --  
    Reclassification to redeemable 
      securities of redemption amount of 
      common stock subject to put obligation         --          --           --        --          --          --           --  
    Gain from issuance of equity by 
      subsidiary and equity investee, net 
      of taxes                                       --          --           --        --          --          --           --  
    Issuance of common stock upon exercise
      of stock options                               --          --           --        --          --          --           --  
    Issuance of restricted stock granted
      pursuant to stock incentive plan               --            1          --        --          --          --           --  
    Issuance of common stock upon conversion
      of notes and preferred stock                   --            3          --          1         --          --           --  
    Issuance of common stock to
      Tele-Communications, Inc. Employee
      Stock Purchase Plan                            --            1          --        --          --          --           --  
    Accreted dividends on all classes of
      preferred stock                                --          --           --        --          --          --           --  
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                        --          --           --        --          --          --           --  
    Payment of preferred stock dividends             --          --           --        --          --          --           --  
    Foreign currency translation adjustments,
      net of taxes (note 16)                         --          --           --        --          --          --           --  
    Unrealized gains on securities, net of
      taxes and reclassification adjustment
      (note 16)                                      --          --           --        --          --          --           --  
                                                   -----   ---------    ---------  --------   ---------   ----------   --------- 
Balance at December 31, 1997                       $ --          606           78       345          35          377          33 
                                                   =====   =========    =========  ========   =========   ==========   ========= 

<CAPTION>
                                                                                                   Treasury                    
                                                                                                   stock and                   
                                                                 Accumulated                        common                     
                                                                    other         Retained        stock held                   
                                                  Additional    comprehensive     earnings            by             Total     
                                                   paid-in        earnings,     (accumulated     subsidiaries,   stockholders' 
                                                   capital      net of taxes      deficit)          at cost          equity    
                                                  ----------    -------------   ------------     -------------   --------------
                                                                            amounts in millions
<S>                                                <C>          <C>             <C>              <C>             <C>
Balance at December 31, 1996                          3,547             41             (251)         (314)            4,178    
    Net loss                                                                                                                   
    Issuance of TCI Ventures Group                      --             --              (561)          --               (561)   
      common stock in exchange for                                                                                             
      TCI Group common stock (note 1)                                                                                          
    Costs associated with TCI Ventures                 (205)           --                --           --                --     
      Exchange                                                                                                                 
    Exchange of common stock with an                     (7)           --                --           --                 (7)   
      officer/director (note 17)                                                                                               
    Issuance of common stock for                        160            --                --          (170)              --     
      acquisitions and investment                                                                                              
    Issuance of Series A TCI Group                    1,058            --                --          (484)              641    
      common stock in exchange for Series                                                                                      
      B TCI Group common stock (the                                                                                            
      "Exchange") (note 17)                             481            --                --          (512)              --     
    Recognition of fees related to the                                                                                         
      Exchange (note 17)                                (11)           --                --           --                (11)   
    Repurchase of common stock                          --             --                --           --               (529)   
    Cancellation of common stock                        (18)           --                --          (529)              --     
    Reclassification to redeemable                                                                                             
      securities of redemption amount of                                                                                       
      common stock subject to put obligation             (4)           --                --           18                 (4)   
    Gain from issuance of equity by                                                                                            
      subsidiary and equity investee, net                                                                                      
      of taxes                                           86            --                --           --                 86    
    Issuance of common stock upon exercise                                                                                     
      of stock options                                    4            --                --           --                  4    
    Issuance of restricted stock granted                                                                                       
      pursuant to stock incentive plan                    3            --                --           --                  4    
    Issuance of common stock upon conversion                                                                                   
      of notes and preferred stock                        3            --                --           --                  7    
    Issuance of common stock to                                                                                                
      Tele-Communications, Inc. Employee                                                                                       
      Stock Purchase Plan                                 8            --                --           --                  9    
    Accreted dividends on all classes of                                                                                       
      preferred stock                                   (42)           --                --           --                (42)   
    Accreted dividends on all classes of                                                                                       
      preferred stock not subject to mandatory                                                                                 
      redemption requirements                            10            --                --           --                 10    
    Payment of preferred stock dividends                (10)           --                --           --                (10)   
    Foreign currency translation adjustments,                                                                                  
      net of taxes (note 16)                            --            (22)               --           --                (22)
    Unrealized gains on securities, net of                                                                                     
      taxes and reclassification adjustment                                                                                    
      (note 16)                                         --             753               --           --                753        
                                                 ----------    -----------      ------------     ---------       ----------
Balance at December 31, 1997                          5,063            772              (812)       (1,991)           4,506
                                                 ==========    ===========      ============     =========       ==========    
</TABLE>


                                     II-44
<PAGE>   99
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

           Consolidated Statement of Stockholders' Equity, continued

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                           Common Stock
                                                               -------------------------------------------------------------------
                                                    Class B         TCI Group          Liberty Media Group     TCI Ventures Group
                                                   Preferred   ---------------------  --------------------   ---------------------
                                                     Stock     Series A     Series B   Series A   Series B   Series A     Series B
                                                   ---------   --------     --------   --------   --------   --------     --------
                                                                                    amounts in millions

<S>                                                <C>         <C>          <C>        <C>        <C>        <C>          <C>
Balance at December 31, 1997                        $   --          606           78       345         35        377           33 
    Net earnings                                        --          --           --        --         --         --          -- 
    Exchange of common stock in connection with
      the Magness Settlement (note 17)                  --          --            11       --         --         --           13 
    Issuance of common stock in connection with
      settlement of litigation                          --            1            1       --         --         --          -- 
    Reclassification to redeemable securities
      of redemption amount of common stock
      subject to put obligation                         --          --           --        --         --         --          -- 
    Premium received in connection with put
      obligation                                        --          --           --        --         --         --          -- 
    Issuance of common stock for acquisitions
      (note 10)                                         --            1          --          7        --          13         -- 
    Repurchase of common stock to be held in
      treasury (note 15)                                --          --           --        --         --         --          -- 
    Repurchase and retirement of common stock
      (note 15)                                         --          --           --        --         --         --          -- 
    Retirement of common stock held in treasury         --          (12)         (16)      --         --         (13)        -- 
    Gain from issuance of equity by subsidiary
      and equity investee, net of taxes (note 6)        --          --           --        --         --         --          -- 
    Issuance of common stock upon conversion of
      notes and preferred stock (notes 12 and
      13)                                               --           15          --          6        --         --          -- 
    Payments for call agreements (note 17)              --          --           --        --         --         --          -- 
    Issuance of common stock upon exercise of
      Malone Right (note 17)                            --          --           --        --         --         --          -- 
    Issuance of common stock to acquire
      minority interest of subsidiary                   --          --           --         10        --         --          -- 
    Issuance of common stock upon exercise of
      stock options                                     --          --           --        --         --         --          -- 
    Recognition of fees related to the Equity
      Swap Facility and the Exchange (notes 15
      and 17)                                           --          --           --        --         --         --          -- 
    Reimbursement of fees related to Exchange
      (note 17)                                         --          --           --        --         --         --          -- 
    Recognition of stock compensation related
      to restricted stock awards                        --          --           --        --         --         --          -- 
    Accreted dividends on all classes of
      preferred stock                                   --          --           --        --         --         --          -- 
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                           --          --           --        --         --         --          -- 
    Payment of preferred stock dividends                --          --           --        --         --         --          -- 
    Foreign currency translation adjustments,
      net of taxes (note 16)                            --          --           --        --         --         --          -- 
    Unrealized gains on securities, net of
      taxes and reclassification adjustment         
      (note 16)                                         --          --           --        --         --         --          -- 
                                                    -------     -------      -------    ------     ------   --------   ---------
Balance at December 31, 1998                        $   --          611           74       368         35        377          46 
                                                    =======     =======      =======    ======     ======   ========   ========= 

<CAPTION>
                                                                                                       Treasury                  
                                                                                                       stock and                 
                                                                      Accumulated                       common                   
                                                                         other         Retained       stock held                 
                                                       Additional    comprehensive     earnings           by            Total    
                                                        paid-in        earnings,     (accumulated    subsidiaries,  stockholders'
                                                        capital      net of taxes      deficit)         at cost        equity    
                                                       ----------    ------------    ------------    -------------  -------------
                                                                                  amounts in millions
<S>                                                    <C>           <C>             <C>             <C>            <C>
Balance at December 31, 1997                              5,063            772              (812)       (1,991)           4,506 
                                                                                                                                
    Net earnings                                            --             --              1,943           --             1,943 
    Exchange of common stock in connection with                                                                                 
      the Magness Settlement (note 17)                      509            --                --           (533)             --  
    Issuance of common stock in connection with                                                                                 
      settlement of litigation                               48            --                --             (3)              47 
    Reclassification to redeemable securities                                                                                   
      of redemption amount of common stock                                                                                      
      subject to put obligation                             (17)           --                --            --               (17)
    Premium received in connection with put                                                                                     
      obligation                                              3            --                --            --                 3 
    Issuance of common stock for acquisitions                                                                                   
      (note 10)                                             353            --                --            --               374 
    Repurchase of common stock to be held in                                                                                    
      treasury (note 15)                                    --             --                --            (20)             (20)
    Repurchase and retirement of common stock                                                                                   
      (note 15)                                             (11)           --                --            --               (11)
    Retirement of common stock held in treasury            (760)           --                --            801              --  
    Gain from issuance of equity by subsidiary                                                                                   
      and equity investee, net of taxes (note 6)             70            --                --            --                70  
    Issuance of common stock upon conversion of                                                                                  
      notes and preferred stock (notes 12 and                                                                                    
      13)                                                   331            --                --            --               352  
    Payments for call agreements (note 17)                 (274)           --                --            --              (274) 
    Issuance of common stock upon exercise of                                                                                    
      Malone Right (note 17)                                273            --                --            243              516  
    Issuance of common stock to acquire                                                                                          
      minority interest of subsidiary                       416            --                --            --               426  
    Issuance of common stock upon exercise of                                                                                    
      stock options                                          10            --                --            --                10  
    Recognition of fees related to the Equity                                                                                    
      Swap Facility and the Exchange (notes 15                                                                                   
      and 17)                                               (31)           --                --            --               (31) 
    Reimbursement of fees related to Exchange                                                                                    
      (note 17)                                              11            --                --            --                11  
    Recognition of stock compensation related                                                                                    
      to restricted stock awards                             11            --                --            --                11  
    Accreted dividends on all classes of                                                                                         
      preferred stock                                       (13)           --               (12)           --               (25) 
    Accreted dividends on all classes of                                                                                         
      preferred stock not subject to mandatory                                                                                   
      redemption requirements                                 5            --                 5            --                10  
    Payment of preferred stock dividends                    (10)           --                --            --               (10) 
    Foreign currency translation adjustments,                                                                                    
      net of taxes (note 16)                                --              2                --            --                 2  
    Unrealized gains on securities, net of                                                                                       
      taxes and reclassification adjustment          
      (note 16)                                             --          2,975                --            --             2,975  
                                                     ----------    ----------       ------------     ---------      -----------  
Balance at December 31, 1998                              5,987         3,749              1,124        (1,503)          10,868  
                                                     ==========    ==========       ============     =========      ===========  

</TABLE>


See accompanying notes to consolidated financial statements.

                                     II-45
<PAGE>   100
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                    1998           1997           1996
                                                                  --------       --------       --------
                                                                           amounts in millions
                                                                               (see note 5)
<S>                                                               <C>            <C>            <C>
Cash flows from operating activities:
   Net earnings (loss)                                            $  1,943           (561)           292
   Adjustments to reconcile net earnings (loss) to net
      cash provided by operating activities:
        Depreciation and amortization                                1,735          1,623          1,616
        Stock compensation                                             866            488            (13)
        Payments of obligation relating to stock
          compensation                                                (187)          (132)            (3)
        Share of losses of affiliates, net                           1,384            930            450
        Loss on early extinguishment of debt                            60             39             71
        Minority interests in earnings of consolidated
          subsidiaries, net                                             88            154             56
        Restructuring charges                                         --             --               41
        Payments of restructuring charges                               (9)           (24)            (8)
        Reserve for loss arising from contingent obligation             90           --             --
        Gains on issuance of equity interests by subsidiaries          (89)           (60)          --
        Gains on issuance of stock by equity investees                (268)          (112)           (12)
        Gains on disposition of assets, net                         (5,760)          (401)        (1,593)
        Deferred income tax expense (benefit)                        1,461           (275)           233
        Cost of distribution agreements                                 50           --             --
        Other noncash charges                                           10             25             11
        Changes in operating assets and liabilities,
          net of the effect of acquisitions:
             Change in receivables                                    (183)           (53)          (115)
             Change in inventories                                    --             --               (8)
             Change in prepaids                                        (44)           (77)           (23)
             Change in other accruals and payables                      76            146            283
                                                                  --------       --------       --------
              Net cash provided by operating activities              1,223          1,710          1,278
                                                                  --------       --------       --------
Cash flows from investing activities:
   Cash paid for acquisitions                                         (459)          (323)          (664)
   Capital expended for property and equipment                      (1,917)          (709)        (2,055)
   Investments in and loans to affiliates                           (1,503)          (636)          (778)
   Collections of loans to affiliates                                2,497            133            647
   Proceeds from disposition of assets                                 889            541            341
   Change in restricted cash                                          (145)            (1)           (39)
   Cash received in exchanges                                           45             18             66
   Other investing activities                                          (44)          (179)           (26)
                                                                  --------       --------       --------
              Net cash used in investing activities                   (637)        (1,156)        (2,508)
                                                                  --------       --------       --------
Cash flows from financing activities:
   Borrowings of debt                                                5,553          2,513          8,163
   Repayments of debt                                               (5,978)        (3,036)        (7,969)
   Prepayment penalties                                                (52)           (33)           (60)
   Repurchase of common stock to be held in treasury                   (20)          (529)          --
   Repurchase and retirement of common stock                           (11)          --             --
   Repurchase of subsidiary common stock                               (24)           (42)          --
   Payment of preferred stock dividends                                (27)           (42)           (35)
   Payment of dividends on subsidiary preferred stock
      and Trust Preferred Securities                                  (189)          (179)           (95)
   Payments for call agreements                                       (274)          --             --
   Proceeds from issuance of common stock                              516              5           --
   Proceeds from issuance of subsidiary common stock
     and preferred stock                                                94            148            223
   Proceeds from issuance of Trust Preferred Securities               --              490            971
   Contributions by minority stockholders of subsidiaries             --                6            319
   Other financing activities                                            1            (16)          --
                                                                  --------       --------       --------
         Net cash provided (used) by financing activities             (411)          (715)         1,517
                                                                  --------       --------       --------
         Net increase (decrease) in cash and cash equivalents          175           (161)           287
         Cash and cash equivalents at beginning of year                244            405            118
                                                                  --------       --------       --------
         Cash and cash equivalents  at end of year                $    419            244            405
                                                                  ========       ========       ========
</TABLE>


See accompanying notes to consolidated financial statements.


                                     II-46
<PAGE>   101

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 1998, 1997 and 1996

(1)      Basis of Presentation

         Nature of Business

         Tele-Communications, Inc. ("TCI" or the "Company"), through its
         subsidiaries and affiliates, is principally engaged in the
         construction, acquisition, ownership, and operation of domestic cable
         television systems and the provision of satellite-delivered video
         entertainment, information and home shopping programming services to
         various video distribution media, principally cable television systems.
         The Company also has investments in cable and telecommunications
         operations and television programming in certain international markets
         as well as investments in companies and joint ventures involved in
         developing and providing programming for new television and
         telecommunications technologies.

         Principles of Consolidation

         The accompanying consolidated financial statements include the accounts
         of TCI and those of all majority-owned subsidiaries. All significant
         intercompany accounts and transactions have been eliminated in
         consolidation. Preferred stock of TCI which is owned by subsidiaries of
         TCI eliminates in consolidation. Common stock of the Company held by
         subsidiaries is treated similar to treasury stock in consolidation.

         Targeted Stock

         The Company's assets and operations were previously included in three
         separate groups, each of which was tracked separately by public equity
         securities. These groups were known as the "Liberty Media Group", the
         "TCI Ventures Group" and the "TCI Group".

         The Liberty Media Group was intended to reflect the separate
         performance of TCI's assets which produce and distribute programming
         services.

         The TCI Ventures Group was intended to reflect the separate performance
         of TCI's principal international assets and businesses and
         substantially all of TCI's non-cable and non-programming assets.

         The TCI Group was intended to reflect the separate performance of TCI
         and its subsidiaries and assets not attributed to Liberty Media Group
         or TCI Ventures Group. Such subsidiaries and assets are comprised
         primarily of TCI's domestic cable and communications business.

                                                                    (continued)


                                     II-47
<PAGE>   102
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The TCI Group was tracked separately through the Tele-Communications,
         Inc. Series A TCI Group Common Stock (the "TCI Group Series A Stock")
         and Series B TCI Group Common Stock (the "TCI Group Series B Stock,"
         and together with the TCI Group Series A Stock, the "TCI Group Stock").
         The Liberty Media Group was tracked through the Tele-Communications,
         Inc. Series A Liberty Media Group Common Stock ("Liberty Group Series A
         Stock") and Series B Liberty Media Group Common Stock ("Liberty Group
         Series B Stock" and together with the Liberty Group Series A Stock, the
         "Liberty Group Stock"). The TCI Ventures Group was tracked separately
         through the Tele-Communications, Inc. Series A TCI Ventures Group
         Common Stock ("TCI Ventures Group Series A Stock") and Series B TCI
         Ventures Group Common Stock ("TCI Ventures Group Series B Stock" and
         together with the TCI Ventures Group Series A Stock, the "TCI Ventures
         Group Stock").

         On August 5, 1995, the shareholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue the Liberty Group Stock.
         Additionally, the shareholders of TCI approved the redesignation of the
         previously authorized Class A and Class B common stock into TCI Group
         Series A Stock and TCI Group Series B Stock, respectively. On August
         10, 1995, TCI distributed, in the form of a dividend, 2.25 shares of
         Liberty Group Stock for each four shares of TCI Group Stock owned (the
         "Liberty Distribution").

         In August 1997, TCI commenced offers (the "Exchange Offers") to
         exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
         Group Series B Stock for up to 188,661,300 shares of TCI Group Series A
         Stock and up to 16,266,400 shares of TCI Group Series B Stock,
         respectively. The exchange ratio for the Exchange Offers was two shares
         of the applicable series of TCI Ventures Group Stock for each share of
         the corresponding series of TCI Group Stock properly tendered up to the
         indicated maximum numbers. Upon the September 10, 1997 consummation of
         the Exchange Offers, 188,661,300 shares of TCI Group Series A Stock and
         16,266,400 shares of TCI Group Series B Stock were exchanged for
         377,322,600 shares of TCI Ventures Group Series A Stock and 32,532,800
         shares of TCI Ventures Group Series B Stock (the "TCI Ventures
         Exchange").

         Each of the separate series of Tele-Communications, Inc. common stock
         was converted to a series of common stock of AT&T Corporation ("AT&T")
         upon the March 9, 1999 merger of the Company into AT&T. See note 2.

         Collectively, the TCI Group, the Liberty Media Group and the TCI
         Ventures Group are referred to as the "Groups" and individually, may be
         referred to herein as a "Group." The TCI Group Series A Stock, TCI
         Ventures Group Series A Stock and the Liberty Group Series A Stock are
         sometimes collectively referred to herein as the "Series A Stock," and
         the TCI Group Series B Stock, TCI Ventures Group Series B Stock and
         Liberty Group Series B Stock are sometimes collectively referred to
         herein as the "Series B Stock."

                                                                    (continued)


                                     II-48
<PAGE>   103
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense among TCI Group, Liberty Media Group and
         TCI Ventures Group, each such Group in the capital structure of TCI,
         which encompassed the TCI Group Stock, Liberty Group Stock and TCI
         Ventures Group Stock, did not affect the ownership or the respective
         legal title to such assets or responsibility for liabilities of TCI or
         any of its subsidiaries. TCI and its subsidiaries each were responsible
         for their respective liabilities. Holders of TCI Group Stock, Liberty
         Group Stock and TCI Ventures Group Stock were common stockholders of
         TCI and were subject to risks associated with an investment in TCI and
         all of its businesses, assets and liabilities.

         Accounting Standards

         Effective January 1, 1998, the Company adopted the provisions of
         Statement of Financial Accounting Standards No. 130, Reporting
         Comprehensive Income ("SFAS 130"). The Company has reclassified its
         prior period consolidated balance sheet and consolidated statements of
         operations and comprehensive earnings to conform to the requirements of
         SFAS 130. SFAS 130 requires that all items which are components of
         comprehensive earnings or losses be reported in a financial statement
         in the period in which they are recognized. The Company has included
         cumulative foreign currency translation adjustments and unrealized
         holding gains and losses on available-for-sale securities in other
         comprehensive earnings that are recorded directly in stockholders'
         equity. Pursuant to SFAS 130, these items are reflected, net of related
         tax effects, as components of comprehensive earnings in the Company's
         consolidated statements of operations and comprehensive earnings, and
         are included in accumulated other comprehensive earnings in the
         Company's consolidated balance sheets and statements of stockholders'
         equity.

         During 1998, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 133, Accounting for Derivative
         Instruments and Hedging Activities, ("SFAS 133"), which is effective
         for all fiscal years beginning after June 15, 1999. SFAS 133
         establishes accounting and reporting standards for derivative
         instruments and hedging activities by requiring that all derivative
         instruments be reported as assets or liabilities and measured at their
         fair values. Under SFAS 133, changes in the fair values of derivative
         instruments are recognized immediately in earnings unless those
         instruments qualify as hedges of the (1) fair values of existing
         assets, liabilities, or firm commitments, (2) variability of cash flows
         of forecasted transactions, or (3) foreign currency exposures of net
         investments in foreign operations. Although management of the Company
         has not completed its assessment of the impact of SFAS 133 on its
         consolidated results of operations and financial position, management
         currently estimates that the impact of SFAS 133 will not be material.

                                                                    (continued)


                                     II-49
<PAGE>   104
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(2)      Merger with AT&T

         On March 9, 1999, AT&T acquired TCI in a merger (the "AT&T Merger") in
         which Italy Merger Corp., a wholly-owned subsidiary of AT&T, merged
         with and into TCI, and TCI thereby became a wholly-owned subsidiary of
         AT&T. As a result of the AT&T Merger, (i) each share of TCI Group
         Series A Stock was converted into 0.7757 of a share of common stock,
         par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii) each
         share of TCI Group Series B Stock was converted into 0.8533 of a share
         of AT&T Common Stock, (iii) each share of Liberty Group Series A Stock
         was converted into one share of a newly created class of AT&T common
         stock designated as the Class A Liberty Media Group Common Stock, par
         value $1.00 per share (the "AT&T Liberty Class A Tracking Stock"), (iv)
         each share of Liberty Group Series B Stock was converted into one share
         of a newly created class of AT&T common stock designated as the Class B
         Liberty Media Group Common Stock, par value $1.00 per share (the "AT&T
         Liberty Class B Tracking Stock" and together with the AT&T Liberty
         Class A Tracking Stock, the "AT&T Liberty Tracking Stock"), (v) each
         share of TCI Ventures Group Series A Stock was converted into 0.52 of a
         share of AT&T Liberty Class A Tracking Stock, (vi) each share of TCI
         Ventures Group Series B Stock was converted into 0.52 of a share of
         AT&T Liberty Class B Tracking Stock, (vii) each share of TCI's
         Convertible Preferred Stock, Series C-TCI Group (the "Series C-TCI
         Group Preferred Stock") was converted into 103.059502 shares of AT&T
         Common Stock, (viii) each share of TCI's Convertible Preferred Stock
         Series C-Liberty Media Group (the "Series C-Liberty Media Group
         Preferred Stock") was converted into 56.25 shares of AT&T Liberty Class
         A Tracking Stock, (ix) each share of TCI's Redeemable Convertible TCI
         Group Preferred Stock, Series G ("Series G Preferred Stock") was
         converted into 0.923083 shares of AT&T Common Stock and (x) each share
         of TCI's Redeemable Convertible Liberty Media Group Preferred Stock,
         Series H ("Series H Preferred Stock") was converted into 0.590625 of a
         share of AT&T Liberty Class A Tracking Stock. Following the AT&T
         Merger, each share of TCI's Class B 6% Cumulative Redeemable
         Exchangeable Junior Preferred Stock ("Class B Preferred Stock")
         continues to be outstanding as the Class B Preferred Stock of TCI with
         the same rights and preferences such stock had prior to the AT&T
         Merger. In general, the holders of shares of AT&T Liberty Class A
         Tracking Stock and the holders of shares of AT&T Liberty Class B
         Tracking Stock will vote together as a single class with the holders of
         shares of AT&T Common Stock on all matters presented to such
         stockholders, with the holders being entitled to one-tenth (1/10th) of
         a vote for each share of AT&T Liberty Class A Tracking Stock held, 1
         vote per share of AT&T Liberty Class B Tracking Stock held and 1 vote
         per share of AT&T Common Stock held.

                                                                    (continued)


                                     II-50
<PAGE>   105
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The shares of AT&T Liberty Tracking Stock issued in the AT&T Merger are
         intended to reflect the separate performance of the businesses and
         assets attributed to "Liberty/Ventures Group," which following the AT&T
         Merger, is comprised of the businesses and assets attributed to Liberty
         Media Group and TCI Ventures Group at the time of the AT&T Merger.
         Pursuant to, and subject to the terms and conditions set forth in, the
         Agreement and Plan of Restructuring and Merger, dated as of June 23,
         1998 (the "Merger Agreement"), immediately prior to the AT&T Merger,
         certain assets previously attributed to TCI Ventures Group (including,
         among others, the shares of AT&T Common Stock received in the merger of
         AT&T and Teleport Communications Group, Inc. ("TCG"), the stock of At
         Home Corporation ("@Home") attributed to TCI Ventures Group, the assets
         and business of the National Digital Television Center, Inc. ("NDTC")
         and TCI Ventures Group's equity interest in Western
         Tele-Communications, Inc.) were transferred to TCI Group in exchange
         for approximately $5.5 billion in cash. Also, upon consummation of the
         AT&T Merger, through a new tax sharing agreement between
         Liberty/Ventures Group and AT&T, Liberty/Ventures Group became entitled
         to the benefit of approximately $2.0 billion of net operating loss
         carryforwards attributable to all entities included in TCI's
         consolidated federal income tax return as of the date of the AT&T
         Merger. Such net operating loss carryforwards are subject to adjustment
         by the Internal Revenue Service and are subject to limitations on usage
         which may affect the ultimate amount utilized. See note 19 to the
         accompanying consolidated financial statements of the Company.
         Additionally, certain warrants previously attributed to TCI Group were
         transferred to Liberty/Ventures Group in exchange for approximately
         $176 million in cash. Certain agreements entered into at the time of
         the AT&T Merger provide, among other things, for preferred vendor
         status to Liberty/Ventures Group for digital basic distribution on
         AT&T's systems of new programming services created by Liberty/Ventures
         Group and for a renewal of existing affiliation agreements. The
         transfer of other immaterial assets was also effected.

         Pursuant to amended corporate governance documents for the entities
         included in Liberty/Ventures Group and certain agreements among AT&T
         and TCI, the business of Liberty/Ventures Group will continue to be
         managed by certain persons who were members of TCI's management prior
         to the AT&T Merger. AT&T will initially designate one third of the
         directors of such entities and its rights as the sole shareholder of
         the common stock of such entities following the AT&T Merger will, in
         accordance with Delaware law, be limited to actions which will require
         shareholder approval. Therefore, management has concluded that TCI does
         not have a controlling financial interest (as that term is used in
         Statement of Financial Accounting Standards No. 94) in the entities
         comprising the Liberty/Ventures Group following the AT&T Merger, and
         will account for its investment in such entities under the equity
         method.

                                                                    (continued)

                                     II-51
<PAGE>   106
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Pursuant to a proposed final judgment (the "Final Judgment") agreed to
         by TCI, AT&T and the United States Department of Justice (the "DOJ") on
         December 30, 1998, Liberty/Ventures Group prior to the AT&T Merger
         transferred all of the equity securities of Sprint Corporation
         ("Sprint") beneficially owned by the Liberty/Ventures Group (the
         "Sprint Securities") to a trust with an independent trustee (the
         "Trustee"), pursuant to a trust agreement approved by the DOJ (the
         "Trust Agreement"). The Final Judgment, if entered by the United States
         District Court for the District of Columbia, would require the Trustee,
         on or before May 23, 2002, to dispose of a portion of the Sprint
         Securities held by the trust and beneficially owned by Liberty/Ventures
         Group sufficient to cause Liberty/Ventures Group to own beneficially no
         more than 10% of the outstanding Series 1 PCS Stock of Sprint on a
         fully diluted basis (assuming the issuance of all shares of Series 1
         PCS Stock of Sprint ultimately issuable in respect of the applicable
         securities of Sprint upon the exercise, conversion or other issuance
         thereof in accordance with the terms of such securities) on such date.
         On or before May 23, 2004, the Trustee must divest the remainder of the
         Sprint Securities beneficially owned by Liberty/Ventures Group.

         The Trust Agreement grants the Trustee the sole right to sell the
         Sprint Securities and provides that all decisions regarding such
         divestiture will be made by the Trustee without discussion or
         consultation with AT&T or the entities in the Liberty/Ventures Group;
         however, the Final Judgment would provide that the Trustee shall
         consult with the board of directors of the Liberty/Ventures Group
         entity that owns the Sprint Securities regarding such divestiture
         (other than certain directors appointed by AT&T following the AT&T
         Merger and any director, officer or shareholder that owns more than
         0.10% of the outstanding AT&T Common Stock). The Trustee has the power
         and authority to accomplish such divestiture only in a manner
         reasonably calculated to maximize the value of the Sprint Securities
         beneficially owned by Liberty/Ventures Group.

         The Final Judgment would provide that the Trustee vote the Sprint
         Securities beneficially owned by Liberty/Ventures Group in the same
         proportion as other holders of Sprint's PCS Stock so long as such
         securities are held by the trust. The Final Judgment also would
         prohibit the acquisition by Liberty/Ventures Group of additional Sprint
         Securities (other than in connection with the exercise or conversion,
         as applicable, of certain Sprint Securities) without the prior written
         consent of the DOJ.

                                                                    (continued)


                                     II-52
<PAGE>   107
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Immediately prior to the AT&T Merger, TCI restructured its ownership of
         certain of its subsidiaries. This restructuring included merging TCI's
         cable subsidiary, TCIC, into TCI. As a result of TCIC's merger with
         TCI, all assets and liabilities of TCIC have been assumed by TCI,
         including TCIC's public debt. In connection with TCIC's merger with
         TCI, each share of TCIC's Cumulative Exchangeable Preferred Stock,
         Series A was converted into 2.119 shares of TCI Group Series A Stock,
         and such shares of TCI Group Series A Stock were subsequently converted
         into AT&T Common Stock in connection with the AT&T Merger. All other
         public securities issued by subsidiaries of TCIC (other than TCI
         Pacific Communications, Inc. ("Pacific")) otherwise remained
         unaffected. Furthermore, as part of the restructuring, (i) certain
         asset transfers were made between TCI and its subsidiaries, (ii)
         123,896 shares of the Company's Convertible Redeemable Participating
         Preferred Stock, Series F ("Series F Preferred Stock") which were held
         by subsidiaries of TCI, were converted into 185,428,946 shares of TCI
         Group Series A Stock (which in turn were converted into 143,837,233
         shares of AT&T Common Stock in the AT&T Merger and continue to be held
         by subsidiaries of TCI), (iii) the remaining 154,411 shares of Series F
         Preferred Stock which were formerly held by subsidiaries of TCI were
         distributed to TCI through a series of liquidations and canceled, and
         (iv) 125,728,816 shares of TCI Group Series A Stock, 9,154,134 shares
         of TCI Group Series B Stock, 6,654,367 shares of Liberty Group Series A
         Stock, 3,417,187 shares of Liberty Group Series B Stock, and 67,536
         shares of Class B 6% Cumulative Redeemable Exchangeable Junior
         Preferred Stock ("Class B Preferred Stock"), each formerly held by
         subsidiaries of TCI, were distributed to TCI through a series of
         liquidations and canceled.

         After the AT&T Merger, under the terms of the 5% Class A Senior
         Cumulative Exchangeable Preferred Stock of Pacific (the "Exchangeable
         Preferred Stock"), each share of that preferred stock is exchangeable,
         from and after August 1, 2001, for approximately 4.225 shares of AT&T
         Common Stock, subject to certain anti-dilution adjustments.
         Additionally, after the AT&T Merger, Pacific may elect to make any
         dividend, redemption or liquidation payment on the Exchangeable
         Preferred Stock in cash, by delivery of shares of AT&T Common Stock or
         by a combination of the foregoing forms of consideration.

(3)      Summary of Significant Accounting Policies

         Cash Equivalents

         Cash equivalents consist of investments which are readily convertible
         into cash and have maturities of three months or less at the time of
         acquisition.

         Receivables

         Receivables are reflected net of an allowance for doubtful accounts.
         Such allowance at December 31, 1998 and 1997 was not significant.

         Program Rights

         Prepaid program rights are amortized on a film-by-film basis over the
         specific number of exhibitions. Committed program rights and program
         rights payable are recorded at the estimated costs of the programs when
         the film is available for airing less prepayments. Such amounts are
         amortized on a film-by-film basis over the anticipated number of
         exhibitions.

                                                                    (continued)

                                     II-53
<PAGE>   108
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Investments

         Marketable equity securities held by the Company are classified as
         available-for-sale and are reported at fair value. Unrealized holding
         gains and losses on securities classified as available-for-sale are
         carried net of taxes as a component of accumulated other comprehensive
         earnings in stockholders' equity. Realized gains and losses are
         determined on a specific-identification basis.

         Other investments in which the ownership interest is less than 20% and
         are not considered marketable securities are generally carried at the
         lower of cost or net realizable value. For those investments in
         affiliates in which the Company's voting interest is 20% to 50%, the
         equity method of accounting is generally used. Under this method, the
         investment, originally recorded at cost, is adjusted to recognize the
         Company's share of the net earnings or losses of the affiliates as they
         occur rather than as dividends or other distributions are received. The
         Company's share of losses are generally limited to the extent of the
         Company's investment in, advances to and commitments for the investee.
         The Company's share of net earnings or losses of affiliates includes
         the amortization of the difference between the Company's investment and
         its share of the net assets of the investee. Recognition of gains on
         sales of properties to affiliates accounted for under the equity method
         is deferred in proportion to the Company's ownership interest in such
         affiliates.

         Changes in the Company's proportionate share of the underlying equity
         of a subsidiary or equity method investee, which result from the
         issuance of additional equity securities by such subsidiary or equity
         investee, generally are recognized as gains or losses in the Company's
         consolidated statements of operations and comprehensive earnings.

         Property and Equipment

         Property and equipment is stated at cost, including acquisition costs
         allocated to tangible assets acquired. Construction costs, labor and
         applicable overhead related to installations and interest during
         construction are capitalized. During 1998, 1997 and 1996, interest
         capitalized was not significant.

         Depreciation is computed on a straight-line basis using estimated
         useful lives of 3 to 15 years for distribution systems and 3 to 40
         years for support equipment and buildings.

         Repairs and maintenance are charged to operations, and renewals and
         additions are capitalized. At the time of ordinary retirements, sales
         or other dispositions of property, the original cost and cost of
         removal of such property are charged to accumulated depreciation, and
         salvage, if any, is credited thereto. Gains or losses are only
         recognized in connection with the sales of properties in their
         entirety.

                                                                    (continued)


                                     II-54
<PAGE>   109
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Franchise Costs

         Franchise costs include the difference between the cost of acquiring
         cable television systems and amounts allocated to their tangible
         assets. Such amounts are generally amortized on a straight-line basis
         over 40 years. Costs incurred by the Company in negotiating and
         renewing franchise agreements are amortized on a straight-line basis
         over the life of the franchise, generally 10 to 20 years.

         Impairment of Long-Lived Assets

         The Company periodically reviews the carrying amounts of property,
         plant and equipment and its identifiable intangible assets to determine
         whether current events or circumstances warrant adjustments to such
         carrying amounts. If an impairment adjustment is deemed necessary, such
         loss is measured by the amount that the carrying value of such assets
         exceeds their fair value. Considerable management judgment is necessary
         to estimate the fair value of assets, accordingly, actual results could
         vary significantly from such estimates. Assets to be disposed of are
         carried at the lower of their financial statement carrying amount or
         fair value less costs to sell.

         Derivative Financial Instruments

         The Company has entered into variable and fixed interest rate exchange
         agreements ("Interest Rate Swaps") which it uses to manage interest
         rate risk arising from the Company's financial liabilities. Such
         Interest Rate Swaps are accounted for as hedges; and accordingly,
         amounts receivable or payable under Interest Rate Swaps are recognized
         as adjustments to interest expense. Gains and losses on early
         terminations of Interest Rate Swaps are included in the carrying amount
         of the related debt and amortized as yield adjustments over the
         remaining term of the derivative financial instruments or the remaining
         term of the related debt, whichever is shorter. The Company does not
         use such instruments for trading purposes.

         Derivative financial instruments that can be settled, at the Company's
         option, in shares of the Company's common stock are accounted for as
         equity instruments. Periodic settlements of amounts payable/receivable
         pursuant to such financial instruments are included in additional
         paid-in capital.

         In conjunction with a stock repurchase program or similar transaction,
         the Company may elect to sell put options on its own common stock.
         Proceeds from any such sales are reflected as an increase to additional
         paid-in capital and an amount equal to the maximum redemption amount
         under unexpired put options is reflected as redeemable common stock.

                                                                    (continued)


                                     II-55
<PAGE>   110
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         From time to time, the Company uses certain derivative financial
         instruments to manage its foreign currency risks. Because the Company
         generally views its foreign operating subsidiaries and affiliates as
         long-term investments, the Company generally does not attempt to hedge
         existing investments in its foreign affiliates and subsidiaries.
         However, the Company may enter into forward contracts to reduce its
         exposure to short-term (generally no more than one year) movements in
         the exchange rates applicable to firm funding commitments that are
         denominated in currencies other than the U.S. dollar. When high
         correlation of changes in the market value of the forward contract and
         changes in the fair value of the firm commitment is probable, the
         forward contract is accounted for as a hedge. Changes in the market
         value of a forward contract that qualifies as a hedge and any gains or
         losses on early termination of such a forward contract are deferred and
         included in the measurement of the item (generally an investment in, or
         an advance to, a foreign affiliate) that results from the funding of
         such commitment. Market value changes in derivative financial
         instruments that do not qualify as hedges are recognized currently in
         the consolidated statements of operations and comprehensive earnings.
         To date, the Company's use of forward contracts, as described above,
         has not had a material impact on the Company's financial position or
         results of operations.

         Minority Interests

         Recognition of minority interests' share of losses of consolidated
         subsidiaries is limited to the amount of such minority interests'
         allocable portion of the common equity of those consolidated
         subsidiaries. Further, the minority interests' share of losses is not
         recognized if the minority holders of common equity of consolidated
         subsidiaries have the right to cause the Company to repurchase such
         holders' common equity.

         Included in minority interests in equity of consolidated subsidiaries
         is $925 million and $927 million in 1998 and 1997, respectively, of
         preferred stocks (and accumulated dividends thereon) of certain
         subsidiaries. Dividend requirements on such subsidiary preferred stocks
         are reflected as minority interests in the accompanying consolidated
         statements of operations and comprehensive earnings.

         Foreign Currency Translation

         All balance sheet accounts of foreign investments are translated at the
         current exchange rate as of the end of the accounting period. Statement
         of operations items are translated at average currency exchange rates.
         The resulting translation adjustment is recorded as a separate
         component of accumulated other comprehensive earnings in stockholders'
         equity.

         Transactions denominated in currencies other than the functional
         currency are recorded based on exchange rates at the time such
         transactions arise. Subsequent changes in exchange rates result in
         transaction gains and losses which are reflected in the combined
         statements of operations as unrealized (based on the applicable period
         end translation) or realized upon settlement of the transactions. Such
         realized and unrealized gains and losses were not material to the
         accompanying consolidated financial statements.

                                                                    (continued)


                                     II-56
<PAGE>   111
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Revenue Recognition

         Cable revenue for customer fees, equipment rental, advertising,
         pay-per-view programming and revenue sharing agreements is recognized
         in the period that services are delivered. Installation revenue is
         recognized in the period the installation services are provided to the
         extent of direct selling costs. Any remaining amount is deferred and
         recognized over the estimated average period that customers are
         expected to remain connected to the cable distribution system.

         Stock Based Compensation

         Statement of Financial Accounting Standards No. 123, Accounting for
         Stock-Based Compensation ("SFAS 123") establishes financial accounting
         and reporting standards for stock-based employee compensation plans as
         well as transactions in which an entity issues its equity instruments
         to acquire goods or services from non-employees. As allowed by SFAS
         123, the Company continues to account for stock-based compensation
         pursuant to Accounting Principles Board Opinion No. 25 ("APB Opinion
         No. 25"). The Company has included the disclosures required by SFAS 123
         in note 15.

         Operating Segments

         The Company has significant operations principally in two operating
         segments: domestic cable and communications services and programming
         services. Substantially all of the Company's domestic cable and
         communications businesses and assets ("cable") were attributed to TCI
         Group, and substantially all of the Company's programming businesses
         and assets ("programming") have been attributed to Liberty Media Group.
         The Company's principal international businesses and assets and the
         Company's remaining non-cable and non-programming domestic businesses
         and assets have been attributed to TCI Ventures Group. No individual
         business or asset within TCI Ventures Group constituted a reportable
         segment of the Company. See note 22 for additional segment information.

         Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenue and expenses during the reporting period. Actual
         results could differ from those estimates.

         Reclassifications

         Certain prior year amounts have been reclassified for comparability
         with the 1998 presentation.

                                                                    (continued)


                                     II-57
<PAGE>   112
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(4)      Earnings (Loss) Per Common and Potential Common Share

         Basic earnings per share ("EPS") is measured as the income or loss
         attributable to common stockholders divided by the weighted average
         outstanding common shares for the period. Diluted EPS is similar to
         basic EPS but presents the dilutive effect on a per share basis of
         potential common shares (e.g., convertible securities, options, etc.)
         as if they had been converted at the beginning of the periods
         presented. Potential common shares that have an anti-dilutive effect
         (i.e., those that increase income per share or decrease loss per share)
         are excluded from diluted EPS.

         (a)      TCI Group Stock

                  The basic loss attributable to TCI Group common stockholders
                  per common share for the years ended December 31, 1998, 1997
                  and 1996 and the diluted loss attributable to TCI Group common
                  stockholders per common share for the years ended December 31,
                  1997 and 1996 was computed by dividing net loss attributable
                  to TCI Group common stockholders ($240 million, $537 million
                  and $799 million, respectively) by the weighted average number
                  of common shares outstanding of TCI Group Stock during the
                  period (525 million, 632 million and 665 million,
                  respectively). Potential common shares were not included in
                  the diluted calculation of weighted average shares outstanding
                  because their inclusion would be anti-dilutive. At December
                  31, 1998, 1997 and 1996, there were 100 million, 113 million,
                  and 126 million potential common shares, respectively,
                  consisting of stock options and other performance awards and
                  convertible securities that could potentially dilute future
                  EPS calculations in periods of net earnings. Such potential
                  common share amounts do not take into account the assumed
                  number of shares that would be repurchased by the Company upon
                  the exercise of stock options and other performance awards.

                  The diluted loss attributable to TCI Group common stockholders
                  per common share for the year ended December 31, 1998 was
                  computed by dividing net loss attributable to TCI Group common
                  stockholders, which is increased by aggregate payments of $15
                  million made during 1998 under certain contracts which may be
                  settled in shares or cash, but for the purpose of computing
                  diluted EPS, are assumed to be settled in shares (see notes 15
                  and 17), by the weighted average number of common shares
                  outstanding of TCI Group Stock during the period. Potential
                  common shares were not included in the diluted calculation of
                  weighted average shares outstanding because their inclusion
                  would be anti-dilutive.

                  In conjunction with the March 9, 1999 AT&T Merger, TCI Group
                  Stock was converted into AT&T Common Stock. See note 2.

         (b)      Liberty Group Stock

                  The basic earnings attributable to Liberty Media Group common
                  stockholders per common share for the years ended December 31,
                  1998, 1997 and 1996 was computed by dividing net earnings
                  attributable to Liberty Media Group common stockholders by the
                  weighted average number of common shares outstanding of
                  Liberty Group Stock during the period.

                                                                    (continued)


                                     II-58
<PAGE>   113
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The diluted earnings attributable to Liberty Media Group common
         stockholders per common and potential common share for the years ended
         December 31, 1998, 1997 and 1996 was computed by dividing earnings
         attributable to Liberty Media Group common stockholders, adjusted for
         Liberty Media Group's share of interest expense of an affiliate
         accrued during the year-ended 1998, assuming the conversion of the
         affiliate's convertible securities into Liberty Group Stock as of the
         beginning of the period, by the weighted average number of common and
         dilutive potential common shares outstanding of Liberty Group Stock
         during the period. Shares issuable upon conversion of the Series
         C-Liberty Media Group Preferred Stock, the Convertible Preferred
         Stock, Series D, the Series H Preferred Stock, convertible notes
         payable, convertible debentures of affiliate and stock options and
         other performance awards have been included in the diluted calculation
         of weighted average shares to the extent that the assumed issuance of
         such shares would have been dilutive, as illustrated below. All of the
         outstanding shares of Convertible Preferred Stock, Series D, were
         redeemed effective April 1, 1998 (see note 13). Numerator adjustments
         for dividends and interest associated with the convertible preferred
         shares and convertible notes payable, respectively, were not made to
         the computation of diluted earnings per share as such dividends and
         interest was paid by TCI Group. See notes 12 and 13 for descriptions
         of the convertible notes payable and convertible preferred shares,
         respectively. See note 15 for descriptions of stock options.

         In conjunction with the March 9, 1999 AT&T Merger, Liberty Group Stock
         was converted into AT&T Liberty Tracking Stock. See note 2.

                                                                    (continued)


                                     II-59
<PAGE>   114
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Information concerning the reconciliation of basic EPS to diluted 
         EPS with respect to Liberty Group Stock is presented below:

<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                                                  ------------------------------------
                                                                    1998          1997          1996
                                                                  --------      --------      --------
                                                                          amounts in millions,
                                                                        except per share amounts
<S>                                                               <C>           <C>           <C>  
Basic EPS:
   Earnings attributable to common
        stockholders                                              $    156           125         1,056
                                                                  ========      ========      ========
   Weighted average common shares                                      359           366           374
                                                                  ========      ========      ========
   Basic earnings per share attributable to
        common stockholders                                       $    .43           .34          2.82
                                                                  ========      ========      ========
Diluted EPS:
   Earnings attributable to common
        stockholders                                              $    156           125         1,056
   Add interest expense                                                  1          --            --
                                                                  --------      --------      --------
   Adjusted earnings attributable to common
        stockholders assuming conversion of
        convertible notes payable of
        affiliate                                                 $    157           125         1,056
                                                                  ========      ========      ========
   Weighted average common shares                                      359           366           374
   Add dilutive potential common shares:
        Employee and director options and
           other performance awards                                      8             4             3
        Convertible notes payable                                       19            19            21
        Convertible debentures of affiliate                              7          --            --
        Series C- Liberty Media Group
           Preferred Stock                                               4             4             4
        Convertible Preferred Stock, Series D                         --               6             5
        Series H Preferred Stock                                         4             4             2
                                                                  --------      --------      --------
        Dilutive potential common shares                                42            37            35
                                                                  --------      --------      --------
   Diluted weighted average common shares                              401           403           409
                                                                  ========      ========      ========
   Diluted earnings per share attributable
        to common stockholders                                    $    .39           .31          2.58
                                                                  ========      ========      ========
</TABLE>


         (c)      TCI Ventures Group Stock

                  The basic earnings (loss) attributable to TCI Ventures Group
                  stockholders per common share for the year ended December 31,
                  1998 and the period from September 10, 1997 (the date of the
                  TCI Ventures Exchange) through December 31, 1997 was computed
                  by dividing earnings (loss) attributable to TCI Ventures
                  Group stockholders by the weighted average number of common
                  shares outstanding of TCI Ventures Group Stock during the
                  period.

                                                                    (continued)


                                     II-60
<PAGE>   115

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The diluted earnings (loss) attributable to TCI Ventures Group
         stockholders per common and potential common share for the year ended
         December 31, 1998 and the period from September 10, 1997 through
         December 31, 1997 was computed by dividing earnings (loss)
         attributable to TCI Ventures Group stockholders by the weighted
         average number of common and dilutive potential common shares
         outstanding of TCI Ventures Group stock during the period. Shares
         issuable upon conversion of convertible notes payable and stock
         options and other performance awards have been included in the diluted
         calculation of weighted average shares to the extent that the assumed
         issuance of such shares would have been dilutive, as illustrated
         below. Numerator adjustments for interest associated with convertible
         notes payable were not made to the computation of diluted earnings per
         share as such interest was paid by TCI Group. In conjunction with the
         March 9, 1999 AT&T Merger, TCI Ventures Group Stock was converted into
         AT&T Liberty Tracking Stock. See note 2.

         Information concerning the reconciliation of basic EPS to dilutive EPS
         with respect to TCI Ventures Group Stock is presented below:

<TABLE>
<CAPTION>
                                                                                           September 10,
                                                                         Year ended        1997 through
                                                                        December 31,       December 31,
                                                                            1998               1997
                                                                        ------------       ------------
                                                                               amounts in millions,
                                                                             except per share amounts
<S>                                                                     <C>                <C>  
Basic EPS:
  Earnings (loss) attributable to common
   stockholders                                                         $      2,003               (191)
                                                                        ============       ============
  Weighted average common shares                                                 422                410
                                                                        ============       ============
  Basic (loss) earnings per share
   attributable to common stockholders                                  $       4.75               (.47)
                                                                        ============       ============
Diluted EPS:
  Earnings (loss) attributable to common
   stockholders                                                         $      2,003               (191)
                                                                        ============       ============
  Weighted average common shares                                                 422                410
                                                                        ------------       ------------
  Add dilutive potential common shares:
  Employee and director options and
   other performance awards                                                        8               --
  Convertible notes payable                                                       21               --
                                                                        ------------       ------------
Dilutive potential common shares                                                  29               --
                                                                        ------------       ------------
Diluted weighted average common shares                                           451                410
                                                                        ============       ============
Diluted earnings (loss) per share
  attributable to common stockholders                                   $       4.44               (.47)
                                                                        ============       ============
</TABLE>

                                                                    (continued)

                                     II-61
<PAGE>   116
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(5)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $1,066 million, $1,183 million and $1,056
         million for the years ended December 31, 1998, 1997 and 1996,
         respectively. Cash paid for income taxes was $57 million, $141 million,
         and $41 million in 1998, 1997 and 1996, respectively. In addition, the
         Company received income tax refunds amounting to $76 million and $36
         million during the years ended December 31, 1998 and 1997,
         respectively.

         Significant noncash investing and financing activities are reflected
         in the following table:

<TABLE>
<CAPTION>
                                                                              Years ended
                                                                              December 31,
                                                                  ------------------------------------
                                                                    1998          1997          1996
                                                                  --------      --------      --------
                                                                           amounts in millions
<S>                                                               <C>           <C>           <C>    
Cash paid for acquisitions:
    Recorded value of assets acquired                             $ (1,098)       (1,857)       (5,064)
    Net liabilities assumed                                             11           720         1,811
    Deferred tax liability recorded in acquisitions                     71           145         1,379
    Change in minority interests in equity of consolidated
      subsidiaries                                                    (169)           93           113
    Elimination of notes receivable from affiliates                    350          --            --
    Common stock and preferred stock issued in acquisitions            376         1,060           457
    TCI common stock and preferred stock held by acquired
      company                                                         --            (484)         --
    Preferred stock of subsidiaries issued in acquisitions            --            --             640
                                                                  --------      --------      --------
         Cash paid for acquisitions                               $   (459)         (323)         (664)
                                                                  ========      ========      ========
Cash received in exchanges:
    Recorded value of assets acquired                             $   (136)         (392)         (709)
    Historical cost of assets exchanged                                151           399           754
    Gain recorded on exchange of assets                                 30            11            21
                                                                  --------      --------      --------
         Cash received in exchanges                               $     45            18            66
                                                                  ========      ========      ========
Capitalized costs of distribution agreements (note 18)            $     74           173          --
                                                                  ========      ========      ========
Exchange of consolidated subsidiaries for note receivable
    and equity investments                                        $   --            --             894
                                                                  ========      ========      ========
</TABLE>

         For a description of certain non-cash transactions, see notes 6 and
         10.

         @Home's cash and cash equivalent balances of $419 million and $120
         million are included in the Company's cash and cash equivalent
         balances at December 31, 1998 and 1997, respectively. Such @Home
         balances are available to be applied towards the liquidity
         requirements of @Home. Accordingly, it is not anticipated that any
         portion of such @Home balances will be distributed or otherwise made
         available to the Company.

         The Company's restricted cash is primarily comprised of proceeds
         received in connection with certain asset dispositions. Such proceeds,
         which aggregated $162 million and $34 million at December 31, 1998 and
         1997, respectively, are designated to be reinvested in certain
         identified assets for income tax purposes. The Company's restricted
         cash also includes amounts held as collateral for interest payment
         obligations pursuant to certain bank credit facilities. Such amounts
         aggregated $17 million and $5 million at December 31, 1998 and 1997,
         respectively. 
                                                                 (continued)

                                     II-62
<PAGE>   117
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company ceased to consolidate Flextech p.l.c. ("Flextech") and
         Cablevision S.A. ("Cablevision") and began to account for Flextech and
         Cablevision using the equity method of accounting, effective January
         1, 1997 and October 1, 1997, respectively. The effects of changing the
         method of accounting for the Company's ownership interest in Flextech
         and Cablevision from the consolidation method to the equity method are
         summarized below (amounts in millions):

<TABLE>
<S>                                                                            <C>
         Assets (other than cash and cash equivalents) reclassified to
              equity investments                                               $   596
         Liabilities reclassified to equity investments                           (484)
         Minority interests in equity of subsidiaries reclassified to
              equity investments                                                  (151)
                                                                               -------
         Decrease in cash and cash equivalents                                 $   (39)
                                                                               =======
</TABLE>

(6)      Investments in Affiliates

         The Company has various investments accounted for under the equity
         method. The following table includes the Company's carrying value and
         percentage ownership of the Company's more significant investments as
         of the indicated dates:

<TABLE>
<CAPTION>
                                                                    Percentage        Carrying value at
                                                                    Percentage           December 31,
                                                                   ownership at     ----------------------
                                                                December 31, 1998     1998          1997
                                                                -----------------   --------      --------
                                                                            amounts in millions
<S>                                                             <C>                 <C>           <C>
USA Networks, Inc. ("USAI") and related
    investments (a)                                                     (a)         $  1,042           348
Cablevision Systems Corporation ("CSC") (b)                             33%              945            15
Telewest Communications plc ("Telewest") (c)                            22%              515           324
Flextech (d)                                                            37%              320           261
Cablevision (e)                                                         28%              315           239
Various foreign equity investments (other                                        
    than Telewest, Flextech and                                                  
    Cablevision) (f)                                                  various            346           209
InterMedia Capital Partners IV, L.P.                                             
    ("InterMedia IV") and InterMedia                                             
    Capital Management IV, L.P. ("ICM IV")                                       
    (collectively, "IP IV") (g)                                         50%              207           262
Falcon Communications, L.P.                                             46%              189          --
QVC, Inc. ("QVC")                                                       43%              197           134
Parnassos, L.P.                                                         33%              120          --
Sprint Spectrum Holding Company L.P.,                                            
    MinorCo, L.P. and PhillieCo Partnership                                      
    I L.P. (the "PCS Ventures") (h)                                   --                --             607
TCG (i)                                                               --                --             295
Other (j)                                                                                569           369
                                                                                    --------      --------
                                                                                    $  4,765         3,063
                                                                                    ========      ========
</TABLE>

                                                                    (continued)

                                     II-63
<PAGE>   118
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

-----------
(a)      USAI

         Pursuant to an agreement among the Company, Barry Diller and certain
         of their respective affiliates entered into in August 1995 and amended
         in August 1996 (the "BDTV Agreement"), the Company contributed to BDTV
         INC. ("BDTV-I"), in August 1996, an option (the "Silver King Option")
         to purchase 2 million shares of Class B common stock of Silver King
         Communications, Inc. ("Silver King") (which shares represented voting
         control of Silver King at such time) and $4 million in cash,
         representing the exercise price of the Silver King Option. BDTV-I is a
         corporation formed by the Company and Mr. Diller pursuant to the BDTV
         Agreement, in which the Company owns over 99% of the equity and none
         of the voting power (except for protective rights with respect to
         certain fundamental corporate actions) and Mr. Diller owns less than
         1% of the equity and all of the voting power. BDTV-I exercised the
         Silver King Option shortly after its contribution, thereby becoming
         the controlling stockholder of Silver King. Such change in control of
         Silver King had been approved by the Federal Communications Commission
         ("FCC") in June 1996, subject, however, to the condition that the
         equity interest of the Company in Silver King not exceed 21.37%
         without the prior approval of the FCC (the "FCC Order").

         Pursuant to an Agreement and Plan of Exchange and Merger entered into
         in August 1996, Silver King acquired Home Shopping Network, Inc.
         ("HSN") by merger of HSN with a subsidiary of Silver King in December
         1996 (the "HSN Merger") where HSN is the surviving corporation and a
         subsidiary of Silver King following the HSN Merger. The Company
         accounted for the HSN Merger as a sale of a portion of its investment
         in HSN and accordingly, recorded a pre-tax gain of approximately $47
         million. In order to effect the HSN Merger in compliance with the FCC
         Order, the Company agreed to defer receiving certain shares of Silver
         King that would otherwise have become issuable to it in the HSN Merger
         until such time as it was permitted to own such shares. As a result,
         the HSN Merger was structured so that the Company received (i) 15.6
         million shares of Class B common stock of Silver King, all of which
         shares the Company contributed to BDTV II INC. ("BDTV-II"), (ii) the
         contractual right to be issued up to an additional 5.2 million shares
         of Class B common stock of Silver King from time to time upon the
         occurrence of certain events which would allow the Company to own
         additional shares in compliance with the FCC Order (including events
         resulting in the dilution of the Company's percentage equity
         interest), and (iii) approximately 739,000 shares of Class B common
         stock and 17.6 million shares of common stock of HSN (representing
         approximately 19.9% of the equity of HSN). BDTV-II is a corporation
         formed by the Company and Barry Diller pursuant to the BDTV Agreement,
         in which the relative equity ownership and voting power of the Company
         and Mr. Diller are substantially the same as their respective equity
         ownership and voting power in BDTV-I.

         As a result of the HSN Merger, HSN is no longer included in the
         consolidated financial results of the Company. Subsequent to the HSN
         Merger, Silver King was renamed HSN, Inc. ("HSNI").

                                                                    (continued)


                                     II-64
<PAGE>   119
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         In February 1998, pursuant to an Investment Agreement among Universal
         Studios, Inc. ("Universal"), HSNI, HSN and the Company, dated as of
         October 1997 and amended and restated as of December 1997, HSNI
         consummated a transaction (the "Universal Transaction") through which
         USA Networks Partners, Inc., a subsidiary of Universal, sold its 50%
         interest in USAI, a New York general partnership, to HSNI and
         Universal contributed the remaining 50% interest in USAI and its
         domestic television production and distribution operations to HSNI.
         Subsequent to these transactions, HSNI was renamed USAI. In connection
         with the Universal Transaction, Universal, USAI, HSN and the Company
         became parties to a number of other agreements relating to, among
         other things, (i) the management of USAI, (ii) the purchase and sale
         or other transfer of voting securities of USAI, including securities
         convertible or exchangeable for voting securities of USAI, and (iii)
         the voting of such securities.

         At the closing of the Universal Transaction, Universal (i) was issued
         6 million shares of USAI's Class B common stock, 7 million shares of
         USAI's common stock and 109 million common equity shares ("LLC
         Shares") of USANi LLC, a limited liability company formed to hold all
         of the businesses of USAI and its subsidiaries, except for its
         broadcasting business and its equity interest in Ticketmaster Group,
         Inc. and (ii) received a cash payment of $1.3 billion. Pursuant to an
         Exchange Agreement relating to the LLC Shares (the "LLC Exchange
         Agreement"), approximately 74 million of the LLC Shares issued to
         Universal are each exchangeable for one share of USAI's Class B common
         stock and the remainder of the LLC Shares issued to Universal are each
         exchangeable for one share of USAI's common stock.

         At the closing of the Universal Transaction, the Company was issued
         1.2 million shares of USAI's Class B common stock. Of such shares,
         800,000 shares of Class B common stock were contributed to BDTV IV
         INC. (collectively with BDTV-I, BDTV-II and BDTV III INC., "BDTV"), a
         newly-formed entity having substantially the same terms as BDTV-I,
         BDTV-II and BDTV III INC. (with the exception of certain transfer
         restrictions) in which the Company owns over 99% of the equity and
         none of the voting power (except for protective rights with respect to
         certain fundamental corporate actions) and Barry Diller owns less than
         1% of the equity and all of the voting power. The Company accounts for
         its investment in BDTV under the equity method. In addition, the
         Company purchased 10 LLC Shares at the closing of the Universal
         Transaction for an aggregate purchase price of $200.

         On June 24, 1998, USAI consummated the previously announced agreement
         to acquire the remaining stock of Ticketmaster Group, Inc. which it
         did not previously own through a tax-free merger (the "Ticketmaster
         Transaction"). In connection with the increases in USAI's equity, net
         of the dilution of the Company's ownership interest, that resulted
         from the issuance of common stock by USAI in the Universal Transaction
         and the Ticketmaster Transaction, the Company recorded a $64 million
         increase to equity (after deducting a deferred income tax liability of
         $42 million) and an increase to the carrying value of the Company's
         investment in USAI of $106 million. No gain was recognized in the
         consolidated statements of operations and comprehensive earnings due
         primarily to the Company's commitment to purchase additional equity
         interests in USAI. 

                                                                     (continued)


                                     II-65
<PAGE>   120

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         In connection with the Universal Transaction, each of Universal and
         the Company was granted a preemptive right with respect to future
         issuances of USAI's common stock, subject to certain limitations, to
         maintain their respective percentage ownership interests in USAI that
         they had prior to such issuances. In connection with such right,
         during 1998, the Company purchased approximately 4.7 million shares of
         USAI's common stock and approximately 22.9 million LLC Shares for an
         aggregate cost of approximately $560 million. Pursuant to the LLC
         Exchange Agreement, each LLC Share issued or to be issued to the
         Company is exchangeable for one share of USAI's common stock.

         At December 31, 1998, the Company held 24.4 million shares of USAI's
         common stock through BDTV and 5.2 million shares of USAI's common
         stock directly. Additionally, the Company held 22.9 million LLC Shares
         at December 31, 1998 as well as shares of HSN's common stock which are
         exchangeable for 16.6 million shares of USAI's common stock. The
         Company's direct ownership of USAI is restricted under the FCC.
         Assuming the exchange of the Company's shares in HSN and its LLC
         Shares for USAI common stock, and the exchange of certain securities
         owned by Universal and certain of its affiliates for USAI common
         stock, the Company would own 69.1 million shares or approximately 21%
         of USAI, including shares held through BDTV at December 31, 1998.
         USAI's common stock had a closing market value of $33-1/8 per share on
         December 31, 1998.

         During the years ended December 31, 1998, 1997 and 1996, the Company's
         share of affiliates' earnings (losses) from its interests in USAI and
         related investments accounted for $30 million, $3 million and ($1
         million), respectively.

(b)      CSC

         On March 4, 1998, the Company contributed to CSC certain of its cable
         television systems serving approximately 830,000 customers in exchange
         for approximately 48.9 million newly issued CSC Class A common shares
         (the "CSC Transaction"). CSC also assumed and repaid approximately
         $574 million of debt owed by the Company to external parties and $95
         million of debt owed to the Company. As a result of the CSC
         Transaction, the Company recognized a $506 million gain in the
         accompanying consolidated statement of operations and comprehensive
         earnings for the year ended December 31, 1998. Such gain represents
         the excess of the $1,161 million fair value of the CSC Class A common
         shares received over the historical cost of the net assets transferred
         by the Company to CSC. The $1.9 billion difference between the
         carrying value of the Company's investment in CSC and CSC's net
         deficiency is being amortized over an estimated useful life of 20
         years. Including the amortization of such difference, CSC accounted
         for $240 million of the Company's share of its affiliates' losses
         during the year ended December 31, 1998.

         The Company has also entered into letters of intent with CSC which
         provide for the Company to acquire a cable system in Michigan and an
         additional 4% of CSC's Class A common shares and for CSC to (i)
         acquire cable systems serving approximately 250,000 customers in
         Connecticut and (ii) assume $110 million of the Company's debt.

                                                                    (continued)


                                     II-66
<PAGE>   121

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         At December 31, 1998, the Company owned 49,982,572 shares of CSC Class
         A common stock, which had a closing market price of $50.13 per share
         on such date. Such shares represented an approximate 33.0% equity
         interest in CSC's total outstanding shares and an approximate 9%
         voting interest in CSC in all matters except for (i) the election of
         directors, in which case the Company effectively has the right to
         designate two of CSC's directors, and (ii) any increase in authorized
         shares, in which case the Company has agreed to vote its interest in
         proportion with the public holders of CSC Class A common shares. The
         ability of the Company to sell or increase its investment in CSC is
         subject to certain restrictions and limitations set forth in a
         stockholders agreement with CSC.

(c)      Telewest

         Telewest currently operates and constructs cable television and
         telephone systems in the United Kingdom ("UK"). Telewest accounted for
         $134 million, $145 million and $109 million of the Company's share of
         its affiliates' losses during the years ended December 31, 1998, 1997
         and 1996, respectively.

         At December 31, 1998, the Company indirectly owned 463 million or
         21.6% of the issued and outstanding Telewest ordinary shares. The
         reported closing price on the London Stock Exchange of Telewest
         ordinary shares was (pound)1.74 ($2.88) per share at December 31,
         1998.

         Effective September 1, 1998, Telewest and General Cable PLC ("General
         Cable") consummated a merger (the "General Cable Merger") in which
         holders of General Cable received 1.243 new Telewest shares and
         (pound)0.65 ($1.11) in cash for each share of General Cable. In
         addition, holders of American Depository shares of General Cable
         ("General Cable ADS") (each representing five General Cable shares)
         received 6.215 new Telewest shares and (pound)3.25 ($5.53) in cash for
         each share of General Cable ADS. Based upon Telewest's closing share
         price of (pound)0.89 ($1.51) on April 14, 1998, the General Cable
         Merger was valued at approximately (pound)649 million ($1.1 billion).

         The cash portion of the General Cable Merger was financed through an
         offer to qualifying Telewest shareholders for the purchase of
         approximately 261 million new Telewest shares at a price of
         (pound)0.925 ($1.57) per share (the "Telewest Offer"). The Company
         subscribed to 85 million Telewest ordinary shares at an aggregate cost
         of (pound)78 million ($133 million) in connection with the Telewest
         Offer. Immediately following the Telewest Offer, the Company held 28%
         of the issued and outstanding Telewest ordinary shares.

         In connection with the General Cable Merger, the Company converted its
         entire holdings of Telewest convertible preference shares (133 million
         shares) into Telewest ordinary shares. As a result of the General
         Cable Merger, the Company's ownership interest in Telewest decreased
         to 21.6%. In connection with the increase in Telewest's equity, net of
         the dilution of the Company's interest in Telewest, that resulted from
         the General Cable Merger, the Company recorded a non-cash gain of $60
         million (before deducting deferred income tax expense of $21 million)
         during 1998.

                                                                    (continued)

                                     II-67
<PAGE>   122

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(d)      Flextech

         In January 1997, the Company's voting interest in Flextech was reduced
         to 50% and the Company ceased to include Flextech in its consolidated
         financial results and began to account for Flextech using the equity
         method of accounting. In April 1997, Flextech and BBC Worldwide
         Limited formed two separate joint ventures (the "BBC Joint Ventures")
         and entered into certain related transactions. The consummation of the
         BBC Joint Ventures and related transactions resulted in, among other
         things, a reduction of the Company's economic ownership interest in
         Flextech from 46.2% to 36.8%. The Company continues to maintain a
         voting interest in Flextech of approximately 50%. As a result of such
         dilution, the Company recorded a $152 million increase to the carrying
         amount of the Company's investment in Flextech, a $53 million increase
         to deferred income tax liability, a $66 million increase to equity and
         a $33 million increase to minority interests in equity of consolidated
         subsidiaries. No gain was recognized in the statement of operations
         and comprehensive earnings due primarily to certain contingent
         obligations of the Company with respect to one of the BBC Joint
         Ventures. Flextech accounted for $21 million and $16 million of the
         Company's share of its affiliates' losses during the years ended
         December 31, 1998 and 1997, respectively.

         Based on the (pound)6.07 ($10.07) per share closing price of the
         Flextech ordinary shares on the London Stock Exchange, the 58 million
         Flextech ordinary shares owned by the Company had an aggregate market
         value of (pound)351 million ($583 million) at December 31, 1998.

(e)      Cablevision

         On October 9, 1997, the Company sold a portion of its 51% interest in
         Cablevision to unaffiliated third parties. In connection with such
         sale and certain related transactions, the Company recognized a gain
         of $49 million. Additionally, effective October 1, 1997, the Company
         ceased to consolidate Cablevision and began to account for Cablevision
         using the equity method of accounting. Cablevision accounted for $23
         million and $3 million of the Company's share of its affiliates'
         losses during the years ended December 31, 1998 and 1997,
         respectively. See note 20.

                                                                    (continued)


                                     II-68
<PAGE>   123
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(f)      Various Foreign Investments

         Internationally, The News Corporation Limited ("News Corp.") and the
         Company formed a venture ("Fox Sports International") to operate sports
         programming services in Latin American and Australia and a variety of
         new sports services throughout the world except in Asia and in the
         United Kingdom, Japan and New Zealand where prior arrangements preclude
         an immediate collaboration. The Company owns 50% of Fox Sports
         International with News Corp. owning the other 50%. Fox Sports
         International accounted for $34 million, $30 million and $21 million of
         the Company's share of its affiliates' losses during the years ended
         December 31, 1998, 1997 and 1996, respectively.

         In addition to Telewest, Flextech and Fox Sports International and     
         Cablevision, the Company has other less significant equity method
         investments in video distribution and programming businesses located
         in the UK, other parts of Europe, Asia, Latin America and certain
         other foreign countries. In the aggregate, such other foreign
         investments in affiliates accounted for $70 million, $70 million and
         $54 million of the Company's share of its affiliates losses during the
         years ended December 31, 1998, 1997 and 1996, respectively.

(g)      IP IV

         In July 1996, the Company completed a series of transactions that
         resulted in the transfer of all or part of the Company's ownership
         interests in certain cable television systems to InterMedia IV in
         exchange for a 49% limited partnership interest in InterMedia IV and
         assumed debt of $120 million. Simultaneously, the Company received a
         cable television system and cash from InterMedia IV in exchange for a
         cable television system that had been recently acquired by the
         Company. The Company recognized no gain or loss in connection with the
         above-described transactions. The $225 million excess of the Company's
         investment in InterMedia IV over the Company's share of the partners'
         capital of InterMedia IV is being amortized over an estimated useful
         life of 20 years. Including such amortization, the Company's share of
         InterMedia IV's losses was $53 million, $46 million and $16 million
         during the years ended December 31, 1998, 1997 and 1996, respectively.

         ICM IV owns a 1.12% limited partnership interest in InterMedia IV. The
         Company acquired its limited partnership interest in ICM IV in August
         1997 pursuant to the transactions described in note 17.

(h)      PCS Ventures

         PCS Ventures accounted for $629 million, $493 million and $167 million
         of the Company's share of its affiliates' losses during the years
         ended December 31, 1998, 1997 and 1996, respectively. The 1996 amount
         includes $34 million related to prior periods. See notes 2 and 9.

(i)      TCG

         TCG accounted for $32 million, $66 million and $51 million of the
         Company's share of affiliates' losses during the years ended December
         31, 1998, 1997 and 1996, respectively. See Note 8.

(j)      Other
 
         As of April 29, 1996, the Company and News Corp. formed two sports
         programming ventures. In the U.S., the Company and News Corp. formed
         Fox/Liberty Networks LLC ("Fox Sports") into which the Company
         contributed interests in its national and regional sports networks and
         into which News Corp. contributed its fx cable network and certain
         other assets. The Company received a 50% interest in Fox Sports and a
         distribution of $350 million in cash. No gain or loss was recognized as
         the cash distribution approximated the carrying amount of the assets
         contributed.

         Prior to the first quarter of 1998, the Company had no obligation, nor
         intention, to fund Fox Sports. During 1998, the Company made the
         determination to provide funding to Fox Sports based on specific
         transactions consummated by Fox Sports. Consequently, the Company's
         share of losses of Fox Sports of $83 million for the year ended
         December 31, 1998 includes previously unrecognized losses of Fox Sports
         of approximately $64 million. Losses for Fox Sports were not recognized
         in prior periods due to the fact that the Company's investment in Fox
         Sports was less than zero.

Certain of the Company's affiliates are general partnerships and any subsidiary
of the Company that is a general partner in a general partnership is, as such,
liable as a matter of partnership law for all debts (other than non-recourse
debts) of that partnership in the event liabilities of that partnership were to
exceed its assets.

                                                                    (continued)


                                     II-69
<PAGE>   124

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

Summarized unaudited combined financial information for the Company's
affiliates for the periods in which the Company used the equity method to
account for such affiliates is as follows:

<TABLE>
<CAPTION>
                                                               December 31,
                                                         -----------------------
                                                           1998           1997
                                                         --------       --------
                                                           amounts in millions
<S>                                                      <C>            <C>
Combined Financial Position

   Property and equipment, net                           $ 11,018          8,319
   Franchise costs, net                                     7,994          3,582
   Other assets, net                                       21,109         20,849
                                                         --------       --------

     Total assets                                        $ 40,121         32,750
                                                         ========       ========

   Debt                                                  $ 23,159         18,973
   Other liabilities                                       11,361          6,836
   Redeemable securities                                    1,727          1,137
   Owners' equity                                           3,874          5,804
                                                         --------       --------

      Total liabilities and equity                       $ 40,121         32,750
                                                         ========       ========
</TABLE>

<TABLE>
<CAPTION>
                                                     Years ended December 31,
                                              --------------------------------------
                                                1998           1997           1996
                                              --------       --------       --------
                                                       amounts in millions
<S>                                           <C>            <C>            <C>  
Combined Operations

Revenue                                       $ 15,528          7,811          6,088
Operating expenses                             (13,889)        (7,815)        (5,576)
Depreciation and
    amortization                                (3,152)        (1,506)        (1,070)
                                              --------       --------       --------
    Operating loss                              (1,513)        (1,510)          (558)

Interest expense                                (2,056)          (921)          (615)
Other, net                                        (141)          (360)          (354)
                                              --------       --------       --------
    Net loss                                  $ (3,710)        (2,791)        (1,527)
                                              ========       ========       ========
</TABLE>

(7)      Investment in Time Warner

         On October 10, 1996, Time Warner and Turner Broadcasting System, Inc.
         ("TBS") consummated a merger (the "TBS/Time Warner Merger") whereby
         TBS shareholders received 1.5 Time Warner common shares (as adjusted
         for a two-for-one stock split) for each TBS Class A and Class B common
         share held, and each holder of TBS Class C preferred stock received
         1.6 Time Warner common shares (as adjusted for a two-for-one stock
         split) for each of the 6 shares of TBS Class B common stock into which
         each share of Class C preferred stock could have been converted.

                                                                    (continued)


                                     II-70
<PAGE>   125
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Time Warner, TBS and TCI entered into an Agreement Containing Consent
         Order with the Federal Trade Commission ("FTC") dated August 14, 1996,
         as amended on September 4, 1996 (the "FTC Consent Decree"). Pursuant
         to the FTC Consent Decree, among other things, the Company agreed to
         exchange the shares of Time Warner common stock to be received in the
         TBS/Time Warner Merger for shares of a separate series of Time Warner
         common stock with limited voting rights (the "TW Exchange Stock").
         Holders of the TW Exchange Stock are entitled to one one-hundredth
         (l/100th) of a vote for each share with respect to the election of
         directors. Holders of the TW Exchange Stock will not have any other
         voting rights, except as required by law or with respect to limited
         matters, including amendments of the terms of the TW Exchange Stock
         adverse to such holders. Subject to the federal communications laws,
         each share of the TW Exchange Stock will be convertible at any time at
         the option of the holder on a one-for-one basis for a share of Time
         Warner common stock. Holders of TW Exchange Stock are entitled to
         receive dividends ratably with the Time Warner common stock and to
         share ratably with the holders of Time Warner common stock in assets
         remaining for common stockholders upon dissolution, liquidation or
         winding up of Time Warner.

         In connection with the TBS/Time Warner Merger, the Company received
         approximately 101.2 million shares (as adjusted for a two-for-one
         stock split) of the TW Exchange Stock in exchange for its TBS
         holdings. As a result of the TBS/Time Warner Merger, the Company
         recognized a pre-tax gain of $1.5 billion in the fourth quarter of
         1996. The Company accounts for its investment in Time Warner as an
         available-for-sale security. See note 12.

         On June 24, 1997 the Company granted Time Warner an option to acquire
         the business of Southern Satellite Systems, Inc. ("Southern") and
         certain of its subsidiaries (together with Southern, the "Southern
         Business") through a purchase of assets (the "Southern Option"). The
         Company received 12.8 million shares (as adjusted for a two-for-one
         stock split) of TW Exchange Stock valued at $306 million in
         consideration for the grant. In September 1997, Time Warner exercised
         the Southern Option. Pursuant to the Southern Option, Time Warner
         acquired the Southern Business, effective January 1, 1998, for $213
         million in cash. The Company recognized a $515 million pre-tax gain in
         connection with such transactions in the first quarter of 1998.

(8)      Investment in AT&T

         On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T,
         was consummated. As a result of such merger, TCI received in exchange
         for all of its interest in TCG, approximately 47 million shares of
         AT&T Common Stock. TCI recognized a $2.3 billion gain (before
         deducting deferred income tax expense of $883 million) on such
         transaction during the third quarter of 1998 based on the difference
         between the carrying amount of TCI's interest in TCG and the fair
         value of the AT&T Common Stock received. TCI had accounted for its
         ownership interest in AT&T Common Stock as an available-for-sale
         security. Such AT&T Common Stock was transferred from TCI Ventures
         Group to TCI Group in connection with the AT&T Merger. Following the
         AT&T Merger, TCI will treat its investment in AT&T Common Stock as an
         investment in its parent. Accordingly, the fair value of TCI's
         investment in AT&T Common Stock will be reflected as a reduction of
         TCI's equity, and any dividends received on such AT&T Common Stock
         will be recorded as an increase to TCI's additional paid-in capital.
         During 1998, TCI recognized dividends of $31 million on its investment
         in AT&T Common Stock.

                                                                    (continued)


                                     II-71
<PAGE>   126
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         On April 22, 1998, TCG completed a merger transaction with ACC Corp.
         ("ACC") in which ACC shares were exchanged with shares of TCG in the
         ratio of .90909 of a share of TCG stock for each share of ACC stock.
         As a result of such merger transaction, TCI's interest in TCG was
         reduced to approximately 26%. In connection with the increase in TCG's
         equity, net of the dilution of TCI's interest in TCG, that resulted
         from such merger, TCI recorded a non-cash gain of $201 million (before
         deducting deferred income tax expense of $71 million).

         During the year ended December 31, 1997, TCG issued 6.6 million shares
         of its Class A common stock for certain acquisitions. The total
         consideration paid by TCG through the issuance of common stock was
         approximately $123 million. In addition, effective November 5, 1997,
         TCG consummated a public offering of 7.3 million shares of its Class A
         common stock. TCG received net proceeds from its sale of shares
         pursuant to such offering of $318 million. As a result of the above
         transactions, TCI's ownership interest in TCG was reduced to
         approximately 28%. Accordingly, as a result of the increase in TCG's
         equity, net of the dilution of TCI's ownership interest in TCG, TCI
         recognized non-cash gains aggregating $112 million (before deducting
         deferred income tax expense of $43 million).

         On July 2, 1996, TCG conducted an initial public offering (the "TCG
         IPO") in which it sold 27 million shares of Class A common stock at
         $16.00 per share to the public for aggregate net proceeds of
         approximately $410 million. As a result of the TCG IPO, TCI's
         ownership interest in TCG was reduced from approximately 35% to
         approximately 31%. Accordingly, TCI recognized a gain amounting to $12
         million (before deducting deferred income tax expense of approximately
         $5 million).

(9)      Investment in Sprint

         Prior to November 23, 1998, the PCS Ventures included Sprint Spectrum
         Holding Company, L. P. and MinorCo, L.P. (collectively, "Sprint PCS")
         and PhillieCo Partnership I, L.P. ("PhillieCo"). The partners of each
         of the Sprint PCS partnerships were subsidiaries of Sprint, Comcast
         Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and the
         Company. The partners of PhillieCo were subsidiaries of Sprint, Cox
         and the Company. The Company had a 30% partnership interest in each of
         the Sprint PCS partnerships and a 35% partnership interest in
         PhillieCo.

         On November 23, 1998, the Company, Comcast, and Cox exchanged their
         respective interests in Sprint PCS and PhillieCo (the "PCS Exchange")
         for shares of "Sprint PCS Group Stock" which tracks the performance of
         Sprint's newly created "PCS Group" (consisting initially of the PCS
         Ventures and certain PCS licenses which were separately owned by
         Sprint). The Sprint PCS Group Stock collectively represents an
         approximate 17% voting interest in Sprint. As a result of the PCS
         Exchange, the Company holds shares of Sprint PCS Group Stock, as well
         as certain additional securities of Sprint exercisable for or
         convertible into such Sprint Securities, representing approximately
         24% of the equity value of Sprint attributable to its PCS Group and
         less than 1% of the voting interest in Sprint. Through November 23,
         1998, the Company accounted for its interest in the PCS Ventures using
         the equity method of accounting; however, as a result of the PCS
         Exchange and the Company's less than 1% voting interest in Sprint, the
         Company no longer exercises significant influence with respect to its
         investment in the PCS Ventures. Accordingly, the Company accounts for
         its investment in the Sprint PCS Group Stock as an available-for-sale
         security. 

                                                                    (continued)


                                     II-72
<PAGE>   127

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         As a result of the PCS Exchange, the Company recorded a non-cash gain
         of $1.9 billion (before deducting deferred income tax expense of $647
         million) during the fourth quarter of 1998 based on the difference
         between the carrying amount of the Company's interest in PCS Ventures
         and the fair value of the Sprint Securities received. In connection
         with the March 9, 1999 AT&T Merger, the Company consented to divest
         its interest in the Sprint Securities. See note 2.

(10)     Acquisitions and Dispositions

         In addition to the CSC Transaction described in note 6, the Company
         completed, during 1998, eight transactions whereby the Company
         contributed cable television systems serving in the aggregate
         approximately 1,924,000 customers to eight separate joint ventures
         (collectively, the "1998 Joint Ventures") in exchange for
         non-controlling ownership interests in each of the 1998 Joint
         Ventures, and the assumption and repayment by the 1998 Joint Ventures
         of debt owed by the Company to external parties aggregating $323
         million and intercompany debt owed to the Company aggregating $2,374
         million. The Company has agreed to take certain steps to support
         compliance by certain of the 1998 Joint Ventures with their payment
         obligations under certain debt instruments, up to an aggregate
         contingent commitment of $980 million. In light of such contingent
         commitments, the Company has deferred any gains on the formation of
         such 1998 Joint Ventures. Accordingly, the Company has recorded
         deferred gains aggregating $163 million and recognized net gains
         aggregating $392 million in connection with the formation of the 1998
         Joint Ventures. The deferred gains will not be recognized until such
         time as the Company's contingent commitments are eliminated. The
         Company uses the equity method of accounting to account for its
         investments in the 1998 Joint Ventures. The CSC Transaction (see note
         6) and the formation of the 1998 Joint Ventures are collectively
         referred to herein as the "1998 Contribution Transactions." During the
         year ended December 31, 1998, the Company's revenue and operating cash
         flow (defined by the Company as operating income before depreciation,
         amortization, other non-cash items, year 2000 costs, AT&T merger costs
         and stock compensation) included $622 million and $278 million,
         respectively, from the cable television systems included in the 1998
         Contribution Transactions.

         In addition to the 1998 Contribution Transactions, the Company, as of
         December 31, 1998, has signed agreements or letters of intent to
         contribute within the next twelve months, certain cable television
         systems (the "Pending Contribution Cable Systems") serving
         approximately 1.2 million basic customers to joint ventures in which
         the Company will retain non-controlling ownership interests (the
         "Pending Contribution Transactions"). Following the completion of the
         Pending Contribution Transactions, the Company will no longer
         consolidate the Pending Contribution Cable Systems. Accordingly it is
         anticipated that the completion of the Pending Contribution
         Transactions, as currently contemplated, will result in aggregate
         estimated reductions (based on 1998 amounts) to the Company's debt,
         annual revenue and annual operating cash flow of $1.5 billion, $500
         million and $200 million, respectively. No assurance can be given that
         any of the Pending Contribution Transactions will be consummated.

                                                                    (continued)


                                     II-73
<PAGE>   128
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         On March 1, 1999, TV Guide, Inc. (Formerly United Video Satellite
         Group, Inc. ("UVSG")) and The News Corporation Limited ("News Corp.")
         completed a transaction whereby News Corp.'s TV Guide properties were
         combined with UVSG to create a platform for offering television guide
         services and advertising to consumers. As part of this combination, a
         unit of News Corp. received consideration consisting of $800 million
         in cash and 60 million shares of UVSG's stock, including 22.5 million
         shares of its Class A common stock and 37.5 million shares of its
         Class B common stock. In addition, News Corp. elected to purchase
         approximately 6.5 million additional shares of UVSG Class A common
         stock for $129 million in order to equalize its ownership with that of
         the Company. Prior to such transactions, UVSG was a subsidiary of the
         Company. As a result of these transactions, and another transaction
         completed on the same date, News Corp., TCI and UVSG's public
         stockholders own, on an economic basis, approximately 44%, 44% and
         12%, respectively, of UVSG. Following such transactions, News Corp.
         and TCI each have approximately 49% of the voting power of UVSG's
         outstanding stock. Upon consummation, TCI began accounting for its
         interest in UVSG under the equity method of accounting.

         On November 19, 1998, TCI exchanged, in a merger transaction, 0.58 of
         a share of Liberty Group Series A Stock for each share of the issued
         and outstanding Series A common stock of its then majority-owned
         subsidiary, Tele-Communications International, Inc. ("TINTA"), not
         beneficially owned by TCI (the "TINTA Merger"). Such transaction was
         accounted for as an acquisition of a minority interest. The aggregate
         value assigned to the 10,086,594 shares of Liberty Group Series A
         Stock issued by TCI was based upon the market value of Liberty Group
         Series A Stock at the time the TINTA Merger was announced. Assuming
         the TINTA Merger had occurred on January 1, 1997, the Company's
         results of operations and comprehensive earnings would not have been
         materially different from the Company's historical results of
         operations and comprehensive earnings for the years ended December 31,
         1998 and 1997.

         On August 1, 1997, Liberty IFE, Inc., a wholly-owned subsidiary of
         TCI, which held non-voting class C common stock of International
         Family Entertainment, Inc. ("IFE") ("Class C Stock") and $23 million
         of IFE 6% convertible secured notes due 2004, convertible into Class C
         Stock, ("Convertible Notes"), contributed its Class C Stock and
         Convertible Notes to Fox Kids Worldwide, Inc. ("FKW") in exchange for
         a new series of 30 year non-convertible 9% preferred stock of FKW with
         a stated value of $345 million (the "FKW Preferred Stock"). As a
         result of the exchange, TCI recognized a gain of approximately $304
         million.

         Effective July 31, 1997, a wholly-owned subsidiary of TCI merged with
         and into Kearns-Tribune Corporation ("Kearns-Tribune"). The merger was
         valued at $808 million. TCI exchanged 47.2 million shares of TCI Group
         Series A Stock for shares of Kearns-Tribune which held 17.9 million
         shares of TCI Group Stock and 10.1 million shares of Liberty Group
         Stock. The merger of Kearns-Tribune has been accounted for by the
         purchase method. Accordingly, the results of operations of
         Kearns-Tribune have been combined with those of the Company since the
         date of acquisition, and the Company recorded Kearns-Tribune's assets
         and liabilities at fair value.

                                                                    (continued)


                                     II-74
<PAGE>   129
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         In January 1997, the Company acquired the 50% ownership interest in
         TKR Cable Company ("TKR Cable") that the Company did not previously
         own and certain additional assets for aggregate consideration of
         approximately $970 million. The Company issued approximately 16
         million shares of TCI Group Series A Stock, assumed $584 million of
         TKR Cable's debt and paid cash of $88 million and shares of Time
         Warner common stock valued at $41 million upon consummation of such
         acquisition. Prior to the acquisition date, the Company accounted for
         its 50% interest in TKR Cable under the equity method. This
         acquisition has been treated as a step acquisition for accounting
         purposes. Accordingly, the results of operations of TKR Cable have
         been combined with those of TCI Group since the date of acquisition
         and TCI Group's aggregate cost basis in TKR Cable has been allocated
         to TKR Cable's assets and liabilities based on their fair values.

         On July 31, 1996, pursuant to certain agreements entered into among
         TCIC, TCI, Viacom International, Inc. and Viacom, Inc. ("Viacom"),
         TCIC acquired all of the common stock of a subsidiary of Viacom
         ("Cable Sub") which owned Viacom's cable systems and related assets
         (the "Viacom Acquisition").

         The transaction was structured as a tax-free reorganization in which
         Cable Sub transferred all of its non-cable assets, as well as all of
         its liabilities other than current liabilities, to a new subsidiary of
         Viacom ("New Viacom Sub"). Cable Sub also transferred to New Viacom
         Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility
         (the "Loan Facility") arranged by TCIC, TCI and Cable Sub. Following
         these transfers, Cable Sub retained cable assets with a value at
         closing of approximately $2.326 billion and the obligation to repay
         the Loan Proceeds. Neither Viacom nor New Viacom Sub has any
         obligation with respect to repayment of the Loan Proceeds.

                                                                    (continued)


                                     II-75
<PAGE>   130
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Prior to the consummation of the Viacom Acquisition, Viacom offered to
         the holders of shares of Viacom Class A Common Stock and Viacom Class
         B Common Stock (collectively, "Viacom Common Stock") the opportunity
         to exchange (the "Viacom Exchange Offer") a portion of their shares of
         Viacom Common Stock for shares of Class A Common Stock, par value $100
         per share, of Cable Sub ("Cable Sub Class A Stock"). Immediately
         following the completion of the Viacom Exchange Offer, TCIC acquired
         from Cable Sub shares of Cable Sub Class B Common Stock (the "Share
         Issuance") for $350 million (which was used to reduce Cable Sub's
         obligations under the Loan Facility). At the time of the Share
         Issuance, the Cable Sub Class A Stock received by Viacom stockholders
         pursuant to the Viacom Exchange Offer automatically converted into 5%
         Class A Senior Cumulative Exchangeable Preferred Stock (the
         "Exchangeable Preferred Stock") of Cable Sub with a stated value of
         $100 per share (the "Stated Value"). The Exchangeable Preferred Stock
         was exchangeable, at the option of the holder commencing after the
         fifth anniversary of the date of issuance, for shares of TCI Group
         Series A Stock at an exchange rate of 5.447 shares of TCI Group Series
         A Stock for each share of Exchangeable Preferred Stock exchanged. The
         Exchangeable Preferred Stock is subject to redemption, at the option
         of Cable Sub, after the fifth anniversary of the date of issuance,
         initially at a redemption price of $102.50 per share and thereafter at
         prices declining ratably annually to $100 per share on and after the
         eighth anniversary of the date of issuance, plus accrued and unpaid
         dividends to the date of redemption. The Exchangeable Preferred Stock
         is also subject to mandatory redemption on the tenth anniversary of
         the date of issuance at a price equal to the Stated Value per share
         plus accrued and unpaid dividends. Amounts payable by Cable Sub in
         satisfaction of its optional or mandatory redemption obligations with
         respect to the Exchangeable Preferred Stock could have been made in
         cash or, at the election of Cable Sub, in shares of TCI Group Series A
         Stock, or in any combination of the foregoing. Upon completion of the
         Viacom Acquisition, Cable Sub was renamed TCI Pacific Communications,
         Inc. ("TCI Pacific"). See note 2.

         The Viacom Acquisition has been accounted for by the purchase method.
         Accordingly, the results of operations of TCI Pacific have been
         consolidated with those of the Company since the date of acquisition,
         and the Company recorded TCI Pacific's assets and liabilities at fair
         value.

(11)     Spin-Off of TCI Satellite Entertainment, Inc.

         Through December 4, 1996, the Company had an investment in a direct
         broadcast satellite partnership, PRIMESTAR Partners L.P. ("Primestar
         L.P."), which the Company accounted for by the equity method.
         Primestar L.P. had provided programming and marketing support to each
         of its cable partners who provided satellite television service to
         their customers. On December 4, 1996, the Company distributed (the
         "Satellite Spin-off") to the holders of shares of TCI Group Stock all
         of the issued and outstanding common stock of TCI Satellite
         Entertainment, Inc. ("Satellite"). At the time of the Satellite
         Spin-off, Satellite's assets and operations included the Company's
         interest in Primestar L.P., the Company's business of distributing
         Primestar L.P. programming and two communications satellites. As a
         result of the Satellite Spin-off, Satellite's operations are no longer
         consolidated with the Company's.

                                                                    (continued)


                                     II-76
<PAGE>   131

   
    
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Summarized financial information of Satellite as of December 4, 1996
         and from January 1, 1996 through December 4, 1996 is as follows
         (amounts in millions):

<TABLE>
<S>                                                               <C>
     Financial Position

        Cash, receivables and other assets                        $   104
        Investment in Primestar L. P                                   32
        Property and equipment, net                                 1,111
                                                                  -------

                                                                  $ 1,247
                                                                  =======

        Accounts payable and accrued liabilities                  $    60
        Due to Primestar L. P                                         458
        Due to TCI                                                    324
        Equity                                                        405
                                                                  -------
                                                                  $ 1,247
                                                                  =======

     Operations

        Revenue                                                   $   377
        Operating expenses                                           (373)
        Depreciation                                                 (166)
                                                                  -------
          Loss before income tax benefit                             (162)

        Income tax benefit                                             53
                                                                  --------

          Net loss                                                $  (109)
                                                                  =======
</TABLE>

(12)     Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                           Weighted average           December 31,
                                           interest rate at      ----------------------
                                           December 31, 1998       1998          1997
                                           -----------------     --------      --------
                                                                  amounts in millions
<S>                                        <C>                   <C>           <C>  
Debt of subsidiaries:
    Notes payable (a)                            7.7%            $  9,412         9,017
    Bank credit facilities (b)                   6.1%               3,773         5,233
    Commercial paper                             5.6%                 109           533
    Convertible notes (c)                        9.5%                  40            40
    Other debt, at varying rates                                      718           427
                                                                 --------      --------
                                                                 $ 14,052        15,250
                                                                 ========      ========
</TABLE>

(a)      During the year ended December 31, 1998, the Company purchased certain
         notes payable which had an aggregate principal balance of $416 million
         and fixed interest rates ranging from 8.67% to 10.25% (the "1998
         Purchases"). In connection with the 1998 Purchases, the Company
         recognized a loss on early extinguishment of debt of $60 million. Such
         loss related to prepayment penalties amounting to $52 million and the
         retirement of deferred loan costs.

                                                                    (continued)


                                     II-77
<PAGE>   132
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         During the year ended December 31, 1997, the Company purchased certain
         notes payable which had an aggregate principal balance of $409 million
         and fixed interest rates ranging from 8.75% to 10.13% (the "1997
         Purchases"). In connection with the 1997 Purchases, the Company
         recognized a loss on early extinguishment of debt of $39 million. Such
         loss related to prepayment penalties amounting to $33 million and the
         retirement of deferred loan costs.

         During the year ended December 31, 1996, the Company purchased certain
         notes payable which had an aggregate principal balance of $904 million
         and fixed interest rates ranging from 7.88% to 10.44% (the "1996
         Purchases"). In connection with the 1996 Purchases, the Company
         recognized a loss on early extinguishment of debt of $62 million. Such
         loss related to prepayment penalties amounting to $60 million and the
         retirement of deferred loan costs.

(b)      At December 31, 1998, subsidiaries of the Company had approximately
         $3.7 billion in unused lines of credit, excluding amounts related to
         lines of credit which provide availability to support commercial
         paper.

         As security for borrowings under one of the Company's credit
         facilities, the Company has pledged a portion of its TW Exchange Stock
         with an estimated market value at December 31, 1998 of $2.7 billion
         based upon the market value of the marketable common stock into which
         it is convertible. Additionally, as security for borrowings under
         another of its credit facilities, the Company has pledged its holdings
         in Discovery Communications, Inc., QVC and the FKW Preferred Stock. At
         December 31, 1998, the carrying value of such holdings aggregated $617
         million.

         Certain of TCI's subsidiaries are required to maintain unused
         availability under bank credit facilities to the extent of outstanding
         commercial paper. Also, certain of TCI's subsidiaries pay fees ranging
         to 1/2% per annum on the average unborrowed portion of the total
         amount available for borrowings under bank credit facilities.

         During the year ended December 31, 1996, certain subsidiaries of the
         Company terminated, at such subsidiaries' option, certain revolving
         bank credit facilities with aggregate commitments of approximately $2
         billion and refinanced certain other bank credit facilities. In
         connection with such termination and refinancings, the Company
         recognized a loss on early extinguishment of debt of $9 million
         related to the retirement of deferred loan costs.

                                                                    (continued)


                                     II-78
<PAGE>   133


(c)      The convertible notes, which are stated net of unamortized discount of
         $166 million at December 31, 1998 and 1997, mature on December 11,
         2021. Such notes are held by a director of the Company, as well as
         several members of his family. In connection with the AT&T Merger,
         such director resigned. The notes require, so long as conversion of
         the notes has not occurred, an annual interest payment through 2003
         equal to 1.85% of the face amount of the notes. During the year ended
         December 31, 1997, certain of these notes were converted, pursuant to
         their existing terms, into 2,533,116 shares of TCI Group Series A
         Stock, 1,448,341 shares of Liberty Group Series A Stock and 256,484
         shares of Series A Common Stock, $1.00 par value per share, of
         Satellite ("Satellite Series A Common Stock") and 63,432 shares of TCI
         Ventures Group Series A Stock. No such conversions occurred during
         1998. At December 31, 1998, the notes were convertible, at the option
         of the holders, into an aggregate of 24,163,259 shares of TCI Group
         Series A Stock, 19,416,889 shares of Liberty Group Series A Stock,
         20,711,364 shares of TCI Ventures Group Series A Stock and 3,451,897
         shares of Satellite Series A Common Stock. Pursuant to the terms of
         the Merger Agreement and a certain stock purchase agreement, dated as
         of July 9, 1986, among the Company and the holders of such convertible
         notes, the conversion features of the convertible notes were adjusted
         such that as of the March 9, 1999 consummation date of the AT&T
         Merger, such notes were convertible into 19,088,081 shares of AT&T
         Common Stock, 30,186,816 shares of AT&T Liberty Class A Tracking Stock
         and 3,451,897 shares of Satellite Series A Common Stock.

The bank credit facilities and various other debt instruments of the Company's
subsidiaries generally contain restrictive covenants which require, among other
things, the maintenance of certain earnings, specified cash flow and financial
ratios (primarily the ratios of cash flow to total debt and cash flow to debt
service, as defined), and include certain limitations on indebtedness,
investments, guarantees, dispositions, stock repurchases and/or dividend
payments.

The fair value of the debt of the Company's subsidiaries is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. At December
31, 1998, the fair value of the Company's debt was $17,816 million (including
$2,724 million attributable to the value of the common stock underlying the
convertible notes) as compared to a carrying value of $14,052 million on such
date.

In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company may enter into Interest Rate Swaps pursuant to which
it (i) pays fixed interest rates (the "Fixed Rate Agreements") and receives
variable interest rates and (ii) pays variable interest rates (the "Variable
Rate Agreements") and receives fixed interest rates. During the years ended
December 31, 1998, 1997 and 1996, the Company's net payments pursuant to the
Fixed Rate Agreements were less than $1 million, $7 million and $14 million,
respectively; and the Company's net receipts (payments) pursuant to the
Variable Rate Agreements were $10 million, (less than $1 million) and $15
million, respectively. At December 31, 1998, all of the Company's Fixed Rate
Agreements had expired.

                                                                    (continued)

                                     II-79
<PAGE>   134
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

During the year ended December 31, 1996, the Company terminated certain
Variable Rate Agreements with an aggregate notional amount of $700 million. The
Company received $16 million upon such terminations. The Company will amortize
such termination settlement over the remainder of the original terms of the
terminated Variable Rate Agreements.

Information concerning the Company's Variable Rate Agreements at December 31,
1998 is as follows (dollar amounts in millions):

<TABLE>
<CAPTION>
                                                                                  Amount to be
           Expiration          Interest rate           Notional                  received upon
             date              to be received           amount                  termination (a)
         --------------        --------------        -----------                ---------------
         <S>                   <C>                   <C>                        <C>
         April 1999                  7.4%            $        50                  $         1
         September 1999              6.4%                    350                            3
         February 2000            5.8%-6.6%                  300                            4
         March 2000               5.8%-6.0%                  675                            7
         September 2000              5.1%                     75                           --
         March 2027                  9.7%                    300                           36
         December 2036               9.7%                    200                           12
                                                     -----------                  -----------
                                                     $     1,950                  $        63
                                                     ===========                  ===========
</TABLE>

----------

(a)      The estimated amount that the Company would receive to terminate the
         agreements at December 31, 1998, taking into consideration current
         interest rates and the current creditworthiness of the counterparties,
         represents the fair value of the Interest Rate Swaps.

In addition to the Variable Rate Agreements, the Company entered into Interest
Rate Swaps pursuant to which it pays a variable rate based on the London
Interbank Offered Rate ("LIBOR") (5.5% at December 31, 1998) and receives a
variable rate based on the Constant Maturity Treasury Index ("CMT") (4.9% at
December 31, 1998) on a notional amount of $400 million through September 2000;
and pays a variable rate based on LIBOR (5.4% at December 31, 1998) and
receives a variable rate based on CMT (5.0% at December 31, 1998) on notional
amounts of $95 million through February 2000. During the years ended December
31, 1998 and 1997, the Company's net payments (receipts) pursuant to such
agreements were $2 million and (less than $1 million), respectively. At
December 31, 1998, the Company would be required to pay an estimated $4 million
to terminate such Interest Rate Swaps.

The Company is exposed to credit losses for the periodic settlements of amounts
due under the Interest Rate Swaps in the event of nonperformance by the other
parties to the agreements. However, the Company does not anticipate that it
will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, the Company does not anticipate
material near-term losses in future earnings, fair values or cash flows
resulting from derivative financial instruments as of December 31, 1998.

                                                                    (continued)


                                     II-80
<PAGE>   135

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

Annual maturities of debt for each of the next five years are as follows
(amounts in millions):

<TABLE>
                 <S>                      <C>
                 1999                     $  1,539*
                 2000                        1,574
                 2001                        1,029
                 2002                          661
                 2003                        2,298
</TABLE>

         * Includes $109 million of commercial paper.

(13)     Redeemable Preferred Stocks

         Convertible Preferred Stock, Series C. TCI issued 70,575 shares of a
         series of TCI Series Preferred Stock designated "Convertible Preferred
         Stock, Series C," par value $.01 per share, as partial consideration
         for an acquisition by TCI ("Series C Preferred Stock"). All of the
         issued and outstanding shares of Series C Preferred Stock were retired
         on December 31, 1997, with the effect that such retired shares have
         been restored to the status of authorized and unissued shares of
         Series Preferred Stock, and may be reissued as shares of another
         series of Series Preferred Stock but may not be reissued as Series C
         Preferred Stock. Dividends paid on such shares aggregated $12 million
         and $9 million during 1997 and 1996, respectively.

         Series C-TCI Group Preferred Stock. On December 31, 1997, TCI issued
         70,575 shares designated as Series C-TCI Group Preferred Stock as
         partial consideration for retired Series C Preferred Stock. See also
         Series C-Liberty Media Group Preferred Stock below. There were 43,575
         shares of Series C-TCI Group Preferred Stock outstanding at December
         31, 1998. No dividends on such shares were paid in 1998. In connection
         with the AT&T Merger, shares of Series C-TCI Group Preferred Stock
         were converted into shares of AT&T Common Stock. See note 2.

         Series C-Liberty Media Group Preferred Stock. On December 31, 1997,
         TCI issued 70,575 shares designated as Series C-Liberty Media Group
         Preferred Stock as remaining consideration for retired Series C
         Preferred Stock. There were 70,575 shares of Series C-Liberty Media
         Group Preferred Stock authorized and outstanding at December 31, 1998.
         No dividends on such shares were paid in 1998. In connection with the
         AT&T Merger, shares of Series C-Liberty Media Group Preferred Stock
         were converted into shares of AT&T Liberty Class A Tracking Stock. See
         note 2.

         Convertible Preferred Stock, Series D. The Company had designated and
         issued 1,000,000 shares of a series of TCI Series Preferred Stock
         designated "Convertible Preferred Stock, Series D", par value $.01 per
         share. Outstanding shares during the years ended December 31, 1998,
         1997 and 1996 accrued dividends at a rate of 5-1/2% per annum of the
         liquidation value ($300 per share). Dividends paid on such shares
         aggregated $10 million, $16 million and $17 million during 1998, 1997
         and 1996, respectively.

                                                                    (continued)


                                     II-81
<PAGE>   136

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         On February 20, 1998, the Company issued a Notice of Redemption which
         called for the redemption of all of its outstanding Convertible
         Preferred Stock, Series D for $304.0233 per share. Effective April 1,
         1998, all of the outstanding shares of Convertible Preferred Stock,
         Series D were redeemed to the extent not previously converted into
         shares of TCI Group Series A Stock and Liberty Group Series A Stock.
         The shares of Convertible Preferred Stock, Series D, that were
         redeemed, as well as previously unissued shares of Convertible
         Preferred Stock, Series D, were retired, undesignated and restored to
         the status of authorized and unissued shares of Series Preferred
         Stock.

         Series F Preferred Stock. The Company is authorized to issue 500,000
         shares of Series F Preferred Stock, par value $.01 per share. Prior to
         the March 9, 1999 consummation of the AT&T Merger and related
         transactions, subsidiaries of TCI held all the issued and outstanding
         shares (278,307 shares). See note 2.

         Series G Preferred Stock and Series H Preferred Stock. In January,
         1996, TCI designated and issued 7,259,380 shares of a series of TCI
         Series Preferred Stock designated "Redeemable Convertible TCI Group
         Preferred Stock, Series G" and 7,259,380 shares of a series of TCI
         Series Preferred Stock designated "Redeemable Convertible Liberty
         Media Group Preferred Stock, Series H" as consideration for an
         acquisition. At December 31, 1998, there were 6,444,244 shares of
         Series G Preferred Stock and 6,564,794 shares of Series H Preferred
         Stock outstanding. The initial liquidation value for the Series G
         Preferred Stock and Series H Preferred Stock was $21.60 per share and
         $5.40 per share, respectively, subject in both cases, to increase in
         an amount equal to aggregate accrued but unpaid dividends, if any.
         Dividends began to accrue on the Series G and Series H Preferred Stock
         on the first anniversary of issuance of the Series G and Series H
         Preferred Stock, and were thereafter payable semi-annually commencing
         January 25, 1997, at a rate of 4% per annum on the liquidation value.
         Dividends paid on shares of Series G Preferred Stock aggregated $6
         million and $3 million during 1998 and 1997, respectively. Dividends
         paid on shares of Series H Preferred Stock aggregated $1 million in
         each of 1998 and 1997. In connection with the AT&T Merger, shares of
         Series G and Series H Preferred Stock were converted into shares of
         AT&T Common Stock and AT&T Liberty Class A Tracking Stock,
         respectively. See note 2.

(14)     Company-Obligated Mandatorily Redeemable Preferred Securities of
         Subsidiary Trusts Holding Solely Subordinated Debt Securities of TCIC

         The Company, through certain subsidiary trusts, (the "Trusts"), had
         preferred securities outstanding at December 31, 1998 as follows:

<TABLE>
<CAPTION>
                 Subsidiary Trust               Interest Rate       Face Amount
                 ----------------               -------------       -----------
                                                                    in millions
<S>                                             <C>                 <C>       
         TCI Communications Financing I             8.72%           $      500
         TCI Communications Financing II           10.00%                  500
         TCI Communications Financing III           9.65%                  300
         TCI Communications Financing IV            9.72%                  200
                                                                    ----------
                                                                    $    1,500
                                                                    ==========
</TABLE>

                                                                    (continued)

                                     II-82
<PAGE>   137

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Trusts exist for the exclusive purpose of issuing the Trust
         Preferred Securities and investing the proceeds thereof into
         Subordinated Deferrable Interest Notes (the "Subordinated Debt
         Securities") of TCIC. The Subordinated Debt Securities have interest
         rates equal to the interest rate of the corresponding Trust Preferred
         Securities and have maturity dates ranging from 30 to 49 years from
         the date of issuance. The Subordinated Debt Securities are unsecured
         obligations of TCIC and are subordinate and junior in right of payment
         to certain other indebtedness of the Company. Upon redemption of the
         Subordinated Debt Securities, the Trust Preferred Securities will be
         mandatorily redeemable. TCIC effectively provides a full and
         unconditional guarantee of the Trusts' obligations under the Trust
         Preferred Securities.

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying consolidated balance sheets captioned
         "Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts holding solely subordinated debt securities of TCI
         Communications, Inc." Dividends accrued and paid on the Trust
         Preferred Securities aggregated $142 million, $132 million and $71
         million for the years ended December 31, 1998, 1997 and 1996,
         respectively, and are included in minority interests in earnings of
         consolidated subsidiaries in the accompanying consolidated financial
         statements.

(15)     Stockholders' Equity

         Common Stock

         The Series A Stock each had one vote per share, and the Series B Stock
         each had ten votes per share. Each share of Series B Stock was
         convertible, at the option of the holder, into one share of Series A
         Stock of the applicable Group. See notes 1 and 2.

         The rights of holders of the TCI Group Stock, Liberty Media Group
         Stock and TCI Ventures Group Stock upon liquidation of TCI were based
         upon the ratio of the aggregate market capitalization, as defined, of
         each of the TCI Group Stock, Liberty Group Stock and TCI Ventures
         Group Stock to the aggregate market capitalization, as defined, of the
         TCI Group Stock, Liberty Group Stock, and TCI Ventures Group Stock.

         Stock Repurchases

         During the year ended December 31, 1998, pursuant to a stock
         repurchase program, 66,041 shares of TCI Group Series A Stock, 145,450
         shares of TCI Ventures Group Series A Stock, 94,000 shares of TCI
         Ventures Group Series B Stock and 766,783 shares of Liberty Group
         Series A Stock were repurchased at an aggregate cost of approximately
         $31 million.

         During the year ended December 31, 1997, pursuant to a stock
         repurchase program approved by the Board, Liberty Media Group
         repurchased 916,500 shares of Liberty Group Series A Stock in open
         market transactions and 219,937 shares of Liberty Group Series A Stock
         from the spouse of an officer and director of TCI at an aggregate cost
         of approximately $18 million. Such shares were canceled and returned
         to an authorized but unissued status.

                                                                    (continued)


                                     II-83
<PAGE>   138

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         In addition, pursuant to the stock repurchase program, 4,000,000
         shares of TCI Group Series A Stock, 330,902 shares of TCI Group Series
         B Stock and 338,196 shares of TCI Ventures Group Series B Stock were
         repurchased at an aggregate cost of $77 million during the year ended
         December 31, 1997. Such shares are reflected as treasury stock in the
         accompanying consolidated financial statements.

         Effective July 31, 1997, TCI merged Kearns-Tribune into a wholly-owned
         TCI subsidiary attributed to TCI Group. TCI exchanged 47.2 million
         shares of TCI Group Series A Stock for shares of Kearns-Tribune which
         held 17.9 million shares of TCI Group Stock and 10.1 million shares of
         Liberty Group Stock. Such shares are reflected as common stock held by
         subsidiaries in the accompanying consolidated financial statements.
         See note 2.

         During the third quarter of 1997, TCI commenced a tender offer (the
         "Liberty Tender Offer") to purchase up to an aggregate of 22.5 million
         shares of Liberty Group Stock at a price of $20 per share through
         October 3, 1997. During the fourth quarter of 1997, TCI repurchased
         21.7 million shares of Liberty Group Series A Stock and 82,074 shares
         of Liberty Group Series B Stock at an aggregate cost of approximately
         $435 million pursuant to the Liberty Tender Offer. Such purchases are
         reflected as treasury stock in the accompanying consolidated financial
         statements. See note 2.

         Employee Benefit Plans

         The Company had several employee stock purchase plans to provide
         employees an opportunity to create a retirement fund including
         ownership interests in TCI. The primary employee stock purchase plan
         provided for employees to contribute up to 10% of their compensation
         to a trust for investment in several diversified investment choices,
         including investment in Company common stock. The Company, by annual
         resolution of the Board, generally contributed up to 100% of the
         amount contributed by employees. Such TCI contribution was invested in
         TCI Group Stock, Liberty Group Stock and TCI Ventures Group Stock.
         Certain of the Company's subsidiaries had their own employee benefit
         plans. Contributions to all plans aggregated $43 million, $38 million
         and $35 million for 1998, 1997 and 1996, respectively. Subsequent to
         the AT&T Merger, the significant terms of the employee stock purchase
         plans will remain substantially unchanged and contributions on behalf
         of employees will continue to be made in stock.

         Preferred Stock

         Series Preferred Stock. The TCI Series Preferred Stock is issuable,
         from time to time, in one or more series, with such designations,
         preferences and relative participating, option or other special
         rights, qualifications, limitations or restrictions thereof, as shall
         be stated and expressed in a resolution or resolutions providing for
         the issue of such series adopted by the Board. The Company is
         authorized to issue 50,000,000 shares of Series Preferred Stock.

         All shares of any one series of the TCI Series Preferred Stock are
         required to be alike for every particular and all shares are required
         to rank equally and be identical in all respects, except insofar as
         they may vary with respect to matters which the Board is expressly
         authorized by the TCI Charter to determine in the resolution or
         resolutions proving for the issue of any series of the TCI Series
         Preferred Stock.

                                                                    (continued)


                                     II-84
<PAGE>   139

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Class A Preferred Stock. The Company is authorized to issue 700,000
         shares of Class A Preferred Stock, par value $.01 per share. No such
         shares were issued and outstanding as of December 31, 1998.

         Class B Preferred Stock. The Company is authorized to issue 1,675,096
         shares of Class B Preferred Stock and 1,552,490 of such shares are
         issued and outstanding, net of shares held by a TCI subsidiary as of
         December 31, 1998. Following the AT&T Merger, the rights of holders of
         Class B Preferred Stock will remain unchanged, except that rights
         applicable to TCI Group Series A Stock will continue to apply to AT&T
         Common Stock. See note 2.

         Dividends accrue cumulatively (but without compounding) at an annual
         rate of 6% of the stated liquidation value of $100 per share (the
         "Stated Liquidation Value"), whether or not such dividends are
         declared or funds are legally available for payment of dividends.
         Accrued dividends will be payable annually on March 1 of each year (or
         the next succeeding business day if March 1 does not fall on a
         business day), and, in the sole discretion of the Board, may be
         declared and paid in cash, in shares of TCI Group Series A Stock or in
         any combination of the foregoing. Accrued dividends not paid as
         provided above on any dividend payment date will accumulate and such
         accumulated unpaid dividends may be declared and paid in cash, shares
         of TCI Group Series A Stock or any combination thereof at any time
         (subject to the rights of any senior stock and, if applicable, to the
         concurrent satisfaction of any dividend arrearages on any class or
         series of TCI preferred stock ranking on a parity with the Class B
         Preferred Stock with respect to dividend rights) with reference to any
         regular dividend payment date, to holders of record of Class B
         Preferred Stock as of a special record date fixed by the Board (which
         date may not be more than 45 days nor less than 10 days prior to the
         date fixed for the payment of such accumulated unpaid dividends).
         Dividends paid on shares of Class B Preferred Stock aggregated $10
         million in each of 1998, 1997 and 1996. The Class B Preferred Stock
         ranks junior to the Series F Preferred Stock with respect to the
         declaration and payment of dividends.

         If all or any portion of a dividend payment is to be paid through the
         issuance and delivery of shares of TCI Group Series A Stock, the
         number of such shares to be issued and delivered will be determined by
         dividing the amount of the dividend to be paid in shares of TCI Group
         Series A Stock by the Average Market Price of the TCI Group Series A
         Stock. For this purpose, "Average Market Price" means the average of
         the daily last reported sale prices (or, if no sale price is reported
         on any day, the average of the high and low bid prices on such day) of
         a share of TCI Group Series A Stock for the period of 20 consecutive
         trading days ending on the tenth trading day prior to the regular
         record date or special record date, as the case may be, for the
         applicable dividend payment.

         In the event of any liquidation, dissolution or winding up of TCI, the
         holders of Class B Preferred Stock will be entitled, after payment of
         preferential amounts on any class or series of stock ranking prior to
         the Class B Preferred Stock with respect to liquidating distributions,
         to receive from the assets of TCI available for distribution to
         stockholders an amount in cash or property or a combination thereof,
         per share, equal to the Stated Liquidation Value thereof, plus all
         accumulated and accrued but unpaid dividends thereon to and including
         the redemption date. TCI does not have any mandatory obligation to
         redeem the Class B Preferred Stock as of any fixed date, at the option
         of the holders or otherwise.

                                                                    (continued)


                                     II-85
<PAGE>   140
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Subject to the prior preferences and other rights of any class or
         series of TCI preferred stock, the Class B Preferred Stock will be
         exchangeable at the option of TCI in whole but not in part at any time
         for junior subordinated debt securities of TCI ("Junior Exchange
         Notes"). The Junior Exchange Notes will be issued pursuant to an
         indenture (the "Indenture"), to be executed by TCI and a qualified
         trustee to be chosen by TCI.

         If TCI exercises its optional exchange right, each holder of
         outstanding shares of Class B Preferred Stock will be entitled to
         receive in exchange therefor newly issued Junior Exchange Notes of a
         series authorized and established for the purpose of such exchange,
         the aggregate principal amount of which will be equal to the aggregate
         Stated Liquidation Value of the shares of Class B Preferred Stock so
         exchanged by such holder, plus all accumulated and accrued but unpaid
         dividends thereon to and including the exchange date. The Junior
         Exchange Notes will be issuable only in principal amounts of $100 or
         any integral multiple thereof and a cash adjustment will be paid to
         the holder for any excess principal that would otherwise be issuable.
         The Junior Exchange Notes will mature on the fifteenth anniversary of
         the date of issuance and will be subject to earlier redemption at the
         option of TCI, in whole or in part, for a redemption price equal to
         the principal amount thereof plus accrued but unpaid interest.
         Interest will accrue, and be payable annually, on the principal amount
         of the Junior Exchange Notes at a rate per annum to be determined
         prior to issuance by adding a spread of 215 basis points to the
         "Fifteen Year Treasury Rate" (as defined in the Indenture). Interest
         will accrue on overdue principal at the same rate, but will not accrue
         on overdue interest.

         The Junior Exchange Notes will represent unsecured general obligations
         of TCI and will be subordinated in right of payment to all "Senior
         Debt" (as defined in the Indenture). Accordingly, holders of Class B
         Preferred Stock who receive Junior Exchange Notes in exchange therefor
         may have difficulty selling such Junior Exchange Notes.

                                                                    (continued)


                                     II-86
<PAGE>   141
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         For so long as any dividends are in arrears on the Class B Preferred
         Stock or any class or series of TCI preferred stock ranking pari passu
         with the Class B Preferred Stock which is entitled to payment of
         cumulative dividends prior to the redemption, exchange, purchase or
         other acquisition of the Class B Preferred Stock, and until all
         dividends accrued up to the immediately preceding dividend payment
         date on the Class B Preferred Stock and such parity stock shall have
         been paid or declared and set apart so as to be available for payment
         in full thereof and for no other purpose, neither TCI nor any
         subsidiary thereof may redeem, exchange, purchase or otherwise acquire
         any shares of Class B Preferred Stock, any such parity stock or any
         class or series of its capital stock ranking junior to the Class B
         Preferred Stock (including the TCI common stock), or set aside any
         money or assets for such purpose, unless all of the outstanding shares
         of Class B Preferred Stock and such parity stock are redeemed. If TCI
         fails to redeem or exchange shares of Class B Preferred Stock on a
         date fixed for redemption or exchange, and until such shares are
         redeemed or exchanged in full, TCI may not redeem or exchange any
         parity stock or junior stock, declare or pay any dividend on or make
         any distribution with respect to any junior stock or set aside money
         or assets for such purpose and neither TCI nor any subsidiary thereof
         may purchase or otherwise acquire any Class B Preferred Stock, parity
         stock or junior stock or set aside money or assets for any such
         purpose. The failure of TCI to pay any dividends on any class or
         series of parity stock or to redeem or exchange on any date fixed for
         redemption or exchange any shares of Class B Preferred Stock shall not
         prevent TCI from (i) paying any dividends on junior stock solely in
         shares of junior stock or the redemption purchase or other acquisition
         of junior stock solely in exchange for (together with cash adjustment
         for fractional shares, if any) or (but only in the case of a failure
         to pay dividends on any parity stock) through the application of the
         proceeds from the sale of, shares of junior stock; or (ii) the payment
         of dividends on any parity stock solely in shares of parity stock
         and/or junior stock or the redemption, exchange, purchase or other
         acquisition of Class B Preferred Stock or parity stock solely in
         exchange for (together with a cash adjustment for fractional shares,
         if any), or (but only in the case of failure to pay dividends on any
         parity stock) through the application of the proceeds from the sale
         of, parity stock and/or junior stock.

         The Class B Preferred Stock will vote in any general election of
         directors, will have one vote per share for such purpose and will vote
         as a single class with the TCI common stock and any class or series of
         TCI preferred stock entitled to vote in any general election of
         directors. The Class B Preferred Stock will have no other voting
         rights except as required by the Delaware General Corporation Law.

         Redeemable Convertible Preferred Stock, Series E. The Company is
         authorized to issue 400,000 shares of Redeemable Convertible Preferred
         Stock, Series E, par value $.01 per share. No such shares were issued
         and outstanding as of December 31, 1998.

                                                                    (continued)


                                     II-87
<PAGE>   142
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Stock-Based Compensation

         As of December 31, 1998, the Company and its subsidiaries had several
         stock-based compensation plans for certain employees, officers,
         directors and other persons. Such plans are described below.

         Tele-Communications, Inc. Stock Incentive Plans. In 1994, the Company
         adopted the Tele-Communications, Inc. 1994 Stock Incentive Plan (the
         "1994 Plan"). The Plan provided for awards to be made in respect of a
         maximum of 16 million shares of TCI Class A common stock. Awards may
         be made as grants of stock options, stock appreciation rights,
         restricted shares, stock units or any combination thereof.

         In 1995, the Company adopted the Tele-Communications, Inc. 1995
         Employee Stock Incentive Plan (the "1995 Plan"). In addition, the
         Company has established the Tele-Communications, Inc. 1996 Stock
         Incentive Plan (the "1996 Plan" and the Tele-Communications, Inc. 1998
         Incentive Plan (the "1998 Plan") and together with the 1994 Plan and
         the 1995 Plan, the "Incentive Plans"). The 1996 Plan provides (i) for
         stock-based awards to be made in respect of a maximum of 16 million
         shares of TCI Group Series A Stock and a maximum of 6 million shares
         of Liberty Group Series A Stock (subject to certain adjustments
         described below) and (ii) for cash awards in amounts determined by the
         TCI compensation committee. The 1998 Plan provides (i) for stock-based
         awards to be made in respect of a maximum of 10 million shares of any
         combination of TCI Group Series A Stock or TCI Group Series B Stock, a
         maximum of 7.5 million shares of any combination of Liberty Group
         Series A Stock or Liberty Group Series B Stock, and a maximum of 7.5
         million shares of any combination of TCI Ventures Group Series A Stock
         or TCI Ventures Group Series B Stock; and (ii) for cash awards in
         amounts determined by the TCI compensation committee.

         Awards may be made as grants of stock options ("Options"), stock
         appreciation rights ("SARs"), restricted shares ("Restricted Shares"),
         stock units ("Stock Units"), performance awards, or any combination
         thereof (collectively, "Awards"). Shares in respect of which Awards
         are made may be either authorized but unissued shares of Series A
         Stock or issued shares reacquired by the Company, including shares
         purchased in the open market. Shares of Series A Stock that are
         subject to Awards that expire, terminate or are annulled for any
         reason without having been exercised (or, with respect to tandem SARs
         deemed exercised, by virtue of the exercise of a related Option), or
         are Restricted Shares or Stock Units that are forfeited prior to
         becoming vested, or are subject to Awards of SAR's that are exercised
         for cash, will return to the pool of such shares available for grant
         under the 1996 Plan or 1998 Plan.

                                                                    (continued)


                                     II-88
<PAGE>   143

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         In connection with the Liberty Distribution, each holder of an
         outstanding option or SAR received an additional option or stock
         appreciation right, as applicable, covering a number of shares of
         Liberty Group Series A Stock equal to 56% (as adjusted) of the number
         of shares of Class A common stock theretofore subject to the
         outstanding option or stock appreciation right, and the outstanding
         option or stock appreciation right would continue in effect as an
         option or stock appreciation right covering the same number of shares
         of TCI Group Series A Stock (as redesignated) that were theretofore
         subject to the option or stock appreciation right. The aggregate
         pre-adjustment strike price of the outstanding options or stock
         appreciation rights was allocated between the outstanding options or
         stock appreciation rights and the newly issued options or stock
         appreciation rights in a ratio determined by the Compensation
         Committee of TCI. The following descriptions of stock options and/or
         stock appreciation rights have been adjusted to reflect such change.

         As a result of the TCI Ventures Exchange, the Compensation Committee
         of TCI elected to adjust the options in tandem with SARs to purchase
         TCI Group Series A Stock to reflect the expected shift of attributable
         value from TCI Group to the newly created TCI Ventures Group. The
         options in tandem with SARs to purchase TCI Group Series A Stock
         outstanding immediately prior to the TCI Ventures Exchange were
         canceled and reissued as two separately exercisable options in tandem
         with SARS: (i) with 70% of the options in tandem with SARs allocated
         to an option in tandem with SARs to purchase TCI Group Series A Stock,
         and (ii) with 30% of the options in tandem with SARs allocated to an
         option in tandem with SARs to purchase TCI Ventures Group Series A
         Stock. The terms of these adjusted options in tandem with SARs,
         including the exercise price and the date of grant, are in all
         material respects the same as the terms of the original options in
         tandem with SARs. The following descriptions of stock options and/or
         stock appreciation rights have been adjusted to reflect such change.

         Awards granted subsequent to the Liberty Distribution may include
         Awards relating to TCI Group Series A Stock or Liberty Group Series A
         Stock and Awards granted subsequent to the TCI Ventures Exchange may
         include Awards relating to TCI Group Series A Stock, Liberty Group
         Series A Stock or TCI Ventures Group Series A Stock in such amounts
         and types as the Compensation Committee of TCI determines in
         accordance with the terms of the Incentive Plans.

                                                                    (continued)


                                     II-89
<PAGE>   144
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Awards of TCI Group Series A Stock made under the Incentive Plans
         prior to the Satellite Spin-off were adjusted in connection with the
         Satellite Spin-off such that immediately prior to the Satellite
         Spin-off, each option was divided into two separately exercisable
         options: (i) an option to purchase Satellite Series A Common Stock (an
         "Add-on Satellite Option"), exercisable for the number of shares of
         Satellite Series A Common Stock that would have been issued in the
         Satellite Spin-off in respect of the shares of TCI Group Series A
         Stock subject to the applicable TCI Option, if such TCI option had
         been exercised in full immediately prior to the record date of the
         Satellite Spin-off, and containing substantially equivalent terms as
         the existing TCI Option, and (ii) an option to purchase TCI Group
         Series A Stock (an "Adjusted TCI Option"), exercisable for the same
         number of shares of TCI Group Series A Stock as the corresponding TCI
         Option had been. The aggregate exercise price of each TCI Option was
         allocated between the Add-on Satellite Option and the Adjusted TCI
         Option into which it is divided, and all other terms of the Add-on
         Satellite Option and Adjusted TCI Option will in all material respects
         be the same as such TCI Option. Similar adjustments were made to the
         outstanding TCI SARs, resulting in the holders thereof holding
         Adjusted TCI SARs and Add-on Satellite SARs instead of TCI SARs,
         effective immediately prior to the Satellite Spin-off.

         As a result of the foregoing, certain persons who remain TCI employees
         or non-employee directors after the Satellite Spin-off and certain
         persons who were TCI employees prior to the Satellite Spin-off but
         became Satellite employees after the Satellite Spin-off hold both
         Adjusted TCI Options and separate Add-on Satellite Options and/or hold
         both Adjusted TCI SARs and separate Add-on Satellite SARs. The
         obligations with respect to the Adjusted TCI Options, Add-on Satellite
         Options, Adjusted TCI SARs and Add-on Satellite SARs held by TCI
         employees and non-employee directors following the Satellite Spin-off
         are obligations solely of TCI. The obligations with respect to the
         Adjusted TCI Options, Add-on Satellite Options, Adjusted TCI SARs and
         Add-on Satellite SARs held by persons who are Satellite employees at
         the time of the Satellite Spin-off and following the Satellite
         Spin-off are no longer TCI employees are obligations solely of
         Satellite. Prior to the Satellite Spin-off, TCI and Satellite entered
         into an agreement to sell to each other from time to time at the then
         current market price shares of TCI Group Series A Stock and Satellite
         Series A common stock, respectively, as necessary to satisfy their
         respective obligations under such securities.

                                                                    (continued)


                                     II-90
<PAGE>   145
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The following table presents the number and weighted average exercise
         price ("WAEP") of certain options in tandem with SARs to purchase TCI
         Group Series A Stock, Liberty Group Series A Stock and TCI Ventures
         Group Series A Stock pursuant to the Incentive Plans.

<TABLE>
<CAPTION>
                                                                                        TCI
                                                             Liberty                  Ventures
                                  TCI Group                   Group                    Group
                                  Series A                  Series A                  Series A
                                    Stock        WAEP         Stock         WAEP       Stock        WAEP
                                  ---------    --------     ---------     -------     --------    --------
                                                amounts in thousands, except for WAEP

<S>                                 <C>        <C>           <C>          <C>         <C>         <C>
Outstanding at January 1, 1996      17,702     $  15.08      11,568       $  9.39          --
      Exercised                       (196)       12.70        (132)         7.93          --
      Canceled                        (132)       15.35         (42)         8.45          --
                                   -------                  -------                   ------
Outstanding at December 31, 1996    17,374        12.97      11,394          9.41          --
      Adjustment for TCI
         Ventures Exchange          (7,946)       14.22          --                    15,899     $  7.11
      Granted                       12,395        15.27       3,514         15.89         300        7.84
      Exercised                     (5,618)       11.95      (2,502)         8.42      (1,035)       6.76
      Canceled                         (54)       14.27         (42)        10.25          (2)       7.10
                                   -------                  -------                   -------
Outstanding at December 31, 1997    16,151        14.47      12,364         11.45      15,162        7.15
      Granted                        1,175        33.51       8,245         43.23          20       16.50
      Exercised                     (3,091)       13.50      (1,807)         8.13      (2,940)       6.69
      Canceled                        (512)       15.47         (11)         9.78        (521)       6.92
                                   -------                  -------                   -------
Outstanding at December 31, 1998    13,723        16.28      18,791         25.71      11,721        7.29
                                   =======                  =======                   =======
Exercisable at December 31, 1998     5,093        13.99       5,522         10.64       5,025        6.91
                                   =======                  =======                   =======
Vesting Period                     5 years                  5 years                   5 years
                                   =======                  =======                   =======
</TABLE>

                                                                    (continued)


                                     II-91
<PAGE>   146

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         On December 13, 1995, pursuant to the 1994 Plan, the Company awarded
         330,000 restricted shares of TCI Group Series A Stock and 67,500
         restricted shares of Liberty Group Series A Stock to certain officers
         and other key employees of the Company. Based on the terms at the date
         of grant, such restricted shares vest as to 50% in December 1999 and
         as to the remaining 50% in December 2000. Such restricted shares had a
         fair value of $20.625 and $11.67, respectively, on the date of grant.
         At December 31, 1998, 123,886 restricted shares of TCI Group Series A
         Stock (after adjustment for TCI Ventures Exchange), 102,228 restricted
         shares of TCI Ventures Group Series A Stock (after adjustment for TCI
         Ventures Exchange and a stock dividend) and 45,000 restricted shares
         of Liberty Group Series A Stock (after adjustment for stock dividends)
         were unvested.

         On July 23, 1997, pursuant to the 1996 Plan, the Company awarded
         400,000 restricted shares of TCI Group Series A Stock to an officer
         and a director of the Company. Such restricted shares vest as to 50%
         in July 2001 and as to the remaining 50% in July 2002. Such restricted
         shares had a fair value of $15.81 on the date of grant. At December
         31, 1998, 338,154 restricted shares of TCI Group Series A Stock (after
         adjustment for TCI Ventures Exchange) and 123,692 restricted shares of
         TCI Ventures Group Series A Stock (after adjustment for TCI Ventures
         Exchange and a stock dividend) were unvested.

         On December 16, 1997, the Company granted options in tandem with stock
         appreciation rights to acquire 2,800,000 shares of TCI Ventures Group
         Series B Stock to an officer and director of the Company. The options
         in tandem with stock appreciation rights have an exercise price of
         $10.37 and vest ratably over five years with such vesting period
         beginning December 16, 1997, first became exercisable on December 16,
         1998 and expire on December 16, 2007.

         On June 23, 1998, pursuant to the 1998 Plan, the Company awarded
         1,350,000 restricted shares of TCI Group Series A Stock to certain
         officers of the Company. Such restricted shares vest as to 50% in June
         2002 and as to the remaining 50% in June 2003. Such restricted shares
         had a fair value of $38.69 on the date of grant.

         On September 3, 1998, pursuant to the 1998 Plan, the Company awarded
         1,509,880 restricted shares of TCI Group Series A Stock to certain
         officers and other key employees of the Company. Such restricted
         shares vest as to 50% in September 2002 and as to the remaining 50% in
         September 2003. Such restricted shares had a fair value of $33.75 on
         the date of grant.

         On December 10, 1998, pursuant to the 1998 Plan, the Company awarded
         287,500 restricted shares of TCI Group Series A Stock to an officer
         and a director of the Company. Such restricted shares vest as to 50%
         in December 2002 and as to the remaining 50% in December 2003. Such
         restricted shares had a fair value of $48.375 on the date of grant.

         SARs with respect to 150,000 shares of TCI Group Series A Stock,
         569,553 shares of Liberty Group Series A Stock and 577,526 shares of
         TCI Ventures Group Series A Stock were outstanding at December 31,
         1998. These rights have an adjusted strike price of $.52, $.36 and
         $.26 per share, respectively. All such SARs are 100% vested at
         December 31, 1998 and expire on March 28, 2001. The Company has the
         option of paying the holder in stock or cash. During the year ended
         December 31, 1998, SARs with respect to 358,350 shares of TCI Group
         Series A Stock were exercised.

                                                                    (continued)


                                     II-92
<PAGE>   147
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Tele-Communications, Inc. Director Stock Option Plan. On August 3,
         1995, stockholders of the Company approved the Director Stock Option
         Plan (the "DSOP") including the grant, effective as of November 16,
         1994, to each person that as of that date was a member of the Board and
         was not an employee of the Company or any of its subsidiaries, of
         options to purchase 50,000 shares of TCI Class A common stock. Pursuant
         to the DSOP, options to purchase 300,000 shares of TCI Class A common
         stock were granted at an exercise price of $22.00 per share. Such
         options had a weighted average fair value of $16.49 on the date of
         grant. Options issued pursuant to the DSOP vest and become exercisable
         over a five-year period from the date of grant and expire 10 years from
         the date of grant. During the year ended December 31, 1995, options to
         purchase 50,000 shares of TCI Group Series A Stock and options to
         purchase 28,125 shares of Liberty Group Series A Stock were canceled.
         During the year ended December 31, 1996, options to purchase 150,000
         shares of TCI Group Series A Stock and options to purchase 84,375
         shares of Liberty Group Series A Stock with a WAEP of $14.75 and
         $11.52, respectively, were issued pursuant to the DSOP. Such options
         had a weighted average fair value of $9.83 and $7.67, respectively, on
         the date of grant.

         At December 31, 1998, 330,000 options with respect to TCI Group Stock
         granted pursuant to the DSOP were outstanding, 204,000 of which were
         exercisable. Such options had a range of exercise prices of $12.25 to
         $16.99, with a WAEP of $14.08, and a weighted average remaining
         contractual life of 6.76 years.

         At December 31, 1998, 225,000 options with respect to Liberty Group
         Stock granted pursuant to the DSOP were outstanding, 146,250 of which
         were exercisable. Such options had a range of exercise prices of $9.78
         to $11.67, with a WAEP of $10.18, and a weighted average remaining
         contractual life of 6.63 years.

         Tele-Communications International, Inc. Stock Incentive Plan. In 1995,
         TINTA adopted the Tele-Communications International, Inc. 1995 Stock
         Incentive Plan (the "TINTA 1995 Plan"). The TINTA 1995 Plan provides
         for Awards to be made in respect of a maximum of 3,000,000 shares of
         TINTA Series A common stock ("TINTA Series A Stock") (subject to
         certain anti-dilution adjustments). Shares of TINTA Series A Stock that
         are subject to Awards that expire, terminate or are annulled for any
         reason without having been exercised (or deemed exercised, by virtue of
         the exercise of a related stock appreciation right), or are forfeited
         prior to becoming vested will return to the pool of such shares
         available for grant under the TINTA 1995 Plan.

         On December 13, 1995, stock options in tandem with SARs to purchase
         1,352,000 shares of TINTA Series A Stock were granted pursuant to the
         TINTA 1995 Plan. Such options vest evenly over five years, first became
         exercisable August 4, 1996 and expire on August 4, 2005. During 1997,
         TINTA granted stock options in tandem with SARs to purchase 1,130,000
         shares of TINTA Series A Stock. Such options vest evenly over five
         years, first become exercisable one year after date of grant, and
         expire ten years after date of grant.

                                                                    (continued)

                                     II-93
<PAGE>   148
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         As a result of the TINTA Merger on November 19, 1998, each stock
         option and SAR to purchase TINTA Series A Stock was converted into a
         stock option or SAR to purchase Liberty Group Series A Stock
         determined by multiplying the number of TINTA stock options or SARs by
         0.58 at an exercise price per share of such stock option or SAR
         divided by 0.58. The following descriptions of stock options and/or
         SARs have been adjusted to reflect such change.

         The following table presents the number and WAEP of certain options in
         tandem with SARs to purchase TINTA Series A Stock and Liberty Group
         Series A Stock pursuant to the TINTA 1995 Plan (amounts in thousands,
         except for WAEP).

<TABLE>
<CAPTION>
                                                                        Liberty
                                                TINTA                    Group
                                              Series A                  Series A
                                                Stock          WAEP      Stock       WAEP
                                              --------      ---------   --------    ------
                                                     amounts in thousands, except for WAEP
<S>                                            <C>          <C>         <C>         <C>
Outstanding at January 1, 1996 and 1997         1,352       $   16.00       --        --
      Granted                                   1,130           14.69       --        --
                                               ------                   --------
Outstanding at December 31, 1997                2,482           15.40       --        --

      Adjustment for TINTA Merger              (1,982)          15.31      1,150    $26.40
      Exercised                                  (500)          15.75         (1)    25.21
                                               ------                   --------
Outstanding at December 31, 1998                 --               --       1,149     26.40
                                               ======                   ========
Exercisable at December 31, 1998                 --               --         448     26.97
                                               ======                   ========
Vesting Period                                   --                      5 years
                                               ======                   ========
</TABLE>

         On December 13, 1995, pursuant to the TINTA 1995 Plan, 40,000
         restricted shares of TINTA Series A Stock were awarded to certain
         officers and directors of TINTA. Such restricted shares vest as to 50%
         in December 1999 and as to the remaining 50% in December 2000. Such
         restricted shares had a fair value of $25.375 on the date of grant. At
         December 31, 1998, 23,200 restricted shares of Liberty Group Series A
         Stock (after adjustment for TINTA Merger) were unvested.

         On July 23, 1997, pursuant to the TINTA 1995 Plan, 150,000 restricted
         shares of TINTA Series A Stock were awarded to a director of TINTA.
         Such restricted shares vest as to 50% in July 2001 and as to the
         remaining 50% in July 2002. Such restricted shares had a fair value of
         $14.625 on the date of grant. At December 31, 1998, 87,000 restricted
         shares of Liberty Group Series A Stock (after adjustment for TINTA
         Merger) were unvested.

                                                                    (continued)


                                     II-94
<PAGE>   149
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Tele-Communications International, Inc. Nonemployee Director Stock
         Option Plan. On April 11, 1996, TINTA adopted the Tele-Communications
         International, Inc. 1996 Nonemployee Director Stock Option Plan (the
         "TINTA Director Plan"). The TINTA Director Plan provides for grants to
         be made to nonemployee directors of TINTA of options to purchase a
         maximum of 1,000,000 shares of TINTA Series A Stock (subject to
         certain anti-dilution adjustments). Shares that are subject to such
         options that expire or terminate for any reason without having been
         exercised will return to the pool of shares underlying options
         available to grant under the TINTA Director Plan. Pursuant to the
         TINTA Director Plan, options to purchase 200,000 shares of TINTA
         Series A Stock were granted in April 1996 at an exercise price of
         $16.00 per share. Such options had a weighted average fair value of
         $14.01 on the date of grant. Options issued pursuant to the TINTA
         Director Plan vest and become exercisable over a five-year period from
         the date of grant and expire 10 years from the date of grant.

         At December 31, 1998, 116,000 options with respect to Liberty Group
         Series A Stock (after adjustment for TINTA Merger) granted pursuant to
         the TINTA Director Plan were outstanding, 46,400 of which were
         exercisable. Such options had an exercise price of $27.58 and a
         weighted average remaining contractual life of 8 years.

         Founders Options. Effective December 1, 1996, certain officers and key
         employees of the Company were each granted options (the "Telephony
         Option") representing 1.0% of the Company's common equity in TCI
         Telephony Services, Inc., a consolidated subsidiary of the Company,
         ("Telephony Services"). The aggregate exercise price for each such
         option was equal to 1.0% of (i) the Company's cumulative investment in
         Telephony Services as of December 1, 1996, adjusted for a 6% per annum
         interest factor from the date each such investment was made to the
         date of such exercise, less (ii) the sum of (x) $500 million and (y)
         the amount of the tax benefits generated by Telephony Services (up to
         $500 million) as and when used by TCI. Such options had a fair value
         of $1,347,700 per option on the date of grant. Each such option was
         replaced during 1997 with a separate SAR with respect to each of
         Telephony Services' two direct wholly-owned subsidiaries, TCI Teleport
         Holdings, Inc. ("TCI Teleport") and TCI Wireless Holdings, Inc. ("TCI
         Wireless"). Each of the SAR with respect to TCI Teleport (the "CLEC
         SAR") and the SAR with respect to TCI Wireless (the "Wireless SAR")
         entitles the holder to the excess of the value of the shares subject
         to the SAR (based on the percentage that such shares represent of the
         total value of the common equity of TCI Teleport or TCI Wireless, as
         applicable, as of the exercise date) over the "strike price" (i.e., 1%
         of TCI's cumulative investment in TCI Teleport or TCI Wireless, as
         applicable, and their respective subsidiaries at December 1, 1996,
         plus a 6% per annum interest factor from the date when each such
         investment was made to the date of exercise). The material terms of
         the CLEC SAR and the Wireless SAR are the same as those of the
         Telephony Option, except that the strike price for each such SAR is an
         allocated portion of the exercise price under the Telephony Option
         based on TCI's cumulative investment in TCI Teleport and TCI Wireless.
         All such SARs will vest and become exercisable in five equal annual
         installments, with the first annual installment vesting on February 1,
         1997, and will expire on February 1, 2006. Any exercise by one of such
         executive officers of all or part of the CLEC SAR would need to be
         accompanied by the exercise by such executive officer of a pro rata
         portion of Wireline Option described below. 

                                                                    (continued)


                                     II-95
<PAGE>   150
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Each such officer and key employee was also granted a similar option
         (the "Wireline Option") representing 1.0% of the Company's common
         equity in TCI Wireline, Inc., another consolidated subsidiary of the
         Company, ("Wireline"). The aggregate exercise price for each such
         Wireline Option is equal to 1.0% of the Company's cumulative
         investment in Wireline as of December 1, 1996, adjusted for a 6% per
         annum interest factor from the date each such investment was made to
         the date of such exercise. All of such options vest 20% per annum
         beginning February 1, 1997 and expire on February 1, 2006. Such
         options had a fair value of $4,400 per option on the date of grant.
         Such options must be exercised on a pro rata basis with the CLEC SARs
         discussed above. On February 19, 1999 the Company repurchased from the
         holders of the Wireline Options all shares of the common stock of
         Wireline acquired by such holders pursuant to the Wireline Options. At
         such time the Company canceled the Wireline Options and deleted the
         requirement in the CLEC SARs that holders thereof exercise their
         Wireline Option in order to exercise their CLEC SAR.

                                                                    (continued)


                                     II-96
<PAGE>   151

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Effective December 1, 1996, certain officers and key employees of the
         Company were each granted options (the "Internet Option") representing
         1% of the Company's common equity in TCI Internet Services, Inc. ("TCI
         Internet"), a consolidated subsidiary of the Company. The aggregate
         exercise price for each Internet Option was equal to 1.0% of the
         Company's cumulative investment in TCI Internet as of December 1,
         1996, adjusted for a 6% per annum interest factor from the date each
         such investment was made to the date of such exercise price. Such
         options vest 20% per annum beginning February 1, 1997 and expire on
         February 1, 2006. Such options had a fair value of $346,800 on the
         date of grant. In anticipation of the transfer to TCI.NET, Inc.
         ("TCI.NET") of the Internet services distribution business conducted
         through subsidiaries of TCI Internet, each such option was replaced
         during 1997 with an option to acquire a number of shares equal to 1.0%
         of TCI's common equity in TCI.NET at December 1, 1996 and a SAR with
         respect to a number of shares equal to 1.0% of TCI's common equity in
         TCI Internet at December 1, 1996. The material terms of the option to
         acquire shares of TCI.NET are the same as those of the Internet
         Option, except that the exercise price, which will be payable to TCI.
         NET, is an allocated portion of the exercise price under the Internet
         Option based on TCI's cumulative investment in the Internet services
         distribution business relative to the balance of its cumulative
         investment in TCI Internet at December 1, 1996. The SAR entitles the
         holder to the excess of the value of the shares subject to the SAR
         (based on the percentage that such shares represent of the total value
         of the common equity of TCI Internet as of the exercise date) over 1%
         of TCI's cumulative investment in TCI Internet at December 1, 1996,
         plus a 6% per annum interest factor from the date when each such
         investment was made to the date of exercise. Any exercise by the
         holder of all or part of the TCI.NET option must be accompanied by the
         exercise by such holder of a pro rata portion of the TCI Internet SAR,
         and vice versa. On February 19, 1999 the Company repurchased from the
         holders of the TCI.NET options all shares of the common stock of
         TCI.NET acquired by such holders pursuant to the TCI.NET option. At
         such time the Company canceled the TCI.NET options and deleted the
         requirement in the TCI Internet SARs that holders thereof exercise
         their TCI.NET option in order to exercise their TCI Internet SAR. In
         connection with the AT&T Merger, the TCI Ventures Group's equity
         interest in @Home, which constituted substantially all of the value of
         the assets of TCI Internet, was transferred to the TCI Group. As a
         result, on March 8, 1999 each Internet SAR was amended to provide,
         among other things, that following the AT&T Merger the amounts payable
         upon exercise of the Internet SARs would not be determined by
         reference to the fair market value of TCI Internet, but would instead
         be based upon the fair market value (determined as of the date of
         exercise of an Internet SAR) of the investment securities held by TCI
         Internet prior to the AT&T Merger, subject to certain adjustments.
         Such amendment also provided that the cash settlement value of the
         Internet SAR would be paid, at the grantor's election, in cash, AT&T
         stock or other stock owned by the grantor. In connection with such
         amendment, TCI or Liberty Media Corporation ("Liberty") (depending
         upon which entity employed the holder of the Internet SAR) was
         substituted for TCI Internet as the obligor under the Internet SARs.

                                                                    (continued)


                                     II-97
<PAGE>   152

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         At December 31, 1998, 20 Wireless SARs were outstanding, all of which
         were exercisable. Such SARs had an exercise price of $1,040,968 and an
         average remaining contractual life of 8 years.

         At December 31, 1998, 12 TCI Internet SARs were outstanding, none of
         which were exercisable. Such SARs and options had an exercise price of
         $37,023 and an average remaining contractual life of 8 years.

         At December 31, 1998, all of the CLEC SARs had been exercised.

         United Video Satellite Group, Inc. Equity Incentive Plan and United
         Video Satellite Group, Inc. Stock Option Plan for Non-Employee
         Directors. UVSG sponsors the United Video Satellite Group, Inc. Equity
         Incentive Plan under which 8.0 million shares of UVSG's Class A Common
         Stock are authorized to be issued in connection with the exercise of
         awards of stock options, stock appreciation rights and restricted stock
         granted under the plan. UVSG's Equity Incentive Plan provides that the
         price at which each share of stock covered by an option may be acquired
         shall in no event be less than 100% of the fair market value of the
         stock on the date the option is granted, except in certain limited
         circumstances. Additionally, UVSG sponsors the United Video Satellite
         Group, Inc. Stock Option Plan for Non-Employee Directors under which
         500,000 shares of UVSG's Class A Common Stock are authorized to be
         issued in connection with the exercise of stock options granted
         thereunder.

         At December 31, 1998, 6.3 million shares of UVSG's Class A Common Stock
         were reserved for issuance under the stock option plans. The options
         granted under the stock option plans expire ten years from the date of
         grant. Options outstanding are as follows (amounts in thousands, except
         for WAEP):

<TABLE>
<CAPTION>
                                                     UVSG
                                                 Class A Common
                                                    Stock (1)      WAEP (1)
                                                 --------------    --------
<S>                                               <C>              <C>
         At January 1, 1996                         $ 4,121          4.25
              Granted                                 1,276         11.11
              Exercised                                (815)         4.04
              Canceled                                 (805)         9.21
                                                    -------

         At December 31, 1996                         3,777          5.56
              Granted                                   916          8.54
              Exercised                              (2,089)         4.04
              Canceled                                 (252)         5.88
                                                    -------

         At December 31, 1997                         2,352          8.03
              Granted                                   709         16.61
              Exercised                                (254)         6.84
              Canceled                                  (36)         9.41
                                                    -------     

         Exercisable at December 31, 1998             2,771         10.32
                                                    =======
</TABLE>

----------
(1)      Adjusted for two-for-one stock split.

         Exercise prices for options outstanding as of December 31, 1998 ranged
         from $4 to $17. The weighted-average remaining contractual life of such
         options is 7.8 years.

                                                                     (continued)



                                     II-98
<PAGE>   153

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         On March 1, 1999, the Company's voting interest in UVSG was reduced to
         49% and the Company ceased to include UVSG in its consolidated
         financial results and began to account for UVSG using the equity method
         of accounting. See note 10.

         At Home Corporation Stock Option Plans. @Home adopted certain stock
         option plans (the "@Home Plans") during 1996, 1997 and 1998. The @Home
         Plans provide for the grant of incentive stock options, nonqualified
         stock options, restricted stock awards and stock bonuses to employees,
         directors and consultants of @Home. Options under the @Home Plans
         generally vest at the rate of 25% after one year and ratably on a
         monthly basis for three years thereafter.

         Options outstanding are as follows (amounts in thousands, except for
         WAEP):

<TABLE>
<CAPTION>
                                                          @Home
                                                     Series A Common
                                                          Stock          WAEP
                                                     ---------------    ------
<S>                                                  <C>               <C>
         At January 1, 1996                                    --       $   --
              Granted                                       5,296          .06
              Exercised                                    (4,875)         .06
              Canceled                                       (198)         .05
                                                          -------

         At December 31, 1996                                 223          .06
              Granted                                       5,158         6.30
              Exercised                                    (2,170)         .25
              Canceled                                       (153)        3.78
                                                          -------

         At December 31, 1997                               3,058        10.26
              Granted                                       7,648        40.73
              Exercised                                      (425)        7.01
              Canceled                                       (268)       18.83
                                                          -------

         At December 31, 1998                              10,013        33.44
                                                          =======

         Exercisable at December 31, 1998                   1,616         6.69
                                                          =======
</TABLE>

         Exercise prices for options outstanding as of December 31, 1998 ranged
         from $.05 to $71.50. The weighted-average remaining contractual life of
         such options is 8.31 to 9.97 years.

         TCI Music, Inc. Stock Incentive Plan. During 1997 and 1998, TCI Music,
         Inc., a subsidiary of the Company, ("TCI Music") granted stock options
         with tandem SARs to employees under the TCI Music, Inc. 1997 Stock
         Incentive Plan (the "TCI Music Stock Plan") which is authorized to
         issue up to 4,000,000 shares. Options granted under the TCI Music Stock
         Plan expire ten years from the date of grant. In addition TCI Music
         granted stock options with tandem SARs to the board of directors and
         employees in connection with certain mergers. Options issued under the
         TCI Music Stock Plan and in connection with certain mergers generally
         vest annually in 20% cumulative increments.

         On December 21, 1998, TCI Music re-priced the stock options with tandem
         SARs pursuant to the TCI Music Stock Plan at $4.00 for all grants to
         executive officers and employees of TCI Music and its subsidiaries.

                                                                     (continued)



                                     II-99
<PAGE>   154

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The following table presents the number and WAEP of options in tandem
         with SARs to purchase TCI Music Series A Common Stock, after giving
         effect to the re-pricing at $4.00 for certain options and tandem SARs
         (amounts in thousands, except for WAEP):

<TABLE>
<CAPTION>
                                                          TCI Music
                                                          Series A
                                                         Common Stock    WAEP
                                                         ------------    ----
<S>                                                      <C>            <C> 
         At January 1, 1997                                     --         --
               Granted                                       3,609       5.75
                                                            ------

         At December 31, 1997                                3,609       5.75
               Granted                                       1,771       4.00
               Exercised                                       (21)      4.00
               Canceled                                       (311)      4.00
                                                            ------

         At December 31, 1998                                5,048       5.25
                                                            ======

         Exercisable at December 31, 1998                    1,373       5.84
                                                            ======
</TABLE>


         Exercise prices for options outstanding as of December 31, 1998 ranged
         from $4.00 to $6.25. The weighted average remaining contractual life of
         such options is 8.7 years. The weighted average fair value of options
         granted during 1998, after giving effect to the re-pricing at $4.00 for
         certain options and tandem SARs, and 1997 was $3.51 and $3.31,
         respectively.

         The estimated fair values of the Options noted above are based on the
         Black-Scholes model and are stated in current annualized dollars on a
         present value basis. The key assumptions used in the model for purposes
         of these calculations generally include the following: (a) a discount
         rate equal to the 10-year Treasury rate on the date of grant; (b) a 35%
         volatility factor, (c) the 10-year option term; (d) the closing price
         of the respective common stock on the date of grant; and (e) an
         expected dividend rate of zero.

                                                                     (continued)


                                     II-100
<PAGE>   155


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Estimated compensation relating to restricted stock awards, options
         with tandem SARs and SARs has been recorded through December 31, 1998
         pursuant to APB Opinion No. 25. Such estimate is subject to future
         adjustment based upon market value, and ultimately, on the final
         determination of market value when the rights are exercised or the
         restricted stock awards are vested. Compensation recognized for options
         with tandem SARs and SARs for the years ended December 31, 1998, 1997
         and 1996 was $858 million, $485 million and $(14 million),
         respectively. Compensation recognized for restricted stock awards for
         the years ended December 31, 1998, 1997 and 1996 was $8 million, $3
         million and $1 million, respectively. Had the Company accounted for its
         stock based compensation pursuant to the fair value based accounting
         method in SFAS 123, the Company's net earnings (loss) and net earnings
         (loss) per share would have changed to the pro forma amounts indicated
         below (amounts in millions, except per share amounts):

<TABLE>
<CAPTION>
                                                                         1998        1997      1996
                                                                         ----        ----      ----
<S>                                                                     <C>       <C>         <C>
         Pro forma net earnings (loss) attributable to common
             stockholders                                               $ 1,902      (608)      256

         Pro forma basic net earnings (loss) attributable to
             common stockholders per common share

               TCI Group Series A and Series B                          $  (.46)     (.86)    (1.20)
               Liberty Media Group Series A and Series B                $   .43       .34      2.82
               TCI Ventures Group Series A and Series B                 $  4.71      (.47)       --

         Pro forma diluted net earnings (loss) attributable to common
             stockholders per common and potential common share

               TCI Group Series A and Series B                          $  (.49)     (.86)    (1.20)
               Liberty Media Group Series A and Series B                $   .39       .31      2.58
               TCI Ventures Group Series A and Series B                 $  4.41      (.47)       --
</TABLE>


                                                                     (continued)



                                     II-101
<PAGE>   156

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          Treasury Stock and Common Stock Held by Subsidiaries, at Cost

<TABLE>
<CAPTION>
                                                           December 31, 1998            December 31, 1997
                                                     ---------------------------    -------------------------
                                                       Number of                    Number of
                                                        shares      Cost basis       shares       Cost basis
                                                     ------------  ------------     ----------   ------------
                                                                  (dollar amounts in millions)
<S>                                                   <C>          <C>              <C>          <C>         

         Treasury stock is summarized as follows:
               TCI Group Series A Stock               11,362,365   $        182     11,296,324   $        180
               TCI Group Series B Stock                  330,902              7     30,876,766            518
               Liberty Group Series A Stock           25,561,455            505     25,082,172            489
               Liberty Group Series B Stock               82,074              2         82,074              2
               TCI Ventures Group Series A Stock          61,450              1             --             --
               TCI Ventures Group Series B Stock         432,196              5        338,196              4
         Common stock held by subsidiaries is
           summarized as follows:
               TCI Group Series A Stock              125,728,816            466    125,645,656            464
               TCI Group Series B Stock                9,154,134            161      9,112,500            160
               Liberty Group Series A Stock            6,654,367            113      6,654,367            113
               Liberty Group Series B Stock            3,417,187             61      3,417,187             61
                                                                   ------------                  ------------
                                                                   $      1,503                  $      1,991
                                                                   ============                  ============
</TABLE>

         In conjunction with the AT&T Merger, such shares held in treasury and
         such shares held by subsidiaries were canceled. See note 2.


                                                                     (continued)



                                     II-102


<PAGE>   157
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         General

         During the fourth quarter of 1997, the Company entered into a total
         return equity swap facility (the "Equity Swap Facility"). Pursuant to
         the Equity Swap Facility, the Company would have the right to direct
         the counterparty (the "Counterparty") to use the Equity Swap Facility
         to purchase shares ("Equity Swap Shares") of TCI Group Series A Stock
         and TCI Ventures Group Series A Stock with an aggregate purchase price
         of up to $300 million. The Company would have the right, but not the
         obligation, to purchase Equity Swap Shares through the September 30,
         2000 termination date of the Equity Swap Facility. During such period,
         the Company would settle periodically any increase or decrease in the
         market value of the Equity Swap Shares. If the market value of the
         Equity Swap Shares should exceed the Counterparty's cost, Equity Swap
         Shares with a fair value equal to the difference between the market
         value and cost would be segregated from the other Equity Swap Shares.
         If the market value of Equity Swap Shares should be less than the
         Counterparty's cost, the Company, at its option, would settle such
         difference with shares of TCI Group Series A Stock or TCI Ventures
         Group Series A Stock or, subject to certain conditions, with cash or
         letters of credit. In addition, the Company would be required to
         periodically pay the Counterparty a fee equal to a LIBOR-based rate on
         the Counterparty's cost to acquire the Equity Swap Shares. Due to the
         Company's ability to issue shares to settle periodic price fluctuations
         and fees under the Equity Swap Facility, the Company records all
         amounts received or paid under this arrangement as increases or
         decreases, respectively, to equity. As of December 31, 1998, the Equity
         Swap Facility had acquired 4,935,780 shares of TCI Group Series A Stock
         and 1,171,800 shares of TCI Ventures Group Series A Stock at an
         aggregate cost that was approximately $135 million less than the fair
         value of such Equity Swap Shares at December 31, 1998. From February
         10, 1999 to March 5, 1999, the Company terminated all transactions
         under the Equity Swap Facility and the related swap agreement. In
         connection with the termination of such transactions the Company
         received an aggregate cash payment of $170 million.

         At December 31, 1998, there were 99,890,031 shares of TCI Group Series
         A Stock, 55,828,238 shares of Liberty Group Series A Stock, 33,009,606
         shares of TCI Ventures Group Series A Stock and 2,800,000 shares of TCI
         Ventures Group Series B Stock reserved for issuance under exercise
         privileges related to options, convertible debt securities and
         convertible preferred stock. Also, one share of Series A Stock is
         reserved for each share of Series B Stock. Additionally, at December
         31, 1998, subsidiaries of TCI owned an aggregate of 278,307 shares of
         Series F Preferred Stock. In connection with a restructuring, 123,896
         shares of Series F Preferred Stock were converted into 185,428,946
         shares of TCI Group Series A Stock and the remaining 154,411 shares of
         Series F Preferred Stock were canceled. See note 2.


                                                                     (continued)



                                     II-103
<PAGE>   158
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(16)     Other Comprehensive Earnings

         Accumulated other comprehensive earnings included in the Company's
         consolidated balance sheets and consolidated statements of
         stockholders' equity reflect the aggregate of foreign currency
         translation adjustments and unrealized holding gains and losses on
         securities classified as available-for-sale. The change in the
         components of accumulated other comprehensive earnings, net of taxes,
         is summarized as follows:

<TABLE>
<CAPTION>
                                                          Foreign             Unrealized           Accumulated
                                                          currency               gains                other
                                                         translation          (losses) on         comprehensive
                                                         adjustments          securities            earnings
                                                       ---------------       --------------     -----------------
                                                                          amounts in millions
<S>                                                    <C>                   <C>                <C>
         Balance at January 1, 1996                      $          (9)                 338                   329
         Other comprehensive earnings (loss)                        35                 (323)                 (288)
                                                         -------------       --------------     -----------------
                                                         
         Balance at December 31, 1996                               26                   15                    41
         Other comprehensive earnings (loss)                       (22)                 753                   731
                                                         -------------       --------------     -----------------
                                                         
         Balance at December 31, 1997                                4                  768                   772
         Other comprehensive earnings                                2                2,975                 2,977
                                                         -------------       --------------     -----------------
                                                         
         Balance at December 31, 1998                    $           6                3,743                 3,749
                                                         =============       ==============     =================
</TABLE>


                                                                     (continued)



                                     II-104
<PAGE>   159
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The components of other comprehensive earnings are reflected in the
         Company's consolidated statements of operations and comprehensive
         earnings, net of taxes and reclassifications adjustments for gains
         realized in net earnings (loss). The following table summarizes the tax
         effects and reclassification adjustments related to each component of
         other comprehensive earnings.

<TABLE>
<CAPTION>
                                                                                       Tax
                                                                 Before-tax          (expense)            Net-of-tax
                                                                   amount             benefit               amount
                                                                -------------      --------------      ---------------
                                                                                  amounts in millions
<S>                                                             <C>                <C>                 <C>
         Year ended December 31, 1998:
         Foreign currency translation adjustments               $           3                  (1)                   2
                                                                -------------      --------------      ---------------
         Unrealized gains on securities:
             Unrealized holding gains arising during period             4,889              (1,912)               2,977
             Less: reclassification adjustment for gains
                realized in net earnings                                   (4)                  2                   (2)
                                                                -------------      --------------      ---------------
             Net unrealized gains                                       4,885              (1,910)               2,975
                                                                -------------      --------------      ---------------
         Other comprehensive earnings                           $       4,888              (1,911)               2,977
                                                                =============      ==============      ===============
         Year ended December 31, 1997:
         Foreign currency translation adjustments               $         (34)                 12                  (22)
                                                                -------------      --------------      ---------------
         Unrealized gains on securities:
             Unrealized holding gains arising during period             1,236                (483)                 753
             Less: reclassification adjustment for gains
                realized in net earnings                                   --                  --                   --
                                                                -------------      --------------      ---------------
             Net unrealized gains                                       1,236                (483)                 753
                                                                -------------      --------------      ---------------
         Other comprehensive earnings                           $       1,202                (471)                 731
                                                                =============      ==============      ===============
         Year ended December 31, 1996:
         Foreign currency translation adjustments               $          54                 (19)                  35
                                                                -------------      --------------      ---------------
         Unrealized gains on securities:
             Unrealized holding gains arising during period                67                 (26)                  41
             Less: reclassification adjustment for gains
                realized in net earnings                                 (598)                234                 (364)
                                                                -------------      --------------      ---------------
             Net unrealized gains                                        (531)                208                 (323)
                                                                -------------      --------------      ---------------
         Other comprehensive earnings                           $        (477)                189                 (288)
                                                                =============      ==============      ===============
</TABLE>



                                                                     (continued)



                                     II-105
<PAGE>   160
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(17)     Transactions with Officers and Directors

         On June 16, 1997, (a) the Company issued 30,545,864 shares of TCI Group
         Series A Stock (which shares are entitled to one vote per share) to the
         Estate of Bob Magness (the "Magness Estate"), the late founder and
         former Chairman of the Board of TCI in exchange (the "Exchange") for an
         equal number of shares of TCI Group Series B Stock (which shares are
         entitled to ten votes per share) owned by the Magness Estate, (b) the
         Magness Estate sold (the "Sale") the shares of TCI Group Series A Stock
         received in the Exchange, together with approximately 1.5 million
         shares of TCI Group Series A Stock that the Magness Estate previously
         owned (collectively, the "Option Shares"), to two investment banking
         firms (the "Investment Bankers") for approximately $530 million (the
         "Sale Price") and (c) TCI entered into an agreement with the Investment
         Bankers whereby TCI would have the option, but not the obligation, to
         purchase the Option Shares at any time on or before June 16, 1999 (the
         "Option Period"). The preceding transactions are referred to
         collectively as the "June 16 Stock Transaction". During the Option
         Period, the Company and the Investment Bankers would settle quarterly
         any increase or decrease in the market value of the Option Shares. If
         the market value of the Option Shares should exceed the Investment
         Bankers' cost, Option Shares with a fair value equal to the difference
         between the market value and cost would be segregated from the other
         Option Shares in an account at the Investment Bankers. If the market
         value of the Option Shares should be less than the Investment Bankers'
         cost, the Company, at its option, would settle such difference with
         shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock
         or, subject to certain conditions, with cash or letters of credit. In
         addition, the Company would be required to pay the Investment Bankers a
         quarterly fee equal to LIBOR plus 1% on the Sale Price, as adjusted for
         payments made by the Company pursuant to any quarterly settlement with
         the Investment Bankers. Due to the Company's ability to settle
         quarterly price fluctuations and fees with shares of TCI Group Series A
         Stock or TCI Ventures Group Series A Stock, the Company records all
         amounts received or paid under this arrangement as increases or
         decreases, respectively, to equity. During the fourth quarter of 1997,
         the Company repurchased 4 million shares of TCI Group Series A Stock
         from one of the Investment Bankers for an aggregate cash purchase price
         of $66 million. Additionally, as a result of the Exchange Offers and
         certain open market transactions that were completed to obtain the
         desired weighting of TCI Group Series A Stock and TCI Ventures Group
         Series A Stock, the Investment Bankers disposed of 4,210,308 shares of
         TCI Group Series A Stock and acquired 23,407,118 shares of TCI Ventures
         Group Series A Stock during the last half of 1997. As a result of the
         foregoing transactions and certain transactions related to the January
         5, 1998 settlement of litigation involving the Magness Estate, as
         described below, the Option Shares were comprised of 6,201,042 shares
         of TCI Group Series A Stock and 11,740,610 shares of TCI Ventures Group
         Series A Stock at December 31, 1998. At December 31, 1998, the market
         value of the Option Shares exceeded the Investment Bankers' cost by
         $421 million.

         Pursuant to a certain letter agreement, dated June 16, 1997, between
         Dr. Malone, TCI's Chairman and Chief Executive Officer, and the Magness
         Estate, Dr. Malone agreed to waive certain rights of first refusal with
         respect to shares of TCI Group Series B Stock beneficially owned by the
         Magness Estate. Such rights of first refusal arise from a letter
         agreement, dated June 17, 1988, among Bob Magness, Kearns-Tribune
         Corporation and Dr. Malone, pursuant to which Dr. Malone was granted a
         right of first refusal to acquire any shares of TCI Group Series B
         Stock which the other parties proposed to sell. As a result of Dr.
         Malone's rights under such June 17, 1988 letter agreement, such waiver
         was necessary in order for the Magness Estate to consummate the
         Exchange and the Sale.


                                                                     (continued)




                                     II-106
<PAGE>   161

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         In consideration for such waiver, TCI granted Dr. Malone the right (the
         "Malone Right") to acquire from time to time until June 30, 1999, from
         TCI up to 30,545,864 shares of the TCI Group Series B Stock acquired by
         TCI from the Magness Estate pursuant to the Exchange. Such acquisition
         may be made in exchange for either, or any combination of, shares of
         TCI Group Series A Stock owned by Dr. Malone (exchanged on a one for
         one basis), or cash in an amount equal to the average closing sale
         price of the TCI Group Series B Stock for the five trading days
         preceding the acquisition.

         In connection with certain legal proceedings relative to the probate of
         the Magness Estate, one or more of Gary Magness and Kim Magness, Bob
         Magness' sons, Sharon Magness, Bob Magness' surviving second wife and
         the original personal representatives of the Magness Estate advanced
         various claims, causes of action, demands, complaints and requests
         against one or more of the others. In addition, Kim Magness and Gary
         Magness, in a Complaint And Request To Void Sale Of TCI Stock, And For
         Damages And Surcharge, filed on October 29, 1997 (the "Voiding
         Action"), advanced various claims relating to the June 16 Stock
         Transaction against TCI, Dr. Malone and the original personal
         representatives of the Magness Estate. Among other matters, the Voiding
         Action challenged the June 16 Stock Transaction on various fiduciary
         bases and requested rescission of such transaction and damages.

         Pursuant to an agreement effective as of January 5, 1998, TCI, Gary
         Magness, Kim Magness, Sharon Magness, the Magness Estate, the Estate of
         Betsy Magness (the first wife of Bob Magness) and Dr. Malone agreed to
         settle their respective claims against each other relating to the
         Magness Estate and the June 16 Stock Transaction, in each case without
         any of those parties admitting any of the claims or allegations against
         that party (the "Magness Settlement").

         In connection with the Magness Settlement, portions of the Exchange and
         Sale were unwound such that (i) 10,201,041 shares of TCI Group Series A
         Stock and 11,666,506 shares of TCI Ventures Group Series A Stock were
         returned to TCI as authorized but unissued shares, (ii) the Magness
         Estate returned to the Investment Bankers the portion of the Sale Price
         attributable to such returned shares and (iii) the Magness Estate paid
         $11 million to TCI representing a reimbursement of the Exchange fees
         incurred by TCI from June 16, 1997 through February 9, 1998 with
         respect to such returned shares. TCI then issued to the Magness Estate
         10,017,145 shares of TCI Group Series B Stock and 12,034,298 shares of
         TCI Ventures Group Series B Stock. In addition, as part of the Magness
         Settlement, TCI issued 1,339,415 shares of TCI Group Series B Stock to
         the Estate of Betsy Magness in exchange for an equal number of shares
         of TCI Group Series A Stock and issued 1,531,834 shares of TCI Ventures
         Group Series B Stock for an equal number of shares of TCI Ventures
         Group Series A Stock.


                                                                     (continued)



                                     II-107
<PAGE>   162
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On February 9, 1998, in connection with the Magness Settlement, TCI
         entered into a call agreement (the "Malone Call Agreement") with Dr.
         Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"),
         under which the Malones granted to TCI the right to acquire any shares
         of TCI stock which are entitled to cast more than one vote per share
         (the "High-Voting Shares") owned by the Malones, which at December 31,
         1998 consisted of an aggregate of approximately 69 million High-Voting
         Shares upon Dr. Malone's death or upon a contemplated sale of the
         High-Voting Shares (other than a minimal amount) to third persons. In
         either such event, TCI has the right to acquire the shares at a maximum
         price equal to the then relevant market price of shares of "low-voting"
         Series A Stock plus a ten percent premium. The Malones also agreed that
         if TCI were ever to be sold to another entity, then the maximum premium
         that the Malones would receive on their High-Voting Shares would be no
         greater than a ten percent premium over the price paid for the relevant
         shares of Series A Stock. TCI paid $150 million to the Malones in
         consideration of their entering into the Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually and in certain
         cases, on behalf of the Estate of Betsy Magness and the Magness Estate
         (collectively, the "Magness Family") also entered into a call agreement
         with TCI (with substantially the same terms as the one entered into by
         the Malones, including a call on the shares owned by the Magness Family
         upon Dr. Malone's death) (the "Magness Call Agreement") on the Magness
         Family's, which at December 31, 1998 consisted of an aggregate of
         approximately 55 million High-Voting Shares. The Magness Family was
         paid $124 million by TCI in consideration of their entering into the
         Magness Call Agreement.


                                                                     (continued)



                                     II-108
<PAGE>   163
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Additionally, on February 9, 1998, the Magness Family entered into a
         Shareholders' Agreement (the "Shareholders' Agreement") with the
         Malones and TCI under which (i) the Magness Family and the Malones
         agree to consult with each other in connection with matters to be
         brought to the vote of TCI's stockholders, subject to the proviso that
         if they cannot mutually agree on how to vote the shares, Dr. Malone has
         an irrevocable proxy to vote the High-Voting Shares owned by the
         Magness Family, (ii) the Magness Family may designate a nominee for the
         Board and Dr. Malone has agreed to vote his High-Voting Shares for such
         nominee and (iii) certain "tag along rights" have been created in favor
         of the Magness Family and certain "drag along rights" have been created
         in favor of the Malones. In addition, the Malone Right granted by TCI
         to Dr. Malone to acquire 30,545,864 shares of TCI Group Series B Stock
         was reduced to an option to acquire 14,511,570 shares of TCI Group
         Series B Stock. Pursuant to the terms of the Shareholders' Agreement,
         the Magness Family has the right to participate in the reduced Malone
         Right on a proportionate basis with respect to 12,406,238 shares of the
         14,511,570 shares subject to the Malone Right. On June 24, 1998, Dr.
         Malone delivered notice to TCI exercising his right to purchase
         (subject to the Magness Family proportionate right) up to 14,511,570
         shares of TCI Group Series B Stock at a per share price of $35.5875
         pursuant to the Malone Right. In addition, a representative of the
         Magness Family advised Dr. Malone that the Magness Family would
         participate in such purchase up to the Magness Family's proportionate
         right. On October 14, 1998, 8,718,770 shares of TCI Group Series B
         Stock were issued to Dr. Malone upon payment of cash consideration
         totaling $310 million. On October 16, 1998, 5,792,800 shares of TCI
         Group Series B Stock were issued to the Magness Family upon payment of
         cash consideration totaling $206 million. In connection with the
         acquisition of the TCI Group Series B Stock by Dr. Malone, TCI executed
         certain waivers to the Malone Call Agreement and TCI and the Magness
         Family executed a waiver to the Shareholders' Agreement to, among other
         things, permit (subject to certain limitations) the pledge of TCI Group
         Series B Stock owned by Dr. Malone as collateral to the lenders who
         provided the funds for his purchase of shares of TCI Group Series B
         Stock. In connection with the AT&T Merger, Liberty became entitled to
         exercise TCI's rights under each Call Agreement and the Shareholders'
         Agreement with respect to the AT&T Liberty Class B Tracking Stock
         acquired by the Malones and the Magness Family as a result of the AT&T
         Merger and the Malones and the Magness Family agreed that the
         Shareholders' Agreement would continue to apply to the AT&T Liberty
         Class B Tracking Stock.

         On February 1, 1999, the Company began to terminate the transactions
         under the agreements with the Investment Bankers described above, and
         as of March 5, 1999, such transactions were terminated. In connection
         with the termination of such transactions the Company received an
         aggregate cash payment of $509 million.

         After the Company's stockholders voted to approve the terms of the AT&T
         Merger, on February 17, 1999, the Board approved the payment by
         Liberty/Ventures Group of $1 million to each of two directors of the
         Company for their services on the Special Committee of the Company's
         Board in evaluating the AT&T Merger and the consideration to be
         received by the stockholders of the Company.


                                                                     (continued)



                                     II-109
<PAGE>   164
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Prior to the AT&T Merger, a limited liability company owned by Dr.
         Malone acquired, from certain subsidiaries of the Company, for $17
         million working cattle ranches located in Wyoming. No gain or loss was
         recognized on such acquisition. The purchase price was paid by such
         limited liability company was in the form of a 12-month note in the
         amount of $17 million having an interest rate of 7%. Such note is
         payable at any time without penalty and is personally guaranteed by Dr.
         Malone.

         On April 30, 1998, TCI ICM VI, Inc., a subsidiary of the Company,
         acquired a 99.999% limited partnership interest in InterMedia Capital
         Management VI, L.P. ("ICM VI") from an individual who is an executive
         officer and a director of the Company, in exchange for (i) 153,183
         shares of Liberty Group Series B Stock (the "Liberty Shares") valued at
         $5 million and (ii) a .495% limited partnership interest in InterMedia
         Capital Partners VI, L.P. ("ICP VI") having a capital account of $1
         million (the "InterMedia VI Transaction"). Such individual acquired his
         partnership interest in ICM VI in July 1996 for $10,000. On the
         InterMedia VI Transaction closing date, the .001% general partnership
         interest in ICM VI was held by InterMedia Management, Inc. ("IMI"), a
         corporation all of the stock of which is owned by a former officer of
         the Company. The other partnership interests in ICP VI are held by TCI
         IP-VI, LLC, a wholly owned subsidiary of the Company (49.005% limited
         partnership interest), Blackstone Cable Acquisition Company, LLC or its
         affiliates (49.500% limited partnership interest), ICM VI (.999%
         limited partnership interest), and InterMedia Capital Management VI,
         LLC, an entity of which IMI is the sole member (.001% general
         partnership interest).

         On August 5, 1998, a then director of the Company paid $1.8 million to
         purchase, at fair value, the Company's interest in General
         Communication, Inc.

         On December 10, 1998, the Board approved the grant to a director of the
         Company of 250,000 restricted shares of TCI Group Series A Stock
         contingent upon the consummation of the AT&T Merger. In addition,
         Liberty paid such director $10 million immediately prior to the AT&T
         Merger for his services in negotiating the merger agreement with AT&T
         and completing the AT&T Merger.

         On September 25, 1997, certain subsidiaries of the Company entered into
         an Asset Contribution Agreement with, among others, Fisher
         Communications Associates, L.L.C. ("Fisher Communications"), a Colorado
         limited liability company, controlled by a then director of the
         Company. On January 15, 1998, pursuant to the agreement, the cable
         television assets of the applicable cable systems of the Company were
         contributed to Peak Cablevision in exchange for a 66.7% partnership
         interest in Peak Cablevision. Additionally, cable television assets of
         Fisher Communications were contributed in 1998 in exchange of a 33.3%
         interest in Peak Cablevision. In connection with the formation of Peak
         Cablevision, the Company contributed approximately 87,000 customers
         passing 136,500 homes and Fisher Communications contributed
         approximately 27,000 customers passing 42,100 homes. The Company
         contributed debt amounting to $93 million and Fisher Communications
         contributed debt amounting to $19 million.

         On July 23, 1997, Dr. Malone acquired from the Company an aggregate of
         7,296,324 shares of TCI Group Series B Stock and 3,417,187 shares of
         Liberty Group Series B Stock, in exchange for a like number of shares
         of TCI Group Series A Stock and Liberty Group Series A Stock,
         respectively, held by such executive officer and director.

                                                                     (continued)


                                     II-110
<PAGE>   165
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On July 24, 1997, the Company repurchased 219,937 shares of Liberty
         Group Series A Stock from the spouse of Dr. Malone at an aggregate cost
         of approximately $4 million.

         On June 10, 1997 (the "IP Phase I Closing Date"), the Company issued
         139,513 shares of TCI Group Series B Stock (the "IP I Shares") to the
         IP Series B Trust I ("Trust"). An executive officer who is also a
         director of the Company is the trustee of the Trust. The IP I Shares
         were issued in connection with a partial closing under two Partnership
         Interest Purchase Agreements both dated as of June 10, 1997 (the "IP-I
         and IP-III Purchase Agreements"), pursuant to which the Company
         acquired on the IP Phase I Closing Date (a) a 99.998% limited
         partnership interest in InterMedia Capital Management III, L.P., (b) a
         75% limited partnership interest in InterMedia CM - LP, and (c) a
         99.998% limited partnership interest in InterMedia Capital Management,
         L.P. in exchange for total consideration of the IP I Shares and cash
         and assumption of current liabilities in an aggregate amount of $6
         million. As a result of such transactions the Company increased its
         direct and indirect ownership of the limited partnership interests of
         InterMedia Partners, a California limited partnership, from
         approximately 53.6% to 54.7% and obtained the right to receive an
         administrative fee from InterMedia Partners and the right to receive a
         20% overriding interest on any distributions in excess of the partners'
         capital contributions. In light of such increased ownership interests
         and rights and the January 1, 1998 consummation of a transaction in
         which InterMedia Partners acquired substantially all of the equity
         interests held by partners other than TCI, the Company retroactively
         adopted the equity method of accounting for its investment in
         InterMedia Partners for all periods ended prior to January 1, 1998. On
         January 1, 1998, the Company began consolidating its investment in
         InterMedia Partners. InterMedia Partners, InterMedia IV and ICM IV are
         all managed by the same management group. See note 6.

         On August 5, 1997 (the "IP Phase II Closing Date"), the Company issued
         2,405,942 shares of TCI Group Series B Stock (the "IP II Shares") to
         the IP Series B Trust II ("Trust II"). An executive officer who is also
         a director of the Company is the trustee of the Trust II. The IP II
         Shares were issued in connection with the closing under the Partnership
         Interest Purchase Agreement dated as of August 5, 1997, and a partial
         and final closing under the IP-I and IP-III Purchase Agreements,
         pursuant to which the Company acquired on the IP Phase II Closing Date
         a 99.997% limited partnership interest in ICM IV and an additional
         .001% limited partnership interest in InterMedia Capital Management,
         L.P. in exchange for total consideration of the IP II Shares and $4.8
         million in cash and TCI's assumption of liabilities in an aggregate
         amount of $18 million. See note 6.

         In connection with the three Partnership Interest Purchase Agreements,
         a director of the Company received a consulting fee in the amount of
         $400,000 in cash and 31,030 shares of TCI Group Series B Stock and the
         son of a director of the Company received an advisory fee in the amount
         of 36,364 shares of TCI Group Series B Stock.


                                                                     (continued)



                                     II-111
<PAGE>   166
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On January 27, 1999, the Company announced the planned acquisition by
         Charter Communications ("Charter") and TCI of certain cable television
         systems owned by InterMedia IV and InterMedia Partners. Charter will
         pay consideration consisting of cash and cable television systems for
         the systems its acquires from InterMedia IV. TCI will acquire certain
         other cable systems in a non-cash transaction. Upon the consummation of
         the transactions described above, TCI will own all of the partnership
         interests in InterMedia IV and InterMedia Partners. The transactions
         are subject to the negotiation and signing of definitive documents and
         various closing conditions.

         An individual who is a director and executive officer of TCI, currently
         has a .001% special limited partnership interest in ICM IV, which in
         turn has a 1.19% limited partnership interest in InterMedia IV. Such
         individual's special limited partnership interest in ICM IV was created
         in August 1997 in connection with TCI's acquisition of all of the
         partnership interests (other than a .002% general partnership interest
         and a .001% special limited partnership interest) in ICM IV. Such
         individual also indirectly owns a minimal interest in InterMedia
         Partners. In connection with the proposed transaction described above,
         it is anticipated that such individual, by virtue of his .001% special
         limited partnership interest in ICM IV, will participate in a profit
         sharing mechanism of InterMedia IV and receive cash consideration based
         on the valuation of InterMedia IV in the transaction described above.
         Although the amount of such consideration is uncertain at this time,
         its is expected that such consideration will be approximately $10
         million. In the transaction described above, it is expected that such
         individual will receive less than $50,000 for his indirect interest in
         InterMedia Partners.

         In connection with the July 1997 Kearns-Tribune merger (see note 10),
         the former Chairman of the Board of Kearns-Tribune who was also a
         director of TCI (the "Former Kearns-Tribune Chairman") received (i) a
         cash payment of $1.6 million and (ii) an assignment of all of
         Kearns-Tribune right, title and interest in and to all patented mining
         claims owned by Kearns-Tribune, including but not limited to royalties,
         buildings, fixtures, surface rights, licenses and contracts related
         thereto, which patented mining claims are valued at $438,000. With
         respect to the assignment of the mining claims, the Former
         Kearns-Tribune Chairman agreed to assume all liabilities with respect
         thereto and agreed to indemnify Kearns-Tribune for any and all
         liabilities of Kearns-Tribune, if any, relating to the mining claims,
         including those arising from past operations. As of December 31, 1997,
         Kearns-Tribune had made the cash payment to the Former Kearns-Tribune
         Chairman. As of November 11, 1998, Kearns-Tribune completed the
         transfers of the mining claims to a corporation designated by the
         Former Kearns-Tribune Chairman.

         Also in connection with the Kearns-Tribune Merger, Silver King Group
         L.L.C. ("SKG"), which is owned and controlled by a director of TCI,
         entered into an agreement with Kearns-Tribune to purchase assets
         consisting primarily of land, oil and gas royalties and patents for
         $10.87 million. On November 30, 1997 such purchase was consummated and
         SKG paid Kearns-Tribune $9.5 million of the $10.87 million purchase
         price in cash and the remainder of such purchase price in the form of a
         non-interest bearing promissory note. As of March 10, 1999, $1,318,000
         of such note remains outstanding.


                                                                     (continued)


                                     II-112
<PAGE>   167
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On March 4, 1997, Dr. Malone received an advance from a wholly-owned
         subsidiary of the Company in the amount of $6 million. On March 5,
         1997, Dr. Malone received a second advance from a wholly-owned
         subsidiary of the Company in the amount of $6 million. The terms of the
         advances were memorialized by a promissory note. The interest rate on
         such loans is 1% over the one-month LIBOR rate compounded annually. Dr.
         Malone used the proceeds of the advance to purchase shares of Satellite
         Series A Common Stock. On February 9, 1998, Dr. Malone repaid the $12
         million promissory note balance and accrued interest in the amount of
         $723,000.

         On the date of the Satellite Spin-off, the Company granted options to
         two of its then executive officers and a key employee of TCIC to
         acquire an aggregate of 1,660,190 shares of Satellite Series A Common
         Stock. The exercise price for each such option is equal to $8.86 per
         share. Such options vest 20% per annum beginning February 1, 1997 and
         expire on February 1, 2006.

         Effective January 31, 1996, a then director of the Company purchased
         one-third of the Company's interest in two limited partnerships and
         obtained two ten-year options to purchase the Company's remaining
         partnership interests. The purchase price for the one-third partnership
         interests was 37.209 shares of WestMarc Communications, Inc.
         ("WestMarc", a wholly-owned subsidiary of the Company) 12% Series C
         Cumulative Compounding Preferred Stock owned by such director, and the
         purchase price for the ten-year options was $100 for each option. All
         options were exercised during the first quarter of 1998. The aggregate
         exercise price of $3 million was satisfied with five non-interest
         bearing promissory notes that are due and payable to the Company in
         2006.

         On July 1, 1996, pursuant to a Restricted Stock Award Agreement, a then
         executive officer of TCI was transferred all of TCI's right title and
         interest in and to 62 shares of the 12% Series C Cumulative Compounding
         Preferred Stock of WestMarc owned by TCI. Such preferred stock has a
         liquidation value of $1,999,500 and is subject to forfeiture by such
         former officer in the event of certain circumstances from the date of
         grant through December 13, 2005.

(18)     At Home Corporation

         On January 19, 1999, @Home entered into a merger agreement with Excite,
         Inc. ("Excite"), a global internet media company that offers consumers
         and advertisers comprehensive internet navigation services with
         extensive personalization capabilities. Under the terms of the merger
         agreement, @Home will issue approximately 55 million shares of its
         common stock for all of the outstanding common stock of Excite based on
         an exchange ratio of 1.041902 shares of @Home's common stock for each
         share of Excite's common stock. @Home may issue up to approximately 15
         million additional shares of common stock in connection with the
         assumption of obligations under Excite's stock option and employer
         stock purchase plans and outstanding warrants. @Home will account for
         the transaction as a purchase. @Home's preliminary estimate of the
         total purchase consideration is approximately $7 billion, based on the
         fair value at the time of announcement of the merger, of common stock
         to be issued and stock option, stock purchase plan and warrant
         obligations assumed, plus estimated transaction costs. As a result of
         the proposed merger, TCI's economic interest in @Home would decrease
         from 38.8% to 26.5%, which economic interest would represent an
         approximate 58% voting interest. The merger is subject to several
         conditions, including approval by both companies' stockholders and the
         expiration of applicable waiting periods under certain antitrust laws.




                                                                     (continued)


                                     II-113
<PAGE>   168
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         During 1998, @Home completed a public offering (the "@Home Offering")
         in which 2.9 million shares of @Home common stock were sold for net
         cash proceeds of approximately $125 million. In connection with the
         @Home Offering, TCI paid $37 million to purchase 800,000 shares of
         @Home common stock. Additionally, @Home issued 1.2 million shares of
         common stock in certain acquisitions, along with the assumption of
         options to purchase @Home's common stock. As a result of these stock
         issuances, TCI's economic interest in @Home decreased to 38.8%, which
         then represented an approximate 70.88% voting interest. As a result of
         the increase in @Home's equity in connection with such stock issuances,
         net of the dilution of TCI's ownership interest in @Home, TCI
         recognized a gain of $51 million.

         In April 1997, @Home issued 240,000 shares of convertible preferred
         stock, resulting in cash proceeds of $48 million, less issuance costs.
         On July 11, 1997, @Home completed its initial public offering (the
         "@Home IPO"), in which 10.4 million shares of @Home common stock were
         sold for net cash proceeds of approximately $100 million. As a result
         of the @Home IPO, TCI's economic interest in @Home decreased from 43%
         to 39%, which economic interest then represented an approximate 72%
         voting interest. In connection with the increase in @Home's equity, net
         of the dilution of TCI's ownership interest in @Home, TCI recognized a
         gain of $60 million during the third quarter of 1997.

         In 1997, @Home entered into an exclusive distribution agreement with
         CSC. In connection with such agreement, CSC was issued a warrant to
         purchase up to 7.9 million shares of @Home's Series A common stock at
         an exercise price of $0.50 per share (the "Warrant"), which was
         immediately exercisable. In 1997, @Home recorded the $173 million fair
         value of the Warrant as an intangible asset which is being amortized
         ratably over 56 months. The agreement with CSC also provided for the
         issuance of an additional warrant to CSC to purchase up to 3.1 million
         shares of @Home's Series A common stock at an exercise price of $0.50
         per share under certain circumstances (the "Contingent Warrant").
         During 1998, the Contingent Warrant became exercisable for 2.4 million
         shares of @Home's Series A common stock and @Home recorded the $74
         million fair value of the exercisable portion of the Contingent Warrant
         as an intangible asset which is being amortized ratably over 51 months.

         During 1998, @Home issued performance-based warrants to certain cable
         operators to purchase up to 10.3 million shares of @Home Series A
         common stock at an exercise price of $10.50 per share. Warrants to
         purchase approximately 920,000 shares of @Home's Series A common stock
         became exercisable in 1998. @Home recorded non-cash charges to
         operations of $50 million for the fair value of these warrants. Such
         charges are included in cost of distribution agreements in the
         accompanying consolidated statements of operations and comprehensive
         earnings. In the event the performance milestones are met with respect
         to the remaining unexercisable performance-based warrants, @Home will
         record non-cash charges to operations in future periods based on the
         difference between the then fair market value of @Home's Series A
         common stock and the exercise price of $10.50 per share.

                                                                     (continued)



                                     II-114
<PAGE>   169
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(19)     Income Taxes

         TCI files a consolidated federal income tax return with all of its
         80%-or-more owned subsidiaries. Consolidated subsidiaries in which the
         Company owns less than 80% each file a separate income tax return. TCI
         and such subsidiaries calculate their respective tax liabilities on a
         separate return basis which are combined in the accompanying
         consolidated financial statements.

         Income tax benefit (expense) for the years ended December 31, 1998,
         1997 and 1996 consists of:

<TABLE>
<CAPTION>
                                                Current         Deferred          Total
                                               ----------      ----------      ----------
                                                            amounts in millions
<S>                                            <C>             <C>             <C>    
             Year ended December 31, 1998:
               Federal                         $     (115)         (1,244)         (1,359)
               State and local                        (19)           (217)           (236)
                                               ----------      ----------      ----------

                                               $     (134)         (1,461)         (1,595)
                                               ==========      ==========      ==========
             Year ended December 31, 1997:
               Federal                         $      (10)            264             254
               State and local                        (31)             11             (20)
                                               ----------      ----------      ----------

                                               $      (41)            275             234
                                               ==========      ==========      ==========
             Year ended December 31, 1996:
               Federal                         $      (25)           (184)           (209)
               State and local                        (13)            (49)            (62)
                                               ----------      ----------      ----------

                                               $      (38)           (233)           (271)
                                               ==========      ==========      ==========
</TABLE>


         Income tax benefit (expense) differs from the amounts computed by
         applying the federal income tax rate of 35% as a result of the
         following:

<TABLE>
<CAPTION>
                                                                       Years ended December 31,
                                                              ------------------------------------------
                                                                 1998            1997            1996
                                                              ----------      ----------      ----------
                                                                               amounts in millions
<S>                                                           <C>             <C>             <C>  
             Computed "expected" tax benefit (expense)        $   (1,238)            278            (197)
             Amortization not deductible for tax purposes            (37)            (27)            (22)
             Minority interest in losses (earnings)of
                 consolidated subsidiaries                            32              27              (3)
             Gain on sale of subsidiary stock                         31              21              --
             State and local income taxes, net of federal
                 income tax benefit                                 (153)             (5)            (50)
             Increase in valuation allowance                         (43)            (26)            (24)
             Settlement of tax contingencies                         (99)             --              --
             Effect of deconsolidations on deferred taxes            (34)             --              --
             Other                                                   (54)            (34)             25
                                                              ----------      ----------      ----------

                                                              $   (1,595)            234            (271)
                                                              ==========      ==========      ==========
</TABLE>


                                                                     (continued)




                                     II-115
<PAGE>   170

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The tax effects of temporary differences that give rise to significant
         portions of the deferred tax assets and deferred tax liabilities at
         December 31, 1998 and 1997 are presented below:

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                           --------------------------
                                                                             1998             1997
                                                                           ----------      ----------
                                                                              amounts in millions
<S>                                                                        <C>             <C>
             Deferred tax assets:
                 Net operating loss carryforwards                          $      853             920
                   Less - valuation allowance                                    (227)           (183)
                 Investment tax credit carryforwards                               74             117
                   Less - valuation allowance                                     (40)            (41)
                 Alternative minimum tax credit carryforwards                     153              95
                 Gains deferred for financial statement purposes                  210              --
                 Future deductible amount attributable to accrued
                   stock appreciation rights and deferred compensation            387             132
                 Future deductible amounts principally due to
                   non-deductible accruals                                        133             150
                 Other                                                             20               5
                                                                           ----------      ----------

                      Net deferred tax assets                                   1,563           1,195
                                                                           ----------      ----------

             Deferred tax liabilities:
                 Property and equipment, principally due to
                   differences in depreciation                                  1,099           1,295
                 Franchise costs, principally due to differences in
                   amortization                                                 3,429           4,354
                 Investment in affiliates, due principally to
                   undistributed earnings of affiliates                         6,455           1,277
                 Deferred intercompany gains                                      151             181
                 Other                                                            178             192
                                                                           ----------      ----------
                      Total gross deferred tax liabilities                     11,312           7,299
                                                                           ----------      ----------

                      Net deferred tax liability                           $    9,749           6,104
                                                                           ==========      ==========
</TABLE>

         The valuation allowance for deferred tax assets as of December 31,  
         1998 and 1997 was $267 million and $224 million, respectively.

         At December 31, 1998, the Company had net operating loss carryforwards
         for income tax purposes aggregating approximately $1,555 million of
         which, if not utilized to reduce taxable income in future periods, $3
         million expires in 2001, $69 million in 2002, $82 million in 2003, $66
         million in 2004, $332 million in 2005, $221 million in 2006, $267
         million in 2010, $226 million in 2011, $210 million in 2012 and $79
         million in 2013. Certain subsidiaries of the Company had additional net
         operating loss carryforwards for income tax purposes aggregating
         approximately $488 million and these net operating losses are subject
         to certain rules limiting their usage. In addition, certain
         subsidiaries of the Company file their own separate federal and state
         tax returns. These subsidiaries had additional net operating loss
         carryforwards aggregating approximately $94 million. These net
         operating losses are subject to certain rules limiting their usage.



                                                                     (continued)


                                     II-116
<PAGE>   171
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Upon consummation of the AT&T Merger, Liberty/Ventures Group became
         entitled to the benefit of net operating loss carryforwards available
         to the entities included in TCI's consolidated income tax return as of
         the date of the AT&T Merger. See note 2.

         At December 31, 1998, the Company had remaining available investment
         tax credits of approximately $63 million which, if not utilized to
         offset future federal income taxes payable, expire at various dates
         through 2005. Certain subsidiaries of the Company had additional
         investment tax credit carryforwards aggregating approximately $63
         million and these investment tax credit carryforwards are subject to
         certain rules limiting their usage.

         During 1998, TCI settled examinations by the IRS of certain federal
         income tax returns for the years 1983 through 1992. Certain of the
         federal income tax returns of TCI and its subsidiaries which filed
         separate income tax returns are presently under examination by the
         Internal Revenue Service (the "IRS") for the years 1993 through 1995
         (the "IRS Examinations"). In the opinion of management, any additional
         tax liability, not previously provided for, resulting from the IRS
         Examinations ultimately determined to be payable, should not have a
         material adverse effect on the consolidated financial position of the
         Company.

(20)     Commitments and Contingencies

         On October 5, 1992, the United States Congress enacted the Cable
         Television Consumer Protection and Competition Act of 1992 (the "1992
         Cable Act"). In 1993 and 1994, the FCC adopted certain rate regulations
         required by the 1992 Cable Act and imposed a moratorium on certain rate
         increases. As a result of such actions, the Company's basic and tier
         service rates and its equipment and installation charges (the
         "Regulated Services") are subject to the jurisdiction of local
         franchising authorities and the FCC. Basic and tier service rates are
         evaluated against competitive benchmark rates as published by the FCC,
         and equipment and installation charges are based on actual costs. Any
         rates for Regulated Services that exceeded the benchmarks were reduced
         as required by the 1993 and 1994 rate regulations. The rate regulations
         do not apply to the relatively few systems which are subject to
         "effective competition" or to services offered on an individual service
         basis, such as premium movie and pay-per-view services.

         The Company believes that it has complied in all material respects with
         the provisions of the 1992 Cable Act, including its rate setting
         provisions. However, the Company's rates for Regulated Services are
         subject to review by the FCC, if a complaint has been filed by a
         customer, or the appropriate franchise authority, if such authority has
         been certified by the FCC to regulate rates. If, as a result of the
         review process, a system cannot substantiate its rates, it could be
         required to retroactively reduce its rates to the appropriate benchmark
         and refund the excess portion of rates received. Any refunds of the
         excess portion of tier service rates would be retroactive to the date
         of complaint. Any refunds of the excess portion of all other Regulated
         Service rates would be retroactive to one year prior to the
         implementation of the rate reductions.



                                                                     (continued)


                                     II-117
<PAGE>   172
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company is obligated to pay fees for the rights to exhibit certain
         films that are released by various producers through 2017 (the "Film
         Licensing Obligations"). Based on customer levels at December 31, 1998,
         these agreements require minimum payments aggregating approximately
         $808 million. The aggregate amount of the Film Licensing Obligations
         under these license agreements is not currently estimable because such
         amount is dependent upon the number of qualifying films released
         theatrically by certain motion picture studios as well as the domestic
         theatrical exhibition receipts upon the release of such qualifying
         films. Nevertheless, required aggregate payments under the Film
         Licensing Obligations could prove to be significant.

         The Company is a party to affiliation agreements with programming
         suppliers. Pursuant to certain of such agreements, the Company is
         committed to carry such suppliers' programming on its cable systems.
         Additionally, certain of such agreements provide for penalties and
         charges in the event the programming is not carried or not delivered to
         a contractually specified number of customers.

         The Company is committed to purchase billing services from an
         unaffiliated third party pursuant to three successive five year
         agreements. Pursuant to such arrangement, the Company is obligated at
         December 31, 1998 to make minimum payments aggregating approximately
         $1.6 billion through 2012. Such minimum payments are subject to
         inflation and other adjustments pursuant to the terms of the underlying
         agreements.

         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $415 million at December 31, 1998. As described in note
         10, the Company also has provided certain credit enhancements with
         respect to obligations of the 1998 Joint Ventures. The Company also has
         guaranteed the performance of certain affiliates and other parties with
         respect to such parties' contractual and other obligations. Although
         there can be no assurance, management of the Company believes that it
         will not be required to meet its obligations under such guarantees, or
         if it is required to meet any of such obligations, that they will not
         be material to the Company.

         Subsequent to December 31, 1998, a subsidiary of the Company agreed to
         enter into a contribution agreement ("Contribution Agreement") with
         certain shareholders of Primestar, Inc. ("Primestar") pursuant to which
         the Company would, to the extent it is relieved of $166.3 million of
         contingent liabilities currently owed to certain creditors of Primestar
         and its subsidiaries, contribute $166.3 million to Primestar to the
         extent necessary to satisfy liabilities of Primestar. During the fourth
         quarter of 1998, the Company recorded a $90 million charge to provide
         for the estimated losses that are expected to result from the
         Contribution Agreement. The Company's obligation under the Contribution
         Agreement will expire in 2001.

         TINTA has guaranteed the obligation of an affiliate ("The Premium Movie
         Partnership") to pay fees for the license to exhibit certain films
         through 2000. Although the aggregate amount of The Premium Movie
         Partnership's license fee obligations is not currently estimable, TINTA
         believes that the aggregate payments pursuant to such obligations could
         be significant. If TINTA were to fail to fulfill its obligations under
         the guarantee, the beneficiaries have the right to demand an aggregate
         payment from TINTA of approximately $26 million. Although TINTA has not
         had to perform under such guarantee to date, TINTA cannot be certain
         that it will not be required to perform under such guarantee in the
         future. 


                                                                     (continued)


                                     II-118
<PAGE>   173
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company leases business offices, has entered into converter lease
         agreements, pole rental agreements, transponder lease agreements and
         uses certain equipment under lease arrangements. Rental expense under
         such arrangements amounted to $230 million, $212 million and $187
         million in 1998, 1997 and 1996, respectively.

         Future minimum lease payments under noncancellable operating leases for
         each of the next five years are summarized as follows (amounts in
         millions):

<TABLE>
<CAPTION>
                                      Years ending
                                      December 31,     
                                 ----------------------
<S>                                             <C>    
                                 1999           $   153
                                 2000               130
                                 2001               111
                                 2002                97
                                 2003                83
                                 Thereafter         309
</TABLE>

         It is expected that, in the normal course of business, expiring leases
         will be renewed or replaced by leases on other properties.

         Effective as of December 16, 1997, NDTC, a subsidiary of TCI, on behalf
         of TCIC and other cable operators that may be designated from time to
         time by NDTC ("Approved Purchasers"), entered into an agreement (the
         "Digital Terminal Purchase Agreement") with General Instrument
         Corporation ("GI") to purchase advanced digital set-top devices. The
         hardware and software incorporated into these devices are designed and
         manufactured to be compatible and interoperable with the OpenCable(TM)
         architecture specifications adopted by CableLabs, the cable television
         industry's research and development consortium, in November 1997. NDTC
         has agreed that Approved Purchasers will purchase, in the aggregate, a
         minimum of 6.5 million set-top devices during calendar years 1998, 1999
         and 2000 at an average price of $318 per set-top device. Through
         December 31, 1998, approximately 1.6 million set-top devices had been
         purchased pursuant to this commitment. GI agreed to provide NDTC and
         its Approved Purchasers the most favorable prices, terms and conditions
         made available by GI to any customer purchasing advanced digital
         set-top devices. In connection with NDTC's purchase commitment, GI
         agreed to grant warrants to purchase its common stock proportional to
         the number of devices ordered by each organization, which as of the
         effective date of the Digital Terminal Purchase Agreement, would have
         represented at least a 10% equity interest in GI (on a fully diluted
         basis). Such warrants vest as annual purchase commitments are met. On
         December 31, 1998, the Company vested in 4,928,000 warrants pursuant to
         such arrangements. Such warrants were recorded at their fair value of
         $64 million on such date resulting in a reduction in the basis of the
         set-top devices. Vested warrants are accounted for as
         available-for-sale securities in the Company's consolidated financial
         statements. NDTC has the right to terminate the Digital Terminal
         Purchase Agreement if, among other reasons, GI fails to meet a material
         milestone designated in the Digital Terminal Purchase Agreement with
         respect to the development, testing and delivery of advanced digital
         set-top devices.


                                                                     (continued)


                                     II-119
<PAGE>   174
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On July 17, 1998, the Company acquired 21.4 million shares of common
         stock of GI in exchange for (i) certain of the assets of NDTC's set-top
         authorization business, (ii) the license of certain related software to
         GI, (iii) a $50 million promissory note from the Company to GI, and
         (iv) a nine-year revenue guarantee from the Company in favor of GI. In
         connection therewith, NDTC also entered into a services agreement
         pursuant to which it will provide certain postcontract services to GI's
         set-top authorization business. The 21.4 million shares of GI common
         stock are, in addition to other transfer restrictions, restricted as to
         their sale by NDTC for a three year period, and represent approximately
         13% of the outstanding common stock of GI at December 31, 1998. The
         Company recorded its investment in such shares at fair value which
         included a discount attributable to the above-described liquidity
         restriction. The Company carries its investment in such shares at the
         lower of cost or net realizable value. The $346 million excess of the
         fair value of GI common stock received over (i) the book value of
         certain assets transferred from NDTC to GI, and (ii) the $42 million
         present value of the promissory note due from the Company to GI, has
         been deferred by the Company in the accompanying consolidated financial
         statements. A portion of such excess equal to the $160 million present
         value of the annual amounts specified by the revenue guarantee will be
         amortized to revenue over nine years in proportion to such annual
         guaranteed amounts. The remaining $186 million excess will be amortized
         to revenue on a straight-line basis over the nine-year period that NDTC
         is required to perform postcontract services.

         Certain key employees of the Company and members of the Board hold
         restricted stock awards, options and options with tandem SARs to
         acquire shares of certain subsidiaries' common stock. Estimates of the
         compensation related to SARs have been recorded in the accompanying
         consolidated financial statements pursuant to APB Opinion No. 25. Such
         estimates are subject to future adjustment based upon the market value
         of the respective common stock and, ultimately, on the final market
         value when the rights are exercised.

         Estimates of compensation relating to phantom stock appreciation rights
         granted to employees of a subsidiary of TCI have been recorded in the
         accompanying consolidated financial statements, but are subject to
         future adjustment based upon a valuation model derived from such
         subsidiary's cash flow, working capital and debt.

         The Company has contingent liabilities related to legal proceedings and
         other matters arising in the ordinary course of business. Although it
         is reasonably possible the Company may incur losses upon conclusion of
         such matters, an estimate of any loss or range of loss cannot be made.
         In the opinion of management, it is expected that amounts, if any,
         which may be required to satisfy such contingencies will not be
         material in relation to the accompanying consolidated financial
         statements.


                                                                     (continued)



                                     II-120
<PAGE>   175
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(21)     Year 2000

         During 1998, the Company continued its enterprise-wide, comprehensive
         efforts to assess and remediate its computer systems and related
         software and equipment to ensure such systems, software and equipment
         recognize, process and store information in the year 2000 and
         thereafter. The Company's year 2000 remediation efforts include an
         assessment of its most critical systems, such as customer service and
         billing systems, headends and other cable plant systems that support
         the Company's programming services, business support operations, and
         other equipment and facilities. The Company also continued its efforts
         to verify the year 2000 readiness of its significant suppliers and
         vendors and continued to communicate with significant business partners
         and affiliates to assess such partners and affiliates' year 2000
         status.

         The Company has a year 2000 Program Management Office (the "PMO") to
         organize and manage its year 2000 remediation efforts. The PMO is
         responsible for overseeing, coordinating and reporting on the Company's
         year 2000 remediation efforts.

         During 1998, the Company continued its survey of significant
         third-party vendors and suppliers whose systems, services or products
         are important to the Company's operations (e.g., suppliers of
         addressable controllers and set-top devices, and the provider of the
         Company's billing services). The year 2000 readiness of such providers
         is critical to continued provision of the Company's cable service.

         In addition to the survey process described above, management of the
         Company has identified its most critical supplier/vendor relationships
         and has instituted a verification process to determine the vendor's
         year 2000 readiness. Such verification includes, as deemed necessary,
         reviewing vendors' test and other data and engaging in regular
         conferences with vendors' year 2000 teams. The Company is also
         requiring testing to validate the year 2000 compliance of certain
         critical products and services.

         Significant market value is associated with the Company's investments
         in certain public and private corporations, partnerships and other
         businesses. Accordingly, the Company is monitoring the public
         disclosure of such publicly-held business entities to determine their
         year 2000 readiness. In addition, the Company has surveyed and
         monitored the year 2000 status of certain privately-held business
         entities in which the Company has significant investments.

         Year 2000 expenses and capital expenditures incurred during the year
         ended December 31, 1998 were $11 million and $2 million, respectively.
         Management of the Company currently estimates the remaining costs to be
         not less than $113 million, bringing the total estimated cost
         associated with the Company's year 2000 remediation efforts to be not
         less than $126 million (including $33 million for replacement of
         noncompliant information technology systems). Also included in this
         estimate is $14 million in future payments to be made pursuant to
         unfulfilled executory contracts or commitments with vendors for year
         2000 remediation services.


                                                                     (continued)



                                     II-121
<PAGE>   176
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The failure to correct a material year 2000 problem could result in an
         interruption or failure of certain important business operations. There
         can be no assurance that the Company's systems or the systems of other
         companies on which the Company relies will be converted in time or that
         any such failure to convert by the Company or other companies will not
         have a material adverse effect on its financial position, results of
         operations or cash flows.

(22)     Information about the Company's Operating Segments

         The Company has two reportable operating segments: domestic cable and
         communications services and domestic programming services. Domestic
         cable and communications services receives video, audio and data
         signals from various sources, and amplify and distribute the signals by
         coaxial cable and optical fiber to the premises of customers who pay a
         fee for the service. Domestic programming services are produced,
         acquired, and distributed, through all available formats and media,
         branded entertainment and informational programming and software,
         including multimedia products, delivered in both analog and digital
         form. The Company's domestic cable and communications services business
         and assets were included in TCI Group, and the Company's domestic
         programming business and assets were included in Liberty Media Group.
         The Company's principal international businesses and assets and the
         Company's remaining non-cable and non-programming domestic businesses
         and assets were included in TCI Ventures Group.

         The accounting policies of the segments are the same as those described
         in the summary of significant accounting policies. The Company
         evaluates performance based on a measure of operating cash flow
         (operating income before depreciation, amortization, other non-cash
         items, year 2000 costs, AT&T merger costs and stock compensation).
         Operating cash flow is a measure of value and borrowing capacity within
         the cable television industry and is not intended to be a substitute
         for cash flow provided by operating activities, a measure of
         performance prepared in accordance with generally accepted accounting
         principles, and should not be relied upon as such. The Company
         generally accounts for intersegment sales and transfers as if the sales
         or transfers were to third parties, that is, at current market prices.

         The Company's reportable segments are strategic business units that
         offer different products and services. They are managed separately
         because each segment requires different technology and marketing
         strategies.


                                                                     (continued)



                                     II-122
<PAGE>   177
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company utilizes the following financial information for purposes
         of making decisions about allocating resources to a segment and
         assessing a segment's performance:

<TABLE>
<CAPTION>

                                                  Domestic cable             Domestic
                                                 & communications           programming             All
                                                     services                services               other        Total
                                                 ------------------        -------------           -------       -----
                                                                      amounts in millions
<S>                                              <C>                       <C>                     <C>           <C>  
         Year ended December 31, 1998:
         Revenues from external customers
             including intersegment revenue        $        6,022                    680              947        7,649
         Intersegment revenue                                  --                    232               66          298
         Segment operating cash flow                        2,469                    100              143        2,712

         Year ended December 31, 1997:
         Revenues from external customers
             including intersegment revenue        $       6,429                     374              969        7,772
         Intersegment revenue                                 --                     173               29          202
         Segment operating cash flow                       2,766                      55              154        2,975

         Year ended December 31, 1996:
         Revenues from external customers
             including intersegment revenue        $        5,881                  1,339              926        8,146
         Intersegment revenue                                  --                    107               17          124
         Segment operating cash flow                        2,016                    164               96        2,276

         As of December 31, 1998
         Segment assets                            $       21,476                 10,181           10,630       42,287
         Investment in equity method
             investees                                      1,686                  1,979            1,708        5,373
         Expenditures for segment assets                    1,773                     19              125        1,917

         As of December 31, 1997
         Segment assets                            $       23,578                  5,039            3,934       32,551
         Investment in equity method
             investees                                        414                    524            2,113        3,051
         Expenditures for segment assets                      538                      4              167          709
</TABLE>


                                                                     (continued)



                                     II-123
<PAGE>   178
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         A reconciliation of reportable segment amounts to the Company's
consolidated balances is as follows:

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                               ---------------------------------------------
                                                                  1998             1997              1996
                                                               -----------      -----------      -----------
                                                                               amounts in millions
<S>                                                            <C>              <C>              <C>  
         Revenue

         Total revenue for reportable segments                 $     6,702            6,803            7,220
         Other revenue                                                 947              969              926
         Elimination of intersegment revenue                          (298)            (202)            (124)
                                                               -----------      -----------      -----------
                  Total consolidated revenue                   $     7,351            7,570            8,022
                                                               ===========      ===========      ===========

         Reconciliation of Operating Cash Flow to Earnings
              (Loss) Before Income Tax

         Total operating cash flow for reportable segments     $     2,569            2,821            2,180
         Other operating cash flow                                     143              154               96
         Other items excluded from operating cash flow:
                  Year 2000 costs                                      (11)              --               --
                  AT&T merger costs                                    (14)              --               --
                  Stock compensation                                  (866)            (488)              13
                  Reserve for loss arising from contingent
                     obligation                                        (90)              --               --
                  Cost of distribution agreements                      (50)              --               --
                  Impairment of assets                                  (5)             (15)              --
                  Restructuring charges                                 --               --              (41)
                  Depreciation                                      (1,121)          (1,077)          (1,093)
                  Amortization                                        (614)            (546)            (523)
                  Interest expense                                  (1,061)          (1,160)          (1,096)
                  Interest and dividend income                         122               88               64
                  Share of losses of affiliates, net                (1,384)            (930)            (450)
                  Loss on early extinguishment of debt                 (60)             (39)             (71)
                  Minority interest in earnings of
                     consolidated subsidiaries, net                    (88)            (154)             (56)
                  Gains on issuance of equity interests by
                     subsidiaries                                       89               60               --
                  Gains on issuance of stock by equity
                     investees                                         268              112               12
                  Gains on disposition of assets, net                5,760              401            1,593
                  Other, net                                           (49)             (22)             (65)
                                                               -----------      -----------      -----------
                     Earnings (loss) before income taxes       $     3,538             (795)             563
                                                               ===========      ===========      ===========
</TABLE>



                                                                     (continued)



                                     II-124
<PAGE>   179
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                                   As of December 31,
                                                               ----------------------------
                                                                  1998             1997
                                                               -----------      -----------
                                                                    amounts in millions
<S>                                                            <C>              <C>   
         Assets

         Total assets for reportable segments                  $    31,657           28,617
         Other segment assets                                       10,630            3,934
         Consolidating and eliminating adjustments                    (436)             (74)
                                                               -----------      -----------
                  Consolidated total                           $    41,851           32,477
                                                               ===========      ===========

         Other Significant Items

         Equity method investments for reportable segments     $     3,665              938
         Other equity method investments                             1,708            2,113
         Consolidating and eliminating adjustments                    (608)              12
                                                               -----------      -----------
                  Consolidated equity method investments       $     4,765            3,063
                                                               ===========      ===========

         Expenditures for reportable segment assets            $     1,792              542
         Other asset expenditures                                      125              167
                                                               -----------      -----------
                  Consolidated total asset expenditures        $     1,917              709
                                                               ===========      ===========
</TABLE>

         Substantially all revenue and assets of TCI's reportable segments are
         attributed to or located in the United States.

         The Company does not have a single external customer which represents
         10 percent or more of its consolidated revenues.


                                                                     (continued)



                                     II-125
<PAGE>   180
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(23)     Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                                             1st            2nd           3rd           4th
                                                                           Quarter        Quarter       Quarter       Quarter
                                                                           ---------     ---------     ---------     ---------
                                                                                           amounts in millions,
                                                                                          except per share data
<S>                                                                        <C>           <C>           <C>           <C>  
          1998:

               Revenue                                                     $   1,872         1,813         1,825         1,841
                                                                           =========     =========     =========     =========
               Operating income (loss)                                     $      43            39           241          (382)
                                                                           =========     =========     =========     =========
               Net earnings (loss)                                         $     346          (299)        1,340           556
                                                                           =========     =========     =========     =========

               Basic earnings (loss) attributable to common
                   stockholders per common share:

                     TCI Group Stock                                       $     .44          (.28)          .09          (.69)
                                                                           =========     =========     =========     =========
                     Liberty Group Stock                                   $     .85          (.18)         (.03)         (.20)
                                                                           =========     =========     =========     =========
                     TCI Ventures Group Stock                              $    (.46)         (.22)         3.07          2.35
                                                                           =========     =========     =========     =========

               Diluted earnings (loss) attributable to common
                   stockholders per common and potential common share:

                     TCI Group Stock                                       $     .38          (.28)          .08          (.70)
                                                                           =========     =========     =========     =========
                     Liberty Group Stock                                   $     .78          (.18)         (.03)         (.20)
                                                                           =========     =========     =========     =========
                     TCI Ventures Group Stock                              $    (.46)         (.22)         2.88          2.19
                                                                           =========     =========     =========     =========

          1997:

               Revenue                                                     $   1,821         1,882         1,934         1,933
                                                                           =========     =========     =========     =========
               Operating income                                            $     349           253           222            25
                                                                           =========     =========     =========     =========
               Net loss                                                    $     (58)         (154)          (22)         (327)
                                                                           =========     =========     =========     =========

               Basic earnings (loss) attributable to common
                   stockholders per common share:

                     TCI Group Stock                                       $    (.12)         (.25)         (.34)         (.11)
                                                                           =========     =========     =========     =========
                     Liberty Group Stock                                   $     .04           .02           .44          (.17)
                                                                           =========     =========     =========     =========
                     TCI Ventures Group Stock                              $      --            --           .07          (.54)
                                                                           =========     =========     =========     =========

               Diluted earnings (loss) attributable to common
                   stockholders per common and potential common share:

                     TCI Group Stock                                       $    (.12)         (.25)         (.34)         (.11)
                                                                           =========     =========     =========     =========
                     Liberty Group Stock                                   $     .04           .02           .40          (.17)
                                                                           =========     =========     =========     =========
                     TCI Ventures Group Stock                              $      --            --           .07          (.54)
                                                                           =========     =========     =========     =========
</TABLE>





                                     II-126
<PAGE>   181

                                    PART III.

Item 10. Directors and Executive Officers of the Registrant.

DIRECTORS

         Immediately prior to the acquisition of Tele-Communications, Inc. (the
"Company" or "TCI") by AT&T Corp. (the "AT&T Merger") the following individuals
were directors of the Company. The following list includes with respect to such
directors the birth date of each person, the positions with the Company or
principal occupations of each person, certain other directorships held and the
year each person became a director of the Company. After the AT&T Merger,
directors may be appointed and removed by AT&T Corp. ("AT&T").

<TABLE>
<CAPTION>
Name                                                Positions
--------------------------       ----------------------------------------------
<S>                              <C>      
Donne F. Fisher                  A director of the Company since June 1994. Mr.
Born May 24, 1938                Fisher was an Executive Vice President of the
                                 Company from January 1994 through January 1,
                                 1996. On January 1, 1996, Mr. Fisher resigned
                                 his position as Executive Vice President of the
                                 Company and has been providing consulting
                                 services to the Company since January 1996. Mr.
                                 Fisher served as an Executive Vice President of
                                 TCI Communications, Inc., a subsidiary of the
                                 Company engaged in the ownership and operation
                                 of cable television systems and the predecessor
                                 company to the Company ("TCIC"), from December
                                 1991 to October 1994. Mr. Fisher has served as
                                 a director of TCIC since 1980, has served as a
                                 director of TCI Pacific Communications, Inc.,
                                 an operator of cable television systems and a
                                 subsidiary of the Company ("TPAC"), since July
                                 1996, and has served as a director of TCI Music
                                 Inc., an operator of music distribution
                                 internet sites and a subsidiary of the Company
                                 ("TCI Music"), since January 1997. Mr. Fisher
                                 is a director of General Communications, Inc.

John W. Gallivan                 A director of the Company since June 1994. Mr.
Born June 28, 1915               Gallivan served as the Chairman of the Board
                                 and a director of Kearns Tribune Corporation, a
                                 newspaper conglomerate ("Kearns"), from 1953
                                 until the acquisition of Kearns by the Company
                                 on July 31, 1997. In August 1997, Mr. Gallivan
                                 was appointed as a director of Kearns following
                                 Kearns becoming a subsidiary of the Company.
                                 Mr. Gallivan served as a director of TCIC from
                                 1980 to August 1994, and has served as a
                                 director of TCIC since January 1996. Mr.
                                 Gallivan is a director of the Silver King
                                 Mining Company.

Paul A. Gould                    A director of the Company since December 1996.
Born September 27, 1945          Mr. Gould has been a Managing Director and an
                                 Executive Vice President of Allen & Company
                                 Incorporated, an investment banking services
                                 company, for more than the last five years. Mr.
                                 Gould served as a director of
                                 Tele-Communications International, Inc.
                                 ("TINTA"), a subsidiary of the Company which
                                 provides cable television and programming
                                 services outside of the United States, from
                                 July 1995 to November 1998. Mr. Gould is a
                                 director of Ascent Entertainment Group, Inc.
                                 and Sunburst Hospitality Corporation.
</TABLE>


                                                                     (continued)



                                     III-1
<PAGE>   182

<TABLE>
<CAPTION>
Name                                                Positions
--------------------------       ----------------------------------------------
<S>                              <C>      
Leo J. Hindery, Jr.              A director of the Company since May 1997. Mr.
Born October 31, 1947            Hindery has served as Chief Executive Officer
                                 of the Company since the AT&T Merger. Mr.
                                 Hindery has served as the President and Chief
                                 Operating Officer of the Company from March
                                 1997 through the AT&T Merger. Mr. Hindery has
                                 served as President and Chief Executive Officer
                                 of TCIC from March 1997 to June 1998 and since
                                 November 1998. Mr. Hindery has served as
                                 President and Chief Executive Officer of TPAC
                                 since September 1997. Mr. Hindery has served as
                                 a director of TCIC since March 1997, has served
                                 as a director of TPAC since September 1997, and
                                 has served as Chairman of the Board and a
                                 director of TCI Music since January 1997. Mr.
                                 Hindery served as a director of TINTA from
                                 April 1998 to November 1998. In addition, Mr.
                                 Hindery is President, Chief Executive Officer
                                 and/or a director of many of the Company's
                                 subsidiaries. Mr. Hindery was previously
                                 founder, Managing General Partner and Chief
                                 Executive Officer of InterMedia Partners, a
                                 cable TV operator, and its affiliated entities
                                 from 1988 to March 1997. Until March 8, 1999,
                                 Mr. Hindery was a director of United Video
                                 Satellite Group, Inc. (now known as TV Guide,
                                 Inc.) ("UVSG"), a distributor of satellite
                                 based television services that prior to March
                                 1, 1999 was a consolidated subsidiary of the
                                 Company. Mr. Hindery is also a director of At
                                 Home Corporation ("@Home"), a consolidated
                                 subsidiary of the Company, TCI Satellite
                                 Entertainment, Inc., a distributor of
                                 satellite-based television services ("TSAT"),
                                 Cablevision Systems Corporation ("CSC") and
                                 Lenfest Communications, Inc. ("LCI").

Jerome H. Kern                   A director of the Company since June 1994. Mr.
Born June 1, 1937                Kern is a consultant and has been Vice Chairman
                                 of the Company since June 1998. Mr. Kern was
                                 Special Counsel with the law firm of Baker &
                                 Botts, L.L.P. from July 1996 to June 1998 and
                                 was a senior partner with Baker & Botts, L.L.P.
                                 from September 1992 to July 1996. Mr. Kern
                                 served as a director of TCIC from December 1993
                                 to August 1994, served as a director of TINTA
                                 from May 1995 to November 1998, and has served
                                 as a director of TPAC since February 1998.

Kim Magness                      A director of the Company since June 1994. Mr.
Born May 17, 1952                Magness manages numerous personal and business
                                 investments, and is Chairman and President of a
                                 company developing liners for irrigation
                                 canals. Mr. Magness served as a director of
                                 TCIC from 1985 to August 1994 and from January
                                 1996 to October 1997. See "Item 11. Executive
                                 Compensation - Compensation Committee
                                 Interlocks and Insider Participation in
                                 Compensation Decisions - Magness and Malone
                                 Transactions" for additional information
                                 concerning certain arrangements between Dr.
                                 Malone and Mr. Magness relating to Mr. Magness'
                                 directorship. 
</TABLE>


                                                                     (continued)


                                     III-2
<PAGE>   183
<TABLE>
<CAPTION>
Name                                                Positions
--------------------------       ----------------------------------------------
<S>                              <C>      
John C. Malone                   A director of the Company since June 1994. Dr.
Born March 7, 1941               Malone has served as Chairman of the Board of
                                 the Company since November 1996. Dr. Malone
                                 served as Chief Executive Officer of the
                                 Company from January 1994 through the AT&T
                                 Merger; President of the Company from January
                                 1994 through March 1997; Chief Executive
                                 Officer of TCIC from March 1992 to October
                                 1994; and President of TCIC from 1973 to
                                 October 1994. Dr. Malone served as a director
                                 of TCIC since 1973. Dr. Malone has served as
                                 Chairman of the Board and a director of TINTA
                                 from May 1995 to November 1998 and has served
                                 as a director of TPAC since July 1996. Dr.
                                 Malone is a director of The Bank of New York,
                                 @Home, TSAT, CSC, and LCI. Dr. Malone also
                                 became a director of AT&T upon consummation of
                                 the AT&T Merger.

Robert A. Naify                  A director of the Company since June 1994. Mr.
Born February 17, 1922           Naify is Co-Chairman and a director of The
                                 Todd-AO Corporation, a provider of services to
                                 the motion picture industry. Mr. Naify served
                                 as a TCIC director from June 1987 to August
                                 1994.

J C Sparkman                     A director of the Company since December 1996.
Born September 12, 1932          Mr. Sparkman served as an Executive Vice
                                 President of the Company from January 1994 to
                                 March 1995. Mr. Sparkman retired in March 1995
                                 and has provided consulting services to the
                                 Company since March 1995. Mr. Sparkman served
                                 as an Executive Vice President of TCIC from
                                 1987 to October 1994. Mr. Sparkman is a
                                 director of Shaw Communications, Inc. and TCI
                                 Music.
</TABLE>

         In connection with the AT&T Merger, Messrs. Fisher, Magness, Naify and
Sparkman resigned as directors of the Company.


                                                                     (continued)



                                     III-3
<PAGE>   184
EXECUTIVE OFFICERS

         Immediately prior to the AT&T Merger the following individuals, in
addition to the directors listed above, were executive officers of the Company.
The following list includes with respect to such executive officers their birth
dates, a description of their business experience and positions held with the
Company immediately prior to the AT&T Merger. All officers are appointed for an
indefinite term, serving at the pleasure of the Board of Directors.

<TABLE>
<CAPTION>
Name                                                Positions
--------------------------       ----------------------------------------------
<S>                              <C>      
Robert R. Bennett                Has served as an Executive Vice President of
Born April 19, 1958              the Company since April 1997. Mr. Bennett has
                                 served as President and Chief Executive Officer
                                 of Liberty Media Corporation ("Liberty"), a
                                 subsidiary of the Company engaged in the
                                 production and distribution of television
                                 programming services, since April 1997. From
                                 June 1995 through March 1997, Mr. Bennett was
                                 an Executive Vice President and Chief Financial
                                 Officer, Secretary and Treasurer of Liberty.
                                 Mr. Bennett served as Senior Vice President of
                                 Liberty from September 1991 to June 1995.

Stephen M. Brett                 Has served as an Executive Vice President, the 
Born September 20, 1940          General Counsel, and the Secretary of the
                                 Company since January 1994. Mr. Brett has
                                 served as an Executive Vice President of TCIC
                                 since October 1997, served as a Senior Vice
                                 President of TCIC from 1991 to October 1997,
                                 and has served as General Counsel of TCIC since
                                 1991. Mr. Brett is a Vice President and
                                 Secretary of most of the Company's
                                 subsidiaries.

William R. Fitzgerald            Mr. Fitzgerald has served as Chief Operating
Born May 20, 1957                Officer of TCIC since November 1998 and as an
                                 Executive Vice President of TCIC since December
                                 1997. Mr. Fitzgerald served as a Senior Vice
                                 President of TCIC from March 1996 to December
                                 1997. Mr. Fitzgerald serves as a Vice President
                                 of various subsidiaries of the Company. Mr.
                                 Fitzgerald was a Senior Vice President and a
                                 Partner in Daniels & Associates, a brokerage
                                 and investment banking company, from 1988 to
                                 1996.

Gary S. Howard                   Has served as an Executive Vice President of
Born February 22, 1951           the Company since December 1997. Mr. Howard has
                                 served as Executive Vice President and Chief
                                 Operating Officer of Liberty since March 1999.
                                 Mr. Howard has served as President and Chief
                                 Executive Officer of TCI Ventures Group, LLC
                                 ("TVG LLC"), a subsidiary of the Company
                                 engaged in international cable, telephony and
                                 programming businesses, from December 1997
                                 through the AT&T Merger. Mr. Howard has served
                                 as Chief Executive Officer of TSAT since
                                 December 1996 and also served as President of
                                 TSAT from February 1995 to August 1997. Since
                                 June 1997, Mr. Howard also has served as
                                 Chairman of the Board and Chief Executive
                                 Officer of UVSG. Mr. Howard served as President
                                 of UVSG from June 1997 to September 1997, a
                                 Senior Vice President of TCIC from October 1994
                                 to December 1996 and as a Vice President of
                                 TCIC from December 1991 to October 1994.
</TABLE>


                                                                     (continued)



                                     III-4
<PAGE>   185
<TABLE>
<CAPTION>
Name                                                Positions
--------------------------       ----------------------------------------------
<S>                              <C>      
Marvin L. Jones                  Has served as an Executive Vice President of
Born September 11, 1937          the Company since April 1998. Mr. Jones served
                                 as President and Chief Executive Officer of
                                 TCIC from June 1998 to November 1998. Mr. Jones
                                 served as an Executive Vice President and the
                                 Chief Operating Officer of TCIC from March 1997
                                 to June 1998. Mr. Jones was appointed a
                                 director of TCIC in October 1997. From November
                                 1996 to March 1997, Mr. Jones served as the
                                 President of one of TCIC's three cable units.
                                 Previously, Mr. Jones was a consultant in the
                                 cable television industry from 1991 to November
                                 1996. Mr. Jones serves as a Vice President or
                                 the President of various subsidiaries of the
                                 Company.

Ann M. Koets                     Ms. Koets has served as an Executive Vice
Born January 21, 1958            President of TCIC since December 1997. Ms.
                                 Koets served as a Senior Vice President of TCIC
                                 from May 1997 to December 1997 and has served
                                 in various other capacities with TCIC for more
                                 than the past five years. Ms. Koets is a Vice
                                 President of most of the Company's
                                 subsidiaries.

Larry E. Romrell                 Has served as an Executive Vice President of
Born December 30, 1939           the Company since January 1994 through the AT&T
                                 Merger. Mr. Romrell is currently a consultant
                                 to the Company. Mr. Romrell has served as the
                                 Executive Vice President and Chief Executive
                                 Officer of TCI Business Alliance and Technology
                                 Co., Inc., a subsidiary of the Company which
                                 oversees and develops the Company's technology
                                 activities, a Senior Vice President of TVG LLC
                                 since December 1997, and the President of TCI
                                 Technology Ventures, Inc., a subsidiary of the
                                 Company which invests in and develops companies
                                 engaged in advancing telecommunications
                                 technology, from September 1994 to October
                                 1997. Mr. Romrell served as a Senior Vice
                                 President of TCIC from 1991 to October 1994.

Bernard W. Schotters, II         Has served as a Senior Vice President and
Born November 25, 1944           Treasurer of the Company since October 1997.
                                 Mr. Schotters has served as an Executive Vice
                                 President and Treasurer of TCIC since January
                                 1998 and served as the Senior Vice President --
                                 Finance of TCIC from December 1991 to December
                                 1997. Mr. Schotters has served as the Treasurer
                                 of TCIC since December 1991. Mr. Schotters is a
                                 Vice President and the Treasurer of most of the
                                 Company's subsidiaries.
</TABLE>

         After the AT&T Merger, one or more of the foregoing executive officers
may resign their positions with the Company.

         There are no family relations, of first cousin or closer, among the
Company's directors or executive officers, by blood, marriage or adoption.

         During the past five years, none of the above persons has had any
involvement in such legal proceedings as would be material to an evaluation of
his or her ability or integrity.


                                                                     (continued)



                                     III-5
<PAGE>   186

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires TCI's executive officers and directors, and persons who own more than
ten percent of a registered class of TCI's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish TCI with copies of all Section 16(a) forms
they file.

         Based solely on review of the copies of such Forms 3, 4 and 5 and
amendments thereto furnished to TCI with respect to its most recent fiscal year,
or written representations that no Forms 5 were required, TCI believes that,
during the year ended December 31, 1998, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were complied with except that one report, covering two transactions,
were filed late by Mr. Gary S. Howard, an officer of the Company; one report,
covering one transaction, was filed late by Dr. John C. Malone, a director and
officer of the Company; and one report, covering one transaction, was filed late
by Mr. Gallivan, a director of the Company.

Item 11. Executive Compensation.

         Background of Stock Adjustments.

         On December 4, 1996, the Company distributed (the "Satellite
Distribution") to the holders of shares of TCI Group Series A Stock and TCI
Group Series B Stock all of the issued and outstanding common stock of TSAT.
Prior to December 4, 1996, certain directors, officers and employees of TCI and
its subsidiaries were granted options to purchase shares of TCI Group Series A
Stock ("TCI Options") and stock appreciation rights with respect to shares of
TCI Group Series A Stock ("TCI SARs"). The TCI Options and the TCI SARs have
been granted pursuant to various stock incentive plans of the Company (the "TCI
Plans"). The TCI Plans give the Board of Directors of the Company the authority
to make equitable adjustments to outstanding TCI Options and TCI SARs in the
event of certain types of transactions, including transactions such as the
Satellite Distribution.

         The Board of Directors determined that, immediately prior to the
Satellite Distribution, each TCI Option would be divided into two separately
exercisable options: (a) an option to purchase TCI Satellite Entertainment, Inc.
Series A Common Stock ("TSAT Option"), exercisable for the number of shares of
TCI Satellite Entertainment, Inc. Series A Common Stock ("TSAT Series A Stock")
that would have been issued in the Satellite Distribution in respect of the
shares of TCI Group Series A Stock subject to the applicable TCI Option, if such
TCI Option had been exercised in full immediately prior to the record date of
the Satellite Distribution, and containing substantially equivalent terms as the
existing TCI Option; and (b) an option to purchase TCI Group Series A Stock (a
"TCI Group Series A Option"), exercisable for the same number of shares of TCI
Group Series A Stock as the corresponding TCI Option had been. The aggregate
exercise price of each TCI Option was allocated between the TSAT Option and the
TCI Group Series A Option into which it was divided, and all other terms,
including date of grant, of the TSAT Option and TCI Group Series A Option are in
all material respects the same as the terms of such TCI Option. Similar
adjustments were made to the outstanding TCI SARs, resulting in the holders
thereof holding TCI Group Series A SARs and TSAT SARs instead of TCI SARs, and
to outstanding restricted stock awards, resulting in the holders thereof holding
restricted shares of TSAT Series A Stock in addition to restricted shares of TCI
Group Series A Stock. The foregoing adjustments were made pursuant to the
anti-dilution provisions of the TCI Plans pursuant to which the respective TCI
Options and TCI SARs were granted.



                                                                     (continued)



                                     III-6
<PAGE>   187
         Prior to the Satellite Distribution, the Company and TSAT entered into
an agreement to sell to each other from time to time at the then current market
price shares of TCI Group Series A Stock and TSAT Series A Stock, respectively,
as necessary to satisfy their respective obligations under the plans.

         Effective January 14, 1997, the Company issued a stock dividend to
holders of Liberty Group Series A Stock and Liberty Group Series B Stock
consisting of one share of Liberty Group Series A Stock for every two shares of
Liberty Group Series A Stock owned and one share of Liberty Group Series A Stock
for every two shares of Liberty Group Series B Stock owned (the "1997 Liberty
Group Stock Dividend"). As a result of the 1997 Liberty Group Stock Dividend,
the number of shares underlying options granted in tandem with stock
appreciation rights to purchase Liberty Group Series A Stock and the exercise
prices of such options in tandem with stock appreciation rights have been
adjusted.

         On September 10, 1997, the Company concluded an exchange offer with its
stockholders (the "Exchange Offer") whereby the Company issued shares of two new
series of tracking stocks, the Ventures Group Series A Stock and the Ventures
Group Series B Stock. Pursuant to the Exchange Offer, the Company offered to
exchange: (a) shares of Ventures Group Series A Stock for TCI Group Series A
Stock; and (b) shares of Ventures Group Series B Stock for TCI Group Series B
Stock.

         As stated above, the TCI Plans give the Company's Board of Directors
the authority to make equitable adjustments to outstanding TCI Options and TCI
SARs in the event of certain types of transactions, of which the Exchange Offer
was one. The Compensation Committee of the Board of Directors elected to adjust
the TCI Group Series A Options and TCI Group Series A SARs to reflect the
expected shift of attributed value from the TCI Group Common Stock to the newly
created Ventures Group Common Stock. As a result, the TCI Group Series A Options
outstanding immediately prior to the Exchange Offer have been canceled and
reissued as two separately exercisable options: (a) with 70% of the shares of
TCI Group Series A Stock underlying the TCI Group Series A Options allocated to
an option to purchase TCI Group Series A Stock; and (b) with 30% of the shares
of TCI Group Series A Stock underlying the TCI Group Series A Options allocated
to an option to purchase Ventures Group Series A Stock. The terms of these
adjusted options, including the exercise price and the date of grant, are in all
material respects the same as the terms of the TCI Group Series A Options. The
Board of Directors made corresponding adjustments to outstanding TCI Group
Series A SARs.

         Effective February 6, 1998, the Company issued a stock dividend to
holders of Liberty Media Group Common Stock consisting of one share of Liberty
Group Series A Stock for every two shares of Liberty Group Series A Stock held
and one share of Liberty Group Series B Stock for every two shares of Liberty
Group Series B Stock held (the "1998 Liberty Stock Dividend"). In addition, the
Company issued a stock dividend to holders of Ventures Group Common Stock
consisting of one share of Ventures Group Series A Stock for each share of
Ventures Group Series A Stock held and one share of Ventures Group Series B
Stock for each share of Ventures Group Series B Stock held (the "1998 Ventures
Stock Dividend" and together with the 1998 Liberty Stock Dividend, the "1998
Stock Dividends"). As a result of the 1998 Stock Dividends, the number of shares
underlying the options granted in tandem with stock appreciation rights to
purchase Liberty Group Series A Stock, Ventures Group Series A Stock, and
Ventures Group Series B Stock, respectively, and the respective exercise prices
of such options in tandem with stock appreciation rights have been adjusted.



                                                                     (continued)



                                     III-7
<PAGE>   188
         On November 19, 1998, the Company acquired all of the outstanding
shares of common stock of TINTA not already beneficially owned by the Company,
(the "TINTA Merger"). Each outstanding share of TINTA Series A Common Stock was
converted into .58 of a share of Liberty Group Series A Stock. As a result, the
number of shares underlying the options granted in tandem with stock
appreciation rights to purchase TINTA Series A Common Stock and the respective
exercise prices have been converted into options granted in tandem with stock
appreciation rights to purchase Liberty Group Series A Stock.

         On March 9, 1999, AT&T acquired TCI in a merger in which Italy Merger
Corp., a wholly-owned subsidiary of AT&T, merged with and into TCI, and TCI
thereby became a wholly-owned subsidiary of AT&T. As a result of the AT&T
Merger, shares of TCI's common stocks and certain shares of preferred stock were
converted into AT&T securities. See "Item 8. Financial Statements and
Supplementary Data" for additional information regarding the AT&T Merger.

         (a)  Summary Compensation Table of Tele-Communications, Inc.

         The following table shows, for the three years ended December 31, 1998,
all forms of compensation for the Chief Executive Officer and each of the four
most highly compensated executive officers of TCI, whose total annual salary and
bonus exceeded $100,000 for the year ended December 31, 1998. The following
table has not been adjusted to reflect the impact of the AT&T Merger.

<TABLE>
<CAPTION>
                                                                                Long-term Compensation
                                                                          --------------------------------- 
                                      Annual Compensation                               Awards
                        -----------------------------------------------   ---------------------------------
                                                                                                Securities
                                                                             Restricted         Underlying
                                                          Other Annual          Stock            Options/             All Other
 Name and Principal                                       Compensation        Award(s)             SARs              Compensation
      Position          Year   Salary ($)     Bonus ($)        ($)               ($)              (#) (1)                 ($)
--------------------    ----  ------------   -----------  -------------   ----------------   --------------         ----------------
<S>                     <C>   <C>            <C>          <C>             <C>                <C>                   <C> 
John C. Malone          1998  $  950,000     $      ---   $      ---      $       ---              ---              $  15,000 (5)
Chairman of the         1997  $  819,346     $      ---   $    3,318 (2)  $       ---        2,800,000 (3)          $  15,000 (5)
   Board and Chief      1996  $  900,000     $      ---   $    4,496 (2)  $       ---           29,000 (4)          $  17,500 (5)(6)
   Executive Officer

Leo J. Hindery, Jr.     1998  $  946,538     $      ---   $  102,102 (8)  $38,687,500  (9)         ---              $  15,000 (5)
President and           1997  $  617,961(7)  $      ---   $   92,727 (8)  $ 3,162,500  (10)  5,267,334 (11)(12)(20) $  34,462 (13)
   Chief Operating      1996  $      ---     $      ---   $      ---      $       ---              ---              $     ---
   Officer

Stephen M. Brett        1998  $  580,192     $      ---   $      ---      $ 3,723,125  (14)        ---              $  15,000 (5)
Executive Vice          1997  $  482,250     $      ---   $    2,796 (2)  $       ---          627,500 (12)         $  15,000 (5)
   President            1996  $  450,000     $      ---   $    4,239 (2)  $       ---              ---              $  15,000 (5)

Larry E. Romrell        1998  $  580,192     $      ---   $      ---      $ 3,723,125  (14)        ---              $  15,000 (5)
Executive Vice          1997  $  549,615     $      ---   $    2,782 (2)  $       ---          351,000 (12)(15)     $  15,000 (5)
   President            1996  $  500,000     $      ---   $    4,910 (2)  $       ---          694,096 (16)(21)     $  15,000 (5)

Marvin L. Jones         1998  $  580,192     $      ---   $      ---      $ 3,602,813  (18)        ---              $  15,000 (5)
Executive Vice          1997  $  498,791     $      ---   $      ---      $       ---          448,500 (12)(15)     $  15,000 (5)
   President            1996  $   61,207(17) $      ---   $      ---      $       ---              ---              $ 386,653 (19)
</TABLE>

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

(1)  Adjusted to reflect the effect of the Satellite Distribution, the 1997
     Liberty Group Stock Dividend, the Exchange Offer, the 1998 Stock Dividends,
     and the TINTA Merger.


                                                                     (continued)



                                     III-8
<PAGE>   189


(2)  Consists of amounts reimbursed during the year indicated for the payment of
     taxes.

(3)  On December 16, 1997, pursuant to the Tele-Communications, Inc. 1998
     Incentive Plan (the "1998 Incentive Plan"), Dr. Malone was granted options
     in tandem with stock appreciation rights to acquire 2,800,000 shares of
     Ventures Group Series B Stock at an exercise price of $10.37 per share. The
     options in tandem with stock appreciation rights granted to Dr. Malone vest
     evenly over five years with such vesting period beginning on December 16,
     1997. Such options with tandem stock appreciation rights first became
     exercisable on December 16, 1998 and expire on December 16, 2007.

     Notwithstanding the vesting schedule as set forth in Dr. Malone's option
     agreement, the option shares and stock appreciation rights shall
     immediately vest and become exercisable if Dr. Malone's employment with
     TCI: (a) shall terminate by reason of: (i) termination by TCI without
     cause; (ii) termination by Dr. Malone for good reason (as defined in the
     agreement); or (iii) disability; (b) shall terminate pursuant to the
     provisions of a written employment agreement, if any, between Dr. Malone
     and TCI which expressly permits Dr. Malone to terminate such employment
     upon the occurrence of certain specified events; or (c) shall terminate if
     Dr. Malone dies while employed by TCI. Further, the option shares and stock
     appreciation rights will immediately vest and become exercisable in the
     event of an Approved Transaction, Board Change, or Control Purchase (each
     as defined in the 1998 Incentive Plan), unless in the case of an Approved
     Transaction, the Compensation Committee, under the circumstances specified
     in the 1998 Incentive Plan, determines otherwise.

(4)  On April 11, 1996, Dr. Malone (along with three other TINTA non-employee
     directors) was granted, pursuant to TINTA's 1996 Nonemployee Director Stock
     Option Plan (the "TINTA Director Stock Option Plan"), options to acquire
     29,000 shares of Liberty Group Series A Stock. Such grants of options were
     made at an exercise price of $27.58 per share. Such options vest evenly
     over five years, first became exercisable on April 11, 1997, and expire on
     April 11, 2006.

(5)  Amounts represent contributions to the TCI 401(k) Stock Plan (the "TCI
     Stock Plan"). The TCI Stock Plan provides benefits upon an employee's
     retirement which normally is when the employee reaches 65 years of age. TCI
     Stock Plan participants may contribute up to 10% of their compensation and
     the Company (by annual resolution of the Board of Directors) may contribute
     up to a matching 100% of the participants' contributions. Participant
     contributions to the TCI Stock Plan are fully vested upon contribution.

     Generally, participants acquire a vested right in the Company contributions
     as follows:

<TABLE>
<CAPTION>
                 Years of service                     Vesting Percentage
                 ----------------                     ------------------
<S>                                                   <C>
                   Less than 1                                 0%
                     1-2                                      33%
                     2-3                                      66%
                     3 or more                               100%
</TABLE>

     With respect to the Company contributions made to the TCI Stock Plan in
     1998, 1997 and 1996, Messrs. Malone, Brett, Romrell, Jones and Howard are
     fully vested. The TCI Stock Plan also includes a salary deferral feature in
     respect of employee contributions. Forfeitures (due to participants'
     withdrawal prior to full vesting) are used to reduce the Company's
     otherwise determined contributions.



                                                                     (continued)


                                     III-9
<PAGE>   190
     Directors who are not employees of the Company are ineligible to
     participate in the TCI Stock Plan. Under the terms of the TCI Stock Plan,
     employees are eligible to participate after three months of service.
     Although the Company has not expressed an intent to terminate the TCI Stock
     Plan, it may do so at any time. The TCI Stock Plan provides for full
     immediate vesting of all participants' rights upon termination the TCI
     Stock Plan.

(6)  Includes fees paid to directors for attendance at each meeting of the Board
     of Directors at the rate of $500 per meeting. During 1996 a total of $2,500
     of such fees were paid to Dr. Malone. Dr. Malone waived his right to
     receive such fees in 1997 and 1998.

(7)  Mr. Hindery commenced his employment with the Company as of March 1997.
     Accordingly, the 1997 salary information included in the table represents
     only ten months of employment during 1997.

(8)  Includes the following benefits paid to Mr. Hindery: (i) 1998 - a housing
     allowance of $28,582 and use of a Company plane valued at $52,727 and (ii)
     1997 - a housing allowance of $43,853 and use of a Company plane valued at
     $16,458.

(9)  On June 23, 1998, pursuant to the 1998 Incentive Plan, the Company granted
     Mr. Hindery 1,000,000 restricted shares of TCI Group Series A Stock, which
     vests as to 50% of such shares in June 2002 and as to the remaining 50% in
     June 2003. At the end of 1998, the restricted shares had an aggregate value
     of $55,312,500, based upon the closing sales price per share of the TCI
     Group Series A Stock on the National Market tier of The Nasdaq Stock Market
     ("Nasdaq") on December 31, 1998. TCI has not paid cash dividends on its
     securities and does not anticipate declaring and paying cash dividends on
     such securities at any time in the foreseeable future.

(10) On July 23, 1997, pursuant to the Tele-Communications, Inc. 1996 Incentive
     Plan (the "1996 Plan"), the Company granted Mr. Hindery 174,534 restricted
     shares of TCI Group Series A Stock and 50,932 restricted shares of Ventures
     Group Series A Stock, which vest as to 50% of such shares in July 2001 and
     as to the remaining 50% in July 2002. At the end of 1998, the restricted
     shares of TCI Group Series A Stock had an aggregate value of $9,653,912,
     based upon the closing sales price per share of the TCI Group Series A
     Stock on Nasdaq on December 31, 1998. At the end of 1998, the restricted
     shares of Ventures Group Series A Stock had an aggregate value of
     $1,200,085, based upon the closing sales price per share of the Ventures
     Group Series A Stock on Nasdaq on December 31, 1998.

(11) On February 7, 1997, Mr. Hindery, pursuant to the 1996 Plan, was granted
     options in tandem with stock appreciation rights to acquire 700,000 shares
     of TCI Group Series A Stock, 600,000 shares of Ventures Group Series A
     Stock, 375,000 shares of Liberty Group Series A Stock, and 29,000 shares of
     Liberty Group Series A Stock (after adjustment for the TINTA Merger) at
     exercise prices of $13.75, $6.88, $13.04 and $27.58 per share,
     respectively. Such options in tandem with stock appreciation rights granted
     to Mr. Hindery vest evenly over five years with such vesting period
     beginning on February 7, 1997. Such options with tandem stock appreciation
     rights first became exercisable on February 7, 1998 and expire on February
     7, 2007.



                                                                     (continued)


                                     III-10
<PAGE>   191

     Notwithstanding the vesting schedule as set forth in the option agreement,
     the option shares and stock appreciation rights shall immediately vest and
     become exercisable if grantee's employment with the Company: (a) shall
     terminate by reason of: (i) termination by the Company without cause; (ii)
     termination by the grantee for good reason (as defined in the agreement);
     or (iii) disability; (b) shall terminate pursuant to the provisions of a
     written employment agreement, if any, between the grantee and the Company
     which expressly permits the grantee to terminate such employment upon the
     occurrence of certain specified events; or (c) shall terminate if grantee
     dies while employed by the Company. Further, the option shares and stock
     appreciation rights will immediately vest and become exercisable in the
     event of an Approved Transaction, Board Change, or Control Purchase (each
     as defined in the applicable TCI Plan), unless in the case of an Approved
     Transaction, the Compensation Committee under the circumstances specified
     in the applicable TCI Plan, determines otherwise.

(12) On July 23, 1997, Mr. Hindery, Mr. Brett, Mr. Romrell and Mr. Jones
     pursuant to the 1996 Plan, were granted options in tandem with stock
     appreciation rights to acquire 1,050,000, 241,500, 31,500 and 84,000
     shares, respectively, of TCI Group Series A Stock at an exercise price of
     $15.68 per share, 900,000, 207,000, 27,000 and 72,000 shares, respectively,
     of Ventures Group Series A Stock at an exercise price of $7.84 per share.
     Also, Mr. Hindery and Mr. Brett were granted options in tandem with stock
     appreciation rights to acquire 750,000 and 150,000 shares, respectively, of
     Liberty Group Series A Stock at an exercise price of $16.75 per share. Such
     options in tandem with stock appreciation rights granted to Messrs.
     Hindery, Brett, Romrell and Jones vest evenly over five years with such
     vesting period beginning on July 23, 1997. Such options with tandem stock
     appreciation rights first became exercisable on July 23, 1998 and expire on
     July 23, 2007. See note 11 above for additional information on vesting and
     other provisions of the 1996 Plan.

     In addition, on July 23, 1997, Mr. Brett, pursuant to TINTA's 1995 Stock
     Incentive Plan (the "TINTA Plan"), was granted options in tandem with stock
     appreciation rights to acquire 29,000 shares of Liberty Group Series A
     Stock at an exercise price of $25.21 per share (after adjustment for the
     TINTA Merger). Such options in tandem with stock appreciation rights
     granted to Mr. Brett vest evenly over five years with such vesting period
     beginning on July 23, 1997. Such options with tandem stock appreciation
     rights first became exercisable on July 23, 1998 and expire on July 23,
     2007.

     Notwithstanding the vesting schedule as set forth in the grantee's option
     agreement, the option shares and stock appreciation rights shall
     immediately vest and become exercisable if grantee's employment with TINTA:
     (a) shall terminate by reason of: (i) termination by TINTA without cause;
     (ii) termination by the grantee for good reason (as defined in the
     agreement); or (iii) disability; (b) shall terminate pursuant to the
     provisions of a written employment agreement, if any, between grantee and
     TINTA which expressly permits the grantee to terminate such employment upon
     the occurrence of certain specified events; or (c) shall terminate if
     grantee dies while employed by TINTA. Further, the option shares and stock
     appreciation rights will immediately vest and become exercisable in the
     event of an Approved Transaction, Board Change, or Control Purchase (each
     as defined in the TINTA Plan), unless in the case of an Approved
     Transaction, the Compensation Committee under the circumstances specified
     in the TINTA Plan, determines otherwise.

(13) Includes $34,462 received as consulting fees prior to the commencement of
     Mr. Hindery's employment in March 1997.


                                                                     (continued)



                                     III-11
<PAGE>   192

(14) On June 23, 1998, pursuant to the 1998 Incentive Plan, Mr. Brett and Mr.
     Romrell were each granted 50,000 restricted shares of TCI Group Series A
     Stock by the Company, which vest as to 50% of such shares in June 2002 and
     as to the remaining 50% in June 2003. At the end of 1998, each such grant
     of restricted shares had an aggregate value of $2,765,625, based upon the
     closing sales price per share of the TCI Group Series A Stock on Nasdaq on
     December 31, 1998. In addition, on September 3, 1998, pursuant to the 1998
     Incentive Plan, Mr. Brett and Mr. Romrell were each granted 53,000
     restricted shares of TCI Group Series A Stock by the Company, which vest as
     to 50% of such shares in September 2002 and as to the remaining 50% in
     September 2003. At the end of 1998, each such grant of restricted shares
     had an aggregate value of $2,931,563, based upon the closing sales price
     per share of the TCI Group Series A Stock on Nasdaq on December 31, 1998.

(15) On May 15, 1997, Mr. Romrell and Mr. Jones, pursuant to the 1996 Plan, were
     each granted options in tandem with stock appreciation rights to acquire
     157,500 shares of TCI Group Series A Stock and 135,000 shares of Ventures
     Group Series A Stock at exercise prices of $14.00 and $7.00 per share,
     respectively. Such options in tandem with stock appreciation rights granted
     to Mr. Romrell and Mr. Jones vest evenly over five years with such vesting
     period beginning on May 15, 1997. Such options with tandem stock
     appreciation rights first became exercisable on May 15, 1998 and expire on
     May 15, 2007. See note 11 above for additional information on vesting and
     other provisions of the 1996 Plan.




                                                                     (continued)


                                     III-12
<PAGE>   193

(16) Effective December 1, 1996, Mr. Romrell and a former officer of TCIC and a
     former officer of TCI were each granted options ("Internet Options") to
     acquire 1.0% of TCI's common equity in TCI Internet Services, Inc., a
     subsidiary of the Company ("TCI Internet"). The aggregate exercise price
     for each such Internet Option, which is payable to TCI Internet, is equal
     to 1.0% of TCI's cumulative investment in TCI Internet and its subsidiaries
     as of December 1, 1996, adjusted for a 6% per annum interest factor from
     the date each such investment was made to the date of such exercise. All of
     such options will vest and become exercisable in five equal annual
     installments, with the first annual installment having vested on February
     1, 1997. The Internet Options will expire on February 1, 2006. In
     anticipation of the transfer to TCI.NET, Inc., a subsidiary of the Company
     ("TCI.NET") of the internet services distribution business conducted
     through subsidiaries of TCI Internet, each such Internet Option was
     replaced during 1997 with an option to acquire a number of shares equal to
     1.0% of TCI's common equity in TCI.NET at December 1, 1996 (the "TCI.NET
     Option") and a stock appreciation right with respect to a number of shares
     equal to 1.0% of TCI's common equity in TCI Internet at December 1, 1996
     (the "Internet SAR"). The material terms of the option to acquire shares of
     TCI.NET are the same as those of the Internet Option, except that the
     exercise price, which will be payable to TCI.NET, is an allocated portion
     of the current exercise price under the Internet Option based on TCI's
     cumulative investment in the internet services distribution business
     relative to the balance of its cumulative investment in TCI Internet at
     December 1, 1996. The stock appreciation right entitles the holder to the
     excess of the value of the shares subject to the stock appreciation right
     (based on the percentage that such shares represent of the total value of
     the common equity of TCI Internet as of the exercise date) over 1% of TCI's
     cumulative investment in TCI Internet at December 1, 1996, plus a 6% per
     annum interest factor from the date when each such investment was made to
     the date of exercise. Amounts payable upon exercise of the stock
     appreciation right may be paid in cash or, at TCI's election, TCI Group
     Series A Stock, Ventures Group Series A Stock or common stock of TCI
     Internet (if then publicly traded), or any combination of the foregoing,
     subject to certain conditions. Any exercise by the holder of all or part of
     the TCI.NET Option must be accompanied by the exercise by such holder of a
     pro rata portion of the Internet SAR, and vice versa. On February 19, 1999
     the Company repurchased from the holders of TCI.NET Options all shares of
     the common stock of TCI.NET acquired by such holders pursuant to the
     TCI.NET Options. At such time the Company canceled the TCI.NET Options and
     deleted the requirement in the Internet SARs that holders thereof exercise
     their TCI.NET Option in order to exercise their Internet SAR. In connection
     with the AT&T Merger, the TCI Venture Group's equity interest in @Home,
     which constituted substantially all of the value of the assets of TCI
     Internet, was transferred to the TCI Group. As a result, on March 8, 1999
     each Internet SAR was amended to provide, among other things, that
     following the AT&T Merger the amounts payable upon exercise of the Internet
     SARs would not be determined by reference to the fair market value of TCI
     Internet, but would instead be based upon the fair market value (determined
     as of the date of exercise of an Internet SAR) of the investment securities
     held by TCI Internet prior to the AT&T Merger, subject to certain
     adjustments. Such amendment also provided that the cash settlement value of
     the Internet SAR would be paid, at the grantor's election, in cash, AT&T
     stock or other stock owned by the grantor. In connection with such
     amendment, TCI or Liberty (depending upon which entity employed the holder
     of the Internet SAR) was substituted for TCI Internet as the obligor under
     the Internet SARs.



                                                                     (continued)


                                     III-13
<PAGE>   194
     On December 4, 1996, Mr. Romrell was granted an option (along with three
     other officers) to purchase 664,076 shares of TSAT Series A Stock
     representing 1.0% of the number of shares of TSAT common stock issued and
     outstanding on the date of the Satellite Distribution, determined
     immediately after giving effect to the Satellite Distribution, but before
     giving effect to the exercise of such option or certain other options. The
     exercise price for each such option is equal to $8.86 per share,
     representing in the aggregate 1.0% of TCI's net investment in TSAT as of
     the date of the Satellite Distribution, but excluding any portion of TCI's
     net investment that as of such date was represented by a promissory note or
     other evidence of indebtedness from TSAT to TCI. All of such options will
     vest and become exercisable in five equal annual installments, with the
     first annual installment having vested on February 1, 1997. Such options
     will expire on February 1, 2006.

(17) Mr. Jones commenced his employment with the Company in November 1996.
     Accordingly, the 1996 salary information included in the table with respect
     to Mr. Jones represents only two months of employment during 1996.

(18) On September 3, 1998, pursuant to the 1998 Incentive Plan, the Company
     granted Mr. Jones 53,000 restricted shares of TCI Group Series A Stock,
     which vest as to 50% of such shares in September 2002 and as to the
     remaining 50% in September 2003. At the end of 1998, the restricted shares
     had an aggregate value of $2,931,563, based upon the closing sales price
     per share of the TCI Group Series A Stock on Nasdaq on December 31, 1998.
     In addition, on December 10, 1998, pursuant to the 1998 Incentive Plan, the
     Company granted Mr. Jones 37,500 restricted shares of TCI Group Series A
     Stock by the Company, which vest as to 50% of such shares in December 2002
     and as to the remaining 50% in December 2003. At the end of 1998, the
     restricted shares had an aggregate value of $2,074,219, based upon the
     closing sales price per share of the TCI Group Series A Stock on Nasdaq on
     December 31, 1998.

(19) Consists of consulting fees paid to Mr. Jones, prior to Mr. Jones'
     employment with the Company.

(20) On July 11, 1997, Mr. Hindery was granted, pursuant to TCI Music's 1997
     Stock Incentive Plan (the "TCI Music 1997 Plan"), options to acquire
     833,334 shares of TCI Music's Series A Common Stock. Such grant of options
     was made at an exercise price of $6.25 per share. Such options vest evenly
     over five years, first became exercisable on July 11, 1998, and expire on
     July 11, 2007.

     Notwithstanding the vesting schedule, the option shares become available
     for purchase if Mr. Hindery ceases to be a director of TCI Music for any
     reason other than voluntary termination. Further, the option shares will
     become available for purchase in the event of an Approved Transaction,
     Board Change, or Control Purchase (each as defined in the TCI Music 1997
     Plan), unless, in the case of an Approved Transaction, the compensation
     committee under the circumstances specified in the TCI Music 1997 Plan,
     determines otherwise.



                                                                     (continued)


                                     III-14
<PAGE>   195


     In addition, on November 5, 1997, Mr. Hindery was granted, pursuant to
     UVSG's Stock Option Plan for Non-Employee Directors, options to acquire
     30,000 shares of UVSG's Class A Common Stock. Such grant of options was
     made at an exercise price of $13.38 per share. Under the plan, Mr.
     Hindery's options were to vest evenly over five years, which first became
     exercisable on November 5, 1998. In February 1999, Mr. Hindery resigned as
     a director of UVSG, at which time, the vesting of his remaining options was
     accelerated. Upon his resignation, Mr. Hindery notified UVSG of his
     intention to exercise his vested options.

(21) On May 15, 1996, Mr. Romrell was granted, pursuant to UVSG's Stock Option
     Plan for Non-Employee Directors, options to acquire 30,000 shares of UVSG's
     Class A Common Stock. Such grant of options was made at an exercise price
     of $11.50 per share. Such options vest evenly over five years, first became
     exercisable on May 15, 1997, and expire on May 15, 2006.

(b)  Option/SAR Grants Table of Tele-Communications, Inc. - None.

(c)  Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
     of Tele-Communications, Inc. The following table shows each exercise of
     stock options and SARs during the year ended December 31, 1998 by each of
     the named executive officers of TCI and the December 31, 1998 number and
     year-end value of unexercised options and SARs on an aggregated basis. The
     following table has not been adjusted to reflect the impact of the AT&T
     Merger.

<TABLE>
<CAPTION>
                                                                                     Number of
                                                                                    Securities        Value of
                                                                                    Underlying        Unexercised
                                                                                    Unexercised      In-the-Money
                                                                                   Options/SARs      Options/SARs
                                                                                        at                at
                                                                                   December 31,      December 31,
                                                                                     1998 (#)          1998 ($)
                                          Shares Acquired      Value Realized      Exercisable/       Exercisable/
             Name                       on Exercise (#) (1)          ($)           Unexercisable      Unexercisable
             ----                       -------------------    --------------      -------------    ----------------
<S>                                     <C>                    <C>                 <C>              <C>          
             John C. Malone
               Exercisable
                  TCI Group Series A
                    Stock                     50,000             $ 1,575,000          1,070,000     $  46,056,475
                  Ventures Group
                    Series A Stock                --                      --            960,000     $  16,760,400
                  Ventures Group
                    Series B Stock                --                      --            560,000     $   7,212,800
                  Liberty Group
                    Series A Stock                --                      --            911,600     $  33,884,522
                  TSAT Series A Stock             --                      --            160,000                --
               Unexercisable
                  TCI Group Series A
                    Stock                         --                      --            280,000     $  11,393,900
                  Ventures Group
                    Series A Stock                --                      --            240,000     $   3,900,600
                  Ventures Group
                    Series B Stock                --                      --          2,240,000     $  28,851,200
                  Liberty Group
                    Series A Stock                --                      --            242,400     $   8,284,908
                  TSAT Series A Stock             --                      --             40,000                --
</TABLE>


                                                                     (continued)


                                     III-15
<PAGE>   196

<TABLE>
<CAPTION>
                                                                                     Number of
                                                                                    Securities        Value of
                                                                                    Underlying        Unexercised
                                                                                    Unexercised      In-the-Money
                                                                                   Options/SARs      Options/SARs
                                                                                        at                at
                                                                                   December 31,      December 31,
                                                                                     1998 (#)          1998 ($)
                                          Shares Acquired      Value Realized      Exercisable/       Exercisable/
             Name                       on Exercise (#) (1)          ($)           Unexercisable      Unexercisable
             ----                       -------------------    --------------      -------------    ----------------
<S>                                     <C>                    <C>                 <C>              <C>          
             Leo J. Hindery, Jr.
               Exercisable
                  TCI Group Series A
                    Stock                         --                      --            350,000     $  14,141,575
                  Ventures Group
                    Series A Stock                --                      --            300,000     $   4,831,950
                  Liberty Group
                    Series A Stock                --                      --            230,800     $   6,980,761
                  TCI Music Series A
                    Common Stock                  --                      --            166,667                --
                  UVSG Series A
                    Common Stock                  --                      --              6,000     $      61,470
               Unexercisable
                  TCI Group Series A
                    Stock                         --                      --          1,400,000     $  56,566,300
                  Ventures Group
                    Series A Stock                --                      --          1,200,000     $  19,327,800
                  Liberty Group
                    Series A Stock                --                      --            923,200     $  27,923,044
                  TCI Music Series A
                    Common Stock                  --                      --            666,667                --
                  UVSG Series A
                    Common Stock                  --                      --             24,000     $     245,880

             Stephen M. Brett
               Exercisable
                  TCI Group Series A
                    Stock                     16,000             $   434,880            270,300     $  10,989,265
                  Ventures Group
                    Series A Stock             8,000             $   112,640            237,400     $   3,854,882
                  Liberty Group
                    Series A Stock           120,500             $ 2,702,760            236,450     $   7,479,591
                  TSAT Series A Stock             --                      --             54,000                --
               Unexercisable
                  TCI Group Series A
                    Stock                         --                      --            305,200     $  12,226,599
                  Ventures Group
                    Series A Stock                --                      --            261,600     $   4,168,926
                  Liberty Group
                    Series A Stock                --                      --            244,800     $   7,311,000
                  TSAT Series A Stock             --                      --             16,000                --
</TABLE>



                                                                     (continued)


                                     III-16
<PAGE>   197

<TABLE>
<CAPTION>
                                                                                     Number of
                                                                                    Securities        Value of
                                                                                    Underlying        Unexercised
                                                                                    Unexercised      In-the-Money
                                                                                   Options/SARs      Options/SARs
                                                                                        at                at
                                                                                   December 31,      December 31,
                                                                                     1998 (#)          1998 ($)
                                          Shares Acquired      Value Realized      Exercisable/       Exercisable/
             Name                       on Exercise (#) (1)          ($)           Unexercisable      Unexercisable
             ----                       -------------------    --------------      -------------    ----------------
<S>                                     <C>                    <C>                 <C>              <C>          
             Larry E. Romrell
               Exercisable
                  TCI Group Series A
                    Stock                         --                      --            275,800     $  11,284,004
                  Ventures Group
                    Series A Stock                --                      --            356,400     $   6,049,659
                  Liberty Group
                    Series A Stock            56,250             $ 1,778,794            247,500     $   8,581,331
                  Internet SAR                     2             $ 3,456,048                 --                --
                  TSAT Series A Stock             --                      --            319,630                --
                  UVSG Series A
                    Common Stock                  --                      --             12,000     $     145,500
               Unexercisable
                  TCI Group Series A
                    Stock                         --                      --            263,200     $  10,773,714
                  Ventures Group
                    Series A Stock                --                      --            225,600     $   3,693,636
                  Liberty Group
                    Series A Stock                --                      --             90,000     $   3,095,325
                  Internet SAR                    --                      --                  6     $  20,719,146
                  TSAT Series A Stock             --                      --            414,446                --
                  UVSG Series A
                    Common Stock                  --                      --             18,000     $     218,250

             Marvin L. Jones
               Exercisable
                  TCI Group Series A
                    Stock                     48,300             $ 1,089,606                 --                --
                  Ventures Group
                    Series A Stock            41,400             $   457,344                 --                --
               Unexercisable
                  TCI Group Series A
                    Stock                         --                      --            193,200     $   7,868,679
                  Ventures Group
                    Series A Stock                --                      --            165,600     $   2,694,366
</TABLE>

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

          (1)     Represents the number of shares underlying the stock
                  appreciation rights which were exercised in 1998.


                                                                     (continued)


                                     III-17
<PAGE>   198

         (d) Compensation of directors. The standard arrangement by which TCI's
directors are compensated for all services (including any amounts payable for
committee participation or special assignments) as a director is as follows:
each non-employee director receives a fee of $500 plus travel expenses for
attendance at each meeting of the Board of Directors and each director who is
not a full time employee of TCI or its subsidiaries also receives additional
compensation of $30,000 per year. Each director who is also a full-time employee
of the Company receives reimbursement for travel expenses but does not receive a
fee for meeting attendance.

         In addition, the Company's stockholders approved an option plan for its
directors (the "Director Stock Option Plan") and in connection with such
approval, approved the grant effective as of November 16, 1994, to each person
who as of such date was a member of the Board of Directors and was not an
employee of the Company or any of its subsidiaries, of options to purchase
50,000 shares of TCI Group Series A Stock and 28,125 shares of Liberty Group
Series A Stock. Such options have a purchase price of $14.19 per share and $9.78
per share, respectively, and vest and become exercisable over a five-year
period, commencing on November 16, 1995, and will expire on November 16, 2004.
Each person who becomes a director of the Company and is not an employee of the
Company or any of its subsidiaries will be automatically granted similar options
upon such person's becoming a director. Additionally, each person who is an
employee and director of the Company who ceases to be an employee but remains a
director will be automatically granted similar options upon such event. The
exercise price of each such subsequently granted option will be equal to the
fair market value of the TCI Group Series A Stock or Liberty Group Series A
Stock, as applicable, on the date the option is granted. In general, such fair
market value will be 95% of the last sale price for the shares of the TCI Group
Series A Stock or Liberty Group Series A Stock, as applicable, as reported on
Nasdaq on the date of the grant, with the price resulting from such percentage
rounded down to the nearest quarter dollar.

         The Company has a deferred compensation plan for all non-employee
directors. Each director may elect to defer receipt of all, but not less than
all, of the annual compensation (excluding meeting fees and reimbursable
expenses) payable to the director for serving on the Company's Board of
Directors for each calendar year for which such deferral is elected. An election
to defer may be made as to the compensation payable for a single calendar year
or period of years. Any compensation deferred shall be credited to the
director's account on the last day of the quarter for which compensation has
accrued. Such deferred compensation bears interest from the date credited to the
date of payment at a rate of 8% per annum in 1993 and 120% of the applicable
federal long-term rate thereafter, compounded annually.

         A director may elect payment of deferred compensation to be made at a
specified year in the future or upon termination of the director's service as
director of the Company. Each director may elect payment in a lump sum, three
substantially equal consecutive annual installments or five substantially equal
consecutive annual installments. In the event that a director dies prior to
payment of all the amounts payable pursuant to the deferred compensation plan,
any amounts remaining in the director's deferred compensation account, together
with accrued interest thereon, shall be paid to the director's designated
beneficiary.

         There are no other arrangements whereby any of TCI's directors received
compensation for services as a director during 1998 in addition to or in lieu of
that specified by the previously described standard arrangement.




                                                                     (continued)


                                     III-18
<PAGE>   199

         (e) Employment Contracts and Termination of Employment and Change of
Control Arrangements. Except as described below, the Company has no employment
contracts, termination of employment agreements or change of control agreements
with any of the named executive officers of the Company.

         Dr. Malone's Employment Agreement. Effective November 1, 1992, the
employment agreement between TCIC and Dr. Malone, as amended, was further
amended and restated. Pursuant to an Assignment Agreement, dated August 4, 1994,
the payment, performance and other obligations of such employment agreement were
assumed by the Company. Pursuant to an Assignment Agreement, dated as of March
9, 1999, the payment, performance and other obligations of Dr. Malone's
agreement were subsequently assigned by the Company to, and assumed by, Liberty.
The term of such agreement is extended daily so that the remainder of the
employment term is, at all times on and prior to the effective date of the
termination of employment as provided by such agreement, five years. Dr.
Malone's employment agreement provides for an annual salary of $800,000, subject
to increase upon approval of the Board of Directors. Additionally, the
employment agreement provides for personal use of the Company's aircraft and
flight crew, limited to an aggregate value of $35,000 per year.

         Dr. Malone's employment agreement provides, among other things, for
deferral of a portion, which currently is not in excess of 40%, of the monthly
compensation payable to him. The deferred amounts will be payable in monthly
installments over a 20-year period commencing on the termination of Dr. Malone's
employment, together with interest thereon at the rate of 8% per annum
compounded annually from the date of deferral to the date of payment. The
amendment also provides for the payment of certain benefits, as discussed below.

         Dr. Malone's employment agreement also provides that, upon termination
of his employment by the Company (other than for cause, as defined in the
agreement) or if Dr. Malone elects to terminate the agreement because of a
change in control of the Company, all remaining compensation due under the
agreement for the balance of the employment term shall be immediately due and
payable.

         Dr. Malone's agreement provides that, during his employment with the
Company and for a period of two years following the effective date of his
termination of employment with the Company, unless termination results from a
change in control of the Company, he will not be connected with any entity in
any manner specified in the agreement, which competes in a material respect with
the business of the Company. Notwithstanding the foregoing, Dr. Malone may serve
as Chairman of the Board of Liberty and own securities of Liberty without regard
to the percentage limitation in the following sentence. The agreement provides
that Dr. Malone may own securities of any corporation listed on a national
securities exchange or quoted in the Nasdaq Stock Market to the extent of an
aggregate of 5% of the amount of such securities outstanding.

         For a period of twelve (12) months following a change in control, as
defined in Dr. Malone's employment agreement, the Company's ability to terminate
Dr. Malone's employment for cause will be limited to situations in which Dr.
Malone has entered a plea of guilty to, or has been convicted of, the commission
of a felony offense.



                                                                     (continued)


                                     III-19
<PAGE>   200
         Dr. Malone's agreement also provides that, in the event of termination
of his employment with the Company, he will be entitled to receive 240
consecutive monthly payments of $15,000 (increased at the rate of 12% per annum
compounded annually from January 1, 1988 to the date payment commences), the
first of which will be payable on the first day of the month succeeding the
termination of Dr. Malone's employment. In the event of Dr. Malone's death, his
beneficiaries will be entitled to receive the foregoing monthly payments. The
Company currently owns a whole-life insurance policy on Dr. Malone, the face
value of which is sufficient to meet its obligation under the salary
continuation arrangement. The premiums payable by the Company on such insurance
policy are currently being funded through earnings on the policy. Dr. Malone has
no interest in this policy.

         The Company pays a portion of the annual premiums (equal to the cost to
buy one-year term insurance coverage as set forth in IRS Pension Service Table
No. 58) on three whole-life insurance policies of which Dr. Malone is the
insured and trusts for the benefit of members of his family are the owners. The
Company is the designated beneficiary of the proceeds of such policies less an
amount equal to the greater of the cash surrender value thereof at the time of
Dr. Malone's death and the amount of the premiums paid by the policy owners.

         Dr. Malone deferred a portion of his monthly compensation under his
previous employment agreement. Such deferred compensation (together with
interest thereon at the rate of 13% per annum compounded annually from the date
of deferral to the date of payment) will continue to be payable under the terms
of the previous agreement. The rate at which interest accrues on such previously
deferred compensation was established in 1983 pursuant to such earlier
agreement.

         Mr. Jones' Employment Agreement. TCIC and Mr. Jones entered into an
employment agreement dated November 7, 1997. The term of Mr. Jones' employment
agreement extends through January 1, 2000, or such later date as Mr. Jones' and
TCIC agree. Mr. Jones' agreement provides for a base salary of $560,000 per
year. TCIC will consider increases to Mr. Jones' salary from time to time.

         While he is employed by TCIC pursuant to his employment agreement, Mr.
Jones is entitled to the same benefits that other executives of his level at
TCIC or Executive Vice Presidents of the Company receive.

         Mr. Jones' employment agreement also provides that, upon his voluntary
resignation or an earlier termination of his employment by the Company without
cause, the Company shall pay to Mr. Jones an amount equal to the greater of (1)
the balance due between the date of termination and January 1, 2000, or (2) two
years' annual compensation at its then current level. In addition, upon Mr.
Jones' voluntary resignation or termination without cause, all options and
restricted stock granted to Mr. Jones will immediately vest.

         Prior to the AT&T Merger, TCIC merged with and into TCI, with TCI being
the surviving corporation (the "TCIC Merger"). As a result of the TCIC Merger,
all of the assets and liabilities of TCIC have been assumed by TCI, including
TCIC's obligations under Mr. Jones' employment agreement.

         Mr. Romrell's Employment Agreement. The Company and Mr. Romrell entered
into an employment agreement on January 1, 1998. This employment agreement
superseded an earlier employment agreement, dated as of January 1, 1993, between
Mr. Romrell and TCIC, the payment, performance and other obligations of which
were assigned to, and assumed by, the Company on August 4, 1994. The term of Mr.
Romrell's employment extends through December 31, 2007. Mr. Romrell's agreement
provides for a base salary of $560,000 per year. Mr. Romrell's salary is subject
to annual review by the Board of Directors, which may in its sole discretion
increase his salary. 



                                                                     (continued)

                                     III-20
<PAGE>   201


         While he is employed by the Company pursuant to his employment
agreement, Mr. Romrell is entitled to participate in all formal incentive
compensation plans, stock incentive plans, employee stock purchase plans,
retirement plans and insurance plans or policies adopted for the benefit of
TCI's executive officers or employees generally.

         Mr. Romrell's employment agreement also provides that, upon an earlier
termination of Mr. Romrell's employment by the Company without cause, all
remaining compensation due under such agreement for the balance of the
employment term would become immediately due and payable to Mr. Romrell. Upon
his death during the employment term, the Company would pay to Mr. Romrell's
beneficiaries a lump sum in an amount equal to the lesser of: (a) the
compensation due under his employment agreement for the balance of the
employment term; and (b) one year's salary. In the event of his disability, the
Company would continue to pay Mr. Romrell his annual salary as and when it would
have otherwise become due until the first to occur of the end of the employment
term or the date of his death.

         Mr. Romrell's agreement provides that, during his employment with the
Company and for a period of two years following the effective date of his
termination of employment therewith, he will not be connected with any entity in
any manner specified in the agreement, which competes in a material respect with
the business of the Company or the Company's majority owned subsidiaries.
However, the agreement provides that Mr. Romrell may own securities of any
corporation listed on a national securities exchange or quoted on Nasdaq to the
extent of an aggregate of 5% of the amount of such securities outstanding. Under
the employment agreement, substantially all of Mr. Romrell's business time,
attention and efforts will be devoted to the affairs of the Company.

         For a period of twelve (12) months following a change in control, as
defined in Mr. Romrell's employment agreement, the Company's ability to
terminate Mr. Romrell's employment for cause will be limited to situations in
which Mr. Romrell has entered a plea of guilty to, or has been convicted of, the
commission of a felony offense.

         Mr. Romrell's employment agreement also provided that he had the right
to convert his employment agreement into a consulting agreement. Mr. Romrell
exercised this election and on March 8, 1999 Mr. Romrell resigned as an officer
and employee of the Company and entered into a consulting agreement with the
Company. During the term of the consulting agreement, which extends until
December 31, 2007 unless sooner terminated as provided in the agreement, Mr.
Romrell is required to provide consulting services as and if requested by the
Company's chief executive officer, subject to the limitation that he is not
required to provide more than 70 hours of such services in any month or more
than 700 hours during any period of 12 consecutive months. Whether or not his
services are requested, Mr. Romrell will receive compensation at the rate of
$610,000 per annum. If he dies before the end of the term of his consulting
agreement, the Company is required to pay his designated beneficiaries a lump
sum equal to one year's compensation. During the term of the agreement, Mr.
Romrell will continue to be entitled to participate in, and to be accorded all
rights and benefits under, all group insurance policies (including, but not
limited to, all disability, life, health and medical insurance policies)
maintained by the Company for the benefit of its employees.



                                                                     (continued)


                                     III-21
<PAGE>   202


         Mr. Romrell's consulting agreement provides that during its term, Mr.
Romrell will not be connected in any manner specified in such agreement with any
entity which competes in a material respect with the business of the Company;
however, he may own securities of any corporation listed on a national
securities exchange or quoted on Nasdaq to the extent of an aggregate of 5% of
the amount of such securities outstanding and Mr. Romrell may continue to serve
as a director of Liberty.

         Mr. Brett's Employment Agreement. The Company and Mr. Brett entered
into an employment agreement on June 1, 1998. The term of Mr. Brett's employment
agreement is extended daily so that the remainder of the employment term is, at
all times on and prior to the effective date of termination of employment as
provided by such agreement, five years. Mr. Brett's agreement provides for a
base salary of $560,000 per year. Mr. Brett's salary is subject to annual review
by the Board of Directors, which may in its sole discretion increase his salary.

         While he is employed by the Company pursuant to his employment
agreement, Mr. Brett is entitled to participate in all formal incentive
compensation plans, stock incentive plans, employee stock purchase plans,
retirement plans and insurance plans or policies adopted for the benefit of the
Company's executive officers or employees generally.

         Mr. Brett's employment agreement also provides that, upon an early
termination of his employment by the Company without cause, the Company will pay
to Mr. Brett, in a lump sum, an amount equal to five year's compensation
calculated at the annual rate then in effect. Upon his death during the
employment term, the Company will pay to Mr. Brett's beneficiaries a lump sum in
an amount equal to one year's salary at the rate currently in effect. In the
event of his disability, the Company will continue to pay Mr. Brett his annual
salary as and when it would have otherwise become due for a period of five years
from the date of termination of his employment as a result of such disability.

         Mr. Brett's agreement provides that, during his employment with the
Company and for a period of two years following the effective date of his
termination of employment with the Company, he will not be connected with any
entity in any manner specified in the agreement, which competes in a material
respect with the business of the Company or the Company's majority owned
subsidiaries. However, the agreement provides that Mr. Brett may own securities
of any corporation listed on a national securities exchange or quoted on Nasdaq
to the extent of an aggregate of 5% of the amount of such securities
outstanding. Under the employment agreement, substantially all of Mr. Brett's
business time, attention and efforts will be devoted to the affairs of the
Company.

         For a period of twelve (12) months following a change in control, as
defined in Mr. Brett's employment agreement, the Company's ability to terminate
Mr. Brett's employment for cause will be limited to situations in which Mr.
Brett has entered a plea of guilty to, or has been convicted of, the commission
of a felony offense.

         Mr. Hindery's Employment Agreement. TCI and Mr. Hindery entered into an
employment agreement, dated as of June 23, 1998. Effective upon the consummation
of the AT&T Merger, AT&T assumed Mr. Hindery's employment agreement. Pursuant to
the terms of the assumption agreement by AT&T, the term of Mr. Hindery's
employment began on March 9, 1999 and will continue for a period of five years.
Mr. Hindery's agreement provides for a base salary of $900,000 per year. Mr.
Hindery's salary is subject to annual review by the Board of Directors, which
may in its sole discretion increase his salary.



                                                                     (continued)


                                     III-22
<PAGE>   203


         Mr. Hindery's employment agreement also provides that, upon termination
of his employment by the Company (other than for cause, as defined in the
agreement), he will receive the greater of (i) two years' compensation (other
than deferred compensation), or (ii) all remaining compensation (other than
deferred compensation) due under the agreement for the balance of the employment
term, which compensation shall be immediately due and payable.

         Mr. Hindery's employment agreement provides, among other things, for
deferral of a portion (0% in 1998 and not in excess of 40% thereafter) of the
monthly compensation payable to him. The deferred amounts will be payable in
substantially equal monthly installments over a 120-month period commencing on
the first business day of the first calendar month following the termination of
Mr. Hindery's employment with the Company, together with interest thereon at the
rate of 8% per annum compounded annually from the date of deferral to the date
of payment. In the event Mr. Hindery dies while he is a full time employee of
the Company or before the expiration of the 120-month period in which he is to
receive such deferred payments, the remaining deferred payments will be paid in
a lump sum to Mr. Hindery's designated beneficiary or beneficiaries. Mr.
Hindery's right to receive deferred payments is conditioned upon his compliance
with certain terms of his employment agreement which survive for portions of the
120-month payment period therefor.

         While he is employed by the Company pursuant to his employment
agreement, Mr. Hindery is entitled to participate in all formal incentive
compensation plans, stock incentive plans, employee stock purchase plans,
retirement plans and insurance plans or policies adopted for the benefit of
TCI's executive officers or employees generally. In addition, the Company has
agreed that its Compensation Committee of the Board of Directors will grant to
Mr. Hindery, for each calendar year or portion thereof that he is employed by
the Company, a Performance Award under the terms of the Amended and Restated
Tele-Communications, Inc. 1996 Incentive Plan (or any successor plan), with a
target bonus opportunity for Mr. Hindery of not less than $2,100,000, determined
as of the commencement of the employment period. The Compensation Committee will
determine the maximum Performance Award, the criteria applicable to such Award
and the achievement of performance goals in connection therewith for each
employment period. Mr. Hindery shall have the right to receive all or any
portion of his Performance Award in shares of the Company's Common Stock.

         On the date of Mr. Hindery's employment agreement, the Company granted
to him 1,000,000 restricted stock units for the Company's Series A TCI Group
Common Stock, 50% of which will vest on each of the fourth and the fifth
anniversaries of the date of the grant. Upon consummation of the AT&T Merger,
such restricted stock units were equitably converted into restricted stock units
for AT&T Common Stock.

         Mr. Hindery's agreement provides that, during his employment with the
Company and for a period of two years following the effective date of his
termination of employment with the Company, he will not be connected with any
entity in any manner specified in the agreement, which competes in a material
respect with the business of AT&T or any of its affiliates, including the
Company or the Company's majority owned subsidiaries. However, the agreement
provides that Mr. Hindery may own securities of any corporation listed on a
national securities exchange or quoted on Nasdaq to the extent of an aggregate
of 5% of the amount of such securities outstanding. Under the employment
agreement, substantially all of Mr. Hindery's business time, attention and
efforts will be devoted to the affairs of the Company.



                                                                     (continued)


                                     III-23
<PAGE>   204


         (f) Compensation Committee Interlocks and Insider Participation in
Compensation Decisions.

         In addition, please refer to the discussion under "Item 11. Executive
Compensation - Background of Stock Adjustments" for additional information
regarding changes in the capital structure of the Company. References to share
amounts and per share prices have also been adjusted retroactively to give
effect to such changes.

         The members of the Company's compensation committee are Messrs. Paul A.
Gould and Kim Magness, both directors of the Company. Each of Mr. Gould and Mr.
Magness are not and have not been officers of the Company or any of its
subsidiaries.

         On February 17, 1999, the date of the stockholders meeting approving
the AT&T Merger, the Board approved the payment by Liberty of $1 million to Paul
A. Gould for his services on the Special Committee of the Company's Board of
directors in evaluating the merger transaction with AT&T and the consideration
to be received by the stockholders of the Company.

         Mr. Fisher is a member of the compensation committee of TCI Music.
Messrs. Hindery and Sparkman, as well as Mr. Fisher, are executive officers of
TCI Music. See "Item 13 - Certain Relationships and Related Transactions -
Transactions with Management and Others and Indebtedness of Management" for more
information regarding transactions involving Messrs. Fisher, Hindery and
Sparkman.

         Magness and Malone Transactions. On June 16, 1997, (a) the Company
issued 30,545,864 shares of TCI Group Series A Stock (which shares are entitled
to one vote per share) to the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI in exchange (the
"Exchange") for an equal number of shares of TCI Group Series B Stock (which
shares are entitled to ten votes per share) owned by the Magness Estate, (b) the
Magness Estate sold (the "Sale") the shares of TCI Group Series A Stock received
in the Exchange, together with approximately 1.5 million shares of TCI Group
Series A Stock that the Magness Estate previously owned (collectively, the
"Option Shares"), to two investment banking firms (the "Investment Bankers") for
approximately $530 million (the "Sale Price") and (c) TCI entered into an
agreement with the Investment Bankers whereby TCI would have the option, but not
the obligation, to purchase the Option Shares at any time on or before June 16,
1999. The preceding transactions are referred to collectively as the "June 16
Stock Transaction." Pursuant to a certain Letter Agreement, dated June 16, 1997,
between Dr. Malone, TCI's Chairman and Chief Executive Officer, and the Magness
Estate, Dr. Malone agreed to waive certain rights of first refusal with respect
to shares of TCI Group Series B Stock beneficially owned by the Magness Estate.
Such rights of first refusal arise from a letter agreement, dated June 17, 1988,
among Bob Magness, Kearns-Tribune Corporation and Dr. Malone, pursuant to which
Dr. Malone was granted a right of first refusal to acquire any shares of TCI
Group Series B Stock which the other parties proposed to sell. As a result of
Dr. Malone's rights under such June 17, 1988 letter agreement, such waiver was
necessary in order for the Magness Estate to consummate the Exchange and the
Sale.

         In consideration for such waiver, TCI granted Dr. Malone the right (the
"Malone Right") to acquire from time to time until June 30, 1999, from TCI up to
30,545,864 shares of the TCI Group Series B Stock acquired by TCI from the
Magness Estate pursuant to the Exchange. Such acquisition may be made in
exchange for either, or any combination of, shares of TCI Group Series A Stock
owned by Dr. Malone (exchanged on a one for one basis), or cash in an amount
equal to the average closing sale price of the TCI Group Series B Stock for the
five trading days preceding the acquisition.



                                                                     (continued)



                                     III-24
<PAGE>   205
         In connection with certain legal proceedings relative to the probate of
the Magness Estate, one or more of Gary Magness and Kim Magness, Bob Magness'
sons, Sharon Magness, Bob Magness' surviving second wife, and the original
personal representatives of the Magness Estate advanced various claims, causes
of action, demands, complaints and request against one or more of the others. In
addition, Kim Magness and Gary Magness, in a Complaint And Request To Void Sale
of TCI Stock, And For Damages And Surcharge, filed on October 29, 1997 (the
"Voiding Action"), advanced various claims relating to the June 16 Stock
Transaction against TCI, Dr. Malone and the original personal representatives of
the Magness Estate. Among other matters, the Voiding Action challenged the June
16 Stock Transaction on various fiduciary bases and requested rescission of such
transaction and damages.

         Pursuant to an agreement effective as of January 5, 1998, (the
"Settlement Agreement"), TCI, Gary Magness, Kim Magness, Sharon Magness, the
Magness Estate, the Estate of Betsy Magness (the first wife of Bob Magness) and
Dr. Malone agreed to settle their respective claims against each other relating
to the Magness Estate and the June 16 Stock Transaction, in each case without
any of those parties admitting any of the claims or allegations against that
party (the "Magness Settlement").

         In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that (a) 10,201,041 shares of TCI Group Series A Stock
and 11,666,506 shares of TCI Ventures Group Series A Stock were returned to TCI
as authorized but unissued shares, (b) the Magness Estate returned to the
Investment Bankers the portion of the Sales Price attributable to such returned
shares and (c) the Magness Estate paid $11 million to TCI representing a
reimbursement of the Exchange fees incurred by TCI from June 16, 1997 through
February 9, 1998 with respect to such returned shares. TCI then issued to the
Magness Estate 10,017,145 shares of TCI Group Series B Stock and 12,034,298
shares of TCI Ventures Group Series B Stock. In addition, as part of the Magness
Settlement, TCI issued 1,339,415 shares of TCI Group Series B Stock to the
Estate of Betsy Magness in exchange for an equal number of shares of TCI Group
Series A Stock and issued 1,531,834 shares of TCI Ventures Group Series B Stock
for an equal number of shares of TCI Ventures Group Series A Stock.

         On February 9, 1998, in connection with the Magness Settlement, the
Company entered into a call agreement (the "Malone Call Agreement") with Dr.
Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"), under
which the Malones granted to the Company the right to acquire any shares of the
Company's common stock which are entitled to cast more than one vote per share
(the "High-Voting Shares") owned by the Malones, which at December 31, 1998
consisted of an aggregate of approximately 69 million High-Voting Shares, upon
Dr. Malone's death or upon a contemplated sale of the High-Voting Shares (other
than a minimal amount) to third persons. In either such event, the Company has
the right to acquire such shares at a maximum price equal to the then relevant
market price of shares of the Company's "low-voting" Series A common stock plus
a ten percent premium. The Malones also agreed that if the Company were ever to
be sold to another entity, then the maximum premium that the Malones would
receive on their High-Voting Shares would be no greater than a ten percent
premium over the price paid for the relevant shares of Series A common stock.
The Company paid $150 million to the Malones in consideration of their entering
into the Malone Call Agreement.



                                                                     (continued)


                                     III-25
<PAGE>   206
         Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually, and in certain cases, on
behalf of the Estate of Betsy Magness and the Magness Estate (collectively, the
"Magness Family") also entered into a call agreement with the Company (with
substantially the same terms as the one entered into by the Malones, including a
call on the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's, which at December 31, 1998
consisted of an aggregate of approximately 55 million High-Voting Shares. The
Magness Family was paid $124 million by the Company in consideration of their
entering into the Magness Call Agreement.

         Additionally, on February 9, 1998, the Magness Family entered into a
shareholders' agreement (the "Shareholders' Agreement") with the Malones and the
Company under which (1) the Magness Family and the Malones agreed to consult
with each other in connection with matters to be brought to the vote of the
Company's stockholders, subject to the proviso that if they cannot mutually
agree on how to vote the shares, Dr. Malone has an irrevocable proxy to vote the
High-Voting Shares owned by the Magness Family, (2) the Magness Family may
designate a nominee for the Board and Dr. Malone has agreed to vote his
High-Voting Shares for such nominee and (3) certain "tag along rights" have been
created in favor of the Magness Family and certain "drag along rights" have been
created in favor of the Malones. In addition, the Malone Right granted by the
Company to Dr. Malone to acquire 30,545,864 shares of TCI Group Series B Stock
was reduced to an option to acquire 14,511,570 shares of TCI Group Series B
Stock. Pursuant to the terms of the Shareholders' Agreement, the Magness Family
has the right to participate in the reduced Malone Right on a proportionate
basis with respect to 12,406,238 shares of the 14,511,570 shares subject to the
Malone Right. On June 24, 1998, Dr. Malone delivered notice to the Company
exercising his right to purchase (subject to the Magness Family proportionate
right) up to 14,511,570 shares of TCI Group Series B Stock at a per share price
of $35.5875 pursuant to the Malone Right. In addition, a representative of the
Magness Family advised Dr. Malone that the Magness Family would participate in
such purchase up to the Magness Family's proportionate right. On October 14,
1998, 8,718,770 shares of TCI Group Series B Stock were issued to Dr. Malone
upon payment of cash consideration totaling $310 million. On October 16, 1998,
5,792,800 shares of TCI Group Series B Stock were issued to the Magness Family
upon payment of cash consideration totaling $206 million. In connection with the
acquisition of the TCI Group Series B Stock by Dr. Malone, the Company executed
certain waivers to the Malone Call Agreement and the Company and the Magness
Family executed a waiver to the Shareholders' Agreement to, among other things,
permit (subject to certain limitations) the pledge of TCI Group Series B Stock
owned by Dr. Malone as collateral to the lenders who provided the funds for his
purchase of shares of TCI Group Series B Stock. In connection with the AT&T
Merger, Liberty Media Corporation ("Liberty") became entitled to exercise TCI's
rights under each Call Agreement and the Shareholders' Agreement with respect to
the AT&T Liberty Class B Tracking Stock acquired by the Malones and the Magness
Family as a result of the AT&T Merger and the Malones and the Magness Family
agreed that the Shareholders' Agreement would continue to apply to the AT&T
Liberty Class B Tracking Stock.

         On February 1, 1999, the Company began to terminate the transactions
under the agreements with the Investment Bankers described above, and as of
March 5, 1999, such transactions were terminated.


                                                                     (continued)


                                     III-26
<PAGE>   207

Item 12. Security Ownership of Certain Beneficial Owners and Management.

         Please refer to the discussion under "Item 11. Executive Compensation -
Background of Stock Adjustments" for information regarding changes in the
capital structure of the Company. References to share amounts and per share
prices have been adjusted retroactively to give effect to such changes, except
as otherwise noted.

         (a) Security ownership of certain beneficial owners. The following
table sets forth, as of December 31, 1998, information with respect to the
ownership of TCI Group Series A Stock, TCI Group Series B Stock, Liberty Group
Series A Stock, Liberty Group Series B Stock, Ventures Group Series A Stock,
Ventures Group Series B Stock, TCI Group Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock ("Class B Preferred Stock"), Series C-TCI
Group Preferred Stock, Series C-Liberty Media Group Preferred Stock, Redeemable
Convertible TCI Group Preferred Stock, Series G ("Series G Preferred Stock") and
Redeemable Convertible Liberty Media Group Preferred Stock, Series H ("Series H
Preferred Stock") by each person known to the Company to own beneficially more
than 5% of any such class outstanding on that date. The aforementioned
securities shall be referred to, from time to time, as the "Voting Securities."
Unless otherwise indicated, the information in the table and the footnotes is as
of December 31, 1998. Shares issuable upon exercise of options, conversion of
convertible securities, exchange of exchangeable securities or upon vesting of
restricted stock awards are deemed to be outstanding for the purpose of
computing the percentage ownership and overall voting power of persons
beneficially owning such securities, but have not been deemed to be outstanding
for the purpose of computing the percentage ownership or overall voting power of
any other person. Voting power in the table is computed with respect to a
general election of directors and, therefore, the Class B Preferred Stock, the
Series G Preferred Stock and the Series H Preferred Stock are included in the
calculation notwithstanding the fact that the Class B Preferred Stock, the
Series G Preferred Stock and the Series H Preferred Stock do not generally vote
with respect to matters submitted to a vote of stockholders. So far as is known
to TCI, the persons indicated below have sole voting and investment power with
respect to the shares indicated as owned by them except as otherwise stated in
the notes to the table.

         The following security ownership table has not been adjusted to reflect
the impact of the AT&T Merger.

<TABLE>
<CAPTION>
                                                               Amount and
       Title                                                    Nature of
        of                        Name and Address              Beneficial                    Percent        Voting
       Class                   of Beneficial Owner               Ownership                  of Class (1)    Power (1)
       -----                   -------------------           --------------------          -------------   -----------
<S>                      <C>                                 <C>                           <C>             <C>    
TCI Group Series A       John C. Malone
   Stock                   5619 DTC Parkway                     1,350,146 (2)                    *            47.74%
TCI Group Series B         Englewood, Colorado 80111
   Stock                                                       54,400,430 (3)(4)(5)(6)          84.41%
Liberty Group Series A
   Stock                                                        1,166,807 (2)(3)                 *
Liberty Group Series B
   Stock                                                       27,234,311 (3)(4)(6)             85.92%
Ventures Group Series
   A Stock                                                      1,200,000 (2)                    *
Ventures Group Series
   B Stock                                                     44,821,938 (2)(3)(4)(5)(6)       93.15%
Class B Preferred       
   Stock                                                          273,600 (3)                   17.62%
</TABLE>



                                                                     (continued)


                                     III-27
<PAGE>   208


<TABLE>
<CAPTION>
                                                               Amount and
       Title                                                    Nature of
        of                        Name and Address              Beneficial                    Percent        Voting
       Class                   of Beneficial Owner               Ownership                  of Class (1)    Power (1)
       -----                   -------------------           --------------------          -------------   -----------
<S>                      <C>                                 <C>                           <C>             <C>    
TCI Group Series A       Kim Magness
   Stock                   5619 DTC Parkway                        50,000 (7)                    *           20.98%
TCI Group Series B         Englewood, Colorado  80111,
   Stock                   individually and as co-             21,874,613 (4)(8)(9)             33.94%
Liberty Group Series A     personal representative of the
   Stock                   Estate of Bob Magness                9,221,009 (7)(8)                 2.75%
Liberty Group Series B     and as personal representative
   Stock                   of the Estate                       14,044,522 (4)(8)(9)             44.31%
Ventures Group Series      of Betsy Magness
   B Stock                                                     18,236,450 (4)(8)(9)             40.24%
Class B Preferred         
   Stock                                                           62,500                        4.03%

TCI Group Series A       Gary Magness
   Stock                   5619 DTC Parkway                        16,963 (10)                   *           15.65%
TCI Group Series B         Englewood, Colorado  80111,
   Stock                   individually and as co-             16,403,415 (4)(8)(9)(10)         25.45%
Liberty Group Series A     personal representative of the
   Stock                   Estate of Bob Magness                6,861,365 (8)(10)                2.04%
Liberty Group Series B
   Stock                                                       11,703,390 (4)(8)(9)(10)         36.92%
Ventures Group Series
   A Stock                                                        242,628 (10)                   *
Ventures Group Series
   B Stock                                                     12,263,932 (4)(8)(9)(10)         27.06%
Class B Preferred          
   Stock                                                           64,598                        4.16%

TCI Group Series A       The Associated Group, Inc. 
   Stock                   200 Gateway Towers                   9,111,202 (11)                   1.92%        4.64%
TCI Group Series B         Pittsburgh, Pennsylvania 15222
   Stock                                                        7,123,167 (11)                  11.05%
Liberty Group Series A
   Stock                                                        8,180,954 (11)                   2.44%
Liberty Group Series B
   Stock                                                        2,651,944 (11)                   8.37%
Ventures Group Series
   A Stock                                                      6,737,548 (11)                   1.79%


TCI Group Series A       The Capital Group Companies, Inc.
   Stock                   and Capital Research                 8,880,820 (12)                   1.87%        2.58%
Liberty Group Series A     and Management Company 
   Stock                   333 South Hope Street               36,138,420 (12)                  10.77%
Ventures Group Series      Los Angeles, California  90071
   A Stock                                                     22,599,350 (12)                   5.99%

TCI Group Series A       The Equitable Companies
   Stock                   Incorporated                         5,432,135 (13)                   1.15%        3.06%
Liberty Group Series A     1290 Avenue of the Americas 
   Stock                   New York, New York 10104;           44,430,625 (14)                  13.24%
Ventures Group Series      and The Mutuelles AXA (as
   A Stock                 defined)                            30,559,324 (15)                   8.10%
                           100-101 Terrasse Boieldieu
                           92042
                           Paris La Defense France
</TABLE>



                                                                     (continued)


                                     III-28
<PAGE>   209


<TABLE>
<CAPTION>
                                                               Amount and
       Title                                                    Nature of
        of                        Name and Address              Beneficial                    Percent        Voting
       Class                   of Beneficial Owner               Ownership                  of Class (1)    Power (1)
       -----                   -------------------           --------------------          -------------   -----------
<S>                      <C>                                 <C>                           <C>             <C>    
TCI Group Series A       Putnam Investments, Inc.
   Stock                   One Post Office Square              24,144,990 (16)                   5.10%        2.43%
Ventures Group Series      Boston, Massachusetts 02109
   A Stock                                                     39,590,372 (17)                  10.50%

TCI Group Series A       Janus Capital Corporation and
   Stock                   Thomas H. Bailey                    29,569,829 (18)                   6.24%        1.13%
                           100 Fillmore Street
                           Denver, Colorado 80206

Liberty Group Series A   Lawrence Flinn, Jr.
   Stock                   209 Taconic Road                     7,336,744 (19)                   2.19%        1.23%
Ventures Group Series      Greenwich, Connecticut 06830
   A Stock                                                     12,688,812 (19)                   3.36%
Series G Preferred
   Stock                                                        6,186,647 (19)                  96.00%
Series H Preferred
   Stock                                                        6,186,647 (19)                  94.24%

TCI Group Series A       Bill Daniels
   Stock                   c/o Daniels & Associates                 1,725 (19)                      *            *
Liberty Group Series A     3200 Cherry Creek Drive South                                               
   Stock                   Denver, Colorado 80209                   1,021 (19)                      *  
Ventures Group Series                                                                                  
   A Stock                                                            188 (19)                      *  
Class B Preferred                                                                                      
   Stock                                                               20                           *  
Series C-TCI Group                                                                                     
   Preferred Stock                                                 43,575 (20)                    100% 
Series C-Liberty Media                                                                                 
   Group  Preferred                                                                                    
   Stock                                                           70,575 (20)                    100% 

TCI Group Series A       FMR Corp. and Fidelity Management
   Stock                   and Research                        33,337,607 (21)                   7.04%        2.13%
Ventures Group             Company
   Series A Stock          82 Devonshire Street                22,494,698 (22)                   5.96%
                           Boston, Massachusetts 02109

Class B Preferred        Salomon Brothers Inc.
   Stock                   Salomon Brothers Holding               100,142 (23)                   6.45%           *
                           Company Inc. Salomon Smith
                           Barney Holdings Inc.
                           Travelers Group Inc.
                           388 Greenwich Street
                           New York, New York  10013
</TABLE>

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

*  Less than one percent.

(1)  Based on 473,657,007 shares of TCI Group Series A Stock, 64,444,193 shares
     of TCI Group Series B Stock, 335,674,724 shares of Liberty Group Series A
     Stock, 31,698,895 shares of Liberty Group Series B Stock, 377,191,780
     shares of Ventures Group Series A Stock, 45,318,338 shares of Ventures
     Group Series B Stock, 1,552,490 shares of Class B Preferred Stock, 43,575
     shares of Series C-TCI Group Preferred Stock, 70,575 shares of Series
     C-Liberty Media Group Preferred Stock, 6,444,244 shares of Series G
     Preferred Stock and 6,564,794 shares of Series H Preferred Stock
     outstanding on December 31, 1998, in each case after elimination of shares
     then held in treasury and shares held by the Company and its majority owned
     subsidiaries. 


                                                                     (continued)


                                     III-29
<PAGE>   210

(2)  Assumes the exercise in full of the following: (a) stock options granted in
     tandem with stock appreciation rights in November 1992 to acquire 650,000
     shares of TCI Group Series A Stock, 562,500 shares of Liberty Group Series
     A Stock, and 600,000 shares of Ventures Group Series A Stock, all of which
     options are currently exercisable; (b) stock options granted in tandem with
     stock appreciation rights in December 1995 to acquire 700,000 shares of TCI
     Groups Series A Stock, 562,500 shares of Liberty Group Series A Stock, and
     600,000 shares of Ventures Group Series A Stock, of which options to
     acquire 420,000, 337,500 and 360,000, respectively, of such shares are
     currently exercisable; (c) stock options granted in April 1996, pursuant to
     the TINTA Director Stock Option Plan to acquire 29,000 shares of Liberty
     Group Series A Stock, of which options to acquire 11,600 shares are
     currently exercisable; and (d) stock options granted in tandem with stock
     appreciation rights in December 1997 to acquire 2,800,000 shares of
     Ventures Group Series B Stock, of which options to acquire 560,000 shares
     are currently exercisable.

(3)  Includes 784,892 shares of TCI Group Series B Stock, 12,726 shares of
     Liberty Group Series A Stock, 439,875 shares of Liberty Group Series B
     Stock, 793,240 shares of Ventures Group Series B Stock and 6,900 shares of
     Class B Preferred Stock held by Dr. Malone's wife, Mrs. Leslie Malone, as
     to which Dr. Malone has disclaimed beneficial ownership.

(4)  Pursuant to a letter agreement dated June 17, 1988, the late Mr. Bob
     Magness and Kearns, each granted Dr. Malone certain rights with respect to
     the then Class B Common Stock of TCI owned by them. Dr. Malone agreed with
     TCI to forego the exercise of such rights in connection with a June 16,
     1997 transaction whereby the Estate of Bob Magness sold 30,545,864 shares
     of TCI Group Series B Stock to TCI in exchange for an equal number of
     shares of TCI Group Series A Stock. In consideration thereof, TCI granted
     Dr. Malone the right to acquire, at any time and from time to time prior to
     June 30, 1999 (the "Malone Right"), up to 30,545,864 shares of TCI Group
     Series B Stock for either (or any combination of): (a) shares of TCI Group
     Series A Stock on a one-for-one basis; or (b) cash based on the closing
     sales price of the TCI Group Series B Stock on Nasdaq for a specified
     period prior to the acquisition of such shares by Dr. Malone (the
     "TCI-Estates Agreement"). Effective February 9, 1998, however, the number
     of shares of TCI Group Series B Stock subject to the Malone Right was
     reduced from 30,545,864 to 14,511,570 shares. Dr. Malone and certain
     members of the Magness family, individually, and in certain cases, on
     behalf of the Estate of Betsy Magness and the Estate of Bob Magness
     (collectively, the "Magness Group") had the right to participate with Dr.
     Malone in any acquisition of up to 12,406,238 of the 14,511,570 shares of
     TCI Group Series B Stock subject to the Malone Right on a basis
     proportionate to the relative ownership by the Magness Group and Dr. Malone
     and his spouse of capital stock of TCI having more than one vote per share
     in the election of directors. On June 24, 1998, Dr. Malone delivered notice
     to the Company exercising his right to purchase (subject to the Magness
     Group proportionate right) up to 14,511,570 shares of TCI Group Series B
     Stock at a per share price of $35.5875 pursuant to the Malone Right. In
     addition, a representative of the Magness Group advised Dr. Malone that the
     Magness Group would participate in such purchase up to the Magness Group's
     proportionate right. On October 14, 1998, 8,718,770 shares of TCI Group
     Series B Stock were issued to Dr. Malone upon payment of cash consideration
     totaling $310 million. On October 16, 1998, 5,792,800 shares of TCI Group
     Series B Stock were issued to the Magness Group upon payment of cash
     consideration totaling $206 million.




                                                                     (continued)


                                     III-30
<PAGE>   211
     In connection with the foregoing changes to the TCI-Estates Agreement, on
     February 9, 1998, Dr. Malone and his spouse (the "Malone Group") and the
     Magness Group entered into a Stockholders' Agreement pursuant to which the
     parties agreed to consult with each other on any matter coming to a vote of
     TCI stockholders; provided, however, that in the event of a disagreement,
     the shares of TCI Group Series B Stock, Liberty Group Series B Stock and
     Ventures Group Series B Stock held by the Malone Group and the Magness
     Group will be voted in the manner directed by Dr. Malone pursuant to an
     irrevocable proxy given by the Magness Group. See "Item 11. Executive
     Compensation - Compensation Committee Interlocks and Insider Participation
     in Compensation Decisions" for additional information.

     As a result of the aforementioned transactions, Dr. Malone's beneficial
     ownership of TCI common stock includes the following shares held by the
     Magness Group: 22,313,883 shares of TCI Group Series B Stock, 14,293,219
     shares of Liberty Group Series B Stock, and 18,466,084 shares of Ventures
     Group Series B Stock.

(5)  Includes 1,684,775 shares of TCI Group Series B Stock and 1,721,360 shares
     of Ventures Group Series B Stock held by trusts to which Mr. Hindery is the
     trustee and over which Dr. Malone has the power to direct the voting. Dr.
     Malone also has a right of first refusal with respect to any proposed
     transfer of such shares. Such right of first refusal may be exercised by
     Dr. Malone either by the payment of cash or, subject to certain exceptions,
     by the exchanging of shares of TCI Group Series A Stock for such TCI Group
     Series B Stock or Ventures Group Series A Stock for such Ventures Group
     Series B Stock. If not exercised by Dr. Malone, the right of first refusal
     may be exercised by the Company. See note 6 to the table in "Security
     Ownership of Management" for additional information.

(6)  Dr. and Mrs. Malone's shares of TCI Group Series B Stock, Liberty Group
     Series B Stock, and Ventures Group Series B Stock are subject to the terms
     of a Call Agreement, dated as of February 9, 1998, among Dr. and Mrs.
     Malone and TCI. See "Item 11. Executive Compensation - Compensation
     Committee Interlocks and Insider Participation in Compensation Decision -
     Magness and Malone Transactions" for additional information regarding the
     terms of such Call Agreement.

(7)  Assumes the exercise in full of options granted to Mr. Magness in November
     1994, pursuant to the Company's Director Stock Option Plan, to acquire
     50,000 shares of TCI Group Series A Stock and 28,125 shares of Liberty
     Group Series A Stock. Options to acquire 40,000 and 22,500, respectively,
     of such shares are currently exercisable.

(8)  Effective January 5, 1998, Mr. Kim Magness and Mr. Gary Magness were
     appointed co-personal representatives of the Estate of Bob Magness.
     Accordingly, the following shares beneficially owned by the Estate of Bob
     Magness are reflected in full in Mr. Kim Magness' and Mr. Gary Magness'
     share information: (a) 15,964,145 shares of TCI Group Series B Stock; (b)
     6,583,228 shares of Liberty Group Series A Stock; (c) 11,454,693 shares of
     Liberty Group Series B Stock; and (d) 12,034,298 shares of Ventures Group
     Series B Stock.


                                                                     (continued)


                                     III-31
<PAGE>   212

(9)  The shares of TCI Group Series B Stock, Liberty Group Series B Stock, and
     Ventures Group Series B Stock beneficially owned by Mr. Kim Magness, Mr.
     Gary Magness, the Estate of Bob Magness, and the Estate of Betsy Magness
     are subject to the terms of a Call Agreement, dated as of February 9, 1998,
     among members of the Magness Group and TCI. See "Item 11. Executive
     Compensation - Compensation Committee Interlocks and Insider Participation
     in Compensation Decisions - Magness and Malone Transactions" for additional
     information regarding the terms of such Call Agreement.

(10) Includes 7,851 shares of TCI Group Series A Stock, 102 shares of TCI Group
     Series B Stock, 12,800 shares of Liberty Group Series A Stock, 11,606
     shares of Ventures Group Series A Stock and 5,796 shares of Ventures Group
     Series B Stock held by Mr. Gary Magness' wife. Also, includes 2,750 shares
     of TCI Group Series A Stock, 1,100 shares of TCI Group Series B Stock, 420
     shares of Liberty Group Series A Stock and 500 shares of Liberty Group
     Series B Stock held by Mr. Gary Magness' daughter.

(11) The number of shares in the table is based upon disclosure made by The
     Associated Group, Inc. to the Company as of February 23, 1999. All shares
     are beneficially owned through a wholly owned subsidiary of The Associated
     Group, Inc.

(12) The number of shares in the table is based upon Schedule 13Gs filed by the
     Capital Group Companies, Inc. dated February 11, 1999. The Capital Group
     Companies, Inc. is the parent holding company of a group of investment
     management companies that hold investment power and, in some cases, voting
     power over the securities reported in the Schedule 13Gs. The investment
     management companies, which include a bank and several investment advisors,
     provide investment advisory and management services for their respective
     clients which include registered investment companies and institutional
     accounts. The Capital Group Companies, Inc. does not have investment power
     or voting power over any of the securities reported; however, The Capital
     Group Companies, Inc., may be deemed to beneficially own such securities.
     Capital Research and Management Company, an investment adviser and wholly
     owned subsidiary of The Capital Group Companies, Inc., is the beneficial
     owner of the securities reported.

(13) The number of shares of TCI Group Series A Stock in the table is based upon
     a Schedule 13G, dated February 17, 1998, filed by The Equitable Companies
     Incorporated and other related companies (defined therein as the Mutuelles
     AXA). The Schedule 13G reflects that said corporations have sole voting
     power over 1,073,613 shares and shared voting power over 3,867,425 shares
     of TCI Group Series A Stock. The Schedule 13G also reflects that said
     corporations have sole disposition power over 5,407,128 shares and shared
     disposition power over 25,007 shares of TCI Group Series A Stock. No
     additional information is given with respect to the voting power over the
     remaining shares.

(14) The number of shares of Liberty Group Series A Stock in the table is based
     upon a Schedule 13G, dated February 16, 1999, filed by the Equitable
     Companies Incorporated and other related companies (defined therein as the
     Mutuelles AXA). The Schedule 13G reflects that said corporations have sole
     voting power over 23,181,796 shares and shared voting power over 11,269,586
     shares of Liberty Group Series A Stock. The Schedule 13G also reflects that
     said corporations have sole disposition power over 44,414,521 shares and
     shared disposition power over 8,779 shares of Liberty Group Series A Stock.
     No additional information is given with respect to the voting power over
     the remaining shares.



                                                                     (continued)


                                     III-32
<PAGE>   213

(15) The number of shares of Ventures Group Series A Stock in the table is based
     upon a Schedule 13G, dated February 16, 1999, filed by the Equitable
     Companies Incorporated and other related companies (defined therein as the
     Mutuelles AXA). The Schedule 13G reflects that said corporations have sole
     voting power over 3,698,056 shares and shared voting power over 26,581,886
     shares of Ventures Group Series A Stock. The Schedule 13G also reflects
     that said corporations have sole disposition power over 30,534,690 shares
     and shared disposition power over 24,634 shares of Ventures Group Series A
     Stock. No additional information is given with respect to the voting power
     over the remaining shares.

(16) The number of shares of TCI Group Series A Stock in the table is based upon
     a Schedule 13G, dated February 12, 1999, filed by Putnam Investments, Inc.
     and other related companies. The Schedule 13G reflects that said
     corporations have shared voting power over 2,752,932 shares and shared
     disposition power over all the shares. No additional information is given
     with respect to the voting power over the remaining shares.

(17) The number of shares of Ventures Group Series A Stock in the table is based
     upon a Schedule 13G, dated February 6, 1998, filed by Putnam Investments,
     Inc. and other related companies. The Schedule 13G reflects that said
     corporations have shared voting power over 3,706,552 shares and shared
     disposition power over all the shares. No additional information is given
     with respect to the voting power over the remaining shares.

(18) The number of shares of TCI Group Series A Stock in the table is based upon
     a Schedule 13G, dated February 12, 1999, filed by Janus Capital
     Corporation. The Schedule 13G reflects that said corporation has shared
     voting power and shared disposition power over all of the shares of TCI
     Group Series A Stock. Amount includes 358,185 shares of TPAC preferred
     stock convertible into TCI Group Series A Stock on a 5.447-for-1 basis.

(19) The number of shares in the table is based upon the Company's review of the
     record of stockholders provided by the Company's transfer agent, The Bank
     of New York.

(20) Based upon the Company's review of its internally maintained stock records.

(21) The number of shares of TCI Group Series A Stock in the table is based upon
     a Schedule 13G, dated February 12, 1999, filed by FMR Corp. and other
     related companies. The Schedule 13G reflects that said corporations have
     sole voting power over 1,591,587 shares and shared disposition power over
     33,336,607 shares. No additional information is given with respect to the
     voting power over the remaining shares.

(22) The number of shares of Ventures Group Series A Stock in the table is based
     upon a Schedule 13G, dated February 16, 1999, filed by FMR Corp. and other
     related companies. The Schedule 13G reflects that said corporations have
     sole voting power over 946,420 shares and shared disposition power over
     22,494,698 shares. No additional information is given with respect to the
     voting power over the remaining shares.

(23) The number of shares of Class B Preferred Stock in the table is based upon
     a Schedule 13G, dated December 10, 1997, filed by Salomon Brothers Inc. The
     Schedule 13G reflects that said corporation has shared voting power and
     shared disposition power over all of the shares of Class B Preferred Stock.


                                                                     (continued)


                                     III-33
<PAGE>   214
         (b) Security ownership of management. The following table sets forth,
as of December 31, 1998, information with respect to the ownership of the Voting
Securities by all directors and each of the named executive officers of TCI and
by all executive officers and directors of TCI as a group. Shares issuable upon
exercise of options, conversion of convertible securities, exchange of
exchangeable securities or upon vesting of restricted stock awards are deemed to
be outstanding for the purpose of computing the percentage ownership and overall
voting power of persons beneficially owning such securities, but have not been
deemed to be outstanding for the purpose of computing the percentage ownership
or overall voting power of any other person. Voting power in the table is
computed with respect to a general election of directors and, therefore, the
Class B Preferred Stock, the Series G Preferred Stock and the Series H Preferred
Stock are included in the calculation notwithstanding the fact that the Class B
Preferred Stock, the Series G Preferred Stock and the Series H Preferred Stock
do not generally vote with respect to matters submitted to a vote of
stockholders. The number of TCI Group Series A Stock, Liberty Group Series A
Stock and Ventures Group Series A Stock in the table include interests of the
named directors or executive officers or of members of the group of directors
and executive officers in shares held by the trustee of United Artists
Entertainment Company's Employee Stock Ownership Plan for their respective
accounts. So far as is known to TCI, the persons indicated below have sole
voting and investment power with respect to the shares indicated as owned by
them except as otherwise stated in the notes to the table.

         The following security ownership table has not been adjusted to reflect
the impact of the AT&T Merger.

<TABLE>
<CAPTION>
                                                                                       Percent       Voting
                               Name of                   Amount and Nature             of Class       Power
     Title of Class         Beneficial Owner            of Beneficial Ownership          (1)           (1)
     --------------         ----------------            -----------------------      ------------    -------
<S>                         <C>                         <C>                          <C>             <C>
TCI Group Series A           Donne F. Fisher
    Stock                                                        435,884 (2)                *           *
TCI Group Series B       
    Stock                                                        184,818                    *
Liberty Group Series A
    Stock                                                        381,838 (2)                *
Liberty Group Series B
    Stock                                                         93,402                    *
Ventures Group Series A
    Stock                                                        285,434 (2)                *
Ventures Group Series B
    Stock                                                        174,738                    *
Class B Preferred        
    Stock                                                          4,299 (2)                *

TCI Group Series A           John W. Gallivan
    Stock                                                         73,154 (3)                *          *
Liberty Group Series A
    Stock                                                         29,318 (3)                *
Ventures Group Series A
    Stock                                                         23,696                    *
Class B Preferred 
    Stock                                                             14 (3)                *
</TABLE>


                                                                     (continued)



                                     III-34
<PAGE>   215

<TABLE>
<CAPTION>
                                                                                       Percent       Voting
                               Name of                   Amount and Nature             of Class       Power
     Title of Class         Beneficial Owner            of Beneficial Ownership          (1)           (1)
     --------------         ----------------            -----------------------      ------------    -------
<S>                         <C>                         <C>                          <C>             <C>
TCI Group Series A           Paul A. Gould
    Stock                                                         88,090 (4)                 *           *
TCI Group Series B      
    Stock                                                        246,271                     *
Liberty Group Series A
    Stock                                                        208,907 (4)                 *
Liberty Group Series B
    Stock                                                         58,621                     *
Ventures Group Series A
    Stock                                                         56,266                     *
Ventures Group Series B
    Stock                                                         57,964                     *
Class B Preferred 
    Stock                                                         12,248                     *

TCI Group Series A           Leo J. Hindery, Jr.
    Stock                                                      2,924,534 (5)                 *           1.51%
TCI Group Series B 
    Stock                                                      1,684,775 (6)               2.61%
Liberty Group Series A
    Stock                                                      1,154,000 (5)                 *
Ventures Group Series A
    Stock                                                      1,550,932 (5)                 *
Ventures Group Series B
    Stock                                                      1,721,360 (6)               3.80%

TCI Group Series A           Jerome H. Kern
    Stock                                                      1,929,746 (7)                 *           *
Liberty Group Series A
    Stock                                                      1,406,105 (7)                 *
Ventures Group Series A
    Stock                                                      1,474,876 (7)                 *

TCI Group Series A           Kim Magness, individually
    Stock                        and as                           50,000 (8)                 *          20.98%
TCI Group Series B               co-personal
    Stock                        representative of            21,874,613 (9)              33.94%
Liberty Group Series A           the Estate of Bob
    Stock                        Magness and as                9,221,009 (10)              2.75%
Liberty Group Series B           personal
    Stock                        representative of            14,044,522 (11)             44.31%
Ventures Group Series B          the Estate of Betsy
    Stock                        Magness                      18,236,450 (11)             40.24%
Class B Preferred
    Stock                                                         62,500                   4.03%

TCI Group Series A           John C. Malone
    Stock                                                      1,350,146 (12)                *          47.74%
TCI Group Series B      
    Stock                                                     54,400,430 (13)             84.41%
Liberty Group Series A
    Stock                                                      1,166,807 (14)                *
Liberty Group Series B
    Stock                                                     27,234,311 (15)             85.92%
Ventures Group Series A
    Stock                                                      1,200,000 (12)                *
Ventures Group Series B
    Stock                                                     44,821,938 (16)             93.15%
Class B Preferred 
    Stock                                                        273,600 (17)             17.62%
</TABLE>



                                                                     (continued)


                                     III-35
<PAGE>   216

<TABLE>
<CAPTION>
                                                                                           Percent       Voting  
                               Name of                   Amount and Nature                 of Class       Power  
     Title of Class         Beneficial Owner            of Beneficial Ownership              (1)           (1)   
     --------------         ----------------            -----------------------          ------------    ------- 
<S>                         <C>                         <C>                              <C>             <C>     
TCI Group Series A           Robert A. Naify                                             
    Stock                                                  16,604,945 (18)                    3.39%        1.65%
Liberty Group Series A
    Stock                                                  13,324,954 (18)                    3.82%
Ventures Group Series A
    Stock                                                  14,167,826 (18)                    3.62%
Class B Preferred 
    Stock                                                       1,000                           *

TCI Group Series A           J. C. Sparkman
    Stock                                                     171,056 (19)                      *          *
Liberty Group Series A
    Stock                                                     141,751 (19)                      *
Ventures Group Series A
    Stock                                                     107,102 (19)                      *

TCI Group Series A           Stephen M. Brett
    Stock                                                     719,282 (20)                      *          *
Liberty Group Series A
    Stock                                                     506,294 (20)                      *
Ventures Group Series A
    Stock                                                     508,314 (20)                      *

TCI Group Series A           Larry E. Romrell
    Stock                                                     672,672 (21)                      *          *
TCI Group Series B 
    Stock                                                          20                           *
Liberty Group Series A
    Stock                                                     369,735 (21)                      *
Liberty Group Series B
    Stock                                                         220                           *
Ventures Group Series A
    Stock                                                     617,080 (21)                      *
Ventures Group Series B
    Stock                                                       1,136                           *

TCI Group Series A           Marvin L. Jones
    Stock                                                     290,268 (22)                      *          *
Liberty Group Series A
    Stock                                                       5,806 (22)                      *
Ventures Group Series A
    Stock                                                     173,112 (22)                      *

TCI Group Series A           All directors and
    Stock                        executive officers        26,817,325 (2)(3)(7)(18)(23)       5.38%       49.81%
TCI Group Series B               as a group (17
    Stock                        persons)                  54,831,597 (2)(6)(9)(13)          85.08%
Liberty Group Series A
    Stock                                                  35,690,749 (3)(7)(17)(18)(23)      9.89%
Liberty Group Series B
    Stock                                                  27,387,197 (9)(15)                86.40%
Ventures Group Series A
    Stock                                                  21,186,040 (7)(18)(23)             5.33%
Ventures Group Series B
    Stock                                                  45,059,092 (6)(9)(13)(24)         93.64%
Class B Preferred 
    Stock                                                     355,165 (2)(3)(17)             22.88%
</TABLE>

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

*  Less than one percent.

(1)  See note 1 to the table in "Security Ownership of Certain Beneficial
     Owners."

                                                                     (continued)



                                     III-36
<PAGE>   217


(2)  Assumes the exercise in full of the following: (a) stock options granted in
     tandem with stock appreciation rights to Mr. Fisher in November 1994 to
     acquire 140,000 shares of TCI Group Series A Stock, 112,500 shares of
     Liberty Group Series A Stock, and 120,000 Ventures Group Series A Stock of
     which options to acquire 112,000, 90,000 and 96,000, respectively, of such
     shares are currently exercisable; and (b) stock options granted in January
     1996, pursuant to the Director Stock Option Plan, to acquire 50,000 shares
     of TCI Group Series A Stock and 28,125 shares of Liberty Group Series A
     Stock, of which options to acquire 20,000 and 11,250, respectively, of such
     shares are currently exercisable. In addition, includes 51,724 shares of
     TCI Group Series A Stock, 66,946 shares of TCI Group Series B Stock and 210
     shares of Class B Preferred Stock held by Mr. Fisher's wife.

(3)  Includes 1,524 shares of TCI Group Series A Stock, 856 shares of Liberty
     Group Series A Stock and 14 shares of Class B Preferred Stock held by Mr.
     Gallivan's wife. Also, assumes the exercise in full of stock options
     granted in November 1994, pursuant to the Director Stock Option Plan, to
     acquire 20,000 shares of TCI Group Series A Stock and 28,125 shares of
     Liberty Group Series A Stock, of which options to acquire 10,000 and
     22,500, respectively, of such shares are currently exercisable.

(4)  Assumes the exercise in full of the following: (a) stock options granted in
     December 1996, pursuant to the Director Stock Option Plan, to acquire
     50,000 shares of TCI Group Series A Stock and 28,125 shares of Liberty
     Group Series A Stock, of which options to acquire 20,000 and 11,250,
     respectively, of such shares are currently exercisable; and (b) stock
     options granted in April 1996, pursuant to the TINTA Director Stock Option
     Plan to acquire 29,000 shares of Liberty Group Series A Stock, of which
     options to acquire 11,600 shares are currently exercisable.

(5)  Assumes the exercise in full of the following: (a) stock options granted in
     tandem with stock appreciation rights in February 1997 to acquire 700,000
     shares of TCI Group Series A Stock, 404,000 shares of Liberty Group Series
     A Stock, and 600,000 shares of Ventures Group Series A Stock, of which
     options to acquire 140,000, 80,800 and 120,000, respectively, of such
     shares are currently exercisable and (b) stock options granted in tandem
     with stock appreciation rights in July 1997 to acquire 1,050,000 shares of
     TCI Group Series A Stock, 750,000 shares of Liberty Group Series A Stock,
     and 900,000 shares of Ventures Group Series A Stock, of which options to
     acquire 210,000, 150,000 and 180,000, respectively, of such shares are
     currently exercisable.

     In addition, assumes the vesting in full of (a) 174,534 shares of
     restricted TCI Group Series A Stock and 50,932 shares of restricted
     Ventures Group Series A Stock which vest as to 50% in July 2001 and as to
     the remaining 50% in July 2002 and (b) 1,000,000 shares of restricted TCI
     Group Series A Stock which vests as to 50% in June 2002 and as to the
     remaining 50% in June 2003.

(6)  Includes 1,684,775 shares of TCI Group Series B Stock and 1,721,360 shares
     of Ventures Group Series B Stock held by trusts to which Mr. Hindery is the
     trustee and over which Dr. Malone has the power to vote such shares. Dr.
     Malone also has a right of first refusal with respect to any proposed
     transfer of such shares. Such right of first refusal may be exercised by
     Dr. Malone either by the payment of cash or, subject to certain exceptions,
     by the exchanging of shares of TCI Group Series A Stock for such TCI Group
     Series B Stock or Ventures Group Series A Stock for such Ventures Group
     Series B Stock. If not exercised by Dr. Malone, the right of first refusal
     may be exercised by the Company.


                                                                     (continued)



                                     III-37
<PAGE>   218

(7)  Includes 11,000 shares of TCI Group Series A Stock, 14,000 shares of
     Liberty Group Series A Stock and 5,000 shares of Ventures Group Series A
     Stock held by Mr. Kern's wife and as to which Mr. Kern disclaims beneficial
     ownership. Also, assumes the exercise in full of the following: (a) stock
     options granted in November 1994, pursuant to the Director Stock Option
     Plan, to purchase 25,000 shares of TCI Group Series A Stock and 14,063
     shares of Liberty Group Series A Stock, of which options to acquire 20,000
     and 11,250, respectively, of such shares are currently exercisable; (b)
     stock options granted in tandem with stock appreciation rights in December
     1995, to acquire 175,000 shares of TCI Group Series A Stock, 140,625 shares
     of Liberty Group Series A Stock and 150,000 shares of Ventures Group Series
     A Stock, of which options to acquire 105,000, 84,375 and 90,000,
     respectively, of such shares are currently exercisable; (c) stock options
     granted in April 1996, pursuant to the TINTA Director Stock Option Plan to
     acquire 14,500 shares of Liberty Group Series A Stock, of which options to
     acquire 5,800 shares are currently exercisable; (d) stock options granted
     in tandem with stock appreciation rights in July 1997 to acquire 850,000
     shares of TCI Group Series A Stock, 843,750 shares of Liberty Group Series
     A Stock and 900,000 shares of Ventures Group Series A Stock, of which
     options to acquire 170,000, 168,750 and 180,000, respectively, of such
     shares are currently exercisable; and (e) stock options granted in tandem
     with stock appreciation rights in December 1997 to acquire 350,000 shares
     of TCI Group Series A Stock, 250,000 shares of Liberty Group series A
     Stock, and 300,000 shares of Ventures Group Series A Stock, of which
     options to acquire 70,000, 50,000 and 60,000, respectively, of such shares
     are currently exercisable.

     In addition, assumes the vesting in full of (a) 163,620 shares of
     restricted TCI Group Series A Stock and 72,760 shares of restricted
     Ventures Group Series A Stock which vest as to 50% in July 2001 and as to
     the remaining 50% in July 2002 and (b) 250,000 shares of restricted TCI
     Group Series A Stock which vests as to 50% in December 2002 and as to the
     remaining 50% in December 2003.

(8)  See note (7) to the table in "Security Ownership of Certain Beneficial
     Owners."

(9)  See notes (4), (8) and (9) to the table in "Security Ownership of Certain
     Beneficial Owners."

(10) See notes (7) and (8) to the table in "Security Ownership of Certain
     Beneficial Owners."

(11) See notes (4), (8) and (9) to the table in "Security Ownership of Certain
     Beneficial Owners."

(12) See note (2) to the table in "Security Ownership of Certain Beneficial
     Owners."

(13) See notes (3), (4), (5) and (6) to the table in "Security Ownership of
     Certain Beneficial Owners."

(14) See notes (2) and (3) to the table in "Security Ownership of Certain
     Beneficial Owners."

(15) See notes (3), (4) and (6) to the table in "Security Ownership of Certain
     Beneficial Owners."

(16) See notes (2), (3), (4), (5) and (6) to the table in "Security Ownership of
     Certain Beneficial Owners."

(17) See note (3) to the table in "Security Ownership of Certain Beneficial
     Owners."


                                                                     (continued)


                                     III-38
<PAGE>   219

(18) Mr. Robert Naify received notes, which are currently convertible into
     15,712,848 shares of TCI Group Series A Stock, 12,626,396 shares of Liberty
     Group Series A Stock, 13,468,156 shares of Ventures Group Series A Stock,
     as partial consideration for the sale to the Company of the stock owned by
     him in United Artists Communications, Inc. Mr. Naify is also a co-trustee,
     along with Mr. Naify's brother, Marshall, and their sister, of a trust for
     the benefit of Marshall Naify, which holds additional notes convertible
     into 239,124 shares of TCI Group Series A Stock, 192,153 shares of Liberty
     Group Series A Stock, and 204,964 shares of Ventures Group Series A Stock.
     The number of shares indicated as held by Mr. Naify assumes the conversion
     of these notes. Also, assumes the exercise in full of options granted in
     November 1994, pursuant to the Director Stock Option Plan, to acquire
     50,000 shares of TCI Group Series A Stock and 28,125 shares of Liberty
     Group Series A Stock. Options to acquire 40,000 and 22,500, respectively,
     of such shares are currently exercisable.

(19) Assumes the exercise in full of the following: (a) stock options granted in
     tandem with stock appreciation rights in May 1995 to acquire 40,000 shares
     of TCI Group Series A Stock, 30,000 shares of Liberty Group Series A Stock,
     and 60,000 shares of Ventures Group Series A Stock, all of which options
     are currently exercisable; and (b) stock options granted in December 1996,
     pursuant to the Director Stock Option Plan, to acquire 50,000 shares of TCI
     Group Series A Stock and 28,125 shares of Liberty Group Series A Stock, of
     which options to acquire 20,000 and 11,250, respectively, of such shares
     are currently exercisable.

(20) Assumes the exercise in full of the following: (a) stock options granted in
     tandem with stock appreciation rights in November 1994 to acquire 124,000
     shares of TCI Group Series A Stock, 104,500 shares of Liberty Group Series
     A Stock and 112,000 shares of Ventures Group Series A Stock, of which
     options to acquire 96,000, 82,000 and 88,000, respectively, of such shares
     are currently exercisable; (b) stock options granted in tandem with stock
     appreciation rights in December 1995 to acquire 210,000 shares of TCI Group
     Series A Stock, 197,750 shares of Liberty Group Series A Stock and 180,000
     shares of Ventures Group Series A Stock, of which options to acquire
     126,000, 118,650 and 108,000, respectively, of such shares are currently
     exercisable; and (c) stock options granted in tandem with stock
     appreciation rights in July 1997 to acquire 241,500 shares of TCI Group
     Series A Stock, 179,000 shares of Liberty Group Series A Stock and 207,000
     shares of Ventures Group Series A Stock, of which options to acquire
     48,300, 35,800 and 41,400, respectively, of such shares are currently
     exercisable.

     In addition, assumes the vesting in full of (a) 35,634 shares of restricted
     TCI Group Series A Stock, 22,500 shares of restricted Liberty Group Series
     A Stock and 8,732 shares of restricted Ventures Group Series A Stock which
     vest as to 50% in December 1999 and as to the remaining 50% in December
     2000; (b) 50,000 shares of restricted TCI Group Series A Stock which vests
     as to 50% in June 2002 and as to the remaining 50% in June 2003; and (c)
     53,000 shares of restricted TCI Group Series A Stock which vests as to 50%
     in September 2002 and as to the remaining 50% in September 2003.


                                                                     (continued)


                                     III-39
<PAGE>   220

(21) Assumes the exercise in full of the following: (a) stock options granted in
     tandem with stock appreciation rights in November 1992 to acquire 60,000
     shares of Ventures Group Series A Stock, all of which options are currently
     exercisable; (b) stock options granted in tandem with stock appreciation
     rights in October 1993 to acquire 56,250 shares of Liberty Group Series A
     Stock and 60,000 shares of Ventures Group Series A Stock, all of which
     options are currently exercisable; (c) stock options granted in tandem with
     stock appreciation rights in November 1994 to acquire 140,000 shares of TCI
     Group Series A Stock, 112,500 shares of Liberty Group Series A Stock and
     120,000 shares of Ventures Group Series A Stock, of which options to
     acquire 112,000, 90,000 and 96,000, respectively, of such shares are
     currently exercisable; (d) stock options granted in tandem with stock
     appreciation rights in December 1995 to acquire 210,000 shares of TCI Group
     Series A Stock, 168,750 shares of Liberty Group Series A Stock and 180,000
     shares of Ventures Group Series A Stock, of which options to acquire
     126,000, 101,250 and 108,000, respectively, of such shares are currently
     exercisable; (e) stock options granted in tandem with stock appreciation
     rights in May 1997 to acquire 157,500 shares of TCI Group Series A Stock
     and 135,000 shares of Ventures Group Series A Stock, of which options to
     acquire 31,500 and 27,000, respectively, of such shares are currently
     exercisable; and (f) stock options granted in tandem with stock
     appreciation rights in July 1997 to acquire 31,500 shares of TCI Group
     Series A Stock and 27,000 shares of Ventures Group Series A Stock, of which
     options to acquire 6,300 and 5,400, respectively, of such shares are
     currently exercisable.

     In addition, assumes the vesting in full of (a) 25,448 restricted shares of
     TCI Group Series A Stock, 22,500 restricted shares of Liberty Group Series
     A Stock, and 29,104 restricted shares of Ventures Group Series A Stock
     which vest as to 50% in December 1999 and as to the remaining 50% in
     December 2000; (b) 50,000 shares of restricted TCI Group Series A Stock
     which vests as to 50% in June 2002 and as to the remaining 50% in June
     2003; and (c) 53,000 shares of restricted TCI Group Series A Stock which
     vests as to 50% in September 2002 and as to the remaining 50% in September
     2003.

(22) Assumes the exercise in full of the following: (a) stock options granted in
     tandem with stock appreciation rights in May 1997 to acquire 126,000 shares
     of TCI Group Series A Stock and 108,000 shares of Ventures Group Series A
     Stock. None of the options remaining from the original grant are
     exercisable until May 1999; and (b) stock options granted in tandem with
     stock appreciation rights in July 1997 to acquire 67,200 shares of TCI
     Group Series A Stock and 57,600 shares of Ventures Group Series A Stock.
     None of the options remaining from the original grant are exercisable until
     July 1999.

     In addition, assumes the vesting in full of (a) 53,000 shares of restricted
     TCI Group Series A Stock which vests as to 50% in September 2002 and as to
     the remaining 50% in September 2003; and (b) 37,500 shares of restricted
     TCI Group Series A Stock which vests as to 50% in December 2002 and as to
     the remaining 50% in December 2003.

(23) Certain executive officers and directors of the Company hold options which
     were granted in tandem with stock appreciation rights in November 1992 to
     acquire an aggregate of 720,000 shares of TCI Group Series A Stock, 576,562
     shares of Liberty Group Series A Stock, and 720,000 shares of Ventures
     Group Series A Stock. All of such options are currently exercisable.


                                                                     (continued)


                                     III-40
<PAGE>   221

     Additionally, certain executive officers hold stock options granted in
     tandem with stock appreciation rights in October 1993 to acquire an
     aggregate of 70,000 shares of TCI Group Series A Stock, 112,500 shares of
     Liberty Group Series A Stock and 120,000 shares of Ventures Group Series A
     Stock. All of such options are currently exercisable.

     Also, certain executive officers and a director hold stock options which
     were granted in tandem with stock appreciation rights in November 1994 to
     acquire an aggregate of 498,014 shares of TCI Group Series A Stock, 405,047
     shares of Liberty Group Series A Stock, and 432,584 shares of Ventures
     Group Series A Stock. Options to acquire 394,455, 321,830, and 343,819,
     respectively, of such shares are currently exercisable.

     Additionally, certain executive officers and directors hold stock options
     which were granted in tandem with stock appreciation rights in December
     1995 to acquire an aggregate of 1,547,482 shares of TCI Group Series A
     Stock, 2,223,625 shares of Liberty Group Series A Stock, and 1,326,413
     shares of Ventures Group Series A Stock. Options to acquire 925,689,
     1,334,175 and 793,448, respectively, of such shares are currently
     exercisable.

     Additionally, certain executive officers hold stock options which were
     granted in tandem with stock appreciation rights in May 1997 to acquire an
     aggregate of 388,500 shares of TCI Group Series A Stock and 333,000 shares
     of Ventures Group Series A Stock. Options to acquire 52,500 and 45,000,
     respectively, of such shares are currently exercisable.

     Additionally, certain executive officers and a director hold stock options
     which were granted in tandem with stock appreciation rights in July 1997 to
     acquire an aggregate of 1,652,700 shares of TCI Group Series A Stock,
     1,646,501 shares of Liberty Group Series A Stock, and 1,416,600 shares of
     Ventures Group Series A Stock. Options to acquire 308,700, 323,300 and
     264,600, respectively, of such shares are currently exercisable.

     Additionally, an executive officer holds stock appreciation rights which
     were granted in March 1991 to acquire an aggregate of 150,000 shares of TCI
     Group Series A Stock, 150,000 shares of Liberty Group Series A Stock, and
     130,000 shares of Ventures Group Series A Stock. All of such options are
     currently exercisable.

     Additionally, Mr. Kern holds stock options which were granted in tandem
     with stock appreciation rights in July 1997 to acquire an aggregate of
     850,000 shares of TCI Group Series A Stock, 843,750 shares of Liberty Group
     Series A Stock, and 900,000 shares of Venture Group Series A Stock. Options
     to acquire 170,000, 168,750 and 180,000, respectively, of such shares are
     currently exercisable.

     Additionally, Mr. Kern holds stock options which were granted in tandem
     with stock appreciation rights in December 1997 to acquire an aggregate of
     350,000 shares of TCI Group Series A Stock, 250,000 shares of Liberty Group
     Series A Stock, and 300,000 shares of Ventures Group Series A Stock.
     Options to acquire 70,000, 50,000 and 60,000, respectively, of such shares
     are currently exercisable.


                                                                     (continued)


                                     III-41
<PAGE>   222
     Also, certain executive officers hold an aggregate of 81,759 restricted
     shares of TCI Group Series A Stock, 45,000 restricted shares of Liberty
     Group Series A Stock, and 61,483 restricted shares of Ventures Group Series
     A Stock. Such shares vest as to 50% in December 1999 and as to the
     remaining 50% in December 2000. Messrs. Hindery and Kern hold an aggregate
     of 338,154 restricted shares of TCI Group Series A Stock and 123,692
     restricted shares of Ventures Group Series A Stock. Such shares vest as to
     50% in July 2001 and as to the remaining 50% in July 2002.

     Additionally, certain executive officers hold an aggregate of (a) 1,350,000
     restricted shares of TCI Group Series A Stock which vest as to 50% in June
     2002 and as to the remaining 50% in June 2003 and (b) 278,250 restricted
     shares of TCI Group Series A Stock which vest as to 50% in September 2002
     and as to the remaining 50% in September 2003. Messrs. Kern and Jones hold
     an aggregate of 287,500 restricted shares of TCI Group Series A Stock. Such
     shares vest as to 50% in December 2002 and as to the remaining 50% in
     December 2003.

     Mr. Hindery holds options to acquire 700,000 shares of TCI Group Series A
     Stock, 404,000 shares of Liberty Group Series A Stock, and 600,000 shares
     of Ventures Group Series A Stock as described in note 5 above. Mr. Sparkman
     holds options to acquire 40,000 shares of TCI Group Series A Stock, 30,000
     shares of Liberty Group Series A Stock and 60,000 shares of Ventures Group
     Series A Stock as described in note 19 above.

     Additionally, certain executive officers hold stock options which were
     granted in tandem with stock appreciation rights in December 1998 to
     acquire an aggregate of 5,500,000 shares of Liberty Group Series A Stock.
     None of such options are exercisable until December 29, 1999.

     Pursuant to the Director Stock Option Plan, certain directors hold options
     to purchase an aggregate of 145,000 shares of TCI Group Series A Stock and
     an aggregate of 98,438 shares of Liberty Group Series A Stock. Options to
     purchase an aggregate of 110,000 and 78,750, respectively, of such shares
     are currently exercisable. Mr. Fisher holds an option to purchase 50,000
     shares of TCI Group Series A Stock and 28,125 shares of Liberty Group
     Series A Stock. Options to purchase 20,000 and 11,250, respectively, of
     such shares are currently exercisable. Messrs. Gould and Sparkman hold
     options to purchase an aggregate of 100,000 shares of TCI Group Series A
     Stock and 56,250 shares of Liberty Group Series A Stock. Options to
     purchase 40,000 and 22,500, respectively, of such shares are currently
     exercisable.

     Pursuant to the TINTA Director Stock Option Plan, certain directors hold
     options to purchase 72,500 shares of Liberty Group Series A Stock. Options
     to purchase 29,000 shares are currently exercisable.

     All of the aforementioned options with tandem stock appreciation rights,
     options and restricted stock are reflected in this table assuming the
     exercise or vesting in full of such securities.

(24) Dr. Malone holds a stock option which was granted in tandem with stock
     appreciation rights in December 1997 to acquire 2,800,000 shares of
     Ventures Group Series B Stock. Options to acquire 560,000 shares are
     currently exercisable.

         No equity securities in any subsidiary of the Company, other than
directors' qualifying shares, are owned by any of the Company's executive
officers or directors, except for the securities discussed below. The following
discussion sets forth ownership information as of December 31, 1998. 


                                                                     (Continued)


                                     III-42
<PAGE>   223
         Mr. Kim Magness, a director of the Company, owns 31 shares of 12%
Series C Cumulative Compounding Preferred Stock ("WestMarc Preferred Stock") of
WestMarc Communications, Inc., a wholly owned subsidiary of the Company, and
beneficially owns 667 and 281 shares of WestMarc Preferred Stock held by the
Estate of Bob Magness and the Estate of Betsy Magness, respectively. Dr. Malone,
a director and an executive officer of the Company, owns, as trustee for his
children, 68 shares of WestMarc Preferred Stock. Mr. Larry Romrell, an officer
of the Company, owns 103 shares of WestMarc Preferred Stock and holds a stock
appreciation right in TCI Internet. See note 16 to "Item 11. Executive
Compensation -- Summary Compensation Table of Tele-Communications, Inc." for
additional information about this award.

         Additionally, the following executive officers and directors own
options to purchase shares of Class A Common Stock of UVSG: (a) Mr. Hindery
beneficially owns options to purchase 30,000 shares, of which options to
purchase 6,000 shares are currently exercisable; and (b) Messrs. Romrell, Fisher
and Gould each beneficially own options to purchase 30,000 shares, of which
options to purchase 12,000 shares of each grant are currently exercisable.
Additionally, two executive officers beneficially own options to purchase
193,053 shares of Class A Common Stock of UVSG, of which options to purchase
32,611 shares are currently exercisable.

         In addition, the following executive officers and directors
beneficially own shares of Series A Common Stock of @Home: (a) Mr. Jones
beneficially owns 1,000 shares of Series A Common Stock; (b) Mr. Kern
beneficially owns jointly with his son 25,000 shares of Series A Common Stock;
(c) Dr. Malone beneficially owns 27,475 shares of Series A Common Stock; (d) Mr.
Naify beneficially owns 16,134 shares of Series A Common Stock; and (e) Mr.
Romrell beneficially owns 2,238 shares of Series A Common Stock. Additionally,
an executive officer beneficially owns 1,500 shares of Series A Common Stock of
@Home.

         Additionally, the following executive officers and directors own
options to purchase shares of Series A Common Stock of TCI Music: (a) Mr. Fisher
beneficially owns options to purchase 833,334 shares, of which options to
purchase 166,667 shares are currently exercisable; (b) Mr. Hindery beneficially
owns options to purchase 833,334 shares, of which options to purchase 166,667
shares are currently exercisable; and (c) Mr. Sparkman beneficially owns options
to purchase 100,000 shares, of which options to purchase 20,000 shares are
currently exercisable. In addition, Mr. Sparkman beneficially owns 37,500 shares
of Series A Common Stock of TCI Music, Inc. Additionally, an executive officer
beneficially owns options to purchase 100,000 shares of Series A Common Stock of
TCI Music, of which options to purchase 20,000 shares are currently exercisable.

         An executive officer beneficially owns as trustee for his children 364
shares of Senior Cumulative Exchangeable Preferred Stock, Series A of TPAC.

         (c) Change of control. On March 9, 1999, the Company became a
wholly-owned subsidiary of AT&T pursuant to the AT&T Merger. See "Item 8.
Financial Statements and Supplementary Data" for additional information
regarding the AT&T Merger. The Company knows of no arrangements, including any
pledge by any person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company.


                                                                     (continued)


                                     III-43
<PAGE>   224


Item 13. Certain Relationships and Related Transactions.

         In addition, please refer to the discussion under "Item 11. Executive
Compensation -- Background of Stock Adjustments" for additional information
regarding changes in the capital structure of the Company. References to share
amounts and per share prices also have been adjusted retroactively to give
effect to such changes.

         (a) Transactions with Management and Others.

         Transactions with Mr. Fisher. Under the terms of the settlement
agreement with respect to the Magness Settlement, Mr. Fisher, who had served as
a co-personal representative of the Estate of Bob Magness since November 1996,
resigned. On January 1, 1998 the Estate of Bob Magness paid Mr. Fisher $1.5
million for his services on behalf of the Estate. Mr. Fisher donated such
payment, in its entirety, net of taxes, to a charitable organization.

         On August 5, 1998, Mr. Fisher paid $1.8 million to purchase, at fair
value, the Company's interest in General Communications, Inc.

         InterMedia Transactions. On April 30, 1998, TCI ICM VI, Inc., a
subsidiary of the Company, acquired a 99.999% limited partnership interest in
InterMedia Capital Management VI, L.P. ("ICM VI") from Mr. Hindery, an executive
officer and a director of the Company, in exchange for (i) 153,183 shares of
Liberty Group Series B Stock (the "Liberty Shares") valued at $5 million and
(ii) a .495% limited partnership interest in InterMedia Capital Partners VI,
L.P. ("ICPVI") having a capital account of $1 million (the "InterMedia VI
Transaction"). On the InterMedia VI Transaction closing date, the .001% general
partnership interest in ICM VI was held by InterMedia Management, Inc. ("IMI"),
a corporation all of the stock of which is owned by Robert J. Lewis. Mr. Lewis
is an experienced cable executive who was an officer of the Company from May
1987 through April 1993. The other partnership interests in ICP VI are held by
TCI IP-VI, LLC, a wholly owned subsidiary of the Company (49.005% limited
partnership interest), Blackstone Cable Acquisition Company, LLC or its
affiliates (49.500% limited partnership interest), ICM VI (.999% limited
partnership interest), and InterMedia Capital Management VI, LLC, an entity of
which IMI is the sole member (.001% general partnership interest). Mr. Hindery
acquired his partnership interest in ICM VI in July 1996 for $10,000.

         Prior to the AT&T Merger, Dr. Malone, an executive officer and director
of the Company, had the power to direct the voting of the Liberty Shares
pursuant to a voting agreement, and Dr. Malone also had a right of first refusal
with respect to any proposed transfer of the Liberty Shares. Dr. Malone was
entitled to exercise the right of first refusal either by the payment of cash
or, subject to certain exceptions, by exchanging shares of Liberty Group Series
A Stock for the Liberty Shares. If not exercised by Dr. Malone, the right of
first refusal was exercisable by the Company. The Company's right of first
refusal terminated upon consummation of the AT&T Merger.

         The interests of Messrs. Hindery and Malone in the InterMedia VI
Transaction were disclosed to the Board of Directors at the time it approved the
agreement in principle for such transaction. Dr. Malone abstained from voting on
such matter. Mr. Hindery was not a director of the Company at the time of such
vote.


                                                                     (continued)



                                     III-44
<PAGE>   225

         On January 27, 1999, the Company announced the planned acquisition by
Charter Communications ("Charter") and TCI of certain cable television systems
owned by InterMedia Capital Partners IV, L.P. ("IP4") and InterMedia Partners, a
California Limited Partnership ("InterMedia"). Charter will pay consideration
consisting of cash and cable television systems for the systems it acquires
from IP4. TCI will acquire certain other cable systems in a non-cash
transaction. Upon the consummation of the transactions described above, TCI will
own all of the partnership interests in IP4 and InterMedia. The transactions are
subject to the negotiation and signing of definitive documents and various
closing conditions.

         Mr. Hindery, a director and executive officer of TCI, currently has a
 .001% special limited partnership interest in InterMedia Capital Management IV,
L.P. ("ICM4"), which in turn has a 1.19% limited partnership interest in IP4.
Mr. Hindery's special limited partnership interest in ICM4 was created in
August 1997 in connection with TCI's acquisition of all of the partnership
interests (other than a .002% general partnership interest and a .001% special
limited partnership interest) in ICM4. Mr. Hindery also indirectly owns a
minimal interest in InterMedia. In connection with the proposed transaction
described above, it is anticipated that Mr. Hindery, by virtue of his .001%
special limited partnership interest in ICM4, will participate in a profit
sharing mechanism of IP4 and receive cash consideration based on the valuation
of IP4 in the transaction described above. Although the amount of such
consideration is uncertain at this time, its is expected that such
consideration will be approximately $10 million. In the transaction described
above, it is expected that Mr. Hindery will receive less than $50,000 for his
indirect interest in InterMedia.

         Malone Transactions. For a discussion of certain transactions between
the Malones, the Magness Family and TCI, see "Item 11. Executive Compensation -
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions - Magness and Malone Transactions."

         Prior to the AT&T Merger, a limited liability company owned by Dr.
Malone acquired from certain subsidiaries of the Company for $17 million working
cattle ranches located in Wyoming. The purchase price was paid by such limited
liability company in the form of a 12-month note in the amount of $17 million
having an interest rate of 7%. Such note is payable at any time without penalty
and is personally guaranteed by Dr.
Malone.

         Transactions with Mr. Gallivan. Prior to Kearns becoming a subsidiary
of TCI as a result of the merger of Kearns with a wholly owned subsidiary of the
Company, Kearns and Mr. John W. Gallivan, the former Chairman of the Board of
Kearns and a director of the Company, entered into a Transfer Agreement dated
July 30, 1997 (the "Transfer Agreement"). Pursuant to the terms of the Transfer
Agreement, Kearns agreed to award Mr. Gallivan for his services as Chairman and
his involvement in the pending Kearns Merger: (a) a cash payment of $1,562,413;
and (b) an assignment of all of Kearns right, title and interest in and to all
patented mining claims owned by Kearns, including but not limited to royalties,
buildings, fixtures, surface rights, licenses and contracts related thereto,
which patented mining claims were valued at $437,587. With respect to the
assignment of the mining claims, Mr. Gallivan agreed to assume all liabilities
with respect thereto and agreed to indemnify Kearns for any and all liabilities
of Kearns, if any, relating to the mining claims, including those arising from
past operations. As of December 31, 1997, Kearns had made the cash payment to
Mr. Gallivan, and as of November 11, 1998, Kearns transferred such mining claims
to a corporation designated by Mr. Gallivan.


                                                                     (continued)


                                     III-45
<PAGE>   226

         Also in connection with the Kearns Merger, Silver King Group L.L.C.
("SKG"), which is owned and controlled by Mr. Gallivan, entered into an
agreement with Kearns to purchase assets consisting primarily of land, oil and
gas royalties and patents for $10.87 million. On November 30, 1997 such purchase
was consummated and SKG paid Kearns $9.5 million of the $10.87 million purchase
price in cash and the remainder of such purchase price in the form of a
non-interest bearing promissory note. As of March 10, 1999, $1,318,000 of such
note remains outstanding.

         Consulting Agreements. Effective January 1, 1996, Mr. Fisher resigned
as an executive officer of the Company and Mr. Fisher and the Company entered
into a consulting agreement. During the term of the consulting agreement, which
extends until January 1, 2006 unless sooner terminated as provided in the
agreement, Mr. Fisher is obligated to provide consulting services for up to 70
hours per month and 700 hours during any period of twelve consecutive months as
and if requested by the Company's chief executive officer. Whether or not his
services are requested, Mr. Fisher will receive compensation as follows: (a)
during the period from January 1, 1996 through December 31, 2000, inclusive, the
rate of $475,000 per annum, increased annually by the amount of $25,000 per
annum in each successive year of such period commencing January 1, 1997; and (b)
from and after January 1, 2001 through the balance of the term of such
consulting agreement, the rate of $500,000 per annum. If he dies before the end
of the term of his consulting services, the Company is required to pay his
designated beneficiaries a lump sum equal to one year's compensation at the
then-current rate. During the term of the agreement, Mr. Fisher will continue to
be entitled to participate in, and to be accorded all rights and benefits under,
all group insurance policies (including, but not limited to, all disability,
life, health and medical insurance policies) maintained by the Company for the
benefit of its employees. The consulting agreement also provides for Mr.
Fisher's personal use of the Company's aircraft and flight crew, limited to an
aggregate value of $35,000 per year.

         Under a prior employment agreement between Mr. Fisher and the Company,
a portion of Mr. Fisher's salary was deferred, and the deferred amounts, plus
interest at an annual rate of 13%, were to be paid to him in 240 monthly
installments which would have commenced on the date of termination of his
full-time employment with the Company. The consulting agreement provides for
such payment to be made to Mr. Fisher in 240 monthly installments of $21,425.92
each, without interest, commencing on January 1, 2001, with any remaining
payments due after Mr. Fisher's death being paid in a lump-sum to his designated
beneficiaries. Similarly, Mr. Fisher's 1992 employment agreement with the
Company provided for Mr. Fisher to receive, commencing on termination of his
employment, 240 consecutive monthly salary continuation payments of $6,250,
increased at the rate of 12% per annum, compounded annually from January 1, 1988
to the date of such termination. The consulting agreement provides that such
salary continuation payments will be made in 240 consecutive monthly payments of
$27,271.84 each, without interest, commencing on January 1, 2001, with any
remaining payments due after Mr. Fisher's death being made to his designated
beneficiaries.



                                                                     (continued)


                                     III-46
<PAGE>   227

         Mr. Fisher's consulting agreement provides that during its term, Mr.
Fisher will not be connected in any manner specified in such agreement with any
entity which competes in a material respect with the business of the Company;
however, he may own securities of any corporation listed on a national
securities exchange or quoted on Nasdaq to the extent of an aggregate of 5% of
the amount of such securities outstanding.

         Effective March 11, 1995, Mr. Sparkman resigned as an executive officer
of the Company and the Company and Mr. Sparkman entered into a consulting
agreement. During the term of the consulting agreement, which extends until
September 30, 2002 unless sooner terminated as provided in the agreement, Mr.
Sparkman is required to provide consulting services for no more than 700 hours
per year as and if requested by the Company's chief executive officer. Whether
or not his services are requested, Mr. Sparkman will receive compensation at the
rate of $500,000 per annum. If he dies before the end of the term of his
consulting services, the Company is required to pay his designated beneficiaries
a lump sum equal to one year's compensation. During the term of the agreement,
Mr. Sparkman will continue to be entitled to participate in, and to be accorded
all rights and benefits under, all group insurance policies (including, but not
limited to, all disability, life, health and medical insurance policies)
maintained by the Company for the benefit of its employees.

         Under a prior employment agreement between Mr. Sparkman and the
Company, a portion of Mr. Sparkman's salary was deferred, and the deferred
amounts, plus interest at an annual rate of 8%, were to be paid to him in 120
monthly installments which would have commenced on the date of termination of
his full-time employment with the Company. The consulting agreement provides for
such payment to be made to Mr. Sparkman in 120 monthly installments of $7,294.32
each, without interest, commencing on January 1, 1998, with any remaining
payments due after Mr. Sparkman's death being paid in a lump-sum to his
designated beneficiaries. Under Mr. Sparkman's 1993 employment agreement with
the Company, a portion of Mr. Sparkman's salary was deferred, and the deferred
amounts, plus interest at an annual rate of 13%, were to be paid to him in 240
monthly installments which would have commenced on the date of termination of
his full-time employment with the Company. The consulting agreement provides for
such payment to be made to Mr. Sparkman in 240 monthly payments of $15,116.03
each, without interest, commencing on January 1, 1998, with any remaining
payments due after Mr. Sparkman's death being paid in a lump-sum to his
designated beneficiaries. Similarly, Mr. Sparkman's 1993 employment agreement
with the Company provided for Mr. Sparkman to receive, commencing on termination
of his employment, 240 consecutive monthly salary continuation payments of
$6,250, increased at the rate of 12% per annum, compounded annually from January
1, 1988 to the date of such termination. The consulting agreement provides that
such salary continuation payments will be made in 240 consecutive monthly
payments of $19,411.55 each, without interest, commencing on January 1, 1998,
with any remaining payments due after Mr. Sparkman's death being made to his
designated beneficiaries.

         Mr. Sparkman's consulting agreement provides that during its term, Mr.
Sparkman will not be connected in any manner specified in such agreement with
any entity which competes in a material respect with the business of the
Company; however, he may own securities of any corporation listed on a national
securities exchange or quoted on Nasdaq to the extent of an aggregate of 5% of
the amount of such securities outstanding.

         The Company has a consulting agreement with Peter Kern, who is the son
of Jerome H. Kern, a director and Vice Chairman of and consultant to the
Company. Pursuant to such agreement, Peter Kern provides consulting services to
the Company on business transactions for which he is paid on a transactional
basis. For such consulting services, Peter Kern received approximately $1.3
million in 1998.


                                                                     (continued)



                                     III-47
<PAGE>   228


         In connection with the AT&T Merger, Larry Romrell converted his
employment agreement with the Company into a consulting agreement with AT&T. See
"Item 11. Executive Compensation - Employment Contracts and Termination of
Employment and Change of Control Arrangements - Mr. Romrell's Employment
Agreement".

         Miscellaneous. See "Item 11. Executive Compensation - Employment
Contracts and Termination of Employment and Change of Control Arrangements - Mr.
Romrell's Employment Agreement" for a discussion of the TCI.NET Option and the
Internet SARs held by Mr. Romrell.

         On July 1, 1998 Jerome H. Kern, a director of the Company, became
Vice-Chairman of the Company. For his services as Vice-Chairman, the Company has
been compensating Mr. Kern at the annual rate of $1 million. On December 10,
1998, the Board of Directors approved the grant to Mr. Kern of 250,000
restricted shares of TCI Group Series A Stock contingent upon the consummation
of the AT&T Merger. 50% of such shares will vest on December 10, 2002 and the
remainder will vest on December 10, 2003. See "Item 12 - Security Ownership of
Certain Beneficial Owners and Management - Security Ownership of Management." In
addition, Liberty paid Mr. Kern $10 million immediately prior to the AT&T Merger
for his services in negotiating the merger agreement with AT&T and completing
the AT&T Merger.

         On February 17, 1999, the date of the stockholders meeting approving
the AT&T Merger, the Board approved the payment by Liberty of $1 million to John
W. Gallivan, a director of the Company, for his services on the Special
Committee of the Company's Board of directors in evaluating the merger
transaction with AT&T and the consideration to be received by the stockholders
of the Company.

         In 1986, pursuant to the terms of a Stock Purchase Agreement (the "UACI
Agreement") Robert Naify, a director of the Company, and several members of Mr.
Naify's family received convertible notes (the "Naify Notes") of TCI UA, Inc., a
subsidiary of the Company as consideration for their stock in United Artists
Communications, Inc. As of December 31, 1998, Naify Notes having an aggregate
principal amount of approximately $205.4 million were outstanding. At that date,
the Naify Notes were convertible into an aggregate of 24,163,259 shares of TCI
Group Series A Stock, 19,416,889 shares of Liberty Group Series A Stock,
20,711,364 shares of TCI Ventures Group Series A Stock and 3,451,897 shares of
TSAT's Series A Common Stock. In connection with the TCIC Merger and an internal
restructuring that preceded such merger, the Company became the obligor of the
Naify Notes. As a result of the AT&T Merger and pursuant to the terms of the
Naify Notes and the UACI Agreement, the conversion price of the Naify Notes was
adjusted such that as of the March 9, 1999 consummation date of the AT&T Merger,
the outstanding Naify Notes were convertible into 19,088,081 shares of AT&T
Common Stock, 30,186,816 shares of AT&T Liberty Class A Tracking Stock and
3,451,897 shares of TSAT's Series A Common Stock.

         Also pursuant to the terms of the Naify Notes and the UACI Agreement,
if in the future the AT&T Liberty Tracking Stock is converted into cash,
securities or other property in a transaction where the holders of AT&T Liberty
Class B Tracking Stock receive greater per share economic consideration than the
holders of AT&T Liberty Class A Tracking Stock, then the holders of Naify Notes
will be entitled to receive such greater economic consideration with respect to
18% of the total number of shares of AT&T Liberty Class A Tracking Stock
beneficially held by them on March 9, 1999 or the date of such transaction,
whichever is less.


                                                                     (continued)


                                     III-48
<PAGE>   229


         On January 12, 1998, the Company purchased approximately 12.4 million
shares of Series A Common Stock of UVSG, held by Lawrence Flinn, Jr., UVSG's
Chairman Emeritus. As part of the transaction, which encompassed the total
number of UVSG shares held by Mr. Flinn, the Company issued approximately 12.7
million shares of Ventures Group Series A Stock and approximately 7.3 million
shares of Liberty Group Series A Stock to Mr. Flinn.

         The Company believes that the foregoing business dealings with
management were based upon terms no less advantageous to the Company than those
which would be available in dealing with unaffiliated persons.

         Transactions in Connection with the AT&T Merger.

         Management of the Liberty/Ventures Group. Following the AT&T Merger,
Dr. Malone, currently Chairman of the Company, will be Chairman of the
Liberty/Ventures Group, Mr. Bennett, currently President and Chief Executive
Officer of Liberty, will be President and Chief Executive Officer of the
Liberty/Ventures Group and Mr. Howard, currently President of the TCI Ventures
Group, will be Executive Vice President and Chief Operating Officer of the
Liberty/Ventures Group.

         Following the AT&T Merger, all of the equity interests in the
Liberty/Ventures Group are owned by AT&T; however, a majority of the members of
the Board of Directors of Liberty (the "Liberty Board") are individuals
designated by TCI prior to the AT&T Merger. Liberty has three classes of
directors: one class elected for a term of one year; one class elected for a
term of seven years; and one class elected for a term of 10 years. Each class of
directors has an equal number of members. Such directors may not be removed
other than for "cause," and, in the event of the death or resignation of a
director, the remaining directors of such class will choose a successor to fill
the remaining term of such deceased or resigning director. Thus, the second and
third classes of directors will constitute a majority of the Liberty Board until
at least 2006. Under Delaware law, the business of a corporation is managed by
its board of directors. As a result, although AT&T owns all of the equity
interests in the Liberty/Ventures Group and, initially, all of the common stock
of Liberty, the incumbent directors of Liberty (and their successors) will be
able to control most aspects of the day-to-day business of Liberty and its
subsidiaries following the AT&T Merger.

         In addition, in the event the incumbent directors (and their designated
successors) cease to constitute a majority of the Liberty Board, or Liberty
Management LLC determines that, in its reasonable judgment, the incumbent
Liberty Board is likely to cease to constitute a majority of the Liberty Board,
such event will constitute a "Triggering Event." Liberty Management LLC is a
limited liability company, the equity interests of which are owned by Dr.
Malone. Upon the occurrence of a Triggering Event, subject to the terms and
conditions of a contribution agreement (the "Contribution Agreement") that TCI
caused Liberty and Liberty Ventures LLC to enter into in connection with the
AT&T Merger, all of the assets of Liberty and of certain other entities included
in the Liberty/Ventures Group will be contributed to a limited liability company
("Liberty Media Group LLC"), substantially all of the equity interests of which
are owned by AT&T, unless the Triggering Event is waived by Liberty Management
LLC. Liberty Management LLC will own the remaining equity interests in Liberty
Media Group LLC and will be the sole manager of Liberty Media Group LLC.



                                                                     (continued)


                                     III-49
<PAGE>   230


         Stock Ownership. In the AT&T Merger, the Company's common stock was
converted as described under "Item 1. General Development of Business." The
difference in the conversion ratios applicable to the TCI Group Series A Stock
and the TCI Group Series B Stock constituted an approximate 10% premium payable
to the holders of TCI Group Series B Stock. As of December 31, 1998, Dr. Malone
and his spouse collectively owned 30,401,772 shares of TCI Group Series B Stock
(excluding shares that they had the right to vote but in which they did not have
a direct economic interest), or approximately 47.2% of the total number of
shares of TCI Group Series B Stock outstanding as of such date. In addition, as
of December 31, 1998, the other directors and members of management of the
Company owned an aggregate of 23,990,555 shares of TCI Group Series B Stock
(including shares in which they had a direct economic interest but did not have
the right to vote) or approximately 37.2% of the total number of shares of TCI
Group Series B Stock outstanding as of such date. The Board and the Special
Committee of the Board of Directors (the "Special Committee") carefully
considered the premium payable to the holders of the TCI Group Series B Stock in
connection with its decision to approve the AT&T Merger and determined that such
premium was an acceptable control premium to such holders under the
circumstances, and, in the case of Dr. Malone and Leslie Malone and the Estate
of Bob Magness, the Estate of Betsy Magness, Gary Magness (individually and in
certain representative capacities) and Kim Magness (individually and in certain
representative capacities), did not exceed the control premium limit established
by the Company in separate agreements entered into with such individuals.

         As described under "Item 1. Business - General Development of
Business", in the AT&T Merger holders of Liberty Group Series A Stock and TCI
Ventures Group Series A Stock, respectively, received shares of AT&T Liberty
Class A Tracking Stock that entitle such holders to cast 1/10 vote per share. In
the AT&T Merger, holders of Liberty Group Series B Stock and TCI Ventures Group
Series B Stock, respectively, received shares of AT&T Liberty Class B Stock that
entitle such holders to cast one vote per share. The distinction between the
shares of AT&T Liberty Class A Tracking Stock and AT&T Liberty Class B Tracking
Stock maintains the 10-to-one voting ratio between the holders of Liberty Group
Series B Stock and TCI Ventures Group Series B Stock on the one hand and the
holders of Liberty Group Series A Stock and TCI Ventures Group Series A Stock on
the other hand. As of December 31, 1998, Dr. Malone and his spouse beneficially
owned 34,775,586 shares of Liberty Group Series B Stock and TCI Ventures Group
Series B Stock, or approximately 45.2% of such shares outstanding as of such
date. In addition, as of December 31, 1998, the other directors and members of
management of the Company owned an aggregate of 34,392,372 of such shares, or
approximately 44.7% of such shares outstanding as of such date. Dr. Malone also
held options to acquire an additional 1,154,000 shares of Liberty Group Series A
Stock, 1,200,000 shares of TCI Ventures Group Series A Stock and 2,800,000
shares of TCI Ventures Group Series B Stock. Such options were adjusted in
connection with the AT&T Merger to be exercisable for shares of AT&T Liberty
Class A Tracking Stock and AT&T Liberty Class B Tracking Stock, as the case may
be. Pursuant to the terms of the Shareholders' Agreement, Dr. Malone has the
power to vote all shares of AT&T Liberty Class B Tracking Stock held by the
Magness Family. Dr. Malone also has the power to vote all shares of AT&T Liberty
Media Class B Tracking Stock held by certain trusts of which Mr. Hindery is the
trustee. As a result, immediately following the AT&T Merger and assuming the
exercise of his options to purchase shares of AT&T Liberty Class A Tracking
Stock and AT&T Liberty Class B Tracking Stock, Dr. Malone will have the power to
vote securities having approximately 46.6% of the voting power with respect to
any matters upon which the holders of AT&T Liberty Tracking Stock will vote as a
separate class.


                                                                     (continued)


                                     III-50
<PAGE>   231

         Westmarc Communications, Inc. Three persons who are directors and/or
executive officers of the Company own shares of the 12% Series C Cumulative
Compounding preferred stock of WestMarc Communications, Inc., a subsidiary of
the Company. Dr. Malone, an executive officer and director of the Company, owns,
as trustee for his children, 68 shares, Kim Magness, a director of the Company,
owns 31 shares individually and owns 948 shares as personal representative of
the Estates of Bob Magness and Betsy Magness, and Larry E. Romrell, an executive
officer of the Company, owns 103 shares.

         In connection with the AT&T Merger, AT&T has agreed that, for a period
of 15 years following the effective time of the AT&T Merger, neither it nor TCI
will take certain actions with regard to the preferred stock of WestMarc
Communications, including any redemption of, or modification of the terms of,
such preferred stock or any actions that would adversely affect WestMarc
Communications' ability to pay the required dividends of 12% per annum on such
preferred stock. The terms of such preferred stock provide that it may be
redeemed by WestMarc Communications following a "change in control" of the
Company.

         Tax Protection Agreements. In connection with the AT&T Merger the
Company entered into agreements with certain of its employees (including
directors and executive officers of the Company) providing for indemnification
of such individuals from the effects of certain U.S. federal excise taxes that
may become payable by such employees as a result of the AT&T Merger and the
resulting change in control of the Company. After the AT&T Merger, TCI is
required to assume the financial obligations under such agreements with respect
to employees of the TCI Group and the Liberty/Ventures Group is required to
assume the financial obligations under such agreements with respect to employees
of the Liberty/Ventures Group.

         Employment Agreements and Other Arrangements. The following executive
officers had employment agreements with the Company prior to the AT&T Merger:
Dr. Malone, Mr. Hindery, Marvin Jones, Executive Vice President, Stephen M.
Brett, Executive Vice President, Secretary and General Counsel, and Mr. Romrell.
In addition, Mr. Fisher and J.C. Sparkman, former executive officers of the
Company who are members of the Board, had consulting agreements with TCI prior
to the AT&T Merger. AT&T has agreed to cause TCI to honor, from and after the
effective time of the AT&T Merger, the obligations of the Company with respect
to the executive, employment and other agreements and arrangements of those
officers who are officers of the TCI Group (other than Mr. Romrell, whose
employment agreement with the Company was converted into a consulting agreement
with AT&T). In addition, AT&T has agreed to assume the obligations under all of
the employee plans and benefit arrangements relating to the TCI Group.

         Contingent Grants. Prior to the AT&T Merger, certain executive officers
of TCI were granted options to purchase 5.5 million shares of Liberty Group
Stock, contingent upon completion of the AT&T Merger. Additionally, prior to the
AT&T Merger, awards of 528,250 restricted shares of TCI Group Stock were granted
to certain directors and executive officers of TCI, contingent upon completion
of the AT&T Merger. See "Item 12 - Security Ownership of Certain Beneficial
Owners and Management - Security Ownership of Management."

         The Special Committee and the Board were aware of the aforementioned
interests of the Company's management and the Board described above and
considered such interests, among other matters, in approving the AT&T Merger and
the transactions contemplated thereby.



                                                                     (continued)


                                     III-51
<PAGE>   232


         (b) Certain Business Relationship.

         Jerome H. Kern, a director and Vice Chairman of the Company, was
special counsel with the law firm of Baker & Botts, L.L.P., the principal
outside counsel for the Company, until June 16, 1998. Fees paid to Baker &
Botts, L.L.P. by the Company and its consolidated subsidiaries did not exceed
five percent of Baker & Botts, L.L.P.'s gross revenues for the 1998 fiscal year.

         TSAT Transactions. John Malone is currently the Chief Executive
Officer, Chairman of the Board and a director of the Company and is also the
Chairman of the Board and a director of TSAT. Dr. Malone is also a principal
stockholder of both the Company and TSAT.

         On March 6, 1998, the stockholders of TSAT voted to approve a two step
roll-up plan which consisted, among other related transactions, of: (1) the
contribution of substantially all TSAT's assets and liabilities to a newly
formed corporation (referred to herein as "New PRIMESTAR"), and the concurrent
contribution to New PRIMESTAR by TSAT's existing partners of their respective
interests in the PRIMESTAR digital satellite business (collectively, the
"PRIMESTAR Restructuring Transaction"); and (2) subject to regulatory approval
and other conditions, the subsequent merger of TSAT with and into New PRIMESTAR,
in a transaction in which TSAT's outstanding common shares will be converted
into common shares of New PRIMESTAR (the "TSAT Merger"). On April 1, 1998, the
PRIMESTAR Restructuring Transaction was consummated; however the consummation of
the TSAT Merger was delayed pending regulatory approval.

         On January 22, 1999, TSAT and New PRIMESTAR announced the signing of
agreements providing for (i) the sale by New PRIMESTAR to Hughes Electronics
Corporation ("Hughes") of New PRIMESTAR's existing medium power satellite
television service, comprising substantially all the business and assets of New
PRIMESTAR (the "Medium-Power Sale"), and (ii) the sale to Hughes by Tempo
Satellite, Inc., a wholly owned subsidiary of TSAT ("Tempo"), of Tempo's high
power satellite assets, including Tempo's rights to two satellites constructed
for Tempo by Space Systems/Loral, Inc. and Tempo's rights under an FCC
authorization to construct a high power direct broadcast satellite system using
11 transponders in the 119(0) W.L. orbital position. The agreement to sell
Tempo's satellite assets provides for (i) the assignment by New PRIMESTAR to
Hughes of New PRIMESTAR's option to acquire such assets (which option was
obtained by New PRIMESTAR in connection with the PRIMESTAR Restructuring
Transaction), (ii) the exercise of such option by Hughes, (iii) the
relinquishment by PRIMESTAR Partners L.P., a wholly owned subsidiary of New
PRIMESTAR ("PRIMESTAR Partners"), of its rights under a prior agreement to
purchase or lease 100% of the capacity of Tempo's proposed satellite system, and
(iv) the assumption and satisfaction by Hughes of Tempo's existing obligation to
reimburse PRIMESTAR Partners for amounts advanced by PRIMESTAR Partners to Tempo
to fund construction of such satellite system. The transactions with Hughes are
subject to various conditions, including, in the case of Tempo's proposed
assignment of its rights to 119(0) W.L. orbital position and related assets, FCC
approval. It is anticipated that the TSAT Merger Agreement will be terminated on
or before the closing of the Medium-Power Sale.



                                                                     (continued)



                                     III-52
<PAGE>   233
         On December 4, 1996, the Company distributed (the "TSAT Distribution")
to the holders of shares of TCI Group Series A Stock and TCI Series B Stock all
of the issued and outstanding common stock of TSAT. Since the consummation of
the TSAT Distribution, TSAT and the Company have operated independently.
However, for purposes of governing certain of the ongoing relationships between
TSAT and the Company after the TSAT Distribution, and to provide mechanisms for
an orderly transition, TSAT and the Company entered into various agreements in
connection with the TSAT Distribution, including those agreements described
below. Certain of such agreements have since terminated or expired, or have been
modified in connection with the PRIMESTAR Restructuring Transaction.

         Contribution Agreement. Subsequent to December 31, 1998, a subsidiary
of the Company agreed to enter into a contribution agreement ("Contribution
Agreement") with certain shareholders of New PRIMESTAR pursuant to which the
Company would, to the extent it is relieved of $166,250,000 of contingent
liabilities currently owed to certain creditors of New PRIMESTAR and its
subsidiaries, contribute $166,250,000 to New PRIMESTAR to the extent necessary
to satisfy liabilities of New PRIMESTAR. During the fourth quarter of 1998, the
Company recorded a $90 million charge to provide for estimated losses that are
expected to result from the Contribution Agreement. The Company's obligation
under the Contribution Agreement will expire in 2001.

         Reorganization Agreement. On December 4, 1996, the TSAT Distribution
was consummated (the "TSAT Distribution Date"), and the Company, TCIC and a
number of the Company's other subsidiaries, including TSAT, entered into a
reorganization agreement (the "Reorganization Agreement"), which provided for,
among other things, the principal corporate transactions required to effect the
TSAT Distribution, the conditions thereto and certain provisions governing the
relationship between TSAT and the Company with respect to and resulting from the
TSAT Distribution. Pursuant to the Reorganization Agreement, TSAT assumed the
Company's obligations under options granted to Brendan R. Clouston, a former
executive officer of the Company, Larry E. Romrell, an executive officer of the
Company, and David P. Beddow, an executive officer of certain subsidiaries of
the Company, to purchase shares of TSAT Series A Stock representing 1.0%, 1.0%
and 0.5%, respectively, of the shares of TSAT Series A Stock issued and
outstanding on the TSAT Distribution Date, determined immediately after giving
effect to the TSAT Distribution but before giving effect to the issuance of the
shares of TSAT Series A Stock issuable upon exercise of such options. Further,
pursuant to the Reorganization Agreement, TSAT granted to the Company an option
to purchase up to 4,765,000 shares of TSAT Series A Stock (as such number may be
adjusted to reflect stock dividends, stock splits and the like), for a purchase
price equal to the par value of such shares, as necessary to satisfy the
Company's obligations to deliver shares of TSAT Series A Stock upon conversion
of certain of the Company's convertible securities. During the year ended
December 31, 1998, TSAT issued to the Company under this arrangement 991,330
shares of TSAT Series A Stock for an aggregate consideration of $991,330.



                                                                     (continued)


                                     III-53
<PAGE>   234

         Transition Services Agreement. During 1997, pursuant to a transition
services agreement entered into in connection with the TSAT Distribution (the
"Transition Services Agreement"), the Company provided to TSAT certain services
including: (1) tax reporting, financial reporting, payroll, employee benefit
administration, workers' compensation administration, telephone, fleet
management, package delivery, management information systems, billing, lock box
and remittance processing and risk management services; (2) other services
typically performed by the Company's accounting, finance, treasury, corporate,
legal, tax, benefits, insurance, facilities, purchasing, fleet management and
advanced information technology department personnel; (3) use of
telecommunications and data facilities and of systems and software developed,
acquired or licensed by the Company from time to time for financial forecasting,
budgeting and similar purposes, including without limitation, any such software
for use on personal computers, in any case to the extent available under
copyright law or any applicable third-party contract; (4) technology support and
consulting services; and (5) such other management, supervisory, strategic
planning or other services as TSAT and the Company determined to be necessary or
desirable. As compensation for services rendered to TSAT and for the benefits
made available to TSAT pursuant to the Transition Services Agreement, TSAT was
required to pay the Company a fee of $1.50 per qualified subscribing household
or other residential or commercial unit (counted as one subscriber regardless of
the number of satellite receivers) per month, up to a maximum of $3 million per
month, and reimburse the Company quarterly for direct, out-of-pocket expenses
incurred by the Company to third parties in providing the services. During the
period ended March 31, 1998, TSAT was charged $3,174,000 pursuant to the
Transition Services Agreement. Pursuant to the terms of the PRIMESTAR
Restructuring Transaction, the Transition Services Agreement was terminated on
April 1, 1998.

         Tax Sharing Agreement. Through the TSAT Distribution Date, TSAT's
results of operations were included in the Company's consolidated U.S. federal
income tax returns, in accordance with the existing tax sharing arrangements
among the Company and its consolidated subsidiaries. Effective July 1, 1995, the
Company, TCIC and certain other subsidiaries of the Company entered into a tax
sharing agreement (the "1995 Tax Sharing Agreement"), which formalized such
pre-existing tax sharing arrangements and implemented additional procedures for
the allocation of certain consolidated income tax attributes and the settlement
of certain intercompany tax allocations. The 1995 Tax Sharing Agreement
encompasses U.S. federal, state, local and foreign tax consequences and relies
upon the Internal Revenue Code of 1986, as amended (the "Code") and any
applicable state, local and foreign tax law and related regulations. In
connection with the TSAT Distribution, the 1995 Tax Sharing Agreement was
amended to provide that TSAT be treated as if it had been a party to the 1995
Tax Sharing Agreement, effective July 1, 1995.



                                                                     (continued)


                                     III-54
<PAGE>   235

         In connection with the PRIMESTAR Restructuring Transaction, TSAT and
the Company entered into a tax sharing agreement dated as of June 1997, to
confirm that pursuant to the amended 1995 Tax Sharing Agreement: (1) neither
TSAT nor any of its subsidiaries has any obligation to indemnify the Company,
the Company's tax consolidated subsidiaries, or the Company's shareholders for
any tax resulting from the TSAT Distribution failing to qualify as a tax-free
distribution pursuant to Section 355 of the Code; (2) the Company is obligated
to indemnify TSAT and its subsidiaries for any taxes resulting from the TSAT
Distribution failing to qualify as a tax-free distribution pursuant to Section
355 of the Code; (3) to the best knowledge of the Company, TSAT's total payment
obligation under the 1995 Tax Sharing Agreement could not reasonably be expected
to exceed $5 million; and (4) the sole agreement between the Company or the
Company's tax consolidated subsidiaries, on the one hand, and TSAT or any of its
subsidiaries, on the other, relating to taxes is the 1995 Tax Sharing Agreement.

         Indemnification Agreements. On the TSAT Distribution Date, TSAT entered
into an indemnification agreement with each of TCIC and TCI UA 1, Inc. ("TCI UA
1"), an indirect subsidiary of TCIC. As of December 31, 1997, TSAT and each of
TCIC and TCI UA 1 entered into amendments to such indemnification agreements
(collectively, as amended, the "Indemnification Agreements" and individually,
each the "Indemnification Agreement"). The Indemnification Agreement with TCIC
provides for TSAT to reimburse TCIC for any amounts drawn under an irrevocable
transferable letter of credit issued for the account of TCIC to support TSAT's
share of certain obligations to PRIMESTAR Partners, L.P. (the "Partnership")
under an agreement with GE American Communications, Inc. with respect to the
Partnership's use of transponders on a satellite. The drawable amount of such
letter of credit was $25,000,000 at December 31, 1998. TCIC has agreed to keep
such letter of credit in place through June 30, 1999. The Indemnification
Agreement with TCI UA 1 provides for TSAT to reimburse TCI UA 1 for any amounts
drawn under an irrevocable transferable letter of credit issued for the account
of TCI UA 1 (the "TCI UA 1 Letter of Credit") which supports a credit facility
of the Partnership that was obtained to finance advances for the construction of
a certain satellite. The drawable amount of the TCI UA 1 Letter of Credit was
$141,250,000 at December 31, 1998. TCI UA 1 has agreed to keep the TCI UA 1
Letter of Credit in place through June 30, 1999.

         The Indemnification Agreements further provide for TSAT to indemnify
and hold harmless TCIC and TCI UA 1 and certain related persons from and against
any losses, claims, and liabilities arising out of the respective letters of
credit or any drawings thereunder. The payment obligations of TSAT to TCIC and
TCI UA 1 under such Indemnification Agreements are subordinated in right of
payment with respect to TSAT's obligations under its bank credit facilities.
During the year ended December 31, 1998, the aggregate amount paid by TSAT (and
following the PRIMESTAR Restructuring Transaction, New PRIMESTAR) to the Company
under the Indemnification Agreements was $2,203,000. Such amounts represent the
aggregate fees incurred by the Company with respect to the TCI UA 1 Letter of
Credit.

         Pursuant to the Restructuring Transaction, New PRIMESTAR assumed the
rights and obligations of TSAT under the Indemnification Agreements, including
the reimbursement obligations in favor of TCIC and TCI UA 1, and the
Indemnification Agreements were amended to, among other things, extend the
subordination provisions for the benefit of certain other indebtedness of New
PRIMESTAR.



                                                                     (continued)


                                     III-55
<PAGE>   236

         Trade Name and Service Mark License Agreement. Pursuant to a Trade Name
and Service Mark License Agreement (the "License Agreement"), the Company
granted to TSAT, for an initial term of three years following the TSAT
Distribution, a non-exclusive, non-assignable license to use certain trade names
and service marks specifically identified in the License Agreement, including
the mark "TCI" in the context of the digital satellite business. The License
Agreement provides, among other things, that all advertising, promotion and use
of certain of the Company's trade names and service marks by TSAT shall be
consistent with the Company's guidelines and standards, as well as subject to
the Company's approval in certain circumstances. Since the TSAT Distribution,
TSAT has taken steps to phase out the use of the Company's names and marks
covered by the License Agreement, except in connection with its corporate name.
TSAT and the Company amended the License Agreement immediately prior to the
closing of the PRIMESTAR Restructuring Transaction to reflect such limited use.

         Call Center LLC. In March 1997, TSAT and the Company agreed to form a
limited liability company (the "Call Center LLC") through which TSAT and the
Company were to conduct various customer call service operations. The initial
ownership interests of TSAT and the Company in the Call Center LLC were to be
28% and 72%, respectively. In June 1997, TSAT and the Company agreed not to form
the Call Center LLC. In March 1997, the Company began providing customer call
services to TSAT based upon a per call charge and has provided such services to
New PRIMESTAR on the same basis since the consummation of the PRIMESTAR
Restructuring Transaction. Charges for such services aggregated $24,938,000 in
1998. There can be no assurances that the Company will continue to provide such
services to Hughes following its proposed purchase of the New PRIMESTAR
business.

         Other Arrangements. As a result of the TSAT Distribution, the Company
and TSAT entered into a Share Purchase Agreement, which obligates the Company
and TSAT to sell to each other from time to time, at the then current market
price, shares of TCI Group Series A Stock and TSAT Series A Stock, respectively,
as necessary to satisfy their respective obligations under the TCI Group Series
A Options and TSAT Options held by their respective employees and non-employee
directors. During the year ended December 31, 1998, TSAT did not issue any
shares of TSAT Series A Stock to the Company under this arrangement.

         Certain officers of TSAT who were officers or directors of the Company
and/or TCIC prior to the TSAT Distribution received undertakings of
indemnification from the Company and/or TCIC. Such undertakings survived the
TSAT Distribution.



                                                                     (continued)


                                     III-56
<PAGE>   237

         (c) Indebtedness of Management.

         Indebtedness of Dr. Malone. On March 4, 1997, Dr. Malone received an
advance from a wholly owned subsidiary of the Company in the amount of
$5,787,505. On March 5, 1997, Dr. Malone received a second advance from a wholly
owned subsidiary of the Company in the amount of $5,813,755. The terms of the
advances were memorialized by a promissory note entered into by Dr. Malone. The
interest rate on such loans is 1% over the one-month LIBOR rate compounded
annually. Dr. Malone used the proceeds of the advance to purchase shares of TSAT
Series A Stock. On February 9, 1998 Dr. Malone repaid the $12 million promissory
note balance and accrued interest in the amount of $723,000.

         See "Item 13. Certain Relationships and Related Transactions -
Transactions with Management and Others - Malone Transactions" for a discussion
of additional indebtedness of Dr. Malone.

         Indebtedness of Mr. Fisher. Fisher Communications Associates, L.L.C.
("Fisher Communications"), a Colorado limited liability company controlled by
Mr. Donne Fisher, a director of the Company, has issued five non-interest
bearing promissory notes (the "Fisher Notes") to the following five subsidiaries
of the Company: ECP Holdings, Inc. ("ECP"), American Televenture of Minersville,
Inc. ("ATM"), TCI Cablevision of Nevada, Inc. ("TCINV"), TCI Cablevision of
Utah, Inc. ("TCIU") and TEMPO Cable Inc. ("Tempo Cable"). Each of the Fisher
Notes matures on January 31, 2006. The Fisher Notes have an aggregate principal
amount of $3 million, all of which is outstanding, and are payable in the
following amounts to the following entities:

<TABLE>
<CAPTION>
         Payee                                     Principal Amount of Note
         -----                                     ------------------------
<S>                                                <C>       
         ECP                                             $1,200,000
         ATM                                                 42,120
         TCINV                                              233,100
         TCIU                                               351,180
         Tempo Cable                                      1,173,600
</TABLE>

Fisher Communications issued certain of the Fisher Notes to each of ATM, TCINV,
TCIU and Tempo Cable in payment of the exercise price of certain options to
purchase certain partnership interests in Halcyon Communications Limited
Partnership, an Oklahoma limited partnership, held by such entities. Fisher
Communications acquired such options as of January 31, 1996. Fisher
Communications issued certain of the Fisher Notes to ECP in payment of the
exercise price of an option to purchase ECP's partnership interest in Halcyon
Communications Partners, an Oklahoma general partnership. Fisher Communications
acquired such option as of January 31, 1996.

         Indebtedness of Mr. Gallivan. See "Item 13. Certain Relationships and
Related Transactions - Transactions with Management and Others - Transactions
with Mr. Gallivan."





                                     III-57
<PAGE>   238


                                    PART IV.


Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) (1)  Financial Statements

<TABLE>
<CAPTION>
Included in Part II of this Report:                                                          Page No.
                                                                                             --------
<S>                                                                                     <C>
Tele-Communications, Inc.:

         Independent Auditors' Report                                                         II-38

         Consolidated Balance Sheets,
            December 31, 1998 and 1997                                                    II-39 to II-40

         Consolidated Statements of Operations and
            Comprehensive Earnings,
               Years ended December 31, 1998, 1997 and 1996                               II-41 to II-42

         Consolidated Statements of Stockholders' Equity,
            Years ended December 31, 1998, 1997 and 1996                                  II-43 to II-45

         Consolidated Statements of Cash Flows,
            Years ended December 31, 1998, 1997 and 1996                                      II-46

         Notes to Consolidated Financial Statements,
            December 31, 1998, 1997 and 1996                                              II-47 to II-126
</TABLE>



                                      IV-1
<PAGE>   239


(a) (2)  Financial Statement Schedules


<TABLE>
<CAPTION>
Included in Part IV of this Report:                                                            Page No.
                                                                                               --------
<S>                                                                                      <C>
(i)      Financial Statement Schedules required to be filed:

         Independent Auditors' Report                                                           IV-14

         Schedule I - Condensed Information as to the
            Financial Position of the Registrant, December 31, 1998
               and 1997; Condensed Information as to the Operations
               and Cash Flows of the Registrant, Years ended
               December 31, 1998, 1997 and 1996                                             IV-15 to IV-17

         Schedule II - Valuation and Qualifying Accounts,
            Years ended December 31, 1998, 1997 and 1996                                        IV-18


(ii)     Separate financial statements for Sprint Spectrum
            Holding Company, L.P. and Subsidiaries

         Consolidated Financial Statements

            Report of Independent Auditors                                                       IV-19

            Consolidated Statements of Operations                                                IV-20

            Consolidated Balance Sheets                                                          IV-21

            Consolidated Statements of Cash Flows                                                IV-22

            Notes to Consolidated Financial Statements                                      IV-23 to IV-32
</TABLE>



                                      IV-2
<PAGE>   240


(a) (3)  Exhibits

Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):

3 - Articles of Incorporation and Bylaws:

    3.1    The Restated Certificate of Incorporation, dated March 9, 1999

        3.2   The Bylaws effective as of March 9, 1999.

4 - Instruments Defining the Rights of Securities Holders, including Indentures:

              No instrument which defines the rights of holders of long term
              debt, of the registrant and all of its consolidated subsidiaries,
              is filed herewith pursuant to Regulation S-K, Item
              601(b)(4)(iii)(A). Pursuant to this regulation, the registrant
              hereby agrees to furnish a copy of any such instrument to the
              Commission upon request.

10 - Material Contracts:

<TABLE>
<S>           <C>                                                     
     10.1     Amended and Restated Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Registration Statement on Form S-8
                         (Commission File No. 333-40141).

     10.2     Amended and Restated Tele-Communications, Inc. 1995 Employee Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Registration Statement on Form S-8
                         (Commission File No. 333-40141).

     10.3     Amended and Restated Tele-Communications, Inc. 1996 Incentive Plan.*
                     Incorporated herein by reference to the Company's Registration Statement on Form S-8
                         (Commission File No. 333-40141).

     10.4     Restated and Amended Employment Agreement, dated as of November 1, 1992, between the Company and
                  John C. Malone.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992
                         (Commission File No. 0-5550).

     10.5     Assignment and Assumption Agreement, dated as of August 4, 1994, among TCI/Liberty Holding Company,
                  Tele-Communications, Inc. and John C. Malone.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.6     Call Agreement, dated February 9, 1998, between Tele-Communications, Inc., John C. Malone and Leslie
                  Malone.
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated February
                         25, 1998 (Commission File No. 0-20421).

     10.7     Call Agreement, dated February 9, 1998, between Tele-Communications, Inc., Gary Magness, both
                  individually and as representative, Kim Magness, both individually and as representative, the
                  Estate of Bob Magness, the Estate of Betsy Magness and any individual or entity which
                  thereafter becomes a party thereto.
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated February
                         25, 1998 (Commission File No. 0-20421).
</TABLE>

                                                                     (continued)



                                      IV-3
<PAGE>   241


10 - Material contracts, continued:

<TABLE>
<S>           <C>                                                
     10.8     Consulting Agreement, dated as of January 1, 1996, between Tele-Communications, Inc. and Donne F.
                  Fisher.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.9     Consulting Agreement, dated as March 11, 1995, between Tele-Communications, Inc. and J.C. Sparkman.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1996 (Commission File No. 0-20421).

     10.10    Deferred Compensation Plan for Non-Employee Directors, effective on November 1, 1992.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992
                         (Commission File No. 0-5550).

     10.11    Form of Consulting Agreement, dated as of March 8, 1999, between the Company and Larry E. Romrell *

     10.12    Employment Agreement, dated as of June 1, 1998, between the Company and Stephen M. Brett *
                     Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q as amended
                         by Form 10-Q/A, for the quarterly period ended June 30, 1998 (Commission File No.
                         0-20421).

     10.13    Employment Agreement, dated as of June 23, 1998, between the Company and Leo J. Hindery, Jr. *
                     Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q as amended
                         by Form 10-Q/A, for the quarterly period ended June 30, 1998 (Commission File No.
                         0-20421).

     10.14    Form of 1992 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993
                         (Commission File No. 0-5550).

     10.15    Form of 1993 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993
                         (Commission File No. 0-5550).

     10.16    Non-Qualified Stock Option and Stock Appreciation Rights Agreement, dated as of November 12, 1993,
                  by and between Tele-Communications, Inc. and Jerome   H. Kern.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993
                         (Commission File No. 0-5550).
</TABLE>

                                                                     (continued)


                                      IV-4
<PAGE>   242


10 - Material contracts, continued:

<TABLE>
<S>           <C>                                                                                                     
     10.17    Form of Assumption and Amended and Restated Stock Option Agreement between the Company, Liberty
                  Media Corporation and grantee relating to stock appreciation rights granted pursuant to letter
                  dated September 17, 1991.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.18    Form of Assumption and Amended and Restated Stock Option Agreement between the Company, Liberty
                  Media Corporation and grantee relating to the assumption of options and related stock
                  appreciation rights granted under the Liberty Media Corporation 1991 Stock Incentive Plan
                  pursuant to letter dated July 26, 1993.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.19    Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty Holding
                  Company and a director of Tele-Communications, Inc. relating to assumption of options and
                  related stock appreciation rights granted outside of an employee benefit plan pursuant to
                  Tele-Communications, Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation Rights
                  Agreement.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.20    Form of Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty
                  Holding Company and grantee relating to assumption of options and related stock appreciation
                  rights granted under Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to
                  Tele-Communications, Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation Rights
                  Agreement.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.21    Form of letter dated September 17, 1991 from Liberty Media Corporation to grantee relating to grant
                  of stock appreciation rights.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.22    Form of letter dated July 26, 1993 from Liberty Media Corporation to grantee relating to grant of
                  options and stock appreciation rights.*
                     Incorporated by reference to Tele-Communications, Inc.'s Post Effective Amendment No. 1 to
                         Form S-4 Registration Statement on Form S-8 Registration Statement (Commission File No.
                         33-54263).

     10.23    Form of Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty
                  Holding Company and grantee relating to assumption of options and related stock appreciation
                  rights under Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to
                  Tele-Communications, Inc.'s 1992 Non-Qualified Stock Option and Stock Appreciation Rights
                  Agreement.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).
</TABLE>

                                                                     (continued)



                                      IV-5
<PAGE>   243


10 - Material contracts, continued:

<TABLE>
<S>           <C>                                                                                                     
     10.24    Form of Indemnification Agreement.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993
                         (Commission File No. 0-5550).

     10.25    Form of 1994 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December
                         31, 1994, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.26    TCI 401(k) Stock Plan, restated effective January 1, 1998.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.27    Form of Restricted Stock Award Agreement for 1995 Award of Series A TCI Group Restricted Stock
                  pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.28    Form of Restricted Stock Award Agreement for 1995 Award of Series A Liberty Media Group Restricted
                  Stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.29    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Group common stock
                  pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.30    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common
                  stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.31    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Group common stock
                  pursuant to the Tele-Communications, Inc. 1995 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).
</TABLE>

                                                                     (continued)


                                      IV-6
<PAGE>   244


10 - Material contracts, continued:

<TABLE>
<S>           <C>                                                                                                     
     10.32    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common
                  stock pursuant to the Tele-Communications, Inc. 1995 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.33    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Group common stock
                  pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.34    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common
                  stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.35    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1997 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Group common stock
                  pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan. *
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.36    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1997 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Ventures Group common
                  stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan. *
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.37    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1997 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common
                  stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan. *
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.38    Form of Restricted Stock Award Agreement for 1997 Award of Series A TCI Group Restricted Stock
                  pursuant to the Tele-Communications, Inc. 1996 Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).
</TABLE>

                                                                     (continued)



                                      IV-7
<PAGE>   245

10 - Material contracts, continued:

<TABLE>
<S>           <C>                                                                                                     
     10.39    Form of Restricted Stock Award Agreement for 1997 Award of Series A TCI Ventures Group Restricted
                  Stock pursuant to the Tele-Communications, Inc. 1996 Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.40    Form of 1998 Incentive Plan of Tele-Communications, Inc., effective December 16, 1997*
                     Incorporated herein by reference to the Company's Definitive Proxy Statement on Schedule
                         14A, dated April 30, 1998 (Commission File No. 0-20421).

     10.41    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement, dated June 16, 1998, of
                  Tele-Communications, Inc., TCI Group Series A Common Stock, pursuant to the
                  Tele-Communications, Inc., 1998 Incentive Plan. *

     10.42    Form of Restricted Stock Award Agreement, dated June 23, 1998, of Tele-Communications, Inc., TCI
                  Group Series A Common Stock, pursuant to the Tele-Communications, Inc., 1998 Incentive Plan. *

     10.43    Form of Restricted Stock Award Agreement, dated November 15, 1998, of Tele-Communications, Inc.,
                  TCI Group Series A Common Stock, pursuant to the Tele-Communications, Inc., 1998 Incentive
                  Plan. *

     10.44    Form of Restricted Stock Award Agreement, dated December 10, 1998, of Tele-Communications, Inc.,
                  TCI Group Series A Common Stock, pursuant to the Tele-Communications, Inc., 1998 Incentive
                  Plan. *

     10.45    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement, dated March 1, 1999, of
                  Tele-Communications, Inc., TCI Group Series A Common Stock pursuant to the Tele-Communications,
                  Inc., 1998 Incentive Plan. *

     10.46    Form of Restricted Stock Award Agreement, dated March 1, 1999, of Tele-Communications, Inc., TCI
                  Group Series A Common Stock pursuant to the Tele-Communications, Inc., 1998 Incentive Plan. *

     10.47    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated July 23, 1997, pertaining to shares of
                  Tele-Communications, Inc., TCI Group Series A Common Stock.*

     10.48    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated July 23, 1997, pertaining to shares of
                  Tele-Communications, Inc. Liberty Media Group Series A Common Stock. *

     10.49    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated July 23, 1997, pertaining to shares of
                  Tele-Communications, Inc., TCI Ventures Group Series A Common Stock. *

     10.50    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated May 14, 1997, pertaining to shares of Tele-Communications,
                  Inc., TCI Group Series A Common Stock. *
</TABLE>

                                                                     (continued)


                                      IV-8
<PAGE>   246


10 - Material contracts, continued:

<TABLE>
<S>           <C>                                                                                                     
     10.51    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated May 14, 1997, pertaining to shares of Tele-Communications,
                  Inc., TCI Ventures Group Series A Common Stock. *

     10.52    The Tele-Communications International, Inc. 1995 Stock Incentive Plan.*
                     Incorporated herein by reference to Tele-Communications International, Inc. Registration
                         Statement on Form S-1 (Commission File No. 33-91876).

     10.53    Form of Restricted Stock Award Agreement for 1995 Award of Series A Tele-Communications
                  International, Inc. Restricted Stock pursuant to the Tele-Communications International, Inc.
                  1995 Stock Incentive Plan.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.54    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Tele-Communications
                  International, Inc. common stock pursuant to the Tele-Communications International, Inc. 1995
                  Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.55    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Tele-Communications
                  International, Inc. common stock.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.56    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1997 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Tele-Communications
                  International, Inc. common stock pursuant to the Tele-Communications International, Inc. 1995
                  Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.57    Form of Restricted Stock Award Agreement for 1997 Award of Series A Tele-Communications
                  International, Inc. Restricted Stock pursuant to the Tele-Communications International. Inc.
                  1995 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.58    Form of Stock Appreciation Rights Agreement made as of the 1st day of December, 1996, by and among
                  TCI Wireless Holdings, Inc., Grantee, TCI Telephony Services, Inc. and Tele-Communications,
                  Inc.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).
</TABLE>


                                                                     (continued)



                                      IV-9
<PAGE>   247



10 - Material contracts, continued:

<TABLE>
<S>           <C>                                                                                                     
     10.59    Form of Stock Appreciation Rights Agreement made as of the 1st day of December, 1996, by and among
                  TCI Teleport Holdings, Inc., Grantee, TCI Telephony Services, Inc. and Tele-Communications,
                  Inc.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.60    Form of Amended and Restated Option Agreement made as of the 1st day of December, 1996, by and
                  among TCI Wireline, Inc., Grantee and Tele-Communications, Inc.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.61    Form of Option to Purchase Common Stock Agreement made as of the 1st day of December, 1996, by and
                  among TCI.Net, Inc., Grantee and Tele-Communications, Inc.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.62    Form of Amended and Restated Stock Appreciation Right Agreement made as of the 8th day of March,
                  1999, by and among TCI Internet Services, Inc., Tele-Communications, Inc. and Larry E. Romrell.*

     10.63    Form of Amended and Restated Stock Appreciation Right Agreement made as of the 8th day of March,
                  1999, by and among TCI Internet Services, Inc., Tele-Communications, Inc. and Bruce W. Ravenel.*

     10.64    Form of Agreement, dated February 19, 1999, between the Company, TCI.Net, Inc. ("TCI.NET"), TCI
                  Internet Services, Inc. ("Internet") and Larry E. Romrell relating to the share repurchase and
                  option cancellation under an Option to Purchase Common Stock Agreement, dated December 31,
                  1996, and an amendment to a Stock Appreciation Rights Agreement, dated December 1, 1996. *

     10.65    Form of Agreement, dated February 19, 1999, between the Company, TCI.Net, TCI Internet and Brendan
                  Clouston relating to the share repurchase and option cancellation under an Option to Purchase
                  Common Stock Agreement, dated December 31, 1996, and an amendment to a Stock Appreciation
                  Rights Agreement, dated December 1, 1996. *

     10.66    Form of Agreement, dated February 19, 1999, between the Company, TCI.Net, TCI Internet ") and Bruce
                  W. Ravenel relating to share repurchase and option cancellation under an Option to Purchase
                  Common Stock Agreement, dated December 31, 1996, and an amendment to a Stock Appreciation
                  Rights Agreement, dated December 1, 1996. *

     10.67    Form of Agreement, dated February 19, 1999, between the Company, TCI Wireline, Inc., TCI Teleport
                  Holdings, Inc., TCI Telephony Services, Inc., and Brendan Clouston related to share repurchase
                  and option cancellation under an Amended and Restated Option Agreement, dated December 1, 1996,
                  and an amendment to a Stock Appreciation Rights Agreement, dated December 1, 1996. *
</TABLE>


                                                                     (continued)



                                     IV-10
<PAGE>   248

10 - Material contracts, continued:

<TABLE>
<S>           <C>                                                                                                     
     10.68    InterMedia Capital Management, L.P. Agreement of Limited Partnership, dated as of June 10, 1997 and
                  effective as of May 22, 1997, by and between InterMedia Management, Inc., Leo J. Hindery, Jr.
                  and TCI ICM I, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.69    InterMedia Capital Management III, L.P. Amended and Restated Agreement of Limited Partnership,
                  dated as of June 10, 1997, by and among Leo J. Hindery, Jr., InterMedia Management, Inc. and
                  TCI ICM III, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.70    InterMedia Capital Management IV, L.P. Amended and Restated Agreement of Limited Partnership, dated
                  as of August 5, 1997, by and between InterMedia Management, Inc., TCI ICM IV, Inc. and Leo J.
                  Hindery, Jr.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.71    Amended and Restated Contribution and Merger Agreement, dated as of June 6, 1997, among TCI
                  Communications, Inc., Cablevision Systems Corporation, CSC Parent Corporation and CSC Merger
                  Corporation.
              Stockholders Agreement dated as of March 4, 1998, by and among Cablevision Systems Corporation,
                  Tele-Communications, Inc. and the Class B Entities (as defined therein)
                      Incorporated herein by reference to the Company's Current Report on Form 8-K, dated March
                           6, 1998 (Commission File No. 0-20421).

     10.72    Amended and Restated Asset Contribution Agreement, dated September 25, 1997, by and among Fisher
                  Communications Associates, L.L.C. and Tempo Cable, Inc., Communications Services, Inc., TCI
                  Cablevision of Oklahoma, Inc., TCI of Kansas, Inc., Wentronics, Inc., TCI Cablevision of Utah,
                  Inc., TCI Cablevision of Arizona, Inc., Tulsa Cable Television, Inc. and TCI American Cable
                  Holdings III, L.P. and Peak Cablevision, LLC.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.73    Amended and Restated Operating Agreement of Peak Cablevision, LLC, made as of September 25, 1997,
                  by TCI American Cable Holdings III, L.P. and Fisher Communications Associates, L.L.C.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.74    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and ECP
                  Holdings, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.75    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and
                  American Televentures of Minersville, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).
</TABLE>

                                                                     (continued)



                                     IV-11
<PAGE>   249


10 - Material contracts, continued:

<TABLE>
<S>           <C>                                                                                                     
     10.76    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and TCI
                  Cablevision of Utah, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.77    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and Tempo
                  Cable, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.78    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and TCI
                  Cablevision of Nevada, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.79    Agreement and Plan of Restructuring and Merger among AT&T Corp., Italy Merger Corp. and
                  Tele-Communications, Inc. dated as of June 23, 1998.
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated July 1,
                         1998 (Commission File No. 0-20421). (1)

     10.80    Agreement and Plan of Merger dated August 24, 1998, among Tele-Communications, Inc., Liberty Group
                  Acquisition Co. and Tele-Communications International, Inc.
                     Incorporated herein by reference to Amendment No. 1 of the Company's Registration Statement
                         on Form S-4 (Commission File No. 333-64297).

     10.81    TCIC Merger Agreement, dated January 12, 1999, among the Company and TCI Communications, Inc.
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated March
                         11, 1999 (Commission File No. 020421).

16.1     Letter, dated March 9, 1999, from KPMG LLP
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated March
                         11, 1999.

21 - Subsidiaries of Tele-Communications, Inc.

23 - Consent of Experts and Counsel

      23.1    Consent of KPMG LLP.

      23.2    Consent of Deloitte & Touche LLP.

27 - Financial data schedule
</TABLE>


*Constitutes management contract or compensatory arrangement.

(1)      Certain exhibits to agreement have been omitted. A copy of any omitted
         exhibit or schedule will be furnished supplementally to the Commission
         upon request.




                                     IV-12
<PAGE>   250


(b) Report on Form 8-K filed during the quarter ended December 31, 1998:

<TABLE>
<CAPTION>
                                                   Item
            Date of Report                        Reported                           Financial Statements Filed
            --------------                        --------                           --------------------------

<S>                                          <C>                                     <C>
      October 22, 1998                          Item 5                                        None
                                                

      December 8, 1998                          Items 5 and 7                                 None
</TABLE>







                                     IV-13
<PAGE>   251



                          INDEPENDENT AUDITORS' REPORT




The Board of Directors and Stockholders
Tele-Communications, Inc.:

Under date of March 9, 1999, we reported on the consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive earnings,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, which are included in the December 31, 1998
annual report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules as listed in the accompanying index. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.





                                                              KPMG LLP



Denver, Colorado
March 9, 1999




                                     IV-14
<PAGE>   252



                                                                      Schedule I
                                                                     Page 1 of 3
                            TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                         Condensed Information as to the
                      Financial Position of the Registrant

                           December 31, 1998 and 1997

<TABLE>
<CAPTION>
Assets                                                                                 1998             1997
------                                                                                 ----             ----
                                                                                        amounts in millions
<S>                                                                                <C>                    <C>  
Investments in and advances to consolidated subsidiaries - eliminated upon
    consolidation                                                                  $    13,457            6,864

Other assets, at cost, net of accumulated amortization                                      16               18
                                                                                   -----------    -------------
                                                                                   $    13,473            6,882
                                                                                   ===========    =============
Liabilities and Stockholders' Equity
Accrued liabilities                                                                $     1,022              455

Redeemable securities:
    Preferred stock                                                                        300              655
    Common stock                                                                            22                5

Stockholders' equity:
    Series Preferred Stock, $.01 par value                                                  --               --
    Convertible Redeemable Participating Preferred Stock, Series F, $.01 par
      value                                                                                 --               --
    Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock, $.01
      par value                                                                             --               --
    Common stock, $1 par value:
      Series A TCI Group. Authorized 1,750,000,000 shares; issued 610,748,188
         shares in 1998 and 605,616,143 shares in 1997                                     611              606
      Series B TCI Group. Authorized 150,000,000 shares; issued 73,929,229
         shares in 1998 and 78,203,044 shares in 1997                                       74               78
      Series A Liberty Media Group. Authorized 750,000,000 shares; issued
         367,890,546 shares in 1998 and 344,962,521 shares in 1997                         368              345
      Series B Liberty Media Group. Authorized 75,000,000 shares; issued
         35,198,156 shares in 1998 and 35,180,385 shares in 1997                            35               35
      Series A TCI Ventures Group. Authorized 750,000,000 shares; issued
         377,253,230 shares in 1998 and 377,386,032 shares in 1997                         377              377
      Series B TCI Ventures Group. Authorized 75,000,000 shares; issued
         45,750,534 shares in 1998 and 32,532,800 shares in 1997                            46               33
    Additional paid-in capital                                                           7,248            6,324
    Accumulated other comprehensive earnings, net of taxes                               3,749              772
    Retained earnings (accumulated deficit)                                              1,124             (812)
                                                                                   -----------    -------------
                                                                                        13,632            7,758
    Treasury stock and common stock held by subsidiaries, at cost                       (1,503)          (1,991)
                                                                                   -----------    -------------
         Total stockholders' equity                                                     12,129            5,767
                                                                                   -----------    -------------

                                                                                   $    13,473    $       6,882
                                                                                   ===========    =============
</TABLE>





                                     IV-15
<PAGE>   253


                                                                      Schedule I
                                                                     Page 2 of 3


                            TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                         Condensed Information as to the
                          Operations of the Registrant

                  Years ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                 1998             1997           1996
                                                                              ----------     -------------     ---------
                                                                                          amounts in millions
<S>                                                                           <C>             <C>              <C> 
Income (expenses):
    Selling, general and administrative                                       $      (24)              (19)          (82)
    AT&T Merger costs                                                                (14)               --            --
    Stock compensation                                                               (47)              (73)           13
                                                                              ----------     -------------     ---------

       Loss before share of earnings (loss) of consolidated 
           subsidiaries                                                              (85)              (92)          (69)

Share of earnings (loss) of consolidated subsidiaries                              2,028              (469)          361
                                                                              ----------     -------------     ---------

       Net earnings (loss)                                                         1,943              (561)          292

Dividend requirements on preferred stocks                                            (24)              (42)          (35)
                                                                              ----------     -------------     ---------

       Net earnings (loss) attributable to common stockholders                $    1,919              (603)          257
                                                                              ==========     =============     =========
</TABLE>









                                     IV-16
<PAGE>   254


                                                                      Schedule I
                                                                     Page 3 of 3


                            TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                           Condensed Information as to
                          Cash Flows of the Registrant

                  Years ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                              1998      1997    1996
                                                                              ----      ----    ----
                                                                                amounts in millions
<S>                                                                           <C>        <C>      <C> 
Cash flows from operating activities:
    Loss before share of earnings (loss) of consolidated subsidiaries         $ (85)     (92)     (69)
    Adjustments to reconcile loss to net cash provided by (used in)
       operating activities:
          Stock compensation                                                     47       73      (13)
          Payments of obligation relating to stock compensation                  (4)     (43)      (3)
          Change in accrued liabilities                                         535      276       56
                                                                              -----    -----    -----

       Net cash provided by (used in)operating
         activities                                                             493      214      (29)
                                                                              -----    -----    -----

Cash flows from investing activities:
    Reductions in (additional investments in and advances to)
       consolidated subsidiaries, net                                          (152)     370       75
    Other investing activities                                                    2       (2)     (11)
                                                                              -----    -----    -----

       Net cash provided by (used in) investing
         activities                                                            (150)     368       64
                                                                              -----    -----    -----

Cash flows from financing activities:
    Payment of preferred stock dividends                                        (27)     (42)     (35)
    Payments for call agreements                                               (274)      --       --
    Proceeds from issuances of common stock                                      --        5       --
    Repurchase of common stock to be held in treasury                           (20)    (529)      --
    Repurchase and retirement of common stock                                   (11)      --       --
                                                                              -----    -----    -----
    Other financing activities                                                  (11)     (16)      --
                                                                              -----    -----    -----

       Net cash used in financing activities                                   (343)    (582)     (35)
                                                                              -----    -----    -----

               Change in cash                                                    --       --       --

               Cash at beginning of year                                         --       --       --
                                                                              -----    -----    -----

               Cash at end of year                                            $  --       --       --
                                                                              =====    =====    =====
</TABLE>

See also note 4 to the consolidated financial statements.



                                     IV-17
<PAGE>   255


                                                                     Schedule II


                            TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                        Valuation and Qualifying Accounts

                  Years ended December 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                   Additions        Deductions
                                                 Balance at        Charged to       Write-offs         Balance
                                                 beginning          profit            net of            at end
Description                                       of year          and loss         recoveries         of year
-----------                                      ---------         ---------        ----------         -------
                                                                      amounts in millions
<S>                                               <C>          <C>              <C>                 <C>
Year ended December 31, 1998:
        Allowance for doubtful receivables
           - trade                                 $   34               90               (91)                33
                                                   ======      ===========       ===========        ===========

Year ended December 31, 1997:
        Allowance for doubtful receivables
           - trade                                 $   36               96               (98)                34
                                                   ======      ===========       ===========        ===========

Year ended December 31, 1996:
        Allowance for doubtful receivables
           - trade                                 $   34              121              (119)                36
                                                   ======      ===========       ===========        ===========
</TABLE>








                                     IV-18
<PAGE>   256

REPORT OF INDEPENDENT AUDITORS
The Board of Directors of Sprint Corporation and
Partners of Sprint Spectrum Holding Company, L.P.


We have audited the consolidated balance sheets of Sprint Spectrum Holding
Company, L.P. and subsidiaries (the "Holdings") as of December 31, 1998 and
1997, and the related consolidated statements of operations and cash flows for
the three years in the period ended December 31, 1998. Our audits also included
the financial statement schedule ("Schedule II"). These financial statements and
Schedule II are the responsibility of Partnership management. Our responsibility
is to express an opinion on these consolidated financial statements and Schedule
II based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Sprint Spectrum Holding Company,
L.P. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for the three years ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
Schedule II, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

Deloitte & Touche LLP



Kansas City, Missouri
February 2, 1999

                                     IV-19

<PAGE>   257





SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)

<TABLE>
<CAPTION>
Years Ended December 31,                             1998          1997         1996
                                                  ----------    ----------    ---------
<S>                                               <C>           <C>           <C>      
NET OPERATING REVENUES                            $  1,175.5    $    248.6    $     4.2
                                                  ----------    ----------    ---------

OPERATING EXPENSES
      Costs of services and products                 1,142.8         555.0         36.1
      Selling, general and administrative            1,334.9         696.9        312.7
      Depreciation                                     637.1         258.6          9.6
      Amortization                                      76.0          48.8          1.7
                                                  ----------    ----------    ---------
      Total operating expenses                       3,190.8       1,559.3        360.1
                                                  ----------    ----------    ---------

OPERATING LOSS                                      (2,015.3)     (1,310.7)      (355.9)

Interest expense                                      (469.6)       (121.9)        (0.3)
Minority interest                                      144.5           6.2         (0.2)
Equity in loss of unconsolidated partnerships           --          (168.9)       (96.9)
Other income, net                                       33.5          31.9         10.2
                                                  ----------    ----------    ---------

LOSS BEFORE EXTRAORDINARY ITEM                      (2,306.9)     (1,563.4)      (443.1)
Extraordinary item                                     (51.1)         --           --
                                                  ----------    ----------    ---------

NET LOSS                                          $ (2,358.0)   $ (1,563.4)   $  (443.1)
                                                  ==========    ==========    =========
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.


                                     IV-20

<PAGE>   258




SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(in millions)

<TABLE>
<CAPTION>
December 31,                                                                               1998          1997
                                                                                        ----------    ----------
<S>                                                                                     <C>           <C>       
ASSETS
    Current assets
      Cash and equivalents                                                              $    123.5    $    117.2
      Accounts receivable, net of allowance for doubtful accounts of $21.0 and $9.0
         in 1998 and 1997, respectively                                                      280.5         113.5
      Receivable from affiliates                                                             147.6          96.3
      Inventories                                                                            113.2         101.4
      Prepaid expenses                                                                        31.2          28.4
                                                                                        ----------    ----------
      Total current assets                                                                   696.0         456.8

    Property, plant and equipment
      Buildings and leasehold improvements                                                   924.2         618.3
      Network equipment                                                                    3,371.4       2,265.2
      Construction work in progress                                                          864.1         632.9
      Other                                                                                  338.1         167.4
                                                                                        ----------    ----------
      Total property, plant and equipment                                                  5,497.8       3,683.8
      Accumulated depreciation                                                              (861.0)       (254.6)
                                                                                        ----------    ----------
      Net property, plant and equipment                                                    4,636.8       3,429.2

    Investment in unconsolidated partnership                                                  --           273.5

    Minority interest                                                                         --            56.7

    Intangibles
      PCS licenses                                                                         2,464.3       2,223.0
      Goodwill                                                                               381.6         125.6
      Microwave relocations                                                                  335.7         269.4
                                                                                        ----------    ----------
      Total intangibles                                                                    3,181.6       2,618.0
      Accumulated amortization                                                              (124.5)        (50.4)
                                                                                        ----------    ----------
      Net intangibles                                                                      3,057.1       2,567.6
    Other assets                                                                              45.8         113.2
                                                                                        ----------    ----------

    Total                                                                               $  8,435.7    $  6,897.0
                                                                                        ==========    ==========

LIABILITIES AND PARTNERS' CAPITAL
    Current liabilities
       Current maturities of long-term debt                                             $    119.4    $     34.6
       Accounts payable                                                                      539.2         416.0
       Construction obligations                                                              636.0         705.3
       Accrued expenses and other current liabilities                                        566.2         300.0
                                                                                        ----------    ----------
       Total current liabilities                                                           1,860.8       1,455.9
    Long-term debt                                                                         6,491.6       3,533.9
    Limited partner interest in consolidated subsidiary                                       34.0          13.7
    Other                                                                                     79.0          49.0
    Partners' capital and accumulated deficit
      Partners' capital                                                                    4,448.5       3,964.7
      Accumulated deficit                                                                 (4,478.2)     (2,120.2)
                                                                                        ----------    ----------
      Partners' capital and accumulated deficit                                              (29.7)      1,844.5
                                                                                        ----------    ----------

    Total                                                                               $  8,435.7    $  6,897.0
                                                                                        ==========    ==========
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.


                                     IV-21
<PAGE>   259


SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

<TABLE>
<CAPTION>
Years Ended December 31,                                                           1998          1997          1996
                                                                                ----------    ----------     ---------
<S>                                                                             <C>           <C>            <C>       
CASH FLOW FROM OPERATING ACTIVITIES:

Net loss                                                                        $ (2,358.0)   $ (1,563.4)    $  (443.1)
Adjustments to reconcile net loss to net cash provided by (used
   in) operating activities:
     Equity in losses of unconsolidated partnerships                                  --           168.9          96.9
     Minority interest                                                              (144.5)         (6.2)          0.2
     Extraordinary item                                                               51.1          --            --
     Depreciation and amortization                                                   712.1         307.9          11.3
     Amortization of debt discount and issuance costs                                 58.8          49.1          14.0
     Changes in assets and liabilities, net of effects of acquisitions:
       Accounts receivable, net                                                     (195.1)       (182.9)        (15.9)
       Inventories                                                                    (2.2)        (24.9)        (72.4)
       Prepaid expenses and other assets                                               4.7         (12.4)        (21.6)
       Accounts payable and other current liabilities                                219.8         361.5         946.7
       Other noncurrent liabilities                                                   29.9          37.6           9.5
                                                                                ----------    ----------     ---------
Net cash provided by (used in) operating activities                               (1,623.4)       (864.8)        525.6
                                                                                ----------    ----------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures                                                              (1,495.0)     (2,041.3)     (1,386.3)
Microwave relocation costs, net                                                      (46.8)       (116.3)       (135.8)
Purchase of APC, net of cash acquired                                                (28.9)         (6.8)         --
Purchase of Cox PCS, net of cash acquired                                            (28.3)         --            --
Investment in unconsolidated partnerships                                             --          (191.2)       (190.4)
Loan to unconsolidated partnership                                                    --          (111.4)       (232.0)
Payment received on loan to unconsolidated partnership                                --           246.7           5.9
                                                                                ----------    ----------     ---------
Net cash used in investing activities                                             (1,599.0)     (2,220.3)     (1,938.6)
                                                                                ----------    ----------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES:

Advances from partners                                                                --            --           167.8
Net borrowings under revolving credit facilities                                   1,253.6         605.0          --
Proceeds from issuance of long-term debt                                           1,358.6       1,763.0         674.2
Long-term borrowings from parent                                                   3,526.6          --            --
Payments on long-term debt                                                        (3,393.9)       (170.8)         --
Debt issuance costs                                                                   --           (20.0)        (71.8)
Partner capital contributions                                                        517.1         966.8         711.7
Return of capital                                                                    (33.3)        (11.7)         --
                                                                                ----------    ----------     ---------
Net cash provided by financing activities                                          3,228.7       3,132.3       1,481.9
                                                                                ----------    ----------     ---------

INCREASE IN CASH AND EQUIVALENTS                                                       6.3          47.2          68.9
CASH AND EQUIVALENTS, BEGINNING OF PERIOD                                            117.2          70.0           1.1
                                                                                ----------    ----------     ---------

CASH AND EQUIVALENTS, END OF PERIOD                                             $    123.5    $    117.2     $    70.0
                                                                                ==========    ==========     =========

Supplemental Disclosure of Cash Flow Information:
o    Interest paid, net of amount capitalized                                   $    264.8    $     35.6     $     0.3

Non-cash Investing and Financing Activities:
o    Accrued interest of $154.2 million and $51.7 million
     related to vendor financing was converted to long-term debt during the
     years ended December 31, 1998 and 1997, respectively 
o    A PCS license covering the Omaha MTA and valued at $6.2 million was
     contributed to Holdings by Cox Communications during the year ended
     December 31, 1997 
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.



                                     IV-22
<PAGE>   260




NOTES TO CONSOLIDATED FINANCIAL  STATEMENTS

--------------------------------------------------------------------------------
1.       ORGANIZATION
--------------------------------------------------------------------------------

SPRINT SPECTRUM HOLDING COMPANY, L.P.

Sprint Spectrum Holding Company, L.P. (Holdings) is the 99% general partner of,
and is consolidated with, its subsidiaries, including NewTelco, L.P. (NewTelco)
and Sprint Spectrum L.P., which, in turn, has several subsidiaries. Sprint
Spectrum L.P.'s subsidiaries are Sprint Spectrum Equipment Company, L.P.
(EquipmentCo), Sprint Spectrum Realty Company, L.P. (RealtyCo), Sprint Spectrum
Finance Corporation (FinCo), and WirelessCo, L.P. (WirelessCo).

MinorCo, L.P. (MinorCo) holds the minority limited partnership interests of 1%
in NewTelco, Sprint Spectrum L.P., EquipmentCo, RealtyCo, WirelessCo and 0.25%
in American PCS, L.P. (APC) at December 31, 1998 and 1997.

The results of APC are consolidated from November 1997, the date the Federal
Communications Commission ("FCC") approved Holdings as the new managing partner
(Note 3). APC, through subsidiaries, owns a PCS license for and operates a
broadband GSM (global system for mobile communications) in the Washington
D.C./Baltimore Major Trading Area ("MTA"), and has launched a code division
multiple access ("CDMA") overlay for its existing GSM PCS system. APC includes
American PCS Communications, LLC, APC PCS, LLC, APC Realty and Equipment
Company, LLC and American Personal Communications Holdings, Inc.

As discussed in Note 3, Holdings also became the managing partner of Cox
Communications PCS, L.P. ("Cox PCS") in June 1998. Cox PCS results have been
included in the consolidated statements of operations from January 1, 1998. Cox
PCS, through subsidiaries, holds a PCS license for and operates a PCS system in
the Los Angeles-San Diego-Las Vegas MTA. Cox PCS includes Cox PCS License,
L.L.C., Cox PCS Assets, L.L.C., and PCS Leasing Co., L.P.


RESTRUCTURING AND REORGANIZATION

In November 1998, Sprint Corporation (Sprint) acquired the remaining ownership
interests in Holdings. Sprint acquired these ownership interests from
Tele-Communications, Inc., Comcast Corporation and Cox Communications, Inc. (the
Cable Partners). The purchase of the Cable Partners' interests is referred to as
the PCS Restructuring, which included the formation of the PCS Group. Sprint
accounted for the transaction as a purchase. Purchase accounting was not "pushed
down" to Holdings. PhillieCo, L.P. (PhillieCo) and SprintCom, Inc. (SprintCom)
are affiliates of Holdings through common ownership, and provide PCS service in
license areas not owned by Holdings.


SPRINT SPECTRUM HOLDING COMPANY, L.P. PARTNERSHIP AGREEMENT

Holdings was originally formed as a Delaware limited partnership on March 28,
1995, by Sprint Enterprises, L.P., TCI Spectrum Holdings, Inc., Cox Telephony
Partnership and Comcast Telephony Services. The Partnership Agreement was
amended concurrent with the PCS Restructuring discussed above. This amendment
provided for the interests of the Cable Partners in Holdings to be acquired by
wholly owned subsidiaries of Sprint.


EMERGENCE FROM DEVELOPMENT STAGE COMPANY

Prior to the third quarter of 1997, Holdings reported its operations as a
development stage enterprise. Holdings has commenced service in all of the MTAs
in which it owns a license. As a result, Holdings is no longer considered a
development stage enterprise, and the consolidated balance sheets and statements
of operations and cash flows are no longer presented in development stage
format.

                                     IV-23
<PAGE>   261


--------------------------------------------------------------------------------
2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

BASIS OF CONSOLIDATION

The assets, liabilities, results of operations and cash flows of entities in
which Holdings has a controlling interest have been consolidated. All
significant intercompany accounts and transactions have been eliminated.

Holdings' consolidated financial statements are prepared using generally
accepted accounting principles. These principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

Certain prior year amounts have been reclassified to conform to the current year
presentation. These reclassifications had no effect on the results of operations
or partners' capital as previously reported.


ALLOCATION OF SHARED SERVICES AND GROUP FINANCING

Sprint directly assigns, where possible, certain general and administrative
costs to Holdings based on the actual use of those services. Where direct
assignment of costs is not possible or practicable Sprint uses other methods to
estimate the assignment of costs to Holdings.

Financing activities for Holdings are managed by Sprint on a centralized basis.
Debt and the related interest expense incurred by Sprint and its subsidiaries on
behalf of Holdings are specifically allocated to and reflected in these
financial statements. Interest expense is allocated to Holdings based on an
interest rate that is largely equal to the rate Holdings would be able to obtain
from third parties as a direct or indirect wholly owned Sprint subsidiary, but
without the benefit of any guaranty by Sprint.


MINORITY INTERESTS

In 1998, minority interest consisted primarily of Cox Pioneer Partnership's
(CPP) ownership in Cox PCS. Prior to 1998, minority interest primarily included
losses attributable to American Personal Communications, II, L.P.
(APC II).


TRADEMARK AGREEMENT

Sprint owns various trademarks and service marks utilized by Holdings. Sprint
expects to apply for and develop trademarks, service marks and patents for the
benefit of Holdings in the ordinary course of business. Sprint(R) is a
registered trademark of Sprint and Sprint PCS(SM) is a registered service mark
of Sprint, both of which are utilized by Holdings on a royalty-free basis under
trademark license agreements.


REVENUE RECOGNITION

Holdings recognizes operating revenues as services are rendered or as products
are delivered to customers. Holdings records operating revenues net of an
estimate for uncollectible accounts.


CASH AND EQUIVALENTS

Cash equivalents generally include highly liquid investments with original
maturities of three months or less. They are stated at cost, which approximates
market value.


INVENTORIES

Inventories are stated at the lower of cost (principally first-in, first-out
method) or replacement value.


PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recorded at cost. Generally, ordinary asset
retirements and disposals are charged against accumulated depreciation with no
gain or loss recognized. Property, plant and equipment is depreciated on a
straight-line basis over estimated economic useful lives. Repair and maintenance
costs are expensed as incurred.

                                     IV-24
<PAGE>   262



CAPITALIZED INTEREST

Interest costs associated with the construction of capital assets incurred
during the period of construction are capitalized. Capitalized interest totaled
approximately $63 million in 1998, $99 million in 1997 and $31 million in 1996.


PCS LICENSES

Holdings acquired licenses from the Federal Communications Commission (FCC) to
operate as a PCS service provider. These licenses are granted for up to 10-year
terms with renewals for additional 10-year terms if license obligations are met.
These licenses are recorded at cost and are amortized over 40 years when service
begins in a specific geographic area. Accumulated amortization totaled
approximately $104 million at year-end 1998 and $45 million at year-end 1997.


GOODWILL

Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired in business combinations accounted for as purchases.
Goodwill is being amortized over 40 years using the straight-line method for
Holdings. Accumulated amortization totaled $8 million at year-end 1998 and $0.4
million at year-end 1997.


MICROWAVE RELOCATIONS

Holdings has incurred costs related to microwave relocation in constructing the
PCS network. Microwave relocation costs are being amortized over the remaining
lives of the PCS licenses. Accumulated amortization for microwave relocation
costs totaled approximately $13 million at year-end 1998 and $5 million at
year-end 1997.


INCOME TAXES

Holdings has not provided for federal or state income taxes since such taxes are
the responsibility of the Partners.


DERIVATIVE FINANCIAL INSTRUMENTS

Prior to the PCS Restructuring, derivative financial instruments (interest rate
contracts) were utilized by APC to reduce interest rate risk. APC established a
control environment which included risk assessment and management approval,
reporting and monitoring of derivative financial instrument activities. APC did
not hold or issue derivative financial instruments for trading purposes. At
year-end 1998, no derivatives were outstanding.


COMPREHENSIVE INCOME

Holdings' total comprehensive loss for all periods presented did not differ from
those amounts reported as net loss in the consolidated statements of operations.


MAJOR CUSTOMER

Holdings markets its products through multiple distribution channels, including
its own retail stores as well as other retail outlets. Holdings' subscribers are
dispersed throughout the United States. Equipment sales to one retail outlet,
and service revenues generated by sales to its customers represented
approximately 25% and 21% of net operating revenues in the consolidated
statements of operations in 1998 and 1997, respectively.



                                     IV-25
<PAGE>   263
--------------------------------------------------------------------------------
3.       INVESTMENTS IN PARTNERSHIPS
--------------------------------------------------------------------------------

APC - In September 1997, Holdings increased its ownership in APC to 58.3%
through additional capital contributions of $30 million, and became the managing
partner in November 1997. At the beginning of 1998, Holdings increased its
ownership percentage to 99.75% of the partnership interests for approximately
$30 million. APC II has been allocated approximately $7 million in losses in APC
since November 1997. Prior to November 1997, APC II had been allocated
approximately $50 million in losses in excess of its investment. At year-end
1997, these losses totaled $57 million and were recorded as minority interest in
Holdings' consolidated balance sheet. This treatment reflects APC II's continued
responsibility for funding its share of losses until January 1, 1998 when
Holdings and MinorCo acquired the remaining interest in APC.

COX PCS - At year-end 1996, Holdings acquired a 49% limited partner interest in
Cox PCS. CPP held a 50.5% general and a 0.5% limited partner interest and was
the general and managing partner. Holdings increased its ownership in Cox PCS to
59.2% through an additional capital contribution of approximately $81 million
and became managing partner upon FCC approval in June 1998. CPP's remaining
ownership interest in Cox PCS is reflected as minority interest in the
consolidated balance sheet and statements of operations. CPP has been allocated
approximately $145 million in losses in Cox PCS since the date of acquisition.
Under the partnership agreement, Cox has the right to require Holdings to
purchase, under certain circumstances, all or part of CPP's interest in Cox PCS,
which could involve significant cash requirements. Cox may require Holdings to
acquire an additional 10.2% interest in Cox PCS per year through 2000. Beginning
in 2001 through 2005, CPP may require Holdings to acquire up to all of its
interest in Cox PCS. Cox has given Holdings notice to start the appraisal
process related to a potential put of all or a portion of CPP's remaining
partnership interest to Holdings.

The acquisition of APC was accounted for as a purchase and, accordingly, the
operating results of APC have been consolidated since the acquisition. The
acquisition of Cox PCS increasing ownership to 59.2% was also accounted for as a
purchase. The operating results of Cox PCS have been consolidated since the
beginning of 1998. In conjunction with the acquisitions liabilities assumed were
(in millions):

<TABLE>
<CAPTION>
                                                   APC          Cox PCS
                                              ------------    ------------
              <S>                             <C>             <C>         
              Assets acquired...............  $        503    $        725
              Cash paid.....................           (30)            (81)
              Minority interest.............            50            (104)
                                              ------------    ------------

              Liabilities assumed...........  $        523    $        540
                                              ============    ============
</TABLE>

The purchase price was allocated to the assets acquired and the liabilities
assumed based on an estimate of fair value. The ultimate purchase price of Cox
PCS may differ from the initial estimate. In connection with the above
acquisitions, the excess of the purchase price over the fair value of the net
assets acquired was accounted for as goodwill.

Prior to acquisition of controlling interest, Holdings' investments in APC and
Cox PCS were accounted for under the equity method. Losses of APC and Cox PCS of
approximately $61 million and $108 million, respectively, in 1997 and losses of
APC of $97 million in 1996 are included in equity in losses of unconsolidated
partnerships during the period prior to the acquisition of controlling interest.

Under the terms of the partnership agreement, CPP and Holdings are obligated to
make additional capital contributions in an amount equal to such partner's
percentage interest times the amount of additional capital contributions being
requested. In 1998, Holdings completed its funding obligation to Cox PCS under
the partnership agreement by contributing $34 million, including $33 million in
interest that had accrued on the unfunded obligation. Holdings had previously
contributed equity of approximately $180 million in 1997 and $168 million in
1996.

The following unaudited pro forma financial information assumes the acquisition
of APC had occurred on January 1 of each year and the acquisition of Cox PCS had
occurred on January 1, 1997. It also assumes that Holdings had owned 100% of
each entity and consolidated their results in the Holdings' financial statements
(in millions):


<TABLE>
<CAPTION>
                                                     1997          1996
                                                   --------      --------
<S>                                                <C>           <C>     
          Net sales                                $    392      $     76
          Net loss (before minority interest)        (1,747)         (553)
</TABLE>

These proforma amounts are for comparative purposes only and do not necessarily
represent what actual results of operations would have been, nor do they
indicate the results of future operations.

                                     IV-26
<PAGE>   264

--------------------------------------------------------------------------------
4.       EMPLOYEE BENEFIT PLANS
--------------------------------------------------------------------------------

DEFINED CONTRIBUTION AND PROFIT SHARING PLANS

Holdings sponsors a savings and retirement program (the "Savings Plan") for
certain employees. Most permanent full-time, and certain part-time, employees
are eligible to participate after one year of service or on their 35th birthday,
whichever occurs first. The maximum contribution for any participant for any
year is 16% of their pay. Holdings matches contributions equal to 50% of the
contribution of each participant, up to the first 6% that the employee elects to
contribute. Contributions to the Savings Plan are invested, at the participant's
discretion, in several designated investment funds. Expense under the Savings
Plan was $6 million in 1998, $5 million in 1997 and $1 million in 1996.
Effective January 1999, Holdings' employees began making contributions to
Sprint's defined contribution plan. The existing assets of the Savings Plan will
be rolled over to Sprint's defined contribution plan in early 1999. Effective
January 1999, Holdings' employees were also eligible to participate in Sprint's
pension and postretirement plans.

The Cox PCS Savings and Investment Plan (the "Cox PCS Plan") was established
effective July 1, 1997. Substantially all Cox PCS employees are eligible to
participate in the Cox PCS Plan after completing one year of eligible service
(as defined) and attaining age 21. Employees may make contributions to the Cox
PCS Plan on a pretax basis pursuant to Section 401(k) of the Internal Revenue
Code. Cox PCS makes matching contributions equal to 75% of the employee's
contribution up to a maximum amount equal to 4.5% of the employee's annual
compensation. Employee contributions vest immediately, and Cox PCS' matching
contributions vest over three years of service. Expense under the Cox PCS Plan
approximated $1 million in 1998. The Cox PCS Plan will be terminated in early
1999, and the existing assets will be rolled over to Sprint's defined
contribution plan.


PROFIT SHARING (RETIREMENT) PLAN

Effective January, 1996, Holdings established a profit sharing plan for its
employees. Employees are eligible to participate in the plan after completing
one year of service. Profit sharing contributions are based on the compensation,
age, and years of service of the employee. Profit sharing contributions are
deposited into individual accounts of Holdings' retirement plan. Vesting occurs
once a participant completes five years of service. Expense under the profit
sharing plan approximated $3 million in 1998, $3 million in 1997 and $1 million
in 1996. The existing assets of the profit sharing will be rolled over to
Sprint's defined contribution plan in early 1999.


DEFERRED COMPENSATION PLAN FOR EXECUTIVES

Effective January, 1997, Holdings established a non-qualified deferred
compensation plan which permits certain eligible executives to defer a portion
of their compensation. The plan allows the participants to defer up to 80% of
their base salary and up to 100% of their annual short-term incentive
compensation. The deferred amounts earn interest at the prime rate. Payments
will be made to participants upon retirement, disability, death or the
expiration of the deferral election under the payment method selected by the
participant. The deferred compensation plan will be terminated in early 1999,
and participants will be eligible to participate in Sprint's deferred
compensation plan.


LONG-TERM INCENTIVE PLAN

Holdings maintains a long-term incentive plan. Prior to the PCS Restructuring
employees meeting certain eligibility requirements were included in Holdings'
long-term incentive plan (LTIP). Under this plan, participants received
appreciation units based on independent appraisals. The 1997 plan appreciation
units vest 25% per year beginning on the first anniversary of the grant date and
expire after 10 years. Under the 1996 plan, appreciation units vest 25% per year
beginning two years after the grant date, and expire after 10 years. Holdings
expensed $3 million in 1998, $18 million in 1997 and $10 million in 1996. In
1996, Holdings adopted the pro forma disclosure requirements under SFAS 123,
"Accounting for Stock-Based Compensation." Holdings has continued to apply
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." No significant difference would have resulted had SFAS 123 been
applied.

After the PCS Restructuring, Sprint discontinued the LTIP plan. The appreciation
units were replaced with PCS shares and options to buy PCS shares based on a
formula designed to replace the appreciated value of the units at the beginning
of July 1998. For vested units at year-end 1998, participants could elect to
receive the appreciation in cash, or in shares and options. Most elected to
receive shares and options. Sprint will issue the shares, and the options will
become exercisable, based on the vesting requirements of the units those awards
replaced.

                                     IV-27
<PAGE>   265


SPRINT CORPORATION MANAGEMENT INCENTIVE STOCK OPTION PLAN AND STOCK OPTION PLAN

Effective January 1, 1999, employees are eligible to participate in Sprint's
Management Incentive Stock Option Plan (MISOP) and the Sprint Corporation Stock
Option Plan (SOP). Under the MISOP, Sprint may grant stock options to employees
who are eligible to receive annual incentive compensation. Eligible employees
are entitled to receive stock options in lieu of a portion of the target
incentive under Sprint's management incentive plans. The options generally
become exercisable on December 31 of the year granted and have a maximum term of
10 years. MISOP options are granted with exercise prices equal to the market
price of Sprint's FON Group and PCS Group stock on the grant date.

Under the SOP, Sprint may grant stock options to officers and key employees. The
options generally become exercisable at the rate of 25% per year, beginning one
year from the grant date, and have a maximum term of 10 years. SOP options are
granted with exercise prices equal to the market price of Sprint's FON Group and
PCS Group stock on the grant date.


EMPLOYEE STOCK PURCHASE PLAN

Under Sprint's Employees Stock Purchase Plan (ESPP), employees may elect to
purchase Sprint common stock at a price equal to 85% of the market value on the
grant or exercise date, whichever is less.


--------------------------------------------------------------------------------
5.       LONG-TERM DEBT
--------------------------------------------------------------------------------

Long term debt consists of the following as of December 31, 1998 and 1997 (in
millions):

<TABLE>
<CAPTION>
                                           Maturing         1998         1997
                                        -------------   -----------   -----------
<S>                                     <C>             <C>           <C>
  Senior notes
       8.6% to 9.5% (1)                  2008 to 2028   $   3,346.6   $        --
       11.0% to 12.5% (2)                    2006             613.8         572.3

  Revolving credit facilities
       variable rates                    2005 to 2006       1,800.0         746.4

  Due to FCC at 7.75% (3)                    2001             265.2          90.4

  Vendor Financing                                               --       1,612.9

  Other
       2.3% to 14.4% (4)                 1998 to 2007         585.4         546.5
                                                        -----------    ----------

  Total Debt                                                6,611.0       3,568.5

  Less:  current maturities                                   119.4          34.6
                                                        -----------    ----------

  Long-term debt                                        $   6,491.6    $  3,533.9
                                                        -----------    ----------
</TABLE>


(1)  Holdings has notes payable to Sprint totaling $3.3 billion. See Note 2 for
     a more detailed description of Holdings and PCS Group financing.
(2)  Balances are net of unamortized discounts of $136.2 million in 1998 and
     $177.7 million in 1997. Sprint holds approximately $133 million at year-end
     1998 and $118 million at year-end 1997 of the Senior Discount Notes.
(3)  Balances are net of unamortized discounts of $8.0 million in 1998 and $12.0
     million in 1997.
(4)  In 1998, Holdings received $180 million under grid notes from Sprint. These
     notes had a weighted average interest rate of 7.8% at year-end 1998 and
     mature in 2001.


Holdings' long-term debt maturities, during each of the next five years are as
follows:

<TABLE>
<CAPTION>
                 -----------------------------------------
                                       (in millions)
                 <S>                <C>
                       1999         $         119.4
                       2000                   126.4
                       2001                   354.6
                       2002                   301.1
                       2003                   462.1
                 -----------------------------------------
</TABLE>


                                     IV-28
<PAGE>   266

Revolving Credit Facilities

At year-end 1998, available revolving credit facilities with banks totaled $2.1
billion and Holdings had borrowed $1.8 billion at a weighted average interest
rate of 5.8%. At year-end 1997, $746 million had been drawn under the revolving
credit facilities at a weighted average interest rate of 8.4%. Availability will
be reduced commencing January 2002 and expires in 2007. Borrowings under the
term loans are included in Other debt and totaled $400 million with a weighted
average interest rate of 7.7% at year-end 1998 and $300 million with a weighted
average interest rate of 8.4% at year-end 1997.

Provisions of the credit facilities required the transfer of certain of
Holdings' assets into special purpose subsidiaries to facilitate the
collateralization of Holdings' assets.


SENIOR NOTES AND SENIOR DISCOUNT NOTES (THE NOTES)

On August 15, 2001, Holdings will be required to redeem an amount equal to $192
million in aggregate principal amount at maturity, assuming all of the Senior
Discount Notes remain outstanding at such date. The Notes are redeemable at the
option of Holdings, in whole or in part, at any time on or after August 15, 2001
at the stipulated redemption prices plus accrued and unpaid interest. Interest
on the Senior Discount Notes is not payable prior to August 15, 2001.


VENDOR FINANCING

In 1996, Holdings entered into financing agreements with Northern Telecom, Inc.
(Nortel) and Lucent Technologies, Inc. (Lucent and together with Nortel, the
Vendors) for multiple drawdown term loan facilities totaling $1.3 billion and
$1.8 billion, respectively. At year-end 1997, approximately $1.6 billion,
including converted accrued interest of $52 million, had been borrowed at a
weighted average interest rate of 9.0% under the vendor financing agreements.
Amounts outstanding at year-end 1997 included $300 million that was syndicated
to Sprint. In 1998, all borrowings under the Vendor Financing were repaid using
long-term borrowings from Sprint.


OTHER

In 1998, Holdings redeemed, prior to scheduled maturities, $3.3 billion of debt
with a weighted average interest rate of 8.3%. This resulted in a $51 million
extraordinary loss. The debt was repaid with a portion of the long-term
borrowings from Sprint.

Holdings has complied with all restrictive or financial covenants relating to
its debt arrangements at year-end 1998.

Holdings' PCS licenses and property, plant and equipment totaling $4.4 billion
is pledged as security for certain notes.

FAIR VALUE

The estimated fair value of Holdings' long-term debt was $6.8 billion at
year-end 1998 and $3.6 billion at year-end 1997.

                                     IV-29
<PAGE>   267

--------------------------------------------------------------------------------
6.       EQUITY
--------------------------------------------------------------------------------

Following is a reconciliation of Holdings' equity:


<TABLE>
<CAPTION>
                               Partners'    Accumulated
                                Capital        Deficit       Total
                              ----------    -----------   ----------
                               (in millions)
<S>                           <C>           <C>           <C>       
Balance January 1, 1996       $  2,291.7    $    (113.7)  $  2,178.0

 Contributions of capital          711.7           --          711.7

Net loss                            --           (443.1)      (443.1)

                              ----------    -----------   ----------
Balance December 31, 1996        3,003.4         (556.8)     2,446.6

Contributions of capital           973.0           --          973.0

Net loss                            --         (1,563.4)    (1,563.4)

Return of capital                  (11.7)          --          (11.7)

                              ----------    -----------   ----------
Balance December 31, 1997        3,964.7       (2,120.2)     1,844.5

Contributions of capital           517.1           --          517.1

Net loss                            --         (2,358.0)    (2,358.0)

Return of capital                  (33.3)          --          (33.3)

                              ==========    ===========   ==========
Balance December 31, 1998     $  4,448.5    $  (4,478.2)  $    (29.7)
                              ==========    ===========   ==========
</TABLE>


--------------------------------------------------------------------------------
7.       COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------

LITIGATION, CLAIMS AND ASSESSMENTS

Various suits arising in the ordinary course of business are pending against
Holdings. Holdings cannot predict the final outcome of these actions but
believes they will not be material to its consolidated financial statements.


COMMITMENTS

In 1998 Holdings amended a procurement and services contract with a vendor for
the engineering and construction of a PCS network. This contract provides for an
initial term of three years with renewals for additional one-year periods. The
minimum commitment for the initial term is $400 million. At year-end 1998, $257
million had been purchased under the commitment with remaining minimum
commitment of $143 million.

In 1996 Holdings entered into a purchase and supply agreement with a vendor for
the purchase of handsets and other equipment. The total purchase commitment must
be satisfied by April 2000. Purchases under the commitment totaled $289 million
in 1998 and $148 million in 1997. No purchases were made in 1996. At year-end
1998, remaining commitments totaled $163 million.

Holdings has an agreement with a vendor to provide PCS call record and retention
services. Monthly rates per subscriber are variable based on overall subscriber
volume. If subscriber fees are less than specified annual minimum charges,
Holdings will be obligated to pay the difference between the amounts paid for
processing fees and the annual minimum. Annual minimums range from $20 million
to $60 million through 2001. The agreement extends through December 31, 2001,
with two automatic, two-year renewal periods, unless terminated by Holdings.
Holdings may terminate the agreement prior to the expiration date, but would be
subject to specified termination penalties.

Holdings has a contract for consulting services. Under the terms of the
agreement, consulting services will be provided at specified hourly rates for a
minimum number of hours. Purchases under the contract totaled $38 million in
1998 and $20 million in 1997. The remaining commitment of $67 million must be
satisfied by the end of June 2000.


                                     IV-30
<PAGE>   268


OPERATING LEASES

Minimum rental commitments at year-end 1998 for all noncancelable operating
leases, consisting mainly of leases for cell and switch sites and office space,
are as follows:


<TABLE>
<CAPTION>
                    --------------------------------------
                                             (in millions)
                    <S>                        <C>     
                    1999                       $  139.2
                    2000                          131.8
                    2001                           92.3
                    2002                           43.3
                    2003                           19.0
                    Thereafter                     56.7
                    --------------------------------------
</TABLE>


Gross rental expense totaled $192 million in 1998, $125 million in 1997 and $25
million in 1996. The table excludes renewal options related to certain cell and
switch site leases. These renewal options are generally for five-year terms and
may be exercised from time to time.


--------------------------------------------------------------------------------
8.       RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

SPRINT

Sprint provides management, printing/mailing and warehousing services to
Holdings. Charges to Holdings for these services totaled $25 million in 1998,
$11 million in 1997, and $12 million in 1996.

Holdings has entered into agreements with Sprint for invoicing services,
operator services, and switching equipment. Holdings is also using the long
distance division of Sprint as its interexchange carrier. Charges to Holdings
for these services totaled $125 million in 1998, $61 million in 1997 and $1
million in 1996.

Holdings makes payments for inventory and payroll for PhillieCo and SprintCom,
resulting in receivables due from the affiliates. These receivables are
reflected on the consolidated balance sheet.


APC

Holdings has an affiliation agreement with APC which provides for the
reimbursement of certain allocable costs and payment of affiliation fees. In
1997, the reimbursement of allocable costs of approximately $14 million is
included in selling, general and administrative expenses. There were no
reimbursements recognized in 1996. Additionally, affiliation fees were
recognized based on a percentage of APC's net revenues. In 1997, affiliation
fees of $4 million were included in other income.


COX PCS

Holdings has entered into an affiliation agreement with Cox PCS which provides
for the reimbursement of certain allocable costs and payment of affiliate fees.
These costs totaled $20 million in 1997 and $7 million in 1996 and are netted
against selling, general and administrative expenses in the accompanying
consolidated statements of operations. Of these total allocated costs,
approximately $2 million in 1997 and $7 million in 1996 were included in
receivables from affiliates in the consolidated balance sheets. In addition,
Holdings purchases certain equipment, such as handsets, on behalf of Cox PCS.
Receivables from affiliates for handsets and related equipment were
approximately $31 million in 1997 and $6 million in 1996.


PHILLIECO

Allocable costs of approximately $21 million in 1998 and $36 million in 1997
were allocated to PhillieCo and are included as a reduction of selling, general
and administrative expenses in the accompanying consolidated statements of
operations. Additionally, affiliation fees are recognized based on a percentage
of PhillieCo's net revenues. Affiliation fees of $1 million in 1998 and $0.3
million in 1997 are included in other income in the accompanying consolidated
statements of operations. The allocated costs and affiliate fees of $3 million
in 1998 and $37 million in 1997 are included in receivable from affiliates.
There were no such costs in 1996.


                                     IV-31
<PAGE>   269

SPRINTCOM

In 1997 Holdings began building out the network infrastructure for SprintCom.
These services include engineering, management, purchasing, accounting and other
related services. Costs totaling $100 million in 1998 and $29 million in 1997
were allocated to SprintCom, and are included as a reduction of selling, general
and administrative expenses in the accompanying consolidated statements of
operations. Receivables from affiliates included $78 million at year-end 1998
and $14 million at year-end 1997.



--------------------------------------------------------------------------------
9.       QUARTERLY FINANCIAL DATA (Unaudited)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                           Quarter
                                      --------------------------------------------------
1998                                     1st          2nd          3rd            4th
                                      ---------   ----------   ------------    ---------
                                                        (in millions)
<S>                                   <C>              <C>            <C>         <C>  
Net operating revenues                $   197.2        256.0          311.8       410.5
Operating loss                           (435.3)      (471.0)        (506.9)     (602.1)
Loss before extraordinary items          (497.9)      (543.4)        (599.3)     (666.3)
Net loss                                 (497.9)      (543.4)        (599.3)     (717.4)
</TABLE>


<TABLE>
<CAPTION>
                                                           Quarter
                                      --------------------------------------------------
1997                                     1st          2nd             3rd          4th
                                      ---------   ----------   ------------    ---------
                                                        (in millions)
<S>                                   <C>         <C>          <C>             <C>     
Net operating revenues                $     9.5   $    25.4    $       72.5    $  141.2
Operating loss                           (190.8)     (277.7)         (382.7)     (459.5)
Net Loss                                 (188.9)     (287.7)         (420.9)     (665.9)
</TABLE>



                      SPRINT SPECTRUM HOLDING COMPANY, L.P.
          SCHEDULE II -- CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                          Additions
                                                  --------------------------
                                                                 Charged to                       Balance
                                    Beginning     Charged to        Other           Other          End of
                                     Balance        Income        Accounts        Deductions        Year
                                    ---------     ----------     -----------      ----------      --------
                                                                (in millions)
Allowance for doubtful accounts:
<S>                                 <C>           <C>            <C>              <C>             <C>     
    1998                            $     9.0     $     76.7     $        --      $    (64.7)(1)  $   21.0

    1997                                  0.2           11.3              --            (2.5)(1)       9.0

    1996                                   --            0.2              --              --           0.2
</TABLE>


(1)  Accounts written off, net of recoveries.

                                     IV-32
<PAGE>   270


                                   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.

                                              TELE-COMMUNICATIONS, INC.

Dated:  March 15, 1999                       By  /s/  John C. Malone
                                               -------------------------------
                                                      John C. Malone
                                                      Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
              Signature                                 Title                                    Date
              ---------                                 -----                                    ----

<S>                                             <C>                                          <C> 
/s/    John C. Malone                           Chairman of the Board,                        March 15, 1999
--------------------------------------               Chief Executive       
       John C. Malone                                Officer and Director  
                                                     


 /s/   Leo J. Hindery, Jr.                      Director, President and Chief                 March 15, 1999
--------------------------------------               Operating Officer
       Leo J. Hindery, Jr.                           



 /s/   John W. Gallivan                         Director                                      March 15, 1999
--------------------------------------
       John W. Gallivan



 /s/   Jerome H. Kern                           Director                                      March 15, 1999
--------------------------------------
       Jerome H. Kern


 /s/   Paul A. Gould                            Director                                      March 15, 1999
--------------------------------------
       Paul A. Gould



 /s/   Stephen M. Brett                         Executive Vice President,                     March 15, 1999
--------------------------------------               General Counsel and Secretary
       Stephen M. Brett                              



 /s/   Bernard W. Schotters                     Senior Vice President and                     March 15, 1999
--------------------------------------               Treasurer (Principal Financial                     
       Bernard W. Schotters                          Officer)                        
                                                     



 /s/   Ann M. Koets                             Executive Vice President                      March 15, 1999
--------------------------------------               Finance and Accounting         
       Ann M. Koets                                  TCI Communications, Inc.       
                                                     (Principal Accounting Officer) 
                                                     
</TABLE>




                                    IV-33
<PAGE>   271
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
      3.1     The Restated Certificate of Incorporation, dated March 9, 1999
 
      3.2     The Bylaws effective as of March 9, 1999.

     10.1     Amended and Restated Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Registration Statement on Form S-8
                         (Commission File No. 333-40141).

     10.2     Amended and Restated Tele-Communications, Inc. 1995 Employee Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Registration Statement on Form S-8
                         (Commission File No. 333-40141).

     10.3     Amended and Restated Tele-Communications, Inc. 1996 Incentive Plan.*
                     Incorporated herein by reference to the Company's Registration Statement on Form S-8
                         (Commission File No. 333-40141).

     10.4     Restated and Amended Employment Agreement, dated as of November 1, 1992, between the Company and
                  John C. Malone.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992
                         (Commission File No. 0-5550).

     10.5     Assignment and Assumption Agreement, dated as of August 4, 1994, among TCI/Liberty Holding Company,
                  Tele-Communications, Inc. and John C. Malone.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.6     Call Agreement, dated February 9, 1998, between Tele-Communications, Inc., John C. Malone and Leslie
                  Malone.
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated February
                         25, 1998 (Commission File No. 0-20421).

     10.7     Call Agreement, dated February 9, 1998, between Tele-Communications, Inc., Gary Magness, both
                  individually and as representative, Kim Magness, both individually and as representative, the
                  Estate of Bob Magness, the Estate of Betsy Magness and any individual or entity which
                  thereafter becomes a party thereto.
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated February
                         25, 1998 (Commission File No. 0-20421).
</TABLE>
<PAGE>   272
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
     10.8     Consulting Agreement, dated as of January 1, 1996, between Tele-Communications, Inc. and Donne F.
                  Fisher.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.9     Consulting Agreement, dated as March 11, 1995, between Tele-Communications, Inc. and J.C. Sparkman.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1996 (Commission File No. 0-20421).

     10.10    Deferred Compensation Plan for Non-Employee Directors, effective on November 1, 1992.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1992, as amended by Form 10-K/A for the year ended December 31, 1992
                         (Commission File No. 0-5550).

     10.11    Form of Consulting Agreement, dated as of March 8, 1999, between the Company and Larry E. Romrell *

     10.12    Employment Agreement, dated as of June 1, 1998, between the Company and Stephen M. Brett *
                     Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q as amended
                         by Form 10-Q/A, for the quarterly period ended June 30, 1998 (Commission File No.
                         0-20421).

     10.13    Employment Agreement, dated as of June 23, 1998, between the Company and Leo J. Hindery, Jr. *
                     Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q as amended
                         by Form 10-Q/A, for the quarterly period ended June 30, 1998 (Commission File No.
                         0-20421).

     10.14    Form of 1992 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993
                         (Commission File No. 0-5550).

     10.15    Form of 1993 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993
                         (Commission File No. 0-5550).

     10.16    Non-Qualified Stock Option and Stock Appreciation Rights Agreement, dated as of November 12, 1993,
                  by and between Tele-Communications, Inc. and Jerome   H. Kern.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993
                         (Commission File No. 0-5550).
</TABLE>
<PAGE>   273
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
     10.17    Form of Assumption and Amended and Restated Stock Option Agreement between the Company, Liberty
                  Media Corporation and grantee relating to stock appreciation rights granted pursuant to letter
                  dated September 17, 1991.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.18    Form of Assumption and Amended and Restated Stock Option Agreement between the Company, Liberty
                  Media Corporation and grantee relating to the assumption of options and related stock
                  appreciation rights granted under the Liberty Media Corporation 1991 Stock Incentive Plan
                  pursuant to letter dated July 26, 1993.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.19    Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty Holding
                  Company and a director of Tele-Communications, Inc. relating to assumption of options and
                  related stock appreciation rights granted outside of an employee benefit plan pursuant to
                  Tele-Communications, Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation Rights
                  Agreement.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.20    Form of Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty
                  Holding Company and grantee relating to assumption of options and related stock appreciation
                  rights granted under Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to
                  Tele-Communications, Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation Rights
                  Agreement.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.21    Form of letter dated September 17, 1991 from Liberty Media Corporation to grantee relating to grant
                  of stock appreciation rights.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).

     10.22    Form of letter dated July 26, 1993 from Liberty Media Corporation to grantee relating to grant of
                  options and stock appreciation rights.*
                     Incorporated by reference to Tele-Communications, Inc.'s Post Effective Amendment No. 1 to
                         Form S-4 Registration Statement on Form S-8 Registration Statement (Commission File No.
                         33-54263).

     10.23    Form of Assumption and Amended and Restated Stock Option Agreement between the Company, TCI/Liberty
                  Holding Company and grantee relating to assumption of options and related stock appreciation
                  rights under Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to
                  Tele-Communications, Inc.'s 1992 Non-Qualified Stock Option and Stock Appreciation Rights
                  Agreement.*
                     Incorporated herein by reference to the Company's Post Effective Amendment No. 1 to Form S-4
                         Registration Statement on Form S-8 Registration Statement (Commission File No. 33-54263).
</TABLE>
<PAGE>   274
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
     10.24    Form of Indemnification Agreement.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1993, as amended by Form 10-K/A for the year ended December 31, 1993
                         (Commission File No. 0-5550).

     10.25    Form of 1994 Non-Qualified Stock Option and Stock Appreciation Rights Agreement.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K dated December
                         31, 1994, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.26    TCI 401(k) Stock Plan, restated effective January 1, 1998.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.27    Form of Restricted Stock Award Agreement for 1995 Award of Series A TCI Group Restricted Stock
                  pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.28    Form of Restricted Stock Award Agreement for 1995 Award of Series A Liberty Media Group Restricted
                  Stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.29    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Group common stock
                  pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.30    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common
                  stock pursuant to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.31    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Group common stock
                  pursuant to the Tele-Communications, Inc. 1995 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).
</TABLE>
<PAGE>   275
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
     10.32    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common
                  stock pursuant to the Tele-Communications, Inc. 1995 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.33    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Group common stock
                  pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.34    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common
                  stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.35    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1997 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Group common stock
                  pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan. *
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.36    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1997 Grant of
                  Options with tandem stock appreciation rights to purchase Series A TCI Ventures Group common
                  stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan. *
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.37    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1997 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Liberty Media Group common
                  stock pursuant to the Tele-Communications, Inc. 1996 Stock Incentive Plan. *
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.38    Form of Restricted Stock Award Agreement for 1997 Award of Series A TCI Group Restricted Stock
                  pursuant to the Tele-Communications, Inc. 1996 Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).
</TABLE>
<PAGE>   276
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
     10.39    Form of Restricted Stock Award Agreement for 1997 Award of Series A TCI Ventures Group Restricted
                  Stock pursuant to the Tele-Communications, Inc. 1996 Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.40    Form of 1998 Incentive Plan of Tele-Communications, Inc., effective December 16, 1997*
                     Incorporated herein by reference to the Company's Definitive Proxy Statement on Schedule
                         14A, dated April 30, 1998 (Commission File No. 0-20421).

     10.41    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement, dated June 16, 1998, of
                  Tele-Communications, Inc., TCI Group Series A Common Stock, pursuant to the
                  Tele-Communications, Inc., 1998 Incentive Plan. *

     10.42    Form of Restricted Stock Award Agreement, dated June 23, 1998, of Tele-Communications, Inc., TCI
                  Group Series A Common Stock, pursuant to the Tele-Communications, Inc., 1998 Incentive Plan. *

     10.43    Form of Restricted Stock Award Agreement, dated November 15, 1998, of Tele-Communications, Inc.,
                  TCI Group Series A Common Stock, pursuant to the Tele-Communications, Inc., 1998 Incentive
                  Plan. *

     10.44    Form of Restricted Stock Award Agreement, dated December 10, 1998, of Tele-Communications, Inc.,
                  TCI Group Series A Common Stock, pursuant to the Tele-Communications, Inc., 1998 Incentive
                  Plan. *

     10.45    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement, dated March 1, 1999, of
                  Tele-Communications, Inc., TCI Group Series A Common Stock pursuant to the Tele-Communications,
                  Inc., 1998 Incentive Plan. *

     10.46    Form of Restricted Stock Award Agreement, dated March 1, 1999, of Tele-Communications, Inc., TCI
                  Group Series A Common Stock pursuant to the Tele-Communications, Inc., 1998 Incentive Plan. *

     10.47    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated July 23, 1997, pertaining to shares of
                  Tele-Communications, Inc., TCI Group Series A Common Stock.*

     10.48    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated July 23, 1997, pertaining to shares of
                  Tele-Communications, Inc. Liberty Media Group Series A Common Stock. *

     10.49    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated July 23, 1997, pertaining to shares of
                  Tele-Communications, Inc., TCI Ventures Group Series A Common Stock. *

     10.50    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated May 14, 1997, pertaining to shares of Tele-Communications,
                  Inc., TCI Group Series A Common Stock. *
</TABLE>
<PAGE>   277
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
     10.51    Form of Amendment to Agreement, dated March 1, 1999, to the Non-Qualified Stock Option and Stock
                  Appreciation Rights Agreement, dated May 14, 1997, pertaining to shares of Tele-Communications,
                  Inc., TCI Ventures Group Series A Common Stock. *

     10.52    The Tele-Communications International, Inc. 1995 Stock Incentive Plan.*
                     Incorporated herein by reference to Tele-Communications International, Inc. Registration
                         Statement on Form S-1 (Commission File No. 33-91876).

     10.53    Form of Restricted Stock Award Agreement for 1995 Award of Series A Tele-Communications
                  International, Inc. Restricted Stock pursuant to the Tele-Communications International, Inc.
                  1995 Stock Incentive Plan.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.54    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Tele-Communications
                  International, Inc. common stock pursuant to the Tele-Communications International, Inc. 1995
                  Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.55    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1995 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Tele-Communications
                  International, Inc. common stock.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1995 (Commission File No. 0-20421).

     10.56    Form of Non-Qualified Stock Option and Stock Appreciation Rights Agreement for 1997 Grant of
                  Options with tandem stock appreciation rights to purchase Series A Tele-Communications
                  International, Inc. common stock pursuant to the Tele-Communications International, Inc. 1995
                  Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.57    Form of Restricted Stock Award Agreement for 1997 Award of Series A Tele-Communications
                  International, Inc. Restricted Stock pursuant to the Tele-Communications International. Inc.
                  1995 Stock Incentive Plan.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.58    Form of Stock Appreciation Rights Agreement made as of the 1st day of December, 1996, by and among
                  TCI Wireless Holdings, Inc., Grantee, TCI Telephony Services, Inc. and Tele-Communications,
                  Inc.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).
</TABLE>
<PAGE>   278
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
     10.59    Form of Stock Appreciation Rights Agreement made as of the 1st day of December, 1996, by and among
                  TCI Teleport Holdings, Inc., Grantee, TCI Telephony Services, Inc. and Tele-Communications,
                  Inc.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.60    Form of Amended and Restated Option Agreement made as of the 1st day of December, 1996, by and
                  among TCI Wireline, Inc., Grantee and Tele-Communications, Inc.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.61    Form of Option to Purchase Common Stock Agreement made as of the 1st day of December, 1996, by and
                  among TCI.Net, Inc., Grantee and Tele-Communications, Inc.*
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.62    Form of Amended and Restated Stock Appreciation Right Agreement made as of the 8th day of March,
                  1999, by and among TCI Internet Services, Inc., Tele-Communications, Inc. and Larry E. Romrell.*

     10.63    Form of Amended and Restated Stock Appreciation Right Agreement made as of the 8th day of March,
                  1999, by and among TCI Internet Services, Inc., Tele-Communications, Inc. and Bruce W. Ravenel.*

     10.64    Form of Agreement, dated February 19, 1999, between the Company, TCI.Net, Inc. ("TCI.NET"), TCI
                  Internet Services, Inc. ("Internet") and Larry E. Romrell relating to the share repurchase and
                  option cancellation under an Option to Purchase Common Stock Agreement, dated December 31,
                  1996, and an amendment to a Stock Appreciation Rights Agreement, dated December 1, 1996. *

     10.65    Form of Agreement, dated February 19, 1999, between the Company, TCI.Net, TCI Internet and Brendan
                  Clouston relating to the share repurchase and option cancellation under an Option to Purchase
                  Common Stock Agreement, dated December 31, 1996, and an amendment to a Stock Appreciation
                  Rights Agreement, dated December 1, 1996. *

     10.66    Form of Agreement, dated February 19, 1999, between the Company, TCI.Net, TCI Internet ") and Bruce
                  W. Ravenel relating to share repurchase and option cancellation under an Option to Purchase
                  Common Stock Agreement, dated December 31, 1996, and an amendment to a Stock Appreciation
                  Rights Agreement, dated December 1, 1996. *

     10.67    Form of Agreement, dated February 19, 1999, between the Company, TCI Wireline, Inc., TCI Teleport
                  Holdings, Inc., TCI Telephony Services, Inc., and Brendan Clouston related to share repurchase
                  and option cancellation under an Amended and Restated Option Agreement, dated December 1, 1996,
                  and an amendment to a Stock Appreciation Rights Agreement, dated December 1, 1996. *
</TABLE>
<PAGE>   279
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
     10.68    InterMedia Capital Management, L.P. Agreement of Limited Partnership, dated as of June 10, 1997 and
                  effective as of May 22, 1997, by and between InterMedia Management, Inc., Leo J. Hindery, Jr.
                  and TCI ICM I, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.69    InterMedia Capital Management III, L.P. Amended and Restated Agreement of Limited Partnership,
                  dated as of June 10, 1997, by and among Leo J. Hindery, Jr., InterMedia Management, Inc. and
                  TCI ICM III, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.70    InterMedia Capital Management IV, L.P. Amended and Restated Agreement of Limited Partnership, dated
                  as of August 5, 1997, by and between InterMedia Management, Inc., TCI ICM IV, Inc. and Leo J.
                  Hindery, Jr.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.71    Amended and Restated Contribution and Merger Agreement, dated as of June 6, 1997, among TCI
                  Communications, Inc., Cablevision Systems Corporation, CSC Parent Corporation and CSC Merger
                  Corporation.
              Stockholders Agreement dated as of March 4, 1998, by and among Cablevision Systems Corporation,
                  Tele-Communications, Inc. and the Class B Entities (as defined therein)
                      Incorporated herein by reference to the Company's Current Report on Form 8-K, dated March
                           6, 1998 (Commission File No. 0-20421).

     10.72    Amended and Restated Asset Contribution Agreement, dated September 25, 1997, by and among Fisher
                  Communications Associates, L.L.C. and Tempo Cable, Inc., Communications Services, Inc., TCI
                  Cablevision of Oklahoma, Inc., TCI of Kansas, Inc., Wentronics, Inc., TCI Cablevision of Utah,
                  Inc., TCI Cablevision of Arizona, Inc., Tulsa Cable Television, Inc. and TCI American Cable
                  Holdings III, L.P. and Peak Cablevision, LLC.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.73    Amended and Restated Operating Agreement of Peak Cablevision, LLC, made as of September 25, 1997,
                  by TCI American Cable Holdings III, L.P. and Fisher Communications Associates, L.L.C.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.74    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and ECP
                  Holdings, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.75    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and
                  American Televentures of Minersville, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).
</TABLE>
<PAGE>   280
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Description
-----------                       -----------
<S>           <C>
     10.76    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and TCI
                  Cablevision of Utah, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.77    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and Tempo
                  Cable, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.78    Promissory Note, dated January 15, 1998, between Fisher Communications Associates, L.L.C. and TCI
                  Cablevision of Nevada, Inc.
                     Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
                         ended December 31, 1997, as amended by Form 10-K/A (Commission File No. 0-20421).

     10.79    Agreement and Plan of Restructuring and Merger among AT&T Corp., Italy Merger Corp. and
                  Tele-Communications, Inc. dated as of June 23, 1998.
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated July 1,
                         1998 (Commission File No. 0-20421). (1)

     10.80    Agreement and Plan of Merger dated August 24, 1998, among Tele-Communications, Inc., Liberty Group
                  Acquisition Co. and Tele-Communications International, Inc.
                     Incorporated herein by reference to Amendment No. 1 of the Company's Registration Statement
                         on Form S-4 (Commission File No. 333-64297).

     10.81    TCIC Merger Agreement, dated January 12, 1999, among the Company and TCI Communications, Inc.
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated March
                         11, 1999 (Commission File No. 020421).

     16.1     Letter, dated March 9, 1999, from KPMG LLP
                     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated March
                         11, 1999.

     21       Subsidiaries of Tele-Communications, Inc.


     23.1     Consent of KPMG LLP.

     23.2     Consent of Deloitte & Touche LLP.

     27       Financial data schedule
</TABLE>


*Constitutes management contract or compensatory arrangement.

(1)      Certain exhibits to agreement have been omitted. A copy of any omitted
         exhibit or schedule will be furnished supplementally to the Commission
         upon request.