<PAGE>   1
                       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 [FEE REQUIRED] 
         For the fiscal year ended December 31, 1995

                                       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:
                 Tele-Communications, Inc. Series A TCI Group common stock,
                    par value $1.00 per share
                 Tele-Communications, Inc. Series B TCI Group common stock,
                    par value $1.00 per share
                 Tele-Communications, Inc. Series A Liberty Media Group
                    common stock, par value $1.00 per share
                 Tele-Communications, Inc. Series B Liberty Media Group
                    common stock, par value $1.00 per share
                 Class B 6% Cumulative Redeemable Exchangeable Junior
                    Preferred Stock, par value $.01 per share

         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.  
                              -----

         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
                                           -----      -----

         The aggregate market value of the voting 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 31, 1996, was
$16,435,824,079.

         The number of shares outstanding of Tele-Communications, Inc.'s common
stock (net of shares held in treasury), as of January 31, 1996, was:

 Tele-Communications, Inc. Series A TCI Group common stock - 571,692,645 shares,
 Tele-Communications, Inc. Series B TCI Group common stock - 84,685,554 shares,
    Tele-Communications, Inc. Series A Liberty Media Group common stock -
                           142,896,264 shares, and
    Tele-Communications, Inc. Series B Liberty Media Group common stock -
                              21,196,868 shares.
<PAGE>   2
                           TELE-COMMUNICATIONS, INC.

                        1995 ANNUAL REPORT ON FORM 10-K

                               Table of Contents


<TABLE>
<CAPTION>
                                                                                                Page
                                                                                                ----
<S>                                                                                             <C>
                                                   PART I
          
Item 1.   Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         I-1
                                                                   
Item 2.   Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         I-53
                                                                   
Item 3.   Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         I-53
                                                                   
Item 4.   Submission of Matters to a Vote of Security Holders  . . . . . . . . . . . . .         I-64
          
          
          
                                                  PART II
          
Item 5.   Market for Registrant's Common Equity and
           Related Stockholder Matters   . . . . . . . . . . . . . . . . . . . . . . . .         II-1
          
Item 6.   Selected Financial Data    . . . . . . . . . . . . . . . . . . . . . . . . . .         II-2
          
Item 7.   Management's Discussion and Analysis of Financial
           Condition and Results of Operations   . . . . . . . . . . . . . . . . . . . .         II-6
          
Item 8.   Financial Statements and Supplementary Data    . . . . . . . . . . . . . . . .         II-55
          
Item 9.   Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure    . . . . . . . . . . . . . . . . . .         II-55
          
          
          
                                                  PART III
          
Item 10.  Directors and Executive Officers of the Registrant   . . . . . . . . . . . . .        III-1
          
Item 11.  Executive Compensation   . . . . . . . . . . . . . . . . . . . . . . . . . . .        III-4
          
Item 12.  Security Ownership of Certain Beneficial Owners
           and Management    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        III-17
          
Item 13.  Certain Relationships and Related Transactions   . . . . . . . . . . . . . . .        III-29
          
          
          
                                                  PART IV
          
Item 14.  Exhibits, Financial Statement Schedules, and
           Reports on Form 8-K   . . . . . . . . . . . . . . . . . . . . . . . . . . . .         IV-1
</TABLE>
<PAGE>   3
                                    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 wholly-owned
subsidiary of TCI, and its predecessors have been engaged in the cable
television business since the early 1950's.

        On August 3, 1995, the shareholders of TCI approved an amendment to the
Company's charter to (i) authorize two new series of common stock of the
Company, designated the Tele-Communications, Inc. Series A Liberty Media Group
Common Stock, par value $1.00 per share and the Tele-Communications, Inc. Series
B Liberty Media Group Common Stock, par value $1.00 per share (collectively, the
"Liberty Group Stock"), and (ii) redesignate the Company's Class A Common Stock,
par value $1.00 per share, as the Tele-Communications, Inc. Series A TCI Group
Common Stock, par value $1.00 per share, and the Class B Common Stock par value
$1.00 per share, as the Tele-Communications, Inc. Series B TCI Group Common
Stock, par value $1.00 per share (the Series A and Series B TCI Group Common
Stock are referred to collectively herein as the "TCI Group Stock"). The Liberty
Group Stock is intended to reflect the separate performance of the newly created
"Liberty Media Group", which consists of the Company's businesses that are
engaged in: (i) the production, acquisition and distribution through all
available formats and media of branded entertainment, educational and
informational programming and software, including multimedia products and (ii)
electronic retailing, direct marketing, advertising sales relating to
programming services, informercials and transaction processing. The TCI Group
Stock is intended to reflect the separate performance of the Company's
businesses and assets ("TCI Group") not included in the Liberty Media Group, as
well as any equity value of the Company attributable to the Liberty Media Group
that, at any relevant time in the future, is not represented by outstanding
Liberty Group Stock. The issuance of the Liberty Group Stock did not result in
any transfer of assets or liabilities of TCI or any of its subsidiaries or
affect the rights of holders of TCI's or any of its subsidiaries' debt.  On
August 10, 1995, TCI distributed one hundred percent of the equity value
attributable to Liberty Media Group to its security holders of record on August
4, 1995.

        As of January 26, 1995, TCI, TCIC and TeleCable Corporation
("TeleCable") consummated a transaction, whereby TeleCable was merged into TCIC.
The aggregate $1.6 billion purchase price was satisfied by TCIC's assumption of
approximately $300 million of TeleCable's net liabilities and the issuance to
TeleCable's shareholders of approximately 42 million shares of TCI Class A
common stock and an issue of TCI convertible preferred stock with an aggregate
initial liquidation value of $300 million.  Such preferred stock is convertible
into 10 million shares of Series A TCI Group Stock and 2.5 million shares of
Series A Liberty Group Stock.

         On April 25, 1995, the Company acquired a 51% ownership interest in
Cablevision S.A. and certain affiliated companies (collectively, "Cablevision")
for a purchase price of $282 million, before liabilities assumed.  The purchase
price was paid with cash consideration of $195 million and the issuance of $87
million principal amount of secured negotiable promissory notes payable to the
selling shareholders.  TCI has an option during the two-year period ended April
25, 1997 to increase its ownership interest in Cablevision up to 80% at a cost
per subscriber similar to the initial purchase price, adjusted however for
certain fluctuations in applicable foreign currency exchange rates.




                                     I-1
<PAGE>   4
         During 1994, subsidiaries of the Company, Comcast Corporation
("Comcast"), Cox Communications, Inc. ("Cox" and together with the Company and
Comcast, the "Cable Partners") and Sprint Corporation ("Sprint") formed a
partnership ("WirelessCo") to engage in the business of providing wireless
communications services on a nationwide basis.  Through WirelessCo, in which
the Company owns an indirect 30% interest, the partners participated in
auctions ("PCS Auctions") of broadband personal communications services ("PCS")
licenses conducted by the Federal Communications Commission ("FCC").  In the
first round auction, which concluded during the first quarter of 1995,
WirelessCo was the winning bidder for PCS licenses for 29 markets, including
New York, San Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth,
Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale.  The
aggregate license cost for these licenses was approximately $2.1 billion.

         WirelessCo has also invested in American PSC, L.P. ("APC"), which
holds a PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market.  WirelessCo acquired its 49% limited partnership
interest in APC for $23 million and has agreed to make capital contributions to
APC equal to 49/51 of the cost of APC's PCS license.  Additional capital
contributions may be required in the event APC is unable to finance the full
cost of its PCS license.  WirelessCo may also be required to finance the
build-out expenditures for APC's PCS system.  Cox, which holds a pioneer
preference PCS license for the Los Angeles-San Diego market, and WirelessCo
have also agreed on the general terms and conditions upon which Cox (with a 51%
interest) and WirelessCo (with a 49% interest) would form a partnership to hold
and develop a PCS system using the Los Angeles-San Diego license.  APC and the
Cox partnership would affiliate their PCS systems with WirelessCo and be part
of WirelessCo's nationwide integrated network, offering wireless communications
services under the "Sprint" brand.

         During 1994, subsidiaries of Cox, Sprint and the Company also formed a
separate partnership ("PhillieCo"), in which the Company owns a 35.3% interest.
PhillieCo was the winning bidder in the first round auction for a PCS license
for the Philadelphia market at a license cost of $85 million.  To the extent
permitted by law, the PCS system to be constructed by PhillieCo would also be
affiliated with WirelessCo's nationwide network.

         WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful bidders.
The capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above, will
be substantial.

         In March of 1995, the Cable Partners and Sprint (collectively, the
"Partners") formed two new partnerships, of which the principal partnership is
MajorCo, L.P. ("MajorCo"), to which they contributed their respective interests
in WirelessCo and through which they formed another partnership, NewTelco, L.P.
("NewTelco") to engage in the business of providing local wireline
communications services to residences and businesses on a nationwide basis.
The Cable Partners agreed to contribute their interests in Teleport
Communications Group, Inc. and TCG Partners (collectively, "TCG") to NewTelco.
TCG is one of the largest competitive access providers in the United States in
terms of route miles.





                                      I-2
<PAGE>   5
         Effective January 31, 1996, the Partners amended the MajorCo
partnership agreement (the "Partnership Agreement") and certain other
agreements related thereto.  Under the Partnership Agreement, the business of
MajorCo and its subsidiaries will be the provision of certain wireless and
other services described in the Partnership Agreement.  The Partners intend for
WirelessCo and its subsidiary partnerships to be the exclusive vehicles through
which they engage in the wireless telephony service businesses, subject to
certain exceptions.  MajorCo will no longer be authorized to engage in the
business of providing local wireline communications services to residences and
businesses.  In connection with the amendment of the Partnership Agreement, the
Partners also agreed to the termination of the agreement to contribute the
Cable Partners' interests in TCG to NewTelco.

         Pursuant to separate agreements, each of the Cable Partners and Sprint
have agreed to negotiate in good faith on a market-by-market basis for the
provision of local wireline telephony services over the cable television
facilities of the respective Cable Parent under the Sprint brand.  Accordingly,
local wireline telephony offerings in each market would be the subject of
individual agreements to be negotiated with Sprint, rather than being provided
by MajorCo, as originally contemplated.  The Cable Partners and Sprint also
reaffirmed their intention to continue to attempt to integrate the business of
TCG with that of MajorCo.  In addition, each Cable Partner agreed to certain
restrictions on its ability to offer, promote, or package certain of its
products or services with certain products and services of other persons and
agreed to make its facilities available to Sprint for specified purposes to the
extent and on the terms that it has made such facilities available to others
for such purposes.  Such agreements have a term of five years, but under
certain circumstances may terminate after three years.

         Execution of the foregoing agreements was a condition to the
effectiveness of a previously approved business plan for the build out of
WirelessCo's nationwide network for wireless personal communications services.
Pursuant to the business plan, the Partners are obligated to make additional
cash capital contributions to MajorCo in the aggregate amount of approximately
$1.9 billion during the two-year period that commenced January 1, 1996.  The
business plan contemplates that MajorCo will require additional equity
thereafter.

         In July 1995, TCIC and TCI entered into certain agreements with Viacom
Inc. ("Viacom") and certain subsidiaries of Viacom regarding the purchase by
TCIC of all of the common stock of a subsidiary of Viacom ("Cable Sub") which,
at the time of purchase, will own Viacom's cable systems and related assets.

         The transaction has been structured as a tax-free reorganization in
which Cable Sub will initially transfer 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 will also transfer to New Viacom Sub the
proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan
Facility") to be arranged by TCIC, TCI and Cable Sub.  Following these
transfers, Cable Sub will retain cable assets with an estimated value at
closing of approximately $2.2 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility.

         Viacom will offer 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 "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").  The Exchange Offer will be
subject to a number of conditions, including a condition (the "Minimum
Condition") that sufficient tenders are made of Viacom Common Stock that permit
the number of shares of Cable Sub Class A Stock issued pursuant to the Exchange
Offer to equal the total number of shares of Cable Sub Class A Stock issuable
in the Exchange Offer.





                                      I-3
<PAGE>   6
         Immediately following the completion of the Exchange Offer, TCIC will
acquire from Cable Sub shares of Cable Sub Class B common stock for $350
million (which will be used to reduce Cable Sub's obligations under the Loan
Facility).  At the time of such acquisition, the Cable Sub Class A Stock
received by Viacom stockholders pursuant to the Exchange Offer will
automatically convert into a series of senior cumulative exchangeable preferred
stock (the "Exchangeable Preferred Stock") of Cable Sub with a stated value of
$100 per share (the "Stated Value").  The terms of the Exchangeable Preferred
Stock, including its dividend, redemption and exchange features, will be
designed to cause the Exchangeable Preferred Stock, in the opinion of two
investment banks, to initially trade at the Stated Value.  The Exchangeable
Preferred Stock will be exchangeable, at the option of the holder commencing
after the fifth anniversary of the date of issuance, for shares of Series A TCI
Group Stock.  If insufficient tenders are made by Viacom stockholders in the
Exchange Offer to permit the Minimum Condition to be satisfied, Viacom will
extend the Exchange Offer for up to 15 business days and, during such extension,
TCI and Viacom are to negotiate in good faith to determine mutually acceptable
changes to the terms and conditions for the Exchangeable Preferred Stock and the
Exchange Offer that each believes in good faith will cause the Minimum Condition
to be fulfilled and that would cause the Exchangeable Preferred Stock to trade
at a price equal to the Stated Value immediately following the expiration of the
Exchange Offer.  In the event the Minimum Condition is not thereafter met, TCI
and Viacom will each have the right to terminate the transaction.  In addition,
either party may terminate the transaction if the Exchange Offer has not
commenced by June 24, 1996 or been consummated by July 24, 1996.

         Consummation of the transaction is subject to a number of conditions,
including receipt of a favorable letter ruling from the Internal Revenue
Service that the transaction qualifies as a tax-free transaction and the
satisfaction or waiver of all of the conditions of the Exchange Offer.  A
request for a letter ruling from the Internal Revenue Service has been filed by
Viacom.  The Company believes that, based upon the unique and complex structure
of the transaction, there exists significant uncertainty as to whether a
favorable ruling will be obtained.  In light of the foregoing, management of
the Company has concluded that consummation of the transaction is not yet
probable.  No assurance can be given that the transaction will be consummated.

         QVC Programming Holdings, Inc. (the "Purchaser"), a corporation which
is jointly owned by Comcast and the Company, commenced an offer (the "QVC
Tender Offer") to purchase all outstanding shares of common stock and preferred
stock of QVC, Inc. ("QVC").  The QVC Tender Offer expired on February 9, 1995,
at which time the Purchaser accepted for payment all shares of QVC which had
been tendered in the QVC Tender Offer.  Following consummation of the QVC
Tender Offer, the Purchaser was merged with and into QVC with QVC continuing as
the surviving corporation.  The Company owns an approximate 43% interest of the
post-merger QVC.





                                      I-4
<PAGE>   7
         (b)     Financial Information about Industry Segments

         Although the Company is organized based upon four lines of business
(Domestic Cable and Communications; Programming; International Cable and
Programming; and Technology/Venture Capital), relevant information with respect
to the Company's International Cable and Programming unit and
Technology/Venture Capital unit are contained in the discussion of the
Company's Cable and Communications unit due to their relative insignificance.
Accordingly, the Company operates principally in two industry segments:  cable
and communications services and programming services.  Home shopping is a
programming service which includes a retail function.  Financial information
related to the Company's industry segments can be found in the footnotes to the
Company's consolidated financial statements found in Part II of this report.
Notwithstanding the foregoing, following is a brief description of the
Company's International Cable and Programming unit and Technology/Venture
Capital unit:

         International Cable and Programming

         The Company, through its international cable and programming
subsidiary, Tele-Communications International, Inc., ("TINTA"), has investments
in cable and telecommunications operations and television programming in
international markets.  The Company seeks to invest in markets with favorable
regulatory environments and attractive growth opportunities.  Among its
overseas investments, the Company has an indirect 27% interest in TeleWest plc
("TeleWest").  TeleWest provides cable television and residential and business
cable telephony in the United Kingdom.  In April of 1995, the Company acquired
a 51% ownership interest in Cablevision, which provides cable television
service in and around Buenos Aires, Argentina.  The Company also has a majority
interest in Flextech p.l.c., which provides television programming in the
United Kingdom through its interest in Bravo, The Children's Channel, UK Gold,
UK Living and The Family Channel UK.  Through certain other joint ventures, the
Company has interests in cable television systems and television programming in
Hungary, Poland, Norway, Sweden, Israel, Ireland, Malta, France, Chile,
Argentina, Puerto Rico, the Dominican Republic, New Zealand, Australia,
Singapore and Japan.

         On July 18, 1995, TINTA completed an initial public offering (the
"IPO") in which it sold TINTA Series A common stock to the public representing
17% of TINTA's total issued and outstanding common stock.  TINTA received net
cash proceeds of approximately $300 million from the IPO.  Also in July 1995,
TINTA issued 687,500 shares of TINTA Series A common stock as partial
consideration for a 35% ownership interest in Torneos Y Competencias S.A., an
Argentine sports programming company (the "TYC Acquisition").  Subsequent to
the IPO and the TYC Acquisition, TCI owns 82% of the issued and outstanding
stock of TINTA, representing in excess of 90% of the voting power of TINTA.

         Technology/Venture Capital

         The Company is an investor in companies and joint ventures involved in
developing and providing programming for new television and telecommunications
technologies.  Current investments and technologies under development include
interactive and set-top box technology, entertainment software and other
services for wireline and wireless switched broadband interactive networks.
The Company has formed a joint venture with Sega of America and Time Warner
Entertainment Company, L.P. to develop and market the first video game channel,
called "The Sega Channel."  The Sega Channel provides Sega Genesis video games
on-demand, 24 hours a day.  Subscribers can choose from a wide selection of
games, special versions of soon-to-be released titles, gameplay tips, news,
contests and promotions.





                                      I-5
<PAGE>   8
         In January 1996, the Company acquired a controlling interest in United
Video Satellite Group, Inc. ("UVSG"), a provider of satellite-delivered video,
audio, data and program promotion services to cable television systems,
satellite dish owners, radio stations and private network users primarily
throughout North America.  UVSG operates in five related businesses: electronic
program promotion and guide services, electronic interactive information
delivery services, satellite transmission services for private networks,
direct-to-home satellite services and satellite distribution of video services.
UVSG also has a 70% ownership interest in SSDS, Inc., which provides
information technology consulting and software development services to large
organizations with complex computer needs.

         The Company also has made investments in TSX Corporation, a producer
of communications equipment, and Acclaim Entertainment, Inc. ("Acclaim") and
has formed a joint venture with Acclaim to develop, acquire and distribute
games and other interactive entertainment software over various
telecommunications networks.  The Company has also created the National Digital
Television Center, a provider of digital compression and authorization services
to program suppliers and to cable television systems and other video
distribution outlets.  In addition to its technology investments, the Company
operates Western Tele-Communications, Inc., a wholesale provider of long
distance, voice, data and other telecommunications services.

         (c)     Narrative Description of Business

         CABLE AND COMMUNICATIONS SERVICES

         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.

         Service Charges.  The Company offers a limited "basic service"
(primarily comprised of local broadcast signals and public, educational and
governmental 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
$8.00 to $10.00, and the monthly service fee for the "expanded" tier generally
ranges from $11.00 to $15.00.  The Company 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.  The Company offers
Pay-TV services for a monthly fee generally ranging from $9.00 to $15.00 per
service, except for certain movie or sports services (such as various regional
sports networks and certain pay-TV channels) offered at $1.00 to $5.00 per
month, pay-per-view movies offered separately generally at $3.00 per movie and
certain pay-per-view events offered separately at $10.00 to $50.00 per event.
Charges are usually discounted when multiple Pay-TV services are ordered.

         The Company generally does not charge for additional outlets in a
subscriber's home.  As further enhancements to their cable services, customers
may generally rent converters, with or without a remote control device, for a
monthly charge ranging from $0.50 to $3.00 each, as well as purchase a channel
guide for a monthly charge ranging from $1.00 to $2.00.  Also a nonrecurring
installation charge (which is based upon the FCC's rules which regulate hourly
service charges for each individual cable system) of up to $60.00 is usually
charged.





                                      I-6
<PAGE>   9
         Monthly fees for basic 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.

         As noted below, the Company's service offerings and rates were
affected by rate regulations issued by the FCC in 1993 and 1994.  See
Regulation and Legislation below.

         Subscriber Data.  TCI operates its cable television systems either
directly through its regional operating divisions or indirectly through certain
subsidiaries or affiliated companies.  Domestic basic and Pay-TV cable
customers served by TCI and its consolidated subsidiaries are summarized as
follows (amounts in millions):

<TABLE>
<CAPTION>
                                                 Basic subscribers at December 31,  
                                        -----------------------------------------------
                                         1995      1994       1993       1992      1991
                                        -----     -----      -----      -----     -----
<S>                                      <C>       <C>        <C>         <C>       <C>
Managed through the Company's
   regional operating divisions (1)(2)   11.9      10.7        9.8        9.4       6.4
TKR Cable II, Inc. and
   TKR Cable III, Inc. (3)                0.3       0.3        0.3        0.3        --
United Artists Entertainment Company
   ("UAE") (4)                             --        --         --         --       2.3
Other non-managed subsidiaries            0.3       0.2        0.2        0.2       0.2
                                        -----     -----      -----      -----     -----

                                         12.5      11.2       10.3        9.9       8.9
                                        =====     =====      =====      =====     =====

<CAPTION>
                                                Pay TV subscribers at December 31, 
                                        -----------------------------------------------
                                         1995      1994       1993      1992       1991
                                        -----     -----      -----      -----     -----
<S>                                      <C>       <C>         <C>        <C>       <C>
Managed through the Company's
   regional operating divisions (1)(2)   13.4      11.5        9.5        8.8       6.1
TKR Cable II, Inc. and
   TKR Cable III, Inc. (3)                0.2       0.2        0.2        0.3        --
UAE (4)                                    --        --         --         --       2.2
Other non-managed subsidiaries            0.2       0.2        0.2        0.2       0.1
                                        -----     -----      -----      -----     -----

                                         13.8      11.9        9.9        9.3       8.4
                                        =====     =====      =====      =====     =====
</TABLE>

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

(1)      In August of 1994, TCI Communications, Inc. and Liberty Media
         Corporation consummated a merger whereby each became a wholly-owned
         subsidiary of TCI.

(2)      In December of 1992, SCI Holdings, Inc. ("SCI") consummated a
         transaction (the "Split-Off") that resulted in the ownership of its
         cable television systems being split between its two stockholders,
         which stockholders were Comcast and the Company.  The Split-Off was
         effected by the distribution of approximately 50% of the net assets of
         SCI to three holding companies formed by the Company (the "Holding
         Companies").  Immediately following the Split-Off, the Company owned a
         majority of the common stock of the Holding Companies.  As such, the
         Company, which previously accounted for its investment in SCI using
         the equity method, now consolidates its investment in the Holding
         Companies.  One of the Holding Companies, TKR Cable I, Inc., is
         managed through the Company's regional operating divisions.

(3)      Management of the remaining two Holding Companies was assumed by an
         affiliated company of TCI in December of 1992.

(4)      Management assumed by the Company's regional operating divisions in
         January of 1992.





                                      I-7
<PAGE>   10
         At December 31, 1995, TCI operated substantially all of its
consolidated cable television systems through four regional operating divisions
-- Central, Great Lakes, Southeast and West. The table below sets forth certain
statistical data of TCI's regional operating divisions as of December 31, 1995.

<TABLE>
<CAPTION>
                        Estimated
                          homes          Basic             Basic               Pay-TV               Pay
Division                 passed       subscribers     penetration (1)     subscriptions (2)   penetration (3)
--------                 ------       -----------     ---------------     -----------------   ---------------
                                             amounts in millions, except for percentages
<S>                       <C>              <C>                <C>                  <C>                <C>
Central (4)                4.4              2.5                57%                  2.9               116%

Great Lakes (5)            6.4              4.2                66%                  4.3               102%

Southeast (6)              4.0              2.5                63%                  3.0               120%

West (7)                   4.4              2.7                61%                  3.2               119%
                         -----            -----                                   -----                   

      Total               19.2             11.9                62%                 13.4               113%
                         =====            =====                                   =====                   
</TABLE>

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

(1)      Calculated by dividing the number of basic subscribers by the number
         of estimated homes passed.

(2)      A basic customer may subscribe to one or more Pay-TV services and the
         number of Pay-TV subscriptions reflected represents the total number
         of such subscriptions to Pay-TV services.

(3)      Calculated by dividing the number of Pay-TV subscriptions by the
         number of basic subscribers.

(4)      Central operating division includes cable television systems located
         in Colorado, Kansas, Nebraska, New Mexico, North Dakota, Oklahoma,
         South Dakota, Texas and Wyoming.

(5)      Great Lakes operating division includes cable television systems
         located in Connecticut, Illinois, Indiana, Kentucky, Maine,
         Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New
         York, Ohio, Pennsylvania, Rhode Island, Vermont, West Virginia and
         Wisconsin.

(6)      Southeast operating division includes cable television systems located
         in Alabama, Arkansas, Delaware, District of Columbia, Florida,
         Georgia, Iowa, Louisiana, Maryland, Mississippi, Missouri, North
         Carolina, South Carolina, Tennessee and Virginia.

(7)      West operating division includes cable television systems located in
         Arizona, California, Idaho, Nevada, Montana, Oregon, Utah and
         Washington.

         TCI, its subsidiaries and affiliates operate cable television systems
throughout the continental United States, Puerto Rico and Argentina and,
through certain joint ventures accounted for under the equity method, have cable
television systems and investments in the United Kingdom, other parts of Europe,
Asia, Latin America and certain other foreign countries.

         In addition to cable television service, the Company provides
satellite service through its subsidiary NetLink USA and through its
affiliation with Primestar Partners.  At December 31, 1995 and 1994, the
Company provided satellite service to 990,000 subscribers and 460,000
subscribers, respectively.

         The Company has entered into long-term agreements with a majority of
its program suppliers in order to obtain favorable rates for programming and to
protect the Company from unforeseen future increases in the Company's cost of
programming.





                                      I-8
<PAGE>   11
         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
Cable Television Consumer Protection and Competition Act of 1992 (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 subscribers; 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.  The Company's
franchises also typically provide for periodic payments of fees, generally
ranging from 3% to 5% of revenue, to the governmental authority granting the
franchise.  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.

         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.  The Company 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 the Company's present franchises had initial terms of
approximately 10 to 15 years.  The duration of the Company's outstanding
franchises presently varies from a period of months to an indefinite period of
time.  Approximately 1,100 of the Company's franchises expire within the next
five years.  This represents approximately twenty-five percent of the
franchises held by the Company and involves approximately 4.4 million basic
subscribers.

         Technological Changes.  Cable operators have traditionally used
coaxial cable for transmission of television signals to subscribers.  Optical
fiber is a technologically advanced transmission medium capable of carrying
cable television signals via light waves generated by a laser.  The Company is
installing optical fiber technology in its cable systems at a rate such that in
approximately two years TCI anticipates that it will be serving the majority of
its customers with this technology.  The systems, which facilitate digital
transmission of voice, video and data signals as discussed below, will have
optical fiber to neighborhood nodes with coaxial cable distribution downstream
from that point.





                                      I-9
<PAGE>   12
         Compressed digital video technology converts as many as ten 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 will be uplinked to a
satellite, which will send the signal back down 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 will
convert the digital signal back into analog channels that can be viewed on a
normal television set.  The Company anticipates that it will begin offering
such technology to its cable subscribers in three markets in late 1996 and
intends to make such service available to approximately one-third of its cable
subscribers by the end of 1997, depending upon the availability of set-top
video terminals.  However, since 1994, the Company has encountered repeated
delays in the production and delivery of such devices by its suppliers.  The
Company will be required to further upgrade its existing distribution system to
enable it to provide additional advanced services, such as two-way interactive
technology.  The Company is dependent upon further technological advances to
enable it to provide such interactive services.

         During 1994, the Company established the National Digital Television
Center ("NDTC") in Denver to compress, uplink, encrypt and authorize reception
of digital television signals as well as provide digital television and
multimedia production services. The NDTC currently has established long term
contracts to provide services to 16 content providers, digitally compressing
and/or distributing more than 125 channels of programming.

         In May 1995, the Company and Kleiner Perkins Caufield & Byers formed a
new company, @Home, that will develop high speed, next generation Internet
services for homes and businesses over cable television systems.  A key element
of the @Home service is the underlying network.  @Home proposes to operate a
national, high speed, Internet Protocol-based network connecting to both
information providers and cable operators on a turnkey basis.  This national
network will reach local subscribers through local headends.  Distribution over
cable systems based on both upgraded fiber/coaxial cable designs as well as
older, non-upgraded systems using telephone return paths is planned.  @Home
affiliates plan to provide customers with the required broadband cable modem,
which in turn connect to customers' personal computers using existing standard
data communications interfaces.  @Home is expected to debut in Sunnyvale,
California in 1996.

         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.  Both the 1992 Cable Act and the recently enacted
Telecommunications Act of 1996 ("1996 Telecom Act") 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 Congress and the FCC to offer services in
direct competition with existing cable systems.

         A significant competitive impact is expected from medium power and
higher power direct broadcast satellites ("DBS") that use high frequencies to
transmit signals that can be received by dish antennas much smaller in size
than traditional home satellite dishes ("HSDs").  The Company has an interest
in an entity, Primestar Partners ("Primestar"), which provides programming and
marketing support to its partners who distribute a multi-channel programming
service via a medium power communications satellite to HSDs of approximately 3
feet in diameter.  At December 31, 1995, Primestar, through its partners,
served an estimated 940,000 HSDs in the United States. Two other DBS operators,
DirecTV, a subsidiary of GM Hughes Electronics, and United States Satellite
Broadcasting, a subsidiary of Hubbard Broadcasting, Inc., offer video services
that can be received by HSDs that measure approximately eighteen inches in
diameter.  Such DBS operators have the right to distribute substantially all of
the significant cable television programming services currently carried by
cable television systems.





                                      I-10
<PAGE>   13
         The competition from DBS will likely continue to grow.  One DBS
operator is preparing to launch a new DBS satellite.  AT&T Corp. recently made
a large investment in DirecTV and several other major companies are preparing
to develop and operate high-power DBS systems, including MCI Communications
Corp. ("MCI") and News Corp.  MCI recently acquired rights to satellite
frequencies for DBS in an FCC auction.

         DBS has advantages and disadvantages as an alternative means of
distributing video signals to the home.  Among the advantages are that the
capital investment (although initially high) for the satellite and uplinking
segment of a DBS system is fixed and does not increase with the number of
subscribers receiving satellite transmissions; that DBS is not currently
subject to local regulation of service and prices or required to pay franchise
fees; and that the capital costs for the ground segment of a DBS system (the
reception equipment) are directly related to, and limited by, the number of
service subscribers.  DBS's disadvantages presently include limited ability to
tailor the programming package to the interests of different geographic
markets, such as providing local news, other local origination services and
local broadcast stations; signal reception being subject to line of sight
angles; and intermittent interference from atmospheric conditions and
terrestrially generated radio frequency noise.

         Although the effect of competition from these DBS services cannot be
specifically predicted, it is clear there has been significant growth in DBS
subscribers and the Company assumes that such DBS competition will be
substantial in the near future as developments in technology continue to
increase satellite transmitter power and decrease the cost and size of
equipment needed to receive these transmissions and enable DBS to overcome the
aforementioned disadvantages.  Further, the extensive national advertising of
DBS programming packages, including certain sports packages not currently
available on cable television systems, will likely continue the rapid growth in
DBS subscribers.

         The 1996 Telecom Act eliminated the statutory and regulatory
restrictions that prevented telephone companies from competing with cable
operators for the provision of video services by any means.  See "Regulation
and Legislation" section.  The 1996 Telecom Act allows local telephone
companies, including the regional bell operating companies, to compete with
cable television operators both inside and outside their telephone service
areas. The Company expects that it will face substantial competition from
telephone companies for the provision of video services, whether it is through
the acquisition of cable systems, through the provision of wireless cable, or
through the provision of upgraded telephone networks.  The Company assumes that
all major telephone companies have already entered or soon will enter the
business of providing video services.  Most major telephone companies have
greater financial resources than the Company, and 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.  Additionally, the 1996
Telecom Act eliminates certain federal restrictions on utility holding companies
and thus frees all utility companies to provide cable television services.  The
Company expects this could result in another source of significant competition
in the delivery of video services.





                                      I-11
<PAGE>   14
         Another alternative method of distribution is multi-channel
multi-point distribution systems ("MMDS"), which deliver programming services
over microwave channels received by subscribers 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 systems
have access 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.
The FCC has taken a series of actions intended to facilitate the development of
wireless cable systems as an alternative means  of distributing video
programming, including reallocating the use of certain frequencies to these
services and expanding the permissible use of certain channels reserved for
educational purposes.  The FCC's actions enable a single entity to develop an
MMDS system with a potential of up to 35 channels, and thus compete more
effectively with cable television.  Developments in compression technology will
significantly increase the number of channels that can be made available from
MMDS.  Further, in 1995, several large telephone companies acquired significant
ownership in numerous MMDS companies.  This infusion of money into the MMDS
industry can be expected to accelerate its growth and its competitive impact.

         Within the cable television industry, cable operators may compete with
other cable operators or others seeking franchises for competing cable
television systems at any time during the terms of existing franchises or upon
expiration of such franchises in expectation that the existing franchise will
not be renewed.  The 1992 Cable Act promotes the granting of competitive
franchises.  An increasing number of cities are exploring the feasibility of
owning their own cable systems in a manner similar to city-provided utility
services.

         The Company also competes with Master Antenna Television ("MATV")
systems and Satellite MATV ("SMATV") systems, which provide multi-channel
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.

         Although long distance telephone companies had no legal prohibition on
the provision of video services, they have historically not been providers of
such services in competition with cable systems.  However, such companies may
prove to be a source of competition in the future.  The long distance companies
are expected to expand into local markets with local telephone and other
offerings (including video services) in competition with the regional bell
operating companies, which under the 1996 Telecom Act have been released, upon
the terms and conditions of the 1996 Telecom Act, from the legal prohibitions on
their ability to enter the long distance service market.

         In addition to competition for subscribers, 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.

         The Company has no basis upon which to estimate the number of cable
television companies and other entities with which it competes or may
potentially compete.  There are a large number of individual and multiple
system cable television operators in the United States but, measured by the
number of basic subscribers, the Company is the largest provider of cable
television services.





                                      I-12
<PAGE>   15
         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 through a combination of Federal legislation and FCC
regulations, by some state governments and by most local government franchising
authorities such as municipalities and counties.  On February 8, 1996, the 1996
Telecom Act was signed into law.  This new law will alter federal, state and
local laws and regulations regarding telecommunications providers and cable
television service providers, including the Company.  The discussion below
summarizes the 1996 Telecom Act and reviews the pre-existing federal cable
television regulation as revised by the 1996 Telecom Act.

         The Telecommunications Act of 1996.  The following is a summary of
certain provisions of the 1996 Telecom Act which could materially affect the
growth and operation of the cable television industry and the cable and
telecommunications services provided by the Company.  There are numerous
rulemakings to be undertaken by the FCC which will interpret and implement the
provisions discussed below.  It is not possible at this time to predict the
outcome of such rulemakings.

         Cable Rate Regulation.  Rate regulation of the Company's cable
television services is divided between the FCC and local units of government
such as states, counties or municipalities.  The FCC's jurisdiction extends to
the cable programming service tier ("CPST"), which consists largely of
satellite-delivered programming (excluding basic tier programming and
programming offered on a per-channel or per-program basis).  Local units of
governments (commonly referred to as local franchising authorities or "LFAs")
are primarily responsible for regulating rates for the basic tier of cable
service ("BST"), which will typically contain at least the local broadcast
stations and Public Access, Educational and Government ("PEG") channels.
Equipment rates are also regulated by LFAs.  The FCC retains appeal
jurisdiction from LFA decisions.  Cable services offered on a per-channel or
per-program-only basis remain unregulated.

         The 1996 Telecom Act eliminates CPST rate regulation for the Company
as of March 31, 1999.  In the interim, CPST rate regulation can be triggered
only by an LFA complaint to the FCC.  An LFA complaint must be based upon more
than one subscriber complaint.  Prior to the 1996 Telecom Act, an FCC review of
CPST rates could be occasioned by a single subscriber complaint to the FCC.
The 1996 Telecom Act does not disturb existing or pending CPST rate settlements
between the Company and the FCC.  The Company's BST rates remain subject to LFA
regulation under the 1996 Telecom Act.

         Existing law precludes rate regulation wherever a cable operator faces
"effective competition."  The 1996 Telecom Act expands the definition of
effective competition to include any franchise area where a local exchange
carrier (or affiliate) provides video programming services to subscribers by
any means other than through direct broadcast satellite.  There is no
penetration minimum for the local exchange carrier to qualify as an effective
competitor, but it must provide "comparable" programming services (12 channels
including some broadcast channels) in the franchise area.





                                      I-13
<PAGE>   16
         Under the 1996 Telecom Act, the Company will be allowed to aggregate
on a franchise, system, regional or company level, its equipment costs into
broad categories, such as converter boxes, regardless of the varying levels of
functionality of the equipment within each such broad category.  The 1996
Telecom Act  will allow the Company to average together costs of different
types of converters (including non-addressable, addressable, and digital).  The
statutory changes will also facilitate the rationalizing of equipment rates
across jurisdictional boundaries.  These cost-aggregation rules do not apply
to the limited equipment used by "BST-only" subscribers.

         Cable Uniform Rate Requirements.  The 1996 Telecom Act immediately
relaxes the "uniform rate" requirements of the 1992 Cable Act by specifying
such requirements do not apply where the operator faces "effective
competition," and by exempting bulk discounts to multiple dwelling units,
although complaints about "predatory" pricing may be made to the FCC.  Upon a
prima facie showing that there are reasonable grounds to believe that the
discounted price is predatory, the cable system operator will have the burden
of proving otherwise.

         System Sales.  The 1996 Telecom Act changes the definition of a "cable
system" so that competitive providers of video services will only be regulated
and franchised as a cable system if they use public rights-of-way.

         Cable Pole Attachments.  Under the 1996 Telecom Act, investor-owned
utilities must make poles and conduits available to cable systems under
delineated terms.  Electric utilities are given the right to deny access to
particular poles on a nondiscriminatory basis for lack of capacity, safety,
reliability, and generally accepted engineering purposes.  The current method
for determining rates charged by telephone and utility companies for cable
delivery of cable and non-cable services will continue for five years.
However, the FCC will establish a new formula for poles used by cable operators
for telecommunications services which will result in higher pole rental rates
for cable operators.  Any increases pursuant to this formula may not begin for
5 years and will be phased in in equal increments over years 5 through 10.
This new FCC formula does not apply in states which certify they regulate pole
rents.  Pole owners must impute pole rentals to themselves if they offer
telecommunications or cable services.  Cable operators need not pay future
"make-ready" on poles currently contracted if the make-ready is required to
accommodate the attachments of another user, including the pole owner.

         Cable Entry Into Telecommunications.  The 1996 Telecom Act declares
that no state or local laws or regulations may prohibit or have the effect of
prohibiting the ability of any entity to provide any interstate or intrastate
telecommunications service.  States are authorized to impose "competitively
neutral" requirements regarding universal service, public safety and welfare,
service quality, and consumer protection.  The 1996 Telecom Act further
provides that cable operators and affiliates providing telecommunications
services are not required to obtain a separate franchise from LFAs for such
services.  The 1996 Telecom Act prohibits LFAs from requiring cable operators
to provide telecommunications service or facilities as a condition of a grant
of a franchise, franchise renewal, or franchise transfer, except that LFAs can
seek "institutional networks" as part of such franchise negotiations.

         The 1996 Telecom Act clarifies that traditional cable franchise fees
may only be based on revenues related to the provision of cable television
services.  However, when cable operators provide telecommunications services,
LFAs may require reasonable, competitively neutral compensation for management
of the public rights-of-way.





                                      I-14
<PAGE>   17
         To facilitate the entry of new telecommunications providers (including
cable operators), the 1996 Telecom Act imposes interconnection obligations on
all telecommunications carriers.  All carriers must interconnect their networks
with other carriers and may not deploy network features and functions that
interfere with interoperability.  Existing local exchange carriers ("LECs")
also have the following obligations:  (1) good faith negotiation with those
seeking interconnection; (2) unbundling, equal access and non-discrimination
requirements; (3) resale of services, including "resale at wholesale rates"
(with an exception for certain low-priced residence services to business
customers); (4) notice of changes in the network that would affect
interconnection and interoperability; and (5) physical collocation unless shown
that practical technical reasons, or space limitations, make physical
collocation impractical.  The FCC has six months to "complete all actions
necessary to establish regulations" needed to effectuate this section.  The
1996 Telecom Act also directs the FCC, within one year of enactment, to adopt
regulations for existing LECs to share infrastructure with qualifying carriers.

         Under the 1996 Telecom Act, individual interconnection rates must be
just and reasonable, based on cost, and may include a reasonable profit.  Cost
of interconnection will not be determined in a rate of return proceeding.
Traffic termination charges shall be "mutual and reciprocal."  The 1996 Telecom
Act contemplates that interconnection agreements will be negotiated by the
parties and submitted to a state public service commission ("PSC") for
approval.  A PSC may become involved, at the request of either party, if
negotiations fail.  If the state regulator refuses to act, the FCC may
determine the matter.  If the PSC acts, an aggrieved party's remedy is to file
a case in federal district court.

         The 1996 Telecom Act requires that all telecommunications providers
(including cable operators that provide telecommunications services) must
contribute equitably to a Universal Service Fund ("USF"), although the FCC may
exempt an interstate carrier or class of carriers if their contribution would
be minimal under the USF formula.  The 1996 Telecom Act allows states to
determine which intrastate telecommunications providers contribute to the USF.
The purpose of the USF is to provide consumers in all regions, including
low-income consumers and those consumers in rural, insular and high-cost areas,
access to telecommunications and information services that are reasonably
comparable to those services in urban areas at reasonably comparable rates.

         Telephone Company Entry Into Cable Television.  The 1996 Telecom Act
allows telephone companies to compete directly with cable operators by
repealing the telephone company-cable cross-ownership ban and the FCC's video
dialtone regulations.  This will allow LECs, including the regional bell 
operating companies, to compete with cable operators both inside and outside 
their telephone service areas.  If a LEC provides video via radio waves, it is
subject to broadcast jurisdiction.  If a LEC provides common carrier channel
service it is subject to common carrier jurisdiction.  A LEC providing video
programming to subscribers is otherwise regulated as a cable operator
(including franchising, leased access, and customer service requirements),
unless the LEC elects to provide its programming via an "open video system."
LEC owned programming services will also be fully subject to program access
requirements.





                                      I-15
<PAGE>   18
         The 1996 Telecom Act replaces the FCC's video dialtone rules with an
"open video system" ("OVS") plan by which LECs can provide cable service in
their telephone service area.  LECs complying with the FCC OVS regulations will
receive relaxed oversight.  The 1996 Telecom Act requires the FCC to act on any
such OVS certification within ten days of its filing.  Only the program access,
negative option billing prohibition, subscriber privacy, EEO, PEG, must-carry
and retransmission consent provisions of the Communications Act of 1934, as
amended, will apply to LECs providing OVS.  Franchising, rate regulation,
consumer service provisions, leased access and equipment compatibility will not
apply.  Cable copyright provisions will apply to programmers using OVS.  LFAs
may require OVS operators to pay "franchise fees" only to the extent that the
OVS provider or its affiliates provide cable services over the OVS. OVS
operators will be subject to LFA general right-of-way management regulations.
Such fees may not exceed the franchise fees charged to cable operators in the
area, and the OVS provider may pass through the fees as a separate subscriber
bill item.

         The 1996 Telecom Act requires the FCC to adopt, within six months,
regulations prohibiting an OVS operator from discriminating among programmers,
and ensuring the OVS rates, terms, and conditions for service are reasonable
and nondiscriminatory.  Further, the FCC is to adopt regulations prohibiting a
LEC-OVS operator, or its affiliates, from occupying more than one-third of the
system's activated channels when demand for channels exceeds supply, although
there are no numeric limits.  The 1996 Telecom Act also mandates OVS
regulations governing channel sharing; extending the FCC's sports exclusivity,
network nonduplication, and syndex regulations; and controlling the positioning
of programmers on menus and program guides.  The 1996 Telecom Act does not
require LECs to use separate subsidiaries to provide incidental interLATA video
or audio programming services to subscribers or for their own programming
ventures.

         While there remains a general prohibition on LEC buyouts of cable
systems (any ownership interest exceeding 10 percent), cable operator buyouts
of LEC systems, and joint ventures between cable operators and LECs in the same
market, the 1996 Telecom Act provides exceptions.  A rural exemption permits
buyouts where the purchased system serves an area with fewer than 35,000
inhabitants outside an urban area.  Where a LEC purchases a cable system, that
system plus any other system in which the LEC has an interest may not serve 10%
or more of the LEC's telephone service area.  Additional exceptions are also
provided for such buyouts.  The 1996 Telecom Act also provides the FCC with the
power to grant waivers of the buyout provisions in cases where (1) the cable
operator or LEC would be subject to undue economic distress, (2) the system or
facilities would not be economically viable, or (3) the anticompetitive effects
of the proposed transaction are clearly outweighed by the effect of the
transaction in meeting community needs.  The LFA must approve any such waiver.

         Electric Utility Entry Into Telecommunications/Cable Television.  The
1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) 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.  It is anticipated that large utility holding companies will become
significant competitors to both cable television and other telecommunications
providers.





                                      I-16
<PAGE>   19
         Cross-Ownership and Must Carry.  The 1996 Telecom Act eliminates
broadcast/cable cross-ownership restrictions (including broadcast network/cable
restrictions), but leaves in place FCC regulations prohibiting local
cross-ownership between television stations and cable systems.  The FCC is
empowered by the 1996 Telecom Act to adopt rules to ensure carriage, channel
positioning and non-discriminatory treatment of non-affiliated broadcast
stations by cable systems affiliated with a broadcast network.  The SMATV and
MMDS cable cross-ownership restrictions have been eliminated for cable
operators subject to effective competition.

         The 1996 Telecom Act preserves must carry rights for local television
broadcasters, and clarifies that the geographic scope of must carry is to be
based on commercial publications which delineate television markets based on
viewing patterns.  The FCC is directed to grant or deny must carry requests
within 120 days of a complaint being filed with the FCC.

         Cable Equipment Compatibility and Scrambling Requirements.  The 1996
Telecom Act directs an FCC equipment comparability rulemaking emphasizing that
(1) narrow technical standards, mandating a minimum degree of common design
among televisions, VCRs, and cable systems, and relying heavily on the open
marketplace, should be pursued; (2) competition for all converter features
unrelated to security descrambling should be maximized; and (3) adopted
standards should not affect unrelated telephone and computer features.  The
1996 Telecom Act directs the FCC to adopt regulations which assure the
competitive availability of converters ("navigation devices") from vendors
other than cable operators.  The 1996 Telecom Act provides that the FCC's rules
may not impinge upon signal security concerns or theft of service protections.
Waivers will be possible where the cable operator shows the waiver is necessary
for the introduction of new services.  Once the equipment market becomes
competitive, FCC regulations in this area will be terminated.

         The 1996 Telecom Act requires cable operators, upon subscriber
request, to fully scramble or block at no charge the audio and video portion of
any channel not specifically subscribed to by a household.  Further, the 1996
Telecom Act provides that sexually explicit programming must be fully scrambled
or blocked.  If the cable operator cannot fully scramble or block its signal,
it must restrict transmission to those hours of the day when children are
unlikely to view the programming.

         Cable Provision of Internet Services.  Transmitting indecent material
via the Internet is made criminal by the 1996 Telecom Act.  However, on-line
access providers are exempted from criminal liability for simply providing
interconnection service; they are also granted an affirmative defense from
criminal or other action where in "good faith" they restrict access to indecent
materials.  The 1996 Telecom Act further exempts on-line access providers from
civil liability for actions taken in good faith to restrict access to obscene,
excessively violent or otherwise objectionable material.

         Pre-existing Federal Regulation.  The 1984 Cable Act and 1992 Cable
Act extensively regulated the cable television industry and the vast majority
of that regulation remains unchanged by the 1996 Telecom Act.  Among other
things, the 1984 Cable Act (a) requires cable television systems with 36 or
more "activated" channels to reserve a percentage of such channels for
commercial use by unaffiliated third parties; (b) permits franchise authorities
to require the cable operator to provide channel capacity, equipment and
facilities for public, educational and governmental access; and (c) regulates
the renewal of franchises.

         The 1992 Cable Act greatly expanded federal and local regulation of
the cable television industry.  The Company believes that the 1992 Cable Act
taken as a whole has had and will continue to have a material adverse impact
upon the cable industry in general and upon the Company's cable operations
specifically.  See related discussion under the caption Management's Discussion
and Analysis of Financial Condition and Results of Operations.  Certain of the
more significant areas of regulation imposed by the 1992 Cable Act are
discussed below.





                                      I-17
<PAGE>   20
         Regulation of Program Licensing.  The 1992 Cable Act directed the FCC
to promulgate regulations regarding the sale and acquisition of cable
programming between multichannel video program distributors (including cable
operators) and programming services in which a cable operator has an
attributable interest.  The legislation and the implementation regulations
adopted by the FCC preclude most exclusive programming contracts (unless the
FCC first determines the contract serves the public interest) and generally
prohibit a cable operator which has an attributable interest in a programmer
from improperly influencing the terms and conditions of sale to unaffiliated
multichannel video program distributors.  Further, the 1992 Cable Act requires
that such cable affiliated programmers make their programming services
available to cable operators and competing video technologies such as MMDS and
DBS, and to telephone company providers of video services, on terms and
conditions that do not unfairly discriminate among such competitors.

         Regulation of Carriage of Programming.  Under the 1992 Cable Act, the
FCC adopted regulations prohibiting cable operators from requiring a financial
interest in a program 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.

         Regulation of Cable Service Rates.  The 1992 Cable Act subjected the
Company's cable systems to rate regulation, except in those cases where they
face "effective competition".  The FCC was required to establish standards and
procedures governing regulation of rates for basic cable service, equipment and
installation, which were then to be implemented by state and local franchising
authorities.  The 1992 Cable Act also required the FCC, upon complaint from a
franchising authority or a cable subscriber, to review the "reasonableness" of
rates for CPSTs.  The 1996 Telecom Act amended the 1992 Cable Act to allow only
LFAs to file complaints.  Services offered on an individual basis, such as pay
television and pay-per-view services, were not subject to rate regulation.

         On April 1, 1993, the FCC adopted rate regulations governing virtually
all cable systems.  Such regulations were revised on February 22, 1994.  Under
such regulations, existing basic and tier service rates typically are evaluated
against "benchmark" rates established by the FCC and subject to mandatory
reductions.  Equipment and installation charges are regulated based on "actual
costs".  As noted above, the 1996 Telecom Act provides that rate regulation of
the CPST automatically sunsets on March 31, 1999.

         The FCC also allowed cable operators to justify rates under "cost of
service" rules, which allow "high cost" systems to establish rates in excess of
the benchmark level.  The FCC's interim cost of service rules allowed a cable
operator to recover through rates for regulated cable services its normal
operating expenses plus a rate of return equal to 11.25 percent on the rate
base.  However, the FCC significantly limited the inclusion in the rate base of
acquisition costs in excess of the book value of tangible assets.  As a result,
the Company pursued cost of service justifications in only a few cases.  On
December 15, 1995, the FCC adopted slightly more favorable cost of service
rules.





                                      I-18
<PAGE>   21
         The FCC's rate regulations generally permit cable operators to adjust
rates to account for inflation and increases in certain external costs,
including programming costs, to the extent such increases exceed the rate of
inflation.  However, a cable operator may pass through increases in the cost of
programming services affiliated with such cable operator to the extent such
costs exceed the rate of inflation only if the price charged by the programmer
to the affiliated cable operator reflects either prevailing prices offered in
the marketplace by the programmer, to unaffiliated third parties or the fair
market value of the programming.  The FCCs revised regulations confirm that
increases in pole attachment fees ordinarily will not be accorded external cost
treatment.  The FCC recently adopted a method for recovering external costs and
inflation on an annual basis.  The new method minimizes the need for frequent
rate adjustments and the regulatory lag problems associated with the previous
rate adjustment methodology.

         The regulations also provide mechanisms for adjusting rates when
regulated tiers are affected by channel additions or deletions.  Additional
programming costs resulting from channel additions can be accorded the same
external treatment as other program costs increases, and cable operators
presently are permitted to recover a mark-up on their programming expenses.
Under one option, operators are allowed a flat ($.20) fee increase per channel
added to an existing CPST, with an aggregate cap on such increases ($1.20) plus
a license fee reserve ($.30) through 1996.  In 1997, an additional flat ($.20)
fee increase will be available, and the license fees for additional channels
and for increases in existing channels will no longer be subject to the
aggregate cap.  This optional approach for adding services is scheduled to
expire on December 31, 1997.

         The FCC adopted additional rules that permit channels of new
programming services to be added to cable systems in a separate new product
tier which the FCC has determined will not be rate regulated at this time.  The
FCC has also adopted rules allowing operators to raise rates based on costs
incurred in connection with a substantial upgrade of the cable system.  The FCC
provided additional rate relief for small operators that is not applicable to
the Company, except to the extent it acquires systems already eligible for this
favorable treatment.

         The Company reduced many of its existing rates and has limited rate
increases to those increases allowed by FCC regulations.  Such actions have had
a material adverse effect on the operating income of the Company's cable
systems.  Many of these rate regulations are subject to change during the
course of ongoing proceedings before the FCC.

         The Company has negotiated a rate settlement with the FCC which
promises to resolve all liability for alleged overcharges in past CPST rates
and to approve all existing CPST charges as of September 15, 1995. Under the
terms of the proposed settlement (which is still awaiting final action by the
FCC), the Company generally would provide a one time credit to each subscriber
in a CPST regulated community.  The aggregate amount of such credits is
approximately $9 million.

         Regulation of Customer Service.  As required by the 1992 Cable Act,
the FCC has adopted comprehensive regulations establishing minimum standards
for customer service and technical system performance.  Franchising authorities
are allowed to enforce stricter customer service requirements than the FCC
standards.

         Regulation of Carriage of Broadcast Stations.  The 1992 Cable Act
granted broadcasters a choice of "must carry" rights or "retransmission
consent" rights.  By October of 1993, cable operations were required to secure
permission from broadcasters that elected retransmission consent rights before
retransmitting the broadcasters' signals.  Local and distant broadcasters can
require cable operators to make a payment as a condition to carriage of such
broadcasters' station on a cable system.  (Established "superstations" were not
granted such rights.)





                                      I-19
<PAGE>   22
         The 1992 Cable Act also imposed obligations to carry "local" broadcast
stations for such stations which chose a "must carry" right, as distinguished
from the "retransmission consent" right described above.  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,
including the signals of stations carrying home-shopping programming and,
depending on a cable system's channel capacity, non-commercial television
broadcast signals.  The United States Supreme Court is currently reviewing the
constitutionality of the must carry regulations.

         Ownership Regulations.  The 1992 Cable Act required the FCC to (1)
promulgate rules and regulations establishing reasonable limits on the number
of cable subscribers which may be served by a single multiple system cable
operator or entities in which it has an attributable interest, (2) 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 (3) consider the
necessity and appropriateness of imposing limitations on the degree to which
multichannel video programming distributors (including cable operators) may
engage in the creation or production of video programming.  On September 23,
1993, 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, (attributable for these purposes is defined
as a 5% or greater ownership interest or the existence of any common directors)
with an increase to 35% if the additional cable systems are minority
controlled.  However, 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 the Company's ability to acquire
interests in additional cable systems.

         On September 23, 1993, 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 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 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.  Channels beyond the first 75 activated channels are not subject
to such limitations, and the rules do not apply to local or regional
programming services.

         In the same rulemaking, the FCC concluded that additional restrictions
on the ability of multichannel distributors to engage in the creation or
production of video programming presently are unwarranted.

         Under the 1992 Cable Act and the FCC's regulations, a cable operator
may not hold a license for a MMDS system within the same geographic area in
which it provides cable service.  The 1996 Telecom Act would allow such
ownership if effective competition exists in that geographic area.





                                      I-20
<PAGE>   23
         The 1992 Cable Act contains numerous other provisions which together
with the 1984 Cable Act create a comprehensive regulatory framework.  Violation
by a cable operator of the statutory provisions or the rules and regulations of
the FCC can subject the operator to substantial monetary penalties and other
significant sanctions such as suspension of licenses and authorizations,
issuance of cease and desist orders, and imposition of penalties that could be
of severe consequence to the conduct of a cable operator's business.  Many of
the specific obligations imposed on the operation of cable television systems
under these laws and regulations are complex, burdensome and increase the
Company's cost of doing business.

         In the normal course of its business, the Company obtains licenses
from the FCC for two-way communications stations, and in certain cases,
microwave relay stations and other facilities.  Based upon its experience and
knowledge with the renewal process, the Company has no reason to believe that
such licenses will not be renewed as they expire.

         Pursuant to lease agreements with local public utilities, the cable
facilities in the Company's cable television systems are generally attached to
utility poles or are in underground ducts controlled by the utility owners.
The rates and conditions imposed on the Company for such attachments or
occupation of utility space are generally subject to regulation by the FCC or,
in some instances, by state agencies, and are subject to change.  As described
above, the 1996 Telecom Act significantly revises the regulation of pole
attachment rates and access.

         Copyright Regulations.  The Copyright Revision Act of 1976 (the
"Copyright Act") provides cable television operators with a compulsory license
for retransmission of broadcast television programming without having to
negotiate with the stations or individual copyright owners for retransmission
consent for the programming.  The availability of the compulsory license is
conditioned upon the cable operators' compliance with applicable FCC
regulations, certain reporting requirements and payment of appropriate license
fees, including interest charges for late payments, pursuant to the schedule of
fees established by the Copyright Act and regulations promulgated thereunder.
The Copyright Act also empowers the Copyright Office to periodically review and
adjust copyright royalty rates based on inflation and/or petitions for
adjustments due to modifications of FCC rules.  The FCC has recommended to
Congress the abolition of the compulsory license for cable television carriage
of broadcast signals, a proposal that has received substantial support from
members of Congress.  Any material change in the existing statutory copyright
scheme could significantly increase the costs of programming and be adverse to
the business interests of the Company.





                                      I-21
<PAGE>   24
         State and Local Regulation.  Cable television systems are generally
licensed or "franchised" by local municipal or county governments and, in some
cases, by centralized state authorities with such franchises being given for
fixed periods of time subject to extension or renewal largely at the discretion
of the issuing authority.  The specific terms and conditions of such franchises
vary significantly depending on the locality, population, competitive services,
and a host of other factors.  While this variance takes place even among
systems of essentially the same size in the same state, franchises generally
are comprehensive in nature and impose requirements on the cable operator
relating to all aspects of cable service including franchise fees, technical
requirements, channel capacity, subscriber rates, consumer and service
standards, "access" channel and studio facilities, insurance and penalty
provisions and the like.  Local franchise authorities generally control the
sale or transfer of cable systems to third parties.  The franchising process,
like the federal regulatory climate, is highly politicized and no assurances
can be given that the Company's franchises will be extended or renewed or that
other problems will not be engendered at the local level.  In connection with
the franchise renewal process, LFAs commonly request the provision of enhanced
cable system technology as a condition to franchise renewal.  The 1984 Cable
Act grants certain protective procedures in connection with renewal of cable
franchises, which procedures were further clarified by the renewal provisions
of the 1992 Cable Act.

         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 the Company's business will not be affected adversely by future
legislation, new regulation or deregulation.





                                      I-22
<PAGE>   25
         PROGRAMMING SERVICES

         Liberty Media Group, through Liberty Media Corporation ("Liberty") its
subsidiaries and affiliates, is an investor in and manager of entities engaged
in the production, acquisition and distribution through all available formats
and media, including cable television systems, broadcast television stations,
C-Band home satellite dishes ("HSDs"), direct broadcast satellite ("DBS"),
on-line and interactive services, home video and traditional retail outlets, of
branded entertainment and informational programming and software, including
multimedia products, delivered in both analog and digital form. The various
entertainment and information programming and programming-related businesses in
which Liberty Media Group has interests fall into five categories: movie
services; general entertainment and information services; sports programming
services; broadcasting; and electronic retailing, which includes direct
marketing, advertising sales relating to programming services, infomercials and
transaction processing.

         The following table sets forth Liberty Media Group's programming
interests which are held directly and indirectly through partnerships, joint
ventures, common stock investments and instruments convertible into common
stock.  Ownership percentages in the table are approximate, calculated as of
March 15, 1996 and, where applicable, assume conversion to common stock by the
Company and, to the extent known by the Company, other holders. In some cases, 
Liberty Media Group's interest may be subject to buy/sell procedures, 
repurchase rights or, under certain circumstances, dilution.


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                   SUBSCRIBERS AT                                             LIBERTY MEDIA GROUP
                                      12/31/95       SUBSCRIBERS AT 12/31/94                       ATTRIBUTED    
             ENTITY                   (000'S)                (000'S)          YEAR LAUNCHED       OWNERSHIP %    
------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>                          <C>              <C>
                                                      MOVIE SERVICES

Encore Media Corporation                                                                             90%
     Encore                             7,468                5,405                 1991
     Encore Plus                          475                  N/A                 1995
     Love Stories                         860                  304                 1994
     Westerns                           1,517                  304                 1994
     Mystery                            1,515                  304                 1994
     Action                               834                  185                 1994
     True Stories & Drama                 832                  180                 1994
     WAM! America's Youth                 833                  185                 1994

STARZ!                                  3,187                1,348                 1994              48%(1)

Request TV                             32,242(2)            23,853(2)              1985              40%(3)

Viewer's Choice                        38,404(2)            26,386(2)              1985              10%
</TABLE>





                                      I-23
<PAGE>   26
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                   SUBSCRIBERS AT                                             LIBERTY MEDIA GROUP
                                      12/31/95       SUBSCRIBERS AT 12/31/94                       ATTRIBUTED    
             ENTITY                   (000'S)                (000'S)          YEAR LAUNCHED       OWNERSHIP %    
------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>                          <C>              <C>
                                      ENTERTAINMENT AND INFORMATION SERVICES

Court TV                                      20,646               15,550      1991                    33%(3)

BET Holdings, Inc. (NYSE-BTV)                                                                          22%
     BET Cable Network                        44,234               40,282      1980
     BET Action                                7,200(2)             6,571(2)   1990
        Pay-Per-View
     BET on Jazz                                 N/A                  N/A      1996


Discovery Communications, Inc.                                                                         49%
     The Discovery Channel                    66,534               61,500      1985
     The Learning Channel                     43,248               31,500      1980
     Discovery Asia                            1,441                  462      1994
     Discovery Europe                         11,075                9,100      1989
     TLC Europe                                 (4)                  (4)       1991
     Discovery Latin America                   4,988                2,900      1994
     Discovery Channel Online                    N/A(15)              N/A      1995         

DMX Inc. (Nasdaq-TUNE)                                                                                 11%(3)
     DMX                                      18,250(2)            16,500(2)   1991

E! Entertainment Television                   37,300               26,792      1990                    10%(3)

International Family Entertainment, Inc. (NYSE-FAM)                                                    20%
     The Family Channel                       62,000               58,800      1977
     FIT TV                                    5,610                1,002      1993
     The Family Channel UK(5)                    826(6)               402(6)   1993
     The Family Channel de Las                    34                  N/A      1995
       Americas

International Channel                          7,062                5,839      1990                    45%

Faith & Values Channel                        25,354               21,957      1993                    49%

Turner Broadcasting Systems, Inc. (AMEX-TBS/A; TBS/B)                                                  23%(3)
     CNN                                      67,200               62,800      1980
     Cartoon Network                          22,400               12,100      1992
     Headline News                            59,300               54,200      1982
     TNT                                      66,100               60,800      1988
     Turner Classic Movies                     7,800                3,200      1994
     TBS SuperStation                         67,100               62,100      1976
     CNNfn                                       N/A                  N/A      1996
     CNN International                        76,700               57,400      1995 (US)
     International Entertain-                 42,000(7)            28,000(7)
           ment Networks
        TNT Latin America                                                      1991
        Cartoon Network Latin
           America                                                             1993
        TNT & Cartoon Network
           Europe                                                              1993
        TNT & Cartoon Network
           Asia                                                                1994
</TABLE>





                                      I-24
<PAGE>   27
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                   SUBSCRIBERS AT                                             LIBERTY MEDIA GROUP
                                      12/31/95       SUBSCRIBERS AT 12/31/94                       ATTRIBUTED    
             ENTITY                   (000'S)                (000'S)          YEAR LAUNCHED       OWNERSHIP %    
------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>                          <C>              <C>
                                  ENTERTAINMENT AND INFORMATION SERVICES (CONT.)

Intro Television                             7,341                  6,900           1994             100%

Video Jukebox Network, Inc. (Nasdaq-JUKE)                                                              5%
     The Box                                22,241 (US)            21,548           1985
                                               792 (UK)               650           1992

                                                 SPORTS SERVICES

REGIONAL SPORTS NETWORKS
     Home Team Sports                        3,149                  2,810           1984              20%(8)  
     Prime Sports-                                                                                            
        Intermountain West                     559                    535           1990             100%     
     Prime Sports-KBL                        2,310                  1,623           1985             100%     
     Prime Sports-Midwest                      670                    300           1989              65%(3)(8)
     Prime Sports-Northwest                  2,299                  2,188           1988              60%(3)   
     Prime Sports-Rocky                                                                                       
        Mountain                             1,690                  1,525           1988              77%(8)   
     Prime Sports-Southwest                  4,509                  4,138           1983              65%(3)(8)
     Prime Sports-West                       4,560                  4,170           1985             100%     
     SportsChannel Chicago                   2,533                  2,330           1984              50%(3)   
     SportsChannel Pacific                   3,553                  3,242           1990              50%(3)   
     SportsChannel                           2,465                  2,355           1983              22%(3)(8)
        Philadelphia/PRISM                                                                                    
     SportSouth Network                      4,768                  4,270           1990              44%(3)   
     Sunshine Network                        3,582                  3,380           1988            36.5%(3)(8)
                                                                                                              
NATIONAL SPORTS NETWORKS                                                                                      
     Liberty Satellite Sports(9)             2,270                  1,401           1989              65%(3)(8)
     Prime Deportiva                         1,524(10)                900(10)       1993             100%     
     Prime Network                          50,325                 45,947           1989              33%(3)(8)
     NewSport                                6,279                  5,363           1994              33%(3)(8)
     Prime Sports Showcase                   1,917                  1,800           1994             100%     
                                                                                                              
INTERNATIONAL SPORTS PROGRAMMING                                                                              
     Prime Sports Australia                     80                      2                             50%      
        Premier Sports Network                                                      1995                          
        Premier All-Star Sports                                                     1995                          
     Prime International                     1,394                    138     
        Prime Deportiva                                                             1995             100%                
        Prime Network                                                               1992              65%(3)(8)   
                                                                                                              
                                                   BROADCASTING                                               
                                                                                                              
Netlink USA                                    437                    380           1987             100%     
Netlink International                           20                     20

Silver King Communications, Inc. (Nasdaq-SKTV)                                                        23%(11)
     Silver King                            28,000(12)             28,000(12)       1986
</TABLE>





                                      I-25
<PAGE>   28
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                   SUBSCRIBERS AT                                             LIBERTY MEDIA GROUP
                                      12/31/95       SUBSCRIBERS AT 12/31/94                       ATTRIBUTED    
             ENTITY                   (000'S)                (000'S)          YEAR LAUNCHED       OWNERSHIP %    
------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>                          <C>              <C>
                                               ELECTRONIC RETAILING

Home Shopping Network, Inc. (NYSE-HSN)                                                              41%(13)
     HSN                                    69,189(14)             62,000(14)       1985
     Spree!                                 12,000                    N/A           1986
     ISN                                       N/A(15)                N/A           1995

QVC Network                                 54,611                 50,000           1986            43%(3)
     Q2                                     13,031                 11,568           1994
     QVC-The Shopping                        4,029                    N/A           1993
        Channel (UK)
     iQVC                                      N/A(15)                N/A           1995

<CAPTION>
                                                   OTHER ASSETS
--------------------------------------------------------------------------------------------------------
                                                                                     LIBERTY MEDIA GROUP
                  ASSET                              DESCRIPTION                         OWNERSHIP %
--------------------------------------------------------------------------------------------------------
<S>                                      <C>                                                <C>  
Americana Television                     Produces music and                                   66% 
Productions LLC                          lifestyle programming                                   
                                                                                                 
Asian Television and                     Hardware/software                                    46% 
Communications International             sales and consulting                                    
LLC                                      in China                                                
                                                                                                 
MacNeil/Lehrer Productions               News/Documentary                                     67% 
                                         Production                                              
                                                                                                 
Southern Satellite Systems, Inc.         Distribution of TBS                                 100%
                                         SuperStation                                            
                                         signal (in the U.S.)                                    
                                                                                                 
Royal Communications, Inc.               Distribution of TBS                                 100%
                                         SuperStation                                            
                                         signal (in Canada)                                      
                                                                                                 
</TABLE>


(1)      An entity attributed to TCI Group owns a 50.1% interest in Starz!.

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

(3)      The interests of Liberty Media Group in these entities are presently
         or will become subject to buy-sell procedures under which one owner
         may initiate the procedure by giving notice setting forth a value for
         the entity and the other owner(s) may then elect either to buy the
         interest of the initiating owner or to sell their interests to the
         initiating owner at a price equal to the value specified by the
         initiating owner multiplied by the ownership percentage of the selling
         partner.


                                      I-26
<PAGE>   29
(4)      Included with Discovery Europe.

(5)      Operated by a joint venture in which International Family
         Entertainment, Inc. ("IFE") has a 61% interest and Flextech plc
         ("Flextech"), in which Tele-Communications International, Inc.
         ("TINTA") has a majority interest, has the remaining 39% interest. On
         March 20, 1996, IFE announced that it had agreed to merge The Family
         Channel (UK) into Flextech, in exchange for cash and Flextech
         securities.

(6)      Excludes satellite direct-to-home subscribers.

(7)      Includes subscribers for TNT Latin America, Cartoon Network Latin
         America, TNT & Cartoon Network Europe and TNT & Cartoon Network Asia.

(8)      Includes an indirect interest attributed through Affiliated Regional
         Communications, Ltd. in which Liberty Media Group owns a 65% interest.

(9)      Distributor of Sports Programming to HSD and DBS markets.

(10)     Includes subscriber numbers for La Cadena Deportiva, previously a
         regional sports network, which is now a part of Prime Deportiva.

(11)     Assumes exercise of an option (the "Option") to purchase 2,000,000
         shares of Class B common stock at $1.75 per share, which shares would
         constitute voting control of Silver King.  Liberty has entered into an
         agreement pursuant to which it has agreed to transfer its controlling
         interest in HSN to Silver King in exchange for an additional interest
         in Silver King.  For a description of this transaction, see
         description of Silver King in "Broadcasting" below.

(12)     Number of television households in areas of Silver King's broadcast
         stations.

(13)     Liberty Media Group has 80% voting power.  Liberty has entered into an
         agreement pursuant to which it has agreed to transfer its interest in
         HSN to Silver King.  See description of transaction in "Broadcasting"
         below.

(14)     Includes broadcast households and cable subscribers.

(15)     Internet service.

         Movie Services.  "Encore", which is produced and distributed by Encore
Media Corporation ("EMC"), primarily airs movies from the 1960s, 1970s and
1980s. As of December 31, 1995, the service was being offered by cable
operators and other distribution technologies to approximately 29.2 million
households, of which approximately 7.5 million subscribed to Encore. The
service is generally offered as a single premium service or in conjunction with
other programming services. In either case, the subscription price paid by the
subscriber for Encore is generally lower than the prices charged for other
premium movie services. During 1994, Encore launched six new thematic multiplex
services: Love Stories, Westerns, Mystery, Action, True Stories & Drama, and
WAM! America's Youth Network. Cable operators pay EMC a per subscriber fee for
the services.  EMC obtains rights to air movies by entering into film licensing
agreements with the holders of distribution rights. EMC has entered into
agreements extending through 2005 with various distributors to exhibit certain
films. EMC has entered into various other agreements where license fees are
contingent on future production, sales and certain other criteria. As of
December 31, 1995, approximately 54% of Encore's total subscribers received the
service pursuant to an affiliation agreement with Satellite Services, Inc.
("SSI"), a wholly owned subsidiary of TCI Communications, Inc. ("TCIC").  SSI
purchases programming services from programming suppliers and then makes such
services available to TCIC's subsidiaries and affiliates.





                                      I-27
<PAGE>   30
         Customers served by cable television systems eligible to purchase
programming services through SSI ("SSI Subscribers") represented approximately
22% of U.S. households which receive cable or satellite delivered programming
at December 31, 1995. Percentages of subscribers to the programming services in
which Liberty Media Group has an attributable interest that are SSI Subscribers
are provided below in the description of the service if they significantly
exceed 22%.

         "STARZ!" is a first-run premium movie programming service which is
managed by EMC. As of December 31, 1995, STARZ! was offered by cable operators
and other multi-channel video distribution technologies to approximately 16.5
million subscribers, of which approximately 3.2 million elected to receive
STARZ!. Approximately 64% of the subscribers electing to receive STARZ! were SSI
Subscribers.  STARZ! is operated and distributed by a partnership ("QE+") owned
29.9% by Liberty Starz, Inc. ("Liberty Starz"); 50.1% by TCI Starz, Inc.
("TCIS"), an entity included in TCI Group, and 20% by EMC.

         The QE+ agreement provides that TCIS will be required to make special
capital contributions to QE+ through July 1, 2005, up to a maximum aggregate
capital contribution of $350 million (the "TCIS Contribution").  QE+ is
obligated to pay TCIS a preferred return of 10% per annum on the first $200
million of the TCIS Contribution beginning five years from the date of the
contribution or five years from January 1, 1996, whichever is later.  Any amount
of the TCIS Contribution in excess of $200 million will be entitled to a
preferred return of 10% per annum from the date of the contribution.  QE+ will
be required to apply 75% of its available cash flow (as defined) to repay the
TCIS Contribution and any preferred return payable thereon.  To the extent QE+
has incremental cash requirements, TCIS and Liberty Starz will have the option
to fund 50.1% and 49.9%, respectively, of any such additional capital
requirements.  EMC is paid a fee for managing the STARZ! service equal to 20% of
the "managed costs" (as defined) of the service.

         In addition, effective July 1, 1995, Liberty Starz began earning a
"Content Fee" for certain services provided to QE+ equal to 4% of the gross
revenue of QE+, which was approximately $970,000 for the six months ended
December 31, 1995.  The Content Fee agreement expires on June 30, 2001, subject
to renewal on an annual basis thereafter.  Payment of the Content Fee is
subordinated to the repayment of the TCIS Contribution, including any preferred
return, and any other obligations of QE+ to its partners.

         Liberty Media Group also has interests in "Request TV" and "Viewer's
Choice" which provide pay-per-view movies and pay-per-view events to cable
operators. Both Request TV and Viewer's Choice act as intermediaries between
movie studios and event promoters, on the one hand, and cable operators, on the
other hand, providing scheduling for movies to be sold on a pay-per-view basis,
satellite distribution of such movies, marketing and promotion, and, in some
instances, billing and collection services. For providing these services, they
are paid a negotiated percentage of pay-per-view revenue generated by their
respective affiliated cable operators.

         Entertainment and Information Services.  "Court TV" provides live
and/or tape delayed coverage and analysis of selected criminal and civil legal
proceedings. The Court TV service, which was launched in July of 1991, was
received by approximately 20.6 million subscribers at December 31, 1995,
approximately 28% of which were SSI Subscribers.





                                      I-28
<PAGE>   31
         "BET Cable Network" is a cable television network whose programming
targets interests and concerns of African-Americans. The network's productions
include hosted music video programs and variety shows. Acquired programs
include situation comedies, soap operas, movies, gospel music programs and
sports and entertainment specials. "BET Action Pay-Per-View" is a pay-per-view
service which distributes films produced by BET Holdings, Inc. ("BET") and
feature films produced by major studios and independent film companies.  BET on
Jazz was launched in January 1996 as a national programming service. BET on
Jazz programming embraces all forms of jazz and includes national and
international jazz festivals, jazz music videos, interviews, vintage concerts,
biographies, movies and documentaries.  In December 1995, BET repurchased a
portion of its common stock beneficially owned by Time Warner, Inc. ("Time
Warner").  As a result, Liberty Media Group's ownership of BET increased from
approximately 18% to 22%.

         The principal businesses of Discovery Communications, Inc.
("Discovery") are the advertiser-supported basic cable networks "Discovery
Channel" and "The Learning Channel".  Discovery Channel provides nature, science
and technology, history, exploration and adventure programming and is
distributed to customers in virtually all U.S. cable homes. The Learning Channel
broadcasts a variety of educational and non-fiction programming. Through
internally generated funding, significant investments are being made by
Discovery in building a documentary programming library.  Discovery is expanding
the Discovery brand name by establishing channels based in Europe, Latin America
and Asia, a substantial portion of the programming of which is drawn from
Discovery's own documentary programming library. During 1995, Discovery
continued to sell CD-ROMs, videos and other products based on its programming.
In 1995, Discovery augmented such efforts with the acquisition of Discovery
Store, Inc., a previously unrelated 14-store retail chain that sells nature and
science-themed products now under the name Discovery Channel Store.

         In July 1995, Discovery launched Discovery Channel Online which
provides World Wide Web users with text, video and audio presentations in the
areas of science, nature, history and human adventure.  Discovery recently
announced plans to launch five new networks to coincide with deployment of
digital set-top terminals in 1996.

         DMX Inc. is primarily engaged in programming, distributing and
marketing a premium digital music service, DMX, which provides 24-hour per day,
commercial-free, CD quality music programming. DMX is delivered, for a monthly
per subscriber license fee, direct to cable operators by C-Band satellite for
distribution to residential and commercial cable subscribers. DMX is also
delivered by DBS to commercial subscribers and (since October 1995) residential
subscribers. Both cable and DBS subscribers receive DMX through a specially
designed tuner to their stereo systems. DMX is available in 30 different music
formats for cable distribution and in more than 90 different music formats for
DBS distribution. DMX also operates services in Canada, Europe, Israel, Central
and South America and Africa.  Approximately 55% of DMX's domestic enabled
tuners are in the homes of SSI Subscribers.

         On March 12, 1996, the stockholders of DMX Inc. approved a transaction
in which a subsidiary of TINTA would be merged with and into DMX Inc. As a
result of such transaction TINTA will receive approximately 10.8 million shares
of newly issued DMX Inc. Common Stock, reducing Liberty Media Group's interest
in DMX Inc. from approximately 14% to approximately 11%. Upon completion of the
transaction, TINTA will hold approximately 20% of DMX Inc.

         "E! Entertainment Television" is a 24-hour 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.


                                      I-29
<PAGE>   32
         International Family Entertainment, Inc.'s ("IFE") principal business
is "The Family Channel", an advertiser-supported basic cable television
network that provides family oriented entertainment programming in the United
States.  In addition, IFE owns MTM Entertainment, Inc., a producer and
worldwide distributor of television series and made-for-television movies and
the owner of a significant library of television programming. IFE also operates
The Family Channel (UK), an advertiser-supported network in the United Kingdom;
FIT TV, an advertiser-supported health and fitness cable network; "The Family
Channel de Las Americas", which provides Spanish language family-oriented and
fitness programming to Mexico, Central America and portions of South America;
and Calvin Gilmore Productions, a producer of live musical variety shows. On
March 20, 1996, IFE announced that it had agreed to merge The Family Channel
(UK) into Flextech. IFE will receive cash and shares of Flextech's convertible
redeemable non-voting stock in exchange for its interest in the network.
Flextech owns interests in or manages 13 cable networks in the UK. 

         On December 15, 1995, Liberty exchanged all of its IFE Convertible
Preferred Stock and all its IFE Class B Common Stock for non-voting IFE Class C
Common Stock.  This transaction increased Liberty's equity interest in IFE from
approximately 18% to approximately 20% while reducing its voting power to zero.
The IFE Class C Common Stock is convertible into voting IFE Class B Common
Stock at any time.

         "International Channel" is a basic cable service providing
multi-lingual programming in the U.S.  The International Channel has announced
that it will begin development of 12 single language pay services designed
primarily to serve viewers who use English as their second language.

         In July, 1995, Liberty Media Group acquired a 49% interest in "The
Faith & Values Channel," a national basic cable network reaching more than 26
million viewers through cable television and other forms of multi-channel
distribution. Approximately 29% of the Faith & Values Channel's viewers are SSI
Subscribers. The Faith & Values Channel is managed by representatives of the
National Interfaith Cable Coalition, a group of 64 U.S. denominations and faith
groups. The Channel aims to provide its viewers with non-denominational
religious and values-based entertainment and informational programming that
promotes values of love, justice, reconciliation and hope and introduces
perspectives of faith and values into public and civil discourse.

         Turner Broadcasting System, Inc. ("TBS") is a diversified information
and entertainment company, which produces and distributes entertainment and news
programming worldwide, with operations in motion picture, animation, sports and
television production, home video, television syndication, licensing and
merchandising, and publishing.  Through its subsidiaries, at December 31, 1995,
TBS owned and operated four domestic entertainment networks (TBS SuperStation,
Turner Network Television, Cartoon Network and Turner Classic Movies); four
International entertainment networks (TNT Latin America, Cartoon Network Latin
America, TNT & Cartoon Network Europe and TNT & Cartoon Network Asia); and four
news networks (Cable News Network, Headline News, Cable News Network
International and CNN Financial Network).  On February 16, 1996, TBS and Time
Warner, Inc. ("Time Warner") announced plans to launch a 24-hour sports news
cable service, CNN-SI, in December 1996.  TBS' involvement in the creation of
programming and the distribution of original and library product includes
ownership of three motion picture and television production companies (New Line
Cinema Corporation, Castle Rock Entertainment and Turner Pictures Worldwide,
Inc.); Hanna-Barbera, Inc. which is engaged primarily in the production of new
animation product; and two major copyright libraries (The Turner Entertainment
Co. library which contains films from MGM, RKO, pre-1950 Warner Bros, short
subjects, cartoons and television shows, and the Hanna-Barbera library
consisting of over 3,000 half hours of animation programming).  TBS also has
ownership interests in two professional sports teams (the Atlanta Braves and the
Atlanta Hawks) and a regional sports network (SportSouth Network ("SportSouth"),
in which Liberty Media Group also has an interest).

         On September 22, 1995, the boards of directors of Time Warner, and TBS
approved plans to merge their respective companies (the "TBS/Time Warner
Merger").  Under the terms of the agreement, TBS shareholders will receive 0.75
of a Time Warner common share for each TBS Class A and Class B common share.
Each holder of TBS Class C preferred stock will receive 0.80 of a Time Warner
common share for each of the 6 shares of TBS Class B common stock into which
each of the shares of Class C preferred stock may be converted.  Liberty Media
Group will receive approximately 50.1 million shares of Time Warner common stock
in exchange for its TBS holdings.





                                      I-30
<PAGE>   33
         Subject to certain conditions, Liberty Media Group has agreed to vote
its TBS shares for the TBS/Time Warner Merger.  The Time Warner shares of
common stock received by Liberty Media Group will be exchanged immediately for
a series of voting common stock ("Time Warner Series Common Stock")
economically equivalent to the common stock and placed in a voting trust with
Gerald M. Levin, currently the Chairman of Time Warner, as the trustee.
Liberty Media Group's Time Warner Series Common Stock is being placed in a
voting trust to ensure compliance with FCC requirements.

         In connection with the TBS/Time Warner Merger, TBS has agreed to sell
its interest in SportSouth, a regional sports cable network, to Liberty Media
Group for approximately $60 million. Time Warner has agreed to issue 5
million shares of Time Warner common stock to Liberty Media Group in exchange
for a 6-year option to purchase Southern Satellite Systems, Inc. ("Southern").
Time Warner has also agreed to issue additional shares of Time Warner Series
Common Stock to Liberty Media Group having a market value of $160 million in
the event it exercises such option.  Any shares of Time Warner common stock
issuable in connection with the Southern option will be exchanged for Time
Warner Series Common Stock.  Additionally, Time Warner will grant Liberty Media
Group an option to purchase Time Warner's interest in Sunshine Network, a
Florida-based sports cable network, for $14 million.

         The TBS/Time Warner Merger is subject to, among other things, approval
by the FCC and regulatory review by federal antitrust authorities, and approval
by the shareholders of TBS and Time Warner.

        Television" (formerly known as "tv! Network"), a 24-hour basic
cable service, features programming from new and existing cable networks which
are not widely distributed.  Intro Television also previews premium and
pay-per-view services and showcases the latest developments in programming,
new technology and emerging interactive services.  Intro Television is operated
as a promotional channel for use by TCIC's cable television systems and all of
Intro Television's subscribers are SSI Subscribers.

         "The Box" is a viewer interactive music video service produced by
Video Jukebox Network, Inc. ("VJN") and offered through cable television
systems and low-power television stations. Viewers may select the music videos
they desire to watch by calling a designated 900 or 976 telephone number, in
which case they pay a fee to VJN for their selections. Alternatively, viewers
may passively view the music videos selected by others, in which case there is
no additional charge for the service. VJN has entered into revenue sharing
arrangements with cable operators who offer The Box as part of their basic
cable service. VJN also has operations in the United Kingdom.

         Sports Programming Services.  On October 31, 1995, Liberty Media Group
announced that it had entered into a binding agreement in principle with The
News Corporation Limited ("News Corp.") and TINTA to form alliances to own and
operate sports programming services world wide.  In the United States, Liberty
Media Group and News Corp. agreed to form a partnership (the "Fox-Liberty
Venture") into which Liberty Media Group will contribute interests in its
national and regional sports networks and into which News Corp. will contribute
its "fx" cable network and certain other assets. Upon consummation, Liberty
Media Group will receive a 50% interest in the Fox-Liberty Venture and $350
million cash. The fx network will be transformed into a nationally distributed,
general entertainment and sports network.  The regional sports networks
currently operated under the Prime Sports name will be relaunched under the Fox
Sports banner.





                                      I-31
<PAGE>   34
         Internationally, News Corp. and a 50/50 partnership formed by Liberty
Sports, Inc. ("Liberty Sports"), a wholly owned subsidiary of Liberty Media
Group, and TINTA (the "Liberty-TINTA Partnership") have agreed to form a joint
venture (the "International Venture") which will operate currently existing
sports services in Asia, Latin America and Australia and a variety of new
sports services throughout the world except in the United Kingdom, Japan and
New Zealand where prior arrangements preclude an immediate collaboration.  The
Liberty-TINTA Partnership will own 50% of the International Venture with News
Corp. owning the other 50%.  News Corp. is contributing various international
sports rights, including the Star Sports channel which is broadcast throughout
Asia as part of the Star package of services.  The Liberty-TINTA Partnership is
contributing Prime Deportiva, a Spanish language sports service distributed in
Latin America and in Hispanic markets in the United States, an interest in
Torneos y Competencias S.A., an Argentinean sports programming and production
business, various international sports and satellite transponder rights and
cash.  The Liberty-TINTA Partnership will also contribute its 50% interest in
Premier Sports and All-Star Sports in Australia.  Both are 24-hour sports
services available via MMDS or cable television in Australia.

         The transactions contemplated by the above agreements are expected to
close during 1996.

         Regional Sports Programming Services.  Liberty Media Group has varying
interests in several regional sports networks (the "Liberty Sports Networks"),
which acquire, develop, produce, syndicate and distribute sports programming of
primarily local and regional interest by satellite to cable television
operators, to other multi-channel video programming distributors, and to HSD
owners, in specified geographic areas. The following table sets forth for each
of the Liberty Sports Networks the year of launch, state service area and
significant teams with respect to whose games the network currently has
programming rights:

<TABLE>
<CAPTION>
             Sports Network                 Year Launched      Service Area          Current Teams
             --------------                 -------------      ------------          -------------
<S>                                            <C>              <C>             <C>
Prime Sports-Southwest                          1983             AR, LA,        Dallas Mavericks
                                                                 NM, OK,        Houston Aeros
                                                                     TX         Houston Astros
                                                                                Houston Rockets
                                                                                Dallas Stars
                                                                                San Antonio Spurs
                                                                                Big 12 Conference

Home Team Sports                                1984             DC, DE,        Baltimore Orioles
                                                                 MD, NC,        Washington Bullets
                                                                 PA, VA,        Washington Capitals
                                                                     WV         Colonial Conference
                                                                                Atlantic 10 Conference
                                                                                Atlantic Coast Conference

Prime Sports-KBL                                1985             MD, NY         Pittsburgh Penguins
                                                                     WV         Pittsburgh Pirates
                                                                                University of Pittsburgh
                                                                                Atlantic 10 Conference

Prime Sports-Intermountain West                 1990             ID, MT,        Utah Jazz
                                                                 NV, UT,
                                                                     WY

Prime Sports-Midwest                            1989             IA, IL,        St. Louis Cardinals
                                                                 IN, MO         St. Louis Blues
</TABLE>


                                      I-32
<PAGE>   35
<TABLE>
<CAPTION>
             Sports Network                 Year Launched      Service Area          Current Teams
             --------------                 -------------      ------------          -------------
<S>                                            <C>               <C>            <C>
Prime Sports-Northwest                          1988             AK, ID,        Seattle Mariners
                                                                 MT, OR,        Big Sky Conference
                                                                     WA         PAC-10 Conference
                                                                                Oregon State University
                                                                                University of Oregon
                                                                                University of Washington
                                                                                Washington State University

Prime Sports-Rocky Mountain                     1988             CO, KS,        Denver Nuggets
                                                                 NE, NM         Colorado Avalanche
                                                                 SD, WY         Colorado State University
                                                                                University of New Mexico

Prime Sports-West                               1985             AZ, CA,        Los Angeles Lakers
                                                                 HI, NV         Los Angeles Kings
                                                                                Anaheim Mighty Ducks
                                                                                California Angels
                                                                                San Diego Padres
                                                                                PAC-10 Conference
                                                                                University of Hawaii
                                                                                San Diego State University

SportsChannel Chicago                           1984             IA, IL,        Chicago Blackhawks
                                                                 IN, WI         Chicago Bulls
                                                                                Chicago White Sox
                                                                                University of Notre Dame

SportsChannel Pacific                           1990             CA, NV,        Golden State Warriors
                                                                     HI         Oakland A's
                                                                                San Francisco Giants
                                                                                San Jose Sharks
                                                                                PAC-10 Conference
                                                                                Stanford University
                                                                                University of Cal-Berkeley

SportsChannel Philadelphia/PRISM                1983             DE, NJ,        Philadelphia Flyers
                                                                     PA         Philadelphia Phillies
                                                                                Philadelphia 76ers
                                                                                Atlantic 10 Conference

SportSouth Network                              1990             AL, GA,        Atlanta Braves
                                                                 MS, NC,        Atlanta Hawks
                                                                 SC, TN         Charlotte Hornets
                                                                                Southeast Conference
                                                                                Atlantic Coast Conference

Sunshine Network                                1988                 FL         Orlando Magic
                                                                                Florida State University
                                                                                Tampa Bay Lightning
                                                                                Florida Marlins
                                                                                Florida Panthers
                                                                                Miami Heat
</TABLE>

         Liberty Sports has also entered into multi-year agreements for rights
to national distribution of certain sports events of the PAC-10 Conference, Big
12 Conference and Conference USA, which will be distributed in part through
regional sports networks and in part through other distribution media.





                                      I-33
<PAGE>   36
         In November 1995, the Fox-Liberty Venture entered into a $47 million,
4-year non-exclusive agreement with Major League Baseball ("MLB"), commencing
with the 1997 regular season games, for 2 cable-exclusive nights per week for
26 weeks.  MLB games may be carried on fx and/or the Liberty Sports Networks.

         The Liberty Sports Networks derive revenue from two principal sources:
(1) fees paid by multichannel video programming distributors pursuant to
affiliation agreements entered into with the regional sports networks and (2)
the sale of advertising time to local, regional and national advertisers plus
infomercials. Each cable operator or other distributor is typically charged a
monthly fee per subscriber in its systems receiving the programming service,
which fees vary depending on whether the service is offered as a basic,
expanded basic or Pay-TV service and the proximity of the cable system to the
venue of the major sporting events distributed by the network. The affiliation
agreements generally provide for limited increases during their term in the
fees charged by the networks.

         In addition to owning interests in and operating regional sports
networks, Liberty Sports also provides various services to affiliated and
non-affiliated networks. Liberty Sports, through Liberty Satellite Sports, acts
as a marketing agent to HSD owners and distributors to HSD owners for certain
of the regional sports networks with which it is affiliated. In addition,
Liberty Sports provides support services, such as master control and satellite
uplinking services, and certain program scheduling, post-production and editing
services, to certain of its affiliated networks.

         Each of the Liberty Sports Networks sells advertising time to local,
regional and national advertisers. In general, each network's own sales force
markets and sells advertising time to local and regional advertisers, which
accounts for approximately 60% of the total advertising revenue.  The remaining
40% of all advertising revenue is sold nationally through Liberty Sports Sales,
a national advertising group headquartered in New York. Advertising revenue as
a percentage of each network's total revenue varies from network to network,
with the more established networks generally deriving a greater percentage of
their revenue from advertising sales than the newer networks with fewer
subscribers.

         The cost of acquiring sports programming rights is the principal
expense of the sports networks. The Liberty Sports Networks typically enter
into rights contracts with one or more professional sports teams in their
regions and acquire rights to collegiate sporting events through arrangements
with regional conferences, individual schools and programming syndicators. The
duration of the rights agreements with the professional teams ranges from one
to fifteen years, with most of the existing agreements having remaining terms
from two to four years. The rights contracts for collegiate sporting events
typically range from two to five years. Pursuant to the professional sports
rights agreements, the networks usually acquire the exclusive right to
distribute via cable and other forms of pay television, in their respective
regions, a specified number of games that are not subject to national cable or
broadcast contracts.  In some cases, the contract requires the network to
exhibit a minimum number of games and permits exhibition of additional games,
up to a fixed maximum number. The arrangements with respect to collegiate
sports are more varied, but usually provide exclusive regional cable
distribution rights (other than via free over-the-air broadcast television) to
a specified number of events.  Both professional and collegiate rights granted
under such agreements are generally subordinate to rights granted under league
or conference national broadcast and national cable contracts. The fee
arrangements for the rights granted to the networks under the professional and
collegiate sports agreements also vary from contract to contract. In most
cases, the contract provides for a charge per game or event, subject to limited
increases over the term of the contract, with either a minimum annual
exhibition requirement or a minimum payment requirement or both. In certain
recent cases a regional network has also acquired broadcast or radio rights to
professional teams or collegiate events and has sub-licensed such rights to
broadcast or radio distributors. 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 Liberty Sports Networks.





                                      I-34
<PAGE>   37
         The value of the exhibition rights granted under sports rights
contracts, and in some cases the financial commitments incurred thereunder, are
subject to certain contingencies that are not within the control of the
networks, such as the relocation of a professional team to a different region,
changes in the schools participating in a particular collegiate conference, the
terms of applicable national broadcast or cable contracts, and the rules and
regulations of the applicable professional or collegiate league, conference or
association.

         The number of SSI Subscribers exceeds 22% of the subscribers of
several of the Liberty Sports Networks, ranging from 27% at Sportschannel
Chicago to 87% at Prime Sports-Intermountain West.

         National Sports Programming Services.  "Prime Network", a national
"backdrop" service distributed primarily to the Liberty Sports Networks and
other regional sports networks, consists of professional and collegiate sports
events and other sports programming not subject to territorial restrictions,
including college football, baseball and basketball games, professional tennis,
auto racing, soccer, golf, boxing and skiing. The term "backdrop" service is
used to distinguish between original programming produced by a regional sports
network and ancillary programming purchased by the regional sports network from
others, such as Prime Network, to supplement its programming service.

         "NewSport" is a national service primarily dedicated to the production
and delivery of sports news and related programming. NewSport is distributed to
regional sports networks to be used as either a backdrop or a stand-alone
second service.

         "Prime Sports Showcase" is generally offered as an expanded basic
service and is initially intended to showcase programming of "Prime Deportiva"
(a national Spanish language sports service), "Women's Sports Network" (a
national sports service concentrating on women's sports), "Press Box" (sports
news programming) and "Classic Sports Network" (nostalgic sports programs). At
December 31, 1995, Prime Sports Showcase was distributed to approximately 1.9
million subscribers all of which were SSI Subscribers.

         Prime Deportiva is separately available on a full-time, 24-hour basis.
Prime Deportiva, which is generally offered as an expanded basic service or for
distribution on another acceptable tier, predominately features soccer and
boxing.

         Liberty Sports also acts as a syndicator of sports events programming
to the broadcast television market.

         International Sports Programming Services.  Liberty Sports sells and
delivers certain programming internationally to satellite and cable programming
distributors in Asia, Europe and Latin America. Such programming consists of
U.S. domestic sports programming to which Liberty Sports has acquired
international distribution rights and of programming acquired outside the
United States.

         In January 1995, and in partnership with Australia Sports Pty, Ltd.
("Australis"), Liberty Sports launched two sports programming services for
distribution in Australia and New Zealand--"Premier Sports Network" and
"Premier All-Star Sports". Liberty Sports produces and manages the services.
Premier Sports Network is currently delivered as part of a multi-channel pay
television package distributed by Australis, and Premier All Star Sports is
distributed by Australis to commercial establishments, primarily pubs.





                                      I-35
<PAGE>   38
         Competition-Programming Companies.  The business of distributing
pro-gramming for cable television is highly competitive. The number of channels
available to the average subscriber of a domestic cable television system is 60
or less. The various sports, entertainment and information programming
companies described above in which Liberty Media Group has interests (the
"Programming Companies") directly compete with other programming services for
distribution on a limited number of cable television channels and, when
distribution is obtained, the programming offered by the Programming Companies
competes, in varying degrees, for viewers and advertisers with other cable
programming services and off-air broadcast television, radio, print media,
motion picture theaters, video cassettes, internet services and other sources
of information and entertainment. Important competitive factors are the prices
charged for programming, the quantity, quality and variety of the programming
offered and effectiveness of marketing efforts. With the advent of new
compression technologies, which are intended to increase channel capacity,
competition for channel capacity may substantially decrease, although
additional competitors may have the opportunity to enter the marketplace. No
predictions can be made with respect to the viability of these technologies or
the extent to which they will ultimately impact the availability of channel
capacity.

         In addition to competition for cable distributors, viewers and
advertisers, the Programming Companies also compete, to varying degrees, for
programming. With respect to the acquisition of sports programming rights, the
Programming Companies compete for national rights principally with the national
broadcast television networks; a number of national cable services that
specialize in or carry sports programming; television "superstations", which
distribute sports and other programming to cable television systems by
satellite; and with independent syndicators that acquire and resell such rights
nationally, regionally and locally. They also compete for local and regional
rights with those competitors, with local broadcast television stations and
with other local and regional sports networks. The owners of distribution
outlets such as cable television systems may also contract directly with the
sports teams in their service areas for the right to distribute a number of
such teams' games on their systems. Four professional sports leagues have each
entered into agreements with national DBS distribution outlets for the
distribution of selected league games, and three of the four leagues have
entered into such agreements with a second DBS distributor.  With respect to
the acquisition of non-sports programming (such as syndicated programs and
movies) which is not produced by or specifically for the Programming Companies,
competitors include the national broadcast television networks, local broadcast
television stations, suppliers of pay-per-view programs and other cable program
suppliers.

         As set forth in Regulation-Programming Companies below, the FCC's
"financial interest and syndication" rules had limited the ability of the three
major broadcast networks to distribute network programs through syndication to
broadcast stations and to acquire certain financial interests or domestic
syndication rights in first-run non-network programs. However, the FCC repealed
these rules in September 1995. Elimination of these restrictions could permit a
myriad of broadcast station/network production/exhibition arrangements, further
increasing competition to the Programming Companies in the acquisition and sale
of programming.





                                      I-36
<PAGE>   39
         In a series of decisions, federal courts had invalidated the statute
prohibiting telephone companies from providing video programming and other
information directly to subscribers in their telephone service areas. Although
those decisions had been subject to review, telephone companies had begun to
invest in and/or form entities for the production and/or acquisition of
programming. Such entities will provide further competition to the Programming
Companies in the creation, acquisition and/or sale of programming. The 1996
Telecom Act eliminated that statutory prohibition and any remaining
uncertainty.  Therefore telephone company investment in, development of, and/or
acquisition of programming may be expected to continue and to increase.
However, the provision of programming by telephone companies also should
increase the number of outlets and competition for programming sold by the
Programming Companies.

         Satellite Transponder Agreements. The Programming Companies lease
satellite transponders under varying terms on both domestic and international
communications satellites.  Domestic communications satellite transponders may
be leased full or part time on a "protected", "transponder protected" or
"unprotected" basis. When the carrier provides services to a customer on a
"protected" basis, replacement transponders are reserved on board the satellite
for use in the event the "protected" transponder fails. Should there be no
reserve transponders available, the "protected" customer will displace an
"unprotected" transponder customer on the same satellite. In certain cases, the
carrier also maintains a protection satellite and should a satellite fail
completely, all of the lessees' "protected" services would be moved to the
protection satellite. The customer who leases an "unprotected" transponder has
no reserve transponders available, and may have its service interrupted for an
indefinite period when its transponder is required to restore a "protected"
service.

         The availability of replacement satellites and transponder time beyond
current leases is dependent on a number of factors over which Liberty Media
Group has no control, including competition among prospective users of
available transponders and the availability of satellite launching facilities
for replacement satellites.  Many of the commercial satellites now in orbit
will have to be replaced in the next few years.  The federal government has
placed restrictions on the launching of commercial  satellites by means of the
space shuttle, causing manufacturers of commercial satellites to rely on
alternative delivery systems to place these satellites in orbit.  Additional
domestic and foreign commercial launching facilities are being developed
currently, but there can be no assurance that the launch systems currently in
place, or to be developed, will be able to replace the domestic communications
satellites as their useful lives end.

        Although the Company believes that the Programming Companies have 
taken reasonable steps to ensure its continued satellite transmission 
capability, there can be no assurance that termination or interruption of 
satellite transmissions will not occur. Such a termination or interruption of 
service by one or more of these satellites could have a material adverse 
effect on the results of operations and financial condition of Liberty Media 
Group.

         Liberty Media Group anticipates that compressed digital video
transmission will be deployed commercially within the next several years. This
technology converts as many as ten 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 industry is
currently developing standards for sending and receiving compressed signals.
Several of Liberty Media Group's transponder leases provide the right to use
the transponders to provide compressed services. Use of compressed service may
result in greater transponder capacity.


                                      I-37
<PAGE>   40
         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 programming services themselves.  Cable television systems
are also regulated by municipalities or other state and local government
authorities. Municipalities generally have the jurisdiction to grant and to
review the transfer of franchises, to review rates charged to subscribers, and
to require public, educational, governmental or leased-access channels, except
to the extent that such jurisdiction is preempted by federal law. Any such rate
regulation or other franchise conditions could place downward pressure on
subscriber fees earned by Liberty Media Group, and such regulatory carriage
requirements could adversely affect the number of channels available to carry
Liberty Media Group's networks.

         The 1992 Cable Act expanded greatly the scope of federal and local
regulation. Liberty Media Group believes that the legislation taken as a whole
and as presently implemented is having a material adverse impact upon the cable
industry in general and upon Liberty Media Group's programming operations
specifically.

         The 1996 Telecom Act, makes significant changes in the regulation of
and competition among telecommunications-related industries, including the cable
television industry.  See "Regulation and Legislation - The Telecommunications
Act of 1996" above, for a more detailed summary of such changes. Among other
things, the 1996 Telecom Act eliminates the statutory prohibition of telephone
companies providing video programming in their service areas; establishes a
regulatory alternative for open video systems; eliminates rate regulation of
cable programming service tiers immediately for small cable systems and on March
31, 1999, for all cable systems; extends the program access and
anti-discrimination rules to satellite cable programming vendors owned by
telephone companies and other common carriers; and imposes closed- captioning
requirements for video programming.  Many provisions of the 1996 Telecom Act
remain subject to implementation rulemaking proceedings by the FCC. Certain of
the more significant areas of regulation imposed by the 1992 Cable Act as
revised by the 1996 Telecom Act that relate to or may affect programming
operations are discussed below.

         Regulation of Program Licensing. The 1992 Cable Act directed the FCC
to promulgate regulations regarding the sale and acquisition of cable
programming between multichannel video program distributors (including cable
operators) and 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 programmers affiliated with any cable operator (unless the FCC
first determines the contract serves the public interest) and generally
prohibit a cable operator which has an attributable interest in a programmer
from improperly influencing the terms and conditions of sale to unaffiliated
multichannel video distributors. Further, the 1992 Cable Act requires that such
affiliated programmers make their programming services available to cable
operators and competing video technologies such as MMDS and DBS services on
terms and conditions that do not unfairly discriminate among such technologies.
The 1996 Telecom Act has extended this requirement to programming services in
which telephone companies and other carriers have attributable ownership
interests.

         Regulation of Carriage of Programming. Under the 1992 Cable Act, the
FCC has adopted regulations prohibiting cable operators from requiring a
financial interest in a program 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-38
<PAGE>   41
         Regulation of Cable Service Rates.  Cable systems are subject to
extensive rate regulation as summarized above in "Regulations and Legislation -
Regulation of Cable Service Rates."  The 1996 Telecom Act eliminates rate
regulation of CPSTs in all cable systems as of March 31, 1999.  Such
comprehensive regulations include provisions controlling rate increases for
changes in costs, including programming costs, and for additional channels.

         The FCC's rate regulations permit cable operators to adjust rates to
account for inflation and increases in certain external costs, including
increases in programming costs to the extent such increases exceed the rate of
inflation.  On September 15, 1995, the FCC adopted an alternative methodology
for adjusting regulated rates to account for such cost increases and for the
costs of adding channels which provides cable operators with increased
flexibility to recover such costs.  However, a cable operator may pass through
increases in the cost of programming services affiliated with such cable
operator to the extent such costs exceed the rate of inflation only if the
price charged by the programmer to the affiliated cable operator reflects
prevailing prices offered in the marketplace by the programmer to unaffiliated
third parties or the fair market value of the programming.

         The 1992 Cable Act provides mechanisms for cable television systems to
adjust rates when regulated tiers are affected by channel additions or
deletions.  Additional programming costs resulting from channel additions can
be accorded the same external treatment as other program costs increases, and
cable operators presently are permitted to recover a mark-up on their
programming expenses.  Under one option, operators are allowed a flat ($.20)
fee increase per channel added to an existing CPST, with an aggregate cap on
such increases ($1.20) plus a license fee reserve ($.30) through 1996.  In
1997, an additional flat ($.20) fee increase will be available, and the license
fees for additional channels and for increases in existing channels will no
longer be subject to the aggregate cap.  This optional approach for adding
services is scheduled to expire on December 31, 1997.  The aggregate cap and
flat fee mark-up elements of these regulations may adversely affect higher-cost
programming services, including the regional sports networks in which Liberty
Media Group has an ownership interest, while expanding the carriage of
programming services with lower license fees, including programming services in
which Liberty Media Group has an ownership interest.

         The complexity of and numerous revisions to the FCC's rate regulations
have impaired the willingness and ability of cable operators to add programming
services and to invest in additional cable plant to expand channel capacity.
Consequently, the cumulative impact of the FCC's rate regulation is likely to
continue to have an adverse impact on Liberty Media Group's programming
interests.

         Regulation of Carriage of Broadcast Stations.  The 1992 Cable Act
granted broadcasters a choice of "must carry" rights or "retransmission
consent" rights.  By October of 1993, cable operations were required to secure
permission from broadcasters that elected retransmission consent rights before
retransmitting the broadcasters' signals.  Local and distant broadcasters can
require cable operators to make payment as a condition to carriage of such
broadcasters' station on a cable system.  (Established "superstations" were not
granted such rights.)  Alternatively, after October 6, 1993, commercial
broadcasters have the right to deny such carriage unless they grant
retransmission consent. HSN's full-time broadcast affiliates have all
requested "must carry" status in lieu of a retransmission fee.





                                      I-39
<PAGE>   42
         The 1992 Cable Act also imposed obligations to carry "local" broadcast
stations for such stations which chose a "must carry" right, as distinguished
from the "retransmission consent" right described above.  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 and,
depending on a cable system's channel capacity, non-commercial television
broadcast signals.  In July 1993, the FCC ruled that stations predominantly used
for the transmission of sales presentations or program-length commercials
operate in the public interest and are entitled to choose "must carry" status. A
petition for reconsideration of the FCC's ruling currently remains pending
before the FCC, which petition has been opposed by HSN. The United States
Supreme Court is currently reviewing the constitutionality of the must carry
regulations.  The "must-carry" and "retransmission consent" statutory provisions
and regulations remain in effect pending the outcome of these ongoing judicial
proceedings. Such statutorily mandated expansion of 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 public, educational and governmental access, could
adversely affect some or substantially all of the programming services in which
Liberty Media Group holds an interest by decreasing the carriage of such
services in cable systems with limited channel capacity. However, as a result of
"must carry", HSN has experienced increased cable distribution of its
programming due to an increase in the number of cable systems that carry HSN
programming.

         Ownership Regulations. The 1992 Cable Act required the FCC to, among
other things, (1) 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 (2) consider the necessity and appropriateness of imposing
limitations on the degree to which multichannel video programming distributors
(including cable operators) may engage in the creation or production of video
programming.

         On September 23, 1993, 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 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 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.  Channels beyond the first 75 activated channels are not subject
to such limitations, and the rules do not apply to local or regional
programming services.  These rules may limit carriage of Liberty Media Group's
programming services on certain systems of cable operators affiliated with
Liberty Media Group. In the same rulemaking, the FCC concluded that additional
restrictions on the ability of multichannel distributors to engage in the
creation or production of video programming presently are unwarranted.





                                      I-40
<PAGE>   43
         Several petitions filed with the FCC seeking reconsideration of various
aspects of the regulations implementing the 1992 Cable Act remain undecided.
Petitions for judicial review of regulations adopted by the FCC, as well as
other court challenges to the 1992 Cable Act and the FCC's regulations, also
remain pending. The FCC also must initiate numerous rulemakings to implement the
1996 Telecom Act.  Liberty Media Group is uncertain how the courts and/or FCC
ultimately will rule or whether such rulings will materially change any existing
rules or statutory requirements. Further, virtually all are subject to revision
at the discretion of the appropriate governmental authority.

         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. This process
continues in the context of legislative proposals for new laws and the adoption
or deletion of administrative regulations and policies.  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.

         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. Certain satellites are more valuable than others to cable
television programmers based on whether a particular satellite is used by other
programmers of popular cable services. Factors that may affect the Programming
Companies' ability to meet their transponder needs in the future include
increases in the number of prospective users of available transponder space, and
the uncertain status of future satellite launches by the United States space
shuttle program, by private entities in the United States and by private and
governmental entities in other countries. Under current policy, the Galaxy V,
Spacenet 2, SatCom C-1 and SatCom C-3 service providers are not subject to the
market exit provisions of Section 214 of the Communications Act of 1934, as
amended (the "Communications Act"), and may therefore cease providing
communications services to customers on short notice, provided that such action
is just, reasonable and non-discriminatory, and subject to any additional rights
or remedies to which the customer and the carrier may have agreed. Several of
the Programming Companies lease transponders on the above-mentioned satellites,
but Liberty Media Group has no reason to believe that such service providers
have any intention to cease providing transmission services via their respective
satellite systems.

         The FCC also grants licenses to construct and operate satellite uplink
facilities which transmit signals to satellites. These licenses are generally
issued without a hearing if suitable frequencies are available. A number of the
Programming Companies, as well as HSN and Southern Satellite Systems, Inc.,
have been granted licenses for construction and operation of C-Band and/or
Ku-Band satellite uplink facilities.


                                      I-41
<PAGE>   44
         Financial Interest and Syndication. The FCC's "financial interest and
syndication" rules had limited the ability of the three major broadcast
networks to distribute network programs through syndication to broadcast
stations.  The major broadcast networks have not been restricted from
distributing network programs to cable or satellite programmers, such as the
Programming Companies. However, under the FCC's modified financial interest and
syndication rules adopted in 1993, the three major networks had been prohibited
from: (a) actively syndicating any prime-time entertainment or first-run
non-network programming to television stations in the United States, (b)
acquiring financial interests or domestic syndication rights in any first-run
non-network program or series distributed in the United States unless that
program or series was produced solely "in-house" by the network, and (c)
warehousing programming by withholding it from the syndication market beyond
certain defined periods.

         The FCC eliminated these rules in September 1995.  Elimination of
these restrictions could permit a myriad of broadcast station/network
production/exhibition arrangements that only cable operators and the major
broadcast networks (to the extent of distributing to cable and satellite
programmers) were permitted to undertake, further increasing competition to the
Programming Companies in the acquisition and sale of programming. The grant of
expanded syndication powers to the three major networks could lessen the
attractiveness and/or availability of the major networks' programming to cable
system operators and programmers because they would have to compete directly
for such programming with broadcast stations and could be less likely to secure
cable/broadcast network exclusive distribution and other arrangements.

         Broadcasting.  Netlink USA ("Netlink") packages, markets and
distributes programming to the U.S. HSD subscriber market (the "Retail
Business").  Netlink acquires rights from programmers to market various
satellite-transmitted programming, including services such as ESPN, CNN, HBO,
WTBS and the Discovery Channel, to HSD owners. Netlink offers HSD owners
various packages of programming for monthly, quarterly or annual subscription
periods. Once a subscriber has ordered service by telephone or through an HSD
retailer, Netlink transmits an authorization code to the customer's
descrambler, allowing customers to recieve the programming. Since 1993, Netlink
has also offered pay-per-view services.

         Netlink markets its HSD services through direct retail efforts,
satellite equipment dealers and distributors.  During 1995, approximately 75%
of Netlink's new subscribers were generated through satellite equipment
dealers.  During 1995, Netlink paid commissions to more than 2,000 dealers.
Direct marketing includes advertising in publications targeted at HSD owners,
telemarketing and direct mail. Approximately 96% of Netlink's HSD customers
with subscription packages which expired in 1995 renewed their subscriptions
with Netlink.

         During 1995, Netlink uplinked and sold the signals of nine broadcast
television stations to other HSD packagers and marketers in the U.S. and,
through Netlink International, in Canada (the "Wholesale Business").  In
January, 1996, the number of broadcast television signals uplinked by Netlink
was reduced to six. As of December 31, 1995, approximately 600,000 HSD
households subscribed to one or more of such stations through HSD packages
offered by Netlink and other HSD packaging and marketing companies. The other
HSD packaging and marketing companies pay Netlink a fee for the right to sell
these services to their customers.





                                      I-42
<PAGE>   45
         In January 1996, TCI Group consummated a merger with United Video
Satellite Group, Inc. ("UVSG"), as a result of which TCI Group acquired voting
control of UVSG.  UVSG owns Superstar Satellite Entertainment ("Superstar"),
another large distributor of programming to the HSD market.  On March 12, 1996,
UVSG and Liberty Media Group announced an agreement to combine the Retail
Businesses of Netlink and Superstar (the "Netlink/Superstar Venture").  The
Netlink/Superstar Venture, owned approximately 50% by each of UVSG and Liberty
Media Group, will be the nation's largest provider of programming to C-Band
satellite customers. Liberty Media Group will retain ownership of the Wholesale
Business of Netlink.

         Competition-Netlink. Netlink competes with other HSD program packagers,
some of which are affiliated with well-known, large programmers and cable
television system operators. Because a significant portion of Netlink's sales
are generated through HSD dealers, Netlink also competes for dealer
relationships on the basis of commission rates and quality of service offered to
the dealer and its customers. In addition, the HSD market faces significant
competition from cable television as well as DBS services, which were launched
in 1994. DBS uses higher power Ku-Band frequencies that can be received by
significantly smaller hardware than HSDs that receive C-Band frequencies.
Because of the smaller dish size, DBS may be more widely accepted than HSD
systems in urban markets.

         During 1995 Netlink leased nine satellite transponders on an
"unprotected" or "transponder unprotected" basis on two separate communications
satellites. Netlink has "seniority status" on such satellite transponders which
results in Netlink having favorable ranking should transponders be required to
restore a "protected" service.  See "Satellite Transponder Agreements" above.
In January 1996 the number of satellite transponders leased by Netlink was
reduced to six.

         In uplinking and selling the signals of broadcast television stations
in the United States, Netlink is subject to the FCC regulations and Copyright
Act provisions described below under "Other Assets-Transmission of TBS
Superstation ("WTBS")-Regulation-Southern". Pursuant to such regulations,
Netlink may only distribute the signals of network broadcast stations to
"unserved households" which are outside the Grade B contours of a primary
station affiliated with such network.

         Silver King Communications, Inc. ("Silver King") owns and operates 12
independent full power UHF television stations, including one television
satellite station (the "Stations") which affiliate with and primarily broadcast
the retail sales programming of HSN. See "Electronic Retailing Services" below.
The Stations serve eight of the 12 largest metropolitan television markets in
the U.S. As of December 31, 1995, the Stations reached approximately 28 million
households, which is one of the largest audience reaches of any owned and
operated independent television broadcast group in the U.S. In addition to the
HSN programming, the Stations broadcast advertising inserts, issue-responsive
programming, children's programming, ethnic, information and/or religious
programming and public service announcements.  As of December 31, 1995, Silver
King also owned 26 low power television ("LPTV") stations that broadcast HSN
retail sales programming.

         On February 11, 1993, Liberty Media Group entered into an Option
Agreement (which was amended in 1994) with RMS Limited Partnership ("RMS")
pursuant to which Liberty Media Group had the right to purchase from RMS
2,000,000 shares of Silver King's Class B Common Stock at the price of $1.00
per share (the "Option").  The exercise price of the Option increases at a rate
of $0.25 per year, resulting in the exercise price of the Option during the
final year of exercisability (February 12, 1998 to February 11, 1999) being
$2.25 per share.  Upon exercise of the Option, Liberty Media Group would obtain
effective voting control of Silver King as a result of the voting power
associated with the Silver King Class B Common Stock.





                                      I-43
<PAGE>   46
         Liberty Media Group and Mr. Barry Diller and certain of their
respective affiliates entered into an agreement in August 1995 pursuant to which
the Option would be transferred to Silver Management Company ("Silver Company"),
an entity in which Liberty Media Group would own all of the non-voting equity
interests (which would constitute substantially all of the equity of such
entity) and Mr. Diller would own all of the voting equity interests.  Silver
Company would thereafter exercise the Option and hold the shares of the Silver
King Class B Common Stock purchased thereunder.  In an amendment to such
agreement entered into in November 1995, Liberty Media Group agreed to
contribute all of its shares of HSN (which shares constitute approximately 41%
of the equity of HSN and approximately 80% of the voting power of HSN) to Silver
Company in return for additional non-voting equity interests in Silver Company.
Following such contribution, Silver Company would exchange such HSN shares with
Silver King for additional shares of Silver King Common Stock and Class B Common
Stock.  After giving effect to the exchange, the prior exercise of the Option
and Silver King's acquisition of Savoy Pictures Entertainment, Inc., Silver
Company will own approximately 45% of Silver King on a fully diluted basis, and
approximately 84% of the votes of Silver King.  Consummation of the foregoing
transactions is conditioned upon the satisfaction of regulatory requirements, as
well as conditions set forth in the terms of the agreement.  Accordingly, no
assurance can be given that the transaction will be consummated.

         Electronic Retailing Services.  The Liberty Media Group currently
provides electronic retailing services through a subsidiary, HSN, and through
an equity affiliate, QVC, Inc. ("QVC").

         HSN.  As of December 31, 1995, Liberty Media Group owned approximately
41% of the common equity of HSN, which represents approximately 80% voting
control (as a result of multiple voting rights associated with the HSN Class B
Common Stock held by Liberty Media Group).  Liberty Media Group has entered into
certain agreements with Mr. Barry Diller and Silver King which will result in
the transfer of Liberty Media Group's interest in HSN to Silver King.  For a
more detailed description of this transaction, see description of Silver King in
"Broadcasting" above.  If this transaction is consummated HSN would cease to be
a subsidiary of TCI and therefore, the financial results of HSN would not be
consolidated with the financial results of Liberty Media Group.  Although
Liberty Media Group would cease to possess voting control over HSN it would
continue to have an indirect equity interest in HSN through its ownership of the
equity securities of Silver Company.





                                      I-44
<PAGE>   47
         The primary business and principal source of revenue of HSN is
electronic retail sales of merchandise by Home Shopping Club, Inc. ("HSC").
HSC sells a variety of consumer goods and services by means of HSC's live,
customer-interactive electronic retail sales programs which are transmitted
twenty-four hours a day, seven days per week, via satellite to cable television
systems, affiliated broadcast television stations and satellite dish receivers.
HSC's retail sales programming is currently carried on two separate networks,
HSN and Spree!.  Both networks are carried by cable television systems and
broadcast television stations throughout the country.  Spree! programming is
available in one hour segments, which enables broadcast and cable affiliates to
air Spree! in available time slots that would not otherwise produce revenue for
the affiliate.

         HSC's product offerings include: jewelry; hardgoods (such as consumer
electronics, housewares and consumables); softgoods (primarily clothing and
fashion accessories); and cosmetics. For the year ended December 31, 1995,
jewelry, hardgoods, softgoods, and cosmetics accounted for approximately 39%,
37%, 14%, and 10%, respectively, of HSC's net sales.  HSC purchases merchandise
made to its specifications, merchandise from manufacturers' lines and overstock
inventories of wholesalers. The mix of products and source of such merchandise
depends upon a variety of factors including price and availability.  HSC has no
long-term commitments with any of its vendors and there are various sources of
supply available for each category of merchandise sold.

         As part of HSC's customer service policy, HSC maintains a return policy
under which a customer may, generally within 30 days, return for any reason any
item purchased from HSC for a full refund of the purchase price, including the
original shipping and handling charges.

         Transmission and Programming. HSC produces retail sales programs in
its studios located in St. Petersburg, Florida. These programs are distributed
to cable television systems, broadcast television stations, a direct broadcast
satellite service and HSD's by means of HSN's satellite uplink facilities to
satellite transponders leased by HSN. Any cable television system, broadcast
television station or HSD owner in the United States and the Caribbean Islands
equipped with standard satellite receiving facilities is capable of receiving
HSC programming.

         HSN has lease agreements securing full-time use of three transponders
on three domestic communications satellites.  Each of the transponder lease
agreements grants HSN "protected" rights.  See "Satellite Transponder
Agreements" above.

         Affiliation with Cable Operators.  HSC enters into affiliation
agreements with cable system operators to carry HSN, Spree! or both.  HSC has a
standard form of affiliation agreement which has a term of five years, is
automatically renewable for subsequent one year terms, and obligates the cable
operator to assist the promotional efforts of HSC by carrying commercials
regarding HSN and Spree! and distributing HSC's marketing materials to the
cable operator's subscribers.  The standard form of affiliation agreement
provides that the cable operator will receive a commission of five percent of
the net sales of merchandise sold within the cable operator's franchise area
(from both cable and non-cable households).  However, particularly with
larger, multiple system operators, HSC has agreed to provide additional
compensation.  In the past, this has included the purchase of advertising
availabilities from cable operators on other programming networks and the
establishment of commission guarantees committing HSC to a certain level of
payments.  Although a number of these contracts remain in effect, as a general
rule, HSC is no longer entering into agreements that provide for advertising
availability and commission guarantee compensation.  These forms of
compensation were replaced with cable distribution fees or performance bonus
commissions that are intended to increase sales by compensating the cable
operators for promotional efforts which result in higher net sales levels.


                                      I-45
<PAGE>   48
         Due to the possibility of "must carry" being found unconstitutional,
HSC embarked on an aggressive campaign to bring the "must carry" households
under contract by volunteering to pay commissions to cable operators required
to transmit HSC's programming.  As an additional contract incentive, HSC
offered to up-front payments, based on a commitment to transmit HSC programming
to a certain number of subscribers.  In exchange for these payments, HSC
required significant commitments for both the "must carry" and "non-must carry"
households and original terms of five to fifteen years.

         Affiliation Agreements with Broadcast Television Stations.  Each of the
full power Silver King stations has an affiliation agreement with HSC to carry
HSC's programming through December 28, 1997, providing for an hourly fee, and
upon reaching certain sales levels, commissions on net sales.  These agreements
are automatically renewable at Silver King's option for a five-year term, unless
written notice is given by Silver King at least 18  months prior to the
expiration date.  HSN has agreed in principle with Silver King that the period
for delivery of the notice of non-renewal  by Silver King will be extended until
December 28, 1996.  Silver King has informed HSN that it has not made any final
decision regarding whether it will renew any or all of the affiliation
agreements, but presently contemplates that it will not renew the affiliation
agreements. HSN believes, based on its preliminary analysis, that the orderly
termination of the affiliation agreements may be in its best interests because
of the potential cost savings and the existing cable carriage of the HSC
programming in many of the Silver King markets. HSN is evaluating the affected
markets to determine the need for obtaining additional program carriage and the
related costs of such carriage.  There can be no assurance that Silver King will
in fact terminate any or all of the affiliation agreements or that, if so
terminated, that HSN will be able to find other means of distributing HSC
programming by broadcast or cable to the households in the broadcast areas
currently served by Silver King stations.

         Thirteen of the Silver King LPTV stations are currently under existing
affiliation agreements, and HSN contemplates entering into contracts with the
remaining stations in 1996.

         In addition to affiliation agreements with the Silver King broadcast
television and LPTV stations, HSC has entered into affiliation agreements with
other broadcast television stations and LPTV stations to carry either HSN or
Spree! for a predetermined number of hours per day.  The broadcast station
affiliation agreements may generally be terminated upon notice by either party
and specify the payment of fixed hourly fees for the carriage of HSC
programming.

         Distribution, Data Processing and Telecommunications. HSN's
fulfillment subsidiaries store, service and ship merchandise from warehouses
located in St. Petersburg, Florida, Salem, Virginia and Waterloo, Iowa.  During
1995, HSN closed its distribution warehouse in Reno, Nevada.  Generally,
merchandise is delivered to customers within 7 to 10 business days of placing
an order.

         HSN currently operates several Unisys main frame computers and has
extensive computer systems which track purchase orders, inventory, sales,
payments, credit authorization, and delivery of merchandise to customers.  HSC
has digital telephone and switching systems and utilizes a VRU System which
allows callers to place their orders by means of touch tone input or to be
transferred to an operator.

         Additional Subsidiary Businesses.  In addition to the electronic
retailing business, HSN's subsidiaries are involved in mail order, insurance
and other businesses complementary to electronic retailing.  These include:

         HSN Mail Order, Inc. which markets a variety of merchandise through
five mail order catalogs;





                                      I-46
<PAGE>   49
         Vela Research, Inc. which develops and markets high technology audio
and video MPEG compression/decompression products to the cable, computer and
telecommunications industries;

         HSN Insurance, Inc., a full-service insurance agency, markets a wide
range of insurance products such as life, health, auto, homeowners and
commercial policies to the public and HSC customers; and

        Internet Shopping Network, Inc. ("ISN") which operates an interactive
shopping service on the internet, specializing in small office and computer
equipment. ISN is also engaged in exploring business opportunities for
merchandising products via digital interactive television services and other
new digital retailing vehicles.

         Effect on HSN of the 1992 Cable Act. The "must carry" provisions of
the 1992 Cable Act, discussed in "Regulations-Programming Companies" above,
mandate that cable systems carry the signals of local commercial television
stations or, at the station's option, that cable systems and television
stations negotiate a fee to be paid by cable systems for the retransmission by
such cable systems of the local television station's broadcast signal.  HSC's
full-time, full power broadcast affiliates have all requested "must carry"
status in lieu of a retransmission fee and most have obtained "must carry"
status.  The U.S. District court for the District of Columbia has twice upheld
the constitutionality of the "must carry" rules.  The Supreme Court will review
this issue in late 1996 or early 1997.  Between 1993 and 1994, "must carry" was
important to HSN in obtaining carriage by cable operators.  Due to
HSC's success in obtaining long-term carriage commitments, in the event "must
carry" is ruled unconstitutional, HSN does not believe the ruling will
have a material adverse impact on HSN or result in any significant loss
in carriage.

         In November 1994 the FCC issued, pursuant to the 1992 Cable Act,
"going forward" rules regarding the fees cable operators can impose upon
subscribers for new programming, discussed in "Regulations-Programming
Companies" above. The going forward rules provide that cable operators may
increase the charges to subscribers due to increases in external programming
costs. The cable operator must offset these increases by revenues it receives
from all sources other than advertising.  However, in August 1995, the FCC
excluded commission revenues paid by HSN and other electronic retailing
services to cable operators for merchandise sales from such offset.  This may
make carriage of HSN more attractive to cable operators.






                                      I-47
<PAGE>   50
         Competition-HSN.  HSN operates in a highly competitive environment.
It is in direct competition with businesses which are engaged in retail
merchandising, other electronic retailers, direct marketing retailers such as
mail order companies, companies that sell from catalogs, and other discount
retailers and companies that market through computer technology.  HSN also
competes for access to its customers with broadcasters and alternative forms of
entertainment and information, such as programming for network and independent
broadcast television states, and basic and pay cable television services.  In
particular, the price and availability or programming for cable television
systems affects the availability of these channels for HSN's programs and the
compensation which must be paid to the cable operators for carriage of HSC
programming.  In addition, HSN believes that competition for channel capacity
has substantially increased.  With the advent of new compression technologies
on the horizon, this competition for channel capacity may substantially
decrease, although additional competitors may have the opportunity to enter the
marketplace.  No predictions can be made with respect to the viability of these
technologies or the extent to which they will ultimately affect the
availability of channel capacity.

         HSN was the first specialty retailer to market merchandise by means of
live, nationally televised sales programs.  There are other companies, some
having an affiliation or common ownership with cable operators (including the
Company), that now market merchandise by means of live television.  A number of
other entities are engaged in direct retail sales businesses which utilize
television in some form and which target the same markets in which HSN operates.
HSN cannot predict the degree of success with which it will meet competition in
the future.

         In addition to the above factors, HSN's affiliation with broadcast
television stations creates another set of competitive conditions.  These
stations compete for television viewers primarily within local markets.  HSN's
affiliated broadcast television stations are located in highly competitive
markets and compete against both VHF and UHF stations.  Due to technical
factors, a UHF television generally requires greater power and a high antenna
to secure substantially the same geographical coverage as a VHF television
station.  Under present FCC regulations, additional UHF commercial television
broadcasting stations may be licensed except in thirty designated markets,
including most o the largest cities, under an FCC decision precluding
additional applications.  HSN cannot quantify the competitive effect of the
foregoing or any other sources of video programming on any of HSN's affiliated
television stations, nor can it predict whether such competition will have a
material adverse effect on its operations.

         In summary, HSN operates in a highly competitive environment in which,
among other things, technological change, changes in distribution patterns,
media innovations, data processing improvements and new entrants make the
competitive position of both HSN and its competitors extremely difficult to
predict.

         QVC.  In February 1995, QVC Programming Holdings, Inc. (the
"Purchaser"), completed its acquisition of QVC. In connection with this
acquisition, Liberty Media Group contributed substantially all of the shares of
QVC owned by it (which constituted approximately 18.8% of the shares of QVC on
a fully diluted basis prior to such acquisition) together with cash to acquire
an approximate 42.6% equity interest in the Purchaser. Upon the merger of the
Purchaser into QVC, this interest became an approximate 42.6% interest in QVC,
as the surviving corporation. The remaining 57.4% of QVC was acquired by
Comcast, which manages the day-to-day operations of QVC.


                                      I-48
<PAGE>   51
         QVC markets and sells a wide variety of consumer products and services
primarily by means of its televised shopping programs, known as "QVC" and "Q2".
Cable television system operators that have entered into affiliation agreements
with QVC carry its programming as part of their basic service and pursuant to
such agreements receive from QVC commissions equal to 5% of the net sales of
merchandise sold to customers located in the cable operator's service area. QVC
is also a joint venturer in the operation of a British televised shopping
service. On December 8, 1995, QVC launched iQVC, an online shopping service,
via the Microsoft Network.  iQVC is offering a wide variety of consumer
products.  iQVC will pay Microsoft a commission based on a percentage of total
sales.  QVC faces most of the same competitive factors as HSN, described above
under "Competition-HSN". Unlike HSN, QVC does not have affiliation agreements
with over-the-air broadcast television stations and therefore is not able to
obtain the benefits of the "must carry" regulation.

Other Assets

         Transmission of TBS SuperStation ("WTBS").  Southern and its wholly
owned subsidiary, Royal Communications, Inc. ("Royal"), transmit the signal of
WTBS, a 24-hour independent UHF television station originated by TBS, from the
uplinking facilities of LMC SatCom, Inc., a wholly owned subsidiary of
Southern, in and near Atlanta, Georgia, to a protected transponder on the
Galaxy V Satellite. Southern leases such transponder from TBS pursuant to a
sublease that expires in the year 2000. Southern makes the WTBS signal
available to cable television system operators and operators of other
non-broadcast distribution media who receive the signal on their earth stations
and offer the service to their subscribers. Southern also makes the WTBS signal
available to HSD owners through program packagers. A substantial portion of
Southern's consolidated revenue for 1995 was derived from the HSD market. No
payment to TBS is required for the transmission by Southern of the WTBS signal.
See "Regulation-Southern" below. At December 31, 1995, Southern (and Royal)
transmitted WTBS to an estimated 62.5 million homes throughout the United
States, Puerto Rico, the U.S. Virgin Islands and Canada. Cable and other
operators pay Southern a per-subscriber fee for this service, generally
pursuant to written service agreements, the expiration dates of which range
from 1996 to 2005. Cable television system operators serving approximately 37%
of the U.S. cable subscribers to whom the WTBS service was made available at
December 31, 1995, are served either on a non-contract basis or pursuant to
service agreements which expire in the next five years.  Approximately 25% of
the U.S. cable subscribers to whom WTBS was made available at December 31, 1995
received the service pursuant to a service agreement between Southern and SSI
which expires in 2001. Royal began distribution in Canada of the WTBS signal in
1991. Canadian agreements expire between 1996 and 2001. Southern provides the
WTBS signal to the U.S. and Canadian HSD markets for a per-subscriber fee
pursuant to program packager agreements, most of which terminate between 1998
and 2001. Southern also has agreements with DBS distributors including
Primestar Partners, in which TCIC has an interest, and with DirecTV, Inc.,
AlphaStar, EchoStar and Express Vu (Canadian).  Such agreements expire between
1997 and 1998.

        In connection with the TBS/Time Warner Merger, Time Warner has agreed
to acquire a 6-year option to purchase Southern (the "Southern Option"). Grant
of the Southern Option is conditioned upon the consummation of the TBS/Time
Warner Merger. For a more detailed description of the terms of the Southern
Option, see the description of the TBS/Time Warner Merger in "Entertainment and
Information" above.



                                      I-49
<PAGE>   52
         Competition-Southern. Although Southern is currently the sole
satellite carrier of WTBS, other independent television stations are
transmitted by other carriers. Southern does not have an agreement with TBS
with respect to the retransmission of the WTBS signal and there are no specific
statutory or regulatory restrictions that would prevent any satellite carrier
from transmitting the WTBS signal so long as the carrier meets the passive
carrier requirements of the Copyright Act, and any applicable requirements of
the Communications Act or, if the carrier serves HSD owners, so long as the
carrier meets the requirements of the Satellite Home Viewer Act of 1988 (the
"SHV Act"). Further, Southern has no control over the programming on such
stations. TBS produces and distributes other cable programming services,
including "TNT", a basic cable entertainment service, and TBS has and may be
expected to continue to give priority to the programming needs of such services
in allocating programming owned by it or to which it has national distribution
rights. Southern's business could be adversely affected by any change in the
type, mix or quality of the programming on WTBS that results in the service
being less desirable to cable operators and their subscribers. TBS derives
significant revenues from the sale of advertising time on WTBS, however, and
Liberty Media Group therefore believes that TBS has an economic incentive to
maintain the audience appeal of WTBS's programming.

         Regulation-Southern. Southern is subject to a number of FCC and
Copyright Act regulations. In addition to the copyright and licensing
requirements summarized below, Southern is subject to the Regulation of Program
Licensing adopted by the FCC under the 1992 Cable Act as summarized above in
the discussion under "Regulation-Programming Companies".

         Copyright Regulations. The Copyright Act provides cable television
operators with a compulsory copyright license for retransmission of broadcast
television programming without having to negotiate program rights with the
stations or individual copyright owners. However, see "-Regulation-Programming
Companies-Regulation of Carriage of Broadcast Stations" above regarding the
imposition of retransmission consent for broadcast stations. Therefore, cable
systems that carry distant broadcast signals, such as WTBS, must pay royalty
fees to the Register of Copyrights, the amount of which is based upon a formula
utilizing the amount of the system's semi-annual gross receipts and the number
and type of distant signals carried by the system. Any increases in the
required fees could adversely affect the competitive position of WTBS and
therefore, Southern. The Copyright Act empowers the Copyright Office to review
periodically and adjust copyright royalty rates based on inflation and/or
petitions for adjustments due to modifications of FCC rules. Further, the FCC
has recommended to Congress the abolition of the compulsory license for cable
television carriage of broadcast signals, a proposal that has received
substantial support from members of Congress. If the compulsory license is
abolished, a cable operator would not be permitted to retransmit WTBS unless
such cable operator reached a licensing agreement with the copyright owners or
licensees of the programming contained on the WTBS signal being retransmitted.





                                      I-50
<PAGE>   53
         Southern is not permitted to provide the WTBS signal to HSD owners
under the separate compulsory license extended to cable systems. Under
regulations adopted by the Copyright Office, satellite carriers such as
Southern are not "cable systems" within the meaning of the Copyright Act. In
1994 the United States Court of Appeals for the Eleventh Circuit upheld such
regulations in an action challenging their validity brought by Southern and
other satellite carriers, and the Supreme Court declined to review that
decision. Instead, Southern markets the WTBS signal through program packagers
to HSD owners. Pursuant to the SHV Act, Congress granted a compulsory copyright
license to satellite carriers retransmitting the broadcast signals of
"superstations", such as WTBS, and network stations to the public for private
home viewing. In 1994, Congress extended this license until December 31, 1999.
Pursuant to the provisions of the SHV Act, on May 1, 1992 the Copyright Royalty
Tribunal ("CRT") adopted an increase in the compulsory license fees for the HSD
market effective January 1, 1993, which Congress has extended through July 1,
1997, thus increasing Southern's copyright payment by 17%. New fees after July
1, 1997 will be determined either through negotiations with the copyright
owners of the signals being carried or, if no agreement can be reached, by an
arbitration panel conducted under the auspices of the Copyright Office. If the
license granted under the SHV Act is not further extended, satellite carriers
will be required to negotiate private licenses for the retransmission of
copyrighted material to HSD owners after 1999.

         Syndicated Exclusivity. The FCC's syndicated exclusivity rules, which
became effective January 1, 1990, require cable systems with more than 1,000
subscribers to delete programming from distant broadcast signals if exclusive
local broadcast rights to such programming have been purchased by a television
station which broadcasts in the locale of the cable system and such station
requests the cable system to "black out" such programming. These rules could
lead to cable operators dropping distant broadcast signals from their systems
because of the administrative difficulty of providing for the blackout and
because the service may be less attractive to subscribers if a material portion
of its programming were blacked out. Although such rules could therefore result
in additional channels becoming available for certain of the Programming
Companies' services, they could have an adverse effect on Southern's business
if WTBS were to carry a material amount of programming subject to deletion. TBS
has stated that it is programming WTBS to avoid blackouts and that, because it
has a reasonable basis for believing that deletions of its programming will not
be required, it is offering, as permitted by the FCC, to indemnify cable
operators that carry WTBS in order to ensure that its programming is not
blacked out. However, Southern cannot control TBS's programming decisions with
respect to WTBS.

         FCC Licensing. Satellite carriers, including carriers like Southern
that lease transponders from others rather than owning a satellite, may provide
their services as a private carrier and/or as a common carrier. Common carriers
are required, pursuant to the Communications Act, to provide services on terms
and conditions that are just, reasonable and non-discriminatory. The FCC does
not set the rates charged by non-dominant common carriers. However, the United
States Court of Appeals for the District of Columbia Circuit has invalidated
the FCC's permissive de-tariffing rules for non-dominant common carriers in
AT&T Co. v. FCC and its streamlined range rate tariff filing rules for such
carriers in Southwestern Bell Corp. v. FCC. Consequently, even non-dominant
carriers are required to file tariffs pursuant to the FCC's rules. Private
carriers are subject to a lesser degree of regulation by the FCC. The Copyright
Act exempts any carrier from liability for copyright infringement in delivering
television broadcast signals to cable television systems if it meets the
passive carrier requirements of the Copyright Act.





                                      I-51
<PAGE>   54
         MacNeil/Lehrer Productions.  In January 1995, Liberty Media Group
acquired a 66 2/3% general partnership interest in MacNeil/Lehrer Productions
("MLP"). MLP is the primary producer of the "MacNeil/Lehrer News Hour" on PBS
and a producer of other high-quality documentary and public affairs
programming. Liberty is attempting to increase the level of production at MLP
by finding new markets for MLP documentary and public affairs programming.
These markets may include cable, as well as broadcast networks, on line
services and CD-ROM applications.

         Americana Television Productions, LLC.  Americana Television
Productions ("ATP") was formed in February 1995 to produce and distribute
television shows for the cable, satellite and broadcast markets. ATP also
produces home video and audio products. ATP's video library was originally
developed for the Americana Television Network, which ceased operations in
December 1994. Such library includes nearly 600 hours of original programming
highlighting traditional music, people and crafts which are uniquely American.

         Asian Television and Communications International, LLC ("ATCL").  ATCL
was established in 1993 to participate in the burgeoning media markets in Asia.
ATCL has three divisions: (1) Consulting, which provides strategic assistance
as well as market research to media companies interested in entering the Asian
markets; (2) Hardware, which is one of four licensed distributors of General
Instrument Corporation products in the People's Republic of China ("PRC"); and
(3) Programming, which licenses exclusive and non-exclusive TV programs in the
PRC, Taiwan, Singapore, Hong Kong and India.  In addition, the programming
division works on advertising time-TV program barter projects in the PRC.

         GENERAL

         Legislative, administrative and/or judicial action may change all or
portions of the foregoing statements relating to competition and regulation.

         The Company has not expended material amounts during the last three
fiscal years on research and development activities.

         There is no one customer or affiliated group of customers to whom
sales are made in an amount which exceeds 10% of the Company's consolidated
revenue.

         Compliance with Federal, state and local provisions which have been
enacted or adopted regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, results of operations or competitive
position of the Company.

         At December 31, 1995, the Company had approximately 39,000 employees,
the majority of which are employees of TCI Communications, Inc. Of these
employees, approximately 850 were located in its corporate headquarters and
most of the balance were located at the Company's various facilities in the
communities in which the Company owns and/or operates cable television systems
or programming services.

(d)      Financial Information about Foreign & Domestic Operations and Export
         Sales

         The Company has neither material foreign operations nor export sales.


                                      I-52
<PAGE>   55
Item 2.  Properties.

         The Company owns its executive offices in a suburb of Denver,
Colorado.  It leases most of its regional and local operating offices.  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 programming subsidiaries generally own their
production and transmitting equipment and facilities.

         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.

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:

         On September 30, 1994, an action captioned The Carter Revocable Trust
by H. Allen Carter and Sharlynn Carter as Trustee v. Tele-Communications, Inc.;
IR-Daniels Partners III; Daniels Ventures, Inc.; Cablevision Equities IV;
Daniels & Associates, Inc.; and John V. Saeman, 94-N-2253, was filed in the
United States District Court for the District of Colorado.  The suit alleges
that all the defendants violated disclosure requirements under the Securities
Exchange Act of 1934, and that defendants IR-Daniels Partners III (now known as
IR-TCI Partners III), Daniels Ventures, Inc. (now known as TCI Ventures, Inc.)
and Daniels & Associates, Inc. (now known as TCI Cablevision Associates, Inc.
or "D&A") breached a fiduciary duty to plaintiff and other limited partners of
American Cable TV Investors 3 (the "ACT 3 Partnership"), in connection with (i)
the sale to TCI Communications, Inc. of ACT 3 Partnership's ownership interest
in the Redlands System and (ii) the sale to affiliates of TCIC of ACT 3
Partnership's ownership interests in other cable television systems (the "ACT 3
Transactions").

         Plaintiff brings this action on behalf of himself and purports to
bring it as a class action on behalf of all persons who were limited partners
of the ACT 3 Partnership as of the close of business on October 1, 1993 and who
had their proxies solicited by the defendants in connection with the ACT 3
Transactions that allegedly "resulted in the dissolution of the ACT 3
Partnership and the loss of their limited partnership interests."

         Plaintiff seeks unspecified damages that allegedly include, but are
not limited to (i) the difference between the value of ACT 3 Partnership's
interest in the Redlands System (as a percentage of the appraised value of that
system as determined by a 1992 appraisal) and the amount paid by TCIC for the
ACT 3 Partnership's interest in the Redlands System, plus the amount of a fee
paid to D&A, and (ii) the difference between the fair market value of the
limited partnership interests owned by members of a putative class and value
received by members of the putative class pursuant to the ACT 3 Transactions.
Plaintiff also seeks interest and consequential damages.

         Plaintiffs moved for class certification which was granted by the
Court on November 3, 1995.  Factual discovery in this case is complete.  The
case is not currently set for trial, but there is a pre-trial conference
scheduled for April 9, 1996.  Defendants will be filing a Motion for Summary
Judgment within the scheduling deadlines ordered by the Court.  Management of
the Company 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-53
<PAGE>   56
         On September 30, 1994, an action captioned WEBBCO v.
Tele-Communications, Inc.; IR-Daniels Partners II; Daniels Ventures, Inc.;
Cablevision Equities III; Daniels & Associates, Inc.; and John V. Saeman,
94-N-2254, was filed in the United States District Court for the District of
Colorado.  The suit alleges that all the defendants violated disclosure
requirements under the Securities Exchange Act of 1934, and that defendants
IR-Daniels Partners II (now known as IR-TCI Partners II), Daniels Ventures,
Inc. (now known as TCI Ventures, Inc.) and D&A breached a fiduciary duty to
plaintiff and other limited partners of American Cable TV Investors 2 (the "ACT
2 Partnership"), in connection with the sale to TCIC of ACT 2 Partnership's
ownership interest in the Redlands System (the "ACT 2 Transaction").

         Plaintiff brings this action on behalf of himself and purports to
bring it as a class action on behalf of all persons who were limited partners
of the ACT 2 Partnership as of the close of business on October 1, 1993 and who
had their proxies solicited by the defendants in connection with the ACT 2
Transaction that allegedly "resulted in the dissolution of the ACT 2
Partnership and the loss of their limited partnership interests."

         Plaintiff seeks unspecified damages that allegedly include, but are
not limited to (i) the difference between the value of ACT 2 Partnership's
interest in the Redlands System (as a percentage of the appraised value of that
system as determined by a 1992 appraisal) and the amount paid by TCIC for ACT 2
Partnership's interest in the Redlands System, plus the amount of a fee paid to
D&A, and (ii) the difference between the fair market value of the limited
partnership interests owned by members of a putative class and value received
by members of the putative class pursuant to the ACT 2 Transaction.  Plaintiff
also seeks interest and consequential damages.

         Plaintiffs moved for class certification which was granted by the
Court on November 3, 1995.  Factual discovery in this case is complete.  The
case is not currently set for trial, but there is pre-trial conference
scheduled for April 9, 1996.  Defendants will be filing a Motion for Summary
Judgment within the scheduling deadlines ordered by the Court.  Management of
the Company 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.

         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 the Company.





                                      I-54
<PAGE>   57
         QVC Shareholders Litigation.  In July 1994, eight putative class
action lawsuits were filed by certain shareholders of the company in the
Delaware Court of Chancery on behalf of unspecified classes of holders of QVC
common stock.  On August 3, 1994, these actions were consolidated under the
caption In re QVC Shareholders Litigation, Consolidated Civil Action No. 13590
(Court of Chancery, New Castle County, State of Delaware) (the "Consolidated
Action").  The defendants named in the designated complaint in the Consolidated
Action included QVC and its then directors (Barry Diller, Bruce R. Ramer, Linda
J Wachner, William F. Costello, J. Bruce Llewellyn, Brian L. Roberts, Ralph J.
Roberts and Joseph M. Segal).  In their designated complaint in the
Consolidated Action, plaintiffs alleged, among other things, that the QVC
directors breached their fiduciary duties by failing to take all possible steps
to seek out and encourage the best offer for QVC following the announcement by
Comcast of a merger proposal to acquire QVC.  Plaintiffs sought, among other
things, an injunction ordering the defendants to auction QVC and an award of
unspecified damages to the members of the plaintiff class.  On July 22, 1994,
Comcast and Liberty made a merger proposal to QVC in order to acquire the
remaining shares of QVC common stock that Comcast and Liberty collectively did
not already own.

         During early August 1994, counsel for the plaintiffs in the
Consolidated Action advised counsel for Liberty that they were preparing to
amend the designated complaint to name Comcast and Liberty as defendants.  On
August 3-4, 1994, plaintiffs' counsel negotiated with counsel for Liberty with
respect to a proposed increase in the consideration to be paid to QVC's public
shareholders as well as the accelerated payment of such consideration, as bases
for the possible settlement of the Consolidated Action.  On August 5,
plaintiffs, defendants, Comcast and Liberty executed a memorandum of
understanding which contemplates the settlement and dismissal with prejudice of
the Consolidated Action.  On August 4, 1994, Comcast, Liberty, QVC Programming
Holdings, Inc. and the Company executed a merger agreement which, among other
things, reflected the parties' agreement to the terms and transactions
contemplated by the memorandum of understanding.  On August 19, 1994, as
contemplated by the memorandum of understanding, plaintiffs filed a
consolidated amended class action complaint with the Delaware Court of Chancery
against QVC, the company's directors, Comcast and Liberty.

         The proposed settlement of the Consolidated Action is subject to
numerous conditions set forth in the memorandum of understanding and, if
approved by the Delaware Court of Chancery, would result in a dismissal with
prejudice of the Consolidated Action, and a complete release of all claims,
known or unknown, arising out of or related to the acts, transactions or
occurrences that are alleged in the Consolidated Action.  Defendants in the
Consolidated Action have entered into the memorandum of understanding and are
proposing to enter into the stipulation of settlement for the Consolidated
Action solely because the proposed settlement would eliminate the distraction,
burden and expense of the litigation.  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-55
<PAGE>   58
         In re Liberty Media Corporation Shareholders Litigation, Cons. C.A.
No. 13168 (Del. Ch.).  In October 1993, after the announcement that Liberty
would recombine with TCI through the mergers of TCIC and Liberty with
subsidiaries of a newly formed holding company, seven putative class action
lawsuits were filed by Liberty stockholders in the Court of Chancery of the
State of Delaware (the "Delaware Chancery Court") on behalf of unspecified
classes of the holders of Liberty common stock (other than defendants).  The
original defendants included certain directors of Liberty (Bob Magness, John C.
Malone, Peter R. Barton, H.F. Lenfest, Robert L. Johnson and Paul A. Gould),
Liberty and TCI.  These actions were consolidated by the Delaware Chancery
Court on October 27, 1993 under the caption In re Liberty Media Corporation
Shareholder Litigation, Cons. C.A. No. 13168 (the "Liberty Stockholder
Action").  On December 21, 1994, plaintiffs were permitted by the Delaware
Chancery Court to file a second consolidated amended complaint against the
defendants named in the pending complaint and Liberty directors David Wargo and
David Rapley.  The pending complaint is on behalf of a putative class
consisting of all holders of Liberty common stock (except the defendants and
their affiliates) from and after October 7, 1993 through the date of the
TCI/Liberty Combination.  Plaintiffs allege that the Liberty stockholders
received inadequate consideration in the TCI/Liberty Combination, that the
defendants impeded the ability of third parties to seek to acquire Liberty, and
that the defendants failed to conduct an auction or market check following the
announcement of the proposed TCI/Liberty Combination.  Plaintiffs seek to
rescind the TCI/Liberty Combination, to require defendants to take all
appropriate steps to enhance Liberty's value as an acquisition candidate, to
account to the plaintiff class for all profits obtained by defendants, and to
require defendants to pay unspecified damages to the plaintiff class.  The case
remains pending before the Delaware Chancery Court.  Discovery has commenced in
the action.  Management of the Company believes that plaintiffs' complaint is
without merit, and intends to contest vigorously the plaintiffs' allegations.
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.

         Cooper, et al. v. UCTC of Baltimore, Inc., et al.  On October 24,
1994, plaintiffs, three current employees of United Cable Television of
Baltimore Limited Partnership and two spouses of such current employees, filed
suit in the Circuit Court for Baltimore City against UCTC of Baltimore, Inc.,
United Cable Television of Baltimore Limited Partnership, TCI East, Inc. and
Tele-Communications, Inc.  The suit alleges, inter alia, eight various tort
claims, including assault, false imprisonment, intentional infliction of
emotional distress, invasion of privacy by intrusion, invasion of privacy by
false light, defamation by slander, defamation by libel and loss of consortium
in connection with an incident that occurred October 26, 1993, at the Baltimore
system.  Each plaintiff seeks $1,000,000 compensatory damages and $5,000,000
punitive damages per count.  The loss of consortium claim is limited to four of
the five plaintiffs.  On November 1, 1994, plaintiffs also filed an action in
United States District Court for the District of Maryland alleging
discrimination on the basis of race in violation of 42 U.S.C. Section 1981 and
loss of consortium.  Both counts sought $1,000,000 in compensatory damages and
$5,000,000 in punitive damages for each plaintiff (the loss of consortium claim
is limited to four of the five plaintiffs).  On January 6, 1995, the parties
stipulated to the dismissal of the case without prejudice, which dismissal the
Court approved on January 9, 1995.  A Motion to Dismiss was filed in the state
court action and the Court dismissed plaintiffs' claims for intentional
infliction of emotional distress, false light and privacy violations without
prejudice and granted plaintiffs' leave to amend the complaint.  Discovery is
currently ongoing and trial is scheduled to commence October 21, 1996.  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-56
<PAGE>   59
         Miles Whittenburg, Jr., et al., v. Tele-Communications, Inc., et al.
On April 9, 1994, plaintiffs, six current employees of United Cable Television
of Baltimore Limited Partnership and four spouses, filed suit in the Circuit
Court for Baltimore City against Tele-Communications, Inc., TCI East, Inc.,
UCTC of Baltimore, Inc., and United Cable Television of Baltimore Limited
Partnership.  The suit alleges, inter alia, nine various tort claims, including
but not limited to, false imprisonment, assault, battery, intentional
infliction of emotional distress, invasion of privacy by intrusion, invasion of
privacy by false light, defamation by slander, defamation by libel, and loss of
consortium in connection with an incident that occurred October 26, 1993, at
the Baltimore system.  Each of the nine counts in the complaint seek
compensatory damages of $1,000,000 per plaintiff, and punitive damages of
$5,000,000 per plaintiff.  On October 24, 1994, plaintiffs also filed in the
United States District Court for the District of Maryland, a lawsuit containing
claims of discrimination on the basis of race in violation of 42 U.S.C. Section
1981 and loss of consortium.  Both counts sought compensatory damages of
$1,000,000 per plaintiff and punitive damages of $5,000,000 per plaintiff.  The
loss of consortium claims apply to eight of the plaintiffs.  On January 6,
1995, the parties stipulated to the dismissal of the case without prejudice,
which dismissal the Court approved on January 9, 1995.  The Company intends to
contest the state court case.  Discovery is currently ongoing and trial is
scheduled to commence October 21, 1996.  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.

         Elmer Lewis v. Tele-Communications, Inc., et al.  On June 23, 1994,
plaintiff filed suit in the United States District Court for the District of
Maryland against Tele-Communications, Inc., TCI East, Inc., UCTC of Baltimore,
Inc.  and United Cable Television of Baltimore Limited Partnership.  On August
2, 1994, the suit was consolidated for all purposes with Tyrone Belgrave, et
al. v. Tele-Communications, Inc. et al.  The suit alleges, inter alia, false
imprisonment, assault, employment defamation, intentional infliction of
emotional distress, unreasonable intrusion upon seclusion, invasion of privacy
by false light, wrongful discharge and discrimination on the basis of race.
The complaint also seeks divestiture of the Baltimore City cable franchise from
the Company.  Each of the ten counts in the complaint seek compensatory damages
of $1,000,000 and punitive damages of $5,000,000.  In a decision dated October
3, 1994, the Court granted defendants' motion to dismiss the intentional
infliction of emotional distress, unreasonable intrusion upon seclusion,
invasion of privacy by false light, wrongful discharge and violation of cable
franchise agreement claims.  On February 4, 1995, the federal court dismissed
the federal claims without prejudice and remanded the remaining state claims to
Circuit Court for Baltimore City.  On February 14, 1995, Lewis and his spouse
filed an amended complaint in Circuit Court for Baltimore City against the
current defendants (the amended complaint was consolidated with the Belgrave
and Fannell plaintiffs).  Lewis alleges assault, civil conspiracy to commit
assault, battery, civil conspiracy to commit battery, false imprisonment, civil
conspiracy to commit false imprisonment, intentional infliction of emotional
distress, civil conspiracy to intentionally inflict emotional distress,
invasion of privacy by intrusion, civil conspiracy to commit invasion of
privacy by intrusion, defamation, civil conspiracy to defame, invasion of
privacy by false light, and civil conspiracy to commit invasion of privacy by
false light.  Lewis and his spouse also allege loss of consortium.  Each claim
seeks $1,000,000 in compensatory damages and $5,000,000 in punitive damages per
plaintiff.  The Company intends to contest the case.  Motions to Dismiss were
filed in this consolidated action and the Court entered an Order dismissing
plaintiffs' claims for intentional infliction of emotional distress and
wrongful discharge without prejudice and granted plaintiffs' leave to amend
their complaint.  Discovery is currently ongoing and trial is scheduled to
commence October 21, 1996.  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-57
<PAGE>   60
         Tyrone Belgrave, et al., v. Tele-Communications, Inc., et al.  On
February 8, 1994, Tyrone Belgrave and 26 other current or former employees of
United Cable Television of Baltimore Limited Partnership filed suit in the
Circuit Court for Baltimore City against Tele-Communications, Inc., TCI East,
Inc., UCTC of Baltimore, Inc., and United Cable Television of Baltimore Limited
Partnership.  The action alleges, inter alia, false imprisonment, assault,
employment defamation, intentional infliction of emotional distress,
unreasonable intrusion upon seclusion, invasion of privacy by false light,
wrongful discharge and discrimination on the basis of race.  The complaint also
seeks divestiture of the Baltimore City cable franchise from the Company.  Six
counts in the complaint each seek compensatory damages of $1,000,000 per
plaintiff, and punitive damages of $5,000,000 per plaintiff.  Three other
counts in the complaint each seek compensatory damages for $1,000,000 per
plaintiff and punitive damages of $5,000,000 per plaintiff.  On March 29, 1994,
the defendants removed the case to the United States District Court for the
District of Maryland.  In a decision dated October 3, 1994, the Court granted
defendants motion to dismiss the intentional infliction of emotional distress,
unreasonable intrusion upon seclusion, invasion of privacy by false light,
wrongful discharge and violation of cable franchise agreement claims.  On
February 9, 1995, the federal court dismissed the federal claims without
prejudice and remanded the remaining state claims to the Circuit Court for
Baltimore City.  On February 14, 1995, 37 persons (the 27 original plaintiffs
and 10 spouses of plaintiffs) filed an amended complaint in Circuit Court for
Baltimore City against the current defendants.  (The amended complaint was
consolidated with the Lewis and Fannell plaintiffs).  The 27 existing
plaintiffs allege assault, civil conspiracy to commit assault, battery, civil
conspiracy to commit battery, false imprisonment, civil conspiracy to commit
false imprisonment, intentional infliction of emotional distress, civil
conspiracy to intentionally inflict emotional distress, invasion of privacy by
intrusion, civil conspiracy to commit invasion of privacy by intrusion,
defamation, civil conspiracy to defame, invasion of privacy by false light, and
civil conspiracy to commit invasion of privacy by false light.  Ten existing
plaintiffs and their spouses allege loss on consortium.  Ten existing
plaintiffs also allege wrongful discharge and civil conspiracy to wrongfully
terminate.  Each claim seeks $1,000,000 in compensatory damages and $5,000,000
in punitive damages per plaintiff.  The Company intends to contest the case.
Motions to Dismiss were filed in this consolidated action and the Court entered
an Order dismissing plaintiffs' claims for intentional infliction of emotional
distress and wrongful discharge without prejudice and granted plaintiffs' leave
to amend their complaint.  Discovery is currently ongoing and trial is
scheduled to commence October 21, 1996.  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-58
<PAGE>   61
         Viacom International, Inc. v. Tele-Communications, Inc., Liberty Media
Corporation, Satellite Services, Inc., Encore Media Corporation, NetLink USA,
Comcast Corporation, and QVC Network, Inc.  This suit was filed on September
23, 1993 in the United States District Court for the Southern District of New
York, and the complaint was amended on November 9, 1993.  The amended complaint
alleges that the Company violated the antitrust laws of the United States and
the State of New York, violated the 1992 Cable Act, breached an affiliation
agreement, and tortiously interfered with the Viacom Inc. - Paramount
Communications, Inc. ("Paramount") merger agreement and with plaintiff's
prospective business advantage.  The amended complaint further alleges that
even if plaintiff is ultimately successful in its bid to acquire Paramount, its
competitive position will still be diminished because the Company, through
Liberty, will have forced plaintiff to expend additional financial resources to
consummate the acquisition.  Plaintiff is seeking permanent injunctive relief
and actual and punitive or treble damages of an undisclosed amount.  Plaintiff
claims that the Company, along with Liberty, has conspired to use its monopoly
power in cable television markets to weaken unaffiliated programmers and deny
access to essential facilities necessary for distributing programming to cable
television systems.  Plaintiff also alleges that the Company has conspired to
deny essential technology necessary for distributing programming to owners of
home satellite dishes.  Plaintiff claims that the Company is engaging in these
alleged conspiracies in an attempt to monopolize alleged national markets for
non-broadcast television programming and distribution.  On October 11, 1994,
the United States District Court granted Tele-Communications, Inc. and the
other defendants' motion for partial summary judgment and dismissed Viacom's $2
billion damage claim alleging that defendants tortiously interfered with its
contract to merge with Paramount and with the prospective business advantage
Viacom claimed it had in seeking to merge with Paramount.  The Court also held
that the $2 billion difference between plaintiff's cost to acquire Paramount
under its original proposed merger agreement with Paramount and the costs it
finally incurred when plaintiff acquired Paramount pursuant to a merger
agreement entered into after an auction, was not incurred as a result of an
antitrust injury and could not be asserted as a discreet element of Viacom's
damage even if Viacom was ultimately successful in proving any or all of its
antitrust claims.  Viacom has also voluntarily dismissed its claims that the
defendants violated Section 7 of the Clayton Act and that certain of the
defendants breached the affiliation agreement they had with Viacom.  On January
20, 1995, the parties entered into a settlement agreement under which this
action is to be dismissed with prejudice contemporaneously with the first
closing of the sale of certain cable systems pursuant to the Tele-Vue
Agreement.  The Stipulation of Discontinuance with Prejudice has been executed
by the parties and is being held in escrow pending the first closing described
above.  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-59
<PAGE>   62
         Euan Fannell v. Tele-Communications, Inc., et al.  On February 8,
1994, Euan Fannell, the former general manager of UCTC of Baltimore, Inc. filed
suit in the Circuit Court for Baltimore City against Tele-Communications, Inc.,
TCI East, Inc., UCTC of Baltimore, Inc., and United Cable Television of
Baltimore Limited Partnership.  The suit alleges, inter alia, employment
defamation, intentional infliction of emotional distress, unreasonable
intrusion upon seclusion, invasion of privacy by false light, breach of
contract, and discrimination on the basis of race.  The complaint also seeks
divestiture of the Baltimore City cable franchise of the Company.  The
plaintiff seeks $10,000,000 in compensatory damages and $50,000,000 in punitive
damages with respect to the intentional infliction of emotional distress claim;
and $10,000,000 in compensatory damages and $50,000,000 in punitive damages
with respect to each of five other counts.  On March 29, 1994, the defendants
removed the case to the United States District Court for the District of
Maryland and the case was subsequently consolidated with the Belgrave case.  In
a decision dated November 15, 1994, the federal court dismissed plaintiffs'
intentional infliction of emotional distress, unreasonable intrusion upon
seclusion, invasion of privacy by false light, and violation of cable franchise
agreement claims.  On February 9, 1995, the federal court dismissed the federal
claims without prejudice and remanded the remaining state claims to the Circuit
Court for Baltimore City.  On February 14, 1995, plaintiff filed an amended
complaint in Circuit Court for Baltimore City against the current defendants.
The amended action alleges intentional infliction of emotional distress, civil
conspiracy to intentionally inflict emotional distress, invasion of privacy by
intrusion, civil conspiracy to commit invasion of privacy by intrusion,
defamation, civil conspiracy to defame, invasion of privacy by false light,
civil conspiracy to commit invasion of privacy by false light, wrongful
discharge, civil conspiracy to wrongfully terminate, and breach of contract.
With respect to all claims other than breach of contract, plaintiff seeks
$1,000,000 in compensatory damages and $5,000,000 in punitive damages.  With
respect to the breach of contract claim, plaintiff seeks $100,000 plus
prejudgment interest.  The Company intends to contest the case. Motions to
Dismiss were filed in this consolidated action and the Court entered an Order
dismissing plaintiffs' claims for intentional infliction of emotional distress
and wrongful discharge without prejudice and granted plaintiffs' leave to amend
their complaint.  Discovery is currently ongoing and trial is scheduled to
commence October 21, 1996.  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-60
<PAGE>   63
         Leonie Palumbo, et al. v. Tele-Communications, Inc., et al.  On
February 8, 1994, Leonie Palumbo, a former employee of TCI East, Inc., filed a
class action suit in the United States District Court for the District of
Columbia against Tele-Communications, Inc., John Malone, and J.C. Sparkman.
The action alleges, on behalf of a class of past, present and future black
employees of the Company, and all past, present and future black applicants for
employment with the Company, discrimination on the basis of race.  The
complaint seeks unspecified compensation and punitive damages as well as
injunctive relief for these violations.  On June 22, 1994, defendants moved to
disqualify plaintiffs' counsel on the ground that during the time period
relevant to the case, plaintiffs' lead counsel had an ownership interest and
fiduciary responsibilities relating to United Cable Television of Baltimore
Limited Partnership, one of the cable systems whose policies and practices are
under attack.  Plaintiffs' lead counsel was a member of the board of UCTC of
Baltimore, Inc., the general partner of United Cable Television of Baltimore
Limited Partnership.  By Order dated August 30, 1994, the Court granted
Defendants' Motion and gave plaintiffs 60 days to find substitute counsel.  At
a status conference on April 26, 1995, the Court dismissed the action without
prejudice, with the understanding that plaintiffs would have six months to
reinstitute the case with new counsel and that defendants would not raise any
objection to plaintiffs' reopening the case within the six month period in the
event that new counsel was retained.  The six month period has expired and no
substitute counsel has surfaced for plaintiffs.  Accordingly, this case will
not be reported in future filings.

         Les Dunnaville v. United Artists Cable, et al.  On February 9, 1994,
Les Dunnaville and Jay Sharrieff, former employees of United Cable Television
of Baltimore Limited Partnership, filed an amended complaint in the Circuit
Court for Baltimore City against United Cable Television of Baltimore Limited
Partnership, TCI Cablevision of Maryland, Tele-Communications, Inc. and three
company employees, Roy Harbert, Tony Peduto, and Richard Bushie (the suit was
initially filed on December 3, 1993, but the parties agreed on December 30,
1993 that no responsive pleading would be due pending filing of an amended
complaint).  The action alleges, inter alia, intentional interference with
contract, tortious interference with prospective advantage, defamation, false
light, invasion of privacy, intentional infliction of emotional distress, civil
conspiracy, violation of Maryland's Fair Employment Practices Act, and
respondeat superior with respect to the individual defendants.  Six counts in
the complaint each seek compensatory damages of $1,000,000 and punitive damages
of $1,000,000; the intentional infliction of emotional distress count seeks
compensatory damages of $1,000,000 and punitive damages of $2,000,000; and the
count which alleges violation of Maryland's Fair Employment Practices Act seeks
damages of $500,000.  By order dated May 18, 1994, the Court dismissed the
respondeat superior claim.  Defendants filed Motions for Summary Judgment in
December 1995 and January 1996 on all remaining counts of plaintiffs'
complaint.  The Court granted Summary judgment in the defendant's favor on
March 15, 1996. Unless an appeal is filed within 45 days, the case will be
closed.  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-61
<PAGE>   64
         Tony Jeffreys, et al v. Tele-Communications, Inc. et al.  On February
7, 1995, Tony Jeffreys and 41 current and former employees of United Cable
Television of Baltimore Limited Partnership filed a complaint in Circuit Court
for Baltimore City against Tele-Communications, Inc., UCT of Baltimore, Inc.,
United Cable Television of Baltimore Limited Partnership, UCTC of Baltimore,
Inc. and TCI East, Inc.  With two exceptions, these plaintiffs are also parties
to identical claims asserted in the amended complaints filed on February 14,
1994 in the previously described Belgrave, Fannell and Lewis actions.  The
action alleges, in part, that the defendants engaged U.S. Corporate
Investigations, Inc.  and Blackburn Associates and conspired to illegally
terminate the employment of management personnel and employees of the Baltimore
system which culminated in the October 26, 1993, incident described in earlier
reports.  Plaintiffs seek damages in connection with their claims of assault,
civil conspiracy to commit assault, battery, civil conspiracy to commit
battery, false imprisonment, civil conspiracy to commit false imprisonment,
intentional infliction of emotional distress, civil conspiracy to intentionally
inflict emotional distress, invasion of privacy by intrusion, civil conspiracy
to commit invasion of privacy by intrusion, defamation as to plaintiff Fannell,
defamation as to all plaintiffs except Fannell, civil conspiracy to defame,
invasion of privacy by false light, civil conspiracy to commit invasion of
privacy by false light, wrongful discharge, civil conspiracy to wrongfully
terminate, breach of contract as to plaintiff Fannell, and loss of consortium.
Each count seeks $1,000,000 in compensatory damages and $5,000,000 in punitive
damages per plaintiff.  The Company intends to contest this action.  Motions to
Dismiss were filed in this consolidated action and the Court entered an Order
dismissing plaintiffs' claims for intentional infliction of emotional distress
and wrongful discharge without prejudice and granted plaintiffs' leave to amend
their complaint.  Discovery is currently ongoing and trial is scheduled to
commence October 21, 1996.  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.

         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 seek compensatory damages of $2,500,000 and
punitive damages of $25,000,000; one count seeks compensatory damages of
$2,500,000 and punitive damages of $40,000,000; and two counts each seek
compensatory damages of $20,000,000 and punitive damages of $40,000,000.  The
Company intends to contest this action.  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-62
<PAGE>   65
         Louis Beverly v. Tele-Communications, Inc., et al.  On July 27, 1995,
Louis Beverly, a former employee of United Cable Television of Baltimore
Limited Partnership filed a complaint in United States District Court for the
District of Maryland against Tele-Communications, Inc., United Artists Cable of
Baltimore, Inc., United Cable Television of Baltimore Limited Partnership, UCTC
of Baltimore, Inc., and TCI East, Inc.  The plaintiff alleges, in part, that
his termination on September 11, 1987, was the result of racial discrimination.
Plaintiff filed five counts, including race discrimination (Title VII),
violation of 42 USC 1981, defamation, invasion of privacy (false light), and
assault and battery.  Each count seeks $3,000,000 in compensatory and
$6,000,000 in punitive damages, an award of all bonuses and other compensation
lost due to defendants' actions as well as attorneys' fees, costs, and
pre-judgment interest.  On February 14, 1996, the Court granted defendants'
Motion dismissing Tele-Communications, Inc., and TCI East, Inc. as parties,
along with various counts asserted by the plaintiffs including 42 USC 1981,
defamation, invasion of privacy, and assault and battery.  United Artists Cable
of Baltimore was also dismissed from the Title VII claim for race
discrimination.  Currently, the only damages available to plaintiff are those
which existed prior to the amendment to the Civil Rights Act of 1991.  As the
case currently stands, the remaining defendants are faced with one count
without exposure to punitive damages.  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.

         Turner Broadcasting Systems, Inc. Shareholder Litigation  Following
the announcement of the proposed merger (the "TBS-Time Warner Merger") between
Turner Broadcasting Systems, Inc. ("TBS") and Time Warner, Inc. ("Time Warner")
several purported class action lawsuits were filed by TBS shareholders in
Fulton County Superior Court, Georgia.  On November 1, 1995, plaintiffs in
thirteen of the cases filed a second amended class action Complaint in what
will be a consolidated action styled Lewis v. TBS, Inc. C.A. No. B-41500.  The
defendants include, among others, Tele-Communications, Inc., John Malone,
Peter Barton and Fred Vierra.  The claims and defendants in the actions other
than the Lewis action are substantially the same as set forth in the second
amended complaint in the Lewis action.  Plaintiffs allege in the second amended
complaint in the Lewis action that defendants have injured the public
stockholders of TBS in conjunction with the TBS-Time Warner Merger proposal by
(a) misrepresenting the extent to which defendants Time Warner, TCI, John
Malone and R.E. Turner ("Turner") have acted for their own benefit and not for
the benefit of TBS or its stockholders, (b) failing to adequately disclose the
full nature and value of special considerations granted to TCI and Turner in
connection with the TBS-Time Warner Merger proposal, (c) failing to engage in
arms' length bargaining or give any consideration to maximizing TBS stockholder
value, (d) proposing to provide the public holders of TBS stock with unfair
consideration in the TBS-Time Warner Merger, and (e) seeking to entrench
certain of the TBS officers and directors.  Plaintiffs in the Lewis action seek
to enjoin the consummation of the TBS-Time Warner Merger, enjoin the transfer
of any assets to TCI in connection with the TBS-Time Warner Merger, or to
rescind the TBS-Time Warner Merger or transfer of assets if such acts are
consummated.  Plaintiffs also seek unspecified compensatory and punitive
damages.  All of the cases remain pending before the Superior Court in Georgia.
On December 20, 1995, the TCI defendants filed an answer to the second amended
complaint in the Lewis action denying plaintiffs' charges and raising several
affirmative defenses.  Discovery has not commenced in any of the actions.
Based upon the facts available, management believes that, although no assurance
can be given as to the outcome of these actions, the ultimate disposition
should not have a material adverse effect upon the financial condition of the
Company.





                                      I-63
<PAGE>   66
         Time Warner Stockholder Litigation.  In November 1995, two derivative
action lawsuits on behalf of and for the benefit of Time Warner, Inc. were
filed in 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., 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. Troubh, 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. Parson.  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.
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 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.
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.

         Clarence L. Elder, both individually and as the group Representative
vs. Tele-Communications, Inc. et al.  On December 18, 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.  Plaintiff claims entitlement to compensatory damages in excess
of $70,000,000 plus punitive damages in excess of $450,000,000.  Plaintiff
asserts claims for:  breach of contract; negligent misrepresentation;
negligence; unjust enrichment; conversion; fraud; and breach of fiduciary duty.
The Company intends to contest this action.  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.

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

         None.





                                      I-64

<PAGE>   67
                                    PART II.

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

         On August 3, 1995, the shareholders of Tele-Communications, Inc.
("TCI" or the "Company") authorized the Board of Directors (the "Board") of TCI
to issue a new class of stock ("Liberty Group Stock") which is intended to
reflect the separate performance of TCI's business which produces and
distributes cable television programming services ("Liberty Media Group").
While the Liberty Group Stock constitutes common stock of TCI, the issuance of
the Liberty Group Stock did not result in any transfer of assets or liabilities
of TCI or any of its subsidiaries or affect the rights of holders of TCI's or
any of its subsidiaries' debt.  On August 10, 1995, TCI distributed one hundred
percent of the equity value attributable to Liberty Media Group (the
"Distribution") to its security holders of record on August 4, 1995.
Additionally, the stockholders of TCI approved the redesignation of the
previously authorized TCI Class A and Class B common stock into Series A TCI
Group and Series B TCI Group common stock ("TCI Group Stock").  The TCI Group
Stock is intended to reflect the performance of those businesses of the Company
not attributed to Liberty Media Group.

         Prior to the Distribution, shares of TCI's Class A and Class B common
stock were traded on the Nasdaq National Market under the symbols TCOMA and
TCOMB, respectively.  Subsequent to the Distribution, shares of Series A and
Series B TCI Group Stock and Series A and Series B Liberty Group Stock are
traded on the Nasdaq National Market under the symbols TCOMA, TCOMB, LBTYA and
LBTYB, respectively.  The following table sets forth the range of high and low
sales prices of shares of common stock of TCI and its predecessor, TCI
Communications, Inc., 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.  TCI Communications, Inc. and Liberty Media
Corporation became wholly-owned subsidiaries of Tele-Communications, Inc. on
August 4, 1994.

<TABLE>
<CAPTION>
         Tele-Communications, Inc.
         -------------------------                               Class A                   Class B     
                                                             ----------------         -----------------
                                                             High         Low         High          Low
                                                             ----         ---         ----          ---
         <S>                                               <C>          <C>          <C>          <C>
         1994:
         ---- 
         First quarter                                      30-1/4       20-3/8       32-3/4       22
         Second quarter                                     23-3/8       18-1/4       24-3/4       21-1/4
         Third quarter                                      23-7/8       19-3/4       25-3/4       21-1/4
         Fourth quarter                                     25           20-1/4       25-3/4       21-1/2

         1995:
         -----
         First quarter                                      23-3/4       19-7/8       25           20-3/4
         Second quarter                                     24-1/2       17-1/4       24           18-1/4
         Third quarter (through
            the Distribution)                               26-1/4       22-5/8       26-1/4       22-1/4

<CAPTION>
         TCI Group Stock
         ---------------                                         Series A                  Series B     
                                                             ----------------         -----------------
                                                             High         Low         High          Low
                                                             ----         ---         ----          ---
         <S>                                                <C>          <C>          <C>          <C>
         1995:
         -----
         Third quarter (from the 
            Distribution through
            September 30, 1995)                             20           16-7/8       20           17-1/2
         Fourth quarter                                     21-1/4       16-5/8       21-1/4       16-3/4

<CAPTION>
         Liberty Group Stock                                       
         -------------------                                     Series A                  Series B     
                                                             ----------------         -----------------
                                                             High         Low         High          Low
                                                             ----         ---         ----          ---
         <S>                                                <C>          <C>          <C>          <C>
         1995:
         -----
         Third quarter (from the 
            Distribution through
            September 30, 1995                              28           23-1/2       29-1/2       24-1/4
         Fourth quarter                                     28-1/8       22-7/8       29           24
</TABLE>





                                     II-1
<PAGE>   68
         As of January 31, 1996, there were 6,339 holders of record of Series A
TCI Group Stock, 409 holders of record of Series B TCI Group Stock, 5,786
holders of record of Series A Liberty Group Stock and 395 holders of record of
Series B Liberty Group Stock (which amounts do not include the number of
shareholders whose shares are held of record by brokerage houses but include
each brokerage house as one shareholder).

         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 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.
The amount of net assets of subsidiaries subject to such restrictions exceeds
the Company's consolidated net assets.  For further discussion of such
restrictions, see the Tele-Communications, Inc. Management's Discussion and
Analysis of Financial Condition and Results of Operations.

Item 6.  Selected Financial Data.

         The following tables present selected 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.

<TABLE>
<CAPTION>
                                                                         December 31,                        
                                                --------------------------------------------------------------
                                                1995         1994(a)       1993(a)        1992(a)      1991(a)
                                                ----         -------       -------        -------      -------
                                                                       amounts in millions
<S>                                        <C>                <C>          <C>            <C>          <C>
Summary Balance Sheet Data:
-------------------------- 

Property and equipment, net                $      7,026        5,876        4,935          4,562        4,081

Franchise costs, net                       $     12,230        9,444        9,197          9,300        8,104

Net assets of discontinued
   operations                              $         --           --           --             --          242

Total assets                               $     25,130       19,276       16,527         16,315       15,169

Debt                                       $     13,211       11,162        9,900         10,285        9,455

Redeemable preferred stock                 $        478          170           18            110          115

Stockholders' equity                       $      4,550        2,655        2,116          1,728        1,571

Common shares outstanding
   (net of treasury shares):
      Class A common stock                           --          491          403            382          370
      Class B common stock                           --           85           47             48           49
      Series A TCI Group Stock                      572           --           --             --           --
      Series B TCI Group Stock                       85           --           --             --           --
      Series A Liberty Group
         Stock                                      143           --           --             --           --
      Series B Liberty Group
         Stock                                       21           --           --             --           --
                                                                                                  (continued)
</TABLE>





                                      II-2
<PAGE>   69
<TABLE>
<CAPTION>
                                                                   Years ended December 31,                 
                                                --------------------------------------------------------------
                                                  1995         1994(a)        1993(a)     1992(a)      1991(a)
                                                -------        -------        -------     -------      ------- 
                                                          amounts in millions, except per share data
<S>                                             <C>            <C>            <C>         <C>          <C>
Summary Statement of
--------------------
 Operations Data:
 --------------- 

Revenue                                         $ 6,851         4,936          4,153       3,574        3,214

Operating income                                $   542           788            916         864          674

Earnings (loss) from:
   Continuing operations                        $  (171)           62             (5)          8          (77)
   Discontinued operations                           --            --             --         (15)         (19)
                                                -------        ------         ------      ------       ------ 
                                                   (171)           62             (5)         (7)         (96)
Dividend requirement on
   preferred stocks                                 (34)           (8)            (2)        (15)          --
                                                -------        ------         ------      ------       ------

Net earnings (loss) attributable
   to common stockholders                       $  (205)           54             (7)        (22)         (96)
                                                =======        ======         ======      ======       ====== 

Net earnings (loss) attributable
   to common stockholders:
      TCI Class A and Class B
         common stock                           $   (71)(b)        54             (7)        (22)         (96)
      TCI Group Stock                              (107)(c)        --             --          --           --
      Liberty Group Stock                           (27)(c)        --             --          --           --
                                                -------        ------         ------      ------       ------
                                                $  (205)           54             (7)        (22)         (96)
                                                =======        ======         ======      ======       ======
Primary earnings (loss) from
   continuing operations
   attributable to common
   stockholders per common
   and common equivalent
   share:
      TCI Class A and Class B                   $  (.11)(b)       .10           (.02)       (.01)        (.22)
         common stock
      TCI Group Stock                           $  (.16)(c)        --             --          --           --
      Liberty Group Stock                       $  (.16)(c)        --             --          --           --

Weighted average common
   and common equivalent
   shares outstanding:
      TCI Class A and Class B
         common stock                               648 (b)       541            433         424          360
      TCI Group Stock                               656 (c)        --             --          --           --
      Liberty Group Stock                           164 (c)        --             --          --           --
</TABLE>

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

         (a)     Restated - see notes 5 and 6 to the Tele-Communications, Inc.
                 consolidated financial statements included in Part II of this
                 report.

         (b)     From January 1, 1995 through the date of the Distribution.

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



                                      II-3

<PAGE>   70
     The following tables present selected information relating to the
financial condition and results of operations of Liberty Media Group for the
past three years. The following data should be read in conjunction with Liberty
Media Group's combined financial statements.

<TABLE>
<CAPTION>
                                                                   December 31,        
                                                          ---------------------------  
                                                          1995       1994(a)   1993(a) 
                                                          ----       -------   -------  
                                                             amounts in millions       
Summary Balance Sheet Data:                                                            
---------------------------
<S>                                                    <C>          <C>       <C>
Investments in affiliates, accounted for under  
  the equity method, and related receivables           $   299        279       237

Investment in Turner Broadcasting
  Systems, Inc.                                        $   945        654       487

Other investments, at cost                             $   111        103       235

Total assets                                           $ 2,518      2,188     1,738

Debt                                                   $   251         93       150

Combined equity                                        $ 1,613      1,518     1,188

</TABLE>

<TABLE>
<CAPTION>
                                                            Years ended December 31,        
                                                          ---------------------------  
                                                          1995       1994(a)   1993(a) 
                                                          ----       -------   -------  
                                                             amounts in millions       
Summary Statement of
--------------------
 Operations Data:
 ----------------
<S>                                                    <C>         <C>       <C>
Revenue                                                $ 1,540      1,483     1,207

Cost of goods sold, operating, selling, general
  and administrative expenses, including
  amounts to TCI                                       $(1,536)    (1,402)   (1,171)

Depreciation and amortization                          $   (98)       (49)      (40)

Operating income (loss)                                $  (111)        31        (4)

Interest expense, including amounts to TCI             $   (19)       (13)      (12)

Dividend and interest income, primarily                
  from affiliates                                      S    12         20        23

Share of earnings (losses) of affiliates, net          $   (15)        31        27

Net earnings (loss)                                    $   (56)       135        30

</TABLE>

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

     (a)     Restated - see note 4 to the Liberty Media Group combined 
             financial statements included in Part II of this report. 







                                       II-4
<PAGE>   71
     The following tables present selected information relating to the financial
condition and results of operations of TCI Group for the past three years.  The
following data should be read in conjunction with TCI Group's combined
financial statements.

<TABLE>
<CAPTION>
                                                               December 31,        
                                                      --------------------------   
                                                      1995      1994(a)    1993(a) 
                                                      ----      -------    -------  
Summary Balance Sheet Data:                              amounts in millions
---------------------------
<S>                                                  <C>         <C>       <C>
Property and equipment, net                          $  6,822    5,682     5,007

Franchise cost, net                                  $ 12,230    9,444     9,334

Total assets                                         $ 22,612   17,121    15,648

Debt                                                 $ 12,960   11,068    10,010

Redeemable preferred stock                           $    478      168        18

Combined equity                                      $  2,936    1,137     1,150

</TABLE>

<TABLE>
<CAPTION>
                                                       Years ended December 31,        
                                                      --------------------------   
                                                      1995      1994(a)    1993(a) 
                                                      ----      ------     ------  
                                                         amounts in millions

Summary Statement of 
--------------------
 Operations Data:
 ----------------
<S>                                                  <C>         <C>       <C>
Revenue                                              $  5,384    4,269     4,090

Operating, selling, gereral and administrative       $ (3,457)  (2,480)   (2,251)

Depreciation and amortization                        $ (1,274)  (1,001)     (920)

Operating income                                     $    653      788       919

Interest expense                                     $   (993)    (786)     (735)

Dividend and interest income, primarily                      
  from affiliates                                    $     43       23        20

Share of losses of affiliates, net                   $   (178)    (117)      (66)

Loss before earnings (loss) of Liberty Media                  
  Group through the date of Distribution             $   (115)     (22)      (33)

Earnings (loss) of Liberty Media Group
  through the date of Distribution                   $    (29)     135        30
                                                     --------  -------   -------

Net earnings (loss)                                      (144)     133        (3)

Dividend requirement on preferred stocks                  (34)     (14)      (12)
                                                     --------  -------   -------
Net earnings (loss) attributable to
  common stockholders                                $  (178)       99       (15)
                                                     =======   =======   =======
</TABLE>

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

     (a)     Restated - see note 13 to the TCI Group combined financial
             statements included in Part II of this report.








                                     II-5
<PAGE>   72
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations.

         TELE-COMMUNICATIONS, INC.

         Summary of Operations

         As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty Media Corporation
("Liberty") entered into a definitive merger agreement to combine the two
companies (the "TCI/Liberty Combination").  The transaction was consummated on
August 4, 1994 and was structured as a tax free exchange of Class A and Class B
shares of both companies and preferred stock of Liberty for like shares of a
newly formed holding company, TCI/Liberty Holding Company.  In connection with
the TCI/Liberty Combination, Old TCI changed its name to TCI Communications,
Inc. ("TCIC") and TCI/Liberty Holding Company changed its name to
Tele-Communications, Inc. ("TCI" or the "Company").

         During the fourth quarter of 1994, the Company was reorganized (the
"Reorganization") based upon four lines of business:  Domestic Cable and
Communications; Programming; International Cable and Programming ("TINTA"); and
Technology/Venture Capital.  The Company reorganized its structure to provide
for financial and operational independence in the four operating units, each
under the direction of its own chief executive officer, while maintaining the
synergies and scale economies provided by a common corporate parent.  While
neither the International Cable and Programming unit nor the Technology/Venture
Capital unit is currently significant to the Company as a whole, the Company
believes each unit has growth potential and each unit is unique enough in
nature to warrant separate operational focus.

         On August 3, 1995, the shareholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue a new class of stock ("Liberty Group
Stock") which is intended to reflect the separate performance of TCI's business
which produces and distributes cable television programming services ("Liberty
Media Group").  While the Liberty Group Stock constitutes common stock of TCI,
the issuance of the Liberty Group Stock did not result in any transfer of
assets or liabilities of TCI or any of its subsidiaries or affect the rights of
holders of TCI's or any of its subsidiaries' debt.  On August 10, 1995, TCI
distributed one hundred percent of the equity value attributable to Liberty
Media Group (the "Distribution") to its security holders of record on August 4,
1995.  Additionally, the stockholders of TCI approved the redesignation of the
previously authorized TCI Class A and Class B common stock into Series A TCI
Group and Series B TCI Group common stock ("TCI Group Stock").  The TCI Group
Stock is intended to reflect the performance of those businesses of the Company
not attributed to Liberty Media Group.  Such businesses are referred to herein
as "TCI Group".  Liberty Media Group and TCI Group are sometimes herein after
referred to individually as a "Group".

         Subsequent to consummation of the TCI/Liberty Combination, the Company
operates principally in two industry segments: cable and communications
services and programming services.  Home shopping is a programming service
which includes a retail function.  Separate amounts for the aforementioned home
shopping services have been provided to enhance the readers understanding of
the Company.  The Technology/Venture Capital and the International Cable and
Programming portions of the Company's business have been included with cable
and communications services due to their relative insignificance.  The amounts
provided for the Company's programming services segment represent the results
of Liberty Media Group since the date of the TCI/Liberty Combination.  The
tables below set forth for the periods presented, the percentage relationship
that certain items bear to revenue.  This summary provides trend data relating
to the normal recurring operations of the Company.  Other items of significance
are discussed under separate captions below.





                                      II-6
<PAGE>   73
<TABLE>
<CAPTION>
                                                                  Years ended December 31,           
                                            ------------------------------------------------------------------------
                                                   1995                    1994                   1993        
                                            -----------------         ------------------       ---------------------
                                                         amounts in millions, except for percentages
<S>                                         <C>       <C>            <C>         <C>            <C>          <C>
Cable and Communications Services:
----------------------------------

   Revenue                                  100%      $ 5,384         100%       $ 4,247        100%         $ 4,153

   Operating costs and expenses before
       depreciation and amortization          64        3,457           58         2,474          56           2,326

   Depreciation and amortization              24        1,274           23           992          22             911
                                            ----      -------         ----       -------       -----         -------

         Operating income                     12%     $   653           19%      $   781          22%        $   916
                                            ====      =======         ====       =======       =====         =======

Programming Services:
-------------------- 

   Electronic Retailing Services:

      Net sales                              100%     $ 1,019          100%      $   482          --         $    --

      Cost of sales                           69          702           65           313          --              --

      Operating costs and expenses before
         depreciation and amortization        35          359           30           145          --              --

      Depreciation and amortization            4           43            3            15          --              --
                                            ----      -------         ----       -------       -----         -------

         Operating income (loss)              (8)%    $   (85)           2%      $     9          --         $    --
                                            ====      =======         ====       =======       =====         =======

   Other Programming Services:

      Revenue                                100%     $   521         100%       $   240          --         $    --

      Operating costs and expenses before
         depreciation and amortization        94          492          96            231          --              --

      Depreciation and amortization           11           55           5             11          --              --
                                            ----      -------         ----       -------       -----         -------

            Operating loss                    (5)%    $   (26)         (1)%      $    (2)         --         $    --
                                            ====      =======         ====       =======       =====         =======

Eliminations
------------
   Revenue                                   100%     $   (73)        100%       $   (33)         --         $    --

   Operating costs and expenses before                                              
      depreciation and amortization         (100)         (73)       (100)           (33)         --              --
                                            ----      -------         ----       -------       -----         -------

         Operating income                     --%     $    --           --%      $    --          --%        $    --
                                            ====      =======         ====       =======       =====         =======

Tele-Communications, Inc. Consolidated:
-------------------------------------- 

   Revenue                                   100%     $ 6,851         100%       $ 4,936         100%        $ 4,153

   Cost of sales                              10          702           6            313          --              --

   Operating costs and expenses before
      depreciation and amortization           62        4,235          57          2,817          56           2,326

   Depreciation and amortization              20        1,372          21          1,018          22             911
                                            ----      -------         ----       -------       -----         -------

         Operating income                      8%     $   542          16%      $    788          22%        $   916
                                            ====      =======         ====       =======       =====         =======
</TABLE>

                                                                    




                                      II-7
<PAGE>   74
         Cable and Communications Services

         On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and
1994, the Federal Communications Commission ("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.  The regulations established benchmark rates in 1993 which were
further reduced in 1994, to which the rates charged by cable operators for
Regulated Services were required to conform.

         The FCC also allowed cable operators to justify rates under "cost of
service" rules, which allow "high cost" systems to establish rates in excess of
the benchmark level.  The FCC's interim cost of service rules allowed a cable
operator to recover through rates for regulated cable services its normal
operating expenses plus a rate of return equal to 11.25 percent on the rate
base.  However, the FCC significantly limited the inclusion in the rate base of
acquisition costs in excess of the book value of tangible assets.  As a result,
the Company pursued cost of service justifications in only a few cases.  On
December 15, 1995, the FCC adopted slightly more favorable cost of service
rules.

        The regulations also provide mechanisms for adjusting rates when
regulated tiers are affected by channel additions or deletions.  Additional
programming costs resulting from channel additions can be accorded the same
external treatment as other program costs increases, and cable operators
presently are permitted to recover a mark-up on their programming expenses.
Under one option, operators are allowed a flat ($.20) fee increase per channel
added to an existing cable programming services tier ("CPST"), with an aggregate
cap on such increases ($1.20) plus a license fee reserve ($.30) through 1996.
In 1997, an additional flat ($.20) fee increase will be available, and the
license fees for additional channels and for increases in existing channels will
no longer be subject to the aggregate cap.  This optional approach for adding
services is scheduled to expire on December 31, 1997.

         The Company reduced its rates in 1993 and 1994 and limited its rate
increases in 1995 in response to FCC regulations.  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, or by the appropriate franchise authority, if such authority has been
certified.  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.

        On October 30, 1995, the FCC accepted for comment a proposed resolution
of all complaints against the CPST currently pending against cable systems owned
by the Company.  If the proposed resolution is accepted by the FCC, the Company
will settle all pending complaints by a one-time credit to each subscriber in
CPST regulated franchises.  The aggregate amount of such credits is
approximately $9 million and had previously been accrued by the Company.  In
addition, the FCC will find that the CPST rates in CPST regulated franchises on
September 15, 1995 comply with federal regulations.  The Company has committed
not to file any additional cost-of-service filings until May 15, 1996 in
franchises that were subject to CPST regulation prior to September 15, 1995.
However, the Company will be able to avail itself of the other mechanisms under
FCC rules to recover costs, including abbreviated cost-of-service filings
covering system rebuilds and upgrades.  In the proposed resolution, the Company
does not admit any violation of, or any failure to conform to, the 1992 Cable
Act or the rules promulgated thereunder.  The comment period has ended and the
Company is awaiting final action by the FCC.





                                      II-8
<PAGE>   75
         On February 8, 1996, the Telecommunications Act of 1996 (the "1996
Telecom Act") was signed into law.  Because the 1996 Telecom Act does not
deregulate CPST rates until 1999 (and basic service tier rates will remain
regulated thereafter), the Company believes that the 1993 and 1994 rate
regulations have had and will continue to have a material adverse effect on its
results of operations.

         Revenue from Cable and Communications increased 26% from 1994 to 1995.
Such increase is due to the effect of certain acquisitions (13%), growth in the
Company's satellite subscribers (4%), increases in the rates charged to the
Company's subscribers from inflation increases, the provision of new channels
and increases in equipment costs (4%), growth in subscriber levels within the
Company's cable television systems (4%) and an increase in the Company's long-
distance voice and data service revenue (1%).

         Revenue increased 2% from 1993 to 1994.  Such increase was the result
of the TCI/Liberty Combination in August of 1994 (1%), growth in subscriber
levels within the Company's cable television systems (5%), the effect of
certain other acquisitions (2%) and certain new services (1%), net of a
decrease in revenue (4%) due to rate reductions required by rate regulation
implemented pursuant to the 1992 Cable Act and a decrease in revenue (3%) due
to the transfer of Netlink USA ("Netlink") to the Programming unit in the
Reorganization.  Netlink's operations were included in Cable and Communications
Services in 1993, but have been reflected in Programming Services for all of
1994 and 1995.  In the second half of 1994, as a result of the FCC revision of
its rate regulations which reduced benchmark rates, the Company experienced an
additional decrease, in excess of that which was incurred in 1993, in the price
charged for its Regulated Services.

         Included in the Company's revenue from cable operations of $5,105
million, $4,203 million and $4,098 million for the years ended December 31,
1995, 1994 and 1993, respectively, is $5,038 million, $4,177 million and $4,098
million attributable to TCIC and $67 million, $26 million and $0 attributable
to other cable operations.

         Operating costs and expenses before depreciation and amortization
increased 40% for the year ended December 31, 1995.  Exclusive of the affects
of acquisitions (13%) and Primestar (7%) (see discussion below), such expenses
increased 20%.  Programming expenses accounted for the majority of such
increase.  In this regard, programming expenses represented $1,251 million
(36%), $903 million (36%) and $740 million (32%) of operating costs and
expenses before depreciation and amortization during 1995, 1994 and 1993,
respectively.  The Company cannot determine whether and to what extent
increases in the cost of programming will affect its future operating costs.
However, such programming costs have increased at a greater percentage than
increases in revenue of Regulated Services.  The Company will experience an 
increase in programming costs in the first five months of 1996 without 
increasing its rates charged to its customers at that time.  In June of 1996, 
the Company will be entitled to an increase in its service rates for increased 
programming costs and inflation.  FCC regulations provide for the Company to 
further increase its rates by an additional amount intended to recover 
increased programming costs incurred during the first five months of 1996 and
not previously recovered, as well as interest on said amounts.

        During 1995, the Company changed its approach to how it ordered and
stored excess cable distribution equipment.  The Company created material
support centers and consolidated all of its excess inventory.  In conjunction
with this change, the Company incurred $5 million of costs.  Additionally,
during 1995, the Company incurred approximately $22 million in expenses related
to initiatives to improve its customer service, to begin the redesign of its
computer and accounting systems and to promote and market the Company's 
products. During the fourth quarter of 1995, the Company incurred $25 million 
in expenses related to payment of bonuses to the majority of its employees.

         The Company has an investment in a direct broadcast satellite
partnership, Primestar Partners ("Primestar").  Primestar provides programming
and marketing support to each of its cable partners who then provide satellite
service to their customers.  During 1995, the Company's revenue and expenses
related to such satellite service have increased significantly as the number of
the Company's Primestar subscribers increased from approximately 100,000
subscribers at January 1, 1995 to approximately 550,000 subscribers at December
31, 1995.  During the year ended December 31, 1995, revenue increased from $30
million to $207 million and operating, selling, general and administrative
expenses increased from $18 million to $197 million, as compared to the year
ended December 31, 1994.  The Company incurs significant sales commissions and
installation costs when customers initially subscribe.  Therefore, as long
as the Company continues to launch this new service and increase its Primestar
subscriber base at such a rapid pace, management expects operating costs and
expenses will increase as well.





                                      II-9
<PAGE>   76
         Operating costs and expenses before depreciation and amortization
increased 6% for the year ended December 31, 1994 compared to the corresponding
period of 1993.  The consolidation of Liberty resulted in an increase of $18
million in operating, selling, general and administrative expenses from
Liberty's cable television systems. In 1993, the Company incurred certain
one-time direct charges relating to the implementation of the FCC rate
regulations.


         The increase in the Company's depreciation expense in 1995 is due to
acquisitions, as well as increased capital expenditures due to a program to
upgrade and install optical fiber technology in the Company's cable systems.
The systems, which facilitate digital transmission of voice, video and data
signals, will have optical fiber to neighborhood nodes with coaxial cable
distribution downstream from that point.  The increase in amortization expense
in 1995 is due to acquisitions.

         The Company records compensation relating to stock appreciation rights
and restricted stock awards granted to certain employees.  Such compensation 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.

         Electronic Retailing Services

         This information reflects the results of Home Shopping Network, Inc.
("HSN"), which became a consolidated subsidiary of the Company in the
TCI/Liberty Combination.  HSN's primary business is the sale of merchandise to
viewers of the home shopping programming produced and distributed by Home
Shopping Club, Inc. ("HSC"), a wholly-owned subsidiary of HSN.

         During the year ended December 31, 1995, HSN's net sales increased
from $482 million to $1,019 million.  Such increase is due to the consolidation
of HSN in August of 1994 in connection with the TCI/Liberty Combination.
However, on an annualized basis, HSN's net sales decreased approximately 10%.
Such annualized decrease is the net affect of a 19% decease in the number of
packages shipped, partially offset by a 9% increase on the average price per
unit sold.

         In September 1994, HSN appointed new management personnel to institute
procedures intended to improve purchasing and other merchandising practices.
Their strategies included offering a greater variety of products, developing
strong private label lines, selling higher margin items and offering name brand
and other high quality merchandise.  These efforts were aimed at long-term
improvements in sales by attracting new customers and increasing the frequency
of repeat purchases.  However, the impact of these strategies was to adversely
affect sales during 1995.

         Since June 5, 1995, HSN has operated two full-time networks renamed
HSN, the primary network, and Spree!.  On August 5, 1995, HSN relaunched the
HSN network with more scheduled programs and theme related shows, new sets,
graphics and music.  During the third quarter of 1995, HSN relaunched the
Spree! network with a more spontaneous format, new graphics and music.  These
changes were designed to eliminate programming redundancies, distinguish the
networks and reach a broader range of potential customers.

         Management of HSN also instituted promotional programs to help
increase sales, including a national advertising campaign and a "no interest --
no payments" credit promotion through February 1996 for certain purchases made
during the third and fourth quarters of 1995 using HSN's private label credit
card.  Although the credit promotion program was successful, its effect was not
enough to offset the decline in sales discussed above.

         Additionally, $4 million of the restructuring charges for the year
ended December 31, 1995, represents HSN management's estimate of costs to be
incurred in connection with the closing of HSN's Reno, Nevada, distribution
center, which was accomplished in June 1995. The decision to close the Reno
distribution center was based on an evaluation of HSN's overall distribution
strategy. Management of HSN believes that consolidation of HSN's distribution
facilities will result in better operating efficiencies and improved service
to customers.



                                      II-10
<PAGE>   77
         HSN's cost of sales increased from $313 million to $702 million during
1995.  As a percent of sales, cost of sales increased from 65% in 1994 to 69%
in 1995.  The increase in the cost of sales percentages primarily relate to
warehouse sales and other promotional events.  Such events included price
discounts to (i) facilitate the restructuring of HSN's distribution center,
(ii) make room for new holiday merchandise and (iii) adjust inventory levels
and product mix.  In addition, cost of sales for the year ended December 31,
1995 includes a $12 million increase in HSC's inventory carrying value
adjustment related to products which are inconsistent with HSN's new sales and
merchandise philosophy.

         HSN believes that future levels of net sales of HSC will be dependent,
in large part, on program carriage, market penetration and merchandising
management.  Program carriage is defined as the number of cable systems and
broadcast television stations that carry HSC programming.  Market penetration
represents the level of active purchasers within a market.

         Cable television systems and affiliated broadcast television stations
broadcast HSC programming under affiliation agreements with varying original
terms.  HSN seeks to increase the number of cable television systems and
broadcast television stations that televise HSC programming while evaluating
the expected profitability of each contract.

         HSN believes that seasonality does impact its business, but not to the
same extent it impacts the retail industry in general.

         On November 27, 1995, the Company announced that it had agreed to
exchange its controlling interest in HSN for shares of Silver King
Communications, Inc. ("Silver King").  The Company will receive approximately
11 million newly issued shares of Silver King in exchange for its 37.5 million
shares of HSN.

         Liberty Media Group and Mr. Barry Diller and certain of their
respective affiliates entered into an agreement in August 1995 pursuant to
which an option owned by Liberty Media Group to purchase 2 million shares of
Silver King Class B common stock (the "Option") (which shares would constitute
voting control of Silver King) would be transferred to Silver Management
Company ("Silver Company"), an entity in which Liberty Media Group would own
all of the non-voting equity interests (which would constitute substantially
all of the equity of such entity) and Mr. Diller would own all of the voting
equity interests.  Silver Company would thereafter exercise the Option and hold
the shares of Silver King Class B Common Stock purchased thereunder.  In an
amendment to such agreement entered into in November 1995, Liberty Media Group
agreed to contribute all of its shares of HSN (which shares constitute
approximately 41% of the equity of HSN and approximately 90% of the voting
power of HSN) to Silver Company in return for additional non-voting equity
interests in Silver Company.  Following such contribution, Silver Company would
exchange such HSN shares with Silver King for additional shares of Silver King
Common Stock and Class B Common Stock (thereby increasing Silver Company's
controlling interest in Silver King to in excess of 80% of the voting power of
Silver King).  Each such transaction is subject to the satisfaction of certain
conditions, including the receipt of all necessary regulatory consents and
approvals.  If consummated, HSN would cease to be a subsidiary of the Company
and therefore, the financial results of HSN would not be consolidated with the
financial results of Liberty Media Group.  Although the Company would cease to
possess voting control over HSN, it would continue to have an indirect equity
interest in HSN through its ownership of the equity securities of Silver
Company.  No assurance can be given that the transaction will be consummated.





                                      II-11
<PAGE>   78
         Other Programming Services

         Revenue from the Company's Other Programming Services increased $281
million or 117% from 1994 to 1995, and operating costs and expenses before
depreciation and amortization increased $261 million or 113%.  Such increases
are primarily due to the TCI/Liberty Combination.

         Revenue of TCI's consolidated entertainment and information
programming services represented $240 million of total consolidated revenue for
1994.  This revenue was attributable to subscription and advertising revenue at
TCI's consolidated sports programming businesses ($91 million), revenue from
Netlink, a marketer and distributor of programming to the United States home
satellite dish subscriber market ($132 million) and subscription revenue
generated by Southern Satellite Systems, Inc. ("Southern") and Encore Media
Corporation ("Encore") ($17 million).

         On October 31, 1995, Liberty Media Group announced that it had entered
into a binding agreement in principle with The News Corporation Limited ("News
Corp.") and TINTA.  In the United States, Liberty Media Group and News Corp.
agreed to form a partnership (the "Fox-Liberty Venture") into which Liberty
Media Group will contribute interests in its national and regional sports
networks and into which News Corp. will contribute its fx cable network and
certain other assets.  Upon consummation, Liberty Media Group will receive a 50%
interest in the Fox-Liberty Venture and $350 million in cash.  The fx Network
will be transformed into a nationally distributed, general entertainment and
sports network.  The regional sports networks currently operated under the Prime
Sports name will be relaunched under the Fox Sports banner.

        Internationally, News Corp., and a 50/50 partnership formed by Liberty
Sports, a wholly owned subsidiary of Liberty Media Group, and TINTA (the
"Liberty-TINTA Partnership") have agreed to form a venture to operate currently
existing sports services in Asia, Latin American and Australia and a variety of
new sports services throughout the world except in the United Kingdom, Japan
and New Zealand where prior arrangements preclude an immediate collaboration.
The Liberty-TINTA Partnership will own 50% of the international venture with
News Corp. owning the other 50%.  News Corp. is contributing various
international sports rights, including the Star Sports channel which is
broadcast throughout Asia as part of the Star package of services.  The
Liberty-TINTA Partnership is contributing Prime Deportiva, a Spanish language
sports service distributed in Latin America and in Hispanic markets in the
United States, an interest in Torneos y Competencias S.A., an Argentinean
sports programming and production business, various international sports and
satellite transponder rights and cash.  The Liberty-TINTA Partnership will also
contribute their 50% interest in Premiere Sports and All-Star Sports in
Australia.  Both are 24-hour sports services available via MMDS or cable
television in Australia.


         The closing of the formation of both the US Venture and the
International Venture is expected to occur during 1996.

         Other Income and Expense

         The Company's interest expense increased $225 million or 29% during
1995, as compared to 1994 and $54 million or 7% during 1994, as compared to
1993.  Such increases are the result of higher interest rates and debt
balances.  The Company's weighted average interest rate on borrowings was 8.1%,
7.5% and 7.2% during 1995, 1994 and 1993, respectively.





                                     II-12
<PAGE>   79
         The Company is a shareholder of TeleWest plc ("TeleWest"), a company
that is currently operating and constructing cable television and telephone
systems in the United Kingdom ("UK").  TeleWest, which is accounted for under
the equity method, had a carrying value at December 31, 1995 of $550 million
and comprised $70 million, $43 million and $28 million of the Company's share
of its affiliates' losses in 1995, 1994, and 1993, respectively.  In addition,
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 equity method investments had a carrying value of $354
million at December 31, 1995 and accounted for $62 million and $50 million of
the Company's share of its affiliates' losses in 1995 and 1994, respectively.

         TeleWest was formed during the fourth quarter of 1995 upon the merger
(the "TeleWest Merger") of TeleWest Communications plc (formerly TCI/US WEST
Cable Communications Group or "TeleWest UK") ("TeleWest Communications") with
SBC (CableComms)(UK).  Prior to the TeleWest Merger, the Company had an
effective ownership interest of approximately 36% in TeleWest Communications,
and subsequent to the TeleWest Merger the Company has an effective ownership
interest of approximately 27% in TeleWest.  As a result of the TeleWest Merger,
the Company recognized a gain of $165 million (before deducting the related tax
expense of $58 million).  Such gain represents the difference between the
Company's recorded cost for TeleWest Communications and the Company's effective
proportionate share of TeleWest's net assets.  There is no assurance that the
Company will realize similar gains in future periods.

         As a result of the TeleWest Communications November 1994 initial
public offering (the "TeleWest IPO") and the associated dilution of the
Company's ownership interest of TeleWest Communications, the Company recognized
a gain amounting to $161 million (before deducting the related tax expense of
$57 million) in 1994.

         TeleWest, which is currently constructing broadband cable television
and telephony networks in the UK, has incurred net losses since its inception.
Although there is no assurance, the Company believes (i) that the continued
expansion of TeleWest's networks ultimately will provide TeleWest with a
revenue base that will exceed its expenses and (ii) that TeleWest's present and
future sources of liquidity (including the net proceeds from the TeleWest IPO
and certain bank credit facilities) will be sufficient to meet TeleWest's
liquidity requirements for the foreseeable future.  The Company has no present
intention to make significant loans to or investments in TeleWest.

         During the year ended December 31, 1995, the Company recognized a gain
amounting to $123 million in connection with the sale to the public of 20
million shares of common stock (the "IPO") and the issuance of shares of common
stock for an investment in an Argentine programming entity (the "TYC
Acquisition") by TINTA.  There is no assurance that the Company will realize
similar gains in future periods.

         Effective February 9, 1995, QVC Programming Holdings, Inc. (the
"Purchaser"), a corporation jointly owned by Comcast Corporation and the
Company, was merged (the "QVC Merger") with and into QVC, Inc. ("QVC") with QVC
continuing as the surviving corporation.  The Company owns an approximate 43%
interest of the post-merger QVC.  Upon consummation of the QVC Merger, the
Company was deemed to exercise significant influence over QVC and, accordingly,
adopted the equity method of accounting for its investment in QVC.  The
accompanying 1994 financial statements have been restated to reflect such
change in accounting.  Such restatement resulted in an increase in the
Company's net earnings of $5 million for the year ended December 31, 1994.


                                     II-13
<PAGE>   80
         During 1995, BET Holdings, Inc. ("BET") repurchased a portion of its
own common stock.  As a result of the repurchase, the Company's ownership of
BET was increased from 19% to 22%.  Therefore, the Company is deemed to
exercise significant influence over BET and, has accordingly adopted the equity
method of accounting for its investment in BET.  The accompanying 1994 and 1993
financial statements have been restated to reflect such change in accounting.
Such restatement resulted in an increase in the Company's net earnings of $2
million for each of 1994 and 1993.

         On July 11, 1994, Rainbow Program Enterprise ("Rainbow") purchased
49.9% of Liberty's 50% general partnership interest in American Movie Classics
Company ("AMC").  The gain recognized by Liberty in connection with the
disposition of AMC was $183 million and is included in the Company's share of
Liberty's earnings prior to the TCI/Liberty Combination.

         Net Earnings (Loss)

         The Company's net loss (before preferred stock dividend requirements)
of $171 million for the year ended December 31, 1995 represented a decrease of
$233 million as compared to the Company's net earnings (before preferred stock
dividend requirements) of $62 million for 1994.  Such decrease is due primarily
to a decrease in operating income, a decrease in share of earnings of
affiliates (a significant portion of which results from the gain recognized in
1994 by Liberty upon the sale of its investment in AMC), and an increase in
interest expense partially offset by the recognition of a gain resulting from
the TINTA IPO.

         The Company's net earnings (before preferred stock dividend
requirements) of $62 million for the year ended December 31, 1994 represented
an increase of $67 million as compared to the Company's net loss (before
preferred stock dividend requirements) of $5 million for the corresponding
period of 1993.  Such increase is principally the result of the effect of
improved share of earnings from Liberty prior to the TCI/Liberty Combination
(principally resulting from the gain recognized by Liberty upon the sale of its
investment in AMC), the recognition of a gain resulting from the TeleWest IPO,
and the reduction in income tax expense (principally resulting from the
required recognition in the third quarter of 1993 of the cumulative effect of
the change in the Federal income tax rate from 34% to 35%), net of the effect
of the aforementioned reduction in rates charged for Regulated Services and the
decrease in gain on disposition of assets.

         Inflation has not had a significant impact on the Company's results of
operations during the three-year period ended December 31, 1995.


         Recent Accounting Pronouncements

         In March of 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of ("Statement No. 121"), effective for fiscal years beginning after
December 15, 1995.  Statement No. 121 requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount.  Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of.  The Company will adopt Statement No. 121 effective January 1, 1996.  The
effect of such adoption is not expected to be significant.





                                     II-14
<PAGE>   81
         Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No.  123") was issued by the FASB in
October 1995.  Statement No. 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.  The Company will include the disclosures required by
Statement No. 123 in the notes to future financial statements.

         Liquidity and Capital Resources

         During 1994, subsidiaries of the Company, Comcast Corporation
("Comcast"), Cox Communications, Inc. ("Cox" and together with the Company and
Comcast, the "Cable Partners") and Sprint Corporation ("Sprint") formed a
partnership ("WirelessCo") to engage in the business of providing wireless
communications services on a nationwide basis.  Through WirelessCo, in which
the Company owns an indirect 30% interest, the partners participated in
auctions ("PCS Auctions") of broadband personal communications services ("PCS")
licenses conducted by the FCC.  In the first round auction, which concluded
during the first quarter of 1995, WirelessCo was the winning bidder for PCS
licenses for 29 markets, including New York, San Francisco-Oakland-San Jose,
Detroit, Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and Miami-
Fort Lauderdale.  The aggregate license cost for these licenses was
approximately $2.1 billion.

         WirelessCo also invested in American PSC, L.P. ("APC"), which holds a
PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market.  WirelessCo acquired its 49% limited partnership
interest in APC for $23 million and agreed to make capital contributions to APC
equal to 49/51 of the cost of APC's PCS license.  Additional capital
contributions may be required in the event APC is unable to finance the full
cost of its PCS license.  WirelessCo may also be required to finance the
build-out expenditures for APC's PCS system.  Cox, which holds a pioneer
preference PCS license for the Los Angeles-San Diego market, and WirelessCo
have also agreed on the general terms and conditions upon which Cox (with a 51%
interest) and WirelessCo (with a 49% interest) would form a partnership to hold
and develop a PCS system using the Los Angeles-San Diego license.  APC and the
Cox partnership would affiliate their PCS systems with WirelessCo and be part
of WirelessCo's nationwide integrated network, offering wireless communications
services under the "Sprint" brand.

         During 1994, subsidiaries of Cox, Sprint and the Company also formed a
separate partnership ("PhillieCo"), in which the Company owns a 35.3% interest.
PhillieCo was the winning bidder in the first round auction for a PCS license
for the Philadelphia market at a license cost of $85 million.  To the extent
permitted by law, the PCS system to be constructed by PhillieCo would also be
affiliated with WirelessCo's nationwide network.

         WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful bidders.
The capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above, will
be substantial.


         In March of 1995, the Cable Partners and Sprint ( collectively, the
"Partners") formed two new partnerships, of which the principal partnership is
MajorCo, L.P. ("MajorCo"), to which they contributed their respective interests
in WirelessCo and through which they formed another partnership, NewTelco, L.P.
("New Telco") to engage in the business of providing local wireline
communications services to residences and businesses on a nationwide basis.
The Cable Partners agreed to contribute their interests in Teleport
Communications Group, Inc. and TCG Partners (collectively, "TCG") to NewTelco.
TCG is one of the largest competitive access providers in the United States in
terms of route miles.





                                     II-15
<PAGE>   82
         Effective January 31, 1996, the Partners amended the MajorCo
partnership agreement (the "Partnership Agreement") and certain other
agreements related thereto.  Under the Partnership Agreement, the business of
MajorCo and its subsidiaries will be the provision of certain wireless and
other services described in the Partnership Agreement.  The Partners intend for
WirelessCo and its subsidiary partnerships to be the exclusive vehicles through
which they engage in the wireless telephony service businesses, subject to
certain exceptions.  MajorCo will no longer be authorized to engage in the
business of providing local wireline communications services to residences and
businesses.  In connection with the amendment of the Partnership Agreement, the
Partners, also agreed to the termination of the agreement to contribute the
Cable Partners' interests in TCG to NewTelco.

         Pursuant to separate agreements, each of the Cable Partners and Sprint
have agreed to negotiate in good faith on a market-by-market basis for the
provision of local wireline telephony services over the cable television
facilities of the respective Cable Partner under the Sprint brand.  Accordingly,
local wireline telephony offerings in each market would be the subject of
individual agreements to be negotiated with Sprint, rather than being provided
by MajorCo, as originally contemplated.  The Cable Partners and Sprint also
reaffirmed their intention to continue to attempt to integrate the business of
TCG with that of MajorCo.  In addition, each Cable Partner agreed to certain
restrictions on its ability to offer, promote, or package certain of its
products or services with certain products and services of other persons and
agreed to make its facilities available to Sprint for specified purposes to the
extent and on the terms that it has made such facilities available to others
for such purposes.  Such agreements have a term of five years, but under
certain circumstances may terminate after three years.

         Execution of the foregoing agreements was a condition to the
effectiveness of a previously approved business plan for the build out of
WirelessCo's nationwide network for wireless personal communications services.
Pursuant to the business plan, the Partners are obligated to make additional
cash capital contributions to MajorCo in the aggregate amount of approximately
$1.9 billion during the two-year period that commenced January 1, 1996.  The
business plan contemplates that MajorCo will require additional equity
thereafter.

         As of January 26, 1995, TCI, TCIC, and TeleCable Corporation
("TeleCable") consummated a transaction whereby TeleCable was merged into TCIC
(the "TeleCable Merger").  The aggregate $1.6 billion purchase price was
satisfied by TCIC's assumption of approximately $300 million of TeleCable's net
liabilities and the issuance to TeleCable's shareholders of approximately 42
million shares of TCI Class A common stock and 1 million shares of TCI
Convertible Preferred stock, Series D (the "Series D Preferred Stock") with an
aggregate initial liquidation value of $300 million.  The Series D Preferred
Stock, which accrues dividends at a rate of 5.5% per annum, is convertible into
10 million shares of Series A TCI Group Stock and 2.5 million shares of Series
A Liberty Group Stock.  The Series D Preferred Stock is redeemable for cash at
the option of TCI after five years and at the option of either TCI or the
holder after ten years.

         On April 25, 1995, TINTA acquired a 51% ownership interest in
Cablevision S.A. and certain affiliated companies (collectively, "Cablevision")
for a purchase price of $282 million, before liabilities assumed.  The purchase
price was paid with cash consideration of $195 million and TINTA's issuance of
$87 million principal amount of secured negotiable promissory notes payable to
the selling shareholders.  TINTA has an option during the two-year period ended
April 25, 1997 to increase its ownership interest in Cablevision up to 80% at a
cost per subscriber similar to the initial purchase price, adjusted however for
certain fluctuations in applicable foreign currency exchange rates.





                                     II-16
<PAGE>   83
         In July 1995, TCIC and TCI, entered into certain agreements with
Viacom Inc. ("Viacom") and certain subsidiaries of Viacom regarding the
purchase by TCIC of all of the common stock of a subsidiary of Viacom ("Cable
Sub") which, at the time of purchase, will own Viacom's cable systems and
related assets.

         The transaction has been structured as a tax-free reorganization in
which Cable Sub will initially transfer 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 will also transfer to New Viacom Sub the
proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan
Facility") to be arranged by TCIC, TCI and Cable Sub.  Following these
transfers, Cable Sub will retain cable assets with an estimated value at
closing of approximately $2.2 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility.  Repayment of the Loan Proceeds
will be non-recourse to Viacom and New Viacom Sub.

         Viacom will offer 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 "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").  The Exchange Offer will be
subject to a number of conditions, including a condition (the "Minimum
Condition") that sufficient tenders are made of Viacom Common Stock that permit
the number of shares of Cable Sub Class A Stock issued pursuant to the Exchange
Offer to equal the total number of shares of Cable Sub Class A Stock issuable
in the Exchange Offer.

         Immediately following the completion of the Exchange Offer, TCIC will
acquire from Cable Sub shares of Cable Sub Class B common stock for $350
million (which will be used to reduce Cable Sub's obligations under the Loan
Facility).  At the time of such acquisition, the Cable Sub Class A Stock
received by Viacom stockholders pursuant to the Exchange Offer will
automatically convert into a series of senior cumulative exchangeable preferred
stock (the "Exchangeable Preferred Stock") of Cable Sub with a stated value of
$100 per share (the "Stated Value").  The terms of the Exchangeable Preferred
Stock, including its dividend, redemption and exchange features, will be
designed to cause the Exchangeable Preferred Stock, in the opinion of two
investment banks, to initially trade at the Stated Value.  The Exchangeable
Preferred Stock will be exchangeable, at the option of the holder commencing
after the fifth anniversary of the date of issuance, for shares of Series A TCI
Group Stock.  The Exchangeable Preferred Stock will also be redeemable, at the
option of Cable Sub, after the fifth anniversary of the date of issuance, and
will be 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, payable in cash or, at the election of Cable Sub, in shares of
Series A TCI Group Stock or in any combination of the foregoing.  If
insufficient tenders are made by Viacom stockholders in the Exchange Offer to
permit the Minimum Condition to be satisfied, Viacom will extend the Exchange
Offer for up to 15 business days and, during such extension, TCI and Viacom are
to negotiate in good faith to determine mutually acceptable changes in the
terms and conditions for the Exchangeable Preferred Stock and the Exchange
Offer that each believes in good faith will cause the Minimum Condition to be
fulfilled and that would cause the Exchangeable Preferred Stock to trade at a
price equal to the Stated Value immediately following the expiration of the
Exchange Offer.  In the event the Minimum Condition is not thereafter met, TCI
and Viacom will each have the right to terminate the transaction.  In addition,
either party may terminate the transaction if the Exchange offer has not
commenced by June 24, 1996 or been consummated by July 24, 1996.





                                     II-17
<PAGE>   84
         Consummation of the transaction is subject to a number of conditions,
including receipt of a favorable letter ruling from the Internal Revenue
Service that the transaction qualifies as a tax-free transaction and the
satisfaction or waiver of all of the conditions of the Exchange Offer.  A
request for a letter ruling from the Internal Revenue Service has been filed by
Viacom.  The Company believes that, based upon the unique and complex structure
of the transaction, there exists significant uncertainty as to whether a
favorable ruling will be obtained.  In light of the foregoing, management of
the Company has concluded that consummation of the transaction is not yet
probable.  Accordingly, no assurance can be given that the transaction will be
consummated.

         At December 31, 1995, Cable Sub provided service to approximately 1.2
million basic subscribers and had total assets of $1,067 million.  For the year
ended December 31, 1995, Cable Sub had revenue of $442 million and net earnings
of $34 million.  It is expected that if the transaction is consummated, the
Company would account for such acquisition under the purchase method of
accounting.  Accordingly, the cost to acquire Cable Sub estimated at
approximately $2.2 billion (reflecting the Loan Proceeds of $1.7 billion and
the estimated aggregate Stated Value of the Exchangeable Preferred Stock of
$500 million) would be allocated to the assets and liabilities acquired
according to their respective fair values, with any excess being treated as
intangible assets.  As such, the Company will, if such transaction is
consummated, reflect additional interest expense, depreciation, amortization
and minority share of losses of consolidated subsidiaries.  On a pro forma
basis, if the transaction had been consummated under its current terms on or
before January 1, 1995, Cable Sub would have reflected loss before taxes of
approximately $51 million for the year ended December 31, 1995.  On a pro forma
basis, Cable Sub would reflect an approximate $21 million of preferred stock
dividend requirements on an annual basis assuming, solely for the purpose of
this presentation, a dividend rate of 4.25% per annum on the Exchangeable
Preferred Stock.  On a pro forma basis, the Company would reflect the foregoing
financial impacts of Cable Sub in its consolidated results of operations except
that the preferred stock dividend requirement of Cable Sub would be reflected
as minority interest in the Company's statement of operations and the Company
would incur an additional approximately $28 million of interest expense per
year arising from the assumed borrowing by the Company for its $350 million
capital contribution to Cable Sub.

         The Company owns shares of common stock and preferred stock of Turner
Broadcasting System, Inc. ("TBS").  On September 22, 1995, the boards of
directors of Time Warner and TBS approved plans to merge their respective
companies (the "TBS/Time Warner Merger").  Under the terms of the agreement,
TBS shareholders will receive 0.75 of a Time Warner common share for each TBS
Class A and Class B common share.  Each holder of TBS Class C preferred stock
will receive 0.80 of a Time Warner common share for each of the 6 shares of TBS
Class B common stock into which each of the shares of Class C preferred stock
may be converted.

         Subject to certain conditions, the Company has agreed to vote its TBS
shares for the TBS/Time Warner Merger.  The Time Warner shares of common stock
received by the Company will be exchanged immediately for a series of voting
common stock ("Time Warner Series Common Stock") economically equivalent to the
common stock and placed in a voting trust with Time Warner Chairman, Gerald M.
Levin, as the trustee.





                                     II-18
<PAGE>   85
         In connection with the TBS/Time Warner Merger, TBS has agreed to sell
its interest in SportSouth Network, L.P.  ("SportSouth"), a regional sports
cable network, to the Company for approximately $60 million; and Time Warner
has agreed to issue shares of Time Warner Series Common Stock economically
equivalent to 5 million shares of Time Warner common stock to the Company in
exchange for a 6-year option to purchase Southern.  Time Warner has also agreed
to issue additional shares of Time Warner Series Common Stock to the Company
having a market value of $160 million in the event Time Warner exercised such
option.  Any shares of Time Warner common stock issuable in connection with the
Southern option will be exchanged for Time Warner Series Common Stock.
Additionally, Time Warner will grant the Company an option to purchase Time
Warner's interest in Sunshine Network, a Florida based sports cable network,
for $14 million.

         The TBS/Time Warner Merger is subject to, among other things, approval
by the FCC and regulatory review by federal antitrust authorities, and approval
by the shareholders of TBS and Time Warner.  It is expected to be completed in
1996.

         Pursuant to an underwritten public offering, the Company sold
19,550,000 shares of TCI Class A common stock in February of 1995.  The Company
received net proceeds of approximately $401 million.  Such proceeds were
immediately used to reduce outstanding indebtedness under credit facilities.

         On July 18, 1995, TINTA completed the IPO in which it sold 20 million
shares of TINTA Series A common stock to the public for aggregate consideration
of $320 million, before deducting related expenses (approximately $19 million).
TINTA used the IPO proceeds to repay debt of the Company ($177 million) and
fund acquisitions, operations and capital contributions.

         During the year ended December 31, 1995, TCIC sold approximately $1.5
billion of publicly-placed fixed rate senior and medium term notes with interest
rates ranging from 6.8% to 8.8% and maturity dates ranging through 2015.  The
proceeds from the sale of these notes were used primarily to repay variable-rate
bank debt.

         Subsequent to December 31, 1995, TINTA issued $345 million (before
deducting offering costs of $9 million) of 4.5% convertible subordinated
debentures.  TINTA anticipates that it will use the net proceeds to fund
capital contributions to certain of its equity investees.

         Also, subsequent to December 31, 1995, the Company, through certain
subsidiaries, issued (i) 4.6 million shares of Cumulative Exchangeable
Preferred Stock for net cash proceeds of $223 million, (ii) 20 million
preferred securities of 8.72% Trust Originated Preferred Securities for net
cash proceeds of $486 million (through a special purpose entity formed as a
Delaware business trust) and (iii) $1 billion of publicly-placed fixed rate
senior and medium term notes with interest rates ranging from 6.9% to 7.9% and
maturity dates ranging through 2026.  The Company used the proceeds from the
aforementioned debt and equity securities to retire overnight commercial paper
and to repay variable rate indebtedness.

         The Company has a credit facility which matures in September of 1996. 
The outstanding balance of such facility was $602 million at December 31, 1995. 
The Company currently anticipates that it will refinance such borrowings but
there can be no assurance that it can do so on terms acceptable to the Company.




                                     II-19
<PAGE>   86
         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 preferred 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.  The Company's subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
the dividends on any class or series of preferred stock of TCI or to make any
funds available therefor, whether by dividends, loans or other payments.  The
payment of dividends or the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or regulatory restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations.  Further, 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.  The amount of net assets of
subsidiaries subject to such restrictions exceeds the Company's consolidated
net assets.  The Company's subsidiaries currently have the ability to transfer
funds to the Company in amounts exceeding the Company's dividend requirement on
any class or series of preferred stock.  Net cash provided by operating
activities of subsidiaries which are not restricted from making transfers to
the parent company have been and are expected to continue to be sufficient to
enable the parent company to meet its cash obligations.

         Moreover, almost all of the consolidated liabilities of the Company
have been incurred by its subsidiaries.  Therefore, the Company's rights, and
the extent to which the holders of the Company's preferred stocks will be able
to participate in the distribution of assets of any subsidiary upon the
latter's liquidation or reorganization, will be subject to prior claims of the
subsidiary's creditors, including trade creditors, except to the extent that
the Company may itself be a creditor with recognized claims against such
subsidiary (in which case the claims of the Company would still be subject to
the prior claims of any secured creditor of such subsidiary and of any holder
of indebtedness of such subsidiary that is senior to that held by the Company).

         Subsidiaries of the Company had approximately $2.5 billion in unused
lines of credit at December 31, 1995 excluding amounts related to lines of
credit which provide availability to support commercial paper.  Although
subsidiaries of the Company were in compliance with the restrictive covenants
contained in their credit facilities at said date, additional borrowings under
the credit facilities are subject to the subsidiaries' continuing compliance
with such restrictive covenants (which relate primarily to the maintenance of
certain ratios of cash flow to total debt and cash flow to debt service, as
defined in the credit facilities) after giving effect to such additional
borrowings.  See note 9 to the accompanying consolidated financial statements
for additional information regarding the material terms of the subsidiaries'
lines of credit.





                                     II-20
<PAGE>   87
         One measure of liquidity is commonly referred to as "interest
coverage."  Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization and other non-cash
operating credits or charges)($1,975 million, $1,798 million and $1,858 million
in 1995, 1994 and 1993, respectively) to interest expense ($1,010 million, $785
million and $731 million in 1995, 1994 and 1993, respectively), is determined
by reference to the consolidated statements of operations.  The Company's
interest coverage ratio was 196%, 229% and 254% for 1995, 1994 and 1993,
respectively.   The decrease in the Company's interest coverage in 1995 is
caused by increased interest expense due to higher interest rates and debt
levels in 1995.  Management of the Company believes that the foregoing interest
coverage ratio is adequate in light of the consistency and nonseasonal nature
of its cable television operations and the relative predictability of the
Company's interest expense, almost half of which results from fixed rate
indebtedness.  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.

         Another measure of liquidity is net cash provided by operating
activities, as reflected in the accompanying consolidated statements of cash
flows.  Net cash provided by operating activities ($957 million, $908
million and $1,247 million in 1995, 1994 and 1993, respectively) reflects net
cash from the operations of the Company available for the Company's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow.  Amounts expended
by the Company for its investing activities exceed net cash provided by
operating activities.  However, management believes that net cash provided by
operating activities, the ability of the Company and its subsidiaries to obtain
additional financing (including the subsidiaries' available lines of credit and
access to public debt markets), issuances and sales of the Company's equity or
equity of its subsidiaries, and proceeds from disposition of assets will
provide adequate sources of short-term and long-term liquidity in the future.
See the Company's consolidated statements of cash flows included in the
accompanying consolidated financial statements.

         In order to achieve the desired balance between variable and fixed
rate indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements.  At December 31, 1995, after considering the net effect of various
interest rate exchange agreements (see note 9 to the consolidated financial
statements) with notional amounts aggregating $1,918 million, the Company had
$6,002 million (or 45%) of fixed-rate debt with a weighted average interest
rate of 8.8% and $7,209 million (or 55%) of variable-rate debt with a weighted
average interest rate of 6.3%.

         Pursuant to the interest rate exchange agreements, the Company pays
(i) fixed interest rates ranging from 6.1% to 9.9% on notional amounts of $602
million at December 31, 1995 and (ii) variable interest rates on notional
amounts of $2,520 million at December 31, 1995.  During the years ended
December 31, 1995, 1994 and 1993, the Company's net payments pursuant to its
fixed rate exchange agreements were $13 million, $26 million and $38 million,
respectively.  During the years ended December 31, 1995, 1994 and 1993, the
Company's net receipts (payments) pursuant to its variable rate exchange
agreements were (less than $1 million), $36 million and $31 million,
respectively. The Company is exposed to credit losses for the periodic
settlements of amounts due under the interest rate exchange agreements 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.





                                     II-21
<PAGE>   88
         In connection with its investments in certain foreign entities, the
Company is exposed to unfavorable and potentially volatile fluctuations of the
U.S. dollar against the UK pound sterling ("L."), the Japanese yen ("Yen"), and
various other foreign currencies that are the functional currencies of the
Company's foreign subsidiaries and affiliates.  Any increase (decrease) in the
value of the U.S. dollar against any foreign currency that is the functional
currency of an operating subsidiary or affiliate of TINTA will cause the
Company to experience unrealized foreign currency translation losses (gains)
with respect to amounts already invested in such foreign currencies.  The
Company is also exposed to foreign currency risk to the extent that the Company
or its foreign subsidiaries and affiliates enter into transactions denominated
in currencies other than their respective functional currencies.  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.  With respect to
funding commitments that are denominated in currencies other than the U.S.
dollar, the Company historically has sought to reduce its exposure to
short-term (generally no more than 90 days) movements in the applicable
exchange rates once the timing and amount of such funding commitments becomes
fixed.  Although the Company monitors foreign currency exchange rates with the
objective of mitigating its exposure to unfavorable fluctuations in such rates,
the Company believes that it is not possible or practical to completely
eliminate the Company's exposure to unfavorable fluctuations in foreign
currency exchange rates.

         Approximately twenty-five percent of the franchises held by the
Company, involving approximately 4.4 million basic subscribers, expire within
five years.  There can be no assurance that the franchises for the Company's
systems will be renewed as they expire, although the Company believes that its
cable television systems generally have been operated in a manner which
satisfies the standards established by the Cable Communications Policy Act of
1984 (the "1984 Cable Act"), as supplemented by the renewal provisions of the
1992 Cable Act, for franchise renewal.  However, in the event they are renewed,
the Company cannot predict the impact of any new or different conditions that
might be imposed by the franchising authorities in connection with the
renewals.  To date they have not varied significantly from the original terms.

         A significant competitive impact is expected from medium power and
higher power direct broadcast satellites ("DBS") that use high frequencies to
transmit signals that can be received by dish antennas much smaller in size
than traditional home satellite dishes ("HSDs").  Primestar distributes a
multi-channel programming service via a medium power communications satellite
to HSDs of approximately 3 feet in diameter.  At December 31, 1995, Primestar,
through its partners, served an estimated 940,000 HSDs in the United States.
Two other DBS operators, DirecTV, a subsidiary of GM Hughes Electronics, and
United States Satellite Broadcasting, a subsidiary of Hubbard Broadcasting,
Inc., offer video services that can be received by HSDs that measure
approximately eighteen inches in diameter.  Such DBS operators have the right
to distribute substantially all of the significant cable television programming
services currently carried by cable television systems.  The competition from
DBS will likely continue to grow.  One DBS operator is preparing to launch a
new DBS satellite.  AT&T Corp. recently made a large investment in DirecTV, and
several other major companies are preparing to develop and operate high-power
DBS systems, including MCI Communications Corp. ("MCI") and News Corp.  MCI
recently acquired rights to satellite frequencies for DBS in an FCC auction.





                                     II-22
<PAGE>   89
         The 1996 Telecom Act eliminated the statutory and regulatory
restrictions that prevented telephone companies from competing with cable
operators for the provision of video services by any means.  The 1996 Telecom
Act allows local telephone companies, including the regional bell operating 
companies, to compete with cable television operators both inside and outside 
their telephone service areas.  The Company expects that it will face 
substantial competition from telephone companies for the provision of video 
services.  The Company assumes that all major telephone companies have already 
entered or soon will enter the business of providing video services.  Most 
major telephone companies have greater financial resources than the Company, 
and the 1992 Cable Act ensures that telephone company providers of video 
services will have access to all of the significant cable television 
programming services.  Additionally, the 1996 Telecom Act eliminates certain 
federal restrictions on utility holding companies and thus frees all utility 
companies to provide cable television services.  The Company expects this 
could result in another source of significant competition in the delivery of 
video services.

         The Company is upgrading and installing optical fiber technology in its
cable systems at a rate such that in approximately two years TCI anticipates
that it will be serving the majority of its customers with this technology.  The
systems, which facilitate digital transmission of voice, video and data signals,
will have optical fiber to neighborhood nodes with coaxial cable distribution
downstream from that point.  The Company made capital expenditures of $1,782
million in 1995 and the Company expects to expend similar amounts in 1996 to
provide for the continued rebuilding of its cable systems.  However, such
proposed expenditures are subject to reevaluation based upon changes in the
Company's liquidity, including those resulting from rate regulation.

        The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $222
million at December 31, 1995.  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 guarantees,
that they will not be material to the Company.

        The Company is obligated to pay fees for the license to exhibit certain
qualifying films that are released theatrically by various motion picture
studios through February 28, 2009 (the "Film Licensing Obligations").  The
aggregate minimum liability under certain of the license agreements is
approximately $414 million.  The aggregate amount of the Film Licensing
Obligations under other license agreements is not currently estimable because
such amount is dependent upon certain variable factors.  Nevertheless, the
Company's aggregate payments under the Film Licensing Obligations could prove
to be significant.  Additionally, the Company has guaranteed up to $67 million
of similar license fee obligations of an affiliate.

        The Company has committed to provide additional debt or equity funding
to certain of its affiliates.  At December 31, 1995, such commitments
aggregated $95 million.

        The Company intends to continue to develop its entertainment and
information programming services and has made certain financial commitments
related to the acquisition of programming.  The Company's obligation for
certain sports program rights contracts as of December 31, 1995 was $448
million.  Upon the formation of the Fox-Liberty Venture, of which there is no
assurance, the Company anticipates that such commitments will be transferred to
the Fox-Liberty Venture.  In the event the Fox-Liberty Venture is not formed,
the Company expects that sufficient cash will be generated by the programming
services to satisfy these commitments.  However, the continued development of
such services may require additional financing and it cannot be predicted
whether the Company will obtain such financing on terms acceptable to the
Company.





                                     II-23
<PAGE>   90
        The Company's various partnerships and other affiliates accounted for
under 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)
and through net cash provided by their own operating activities.

        The Company's subsidiaries generally finance acquisitions and capital
expenditures through net cash provided by operating and financing activities.
Amounts expended for acquisitions and capital expenditures exceed net cash
provided by operating activities.





                                     II-24
<PAGE>   91
        LIBERTY MEDIA GROUP

        General

        As of January 27, 1994, TCIC and Liberty entered into a definitive
merger agreement to combine the two companies.  The TCI/Liberty Combination was
consummated on August 4, 1994.  Due to the significant economic interest held
by TCIC through its ownership of Liberty preferred stock and Liberty common
stock and other related party considerations, TCIC accounted for its investment
in Liberty under the equity method prior to the consummation of the TCI/Liberty
Combination.  Accordingly, TCIC had recognized 100% of Liberty's earnings or
losses before deducting preferred stock dividends.  The TCI/Liberty Combination
was accounted for using predecessor cost due to related party considerations.
Accordingly, the accompanying combined financial statements of Liberty Media
Group reflect the combination of the historical financial information of the
assets of TCI and Liberty which produce and distribute cable television
programming attributed to Liberty Media Group.

        On August 3, 1995, the shareholders of TCI authorized the Board to
issue a new class of stock which is intended to reflect the separate
performance of Liberty Media Group.  However, Liberty Group Stock constitutes
common stock of TCI.  The issuance Liberty Group Stock did not result in any
transfer of assets or liabilities of TCI or any of its subsidiaries or affect
the rights of holders of TCI's or any of its subsidiaries' debt.  On August 10,
1995, TCI distributed to its security holders of record on August 4, 1995,
Liberty Group Stock representing one hundred percent of the equity value
attributable to Liberty Media Group.

        The subsidiaries of TCI and Liberty attributed to Liberty Media Group,
as well as certain investments held by these or other subsidiaries of TCI and
Liberty also attributed to Liberty Media Group at the time of the Distribution,
are as follows (unless otherwise denoted, such subsidiaries and investments
were held separately by Liberty through August 4, 1994, the date the
TCI/Liberty Combination was consummated):

                 Subsidiaries

                         Encore
                         TV Network Corporation ("Intro") (formed in 1994)
                         HSN
                         Southern
                         Netlink (owned by TCIC prior to the TCI/Liberty
                             Combination)
                         Liberty Sports, Inc. ("Liberty Sports")
                         Affiliated Regional Communications, Ltd. ("ARC")
                         Vision Group Incorporated (owned by TCIC prior to the
                             TCI/Liberty Combination)
                         Americana Television Productions LLC (acquired in 1995)
                         MacNeil/Lehrer Productions (acquired in 1995)
                         Prime Ticket Networks, L.P. ("Prime Sports-West")
                             (acquired in 1994)
                         Encore International, Inc.
                         Liberty Productions, Inc. (formed in 1995)
                         Prime Sports Network - Northwest





                                     II-25
<PAGE>   92
                 Investments

                         BET
                         Video Jukebox Network, Inc.
                         Courtroom Television Network ("Court")
                         Discovery Communications, Inc. (owned by TCIC
                             prior to the TCI/Liberty Combination)
                         DMX, Inc. (owned by TCIC prior to the TCI/Liberty 
                             Combination)
                         E! Entertainment Television, Inc. (owned by TCIC prior
                             to the TCI/Liberty Combination)
                         International Family Entertainment, Inc.
                         Ingenius (formed in 1994)
                         International Cable Channels Partnership, Ltd. 
                             (acquired in 1994)
                         QE+ Ltd. (formed in 1994) (owned by TCIC prior to the
                             TCI/Liberty Combination)
                         QVC
                         Reiss Media Enterprises, Inc. (owned by TCIC prior to
                             the TCI/Liberty Combination)
                         TBS (owned by TCIC prior to the TCI/Liberty 
                             Combination)
                         Prime SportsChannel Networks Associates
                         Home Team Sports Limited Partnership
                         SportsChannel Chicago Associates
                         SportsChannel Pacific Associates
                         SportsChannel Prism Associates
                         Prime Sports Network - Upper Midwest
                         SportSouth
                         Sunshine Network ("Sunshine")
                         AMC
                         Republic Pictures Television (owned by TCIC prior to 
                             the TCI/Liberty Combination)
                         Sillerman Communications Management Corporation (owned
                             by TCIC prior to the TCI/Liberty Combination)
                         Technology Programming Ventures (formed in 1994)
                         Premier Sports ("Australia") (launched in 1995)
                         Silver King
                         Asian Television and Communications LLC
                         Mountain Mobile Television LLC
                         Cutthroat Productions, LP (formed in 1994)
                         The National Registry
                         PPVN Holding Company (acquired in 1995)

         Following the Distribution, the TCI Group Stock is intended to reflect
the separate performance of the TCI Group, which is generally comprised of the
subsidiaries and assets not attributed to Liberty Media Group, including (i)
TCI's Domestic Cable and Communications unit, (ii) TCI's International Cable
and Programming unit and (iii) TCI's Technology/Venture Capital unit.  The
businesses of TCI not attributed to Liberty Media Group are referred to as "TCI
Group".  Intercompany balances resulting from transactions with such units are
reflected as borrowings from or loans to TCI and, prior to the Distribution,
are included in combined equity in the accompanying combined financial
statements of Liberty Media Group.  See note 10 to the accompanying Liberty
Media Group combined financial statements.





                                     II-26
<PAGE>   93
        PENDING TRANSACTIONS

         On September 22, 1995, the boards of directors of Time Warner and TBS
approved the TBS/Time Warner Merger.  Under the terms of the agreement, TBS
shareholders will receive 0.75 Time Warner common shares for each TBS Class A
and B common share.  Each holder of TBS Class C preferred stock will receive
0.80 Time Warner common shares for each of the 6 shares of TBS Class B common
stock into which each of the shares of Class C preferred stock may be
converted.

         Subject to certain conditions, Liberty Media Group has agreed to vote
its TBS shares for the TBS/Time Warner Merger.  The Time Warner shares of
common stock received by Liberty Media Group will be exchanged immediately for
Time Warner Series Common Stock economically equivalent to the common stock and
placed in a voting trust with Time Warner Chairman, Gerald M. Levin, as the
trustee.

         In connection with the TBS/Time Warner Merger, TBS has agreed to sell
its interest in SportSouth, a regional sports cable network, to Liberty Media
Group for approximately $60 million; and Time Warner has agreed to issue shares
of Time Warner Series Common Stock economically equivalent to 5 million shares
of Time Warner common stock to Liberty Media Group in exchange for a 6-year
option to purchase Southern.  Time Warner has also agreed to issue additional
shares of Time Warner Series Common Stock to Liberty Media Group having a
market value of $160 million in the event Time Warner exercises such option.
Any shares of Time Warner common stock issuable in connection with the Southern
option will be exchanged for Time Warner Series Common Stock.  Additionally,
Time Warner will grant Liberty Media Group an option to purchase Time Warner's
interest in Sunshine, a Florida based sports cable network, for $14 million.

         The transaction is subject to, among other things, approval by the FCC
and regulatory review by federal antitrust authorities, and approval by the
shareholders of TBS and Time Warner.

         On October 31, 1995, Liberty Media Group announced that it had entered
into a binding agreement in principle with News Corp. and TINTA.  In the United
States, Liberty Media Group and News Corp. agreed to form the Fox-Liberty
Venture into which Liberty Media Group will contribute interests in its national
and regional sports networks and into which News Corp. will contribute its fx
cable network and certain other assets. Upon consummation, Liberty Media Group
will receive a 50% interest in the Fox-Liberty Venture and $350 million in cash.
The fx Network will be transformed into a nationally distributed, general
entertainment and sports network.  The regional sports networks currently
operated under the Prime Sports name will be relaunched under the Fox Sports
banner.

        Internationally, News Corp., and a 50/50 partnership formed by Liberty
Sports, a wholly owned subsidiary of Liberty Media Group, and TINTA have agreed
to form a venture to operate currently existing sports services in Asia, Latin
American and Australia and a variety of new sports services throughout the
world except in the United Kingdom, Japan and New Zealand where prior
arrangements preclude an immediate collaboration.  The Liberty-TINTA
Partnership will own 50% of the international venture with News Corp. owning
the other 50%.  News Corp. is contributing various international sports rights,
including the Star Sports channel which is broadcast throughout Asia as part of
the Star package of services.  The Liberty-TINTA Partnership is contributing
Prime Deportiva, a Spanish language sports service distributed in Latin America
and in Hispanic markets in the United States, an interest in Torneos y
Competencias S.A., an Argentinean sports programming and production business,
various international sports and satellite transponder rights and cash.  The
Liberty-TINTA Partnership will also contribute their 50% interest in Premiere
Sports and All-Star Sports in Australia.  Both are 24-hour sports services
available via MMDS or cable television in Australia.

        The transactions contemplated by the above agreements are expected to
close during 1996.

         On November 27, 1995, Liberty Media Group announced that it had agreed
to exchange its controlling interest in HSN for shares of Silver King.  Liberty
Media Group will receive approximately 11 million newly issued shares of Silver
King in exchange for its 37.5 million shares of HSN.

         Liberty Media Group and Mr. Barry Diller and certain of their
respective affiliates entered into an agreement in August 1995 pursuant to which
the Option (which shares would constitute voting control of Silver King) would
be transferred to Silver Company, an entity in which Liberty Media Group would
own all of the non-voting equity interests (which would constitute substantially
all of the equity of such entity) and Mr. Diller would own all of the voting
equity interests.  Silver Company would thereafter exercise the Option and hold
the shares of Silver King Class B Common Stock purchased thereunder.  In an
amendment to such agreement entered into in November 1995, Liberty Media Group
agreed to contribute all of its shares of HSN (which shares constitute
approximately 41% of the equity of HSN and approximately 90% of the voting power
of HSN) to Silver Company in return for additional non-voting equity interests
in Silver Company.  Following such contribution, Silver Company would exchange
such HSN shares with Silver King for additional shares of Silver King Common
Stock and Class B Common Stock (thereby increasing Silver Company's controlling
interest in Silver King to in excess of 80% of the voting power of Silver King).
Each such transaction is subject to the satisfaction of certain conditions,
including the receipt of all necessary regulatory consents and approvals.  If
consummated, HSN would cease to be a subsidiary of Liberty Media Group and
therefore, the financial results of HSN would not be consolidated with the
financial results of Liberty Media Group.  Although Liberty Media Group would
cease to possess voting control over HSN, it would continue to have an indirect
equity interest in HSN through its ownership of the equity securities of Silver
Company.  No assurance can be given that the transaction will be consummated.

         On March 12, 1996, United Video Satellite Group, Inc. ("UVSG") and
Liberty Media Group agreed to form a venture to combine their Superstar
Satellite Entertainment and Netlink businesses (the "Netlink/Superstar
Venture"). Liberty Media Group and UVSG will each own approximately 50% of
Netlink/Superstar Venture. Upon consummation of the Netlink/Superstar Venture,
Netlink would cease to be consolidated with the financial results of Liberty
Media Group.

         The consummation of the above described transactions would materially
effect the results of operations of Liberty Media Group due to a substantial
part of Liberty Media Group's operations no longer being consolidated. At the
same time Liberty Media Group's share of earnings or losses of affiliates could
be materially impacted by certain of these transactions.



                                     II-27
<PAGE>   94
         Summary of Operations

         Liberty Media Group is engaged in two principal lines of business:
(i) production, acquisition and distribution through all available formats and
media of branded entertainment, educational and informational programming and
software, including multimedia products, ("Entertainment and Information
Programming Services") and (ii) electronic retailing, direct marketing,
advertising sales relating to programming services, infomercials and
transaction processing ("Electronic Retailing Services").  To enhance the
reader's understanding, separate financial data have been provided below for
Electronic Retailing Services, which include a retail function, and other
Entertainment and Information Programming Services.  The table below sets
forth, for the periods indicated, certain financial information and the
percentage relationship that certain items bear to revenue.  This summary
provides trend data related to the normal recurring operations of Liberty Media
Group.  Corporate expenses have been reflected separately in the following
table.  Liberty Media Group holds significant equity investments the results of
which are not a component of operating income, but are discussed below under
"Other Income and Expense".  Other items of significance are discussed
separately under their own captions below.

<TABLE>
<CAPTION>
                                                                    Years ended December 31,                   
                                         ---------------------------------------------------------------------------
                                                 1995                       1994                         1993        
                                         ----------------------      ---------------------        ------------------
                                                                 dollar amounts in thousands
<S>                                      <C>        <C>              <C>       <C>                <C>       <C>
Entertainment and Information                                                                                         
-----------------------------            
Programming Services
--------------------

   Revenue                               100%       $   521,050      100%      $   357,031        100%    $  263,960
   Operating, selling, general and
      administrative                       92           477,716        93          332,060          85       224,647
   Depreciation and amortization           10            54,688         5           17,006           6        16,112
                                         ----       -----------      ----      -----------        ----    ----------

         Operating income (loss)           (2)%     $   (11,354)        2%     $     7,965           9%   $   23,201
                                         ====       ===========      ====      ===========        ====    ==========

Electronic Retailing Services
-----------------------------

   Revenue                                100%      $ 1,018,625       100%     $ 1,125,917         100%   $  942,940
   Cost of sales                           69           701,678        65          730,505          65       611,526
   Operating, selling, general and
      administrative                       35           359,130        30          341,015          31       288,576
   Compensation (adjustments to
      compensation) relating to stock
      appreciation rights                  --              (758)       --           (1,547)         --         2,834
   Depreciation and amortization            4            43,249         3           32,244           2        24,029
                                         ----       -----------      ----      -----------        ----    ----------

         Operating income (loss)           (8)%     $   (84,674)        2%     $    23,700           2%   $   15,975
                                         ====       ===========      ====      ===========        ====    ==========

Corporate expenses
------------------

   Selling, general and administrative              $     4,743                $     7,132                $    5,591
   Compensation (adjustments to
      compensation) relating to stock
      appreciation rights                                10,261                     (7,027)                   37,532
   Depreciation and amortization                             74                         86                        51
                                                    -----------                -----------                ----------

         Operating loss                             $   (15,078)               $      (191)               $  (43,174)
                                                    ===========                ===========                ========== 
</TABLE>





                                     II-28
<PAGE>   95
         Entertainment and Information Programming Services

         Revenue from Entertainment and Information Programming Services
increased 46% or $164 million from 1994 to 1995.  Liberty Media Group's regional
sports programming businesses accounted for $102 million of such increase.
Prime Sports-West was acquired by Liberty Media Group in August 1994, and was
responsible for $40 million of the increase in revenue from Liberty Media
Group's regional sports programming businesses.  Other new regional sports
programming businesses accounted for $27 million of the increase in revenue for
the year ended December 31, 1995.  Excluding the effect of Prime Sports-West and
other new regional sports programming businesses, advertising and infomercial
revenue for the year ended December 31, 1995 increased $11 million over the year
ended December 31, 1994.  Increases in direct broadcast satellite revenue
accounts for $20 million of the 1995 increase in revenue from Liberty Media
Group's regional sports programming businesses.  The remaining increase in
revenue from Liberty Media Group's regional sports programming businesses is
attributed to subscriber growth and rate increases in the established regional
sports programming businesses.  Encore's six new thematic multiplex services
(three launched in July 1994 and three launched in September 1994) and Intro (a
24-hour basic cable service launched in July 1994) accounted for a combined
increase in revenue of $24 million for the year ended December 31, 1995.
Excluding the new thematic multiplex services, Encore experienced a 33% increase
in subscribers (primarily direct broadcast subscribers) representing an $11
million increase in revenue over 1994.  Revenue from Netlink, a marketer and
distributor of programming to the United States home satellite dish subscriber
market, increased by $29 million for the year ended December 31, 1995 compared
to the year ended December 31, 1994.  Substantially, all of this increase is
attributed to pricing increases and an increase in the average number of retail
subscribers.

         Revenue from Entertainment and Information Programming Services
increased 35%, or $93 million, from 1993 to 1994.  The August 1994 acquisition
of Prime Sports-West accounted for $21 million of such increase and higher
subscription and advertising revenue from Liberty Media Group's other regional
sports programming businesses accounted for an additional $26 million of such
increase.  Netlink accounted for $29 million of the increase in revenue, the
result of growth in the number of subscribers and rate increases.  Also
contributing to the increased revenue in 1994 was revenue from Intro which was
launched mid-year.

         Operating expenses, exclusive of depreciation and amortization,
increased 44% or $146 million from 1994 to 1995.  Prime Sports-West accounted
for $33 million of the increase in operating expenses of Liberty Media Group's
regional sports programming businesses.  Other new businesses in the regional
sports programming businesses increased expenses by $63 million for the year
ended December 31, 1995.  Expenses at Liberty Media Group's regional sports
programming businesses, excluding the impact of new businesses, increased $14
million for the year ended December 31, 1995.  Such increase was caused by
increased programming rights fees in certain markets, new rights agreements, and
increased production costs and technical operations due to a larger number of
events.  Intro and the new Encore thematic multiplex services launched during
1994 were responsible for $13 million of the increase in expenses from
Entertainment and Information Programming Services from 1994 to 1995.
Additionally, Encore's expenses increased $4 million due to additional marketing
expenses related to Encore's increase in subscribers and due to additional
personnel and related costs.  Netlink's programming costs increased $23 million
for the year ended December 31, 1995 which is directly related to the increases
in subscribers and increases in the rates that Netlink pays to its program
suppliers.





                                     II-29
<PAGE>   96
         Operating expenses, exclusive of depreciation and amortization,
increased 48%, or $107 million, from 1993 to 1994.  New business activities
(Prime Sports-West and Intro) accounted for $38 million of this increase.
Higher costs at Netlink, primarily the result of license fees for a greater
number of subscribers, accounted for $28 million of the increase.  Higher costs
at Encore were associated primarily with the launch of six new thematic
multiplex services during 1994. Liberty Media Group's regional sports
programming businesses also experienced higher costs, primarily the result of
higher rights expenses associated with a greater number of subscribers,
escalation under existing rights contracts, and new rights contracts.

         Operating loss for Entertainment and Information Programming Services
was $11 million in 1995.  Operating income was $8 million in 1994 and $23
million in 1993.  Encore and Intro accounted for a combined increase of $18
million in operating income in 1995 due to increased cable subscribers and
Encore's increased direct broadcast satellite subscribers.  Such increase was
offset by a $48 million decrease in operating income in the regional sports
programming businesses due to start-up costs of new businesses, international
ventures  and increased amortization related to other intangibles acquired in
the acquisition of Prime Sports-West.  The remaining increase in operating
income of Liberty Media Group's Entertainment and Information Programming
Services is primarily a result of increased revenue combined with decreased
expenses from Southern, and growth in rates and subscribers of Netlink. The
decline from 1993 to 1994 was primarily the result of losses related to new
businesses, Prime Sports-West ($8 million) and Intro ($7 million).  Intro was
launched during 1994.  The loss at Prime Sports-West was partially attributable
to a non-recurring charge of $4 million related to the termination of a contract
to provide advertising sales services.  This was the result of a decision by
Liberty Sports to form its own national ad sales organization, which would
handle ad sales for Prime Sports-West as well as other Liberty Sports regional
sports programming businesses.  Prime Sports-West also launched a new service
during 1994, La Cadena Deportiva, a Spanish language sports network.  The
remaining loss is primarily attributable to the start-up of this new service.

         Electronic Retailing Services

         This information reflects the results of HSN, which became a
consolidated subsidiary of Liberty Media Group in February 1993.  HSN's primary
business is electronic retailing conducted by HSC.

         HSN expects to sell a majority of its interest in its infomercial
joint venture, HSN Direct Joint Venture ("HSND"), in early 1996.  This
transaction will result in a reduction in net sales, cost of sales and certain
operating expenses in 1996.  The sale of HSND should not have a material impact
on HSN's results of operations in future periods.

         HSN revenue decreased $107 million or 10% from 1994 to 1995, and net
sales of HSC decreased $141 million or 14%.  HSC's sales reflect the net effect
of a 19% decrease in the number of packages shipped which was partially offset
by a 9% increase in the average price per unit sold.  The decrease in HSC sales
was offset by sales increases by HSND and wholly-owned subsidiaries of HSN, HSN
Mail Order, Inc., ("Mail Order") and Vela Research, Inc. ("Vela") totaling $31
million for the year ended December 31, 1995.





                                     II-30
<PAGE>   97
         Revenue from Electronic Retailing Services was $1,126 million for 1994,
a 19% increase over 1993 revenue of $943 million.  The most significant reason
for this increase was a full year of HSN revenue in 1994, compared with
approximately 10 1/2 months of HSN revenue in 1993 (subsequent to Liberty Media
Group's acquisition of HSN in February 1993.)  HSN revenue also increased in
1994 as a result of several factors, most significantly the addition of new
cable subscribers due to the "must carry" provisions of the 1992 Cable Act.  See
"Impact of Regulation" below.  Cable television households reached by HSC
programming increased from 33.8 million at the end of 1993 to 39.0 million at
the end of 1994.  The cable television household growth was achieved primarily
through increased cable system carriage of HSC's broadcast signal due to the
implementation of "must carry" beginning in September 1993 and HSN's aggressive
campaign to obtain contracts for cable carriage of HSC programming.  Because HSC
programming is now on a cable channel line-up, former broadcast households can
more easily access HSC programming.

         During 1996, 4.2 million cable subscribers are covered by cable system
contracts that are subject to termination or renewal.  This represents 9% of
the total number of unduplicated cable households receiving HSN.  HSN is
pursuing both renewals and additional cable television system contracts, but
channel availability, competition, consolidation within the cable industry and
cost of carriage are some of the factors affecting the negotiations for cable
television system contracts.  Although HSN's management cannot determine the
percentage of expiring contracts that will be renewed or the number of
households that will be added through new contracts, HSN's management believes
that a majority of these contracts will be renewed.

         HSC's market penetration lags behind increases in carriage.  As a
result of the increase in carriage which began in late 1993, and previous
changes in merchandising and programming strategies, HSN has experienced a
decrease in its market penetration.  As the new households mature and new plans
of HSN's management are fully implemented, HSN expects market penetration to
improve, but there can be no assurance that this will occur.

         In September 1994, HSN appointed new management personnel to institute
procedures intended to improve purchasing and other merchandising practices.
Their strategies included offering a greater variety of products, developing
strong private label lines, selling higher margin items and offering name brand
and other high quality merchandise.  These efforts were aimed at long-term
improvements in sales by attracting new customers and increasing the frequency
of repeat purchases; however, the impact of these strategies was to adversely
affect sales during 1995.

         Since June 5, 1995, HSN has operated two full-time networks renamed
HSN, the primary network, and Spree!.  On August 5, 1995, HSN relaunched the
HSN network with more scheduled programs and theme related shows, new sets,
graphics and music.  During the third quarter of 1995, HSN relaunched the
Spree! network with a more spontaneous format, new graphics and music.  These
changes were  designed to eliminate programming redundancies, distinguish the
networks and reach a broader range of potential customers.

         Management of HSN also instituted promotional programs to help
increase sales, including a national advertising campaign and a "no interest --
no payments" credit promotion through February 1996 for certain purchases made
during the third and fourth quarters of 1995 using HSN's private label credit
card.  Although the credit promotion program was successful, its effect was not
enough to offset the decline in sales discussed above.





                                     II-31
<PAGE>   98
         In November 1995, HSN appointed a new chairman of the board and a new
president and chief executive officer, both with significant experience in the
electronic retailing and programming areas.  Immediate changes were made to
HSN's merchandising and programming strategies which resulted in improved sales
in December 1995 and January 1996 when compared to the same months in the prior
years.  Further plans include improving inventory mix with respect to product
assortment and price point designed to attract both first-time buyers and
active buyers, improved inventory management and better planning of programmed
shows.  While HSN's management is optimistic that results will continue to
improve and HSN will return to profitability, there can be no assurance that
changes to HSN's merchandising and programming strategies will achieve
management's intended results.

         Cost of sales decreased $29 million, or 4%, from 1994 to 1995; and
cost of sales, as a percentage of net sales, increased to 69% from 65%.  Cost
of sales of HSC decreased $49 million for the year ended December 31, 1995.
Such decrease was partially offset by increases in cost of sales by HSND, Mail
Order and Vela totaling $21 million.  As a percentage of HSC's net sales, cost
of sales increased to 72% from 67% during 1995.  The 1995 dollar decreases in
cost of sales, compared to 1994, relate to the lower sales volumes.  The
comparative increases in cost of sales percentages primarily relate to
warehouse sales and other promotional events.  These events included price
discounts to facilitate HSN's distribution center restructuring and sales of
existing merchandise to make room for new merchandise for the holiday selling
season and to adjust inventory levels and product mix in December 1995.  In
addition, cost of sales for the year ended December 31, 1995, reflect a $12
million increase in HSC's inventory carrying value adjustment related to
product which is inconsistent with HSC's new sales and merchandising
philosophy.

         Operating expenses, exclusive of depreciation and amortization,
increased $18 million, to 35% of sales during 1995 compared with 30% of sales in
the 1994. The majority of such increase was restructuring charges of $16 million
during the year ended December 31, 1995.  Such restructuring charges consist of
severance costs of $4 million related to a reduction in work force, $5 million
payments to certain executives as provided for under their employment agreements
in connection with the termination of their employment and $2 million related to
the write-off of certain equipment maintenance and contractual fees related to
service contracts which HSN will no longer utilize.  In addition, HSN recorded a
write-down of inventory totaling $1.3 million to net realizable value based on
the disposition of the assets of Ortho-Vent, Inc.

         Additionally, $4 million of the restructuring charges for the year
ended December 31, 1995, represents HSN management's estimate of costs to be
incurred in connection with the closing of HSN's Reno, Nevada, distribution
center, which was accomplished in June 1995.  The decision to close the Reno
distribution center was based on an evaluation of HSN's overall distribution
strategy.  Management of HSN believes that consolidation of HSN's distribution
facilities will result in better operating efficiencies and improved service to
customers.

         In 1995 and early 1996, management of HSN instituted measures aimed at
streamlining operations primarily by reducing its work force and other
operating expenses.  Although these changes resulted in some reduction in
individual categories of operating expenses in 1995 and will result in future
reductions to operating expenses, HSN incurred additional costs in the third
quarter of 1995 in connection with these measures.





                                     II-32
<PAGE>   99
         Cost of sales increased 19%, or $119 million, from 1993 to 1994.
Operating expenses, exclusive of depreciation and amortization, increased 18%,
or $52 million, from 1993 to 1994.  These increases were primarily attributable
to the full year of 1994 results compared with 10 1/2 months in 1993.  As a
percentage of sales, cost of sales remained flat at 65% for both 1994 and 1993,
and operating expenses declined slightly from 31% in 1993 to 30% in 1994.

         HSN believes that seasonality does impact the business but not to the
same extent it impacts the retail industry in general.

         Corporate Expenses

         During the year ended December 31, 1995, corporate expenses excluding
compensation from stock appreciation rights, depreciation and amortization were
$5 million, compared with $7 million in 1994 and $6 million in 1993.  The
decrease in expenses from 1994 to 1995 is primarily due to higher legal costs
incurred during 1994.  The amount of expense associated with stock appreciation
rights is based on the market price of the underlying common stock as of the
date of the financial statements.  The expense is subject to future adjustment
based on market price fluctuations and, ultimately, on the final determination
of market value when the rights are exercised.  Stock options and/or stock
appreciation rights granted by Liberty prior to the TCI/Liberty Combination
have been assumed by TCI.

         Subsequent to the Distribution, certain corporate general and
administrative costs are charged to Liberty Media Group at rates set at the
beginning of each year based on projected utilization for that year.  The
utilization-based charges are set at levels that management believes to be
reasonable and that would approximate the costs Liberty Media Group would incur
for comparable services on a stand alone basis.  The accompanying combined
statements of operations through the date of the TCI/Liberty Combination do not
reflect the allocation of corporate general and administrative costs in the
aforementioned manner because the majority of the entities attributable to
Liberty Media Group were owned, directly or indirectly, by Liberty through such
dates.  During the year ended December 31, 1995, Liberty Media Group was
allocated $3 million in corporate general and administrative costs by TCI.

         Prior to the determination by the Board to seek approval by
shareholders to distribute Liberty Group Stock, TCI did not have formalized
intercompany allocation methodologies.  In connection with such determination,
management of TCI has determined that TCI general corporate expenses should be
allocated to Liberty Media Group based on the amount of time TCI corporate
employees (e.g. legal, corporate, payroll, etc.) expend on Liberty Media Group
matters.  TCI management evaluated several alternative allocation methods
including assets, revenue, operating income, and employees.  Management did not
believe that any of these methods would reflect an appropriate allocation of
corporate expenses given the diverse nature of TCI's operating subsidiaries,
the relative maturity of certain of the operating subsidiaries, and the way in
which corporate resources are utilized.

         Other Income and Expense

         Interest expense was $19 million, $13 million and $12 million in 1995,
1994 and 1993, respectively.  The increased debt at HSN and Prime Sports-West
is primarily responsible for the increase in interest expense in 1995.

         Liberty Media Group's combined indebtedness bears interest at rates
that fluctuate with market rates.  Consequently, a general increase in interest
rates would result in an increase in combined interest expense.





                                     II-33
<PAGE>   100
         Dividend and interest income was $12 million, $20 million and $23
million for the years ended December 31, 1995, 1994 and 1993, respectively.
The decrease in 1995 is primarily the result of the repayment of an HSN note
receivable in August 1994.

         Liberty Media Group's share of losses of affiliates was $15 million
for 1995 compared to earnings of $31 million and $27 million for 1994 and 1993,
respectively.  The increase in losses in 1995 is primarily due to share of
losses of Court.  In August 1995, Liberty Media Group made an additional $29
million investment in Court which represented Liberty Media Group's pro rata
share of capital calls made in prior years by the other partners of Court that
Liberty Media Group had no obligation to fund.  Due to the additional
investment in Court, Liberty Media Group's share of losses of Court for the
year ended December 31, 1995 of $21 million includes $18 million of previously
unrecognized losses of Court.  Such losses were not recognized in prior periods
due to the fact that Liberty Media Group's investment in Court had been reduced
to zero.  The 1995 increase in losses also was partially due to the sale of
substantially all of Liberty Media Group's interest in AMC in July 1994, which
investment contributed $9 million to the 1994 earnings.  Liberty Media Group's
share of earnings in affiliates attributable to its interest in QVC decreased
$9 million for 1995, as compared to 1994.  Such change is primarily the result
of increased interest expense on additional debt arising from the QVC Merger as
well as compensation resulting from stock option redemptions in the QVC Merger.
Liberty Media Group's share of losses increased by $8 million due to share of
losses in Australia.

         Upon consummation of the QVC Merger, the Purchaser was merged with and
into QVC with QVC continuing as the surviving corporation.  Liberty Media Group
owns an approximate 43% interest of the post-merger QVC.  Upon consummation of
the QVC Merger, Liberty Media Group is deemed to exercise significant influence
over QVC and, as such, has adopted the equity method of accounting.  The 1994
combined financial statements included herein have been restated to reflect the
equity method of accounting.  Such restatement resulted in an increase in
Liberty Media Group's net earnings of $4.6 million for the year ended December
31, 1994. The restatement did not affect Liberty Media Group's results of
operations for the year ended December 31, 1993 as QVC was accounted for under
the equity method during that period.

         During 1995, BET repurchased a portion of its own common stock.  Upon
consummation of the repurchases, Liberty Media Group's ownership of BET was
increased from 19% to 22%.  Therefore, Liberty Media Group is deemed to
exercise significant influence over BET and, accordingly, has adopted the
equity method of accounting.  The accompanying 1994 and 1993 combined financial
statements have been restated to reflect the equity method of accounting for
Liberty Media Group's investment in BET.  Such restatement resulted in an
increase in the Company's net earnings of $1.8 million and $1.5 million for
1994 and 1993, respectively.





                                     II-34
<PAGE>   101
         Recent Accounting Pronouncements

         In March of 1995, the FASB issued Statement No. 121, effective for
fiscal years beginning after December 15, 1995.  Statement No. 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of.  Liberty Media Group will adopt Statement No. 121
effective January 1, 1996.  The effect of such adoption is not expected to be
significant.

         Statement No. 123 was issued by the FASB in October 1995.  Statement
No. 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.  Liberty Media Group will include the disclosures required by
Statement No. 123 in the notes to future financial statements.

         Liquidity and Capital Resources

         Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense to Liberty Media Group for purposes of preparing
its combined financial statements, the change in the capital structure of TCI
approved by the shareholders of TCI does not affect the ownership or the
respective legal title to assets or responsibility for liabilities of TCI or
any of its subsidiaries.  TCI and its subsidiaries will each continue to be
responsible for their respective liabilities.  Holders of Liberty Group Stock
are holders of common stock of TCI and will continue to be subject to risks
associated with an investment in TCI and all of its businesses, assets and
liabilities.  The issuance of Liberty Group Stock does not affect the rights of
creditors of TCI.

         Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition of TCI could affect
the combined results of operations or financial condition of Liberty Media
Group and the market price of shares of Liberty Group Stock.  In addition, net
losses of any portion of TCI, dividends and distributions on, or repurchases
of, any series of common stock, and dividends on, or certain repurchases of
preferred stock would reduce funds of TCI legally available for dividends on
all series of common stock.  Accordingly, Liberty Media Group financial
information should be read in conjunction with the TCI consolidated financial
information.





                                     II-35
<PAGE>   102
         Dividends on Liberty Group Stock will be payable at the sole
discretion of the Board out of the lesser of all assets of TCI legally
available for dividends and the available dividend amount with respect to
Liberty Media Group, as defined.  Determinations to pay dividends on Liberty
Group Stock will be based primarily upon the financial condition, results of
operations and business requirements of Liberty Media Group and TCI as a whole.

         Following the TCI/Liberty Combination, TCI has managed certain
treasury activities for Liberty Media Group on a centralized basis.  Cash
receipts of certain businesses attributed to Liberty Media Group are remitted
to TCI and certain cash disbursements of Liberty Media Group are funded by TCI
on a daily basis.  Prior to the Distribution, but subsequent to the TCI/Liberty
Combination, the net amounts of such cash activities are included in combined
equity in the accompanying combined financial statements.  Prior to the
TCI/Liberty Combination, Liberty separately managed the treasury activities of
its subsidiaries.  Subsequent to the Distribution, such cash activities are
included in borrowings from or loans to TCI or, if determined by the Board, as
an equity contribution to the Liberty Media Group.

         The Board could determine from time to time that debt of TCI not
incurred by entities attributed to Liberty Media Group or preferred stock and
the proceeds thereof should be specifically attributed to and reflected on the
combined financial statements of Liberty Media Group to the extent that the
debt is incurred or the preferred stock is issued for the benefit of Liberty
Media Group.

         For all periods prior to the Distribution, all financial impacts of
equity offerings were attributed entirely to TCI.  Following the Distribution,
all financial impacts of issuances of additional shares of TCI Group Stock will
be attributed entirely to TCI Group, and all financial impacts of issuances of
additional shares of Liberty Group Stock, the proceeds of which are attributed
to Liberty Media Group, will to such extent be reflected entirely in the
combined financial statements of Liberty Media Group.  Financial impacts of
dividends or other distributions on, and purchases of, TCI Group Stock will be
attributed entirely to TCI Group, and financial impacts of dividends or other
distributions of Liberty Group Stock will be attributed entirely to Liberty
Media Group.  Financial impacts of repurchases of Liberty Group Stock the
consideration for which is charged to Liberty Media Group will be reflected
entirely in the combined financial statements of Liberty Media Group, and
financial impacts of repurchases of Liberty Group Stock the consideration for
which is charged to TCI Group will be attributed entirely to TCI Group.

         Subsequent to the Distribution, borrowings from or loans to TCI will
bear interest at such rates and have repayment schedules and other terms as are
established by the Board.  The Board expects to make such determinations,
either in specific instances or by setting generally applicable policies from
time to time, after consideration of such factors as it deems relevant,
including, without limitation, the use of proceeds by and creditworthiness of
the recipient Group, the capital expenditure plans and investment opportunities
available to each Group and the availability, cost and time associated with
alternative financing sources.

         Liberty Media Group's sources of funds include its available cash
balances, cash generated from operating activities, cash distributions from
affiliates, dividend and interest payments, asset sales, availability under
certain credit facilities, and loans and/or equity contributions from TCI.  To
the extent cash needs of Liberty Media Group exceed cash provided by Liberty
Media Group, TCI may transfer funds to Liberty Media Group.  Conversely, to the
extent cash provided by Liberty Media Group exceeds cash needs of Liberty Media
Group, Liberty Media Group may transfer funds to TCI.





                                     II-36
<PAGE>   103
         Many of Liberty Media Group's subsidiaries' loan agreements contain
restrictions regarding transfers of funds to other members of Liberty Media
Group in the form of loans, advances or cash dividends.  However, other
subsidiaries, principally Southern (which is the satellite carrier for the
signal of WTBS, a 24-hour independent UHF television station originated by TBS),
Netlink and certain of the regional sports businesses are not restricted from
making transfers of funds to other members of the group.  The cash provided by
operating activities of Southern, is a primary source of cash available for
distribution to Liberty Media Group.  However, Southern does not have an
agreement with WTBS with respect to the retransmission of its signal and there
are no specific statutory restrictions per se which would prevent any other
satellite carriers from retransmitting such signal to cable operators and
others.  If the business of Southern is adversely affected by competitive or
other factors, it may have an adverse effect on the ability of Liberty Media
Group to generate adequate cash to meet its obligations.  Additionally, while
Liberty Media Group expects to receive distributions from the Netlink/Superstar
Venture, they may be lower than the cash currently generated and received from
Netlink's operations.

         In connection with the TBS/Time Warner Merger, Time Warner has agreed
to issue common stock to Liberty Media Group in exchange for Liberty Media
Group's holdings of TBS common and preferred stock. In addition, Time Warner
has agreed to issue common stock to Liberty Media Group in exchange for a
6-year option to purchase Southern. If Time Warner acquires and exercises an
option to purchase Southern, Southern will no longer be a primary source of
cash available for distribution to Liberty Media Group. However, it is
anticipated that Time Warner will continue to pay dividends on its common
stock, and consequently Liberty Media Group would receive dividends on the
common stock received in connection with the TBS/Time Warner merger in an
amount that would approximate the cash generated by Southern's operations.
There can be no assurance the dividends on the Time Warner Series Common Stock
will continue to be paid, in which case the sale of Southern may have an
adverse effect on the ability of Liberty media Group to generate adequate cash
to meet its obligations.

         Liberty Media Group has a revolving line of credit which provides for
borrowings of up to $325 million, $30 million of which was outstanding at
December 31, 1995.  Several subsidiaries of Liberty Media Group have credit
facilities. ARC Holding, Ltd. ("ARCH"), a wholly-owned subsidiary of ARC, has a
$40.5 million revolving credit facility with a group of banks, $20 million of
which was outstanding at December 31, 1995.  Another subsidiary, Prime Sports-
West, has a $65 million credit facility with a bank, $52 million of which was
outstanding at December 31, 1995.  HSN has a revolving credit facility (the
"Credit Facility") for $150 million, $135 million of which was outstanding on
December 31, 1995. The HSN, ARCH and Prime Sports-West facilities restrict the
transfer of funds to affiliated companies, and include various financial
covenants, including maintenance of certain financial ratios.
PrimeSports-West's facility was amended in March 1996 to provide for an
additional $15 million of borrowings in the form of revolving term loans.

         On February 13, 1996, the covenants in the Credit Facility were
amended to include the effect of, among other things, certain of the
restructuring charges as previously discussed, to allow for additional
subordinated financing as discussed below and, upon conclusion of the
additional financing, to reduce the maximum borrowing availability under the
Credit Facility to $120 million.  However, there remain restrictions on
repurchases of HSN's common stock based upon future cash flow levels.  On March
1, 1996, HSN completed a private placement of $100 million of convertible
subordinated debentures due March 1, 2006.  HSN used the net proceeds to repay
borrowings under the Credit Facility leaving an outstanding loan balance of $30
million with $90 million available for borrowing under the Credit Facility.
HSN anticipates that it will use its additional borrowing capacity to finance
working capital requirements, capital expenditures and general corporate
purposes.

         Various partnerships and other affiliates of Liberty Media Group
accounted for under the equity method finance a substantial portion of their
acquisitions and capital expenditures through borrowings under their own credit
facilities and net cash provided by their operating activities.





                                     II-37
<PAGE>   104
         Liberty Media Group intends to continue to develop its entertainment
and information programming services and has made certain financial commitments
related to the acquisition of programming.  At December 31, 1995, Liberty Media
Group's future minimum obligation related to certain film licensing agreements
was $163 million.  The amount of the total obligation is not currently
estimable because such amount is dependent upon certain variable factors.
Liberty Media Group's obligations for certain sports program rights contracts
at December 31, 1995 was $448 million.  Upon the formation of the Fox-Liberty
Venture, of which there is no assurance, Liberty Media Group anticipates that
such commitments will be transferred to the Fox-Liberty Venture.  In the event
the Fox-Liberty Venture is not formed, Liberty Media Group expects that
sufficient cash will be generated by the programming services to satisfy these
commitments.  However, continued development may require additional financing
and it cannot be predicted whether Liberty Media Group will obtain such
financing.  If additional financing cannot be obtained, Liberty Media Group
could attempt to sell assets but there can be no assurance that asset sales, if
any, can be consummated at a price and on terms acceptable to Liberty Media
Group.  Further, Liberty Media Group and/or TCI could attempt to sell equity
securities but, again, there can be no certainty that such a sale could be
accomplished on acceptable terms.

         HSN has significant working capital needs for inventory and accounts
receivable.  However, HSN expects to meet its recurring working capital needs
primarily through internally generated funds, its additional borrowing capacity
as discussed above, and its existing credit facilities.






                                     II-38
<PAGE>   105
         TCI GROUP

         General

         As of January 27, 1994, TCIC and Liberty entered into a definitive
merger agreement to combine the two companies.  The transaction was consummated
on August 4, 1994.  Due to the significant economic interest held by TCIC
through its ownership of Liberty preferred stock and Liberty common stock and
other related party considerations, TCIC accounted for its investment in
Liberty under the equity method prior to the consummation of the TCI/Liberty
Combination.  Accordingly, TCIC had recognized 100% of Liberty's earnings or
losses before deducting preferred stock dividends.  The TCI/Liberty Combination
was accounted for using predecessor cost due to related party considerations.
Accordingly, the accompanying combined financial statements of TCI Group
reflect the combination of the historical financial information of the assets
of TCI and Liberty which have not been attributed to Liberty Media Group.  For
periods prior to the TCI/Liberty Combination, the combined financial statements
of TCI Group and Liberty Media Group comprise all the accounts included in the
corresponding consolidated financial statements of TCI and subsidiaries and
Liberty and subsidiaries.  For periods subsequent to the TCI/Liberty
Combination, the combined financial statements of TCI Group and Liberty Media
Group comprise all the accounts included in the corresponding consolidated
financial statements of TCI and subsidiaries.








                                      II-39
<PAGE>   106

         On August 3, 1995, the shareholders of TCI authorized the Board to
issue a new class of stock which is intended to reflect the separate
performance of Liberty Media Group.  While the Liberty Group Stock constitutes
common stock of TCI, the issuance of the Liberty Group Stock did not result in
any transfer of assets or liabilities of TCI or any of its subsidiaries or
affect the rights of holders of TCI's or any of its subsidiaries' debt.  On
August 10, 1995, TCI distributed one hundred percent of the equity value
attributable to Liberty Media Group to its security holders of record on August
4, 1995.  Additionally, shareholders of TCI approved the redesignation of the
previously authorized Class A and Class B common stock of TCI into Series A and
Series B TCI Group Stock.








                                      II-40
<PAGE>   107

         Upon the distribution of the Liberty Group Stock and subsequent to the
redesignation of TCI Class A and Class B common stock into Series A and Series
B TCI Group Stock, the TCI Group Stock is intended to reflect the separate
performance of TCI Group, which is generally comprised of the subsidiaries and
assets not attributed to Liberty Media Group, including (i) TCI's Cable and
Communications unit, (ii) TINTA and (iii) TCI's Technology/Venture Capital
unit.  The businesses of TCI not attributed to Liberty Media Group are referred
to as "TCI Group".





                                     II-41
<PAGE>   108
         Summary of Operations

         TCI Group operates principally in the cable and communications
industry.  The Technology/Venture Capital and the International Cable and
Programming portions of TCI Group's business have been included with cable and
communications services due to their relative insignificance.  The table below
sets forth for the periods presented, the percentage relationship that certain
items bear to revenue.  This summary provides trend data relating to the normal
recurring operations of TCI Group.  Other items of significance are discussed
separately under separate captions below.

<TABLE>
<CAPTION>
                                                         Years ended December 31,                   
                                    ----------------------------------------------------------------
                                           1995                   1994                 1993       
                                    ------------------      -----------------      -----------------
                                              amounts in millions, except for percentages
<S>                                <C>         <C>          <C>       <C>          <C>       <C>
Revenue                             100%        $5,384      100%       $4,269      100%       $4,090
Operating costs and expenses before
   depreciation and amortization      64         3,457        58        2,480        55        2,251
Depreciation and amortization         24         1,274        23        1,001        22          920
                                    ----        ------      ----       ------      ----       ------

     Operating income                 12%       $  653        19%      $  788        23%      $  919
                                    ====        ======      ====       ======      ====       ======
</TABLE>

         On October 5, 1992, Congress enacted 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, TCI Group's Regulated Services are subject to the jurisdiction of
local franchising authorities and the FCC.  The regulations established
benchmark rates in 1993, which were further reduced in 1994, to which the rates
charged by cable operators for Regulated Services were required to conform.

         The FCC also allowed cable operators to justify rates under "cost of
service" rules, which allow "high cost" systems to establish rates in excess of
the benchmark level.  The FCC's interim cost of service rules allowed a cable
operator to recover through rates for regulated cable services its normal
operating expenses plus a rate of return equal to 11.25 percent on the rate
base.  However, the FCC significantly limited the inclusion in the rate base of
acquisition costs in excess of the book value of tangible assets.  As a result,
the Company pursued cost of service justifications in only a few cases.  On
December 15, 1995, the FCC adopted slightly more favorable cost of service
rules.

         The regulations also provide mechanisms for adjusting rates when
regulated tiers are affected by channel additions or deletions.  Additional
programming costs resulting from channel additions can be accorded the same
external treatment as other program costs increases, and cable operators
presently are permitted to recover a mark-up on their programming expenses.
Under one option, operators are allowed a flat ($.20) fee increase per channel
added to an existing CPST, with an aggregate cap on such increases ($1.20) plus
a license fee reserve ($.30) through 1996.  In 1997, an additional flat ($.20)
fee increase will be available, and the license fees for additional channels
and for increases in existing channels will no longer be subject to the
aggregate cap.  This optional approach for adding services is scheduled to
expire on December 31, 1997.





                                     II-42
<PAGE>   109
         TCI Group reduced its rates in 1993 and 1994 and limited its rate
increases in 1995 in response to FCC regulations.  TCI Group believes that it
has complied, in all material respects, with the provisions of the 1992 Cable
Act, including its rate setting provisions.  However, TCI Group's rates for
Regulated Services are subject to adjustment upon review, as described above.
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.

         On October 30, 1995, the FCC accepted for comment a proposed
resolution of all complaints against the cable programming services tier
currently pending against cable systems owned by TCI Group.  If the proposed
resolution is accepted by the FCC, TCI Group will settle all pending complaints
by a one-time credit to each subscriber in CPST regulated franchises.  The
aggregate amount of such credits is approximately $9 million and had previously
been accrued by TCI Group.  In addition, the FCC will find that the CPST rates
in CPST regulated franchises on September 15, 1995 comply with federal
regulations.  TCI Group has committed not to file any additional
cost-of-service filings until May 15, 1996 in franchises that were subject to
CPST regulation prior to September 15, 1995.  However, TCI Group will be able
to avail itself of the other mechanisms under FCC rules to recover costs,
including abbreviated cost-of-service filings covering system rebuilds and
upgrades.  In the proposed resolution, TCI Group does not admit any violation
of, or any failure to conform to, the 1992 Cable Act or the rules promulgated
thereunder.  The comment period has ended and TCI Group is awaiting final
action by the FCC.

         Because the 1996 Telecom Act does not deregulate CPST rates until 1999
(and basic service tier rates will remain regulated thereafter), TCI Group
believes that the 1993 and 1994 rate regulations have had and will continue to
have a material adverse effect on its results of operations.

         Revenue increased 26% from 1994 to 1995.  Such increase is the result
of the effect of certain acquisitions (13%), growth in TCI Group's Primestar
subscribers (4%), increases in the rates charged to TCI Group's subscribers
from inflation increases, the provision of new channels and increases in
equipment costs (4%), growth in subscriber levels within TCI Group's cable
television systems (4%) and an increase in the Company's long distance voice
and data service revenue (1%).  Revenue increased by approximately 4% from 1993
to 1994.  Such increase was the result of growth in subscriber levels within
TCI Group's cable television systems (5%), the effect of certain other
acquisitions (2%) and certain new services (1%), net of a decrease in revenue
(4%) due to rate reductions required by rate regulation implemented pursuant to
the 1992 Cable Act.  In the second half of 1994, as a result of the FCC's
revision of its rate regulations which reduced benchmark rates, TCI Group
experienced an additional decrease, in excess of that which was incurred in
1993, in the price charged for those services that are subject to rate
regulation under the 1992 Cable Act.

         Operating costs and expenses before depreciation and amortization
increased 40% for the year ended December 31, 1995.  Exclusive of the effects
of acquisitions (13%) and Primestar (7%) (see discussion below), such expenses
increased 20%. Programming expenses accounted for the majority of such
increase.  TCI Group cannot determine whether and to what extent increases in
the cost of programming will affect its future operating costs.  However, such
programming costs have increased at a greater percentage than increases in
revenue from Regulated Services. TCI Group will experience an increase in 
programming costs in the first five months of 1996 without increasing its 
rates charged to its customers at that time.  In June of 1996, TCI Group will 
be entitled to an increase in its service rates for increased programming 
costs and inflation. FCC regulations provide for TCI Group to further increase 
its rates by an additional amount intended to recover increased programming 
costs incurred during the first five months of 1996 and not previously 
recovered, as well as interest on said amounts.

         During 1995, TCI Group changed its approach to how it ordered and
stored excess cable distribution equipment. TCI Group created material support
centers and consolidated all of its excess inventory. In conjunction with this
change, TCI Group incurred $5 million of costs. Additionally, during 1995, TCI
Group incurred approximately $22 million in expenses related to initiatives to
improve its customer service, to begin the redesign of its computer and
accounting systems and to promote and market TCI Group's products. During the
fourth quarter of 1995, TCI Group incurred $25 million in expenses related to
payment of bonuses to the majority of its employees.        





                                     II-43
<PAGE>   110
         During 1995, TCI Group's revenue and expenses related to its satellite
service operations have increased significantly as the number of TCI Group's
Primestar subscribers increased from approximately 100,000 subscribers at
January 1, 1995 to approximately 550,000 subscribers at December 31, 1995.
During the year ended December 31, 1995, revenue increased from $30 million to
$207 million and operating, selling, general and administrative expenses
increased from $18 million to $197 million, as compared to the year ended
December 31, 1994.  TCI Group incurs significant sales commission and
installation costs when customers initially subscribe.  Therefore, as long
as TCI Group continues to launch this new service and increase its Primestar
subscriber base at such a rapid pace, management expects that operating costs
and expenses will increase as well.

         Operating costs and expenses before depreciation and amortization
increased 10% for the year ended December 31, 1994 compared to the
corresponding period of 1993.  The consolidation of Liberty resulted in an
increase of $18 million in operating, selling, general and administrative
expenses from Liberty's cable television systems.  In 1993, TCI Group incurred
certain one-time direct charges relating to the implementation of the FCC rate
regulations.

         The increase in TCI Group's depreciation expense in 1995 is due to
acquisitions as well as increased capital expenditures due to a program to
upgrade and install optical fiber technology in TCI Group's cable systems.  The
systems, which facilitate digital transmission of voice, video and data signals,
will have optical fiber to neighborhood nodes with coaxial cable distribution
downstream from that point. The increase in TCI Group's amortization expense in
1995 is due to acquisitions.

         Certain corporate general and administrative costs are charged to
Liberty Media Group at rates set at the beginning of the year based on
projected utilization for that year.  The utilization-based charges are set at
levels that management believes to be reasonable and that would approximate the
costs Liberty Media Group would incur for comparable services on a stand alone
basis.  The accompanying combined statements of operations do not reflect the
allocation of corporate general and administrative costs through the date of
the TCI/Liberty Combination in the aforementioned manner because the majority
of the entities attributable to Liberty Media Group were owned, directly or
indirectly, by Liberty Media Corporation for the majority of the periods
presented herein.  During 1995, Liberty Media Group was allocated $3 million in
corporate general and administrative costs by TCI Group.

         Prior to the determination of the Board to seek approval of
shareholders to distribute the Liberty Group Stock, TCI did not have formalized
intercompany allocation methodologies.  In connection with such determination,
management of TCI has determined that TCI general corporate expenses should be
allocated to Liberty Media Group based on the amount of time TCI corporate
employees (e.g. legal, corporate, payroll, etc.) expend on Liberty Media Group
matters.  TCI management evaluated several alternative allocation methods
including assets, revenue, operating income, and employees.  Management did not
believe that any of these methods would reflect an appropriate allocation of
corporate expenses given the diverse nature of TCI's operating subsidiaries,
the relative maturity of certain of the operating subsidiaries, and the way in
which corporate resources are utilized.

         TCI Group records compensation relating to stock appreciation rights
and restricted stock awards granted to certain employees by TCI or TINTA.  Such
compensation 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.


                                     II-44
<PAGE>   111
         Other Income and Expenses

         During the first quarter of 1995, Liberty Media Group acquired an
additional interest in an investment previously accounted for under the cost
method.  Upon consummation of such transaction, Liberty Media Group is deemed
to exercise significant influence over such entity and, as such, adopted the
equity method of accounting.  The restatement resulted in an increase in
earnings from Liberty Media Group of $5 million for the year ended December 31,
1994.

         TCI Group's interest expense increased $207 million or 26% from 1994
to 1995 and $51 million or 7% from 1993 to 1994.  Such increases are the result
of higher interest rates and debt balances. TCI Group's weighted average
interest rate on borrowings was 8.1%, 7.6% and 7.3% during 1995, 1994 and 1993,
respectively.

         TCI Group is a shareholder of TeleWest, a company that is currently
operating and constructing cable television and telephone systems in the UK.
TeleWest, which is accounted for under the equity method, had a carrying value
at December 31, 1995 of $550 million and comprised $70 million, $43 million and
$28 million of TCI Group's share of its affiliates' losses in 1995, 1994, and
1993, respectively.  In addition, TCI Group 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 equity method investments had a
carrying value of $354 million at December 31, 1995 and accounted for $62
million and $50 million of TCI Group's share of its affiliates' losses in 1995
and 1994, respectively.

         TeleWest was formed during the fourth quarter of 1995 upon the merger
of TeleWest Communications with SBC (CableComms)(UK).  Prior to the TeleWest
Merger, TCI Group had an effective ownership interest of approximately 36% in
TeleWest Communications, and subsequent to the TeleWest Merger, TCI Group has
an effective ownership interest of approximately 27% in TeleWest.  As a result
of the TeleWest Merger, TCI Group recognized a gain of $165 million (before
deducting the related tax expense of $58 million).  Such gain represents the
difference between TCI Group's recorded cost for TeleWest Communications and
TCI Group's effective proportionate share of TeleWest's net assets. There is no
assurance that TCI Group will realize similar gains in future periods.

         As a result of the TeleWest Communications November 1994 initial
public offering and the associated dilution of TCI Group's ownership interest
of TeleWest Communications, TCI Group recognized a gain amounting to $161
million (before deducting the related tax expense of $57 million) in 1994.

         TeleWest, which is currently constructing broadband cable television
and telephony networks in the UK, has incurred net losses since its inception.
Although there is no assurance, TCI Group believes (i) that the continued
expansion of TeleWest's networks ultimately will provide TeleWest with a
revenue base that will exceed its expenses and (ii) that TeleWest's present and
future sources of liquidity (including the net proceeds from the TeleWest IPO
and certain bank credit facilities) will be sufficient to meet TeleWest's
liquidity requirements for the foreseeable future.  TCI Group has no present
intention to make significant loans to or investments in TeleWest.

         As a result of the TINTA IPO and TYC Acquisition, TCI Group recognized
a gain amounting to $123 million during 1995.  There is no assurance that TCI 
Group will realize similar gains in future periods.





                                     II-45
<PAGE>   112
         Net Earnings (Loss)

         TCI Group's net loss (before earnings of Liberty Media Group and
preferred stock dividend requirements) of $115 million for the year ended
December 31, 1995 represents a decrease of $93 million, as compared to TCI
Group's net loss of $22 million for 1994.  Such decrease is the result of
increases in interest expense and share of losses of affiliates combined with a
decrease in operating income which were partially offset by the aforementioned 
gain recognized as a result of the TINTA IPO and the TYC Acquisition and a
decrease in tax expense.

         TCI Group's net loss (before earnings of Liberty Media Group and
preferred stock dividend requirements) of $22 million for 1994 represents an
increase of $11 million, as compared to TCI Group's net loss of $33 million for
1993. Such increase is the net result of the recognition of a gain resulting
from TeleWest Communications' initial public offering and a decrease in tax
expense offset by a decrease in operating income and an increase in share of
losses of affiliates.

         Inflation has not had a significant impact on TCI Group's results of
operations during the three-year period ended December 31, 1995.

         Recent Accounting Pronouncements

         In March of 1995, the FASB issued Statement No. 121, effective for
fiscal years beginning after December 15, 1995.  Statement No. 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of.  TCI Group will adopt Statement No. 121 effective
January 1, 1996.  The effect of such adoption is not expected to be
significant.

         Statement No. 123 was issued by the FASB in October 1995.  Statement
No. 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.  TCI Group will include the disclosures required by Statement
No. 123 in the notes to future financial statements.

         Liquidity and Capital Resources

         Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense to TCI Group for purposes of preparing its combined
financial statements, the change in the capital structure of TCI approved by
the shareholders of TCI does not affect the ownership or the respective legal
title to assets or responsibility for liabilities of TCI or any of its
subsidiaries.  TCI and its subsidiaries each continue to be responsible for
their respective liabilities.  Holders of TCI Group Stock are holders of common
stock of TCI and continue to be subject to risks associated with an investment
in TCI and all of its businesses, assets and liabilities.  The issuance of
Liberty Group Stock did not affect the rights of creditors of TCI.

         Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition and TCI could affect
the combined results of operations or financial condition of TCI Group and the
market price of shares of the TCI Group Stock.  In addition, net losses of any
portion of TCI, dividends or distributions on, or repurchases of, any series of
common stock, and dividends on, or certain repurchases of preferred stock would
reduce the funds of TCI legally available for dividends on all series of common
stock.  Accordingly, TCI Group financial information should be read in
conjunction with the TCI and Liberty Media Group financial information.


                                     II-46
<PAGE>   113
         Dividends on the TCI Group Stock are payable at the sole discretion of
the Board out of the lesser of assets of TCI legally available for dividends
and the available dividend amount with respect to TCI Group, as defined.
Determinations to pay dividends on TCI Group Stock would be based primarily
upon the financial condition, results of operations and business requirements
of TCI Group and TCI as a whole.

         Following the TCI/Liberty Combination, TCI Group has managed certain
treasury activities for Liberty Media Group on a centralized basis.  Cash
receipts of certain businesses attributed to Liberty Media Group are remitted
to TCI Group and certain cash disbursements of Liberty Media Group are funded
by TCI Group on a daily basis.  Prior to the Distribution, but subsequent to
the TCI/Liberty Combination, the net amounts of such cash activities are
included in investment in Liberty Media Group in the accompanying combined
financial statements.  Prior to the TCI/Liberty Combination, Liberty separately
managed the treasury activities of its subsidiaries.  Subsequent to the
Distribution, such cash activities are included in borrowings from or loans to
TCI Group or, if determined by the Board, as an equity contribution to be
reflected as an Inter-Group Interest to Liberty Media Group.

         The Board could determine from time to time that debt of TCI Group not
incurred by entities attributed to the Liberty Media Group or preferred stock
and the proceeds thereof should be specifically attributed to and reflected on
the combined financial statements of Liberty Media Group to the extent that the
debt is incurred or the preferred stock is issued for the benefit of Liberty
Media Group.

         For all periods prior to the Distribution, all financial impacts of
equity offerings were attributed entirely to TCI Group.  After the
Distribution, all financial impacts of issuances of additional shares of TCI
Group Stock will be attributed entirely to TCI Group, all financial impacts of
issuances of additional shares of Liberty Group Stock, the proceeds of which
are attributed to Liberty Media Group, will be reflected entirely in the
combined financial statements of Liberty Media Group.  Financial impacts of
dividends or other distributions on, and purchases of, TCI Group Stock will be
attributed entirely to TCI Group, and financial impacts of dividends or other
distributions on Liberty Group Stock will be attributed entirely to Liberty
Media Group.  Financial impacts of repurchases of Liberty Group Stock the
consideration for which is charged to Liberty Media Group will be reflected
entirely in the combined financial statements of Liberty Media Group, and the
financial impacts of repurchases of Liberty Group Stock the consideration for
which is charged to TCI Group will be attributed entirely to TCI Group.

         Subsequent to the Distribution, borrowings from or loans to TCI Group
will bear interest at such rates and have repayment schedules and other terms
as are established by the Board.  The Board expects to make such
determinations, either in specific instances or by setting generally applicable
policies from time to time, after consideration of such factors as it deems
relevant, including, without limitation, the use of proceeds by and
creditworthiness of the recipient Group, the capital expenditure plans and
investment opportunities available to each Group and the availability, cost and
time associated with alternative financing sources.

         During 1994, TCI Group, Comcast, Cox and Sprint formed WirelessCo to
engage in the business of providing wireless communications services on a
nationwide basis.  Through WirelessCo, in which TCI Group owns an indirect 30%
interest, the partners participated in PCS Auctions of broadband PCS licenses
conducted by the FCC.  In the first round auction, which concluded during the
first quarter of 1995, WirelessCo was the winning bidder for PCS licenses for
29 markets, including New York, San Francisco-Oakland-San Jose, Detroit,
Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and Miami-Fort
Lauderdale.  The aggregate license cost for these licenses was approximately
$2.1 billion.





                                     II-47
<PAGE>   114
         WirelessCo also invested in APC, which holds a PCS license granted
under the FCC's pioneer preference program for the Washington-Baltimore market.
WirelessCo acquired its 49% limited partnership interest in APC for $23 million
and agreed to make capital contributions to APC equal to 49/51 of the cost of
APC's PCS license.  Additional capital contributions may be required in the
event APC is unable to finance the full cost of its PCS license.  WirelessCo
may also be required to finance the build-out expenditures for APC's PCS
system.  Cox, which holds a pioneer preference PCS license for the Los
Angeles-San Diego market, and WirelessCo have also agreed on the general terms
and conditions upon which Cox (with a 51% interest) and WirelessCo (with a 49%
interest) would form a partnership to hold and develop a PCS system using the
Los Angeles-San Diego license.  APC and the Cox partnership would affiliate
their PCS systems with WirelessCo and be part of WirelessCo's nationwide
integrated network, offering wireless communications services under the
"Sprint" brand.

         During 1994, subsidiaries of Cox, Sprint and TCI Group also formed
PhillieCo, in which the TCI Group owns a 35.3% interest.  PhillieCo was the
winning bidder in the first round auction for a PCS license for the
Philadelphia market at a license cost of $85 million.  To the extent permitted
by law, the PCS system to be constructed by PhillieCo would also be affiliated
with WirelessCo's nationwide network.

         WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful bidders.
The capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above, will
be substantial.

         In March of 1995, the Cable Partners and Sprint formed two new
partnerships, of which the principal partnership is MajorCo, L.P., to which
they contributed their respective interests in WirelessCo and through which
they formed another partnership, NewTelco, L.P. to engage in the business of
providing local wireline communications services to residences and businesses
on a nationwide basis.  The Cable Partners agreed to contribute their interests
in TCG to NewTelco.  TCG is one of the largest competitive access providers in
the United States in terms of route miles.

         Effective January 31, 1996, the Partners amended the MajorCo
partnership agreement and certain other agreements related thereto.  Under the
Partnership Agreement, the business of MajorCo and its subsidiaries will be the
provision of certain wireless and other services described in the Partnership
Agreement.  The partners intend for WirelessCo and its subsidiary partnerships
to be the exclusive vehicles through which they engage in the wireless
telephony service businesses, subject to certain exceptions.  MajorCo will no
longer be authorized to engage in the businesses of providing local wireline
communications services to residences and businesses.  In connection with the
amendment of the Partnership Agreement, the Partners, also agreed to the
termination of the agreement to contribute the Cable Partners' interests in TCG
to NewTelco.

         Pursuant to separate agreements, each of the Cable Partners and Sprint
have agreed to negotiate in good faith on a market-by-market basis for the
provision of local wireline telephony services over the cable television
facilities of the respective Cable Partner under the Sprint brand.  Accordingly,
local wireline telephony offerings in each market would be the subject of
individual agreements to be negotiated with Sprint, rather than being provided
by MajorCo, as originally contemplated.  The Cable Partners and Sprint also
reaffirmed their intention to continue to attempt to integrate the business of
TCG with that of MajorCo.  In addition, each Cable Partner agreed to certain
restrictions on its ability to offer, promote, or package certain of its
products or services with certain products and services of other persons and
agreed to make its facilities available to Sprint for specified purposes to the
extent and on the terms that it has made such facilities available to others
for such purposes.  Such agreements have a term of five years, but under
certain circumstances may terminate after three years.





                                     II-48
<PAGE>   115
         Execution of the foregoing agreements was a condition to the
effectiveness of a previously approved business plan for the build out of
WirelessCo's nationwide network for wireless personal communications services.
Pursuant to the business plan, the Partners are obligated to make additional
cash capital contributions to MajorCo in the aggregate amount of approximately
$1.9 billion during the two-year period that commenced January 1, 1996.  The
business plan contemplates that MajorCo will require additional equity
thereafter.

         As of January 26, 1995, TCI Group and TeleCable consummated the
TeleCable Merger.  The aggregate $1.6 billion purchase price was satisfied by
TCI Group's assumption of approximately $300 million of TeleCable's net
liabilities and the issuance to TeleCable's shareholders of approximately 42
million shares of TCI Class A common stock and 1 million shares of Series D
Preferred Stock with an aggregate initial liquidation value of $300 million.
The Series D Preferred Stock, which accrues dividends at a rate of 5.5% per
annum, is convertible into 10 million shares of Series A TCI Group Stock and
2.5 million shares of Series A Liberty Group Stock.  The Series D Preferred
Stock is redeemable for cash at the option of TCI after five years and at the
option of either TCI or the holder after ten years.

         On April 25, 1995, TINTA acquired a 51% ownership interest in
Cablevision for a purchase price of $282 million, before liabilities assumed.
The purchase price was paid with cash consideration of $195 million and TINTA's
issuance of $87 million principal amount of secured negotiable promissory notes
payable to the selling shareholders.  TINTA has an option during the two-year
period ended April 25, 1997 to increase its ownership interest in Cablevision
up to 80% at a cost per subscriber similar to the initial purchase price,
adjusted however for certain fluctuations in applicable foreign currency
exchange rates.

         In July 1995, TCI Group entered into certain agreements with Viacom
and certain subsidiaries of Viacom regarding the purchase by TCI Group of all
of the common stock of Cable Sub which, at the time of purchase, will own
Viacom's cable systems and related assets.

         The transaction has been structured as a tax-free reorganization in
which Cable Sub will initially transfer all of its non-cable assets, as well as
all of its liabilities other than current liabilities, to New Viacom Sub.
Cable Sub will also transfer to New Viacom Sub the Loan Proceeds of a $1.7
billion loan facility to be arranged by TCI Group and Cable Sub.  Following
these transfers, Cable Sub will retain cable assets with an estimated value at
closing of approximately $2.2 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility.  Repayment of the Loan Proceeds
will be non-recourse to Viacom and New Viacom Sub.

         Viacom will offer to the holders of shares of Viacom Common Stock the
opportunity to exchange a portion of their shares of Viacom Common Stock for
shares Cable Sub Class A Stock.  The Exchange Offer will be subject to a number
of conditions, including a condition that sufficient tenders are made of Viacom
Common Stock that permit the number of shares of Cable Sub Class A Stock issued
pursuant to the Exchange Offer to equal the total number of shares of Cable Sub
Class A Stock issuable in the Exchange Offer.





                                     II-49
<PAGE>   116
         Immediately following the completion of the Exchange Offer, TCI Group
will acquire from Cable Sub shares of Cable Sub Class B common stock for $350
million (which will be used to reduce Cable Sub's obligations under the Loan
Facility).  At the time of such acquisition, the Cable Sub Class A Stock
received by Viacom stockholders pursuant to the Exchange Offer will
automatically convert into the Exchangeable Preferred Stock of Cable Sub with a
stated value of $100 per share.  The terms of the Exchangeable Preferred Stock,
including its dividend, redemption and exchange features, will be designed to
cause the Exchangeable Preferred Stock, in the opinion of two investment banks,
to initially trade at the Stated Value.  The Exchangeable Preferred Stock will
be exchangeable, at the option of the holder commencing after the fifth
anniversary of the date of issuance, for shares of Series A TCI Group Stock.
The Exchangeable Preferred Stock will also be redeemable, at the option of
Cable Sub, after the fifth anniversary of the date of issuance, and will be
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, payable in cash or, at the election of Cable Sub, in shares of
Series A TCI Group Stock or in any combination of the foregoing.  If
insufficient tenders are made by Viacom stockholders in the Exchange Offer to
permit the Minimum Condition to be satisfied, Viacom will extend the Exchange
Offer for up to 15 business days and, during such extension, TCI Group and
Viacom are to negotiate in good faith to determine mutually acceptable changes
to the terms and conditions for the Exchangeable Preferred Stock and the
Exchange Offer that each believes in good faith will cause the Minimum
Condition to be fulfilled and that would cause the Exchangeable Preferred Stock
to trade at a price equal to the Stated Value immediately following the
expiration of the Exchange Offer.  In the event the Minimum Condition is not
thereafter met, TCI and Viacom will each have the right to terminate the
transaction.  In addition, either party may terminate the transaction of the
Exchange Offer has not commenced by June 24, 1996 or been consummated by July
24, 1996.

         Consummation of the transaction is subject to a number of conditions,
including receipt of a favorable letter ruling from the Internal Revenue
Service that the transaction qualifies as a tax-free transaction and the
satisfaction or waiver of all of the conditions of the Exchange Offer.  A
request for a letter ruling from the Internal Revenue Service has been filed by
Viacom.  TCI Group believes that, based upon the unique and complex structure
of the transaction, there exists significant uncertainty as to whether a
favorable ruling will be obtained.  In light of the foregoing, management of
TCI Group has concluded that consummation of the transaction is not yet
probable.  Accordingly, no assurance can be given that the transaction will be
consummated.





                                     II-50
<PAGE>   117
         At December 31, 1995, Cable Sub provided service to approximately 1.2
million basic subscribers and had total assets of $1,067 million.  For the year
ended December 31, 1995, Cable Sub had revenue of $442 million and net earnings
of $34 million.  It is expected that if the transaction is consummated, TCI
Group would account for such acquisition under the purchase method of
accounting.  Accordingly, the cost to acquire Cable Sub estimated at
approximately $2.2 billion (reflecting the Loan Proceeds of $1.7 billion and
the estimated aggregate Stated Value of the Exchangeable Preferred Stock of
$500 million) would be allocated to the assets and liabilities acquired
according to their respective fair values, with any excess being treated as
intangible assets.  As such, TCI Group will, if such transaction is
consummated, reflect additional interest expense, depreciation, amortization
and minority share of losses of consolidated subsidiaries.  On a pro forma
basis, if the transaction had been consummated under its current terms on or
before January 1, 1995, Cable Sub would have reflected loss before taxes of
approximately $51 million for the year ended December 31, 1995.  On a pro forma
basis, Cable Sub would reflect an approximate $21 million of preferred stock
dividend requirements on an annual basis assuming, solely for the purpose of
this presentation, a dividend rate of 4.25% per annum on the Exchangeable
Preferred Stock.  On a pro forma basis, TCI Group would reflect the foregoing
financial impacts of Cable Sub in its combined results of operations except
that the preferred stock dividend requirement of Cable Sub would be reflected
as minority interest in TCI Group's statement of operations and TCI Group would
incur an additional approximately $28 million of interest expense per year
arising from the assumed borrowing by TCI Group for its $350 million capital
contribution to Cable Sub.

         Pursuant to an underwritten public offering, TCI sold 19,550,000
shares of TCI Class A common stock in February of 1995.  TCI Group received net
proceeds of approximately $401 million.  Such proceeds were immediately used to
reduce outstanding indebtedness under credit facilities.

         On July 18, 1995, TINTA completed the IPO in which it sold 20 million
shares of TINTA Series A common stock to the public for aggregate consideration
of $320 million, before deducting related expenses (approximately $19 million).
TINTA used the IPO proceeds to repay debt of the Company ($177 million) and
fund acquisitions, operations and capital contributions.

         During the year ended December 31, 1995, TCI Group sold approximately
$1.5 billion of publicly-placed fixed-rate senior and medium term notes with
interest rates ranging from 6.8% to 8.8% and maturity dates ranging through
2015.  The proceeds from the sale of these notes were used primarily to repay
variable-rate bank debt.

         Subsequent to December 31, 1995, TINTA issued $345 million (before
deducting offering costs of $9 million) of 4.5% convertible subordinated
debentures.  TINTA anticipates that it will use the net proceeds to fund
capital contributions to certain of its equity investees.

         Also, subsequent to December 31, 1995, TCIC issued (i) 4.6 million
shares of Cumulative Exchangeable Preferred Stock for net cash proceeds of $223
million, (ii) 20 million preferred securities of 8.72% Trust Originated
Preferred Securities for net cash proceeds of $486 million (through a special
purpose entity formed as a Delaware business trust) and (iii) $1.0 billion of
publicly-placed fixed rate senior and medium term notes with interest rates
ranging from 6.9% and 7.9% and maturity dates ranging through 2026.   TCIC used
the proceeds from the aforementioned debt and equity securities to retire
overnight commercial paper and to repay variable rate indebtedness.

         TCI Group has a credit facility which matures in September of 1996.
The outstanding balance of such facility was $602 million at December 31, 1995.
TCI Group currently anticipates that it will refinance such borrowings but
there can be no assurance that it can do so on terms acceptable to TCI Group.




                                     II-51
<PAGE>   118
         TCI Group had approximately $2.2 billion in unused lines of credit at
December 31, 1995, excluding amounts related to lines of credit which provide
availability to support commercial paper.  Although TCI Group was in compliance
with the restrictive covenants contained in its credit facilities at said date,
additional borrowings under the credit facilities are subject to TCI Group's
continuing compliance with the restrictive covenants (which relate primarily to
the maintenance of certain ratios of cash flow to total debt and cash flow to
debt service, as defined in the credit facilities) after giving effect to such
additional borrowings.  See note 7 to the accompanying TCI Group combined
financial statements for additional information regarding the material terms of
the lines of credit.

         One measure of liquidity is commonly referred to as "interest
coverage."  Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization and other non-cash
operating credits or charges) $1,972 million, $1,784 million and $1,870 million
for the years ended December 31, 1995, 1994 and 1993, respectively) to interest
expense ($ 993 million, $786 million and $735 million in 1995, 1994 and 1993,
respectively), is determined by reference to the combined statements of
operations.  TCI Group's interest coverage ratio was 199%, 227% and 254% for
1995, 1994 and 1993, respectively.  The decrease in TCI Group's interest
coverage in 1995 is caused by an increase in interest expense due to higher
debt balances.  Management of TCI Group believes that the foregoing interest
coverage ratio is adequate in light of the consistency and nonseasonal nature
of its cable television operations and the relative predictability of TCI
Group's interest expense, almost half of which results from fixed rate
indebtedness.  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.

         Another measure of liquidity is net cash provided by operating
activities, as reflected in the accompanying combined statements of cash flows.
Net cash provided by operating activities ($955 million, $1,001 million and
$1,257 in 1995, 1994 and 1993, respectively) reflects net cash from the
operations of TCI Group available for TCI Group's liquidity needs after taking
into consideration the aforementioned additional substantial costs of doing
business not reflected in Operating Cash Flow.  Amounts expended by TCI Group
for its investing activities exceed net cash provided by operating activities.
However, management believes that net cash provided by operating activities,
the ability of TCI Group to obtain additional financing (including the
available lines of credit and access to public debt markets), issuances and
sales of TCI's equity or equity of its subsidiaries, and proceeds from
disposition of assets will provide adequate sources of short-term and long-term
liquidity in the future.  See TCI Group's combined statements of cash flows
included in the accompanying combined financial statements.

         In order to achieve the desired balance between variable and fixed
rate indebtedness and to diminish its exposure to extreme increases in variable
interest rates, TCI Group has entered into various interest rate exchange
agreements.  At December 31, 1995, after considering the net effect of various
interest rate exchange agreements (see note 7 to the consolidated financial
statements) with notional amounts aggregating $1,918 million, TCI Group had
$5,990 million (or 46%) of fixed-rate debt with a weighted average interest
rate of 8.8% and $6,970 million (or 54%) of variable-rate debt with a weighted
average interest rate of 6.3%.





                                     II-52
<PAGE>   119
         Pursuant to the interest rate exchange agreements, TCI Group pays (i)
fixed interest rates ranging from 6.1% to 9.9% on notional amounts of $602
million at December 31, 1995 and (ii) variable interest rates on notional
amounts of $2,520 million at December 31, 1995.  During the years ended
December 31, 1995, 1994 and 1993, TCI Group's net payments pursuant to the
fixed rate agreements were $13 million, $26 million and $38 million,
respectively.  During the years ended December 31, 1995, 1994 and 1993, TCI
Group's net receipts (payments) pursuant to the variable rate agreements were
(less than $1 million), $36 million and $31 million, respectively.  TCI Group
is exposed to credit losses for the periodic settlements of amounts due under
the interest rate exchange agreements in the event of nonperformance by the
other parties to the agreements.  However, TCI Group does not anticipate that
it will incur any material credit losses because it does not anticipate
nonperformance by the counterparties.

         In connection with its investments in the above-described foreign
entities, TCI Group is exposed to unfavorable and potentially volatile
fluctuations of the U.S. dollar against the UK pound sterling ("L."), the
Japanese yen ("Yen"), and various other foreign currencies that are the
functional currencies of TCI Group's foreign subsidiaries and affiliates.  Any
increase (decrease) in the value of the U.S. dollar against any foreign
currency that is the functional currency of an operating subsidiary or
affiliate of TINTA will cause TCI Group to experience unrealized foreign
currency translation losses (gains) with respect to amounts already invested in
such foreign currencies.  TCI Group is also exposed to foreign currency risk to
the extent that TCI Group or its foreign subsidiaries and affiliates enter into
transactions denominated in currencies other than their respective functional
currencies.  Because TCI Group generally views its foreign operating
subsidiaries and affiliates as long-term investments, TCI Group generally does
not attempt to hedge existing investments in its foreign affiliates and
subsidiaries.  With respect to funding commitments that are denominated in
currencies other than the U.S. dollar, TCI Group historically has sought to
reduce its exposure to short-term (generally no more than 90 days) movements
in the applicable exchange rates once the timing and amount of such funding
commitments becomes fixed.  Although TCI Group monitors foreign currency
exchange rates with the objective of mitigating its exposure to unfavorable
fluctuations in such rates, TCI Group believes that it is not possible or
practical to completely eliminate TCI Group's exposure to unfavorable
fluctuations in foreign currency exchange rates.

         Approximately twenty-five percent of the franchises held by TCI Group,
involving approximately 4.4 million basic subscribers, expire within five
years.  There can be no assurance that the franchises for TCI Group's systems
will be renewed as they expire, although TCI Group believes that its cable
television systems generally have been operated in a manner which satisfies the
standards established by the 1984 Cable Act, as supplemented by the renewal
provisions of the 1992 Cable Act, for franchise renewal.  However, in the event
they are renewed, TCI Group cannot predict the impact of any new or different
conditions that might be imposed by the franchising authorities in connection
with the renewals.  To date they have not varied significantly from the
original terms.





                                     II-53
<PAGE>   120
         A significant competitive impact is expected from medium power and
higher power direct broadcast satellites that use high frequencies to transmit
signals that can be received by dish antennas much smaller in size than
traditional HSDs.  Primestar distributes a multi-channel programming service
via a medium power communications satellite to HSDs of approximately 3 feet in
diameter.  At December 31, 1995, Primestar, through its partners, served an
estimated 940,000 HSDs in the United States.  Two other DBS operators, DirecTV,
a subsidiary of GM Hughes Electronics, and United States Satellite
Broadcasting, a subsidiary of Hubbard Broadcasting, Inc., offer video services
that can be received by HSDs that measure approximately eighteen inches in
diameter.  Such DBS operators have the right to distribute substantially all of
the significant cable television programming services currently carried by
cable television systems.  The competition from DBS will likely continue to
grow.  One DBS operator is preparing to launch a new DBS satellite.  AT&T Corp.
recently made a large investment in DirecTV and several other major companies
are preparing to develop and operate high-power DBS systems, including MCI and
News Corp.  MCI recently acquired rights to satellite frequencies for DBS in an
FCC auction.

         The 1996 Telecom Act eliminated the statutory and regulatory
restrictions that prevented telephone companies from competing with cable
operators for the provision of video services by any means.  The 1996 Telecom
Act allows local telephone companies, including the regional bell operating
companies, to compete with cable television operators both inside and outside
their telephone service areas.  TCI Group expects that it will face substantial
competition from telephone companies for the provision of video services.  TCI
Group assumes that all major telephone companies have already entered or soon
will enter the business of providing video services.  Most major telephone
companies have greater financial resources than TCI Group, and 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.
Additionally, 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
significant competition in the delivery of video services.

         TCI Group is upgrading and installing optical fiber technology in its
cable systems at a rate such that in approximately two years TCI Group
anticipates that it will be serving the majority of its customers with this
technology.  The systems, which facilitate digital transmission of voice, video
and data signals, will have optical fiber to neighborhood nodes with coaxial
cable distribution downstream from that point.  TCI Group made capital
expenditures of $1,733 million in 1995 and TCI Group expects to expend similar
amounts in 1995, among other things,  to provide for the continued rebuilding of
its cable systems.  However, such proposed expenditures are subject to
reevaluation based upon changes in TCI Group's liquidity, including those
resulting from rate regulation.

         TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $212
million at December 31, 1995.  Although there can be no assurance, management
of TCI Group believes that it will not be required to meet its obligations
under such guarantees or if it is required to meet any of such guarantees, that
they will not be material to TCI Group.

         TCI Group is obligated to pay fees for the license to exhibit certain
films that are released theatrically by various motion picture studios through
February 28, 2009.  As of December 31, 1995, these agreements require minimum
payments aggregating approximately $251 million.  The aggregate amount of the
Film Licensing Obligations is not currently estimable because such amount is
dependent upon certain variable factors.  Nevertheless, TCI Group's required
aggregate payments under the Film Licensing Obligations could prove to be
significant.  Additionally, TCI Group has guaranteed up to $67 million of
similar fee obligations of another affiliate.





                                     II-54
<PAGE>   121
         TCI Group has committed to provide additional debt or equity funding
to certain of its affiliates.  At December 31, 1995, such commitments
aggregated $95 million.


         TCI Group's various partnerships and other affiliates accounted for
under 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 TCI Group)
and through net cash provided by their own operating activities.



Item 8.  Financial Statements and Supplementary Data.

         The consolidated financial statements of Tele-Communications, Inc. are
filed under this Item, beginning on Page II-56.  The combined financial
statements of Liberty Media Group are filed under this Item, beginning on Page
II-109.  The combined financial statements of TCI Group are filed under this
Item, beginning at Page II-142.  The consolidated financial statements of
Liberty Media Corporation are filed under this Item, beginning on Page II-186.
The financial statement schedules required by Regulation S-X are filed under
Item 14 of this Annual Report on Form 10-K.


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

         None.





                                     II-55
<PAGE>   122

                          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, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1995.  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, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.





                                                       /s/ KPMG Peat Marwick LLP
                                                           KPMG Peat Marwick LLP




Denver, Colorado
March 18, 1996







                                    II-56

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

                          Consolidated Balance Sheets

                           December 31, 1995 and 1994


<TABLE>
<CAPTION>
                                                                            1995                 1994 * 
                                                                         ----------           ----------
Assets                                                                         amounts in millions
------                                                                                            
<S>                                                                      <C>                     <C>
Cash                                                                     $     118                   74

Trade and other receivables, net                                               407                  301

Inventories, net                                                               104                  121

Prepaid expenses                                                                65                   36

Prepaid program rights                                                          47                   24

Committed film inventory                                                       122                   58

Investments in affiliates, accounted for
   under the equity method, and related
   receivables (notes 5 and 6)                                               2,372                1,299

Investment in Turner Broadcasting System, Inc.
   ("TBS") (note 7)                                                            955                  660

Property and equipment, at cost:
   Land                                                                         88                   91
   Distribution systems                                                      9,162                7,705
   Support equipment and buildings                                           1,429                1,146
                                                                         ---------               ------ 
                                                                            10,679                8,942
   Less accumulated depreciation                                             3,653                3,066
                                                                         ---------               ------ 
                                                                             7,026                5,876
                                                                         ---------               ------ 

Franchise costs                                                             14,322               11,152
   Less accumulated amortization                                             2,092                1,708
                                                                         ---------               ------ 
                                                                            12,230                9,444
                                                                         ---------               ------

Other assets, net of amortization                                            1,684                1,383
                                                                         ---------               ------ 

                                                                         $  25,130               19,276
                                                                         =========               ======
</TABLE>

*Restated - see notes 5 and 6.
                                                                     (continued)





                                    II-57
<PAGE>   124
                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Consolidated Balance Sheets, continued

                          December 31, 1995 and 1994

<TABLE>
<CAPTION>
                                                                           1995                 1994 *  
                                                                         ---------            --------
Liabilities and Stockholders' Equity                                           amounts in millions
------------------------------------                                                              
<S>                                                                      <C>                  <C> 
Accounts payable                                                         $    243                  201

Accrued interest                                                              233                  183

Accrued programming expense                                                   318                  248

Other accrued expenses                                                        721                  561

Debt (note 9)                                                              13,211               11,162

Deferred income taxes (note 14)                                             4,530                3,509

Other liabilities                                                             195                  160
                                                                         --------             --------

      Total liabilities                                                    19,451               16,024
                                                                         --------             --------

Minority interests in equity
   of consolidated subsidiaries                                               651                  429

Redeemable preferred stocks (note 10)                                         478                  168

Stockholders' equity (note 11):
      Series Preferred Stock, $.01 par value                                   --                   --
      Class B 6% Cumulative Redeemable
         Exchangeable Junior Preferred Stock,
         $.01 par value                                                        --                   --
      Tele-Communications, Inc. Series A TCI
         Group common stock, $1 par value
         Authorized 1,750,000,000 shares;
         issued 672,211,009 in 1995                                           672                   --
      Tele-Communications, Inc. Series B TCI
         Group common stock, $1 par value
         Authorized 150,000,000 shares;
         issued 84,691,554 in 1995                                             85                   --
      Tele-Communications, Inc. Series A Liberty
         Media Group common stock, $1 par value
         Authorized 750,000,000 shares;
         issued 142,896,264 in 1995                                           143                   --
      Tele-Communications, Inc. Series B Liberty
         Media Group common stock, $1 par value
         Authorized 75,000,000 shares;
         issued 21,196,868 in 1995                                             21                   --
      Class A common stock, $1 par value
         Issued 576,979,498 shares in 1994                                     --                  577
      Class B common stock, $1 par value
         Issued 89,287,429 shares in 1994                                      --                   89
      Additional paid-in capital                                            4,068                2,791
      Cumulative foreign currency
         translation adjustment, net of taxes                                  (9)                  (4)
      Unrealized holding gains for
         available-for-sale securities, net of taxes                          338                   94
      Accumulated deficit                                                    (454)                (282)
                                                                         ---------            --------
                                                                            4,864                3,265
      Treasury stock, at cost (100,524,364 shares of
         Series A TCI Group common stock in 1995; and
         86,030,992 shares of Class A common
         stock and 4,172,629 shares of Class B
         common stock in 1994)                                               (314)                (610)
                                                                         ---------            --------- 

            Total stockholders' equity                                      4,550                2,655
                                                                         --------             --------

Commitments and contingencies (note 15)

                                                                         $ 25,130               19,276
                                                                         ========             ========
</TABLE>
*Restated - see notes 5 and 6.

See accompanying notes to consolidated financial statements.





                                    II-58
<PAGE>   125
                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Consolidated Statements of Operations

                 Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                               1995            1994 *           1993 * 
                                                            ----------      -----------      -----------
                                                                          amounts in millions,
                                                                        except per share amounts
<S>                                                         <C>             <C>              <C>
Revenue (note 16):
   From cable and programming services
      (notes 4 and 8)                                         $  5,832            4,454            4,153
   Net sales from electronic retailing services                  1,019              482               --
                                                            ----------      -----------      -----------
                                                                 6,851            4,936            4,153
                                                            ----------      -----------      -----------

Operating costs and expenses:
   Operating (note 4)                                            2,097            1,445            1,190
   Cost of sales from electronic retailing services                702              313               --
   Selling, general and administrative                           2,066            1,380            1,105
   Compensation relating to stock
      appreciation rights                                           55               --               31
   Adjustment to compensation relating to stock
      appreciation rights                                           --               (8)              --
   Restructuring charges                                            17               --               --
   Depreciation                                                    899              700              622
   Amortization                                                    473              318              289
                                                            ----------      -----------      -----------
                                                                 6,309            4,148            3,237
                                                            ----------      -----------      -----------

         Operating income (note 16)                                542              788              916

Other income (expense):
   Interest expense                                             (1,010)            (785)            (731)
   Interest and dividend income                                     52               36               34
   Share of earnings of Liberty Media Corporation
      ("Liberty") (note 4)                                          --              128                7
   Share of losses of other affiliates, net
      (notes 5 and 6)                                             (193)            (112)             (76)
   Gain on sale of subsidiary stock (note 13)                      123               --               --
   Gain on sale of stock by equity investee (note 5)               165              161               --
   Gain (loss) on disposition of assets                             49              (10)              42
   Other, net                                                      (19)             (24)             (28)
                                                            ----------      -----------      -----------
                                                                  (833)            (606)            (752)
                                                            ----------      -----------      -----------

      Earnings (loss) before income taxes                         (291)             182              164

Income tax benefit (expense) (note 14)                             120             (120)            (169)
                                                            ----------      -----------      -----------

      Net earnings (loss) (note 8)                                (171)              62               (5)

Dividend requirements on preferred stocks                          (34)              (8)              (2)
                                                            ----------      -----------      -----------

      Net earnings (loss) attributable
         to common stockholders (note 8)                    $     (205)              54               (7)
                                                            ==========      ===========         ======== 

Net earnings (loss) attributable to common
   stockholders (note 2):
      TCI Class A and Class B common stock                  $      (71)              54               (7)
      TCI Group Series A and Series B common stock                (107)              --               --
      Liberty Media Group Series A and Series B
         common stock                                              (27)              --               --
                                                            ----------      -----------      -----------
                                                            $     (205)              54               (7)
                                                            ==========      ===========      =========== 
Primary and fully diluted net earnings (loss)                                                           
   attributable to common stockholders per common                                                       
   and common equivalent share (notes 2 and 8):                                                         
      TCI Class A and Class B common stock                  $    (.11)              .10             (.02)
      TCI Group Series A and Series B common stock          $    (.16)               --               --
      Liberty Media Group Series A and Series B
         common stock                                       $    (.16)               --               --
</TABLE>

* Restated - see notes 5 and 6.

See accompanying notes to consolidated financial statements.





                                     II-59
<PAGE>   126
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


                Consolidated Statements of Stockholders' Equity

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                                                                         
                                                                                                                         
                                                                                                                         
                                                                                  Common Stock             
                                                    ---------------------------------------------------------------------
                                           Class B           TCI                  TCI Group          Liberty Media Group 
                                          Preferred   --------------------   --------------------    -------------------- 
                                            Stock     Class A    Class B     Series A    Series B    Series A    Series B
                                         -----------  --------   ---------   --------    --------    --------    --------
                                                                      amounts in millions                                
<S>                                      <C>            <C>         <C>         <C>           <C>        <C>         <C> 
Balance at January 1, 1993*              $    --        462         48          --            --          --         --  
   Net loss                                   --         --         --          --            --          --         --  
   Issuance of common stock                                                                                              
      upon conversion of notes                                                                                           
      (note 9)                                --         20         --          --            --          --         --  
   Issuance of common stock upon                                                                                         
      exercise of options                     --         --         --          --            --          --         --  
   Dividends on redeemable                                                                                               
      preferred stocks                        --         --         --          --            --          --         --  
   Foreign currency translation                                                                                          
      adjustment                              --         --         --          --            --          --         --  
   Acquisition and retirement                                                                                            
      of common stock                         --         --         (1)         --            --          --         --  
                                         -------    -------     ------     -------       -------     -------    -------  
                                                                                                                         
                                                                                                                         
Balance at December 31, 1993             $    --        482         47          --            --         --          --  
                                         -------    -------     ------     -------       -------     ------     -------  
<CAPTION>
                                                                      Unrealized
                                                        Cumulative     holding        Note
                                                         foreign      gains for    receivable
                                         Additional      currency     available-      from                                 
                                           paid-in     translation     for-sale      related     Accumulated      Treasury 
                                           capital      adjustment   securities *    party         deficit *       stock   
                                         -----------    ----------   ------------ ------------ ---------------   ----------
                                                               amounts in millions                                         
<S>                                        <C>            <C>              <C>          <C>         <C>            <C>     
Balance at January 1, 1993*                1,909          (19)             --           --          (339)          (333)   
   Net loss                                   --           --              --           --            (5)            --    
   Issuance of common stock                                                                                                
      upon conversion of notes                                                                                             
      (note 9)                               383           --              --           --            --             --    
   Issuance of common stock upon                                                                                           
      exercise of options                      7           --              --           --            --             --    
   Dividends on redeemable                                                                                                 
      preferred stocks                        (2)          --              --           --            --             --    
   Foreign currency translation                                                                                            
      adjustment                              --          (10)             --           --            --             --    
   Acquisition and retirement                                                                                              
      of common stock                         (4)          --              --           --            --             --    
                                         -------        -----       ---------       ------        ------        -------    
                                                                                                                           
                                                                                                                           
Balance at December 31, 1993               2,293          (29)             --           --          (344)          (333)   
                                         -------        -----       ---------       ------        ------        -------    
<CAPTION>
                                              Total
                                          stockholders'
                                              equity * 
                                         --------------
                                       amounts in millions                                         
<S>                                            <C>
Balance at January 1, 1993*                    1,728
   Net loss                                       (5)
   Issuance of common stock              
      upon conversion of notes           
      (note 9)                                   403
   Issuance of common stock upon         
      exercise of options                          7
   Dividends on redeemable               
      preferred stocks                            (2)
   Foreign currency translation          
      adjustment                                 (10)
   Acquisition and retirement            
      of common stock                             (5)
                                             ------- 
                                         
                                         
Balance at December 31, 1993                   2,116
                                             -------
</TABLE>
        
* Restated-see notes 5 and 6


                                                                     (continued)





                                    II-60
<PAGE>   127
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


           Consolidated Statements of Stockholders' Equity, continued

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                                  Common Stock                            
                                                      ------------------------------------------------------------------- 
                                           Class B           TCI                   TCI Group         Liberty Media Group  
                                          Preferred   --------------------   --------------------    -------------------- 
                                            Stock     Class A     Class B    Series A    Series B    Series A    Series B 
                                         -----------  --------   ---------   --------    --------    --------    -------- 
                                                                       amounts in millions
<S>                                                     <C>         <C>         <C>         <C>        <C>         <C>    
Balance at December 31, 1993*           $    --         482         47          --          --         --          --     
   Unrealized holding gains for                                                                                           
      available-for-sale securities                                                                                       
      as of January 1, 1994                  --          --         --          --          --         --          --     
   Net earnings                              --          --         --          --          --         --          --     
   Conversion of redeemable preferred                                                                                     
      stock (note 10)                        --           1         --          --          --         --          --     
   Issuance of common stock upon                                                                                          
      conversion of notes (note 9)           --           3         --          --          --         --          --     
   Issuance of common stock upon                                                                                          
      exercise of stock option               --          --         --          --          --         --          --     
   Acquisition and retirement of                                                                                          
      common stock                           --          --         --          --          --         --          --     
   Consummation of the TCI/Liberty                                                                                        
      Combination (note 4)                   --          85         42          --          --         --          --     
   Accreted dividends on all classes of                                                                                   
      preferred stock                        --          --         --          --          --         --          --     
   Accreted dividends on all classes of                                                                                   
      preferred stock not subject                                                                                         
      to mandatory redemption                                                                                             
      requirements                           --          --         --          --          --         --          --     
   Foreign currency translation                                                                                           
      adjustment                             --          --         --          --          --         --          --     
   Issuance of TCI Class A common                                                                                         
      stock to subsidiaries of TCI in                                                                                     
      Reorganization                         --          --         --          --          --         --          --     
   Issuance of Class A common stock                                                                                       
      for investment                         --           6         --          --          --         --          --     
   Repayment of note receivable from                                                                                      
      related party                          --          --         --          --          --         --          --     
   Change  in  unrealized  holding  gains                                                                                 
      for available-for-sale securities      --          --         --          --          --         --          --     
                                          -----     -------      -----        ----        ----       ----        ----     
                                                                                                                          
Balance at December 31, 1994               $ --         577         89          --          --         --          --     
                                           ----     -------     ------      ------     -------     ------      ------     
<CAPTION>                               
                                                                  Unrealized
                                                     Cumulative    holding        Note
                                                      foreign     gains for    receivable
                                        Additional    currency    available-      from                                   Total
                                          paid-in   translation    for-sale      related     Accumulated   Treasury  stockholders'
                                          capital    adjustment  securities *     party        deficit *    stock        equity *   
                                        ----------   ----------  ------------  -----------   -----------   --------  -------------
                                                                            amounts in millions                     
<S>                                       <C>        <C>            <C>             <C>         <C>         <C>        <C>
Balance at December 31, 1993*             2,293        (29)        --                --         (344)       (333)      2,116
   Unrealized holding gains for                                                                                          
      available-for-sale securities                                                                                      
      as of January 1, 1994                  --         --        297                --           --          --         297
   Net earnings                              --         --         --                --           62          --          62
   Conversion of redeemable preferred                                                                                    
      stock (note 10)                        17         --         --                --           --          --          18
   Issuance of common stock upon                                                                                         
      conversion of notes (note 9)           --         --         --                --           --          --           3
   Issuance of common stock upon                                                                                         
      exercise of stock option                3         --         --                --           --          --           3
   Acquisition and retirement of                                                                                          
      common stock                           (2)        --         --                --           --          --          (2)
   Consummation of the TCI/Liberty                                                                                       
      Combination (note 4)                  383         --          4               (15)          --        (285)        214
   Accreted dividends on all classes of                                                                                  
      preferred stock                        (8)        --         --                --           --          --          (8)
   Accreted dividends on all classes of                                                                                  
      preferred stock not subject                                                                                        
      to mandatory redemption                                                                                            
      requirements                            4         --         --                --           --          --           4
   Foreign currency translation                                                                                          
      adjustment                             --         25         --                --           --          --          25
   Issuance of TCI Class A common                                                                                        
      stock to subsidiaries of TCI in                                                                                    
      Reorganization                        (23)        --         --                --           --          23          --
   Issuance of Class A common stock                                                                                      
      for investment                        124         --         --                --           --          --         130
   Repayment of note receivable from                                                                                     
      related party                          --         --         --                15           --         (15)         --
   Change  in  unrealized  holding  gain                                                                                 
      for available-for-sale securities      --         --       (207)               --           --          --        (207)
                                          -----      -----       ----             -----         -----       -----      ----- 
                                                                                                                         
Balance at December 31, 1994              2,791         (4)        94                --         (282)       (610)      2,655
                                          -----      -----       ----             -----         -----       -----      -----
</TABLE>
                                                                     (continued)
*Restated - see notes 5 and 6





                                    II-61
<PAGE>   128
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


                 Consolidated Statement of Stockholders' Equity

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                                                                            
                                                                                              Common Stock                  
                                                      -------------------------------------------------------------------   
                                           Class B           TCI                   TCI Group         Liberty Media Group    
                                          Preferred   --------------------   --------------------    --------------------   
                                            Stock     Class A    Class B     Series A    Series B    Series A    Series B   
                                         -----------  --------   ---------   --------    --------    --------    --------   
amounts in millions                                                                                                         
<S>                                                       <C>         <C>         <C>        <C>         <C>          <C>  
Balance at December 31, 1994 *       $          --         577         89          --         --          --           --   
  Net loss                                      --          --         --          --         --          --           --   
  Issuance of common stock in                                                                                               
    public offering                             --          20         --          --         --          --           --   
  Issuance of common stock in                                                                                               
    private offering                            --           1         --          --         --          --           --   
  Issuance of common stock for                                                                                              
    acquisitions and investments                                                                                            
    (note 8)                                    --          59         --          --         --          --           --   
  Issuance of Class A common                                                                                                
    stock to subsidiary of TCI in                                                                                           
    Reorganization                              --          --         --          --         --          --           --   
  Issuance of Class A common stock to                                                                                       
    subsidiary in exchange for                                                                                              
    investment                                  --          --         --          --         --          --           --   
  Retirement of Class A common                                                                                              
    stock previously held by subsidiary         --          --         --          --         --          --           --   
  Exchange of common stock held by                                                                                          
    subsidiaries of TCI for Convertible                                                                                     
    Redeemable Participating Preferred                                                                                      
    Stock, Series F ("Series F                                                                                              
    Preferred Stock") (note 1)                  --         (86)        (4)         --         --          --           --   
  Conversion of Series F Preferred                                                                                          
    Stock held by subsidiary for Series                                                                                     
    A TCI Group common stock                    --          --         --         101         --          --           --   
  Distribution of Series A and                                                                                              
    Series B Liberty Media Group                                                                                            
    common stock to TCI common                                                                                              
    stockholders (note 1)                       --          --         --          --         --         143           21   
  Costs associated with Distribution                                                                                        
    to stockholders                             --          --         --          --         --          --           --   
  Redesignation of TCI common stock                                                                                         
    into Series A and Series B TCI                                                                                          
    Group common stock (note 1)                 --        (571)       (85)        571         85          --           --   
  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          --          --         --          --         --          --           --   
  Issuance of common stock
    by subsidiary (note 13)                     --          --         --          --         --          --           --
  Foreign currency translation                                                                                              
    adjustment                                  --          --         --          --         --          --           --   
  Change in unrealized holding gains                                                                                        
    for available-for-sale securities           --          --         --          --         --          --           --   
  Adjustment to reflect elimination of                                                                                      
    reporting delay with respect to                                                                                         
    certain foreign subsidiaries (note 2)       --          --          --         --         --          --           --  
                                          --------   ---------    --------     ------   --------   ---------    ---------  
Balance at December 31, 1995              $     --          --          --        672         85         143           21  
                                          ========   =========    ========     ======   ========   =========    =========  
<CAPTION>                               
                                                                     Unrealized
                                                       Cumulative     holding        Note
                                                        foreign      gains for    receivable
                                        Additional      currency     available-      from                                  Total
                                          paid-in     translation     for-sale      related   Accumulated   Treasury   stockholders'
                                          capital      adjustment   securities *     party      deficit *    stock        equity * 
                                        ----------     ----------   ------------  ----------- -----------   --------   -------------
amounts in millions                                                                                                    
<S>                                           <C>               <C>          <C>          <C>        <C>        <C>           <C>
Balance at December 31, 1994 *                2,791             (4)           94          --         (282)      (610)         2,655
  Net loss                                       --             --            --          --         (171)        --           (171)
  Issuance of common stock in                                                                                          
    public offering                             381             --            --          --           --         --            401
  Issuance of common stock in                                                                                          
    private offering                             29             --            --          --           --         --             30
  Issuance of common stock for                                                                                         
    acquisitions and investments                                                                                       
    (note 8)                                  1,329             --            --          --           --         --          1,388
  Issuance of Class A common                                                                                           
    stock to subsidiary of TCI in                                                                                      
    Reorganization                               (6)            --            --          --           --          6             --
  Issuance of Class A common stock to                                                                                  
    subsidiary in exchange for                                                                                         
    investment                                   (1)            --            --          --           --          1             --
  Retirement of Class A common                                                                                         
    stock previously held by subsidiary          29             --            --          --           --        (29)            --
  Exchange of common stock held by                                                                                     
    subsidiaries of TCI for Convertible                                                                                
    Redeemable Participating Preferred                                                                                 
    Stock, Series F ("Series F                                                                                         
    Preferred Stock") (note 1)                 (542)            --            --          --           --        632             --
  Conversion of Series F Preferred                                                                                     
    Stock held by subsidiary for Series                                                                                
    A TCI Group common stock                    213             --            --          --           --       (314)            --
  Distribution of Series A and                                                                                         
    Series B Liberty Media Group                                                                                       
    common stock to TCI common                                                                                         
    stockholders (note 1)                      (164)            --            --          --           --         --             --
  Costs associated with Distribution                                                                                   
    to stockholders                              (8)            --            --          --           --         --             (8)
  Redesignation of TCI common stock                                                                                    
    into Series A and Series B TCI                                                                                     
    Group common stock (note 1)                  --             --            --          --           --         --             --
  Accreted dividends on all classes of                                                                                 
    preferred stock                             (34)            --            --          --           --         --            (34)
  Accreted dividends on all classes of                                                                                 
    preferred stock not subject to                                                                                     
    mandatory redemption                                                                                               
    requirements                                 10             --            --          --           --         --             10
  Payment of preferred stock dividends          (10)            --            --          --           --         --            (10)
  Issuance of common stock
    by subsidiary (note 13)                      51             --            --          --           --         --             51 
  Foreign currency translation                                                                                         
    adjustment                                   --             (5)           --          --           --         --             (5)
  Change in unrealized holding gains                                                                                   
    for available-for-sale securities            --             --           244          --           --         --            244
  Adjustment to reflect elimination of                                                                                 
    reporting delay with respect to                                                                                    
    certain foreign subsidiaries (note 2)        --             --            --          --           (1)        --             (1)
                                           --------       --------      --------    --------      --------   -------          -----
                                                                                                                       
Balance at December 31, 1995                  4,068             (9)          338          --         (454)      (314)         4,550
                                           ========       ========      ========    ========      ========   =======          =====
</TABLE>

*Restated - see notes 5 and 6

See accompanying notes to consolidated financial statements.





                                    II-62
<PAGE>   129
                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


                     Consolidated Statements of Cash Flows

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                               1995          1994 *         1993 * 
                                                                              ------        --------       --------
                                                                                      amounts in millions
                                                                                          (see note 3)
<S>                                                                          <C>             <C>            <C>
Cash flows from operating activities:
   Net earnings (loss)                                                       $  (171)            62             (5)
   Adjustments to reconcile net earnings (loss) to
      net cash provided by operating activities:
         Depreciation and amortization                                         1,372          1,018            911
         Compensation relating to stock appreciation
            rights                                                                55             --             31
         Adjustment to compensation relating to stock
            appreciation rights                                                   --             (8)            --
         Share of earnings of Liberty                                             --           (128)            (7)
         Share of losses of other affiliates                                     193            112             76
         Gain on sale of subsidiary stock                                       (123)            --             --
         Gain on sale of stock by equity investee                               (165)          (161)            --
         Deferred income tax expense (benefit)                                  (153)            37            140
         Loss (gain) on disposition of assets                                    (49)            10            (42)
         Other non cash charges (credits)                                        (37)             5             48
         Changes in operating assets and liabilities,
            net of the effect of acquisitions:
               Change in receivables                                             (70)            15            (32)
               Change in inventories                                              16            (26)            --
               Change in prepaids                                                (86)           (97)            (4)
               Change in accrued interest                                         45             13             63
               Change in other accruals and payables                             132             56             68
         Net cash used in Flextech plc's operating
             activities during the month ended
             September 30, 1995 (note 2)                                          (2)            --             -- 
                                                                          ----------    -----------       --------
                 Net cash provided by operating activities                       957            908          1,247
                                                                          ----------    -----------       --------

Cash flows from investing activities:
   Cash paid for acquisitions                                                   (477)          (358)          (158)
   Capital expended for property and equipment                                (1,782)        (1,264)          (947)
   Cash proceeds from disposition of assets                                      166             39            149
   Additional investments in and
      loans to affiliates and others                                          (1,134)          (445)          (361)
   Repayment of loans by affiliates and others                                    18            148             62
   Other investing activities                                                    (84)           (15)            89
   Net cash used in Flextech plc's investing activities
      during the month ended September 30, 1995 (note 2)                         (51)            --             --
                                                                          ----------    -----------       --------
                  Net cash used in investing activities                       (3,344)        (1,895)        (1,166)
                                                                          ----------    -----------       --------

Cash flows from financing activities:
   Borrowings of debt                                                          8,152          4,676          6,305
   Repayments of debt                                                         (6,567)        (3,607)        (6,321)
   Proceeds from sale of subsidiary stock                                        445             --             --
   Issuances of common stock                                                     431              1              6
   Preferred stock dividends of subsidiaries                                      (6)            (6)            (6)
   Preferred stock dividends                                                     (24)            (4)            (2)
   Costs associated with Distributor to Stockholders                              (8)            --             --
   Repurchases of preferred stock                                                 --             --            (92)
   Repurchases of common stock                                                    --             --             (4)
   Net cash used in Flextech plc's financing activities
       during the month ended September 30, 1995 (note 2)                          8             --             --
                                                                          ----------    -----------       --------

                  Net cash provided (used) by financing
                     activities                                                2,431          1,060           (114)
                                                                          ----------    -----------       --------

                  Net increase (decrease) in cash                                 44             73            (33)

                  Cash at beginning of year                                       74              1             34
                                                                          ----------    -----------       --------

                  Cash at end of year                                        $   118             74              1
                                                                          ==========    ===========       ========
</TABLE>

* Restated - see notes 5 and 6.

See accompanying notes to consolidated financial statements.


                                    II-63
<PAGE>   130
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



                        December 31, 1995, 1994 and 1993

(1)      Organization

         Principles of Consolidation

         The accompanying consolidated financial statements include the
         accounts of Tele-Communications, Inc. and those of all majority-owned
         subsidiaries ("TCI" or the "Company").  All significant intercompany
         accounts and transactions have been eliminated in consolidation.

         Reorganization

         During the fourth quarter of 1994, the Company was reorganized (the
         "Reorganization") based upon four lines of business:  Domestic Cable
         and Communications (the "Cable Unit"); Programming (the "Programming
         Unit"); International Cable and Programming ("TINTA"); and
         Technology/Venture Capital.  Upon Reorganization, certain of the
         assets of the Cable and Programming Units were transferred to the
         other operating units.  As consideration for such transfer of assets,
         TCI issued 317,112 shares of TCI Class A common stock and 246,402
         shares of Redeemable Convertible Preferred Stock, Series E ("Series E
         Preferred Stock") (see note 10).  Preferred stock of TCI which is
         owned by subsidiaries of TCI eliminates in consolidation.  Common
         stock of the Company held by subsidiaries is treated as treasury stock
         in consolidation.

         Liberty Group Stock

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue a new class of stock ("Liberty
         Group Stock") which is intended to reflect the separate performance of
         TCI's business which produces and distributes cable television
         programming services ("Liberty Media Group").  While the Liberty Group
         Stock constitutes common stock of TCI, the issuance of the Liberty
         Group Stock did not result in any transfer of assets or liabilities of
         TCI or any of its subsidiaries or affect the rights of holders of
         TCI's or any of its subsidiaries' debt.  On August 10, 1995, TCI
         distributed one hundred percent of the equity value attributable to
         the Liberty Media Group (the "Distribution") to its security holders
         of record on August 4, 1995.  Additionally, the stockholders of TCI
         approved the redesignation of the previously authorized TCI Class A
         and Class B common stock into Series A TCI Group and Series B TCI
         Group common stock ("TCI Group Stock").

         Upon the Distribution of the Liberty Group Stock and subsequent to the
         redesignation of TCI Class A and Class B common stock into Series A
         and Series B TCI Group Stock, the TCI Group Stock is intended to
         reflect the separate performance of the subsidiaries and assets not
         attributed to Liberty Media Group, including (i) TCI's Cable and
         Communication unit, (ii) TINTA and (iii) TCI's Technology/Venture
         Capital unit.  Such subsidiaries and assets are referred to as "TCI
         Group".

                                                                     (continued)





                                     II-64
<PAGE>   131
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense to TCI Group or to Liberty Media Group for
         purposes of preparing their combined financial statements, the change
         in the capital structure of TCI does not affect the ownership or the
         respective legal title to assets or responsibility for liabilities of
         TCI or any of its subsidiaries.  TCI and its subsidiaries will each
         continue to be responsible for their respective liabilities.  Holders
         of TCI Group Stock or Liberty Group Stock are holders of common stock
         of TCI and continue to be subject to risks associated with an
         investment in TCI and all of its businesses, assets and liabilities.
         The issuance of Liberty Group Stock did not affect the rights of
         creditors of TCI.

         Dividends on TCI Group Stock are payable at the sole discretion of the
         Board out of the lesser of assets of TCI legally available for
         dividends and the available dividend amount with respect to TCI Group,
         as defined.  Determinations to pay dividends on TCI Group Stock will
         be based primarily upon the financial condition, results of operations
         and business requirements of TCI Group and TCI as a whole.

         Dividends on Liberty Group Stock are payable at the sole discretion of
         the Board out of the lesser of all assets of TCI legally available for
         dividends and the available dividend amount with respect to Liberty
         Media Group, as defined.  Determinations to pay dividends on Liberty
         Group Stock will be based primarily upon the financial condition,
         results of operations and business requirements of Liberty Media Group
         and TCI as a whole.

         After the Distribution, existing preferred stock and debt securities
         of TCI that were convertible into or exchangeable for shares of TCI
         Class A common stock were, as a result of the operation of
         antidilution provisions, adjusted so that there will be delivered upon
         their conversion or exchange (in addition to the same number of shares
         of redesignated Series A TCI Group Stock as were theretofore issuable
         thereunder) the number of shares of Series A Liberty Group Stock that
         would have been issuable in the Distribution with respect to the TCI
         Class A common stock issuable upon conversion or exchange had such
         conversion or exchange occurred prior to the record date for the
         Distribution.  Options to purchase TCI Class A common stock
         outstanding at the time of the Distribution were adjusted by issuing
         to the holders of such options separate options to purchase that
         number of shares of Series A Liberty Group Stock which the holder
         would have been entitled to receive had the holder exercised such
         option to purchase TCI Class A common stock prior to the record date
         for the Distribution and reallocating a portion of the aggregate
         exercise price of the previously outstanding options to the newly
         issued options to purchase Series A Liberty Group Stock.


                                                                     (continued)





                                     II-65
<PAGE>   132
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         A number of wholly-owned subsidiaries of the Company which are part of
         the TCI Group owned shares of Class A common stock and preferred stock
         of the Company ("Subsidiary Shares").  Because the Distribution of the
         Liberty Group Stock was made as a dividend to all holders of the
         Company's Class A common stock and Class B common stock and, pursuant
         to the anti-dilution provisions set forth therein, to the holders of
         securities convertible into Class A common stock and Class B common
         stock upon the conversion thereof, shares of Liberty Group Stock would
         have otherwise been issued and become issuable in respect of the
         Subsidiary Shares held by these subsidiaries and would have been
         attributed to TCI Group.  The Liberty Group Stock issued in connection
         with the Distribution was intended to constitute 100% of the equity
         value thereof to the holders of the TCI Class A common stock and TCI
         Class B common stock and TCI Group did not initially have any interest
         in Liberty Media Group represented by any outstanding shares of
         Liberty Group Stock (an "Inter-Group Interest").  Therefore, the
         Company determined to exchange all of the outstanding Subsidiary
         Shares for shares of a new series of Series Preferred Stock designated
         Convertible Redeemable Participating Preferred Stock, Series F (the
         "Series F Preferred Stock"). See note 10.  The rights, privileges and
         preferences of the Series F Preferred Stock did not entitle its
         holders to receive Liberty Group Stock in the Distribution or upon
         conversion of the Series F Preferred Stock.

(2)      Summary of Significant Accounting Policies

         Receivables

         Receivables are reflected net of an allowance for doubtful accounts.
         Such allowance at December 31, 1995 and 1994 was not material.

         Inventories, Net

         Merchandise inventories are valued at the lower of cost or market,
         cost being determined using the first-in, first-out method.  Cost
         includes freight, certain warehousing costs and other allocable
         overhead.  Market is determined on the basis of net realizable value,
         giving consideration to obsolescence and other factors.  Inventories
         are presented net of an inventory carrying adjustment of $33 million
         and $19 million at December 31, 1995 and 1994, respectively.

         Program Rights

         Prepaid program rights are amortized on a film-by-film basis (or
         event-by-event basis for sports events) over the specific number of
         exhibitions.  Committed film inventory and program rights payable are
         recorded at the estimated costs of the programs when the film is
         available for airing.  These amounts are amortized on a film-by-film
         basis over the specific number of exhibitions.


                                                                     (continued)





                                     II-66
<PAGE>   133
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Investments

         All marketable equity securities held by the Company are classified as
         available-for-sale and are carried at fair value.  Unrealized holding
         gains and losses on securities classified as available-for-sale are
         carried net of taxes as a separate component of stockholders' equity.

         Other investments in which the ownership interest is less than 20% and
         are not considered marketable securities are generally carried at
         cost.  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, 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.

         Long-Lived Assets

         (a)     Property and Equipment

                 Property and equipment is stated at cost, including
                 acquisition costs allocated to tangible assets acquired.
                 Construction costs, including interest during construction and
                 applicable overhead, are capitalized.  During 1995, 1994 and
                 1993, interest capitalized was not material.

                 Depreciation is computed on a straight-line basis using
                 estimated useful lives of 3 to 15 years for distribution
                 systems, 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-67
<PAGE>   134
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         (b)     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 obtaining franchises are being amortized on a
                 straight-line basis over the life of the franchise, generally
                 10 to 20 years.

         In March of 1995, the Financial Accounting Standards Board (the
         "FASB") issued Statement of Financial Accounting Standards No. 121,
         Accounting for the Impairment of Long-Lived Assets and for Long-Lived
         Assets to Be Disposed Of ("Statement No. 121"), effective for fiscal
         years beginning after December 15, 1995.  Statement No. 121 requires
         impairment losses to be recorded on long-lived assets used in
         operations when indicators of impairment are present and either the
         undiscounted future cash flows estimated to be generated by those
         assets or the fair market value are less than the assets' carrying
         amount.  Statement No. 121 also addresses the accounting for
         long-lived assets that are expected to be disposed of.  The Company
         will adopt Statement No. 121 effective January 1, 1996.  The effect of
         such adoption is not expected to be significant.

         Interest Rate Derivatives

         Amounts receivable or payable under derivative financial instruments
         used to manage interest rate risks arising from the Company's
         financial liabilities are recognized as interest expense.  Gains and
         losses on early terminations of derivatives are included in the
         carrying amount of the related debt and amortized as yield adjustments
         over the remaining terms of the debt.  The Company does not use such
         instruments for trading purposes.

         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 $49 million and $50 million in 1995 and 1994, respectively, of
         preferred stocks (and accumulated dividends thereon) of certain
         subsidiaries.  The current dividend requirements on these preferred
         stocks aggregate $6 million per annum and such dividend requirements
         are reflected as minority interests in the accompanying consolidated
         statements of operations.

         Subsequent to December 31, 1995, TCI Communications, Inc. ("TCIC"), a
         wholly-owned subsidiary of TCI, issued to the public 4.6 million
         shares of Cumulative Exchangeable Preferred Stock with an initial
         liquidation value of $230 million.  Such issuance will be reflected as
         an increase in the Company's minority interest in equity of
         consolidated subsidiaries.
                                                                     (continued)





                                     II-68
<PAGE>   135
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Trust Originated Preferred Securities(SM)

         Subsequent to December 31, 1995, TCI Communications Financing I (the 
         "Trust"), an indirect wholly-owned subsidiary of the Company, issued
         $16 million in common securities and issued $500 million of 8.72%
         Trust Originated Preferred Securities(SM)  (the "Preferred 
         Securities" and together with the common securities, the "Trust 
         Securities").  The Trust exists for the exclusive purposes of issuing 
         Trust Securities and investing the proceeds thereof into an 
         aggregate principal amount of $516 million of 8.72% Subordinated 
         Deferrable Interest Notes due January 31, 2045 (the "Subordinated 
         Debt Securities") of the Company.  The Subordinated Debt Securities 
         are unsecured obligations of the Company and are subordinate and 
         junior in right of payment to certain other indebtedness of the 
         Company.  Upon redemption of such Subordinated Debt Securities, the 
         Preferred Securities will be mandatorily redeemable.  The Company 
         effectively provides a full and unconditional guarantee of the 
         Trust's obligations under the Preferred Securities. The Company will 
         present the Preferred Securities as a separate line item in its 
         balance sheet captioned "Company-obligated mandatorily redeemable 
         preferred securities of subsidiary trust."

         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 stockholders' equity.

         Net Sales from Electronic Retailing Services

         Revenue includes merchandise sales and shipping and handling revenue,
         and is reduced by incentive discounts and sales returns to arrive at
         net sales from home shopping services.   Revenue is recorded for
         credit card sales upon transaction authorization, and for check sales
         upon receipt of customer payment, which does not vary significantly
         from the time goods are shipped.  The Company's sales policy allows
         merchandise to be returned at the customer's discretion, generally up
         to 30 days.  An allowance for returned merchandise is provided based
         upon past experience.

         Stock Based Compensation

         Statement of Financial Accounting Standards No. 123, Accounting for
         Stock-Based Compensation ("Statement No.  123") was issued by the FASB
         in October 1995.  Statement No. 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.  The Company will
         include the disclosures required by Statement No. 123 in the notes to
         future financial statements.

                                                                     (continued)


                                     II-69
<PAGE>   136
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Earnings (Loss) Per Common and Common Equivalent Share

         (a)     TCI Class A and B Common Stock

                 Loss per common share attributable to common stockholders was
                 computed by dividing net loss attributable to common
                 stockholders by the weighted average number of common shares
                 outstanding (648.2 million for the period from January 1, 1995
                 through the Distribution and 432.6 million for the year ended
                 December 31, 1993).  Common stock equivalents were not
                 included in the computation of weighted average shares
                 outstanding because their inclusion would be anti-dilutive.

                 Primary earnings per common and common equivalent share
                 attributable to common stockholders was computed by dividing
                 net earnings attributable to common stockholders by the
                 weighted average number of common and common equivalent shares
                 outstanding (540.8 million for the year ended December 31,
                 1994).

                 Fully diluted earnings per common and common equivalent share
                 attributable to common stockholders was computed by dividing
                 earnings attributable to common stockholders by the weighted
                 average number of common and common equivalent shares
                 outstanding (540.8 million for the year ended December 31,
                 1994).  Shares issuable upon conversion of the Convertible
                 Preferred Stock, Series C ("Series C Preferred Stock") (see
                 note 10) have not been included in the computation of weighted
                 average shares because their effect would be anti-dilutive.

         (b)     TCI Group Stock

                 The loss attributable to common stockholders per common share
                 for the period from the Distribution to December 31, 1995 was
                 computed by dividing net loss attributable to TCI Group Series
                 A and Series B common stockholders by the weighted average
                 number of common shares outstanding of TCI Group Stock during
                 the period (656.4 million).  Common stock equivalents were not
                 included in the computation of weighted average shares
                 outstanding because their inclusion would be anti-dilutive.

         (c)     Liberty Group Stock

                 The loss per common share for the period from the Distribution
                 to December 31, 1995 was computed by dividing net loss
                 attributable to Liberty Media Group Series A and Series B
                 common stockholders by the weighted average number of common
                 shares outstanding of Liberty Group Stock during the period
                 (164.1 million).  Common stock equivalents were not included
                 in the computation of weighted average shares outstanding
                 because their inclusion would be anti-dilutive.

                                                                     (continued)





                                     II-70
<PAGE>   137
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Accounting for Foreign Subsidiaries

         Through the third quarter of 1995, the Company included certain of its
         foreign subsidiaries (Flextech plc ("Flextech") and Cablevision S.A.
         ("Cablevision")) in its financial statements on a one-month time
         delay.  The Company eliminated such time delay from its December 31,
         1995 financial statements.  As a result, the Company's consolidated
         statements of operations for the year ended December 31, 1995 include
         (i) Cablevision's result of operations for the period from April 25,
         1995 (the date Cablevision was acquired - see note 8) through December
         31, 1995 and (ii) Flextech's results of operations for the period from
         December 1, 1994 through December 31, 1995 (exclusive of the one-month
         period ended September 30, 1995).  The Company's consolidated
         statement of cash flows for the year ended December 31, 1995 includes
         the cash flows of Cablevision and Flextech for the same periods except
         that Flextech's cash flows for the one-month period ended September
         30, 1995 are included therein on a summarized basis.  In connection
         with the elimination of the above-described reporting delays, the
         Company (i) restated certain of its quarterly financial information in
         order to present Cablevision's 1995 results of operations on a current
         basis (see note 17) and (ii) charged Flextech's net loss for the
         one-month ended September 30, 1995 ($1 million) directly to the
         Company's accumulated deficit so that the Company's consolidated
         statement of operations for the year ended December 31, 1995 would not
         include more than 12 months of Flextech's operating results.

         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.

         Reclassification

         Certain amounts have been reclassified for comparability with the 1995
         presentation.

                                                                     (continued)





                                     II-71
<PAGE>   138
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(3)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $965 million, $758 million and $641
         million for the years ended December 31, 1995, 1994 and 1993,
         respectively.  Cash paid for income taxes was $65 million in
         1995 and was not material in 1994 or 1993.

         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                                   Years ended
                                                                                   December 31,        
                                                                          -------------------------------
                                                                           1995        1994         1993 
                                                                          ------      ------       ------
                                                                                amounts in millions
         <S>                                                             <C>            <C>          <C>
         Cash paid for acquisitions:
            Fair value of assets acquired                                $  3,571       1,921        172
            Liabilities assumed, net of current assets                       (445)       (648)        (7)
            Deferred tax liability recorded
               in acquisitions                                             (1,083)       (190)        (7)
            Minority interests in equity of
               acquired entities                                               49         (35)        --
            Note receivable from related party
               assumed                                                     (1,615)         15         --
            Common stock and preferred stock
               issued in acquisitions                                                    (808)        --
            Common stock issued to TCIC and
               Liberty in the TCI/Liberty Combination
               reflected as treasury stock (note 3)                            --         285         --
            Unrealized gains on available-for-sale
               securities of acquired entities                                 --        (182)        --
                                                                         --------    --------    -------

               Cash paid for acquisitions                                $    477         358        158
                                                                         ========    ========    =======

         Conversion of debt into additional minority
            interest in consolidated subsidiary                          $     14          --         --
                                                                         ========    ========    =======

         Assets contributed for interest in limited                                                     
            liability company                                            $      3          --         --
                                                                         ========    ========    =======
                                                                                                        
         Issuance of subsidiary stock for equity
            investment                                                   $     11          --         --
                                                                         ========    ========    =======

         Receipt of notes receivable upon
            disposition of Liberty common
            stock and preferred stock                                    $    --           --        182
                                                                         =======     ========    =======

         Noncash exchange of equity investment
            for consolidated subsidiary and
            equity investment                                            $    --           --         22
                                                                         =======     ========    =======

         Noncash capital contribution to
            equity investee                                              $    --           --         22
                                                                         =======     ========    =======
</TABLE>

                                                                     (continued)


                                     II-72
<PAGE>   139
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(4)      Investment in Liberty Media Corporation

         As of January 27, 1994, TCI Communications, Inc. (formerly
         Tele-Communications, Inc. or "Old TCI") and Liberty entered into a
         definitive merger agreement to combine the two companies (the
         "TCI/Liberty Combination").  The transaction was consummated on August
         4, 1994 and was structured as a tax free exchange of Class A and Class
         B shares of both companies and preferred stock of Liberty for like
         shares of a newly formed holding company, TCI/Liberty Holding Company.
         In connection with the TCI/Liberty Combination, Old TCI changed its
         name to TCI Communications, Inc. and TCI/Liberty Holding Company
         changed its name to Tele-Communications, Inc.

         Due to the significant economic interest held by TCIC through its
         ownership of Liberty preferred stock and Liberty common stock and
         other related party considerations, TCIC accounted for its investment
         in Liberty under the equity method.  Accordingly, TCIC had not
         recognized any income relating to dividends, including preferred stock
         dividends, and TCIC recorded the earnings or losses generated by
         Liberty (by recognizing 100% of Liberty's earnings or losses before
         deducting preferred stock dividends) through the date the TCI/Liberty
         Combination was consummated.

         Summarized unaudited financial information of Liberty for the period
         from January 1, 1994 through August 4, 1994 and for the year ended
         December 31, 1993 is as follows:

<TABLE>
<CAPTION>
                                                                             1994           1993
                                                                             ----           ----
                  Consolidated Operations                                    amounts in millions
                  -----------------------                                                       
                     <S>                                                  <C>             <C>
                     Revenue                                              $  790           1,153
                     Operating expenses                                     (726)         (1,105)
                     Depreciation and amortization                           (32)            (49)
                                                                          ------          ------ 

                        Operating income (loss)                               32              (1)

                     Interest expense                                        (22)            (31)
                     Other, net                                              118              39
                                                                          ------          ------ 

                        Net earnings                                      $  128               7
                                                                          ======          ======
</TABLE>

         Prior to the TCI/Liberty Combination, TCIC purchased sports and other
         programming from certain subsidiaries of Liberty.  Charges to TCIC
         (which were based upon customary rates charged to others) for such
         programming were $27 million and $44 million for the period from
         January 1, 1994 through August 4, 1994 and for the year ended December
         31, 1993, respectively.  Such amounts are included in operating
         expenses in the accompanying consolidated statements of operations.
         Certain subsidiaries of Liberty purchased from TCIC, at TCIC's cost
         plus an administrative fee, certain pay television and other
         programming.  In addition, a consolidated subsidiary of Liberty paid a
         commission to TCIC for merchandise sales to customers who were
         subscribers of TCIC's cable systems.  Aggregate commissions and
         charges for such programming were $9 million and $11 million for the
         period from January 1, 1994 through August 4, 1994 and for the year
         ended December 31, 1993, respectively.  Such amounts are recorded in
         revenue in the accompanying consolidated statements of operations.

                                                                     (continued)





                                     II-73
<PAGE>   140
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         On July 11, 1994, Rainbow Program Enterprise purchased 49.9% of
         Liberty's 50% general partnership interest in American Movie Classics
         Company ("AMC").  The gain recognized by Liberty in connection with
         the disposition of AMC was $183 million and is included in the
         Company's share of Liberty's earnings prior to the TCI/Liberty
         Combination.

(5)      Investments in Affiliates

         The Company has various investments accounted for under the equity
         method.  Certain of the more significant investments held by the
         Company at December 31, 1995 were MajorCo, L.P. ("MajorCo"), a
         partnership formed by the Company, Comcast Corporation ("Comcast"),
         Cox Communications, Inc. ("Cox") and Sprint Corporation ("Sprint")
         (carrying value of $689 million) (see note 15), Teleport
         Communications Group, Inc. and TCG Partners (collectively, "TCG")
         (carrying value of $244 million), TeleWest plc ("New TeleWest")
         (carrying value of $550 million) and Discovery Communications, Inc.
         (carrying value of $117 million).

         Summarized unaudited financial information for affiliates other than
Liberty is as follows:

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                       ------------
                                                                                  1995             1994
                                                                                  ----             ----
                  Combined Financial Position                                      amounts in millions
                  ---------------------------                                                         
                     <S>                                                        <C>                <C>
                     Property and equipment, net                                 $ 3,863           2,450
                     Franchise costs, net                                          1,204             579
                     Other assets, net                                             5,347           3,050
                                                                                 -------           -----

                        Total assets                                             $10,414           6,079
                                                                                 =======           =====

                     Debt                                                        $ 5,336           2,333
                     Due to (from) TCI                                                45              (2)
                     Other liabilities                                             1,713           1,195
                     Owners' equity                                                3,320           2,553
                                                                                 -------           -----

                        Total liabilities and equity                             $10,414           6,079
                                                                                 =======           =====
</TABLE>

<TABLE>
<CAPTION>
                                                                        Years ended December 31,
                                                                        ------------------------
                                                                 1995             1994             1993
                                                                 ----             ----             ----
                  Combined Operations                                      amounts in millions
                  -------------------                                                         
                     <S>                                       <C>                <C>               <C>
                     Revenue                                   $  4,461            2,703             713
                     Operating expenses                          (3,807)          (2,405)           (648)
                     Depreciation and                                                                   
                        amortization                               (532)            (297)           (127)
                                                               --------         --------          ------ 

                        Operating income (loss)                     122                1             (62)

                     Interest expense                              (337)            (100)            (37)
                     Other, net                                    (123)              24              98
                                                               --------         --------          ------ 

                        Net loss                               $   (338)             (75)             (1)
                                                               ========         ========          ====== 
</TABLE>


                                                                     (continued)





                                     II-74
<PAGE>   141
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         In August 1995, the Company made an additional $29 million investment
         in Courtroom Television Network ("Court") which represented the
         Company's pro rata share of capital calls made in prior years by
         the other partners of Court that the Company had no obligation to
         fund.  Due to the additional investment in Court, which restored its
         33% ownership interest, the Company's share of losses of Court for the
         year ended December 31, 1995 includes $18 million of previously
         unrecognized losses of Court.  These losses were not recognized in
         prior periods due to the fact that the Company's investment in Court
         had been reduced to zero.

         During 1995, BET Holdings, Inc. ("BET") repurchased a portion of its
         common stock.  As a result of the repurchase, the Company's ownership
         of BET was increased from 19% to 22%.  Therefore, the Company is
         deemed to exercise significant influence over BET and, accordingly,
         has adopted the equity method of accounting for its investment in BET.
         As a result, the Company restated its financial statements, which
         resulted in a decrease to its investment in BET, its unrealized
         holding gains on available-for-sale securities, its deferred taxes and
         accumulated deficit of $44 million, $32 million, $18 million and $6
         million, respectively, at December 31, 1994.  In addition, the Company
         increased its net earnings by $2 million for each of 1994 and 1993.

         At December 31, 1995, the Company had an effective ownership interest
         of approximately 27% in New TeleWest, a company that is currently
         operating and constructing cable television and telephone systems in
         the United Kingdom ("UK").  New TeleWest was formed on October 3, 1995
         upon the merger (the "TeleWest Merger") of TeleWest Communications plc
         ("TeleWest Communications") with SBC (CableComms) (UK).  Prior to the
         TeleWest Merger, the Company had an effective ownership interest of
         approximately 36% in TeleWest Communications.  As a result of the
         TeleWest Merger, the Company recognized a gain of approximately $165
         million (before deducting deferred income taxes of $58 million), which
         gain represents the difference between the Company's recorded cost for
         TeleWest Communications and the Company's 27% effective proportionate
         share of New TeleWest's net assets.

         New TeleWest contributed $70 million, $43 million and $28 million of
         the Company's share of its affiliates' losses during the years ended
         December 31, 1995, 1994 and 1993, respectively.  In addition, 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 equity method investments had a carrying
         value of $354 million at December 31, 1995 and accounted for $62
         million of the Company's share of its affiliates' losses in 1995.

         As a result of TeleWest Communications' November 1994 initial public
         offering and the associated dilution of the Company's ownership
         interest of TeleWest Communications, the Company recognized a gain
         amounting to $161 million (before deducting the related tax expense of
         $57 million).

                                                                     (continued)





                                     II-75
<PAGE>   142
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         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.

(6)      Investment in QVC, Inc.

         Effective February 9, 1995 and pursuant to an Agreement and Plan of
         Merger, QVC Programming Holdings, Inc. (the "Purchaser"), a
         corporation which is jointly owned by Comcast and the Company, merged
         (the "QVC Merger") with and into QVC, Inc. ("QVC") with QVC continuing
         as the surviving corporation.  The Company owns an approximate 43%
         interest of the post-merger QVC.

         Liberty began accounting for its investment in QVC under the cost
         method in May 1994, upon its determination to remain outside of the
         previous QVC stockholders agreement.  Prior to such determination,
         Liberty had accounted for its investment in QVC under the equity
         method.

         Upon consummation of the QVC Merger, the Company was deemed to
         exercise significant influence over QVC and, as such, adopted the
         equity method of accounting for its investment in QVC.  As a result,
         TCI restated its financial statements, which resulted in a decrease to
         its investment in QVC, its unrealized gain from available-for-sale
         securities, its deferred tax liability and accumulated deficit by $211
         million, $127 million, $89 million and $5 million, respectively, at
         December 31, 1994.  In addition, the restatement resulted in an
         increase in the Company's share of earnings of Liberty and share of
         losses of other affiliates by $1 million and $7 million, respectively,
         for the year ended December 31, 1994.

         A credit facility entered into by the Purchaser is secured by the
         common stock of certain subsidiaries of QVC and by certain of QVC's
         carriage and distribution agreements.  In addition, Comcast and the
         Company have pledged their shares of QVC pursuant to such credit
         facility.


(7)      Investment in Turner Broadcasting System, Inc.

         The Company owns shares of TBS common stock and shares of a class of
         preferred stock of TBS which have voting rights and are convertible
         into shares of TBS common stock.  The holders of those preferred
         shares, as a group, are entitled to elect seven of fifteen members of
         the board of directors of TBS, and the Company appoints three such
         representatives.  However, voting control over TBS continues to be
         held by its chairman of the    board and chief executive officer.  The
         Company's total holdings of TBS common and preferred stocks represent
         an approximate 7.5% voting interest for those matters for which
         preferred and common stock vote as a single class.

         At December 31, 1995 and 1994, the Company's investment in TBS common
         stock had an aggregate market value of $777 million and $487 million,
         respectively (including unrealized holding gains of $451 million and
         $169 million, respectively).

                                                                     (continued)





                                     II-76

<PAGE>   143
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         At December 31, 1995 and 1994, the Company's investment in TBS
         preferred stock, carried at cost, had an aggregate market value of
         $927 million and $579 million, respectively, based upon the market
         value of the common stock into which it is convertible.  Such market
         value exceeded cost by $749 million and $406 million, respectively,
         for such periods.

         On September 22, 1995, the boards of directors of Time Warner Inc.
         ("Time Warner") and TBS approved plans to merge their respective
         companies (the "TBS/Time Warner Merger").  Under the terms of the
         agreement, TBS shareholders will receive 0.75 of a Time Warner common
         share for each TBS Class A and Class B common share.  Each holder of
         TBS Class C preferred stock will receive 0.80 of a Time Warner common
         share for each of the 6 shares of TBS Class B common stock into which
         each of the shares of Class C preferred stock may be converted.

         Subject to certain conditions, the Company has agreed to vote its TBS
         shares for the TBS/Time Warner Merger.  The Time Warner shares of
         common stock received by the Company will be exchanged immediately for
         a series of voting common stock ("Time Warner Series Common Stock")
         economically equivalent to the common stock and placed in a voting
         trust with Time Warner Chairman, Gerald M. Levin, as the trustee.


         In connection with the TBS/Time Warner Merger, TBS has agreed to sell
         its interest in SportSouth Network, L.P., a regional sports cable
         network, to the Company for approximately $60 million; and Time Warner
         has agreed to issue 5 million shares of Time Warner common stock to
         the Company in exchange for a 6-year option to purchase Southern
         Satellite Systems, Inc. ("Southern").  Time Warner has also agreed to
         issue additional shares of Time Warner Series Common Stock to the
         Company having a market value of $160 million in the event Time Warner
         exercises such option.  Any shares of Time Warner common stock
         issuable in connection with the Southern option will be exchanged for
         Time Warner Preferred Stock.  Additionally, Time Warner will grant the
         Company an option to purchase Time Warner's interest in Sunshine
         Network, a Florida based sports cable network, for $14 million.

         The transaction is subject to, among other things, approval by the
         Federal Communications Commission ("FCC") and regulatory review by
         federal antitrust authorities, and approval by the shareholders of TBS
         and Time Warner.  It is expected to be completed in 1996.


(8)      Acquisitions

         As of January 26, 1995, TCI, TCIC and TeleCable Corporation
         ("TeleCable") consummated a transaction, whereby TeleCable was merged
         into TCIC.  The aggregate $1.6 billion purchase price was satisfied by
         TCIC's assumption of approximately $300 million of TeleCable's net
         liabilities and the issuance to TeleCable's shareholders of
         approximately 42 million shares of TCI Class A common stock and 1
         million shares of TCI Convertible Preferred Stock, Series D (the
         "Series D Preferred Stock") with an aggregate initial liquidation
         value of $300 million (see note 10).

                                                                     (continued)





                                     II-77
<PAGE>   144
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         On April 25, 1995, TINTA acquired a 51% ownership interest in
         Cablevision for a purchase price of $282 million, before liabilities
         liabilities assumed.  The purchase price was paid with cash
         consideration of $195 million and TINTA's issuance of $87 million
         principal amount of secured negotiable promissory notes payable (the
         "Cablevision Notes") to the selling shareholders.  TINTA has an option
         during the two-year period ended April 25, 1997 to increase its
         ownership interest in Cablevision up to 80% at a cost per subscriber
         similar to the initial purchase price, adjusted however for certain
         fluctuations in applicable foreign currency exchange rates.

         The acquisitions of TeleCable and Cablevision were accounted for by
         the purchase method.  Accordingly, the results of operations of such
         acquired entities have been consolidated with those of the Company
         since the respective dates of acquisition.  On a pro forma basis, the
         Company's revenue would have been increased by $77 million, and the
         Company's net loss, net loss attributable to common stockholders and
         net loss per share would have been decreased by $13 million, $12
         million and $.02, respectively, for the year ended December 31, 1995;
         and revenue, net earnings, net earnings attributable to common
         stockholders and net earnings per share would have increased by $441
         million, $17 million, less than $1 million and less than $0.01,
         respectively, for 1994 had such acquired entities been consolidated
         with the Company on January 1, 1994.  The foregoing unaudited pro forma
         financial information was based upon historical results of operations
         adjusted for acquisition costs and, in the opinion of management, is
         not necessarily indicative of the results had the Company operated the
         acquired entities since January 1, 1994.

         Effective January 26, 1995, TCI purchased from Comcast the 19.9%
         minority interest in Heritage Communications, Inc. owned by Comcast
         for aggregate consideration of approximately $290 million, the
         majority of which was paid in shares of TCI Class A common stock.


(9)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                      Weighted average                 December 31,
                                                      interest rate at                 ------------
                                                     December 31, 1995             1995             1994
                                                     -----------------             ----             ----
                                                                                    amounts in millions
          <S>                                               <C>                  <C>                <C>
          Debt of subsidiaries:
             Senior notes                                   8.5%                 $  6,713            5,412
             Bank credit facilities                         6.9%                    3,712            4,045
             Commercial paper                               6.4%                    1,469              445
             Notes payable                                 10.2%                      934            1,024
             Convertible notes (a)                          9.5%                       45               45
             Cablevision Notes (b)                         10.0%                       65               --
             Other debt                                                               273              191
                                                                                  -------           ------

                                                                                  $13,211           11,162
                                                                                  =======           ======
</TABLE>

                                                                     (continued)





                                     II-78
<PAGE>   145
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         (a)     These convertible notes, which are stated net of unamortized
                 discount of $186 million at December 31, 1995 and 1994, mature
                 on December 18, 2021.  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 years ended December 31, 1995, 1994 and
                 1993, certain of these notes were converted into 3,416 shares,
                 2,350,000 shares and 819,000 shares of TCI Class A common
                 stock, respectively.  At December 31, 1995, the notes were
                 convertible, at the option of the holders, into an aggregate
                 of 38,707,574 shares of Series A TCI Group Stock and 9,676,893
                 shares of Series A Liberty Group Stock.


         (b)     The Cablevision Notes are secured by TINTA's pledge of stock
                 representing its 51% interest in Cablevision.

         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.

         As security for borrowings under one of its bank credit facilities,
         the Company has pledged 100,524,364 shares of Series A TCI Group Stock
         held by a subsidiary of the Company.  As security for borrowings under
         another of its credit facilities, TCI has pledged a portion of its TBS
         common stock (with a quoted market value of $760 million at December
         31, 1995).

         In order to achieve the desired balance between variable and fixed
         rate indebtedness, the Company has entered into various interest rate
         exchange agreements pursuant to which it pays (i) fixed interest rates
         (the "Fixed Rate Agreements") ranging from 6.1% to 9.9% on notional
         amounts of $602 million at December 31, 1995 and (ii) variable
         interest rates (the "Variable Rate Agreements") on notional amounts of
         $2,520 million at December 31, 1995.  During the years ended December
         31, 1995, 1994 and 1993, the Company's net payments pursuant to the
         Fixed Rate Agreements were $13 million, $26 million and $38 million,
         respectively; and the Company's net receipts (payments) pursuant to
         the Variable Rate Agreements were (less than $1 million), $36 million
         and $31 million, respectively.  After giving effect to the Company's
         interest rate exchange agreements, approximately 45% of the Company's
         indebtedness bears interest at fixed rates.

                                                                     (continued)





                                     II-79
<PAGE>   146
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         The Company's Fixed Rate Agreements and Variable Rate Agreements
         expire as follows (amounts in millions, except percentages):

<TABLE>
<CAPTION>
                        Fixed Rate Agreements                            Variable Rate Agreements
                        ---------------------                            ------------------------
                Expiration        Interest Rate   Notional       Expiration        Interest Rate     Notional
                   Date            To Be Paid      Amount           Date          To Be Received      Amount
              --------------      -------------    ------      --------------     --------------      ------
          <S>            <C>                     <C>        <C>             <C>                    <C>
          April 1996            9.9%             $  30      April 1996          6.8%               $      50
          May 1996              8.3%                50      July 1996           8.2%                      10
          June 1996             6.1%                42      August 1996         8.2%                      10
          July 1996             8.2%                10      September 1996      4.6%                     150
          August 1996           8.2%                10      April 1997          7.0%                     200
          November 1996         8.9%               150      September 1998  4.8%-5.2%                    300
          October 1997     7.2%-9.3%                80      April 1999          7.4%                     100
          December 1997         8.7%               230      September 1999  7.2%-7.4%                    300
                                                  ----                                                      
                                                            February 2000   5.8%-6.6%                    650
                                                  $602      March 2000      5.8%-6.0%                    675
                                                  ====                                                      
                                                            September 2000      5.1%                      75
                                                                                                     -------

                                                                                                     $ 2,520
                                                                                                     =======
</TABLE>



         The Company is exposed to credit losses for the periodic settlements
         of amounts due under these interest rate exchange agreements 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.

         The fair value of the interest rate exchange agreements is the
         estimated amount that the Company would pay or receive to terminate
         the agreements at December 31, 1995, taking into consideration current
         interest rates and assuming the current creditworthiness of the
         counterparties.  The Company would be required to pay an estimated $25
         million at December 31, 1995 to terminate the agreements.

         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.  The fair value of debt, which has a carrying
         value of $13,211 million, was $13,804 million at December 31, 1995.

         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 from 1/4% to 1/2% per annum on the average unborrowed portion
         of the total amount available for borrowings under bank credit
         facilities.

                                                                     (continued)





                                     II-80
<PAGE>   147
                   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>
                 1996                 $3,494*
                 1997                    745
                 1998                    846
                 1999                    804
                 2000                    920
</TABLE>

                 * Includes $1,469 million of commercial paper.

 (10)    Redeemable Preferred Stocks

         4-1/2% Convertible Preferred Stock.  The 4-1/2% Convertible Preferred
         Stock was stated at its redemption value of $3,000 per share, and each
         share was convertible into 204 shares of TCI Class A common stock.  In
         February of 1994, all of the shares of such convertible preferred
         stock were tendered to the Company for conversion and, on March 3,
         1994, 1,265,004 shares of TCI Class A common stock were issued to the
         holders of such preferred stock.

         Convertible Preferred Stock, Series C.  TCI has 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 .


         Each share of Series C Preferred Stock is convertible, at the option
         of the holders, into 100 shares of Series A TCI Group Stock and 25
         shares of Series A Liberty Group stock, subject to anti-dilution
         adjustments.  The dividend, liquidation and redemption features of the
         Series C Preferred Stock will be determined by reference to the
         liquidation value of the Series C Preferred Stock, which as of any
         date of determination is equal, on a per share basis, to the sum of
         (i) $2,375, plus (ii) all dividends accrued on such share through the
         dividend payment date on or immediately preceding such date of
         determination to the extent not paid on or before such date, plus
         (iii), for purposes of determining liquidation and redemption
         payments, all unpaid dividends accrued on the sum of clauses (i) and
         (ii) above, to such date of determination.

                                                                     (continued)





                                     II-81
<PAGE>   148
                   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 ranking pari passu with the Series C
         Preferred Stock, the holders of Series C Preferred Stock are entitled
         to receive and, subject to any prohibition or restriction contained in
         any instrument evidencing indebtedness of TCI, TCI is obligated to pay
         preferential cumulative cash dividends out of funds legally available
         therefor.  Dividends accrue cumulatively at an annual rate of 5-1/2%
         of the liquidation value per share, whether or not such dividends are
         declared or funds are legally or contractually available for payment
         of dividends, except that if TCI fails to redeem shares of Series C
         Preferred Stock required to be redeemed on a redemption date,
         dividends will thereafter accrue cumulatively at an annual rate of 15%
         of the liquidation value per share.  Accrued dividends are payable
         quarterly on January 1, April 1, July 1 and October 1 of each year,
         commencing on the first dividend payment date after the issuance of
         the Series C Preferred Stock.  Dividends not paid on any dividend
         payment date will be added to the liquidation value on such date and
         remain a part thereof until such dividends and all dividends accrued
         thereon are paid in full.  Dividends accrue on unpaid dividends at the
         rate of 5-1/2% per annum, unless such dividends remain unpaid for two
         consecutive quarters in which event such rate will increase to 15% per
         annum.  The Series C Preferred Stock ranks prior to the Series A TCI
         Group Stock, Series A Liberty Group Stock and Class B Preferred Stock
         and pari passu with the Series F Preferred Stock with respect to the
         declaration and payment of dividends.

         Upon the dissolution, liquidation or winding up of TCI, holders of the
         Series C Preferred Stock will be entitled to receive from the assets
         of TCI available for distribution to stockholders an amount in cash,
         per share, equal to the liquidation value.  The Series C Preferred
         Stock will rank prior to the TCI common stock and Class B Preferred
         Stock and pari passu with the Series F Preferred Stock as to any such
         distributions.

         The Series C Preferred Stock is subject to optional redemption at any
         time after the seventh anniversary of its issuance, in whole or in
         part, by TCI at a redemption price, per share, equal to the then
         liquidation value of the Series C Preferred Stock.  Subject to the
         rights of any other class or series of the Company's preferred stock
         ranking pari passu with the Series C Preferred Stock, the Series C
         Preferred Stock is required to be redeemed by the Company at any time
         after such seventh anniversary at the option of the holder, in whole
         or in part (provided that the aggregate liquidation value of the
         shares to be redeemed is in excess of $1 million), in each case at a
         redemption price, per share, equal to the liquidation value.

                                                                     (continued)





                                     II-82
<PAGE>   149
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         For so long as any dividends are in arrears on the Series C Preferred
         Stock or any class or series of TCI preferred stock ranking pari passu
         with the Series C Preferred Stock and until all dividends accrued up
         to the immediately preceding dividend payment date on the Series C
         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, TCI may not redeem or otherwise acquire any
         shares of Series C Preferred Stock, any such parity stock or any class
         or series of its preferred stock ranking junior (including the TCI
         common stock and the Series C Preferred Stock) unless all then
         outstanding shares of Series C Preferred Stock and such parity stock
         are redeemed.  If TCI fails to redeem shares of Series C Preferred
         Stock required to be redeemed on a redemption date, and until all such
         shares are redeemed in full, TCI may not redeem any such parity stock
         or junior stock, or otherwise acquire any shares of such stock or
         Series C Preferred Stock.  Nothing contained in the two immediately
         preceding sentences shall prevent TCI from acquiring (i) shares of
         Series C Preferred Stock and any such parity stock pursuant to a
         purchase or exchange offer made to holders of all outstanding shares
         of Series C Preferred Stock and such parity stock, if (a) as to
         holders of all outstanding shares of Series C Preferred Stock, the
         terms of the purchase or exchange offer for all such shares are
         identical, (b) as to holders for all outstanding shares of a
         particular series or class of parity stock, the terms of the purchase
         or exchange offer for all such shares are identical and (c) as among
         holders of all outstanding shares of Series C Preferred Stock and
         parity stock, the terms of each purchase or exchange offer are
         substantially identical relative to the respective liquidation prices
         of the shares of Series C Preferred Stock and each series or class of
         such parity stock, or (ii) shares of Series C Preferred Stock, parity
         stock or junior stock in exchange for, or through the application of
         the proceeds of the sale of, shares of junior stock.

         The Series C Preferred Stock is subject to restrictions on transfer
         although it has certain customary registration rights with respect to
         the underlying shares of TCI Group and Liberty Group Stock.  The
         Series C Preferred Stock may vote on all matters submitted to a vote
         of the holders of the TCI common stock, has one vote for each share of
         TCI Group and Liberty Group Stock into which the shares of Series C
         Preferred Stock are converted for such purpose, and may vote as a
         single class with the TCI common stock.  The Series C Preferred Stock
         has no other voting rights except as required by the Delaware General
         Corporation Law ("DGCL") and except that the consent of the holders of
         record of shares representing at least two-thirds of the liquidation
         value of the outstanding shares of the Series C Preferred Stock is
         necessary to (i) amend the designation, rights, preferences and
         limitations of the Series C Preferred Stock as set forth in the TCI
         Charter and (ii) to create or designate any class or series of TCI
         preferred stock that would rank prior to the Series C Preferred Stock.

         Convertible Preferred Stock, Series D.  The Company issued 1,000,000
         shares of a series of TCI Series Preferred Stock designated
         "Convertible Preferred Stock, Series D, par value $.01 per share, as
         partial consideration for the merger between TCIC and TeleCable (see
         note 8).
                                                                     (continued)





                                     II-83
<PAGE>   150
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         The holders of the Series D Preferred Stock shall be entitled to
         receive, when and as declared by the Board out of unrestricted funds
         legally available therefor, cumulative dividends, in preference to
         dividends on any stock that ranks junior to the Series D Preferred
         Stock (currently the TCI Group Stock, the Liberty Group Stock and the
         Class B Preferred Stock), that shall accrue on each share of Series D
         Preferred stock at the rate of 5-1/2% per annum of the liquidation
         value ($300 per share).  Dividends are cumulative, and in the event
         that dividends are not paid in full on two consecutive dividend
         payment dates or in the event that TCI fails to effect any required
         redemption of Series D Preferred Stock, accrue at the rate of 10% per
         annum of the liquidation value.  The Series D Preferred Stock ranks on
         parity with the Series C Preferred Stock and the Series F Preferred
         Stock.

         Prior to the Distribution, 431 shares of Series D Preferred Stock were
         converted into 4,310 shares of TCI Class A common stock.  Subsequent
         to the Distribution, each share of Series D Preferred Stock is
         convertible into 10 shares of Series A TCI Group Stock and 2.5 shares
         of Series A Liberty Group Stock, subject to adjustment upon certain
         events specified in the certificate of designation establishing Series
         D Preferred Stock.  To the extent any cash dividends are not paid on
         any dividend payment date, the amount of such dividends will be deemed
         converted into shares of TCI common stock at a conversion rate equal
         to 95% of the then current market price of common stock, and upon
         issuance of common stock to holders of Series D Preferred Stock in
         respect of such deemed conversion, such dividend will be deemed paid
         for all purposes.  See note 1.

         Shares of Series D Preferred Stock are redeemable for cash at the
         option of the holder at any time after the tenth anniversary of the
         issue date at a price equal to the liquidation value in effect as of
         the date of the redemption.  Shares of Series D Preferred Stock may
         also be redeemed for cash at the option of TCI after the fifth
         anniversary of the issue date at such redemption price or after the
         third anniversary of the issue date if the market value per share
         exceeds certain defined levels for periods specified in the
         certificate of designation.

         If TCI fails to effect any required redemption of Series D Preferred
         Stock, the holders thereof will have the option to convert their
         shares of Series D Preferred Stock into common stock at a conversion
         rate of 95% of the then current market value of common stock, provided
         that such option may not be exercised unless the failure to redeem
         continues for more than a year.

         Except as required by law, holders of Series D Preferred Stock are not
         entitled to vote on any matters submitted to a vote of the
         stockholders of TCI.


                                                                     (continued)





                                     II-84
<PAGE>   151
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Convertible Redeemable Participating Preferred Stock, Series F.
         Immediately prior to the record date for the Distribution, the Company
         caused each of its subsidiaries holding Subsidiary Shares to exchange
         such shares for shares of Series F Preferred Stock having an aggregate
         value of not less than that of the Subsidiary Shares so exchanged.
         The Company is authorized to issue 500,000 shares of Series F
         Preferred Stock, par value $.01 per share.  Subsidiaries of TCI hold
         all the issued and outstanding shares.  Subsidiaries of TCI exchanged
         all of the Subsidiary Shares for 355,141 shares of Series F Preferred
         Stock.  Subsequent to such exchange, a holder of 78,077 shares of
         Series F Preferred Stock converted its holdings into 100,524,364
         shares of Series A TCI Group Stock.  Such shares of Series A TCI Group
         Stock are reflected as treasury stock in the accompanying consolidated
         financial statements.  Such preferred stock of TCI eliminates in
         consolidation.

         Each share of Series F Preferred Stock was convertible into 1,000
         shares of Series A TCI Group Stock, subject to anti-dilution
         adjustments, at the option of the holder at any time.  The
         anti-dilution provisions of the Series F Preferred Stock provide that
         the conversion rate of the Series F Preferred Stock will be adjusted
         by increasing the number of shares of Series A TCI Group Stock
         issuable upon conversion in the event of any non-cash dividend or
         distribution of the Series A TCI Group Stock to give effect to the
         value of the securities, assets or other property so distributed;
         however, no such adjustment shall entitle the holder to receive the
         actual security, asset or other property so distributed upon the
         conversion of shares of Series F Preferred Stock.  Therefore, the
         Distribution resulted in an adjustment to the conversion rate of the
         Series F Preferred Stock such that each holder has the right to
         receive upon conversion 1,287.51 shares of Series A TCI Group Stock.

         The holders of the Series F Preferred Stock are entitled to
         participate, on an as-converted basis, with the holders of the Series
         A TCI Group Stock, with respect to any cash dividends or distribution
         declared and paid on the Series A TCI Group Stock.  Dividends or
         distribution on the Series A TCI Group Stock which are not paid in
         cash would result in the adjustment of the applicable conversion rate
         as described above.

         Upon the dissolution, liquidation or winding up of the Company,
         holders of the Series F Preferred Stock will be entitled to receive
         from the assets of the Company available for distribution to
         stockholders an amount, in cash or property or a combination thereof,
         per share of Series F Preferred Stock, equal to the sum of (x) $.01
         and (y) the amount to be distributed per share of Series A TCI Group
         Stock in such liquidation, dissolution or winding up multiplied by the
         applicable conversion rate of a share of Series F Preferred Stock.


                                                                     (continued)





                                     II-85
<PAGE>   152
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         The Series F Preferred Stock is subject to optional redemption by the
         Company at any time after its issuance, in whole or in party, at a
         redemption price, per share, equal to the issue price of a share of
         Series F Preferred Stock (as adjusted in respect of stock splits,
         reverse splits and other events affecting the shares of Series F
         Preferred Stock), plus any dividends which have been declared but are
         unpaid as of the date fixed for such redemption.  The Company may
         elect to pay the redemption price (or designated portion thereof) of
         the shares of Series F Preferred Stock called for redemption by
         issuing to the holder thereof, in respect of its shares to be
         redeemed, a number of shares of Series A TCI Group Stock equal to the
         aggregate redemption price (or designated portion thereof) of such
         shares divided by the average of the last sales prices of the Series A
         TCI Group Stock for a period specified, and subject to the adjustments
         described, in the certificate of designation establishing the Series F
         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").  Subsequent to
         December 31, 1995, TCI 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.

         The initial liquidation value for the Series G Preferred Stock and
         Series H Preferred Stock is $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.  No dividends will
         accrue on the Series G or Series H Preferred Stock if the sum of the
         last reported sale price of TCI Group Stock plus one-fourth of the
         last reported sale price of the Liberty Group Stock equals or exceeds
         $27 for any ten consecutive trading days during the 65 trading days
         immediately prior to the first anniversary of issuance of the Series G
         and Series H  Preferred Stock.  If the sum of the amounts specified in
         the preceding sentence does not equal or exceed $27 for the specified
         period, dividends will begin 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 will thereafter be payable
         semi-annually commencing August 1, 1997, at the rate of 4% per annum
         on the liquidation value.  Any dividends paid on the Series G and
         Series H Preferred Stock may be paid, at TCI's election, in cash or
         shares of TCI Group Stock.  Additional dividends will accrue on unpaid
         dividends initially at a rate of 4% per annum.  The dividend rate on
         dividends that remain unpaid for six months will increase to 8.625%
         per annum.

                                                                     (continued)





                                     II-86
<PAGE>   153
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Each share of Series G Preferred Stock is convertible at the option of
         the holder at any time prior to the close of business on the last
         business day prior to redemption into 1.05 shares of Series A TCI
         Group Stock and each share of Series H Preferred Stock is convertible
         at any time prior to the close of business on the last business day
         prior to redemption into .2625 shares of Series A Liberty Group Stock.
         The conversion rights of Series G and Series H Preferred Stock are
         subject to adjustment in certain circumstances.

         Among other such adjustments, if the Liberty Group Stock, or any other
         redeemable capital stock of TCI into which either series of Preferred
         Stock may be convertible ("Redeemable Capital Stock"), is redeemed in
         full by TCI (the "Redemption Event"), then, except as otherwise
         described below, the shares of such Series G and Series H Preferred
         Stock will thereafter be convertible into the kind and amount of
         consideration that would have been received in such Redemption Event
         by a holder of the number of shares of Redeemable Capital Stock that
         would have been issuable upon conversion of such shares of Series G
         and Series H Preferred Stock, if they had been converted in full
         immediately prior to such Redemption Event.

         However, if any series of Redeemable Capital Stock into which a series
         of Series G or Series H Preferred Stock is then convertible is
         redeemed in full by TCI in exchange for securities of another issuer
         ("Redemption Securities"), TCI may elect to provide the holders of
         such Series G or Series H Preferred Stock with the right to exchange
         such Series G or Series H Preferred Stock, concurrently with the
         Redemption Event, for preferred stock of such other issuer ("Mirror
         Preferred Stock").  Such Mirror Preferred Stock shall be convertible
         into Redemption Securities and shall otherwise have terms and
         conditions comparable to the Series G or Series H Preferred Stock
         exchanged.  If TCI provides such an exchange right, any holder that
         does not then choose to participate in such exchange will continue to
         hold such Series G or Series H Preferred Stock but such holder will
         lose the conversion right with respect to the Redeemable Capital Stock
         redeemed in the Redemption Event and will not have any right to
         receive Redemption Securities in lieu thereof.  A holder that
         participates in such exchange will receive Mirror Preferred Stock
         convertible into Redemption Securities, but will no longer hold the
         Series G or Series H Preferred Stock so exchanged.

         An alternative provision will apply if, at the time of exercise of any
         such exchange right provided by TCI, the holder of the applicable
         series of Series G or Series H Preferred Stock would be entitled to
         receive on conversion any property in addition to the Redeemable
         Capital Stock being redeemed.  In that case, holders that choose to
         participate in the exchange will receive both Mirror Preferred Stock
         issued by the issuer of the Redemption Securities of the other issuer
         and a new preferred stock of TCI convertible into such additional
         property.  In such event, the Mirror Preferred Stock and such new TCI
         preferred stock will have a combined liquidation value equal to the
         liquidation value of the Series G or Series H Preferred Stock
         exchanged and will otherwise have terms and conditions comparable to
         such Series G or Series H Preferred Stock.

                                                                     (continued)





                                     II-87
<PAGE>   154
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         The Series G and Series H Preferred Stock are redeemable at TCI's
         option, in whole or in part, any time on or after February 1, 2001.
         The Series G and Series H Preferred Stock will be redeemable in full
         on February 1, 2016, to the extent then outstanding.  In all cases,
         the redemption price per share will be the liquidation value thereof,
         including the amount of any accrued but unpaid  dividends thereon, to
         and including the redemption date.

         The Series G and Series H Preferred Stock will rank prior to TCI
         common stock and the TCI Class B Preferred Stock and pari passu with
         all other currently outstanding classes and series of TCI preferred
         stock with respect to the declaration and payment of dividends and in
         liquidation.

         The Series G and Series H Preferred Stock will vote in any general
         election of directors of TCI and will have one vote per share for such
         purposes and will vote as a single class with the TCI common stock,
         the TCI Class B Preferred Stock and any other class or series of TCI
         Preferred Stock entitled to vote in any general election of directors.
         The Series G and Series H Preferred Stock will have no other voting
         rights except as required by the DGCL.

(11)     Stockholders' Equity

         Common Stock

         The Series A TCI Group Stock and Series A Liberty Group Stock each
         have one vote per share, and the Series B TCI Group Stock and Series B
         Liberty Group Stock each have ten votes per share.  Each share of
         Series B TCI Group Stock is convertible, at the option of the holder,
         into one share of Series A TCI Group Stock, and each share of Series B
         Liberty Group Stock is convertible, at the option of the holder, into
         one share of Series A Liberty Group Stock.  See note 1.

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

         Similarly, the rights of holders of the Liberty Group Stock upon
         liquidation of TCI are based upon the ratio of the aggregate market
         capitalization, as defined, of the Liberty Group Stock to the
         aggregate market capitalization, as defined, of the Liberty Group
         Stock and the TCI Group Stock.

         Employee Benefit Plans

         The Company has several employee stock purchase plans (the "Plans") to
         provide employees an opportunity for ownership in the Company and to
         create a retirement fund.  Terms of the Plans generally provide for
         employees to contribute up to 10% of their compensation to a trust for
         investment in TCI Group Stock and Liberty Media Group Stock.  The
         Company, by annual resolution of the Board, generally contributes up
         to 100% of the amount contributed by employees.  Certain of the
         Company's subsidiaries have their own employee benefit plans.
         Contributions to all plans aggregated $28 million, $21 million and $16
         million for 1995, 1994 and 1993, respectively.

                                                                     (continued)





                                     II-88
<PAGE>   155
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Preferred Stock

         Class A Preferred Stock.  The Company is authorized to issue 700,000
         shares of Class A Preferred Stock, par value $.01 per share.
         Subsidiaries of TCI held all of the issued and outstanding shares of
         such stock, amounting to 592,797 shares.  Such preferred stock
         eliminated in consolidation.  The holders of the Class A Preferred
         Stock exchanged such Subsidiary Shares for shares of Series F
         Preferred Stock immediately prior to the record date of the
         Distribution. See note 1.

         Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock.
         The Company is authorized to issue 1,675,096 shares of Class B
         Preferred Stock and 1,620,026 of such shares are issued and
         outstanding.


         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 Series A TCI Group 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 Series A TCI Group 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).  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 Series A TCI Group 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 Series A
         TCI Group Stock by the Average Market Price of the Series A TCI Group
         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 Series A TCI Group 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.


                                                                     (continued)





                                     II-89
<PAGE>   156
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         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.

         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).
                                                                     (continued)





                                     II-90
<PAGE>   157
                   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 DGCL.

         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.


                                                                     (continued)





                                     II-91
<PAGE>   158
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Redeemable Convertible Preferred Stock, Series E.  In connection with
         the Reorganization, the Board created and authorized the issuance of
         the Redeemable Convertible Preferred Stock, Series E, par value $.01
         per share.  The Company is authorized to issue 400,000 shares of such
         preferred stock. Subsidiaries of TCI held all of the issued and
         outstanding shares of such stock, amounting to 246,402 shares.  All
         such preferred stock eliminated in consolidation.  The holders of the
         Series E Preferred Stock exchanged such Subsidiary Shares for shares
         of Series F Preferred Stock immediately prior to the record date of
         the Distribution.

         Stock Options

         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.  Pursuant to the TCI/Liberty Merger Agreement and certain
         assumption agreements, stock options and/or stock appreciation rights
         granted (or assumed) by Old TCI and stock options and/or stock
         appreciation rights granted by Liberty were assumed by the Company and
         new options and/or stock appreciation rights were substituted under
         the 1994 Plan.  The following descriptions represent the terms of the
         assumed options and/or stock appreciation rights and additional awards
         under the 1994 Plan.

         The 1994 Plan was adjusted to provide that the number and type of
         shares subject to future awards consists of a number of shares of
         Series A TCI Group Stock equal to the number of shares of Class A
         common stock subject to future awards immediately prior to the
         Distribution and a number of shares of Series A Liberty Group Stock
         equal to one-fourth of the number of shares of Class A common stock
         subject to future awards immediately prior to Distribution.  Following
         the Distribution, the Compensation Committee of TCI may in its
         discretion grant awards, including awards of options on, or stock
         appreciation rights respecting, shares of Series A TCI Group Stock,
         Series A Liberty Group Stock, or combinations thereof, in such amounts
         and types as it determines in accordance with the terms of the 1994
         Plan, as adjusted.

         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") which is subject to stockholder
         approval.

                                                                     (continued)





                                     II-92
<PAGE>   159
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         In connection with the Distribution, each holder of an outstanding
         option or stock appreciation right received an additional option or
         stock appreciation right, as applicable, covering a number of shares
         of Series A Liberty Group Stock equal to one-fourth 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 Series
         A TCI Group 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.  The following
         descriptions of stock options and/or stock appreciation rights have
         been adjusted to reflect such change.

                                                                     (continued)





                                     II-93
<PAGE>   160
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The following table presents information regarding certain options in
         tandem with stock appreciation rights ("SARs") to purchase Class A,
         Series A TCI Group Stock and Series A Liberty Group Stock pursuant to
         the 1994 Plan, the 1995 Plan and the 1996 Plan:

<TABLE>
<CAPTION>
                                                                                      Series A Liberty
                                                  Class A          Series A TCI         Media Group
                                               common stock         Group Stock            Stock       
                                            ---------------    ---------------      --------------
   <S>                                      <C>                <C>                  <C>
   Outstanding at January 1, 1993                4,525,578                  --                  --
     Granted                                     3,955,000                  --                  --
     Exercised                                     (96,242)                 --                  --
     Canceled                                      (75,000)                 --                  --
                                            --------------     ---------------      --------------

   Outstanding at December 31, 1993              8,309,336                  --                  --
     Granted                                     3,191,000                  --                  --
     Assumed                                        54,600                  --                  --
     Exercised                                    (217,483)                 --                  --
     Canceled                                      (16,625)                 --                  --
                                            --------------     ---------------      --------------

   Outstanding at December 31, 1994             11,320,828                  --                  --
     Converted from Class A options            (11,218,866)         11,218,866                  --
     Adjustment for Distribution                        --                  --           2,804,715
     Granted                                            --           7,407,500           2,211,000
     Exercised                                     (91,962)           (933,516)           (227,003)
     Canceled                                      (10,000)            (90,500)            (22,625)
                                            --------------     ---------------      --------------

   Outstanding at December 31, 1995                     --          17,602,350           4,766,087
                                            ==============     ===============      ==============
                                                                                                  
   Exercise Price                              $8.83-19.56         $6.60-17.00         $8.83-24.00
                                            ==============     ===============      ==============

   Vesting period                                                    4-5 years           4-5 years
                                            ==============     ===============      ==============
</TABLE>

         On December 13, 1995, pursuant to the 1994 Plan, the Company awarded
         330,000 restricted shares of Series A TCI Group common stock and
         30,000 restricted shares of Series A Liberty Group Stock to certain
         officers and other key employees of the Company.  Such restricted
         shares vest as to 50% on December 13, 2000 and as to the remaining 50%
         on December 13, 2001.

         SARs with respect to 1,423,500 shares of Series A TCI Group Stock and
         355,875 shares of Series A Liberty Group Stock were outstanding at
         December 31, 1995.  These rights have an adjusted strike price of
         $0.60 and $0.82 per share, respectively, and become exercisable and
         vest evenly over seven years, beginning March 28, 1992.  The SARs
         expire on March 28, 2001.  The Company has the option of paying the
         holder in stock or cash.

                                                                     (continued)


                                     II-94
<PAGE>   161
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         On August 3, 1995, stockholders of the Company approved the Director
         Stock Option Plan 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 Director Stock Option Plan, options to purchase
         300,000 shares of Series A TCI Group common stock were granted at an
         exercise price of $16.50 per share and options to purchase 75,000
         shares of Series A Liberty Group Stock were granted at an exercise
         price of $22.00 per share and will vest and become exercisable over a
         five-year period, commencing on November 16, 1995 and will expire on
         November 16, 2004 During the year ended December 31, 1995, options to
         purchase 50,000 shares of Series A TCI Group Stock and options to
         purchase 12,500 shares of Series A Liberty Media Group Stock were
         canceled.

         Estimated compensation relating to restricted stock awards, options
         with tandem SARs and SARs has been recorded through December 31, 1995,
         but 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.

         Other

         In connection with the exercise of a stock option by an
         officer/director of Liberty, a note was given to Liberty as partial
         payment of the exercise price.  This note bore interest at 7.54% per
         annum.  At the date of the TCI/Liberty Combination, the Company
         recorded the net assumed note receivable, amounting to approximately
         $15 million, from such officer as a reduction of stockholders' equity.
         On October 27, 1994, such officer tendered to the Company 634,917
         shares of TCI Class B common stock in full payment of principal and
         interest amounting to $15 million.

         The shares issued by Liberty upon exercise of the aforementioned
         Liberty option, together with all subsequent dividends and
         distributions thereon, were subject to repurchase by Liberty under
         certain circumstances.  Such shares were exchanged for 15,600,000
         shares of TCI Class A common stock and 200,000 shares of Class B
         Preferred Stock in the TCI/Liberty Combination.  The Company's
         repurchase right terminates as to 20% of the Option Units per year,
         commencing March 28, 1992, and will terminate as to all of the Option
         Units on March 28, 1996 or in the event of death, disability or under
         certain other circumstances.

                                                                     (continued)





                                     II-95
<PAGE>   162
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         The excess of consideration received on debentures converted or
         options exercised over the par value of the stock issued is credited
         to additional paid-in capital.

         At December 31, 1995, there were 75,466,614 shares of Series A TCI
         Group Stock and 19,179,651 shares of Series A Liberty Group Stock
         reserved for issuance under exercise privileges related to options,
         convertible debt securities and convertible preferred stock and upon
         vesting of the restricted stock awards described in this note 11 and
         in notes 9 and 10.  Additionally, in January of 1996, the Company
         issued 7,259,380 shares each of Series G Preferred Stock and Series H
         Preferred Stock (see note 10).  Such preferred stocks are convertible
         into 7,622,349 shares of Series A TCI Group Stock and 1,905,587 shares
         of Series A Liberty Group Stock.  In addition, one share of Series A
         TCI Group Stock is reserved for each outstanding share of Series B TCI
         Group Stock and one share of Series A Liberty Group Stock is reserved
         for each outstanding share of Series B Liberty Group Stock.  See note
         1 for the effect of the Distribution on the conversion rights of
         holders of convertible securities.

(12)     Transactions with Officers and Directors

         Effective January 31, 1996, a 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. (a
         wholly-owned subsidiary of the Company) 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 are exercisable
         for cash in the aggregate amount of $3,000,000.

(13)     Sale of Subsidiary Stock

         On July 18, 1995, TINTA completed an initial public offering (the
         "IPO") in which it sold 20 million shares of TINTA Series A common
         stock to the public for consideration of $16.00 per share aggregating
         $320 million, before deducting related expenses (approximately $19
         million).  The shares sold to the public represented 17% of TINTA's
         total issued and outstanding common stock.  Also in July 1995, TINTA   
         issued 687,500 shares of TINTA Series A common stock as partial
         consideration for a 35% ownership interest in Torneos Y Competencias
         S.A., an Argentine sports programming company (the "TYC Acquisition").
         As a result of the IPO and the TYC Acquisition, the Company has
         recognized a gain amounting to $123 million. Subsequent to the IPO and
         the TYC Acquisition, TCI owns 82% of the issued and outstanding stock
         of TINTA, representing in excess of 90% of the voting power of TINTA.

         In June 1995, Flextech issued share capital for cash and preferred
         shares of Thomson Directories Limited.  In connection with such
         issuance, the Company recorded a $51 million increase to stockholders'
         equity and a $93 million increase to minority interests in equity of
         consolidated subsidiaries. No gain was recognized in the Company's
         consolidated statement of operations due primarily to the existence of
         the Company's contingent obligations to repurchase certain of the
         Flextech share capital.



                                                                     (continued)





                                     II-96
<PAGE>   163
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




(14)     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, 1995, 1994 and
    1993 consists of:

<TABLE>
<CAPTION>
                                                                Current         Deferred           Total 
                                                                -------         --------          -------
                                                                           amounts in millions
          <S>                                                 <C>                  <C>             <C>
          Year ended December 31, 1995:
             Federal                                          $    (23)             130              107 
             State and local                                       (10)              23               13 
                                                              --------         --------         -------- 

                                                              $    (33)             153              120
                                                              ========         ========         ======== 

          Year ended December 31, 1994:
             Federal                                          $    (69)             (29)             (98)
             State and local                                       (14)              (8)             (22)
                                                              --------         --------         -------- 

                                                              $    (83)             (37)            (120)
                                                              ========         ========         ======== 

          Year ended December 31, 1993:
             Federal                                          $    (14)            (120)            (134)
             State and local                                       (15)             (20)             (35)
                                                              --------         --------         -------- 

                                                              $    (29)            (140)            (169)
                                                              ========         ========         ======== 
</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,               
                                                               ------------------------------------------
                                                                 1995             1994             1993 
                                                                ------           ------           ------
                                                                          amounts in millions
          <S>                                              <C>                     <C>              <C>
          Computed "expected" tax benefit
             (expense)                                      $      102               (64)             (57)
          Adjustment to deferred tax assets
             and liabilities for enacted change
             in Federal income tax rate                             --               --              (76)
          Amortization not deductible for
             tax purposes                                          (25)             (13)             (12)
          Minority interest in losses (earnings)
             of consolidated subsidiaries                            9               (3)              (1)
          Gain on sale of subsidiary stock                          43               --               --
          Recognition of losses of
             consolidated partnership                               --              (10)              (8)
          State and local income taxes,
             net of Federal income tax benefit                      (4)             (20)             (23)
          Valuation allowance on
             foreign corporation                                    --              (10)              --
          Other                                                     (5)              (1)               8
                                                           -----------      -----------           ------

                                                           $       120             (120)            (169)
                                                           ===========      ===========           ====== 
</TABLE>


                                                                     (continued)





                                     II-97
<PAGE>   164
                   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, 1995 and 1994 are presented below:

<TABLE>
<CAPTION>
                                                                                      December 31,     
                                                                                  ---------------------
                                                                                  1995             1994 
                                                                                 ------           ------
                                                                                   amounts in millions
          <S>                                                               <C>                    <C>
          Deferred tax assets:
             Net operating loss carryforwards                               $       583              490
                Less - valuation allowance                                         (121)            (100)
             Investment tax credit carryforwards                                    118              122
                Less - valuation allowance                                          (41)             (36)
             Alternative minimum tax credit
                carryforwards                                                        95               90
             Investments in affiliates, due
                principally to losses of affiliates
                recognized for financial statement
                purposes in excess of losses
                recognized for income tax purposes                                  176              294
             Future deductible amounts principally
                due to non-deductible accruals                                       90               52
             Other                                                                   10               19
                                                                           ------------          -------

                   Net deferred tax assets                                          910              931
                                                                           ------------          -------

          Deferred tax liabilities:
             Property and equipment, principally
                due to differences in depreciation                                1,111            1,197
             Franchise costs, principally due to
                differences in amortization                                       3,569            2,600
             Investment in affiliates, due
                principally to undistributed
                earnings of affiliates                                              499              452
             Intangible assets, principally due to
                differences in amortization                                          42              108
             Leases capitalized for tax purposes                                     53               --
             Other                                                                  166               83
                                                                           ------------          -------
                   Total gross deferred tax liabilities                           5,440            4,440
                                                                           ------------          -------

                   Net deferred tax liability                              $      4,530            3,509
                                                                           ============          =======
</TABLE>

         The valuation allowance for deferred tax assets as of December 31, 1995
         was $162 million.  Such balance increased by $26 million from December
         31, 1994.


                                                                     (continued)





                                     II-98
<PAGE>   165
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         At December 31, 1995, the Company had net operating loss carryforwards
         for income tax purposes aggregating approximately $1,177 million of
         which, if not utilized to reduce taxable income in future periods, $134
         million expires in 2003, $116 million in 2004, $344 million in 2005,
         $325 million in 2006, $138 million in 2009 and $120 million in 2010.
         Certain subsidiaries of the Company had additional net operating loss
         carryforwards for income tax purposes aggregating approximately $245
         million and these net operating losses are subject to certain rules
         limiting their usage.

         At December 31, 1995, 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 $55
         million and these investment tax credit carryforwards are subject to
         certain rules limiting their usage.

         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 for the years 1981 through 1992.  A
         subsidiary of the Company has filed a petition in United States Tax
         Court protesting the disallowance of certain Transitional Investment
         Tax Credits and such issue will likely be litigated in 1996.  In the
         opinion of management, any additional tax liability, not previously
         provided for, resulting from these examinations, ultimately determined
         to be payable, should not have a material adverse effect on the
         consolidated financial position of the Company.

         New tax legislation was enacted in the third quarter of 1993 which,
         among other matters, increased the corporate Federal income tax rate
         from 34% to 35%.  The Company has reflected the tax rate change in its
         consolidated statements of operations.  Such tax rate change resulted
         in an increase of $76 million to income tax expense and deferred
         income tax liability.

(15)     Commitments and Contingencies

         During 1994, subsidiaries of the Company, Comcast, Cox (collectively,
         the "Cable Partners") and Sprint formed a partnership ("WirelessCo")
         to engage in the business of providing wireless communications
         services on a nationwide basis.  Through WirelessCo, in which the
         Company owns an indirect 30% interest, the partners participated in
         auctions ("PCS Auctions") of broadband personal communications
         services ("PCS") licenses conducted by the Federal Communications
         Commission ("FCC").  In the first round auction, which concluded
         during the first quarter of 1995, WirelessCo was the winning bidder
         for PCS licenses for 29 markets, including New York, San
         Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth,
         Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale.
         The aggregate license cost for these licenses was approximately $2.1
         billion.


                                                                     (continued)





                                     II-99
<PAGE>   166
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         WirelessCo also invested in American PSC, L.P. ("APC"), which holds a
         PCS license granted under the FCC's pioneer preference program for the
         Washington-Baltimore market.  WirelessCo acquired its 49% limited
         partnership interest in APC for $23 million and agreed to make capital
         contributions to APC equal to 49/51 of the cost of APC's PCS license.
         Additional capital contributions may be required in the event APC is
         unable to finance the full cost of its PCS license.  WirelessCo may
         also be required to finance the build-out expenditures for APC's PCS
         system.  Cox, which holds a pioneer preference PCS license for the Los
         Angeles-San Diego market, and WirelessCo have also agreed on the
         general terms and conditions upon which Cox (with a 51% interest) and
         WirelessCo (with a 49% interest) would form a partnership to hold and
         develop a PCS system using the Los Angeles-San Diego license.  APC and
         the Cox partnership would affiliate their PCS systems with WirelessCo
         and be part of WirelessCo's nationwide integrated network, offering
         wireless communications services under the "Sprint" brand.

         During 1994, subsidiaries of Cox, Sprint and the Company also formed a
         separate partnership ("PhillieCo"), in which the Company owns a 35.3%
         interest.  PhillieCo was the winning bidder in the first round auction
         for a PCS license for the Philadelphia market at a license cost of $85
         million.  To the extent permitted by law, the PCS system to be
         constructed by PhillieCo would also be affiliated with WirelessCo's
         nationwide network.

         WirelessCo may bid in subsequent rounds of the PCS Auctions and may
         invest in, affiliate with or acquire licenses from other successful
         bidders.  The capital that WirelessCo will require to fund the
         construction of the PCS systems, in addition to the license costs and
         investments described above, will be substantial.

         In March of 1995, the Cable Partners and Sprint (collectively, the
         "Partners") formed two new partnerships, of which the principal
         partnership is MajorCo, to which they contributed their respective
         interests in WirelessCo and through which they formed another
         partnership, NewTelco, L.P. ("New Telco") to engage in the business of
         providing local wireline communications services to residences and
         businesses on a nationwide basis.  The Cable Partners agreed to
         contribute their interests in TCG to NewTelco.  TCG is one of the
         largest competitive access providers in the United States in terms of
         route miles.

         Effective January 31, 1996, the Partners amended the MajorCo
         partnership agreement (the "Partnership Agreement") and certain other
         agreements related thereto.  Under the Partnership Agreement, the
         business of MajorCo and its subsidiaries will be the provision of
         certain wireless and other services described in the Partnership
         Agreement.  The Partners intend for WirelessCo and its subsidiary
         partnerships to be the exclusive vehicles through which they engage in
         the wireless telephony service businesses, subject to certain
         exceptions.  MajorCo will no longer be authorized to engage in the
         business of providing local wireline communications services to
         residences and businesses.  In connection with the amendment of the
         Partnership Agreement, the Partners, also agreed to the termination of
         the agreement to contribute the Cable Partners' interests in TCG to
         NewTelco.


                                                                     (continued)





                                     II-100
<PAGE>   167
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Pursuant to separate agreements, each of the Cable Partners and Sprint
         have agreed to negotiate in good faith on a market-by-market basis for
         the provision of local wireline telephony services over the cable
         television facilities of the respective Cable Partner under the Sprint
         brand.  Accordingly, local wireline telephony offerings in each market
         would be the subject of individual agreements to be negotiated with
         Sprint, rather than being provided by MajorCo, as originally
         contemplated.  The Cable Partners and Sprint also reaffirmed their
         intention to continue to attempt to integrate the business of TCG with
         that of MajorCo.  In addition, each Cable Partner agreed to certain
         restrictions on its ability to offer, promote, or package certain of
         its products or services with certain products and services of other
         persons and agreed to make its facilities available to Sprint for
         specified purposes to the extent and on the terms that it has made
         such facilities available to others for such purposes.  Such
         agreements have a term of five years, but under certain circumstances
         may terminate after three years.

         Execution of the foregoing agreements was a condition to the
         effectiveness of a previously approved business plan for the build out
         of WirelessCo's nationwide network for wireless personal
         communications services.  Pursuant to the business plan, the Partners
         are obligated to make additional cash capital contributions to MajorCo
         in the aggregate amount of approximately $1.9 billion during the
         two-year period that commenced January 1, 1996.  The business plan
         contemplates that MajorCo will require additional equity thereafter.


         In July 1995, TCIC and TCI entered into certain agreements with Viacom
         Inc. ("Viacom") and certain subsidiaries of Viacom regarding the
         purchase by TCIC of all of the common stock of a subsidiary of Viacom
         ("Cable Sub") which, at the time of purchase, will own Viacom's cable
         systems and related assets.

         The transaction has been structured as a tax-free reorganization in
         which Cable Sub will initially transfer 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 will also
         transfer to New Viacom Sub the proceeds (the "Loan Proceeds") of a
         $1.7 billion loan facility (the "Loan Facility") to be arranged by
         TCIC, TCI and Cable Sub.  Following these transfers, Cable Sub will
         retain cable assets with an estimated value at closing of
         approximately $2.2 billion and the obligation to repay the Loan
         Proceeds borrowed under the Loan Facility.  Repayment of the Loan
         Proceeds  will be non-recourse to Viacom and New Viacom Sub.


         Viacom will offer 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 "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").  The Exchange Offer will be subject to a number of
         conditions, including a condition (the "Minimum Condition") that
         sufficient tenders are made of Viacom Common Stock that permit the
         number of shares of Cable Sub Class A Stock issued pursuant to the
         Exchange Offer to equal the total number of shares of Cable Sub Class
         A Stock issuable in the Exchange Offer.


                                                                     (continued)





                                     II-101
<PAGE>   168
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Immediately following the completion of the Exchange Offer, TCIC will
         acquire from Cable Sub shares of Cable Sub Class B common stock for
         $350 million (which will be used to reduce Cable Sub's obligations
         under the Loan Facility).  At the time of such acquisition, the Cable
         Sub Class A Stock received by Viacom stockholders pursuant to the
         Exchange Offer will automatically convert into a series of senior
         cumulative exchangeable preferred stock (the "Exchangeable Preferred
         Stock") of Cable Sub with a stated value of $100 per share (the
         "Stated Value").  The terms of the Exchangeable Preferred Stock,
         including its dividend, redemption and exchange features, will be
         designed to cause the Exchangeable Preferred Stock, in the opinion of
         two investment banks, to initially trade at the Stated Value.  The
         Exchangeable Preferred Stock will be exchangeable, at the option of
         the holder commencing after the fifth anniversary of the date of
         issuance, for shares of Series A TCI Group Stock.  The Exchangeable
         Preferred Stock will also be redeemable, at the option of Cable Sub,
         after the fifth anniversary of the date of issuance, and will be
         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, payable in cash or, at the election of
         Cable Sub, in shares of Series A TCI Group Stock, or in any
         combination of the foregoing.  If insufficient tenders are made by
         Viacom stockholders in the Exchange Offer to permit the Minimum
         Condition to be satisfied, Viacom will extend the Exchange Offer for
         up to 15 business days and, during such extension, TCI and Viacom are
         to negotiate in good faith to determine mutually acceptable changes to
         the terms and conditions for the Exchangeable Preferred Stock and the
         Exchange Offer that each believes in good faith will cause the Minimum
         Condition to be fulfilled and that would cause the Exchangeable
         Preferred Stock to trade at a price equal to the Stated Value
         immediately following the expiration of the Exchange Offer.  In the
         event the Minimum Condition is not thereafter met, TCI and Viacom will
         each have the right to terminate the transaction.  In addition, either
         party may terminate the transaction if the exchange offer has not
         commenced by June 24, 1996 or been consummated by July 24, 1996.

         Consummation of the transaction is subject to a number of conditions,
         including receipt of a favorable letter ruling from the Internal
         Revenue Service that the transaction qualifies as a tax-free
         transaction and the satisfaction or waiver of all of the conditions of
         the Exchange Offer.  A request for a letter ruling from the Internal
         Revenue Service has been filed by Viacom.  The Company believes that,
         based upon the unique and complex structure of the transaction, there
         exists significant uncertainty as to whether a favorable ruling will
         be obtained.  In light of the foregoing, management of the Company has
         concluded that consummation of the transaction is not yet probable.
         No assurance can be given that the transaction will be consummated.


                                                                     (continued)





                                     II-102
<PAGE>   169
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         On October 31, 1995, Liberty Media Group announced that it had entered
         into a binding agreement in principle with The News Corporation
         Limited ("News Corp.") and TINTA.  In the United States, Liberty Media
         Group and News Corp. agreed to form a partnership (the "Fox-Liberty
         Venture") into which Liberty Media Group will contribute interests in
         its national and regional sports networks and into which News Corp.
         will contribute its fx cable network and certain other assets. Upon
         consummation, Liberty Media Group will receive a 50% interest in the
         Fox-Liberty Venture and $350 million in cash.  The fx network will be
         transformed into a nationally distributed, general entertainment and
         sports network.  The regional sports networks currently operated under
         the Prime Sports name will be relaunched under the Fox Sports banner.
        
         Internationally, News Corp., and a 50/50 partnership forms by Liberty
         Sports, Inc., a wholly-owned subsidiary of Liberty Media Group, and
         TINTA (the "Liberty-TINTA Partnership") have agreed to form a venture
         to operate currently existing sports services in Asia, Latin American
         and Australia and a variety of new sports services throughout the
         world except in the United Kingdom, Japan and New Zealand where prior
         arrangements preclude an immediate collaboration.  The Liberty-TINTA
         Partnership will own 50% of the international venture with News Corp.
         owning the other 50%.  News Corp. is contributing various
         international sports rights, including the Star Sports channel which
         is broadcast throughout Asia as part of the Star package of services.
         The Liberty-TINTA Partnership is contributing Prime Deportiva, a
         Spanish language sports service distributed in Latin American and in
         Hispanic markets in the United States, an interest in Torneos y
         Competencias S.A., an Argentinean sports programming and production
         business, various international sports and satellite transponder
         rights and cash.  The Liberty-TINTA Partnership will also contribute
         their 50% interest in Premiere Sports and All-Star Sports in
         Australia.  Both are 24-hour sports services available via MMDS or
         cable television in Australia.
        
         The transactions contemplated by the above agreements are expected to
         close during 1996.

         On November 27, 1995, the Company announced that it had agreed to
         exchange its controlling interest in Home Shopping Network, Inc.
         ("HSN") for shares of Silver King Communications, Inc. ("Silver
         King").  The Company will receive approximately 11 million newly
         issued shares of Silver King in exchange for it 37.5 million shares of
         HSN.


                                                                     (continued)





                                     II-103
<PAGE>   170
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Liberty Media Group and Mr. Barry Diller and certain of their
         respective affiliates entered into an agreement in August 1995
         pursuant to which an option owned by Liberty Media Group to purchase 2
         million shares of Silver King Class B common stock (the "Option")
         (which shares would constitute voting control of Silver King) would be
         transferred to Silver Management Company ("Silver Company"), an entity
         in which Liberty Media Group would own all of the non-voting equity
         interests (which would constitute substantially all of the equity of
         such entity) and Mr. Diller would own all of the voting equity
         interests.  Silver Company would thereafter exercise the Option and
         hold the shares of Silver King Class B Common Stock purchased
         thereunder.  In an amendment to such agreement entered into in
         November 1995, Liberty Media Group agreed to contribute all of its
         shares of HSN (which shares constitute approximately 41% of the equity
         of HSN and approximately 80% of the voting power of HSN) to Silver
         Company in return for additional non-voting equity interests in Silver
         Company.  Following such contribution Silver Company would exchange
         such HSN shares with Silver King for additional shares of Silver King
         Common Stock and Class B Common Stock (thereby increasing Silver
         Company's controlling interest in Silver King to in excess of 80% of
         the voting power of Silver King).  Each such transaction is subject to
         the satisfaction of certain conditions, including the receipt of all
         necessary regulatory consents and approvals.  If consummated, HSN
         would cease to be a subsidiary of the Company and therefore, the
         financial results of HSN would not be consolidated with the financial
         results of Liberty Media Group.  Although the Company would cease to
         possess voting control over HSN, it would continue to have an indirect
         equity interest in HSN through its ownership of the equity securities
         of Silver Company.  No assurance can be given that the transaction
         will be consummated.

         On October 5, 1992, 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.


                                                                     (continued)





                                     II-104
<PAGE>   171
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         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, or the
         appropriate franchise authority, if such authority has been certified.
         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.


         On October 30, 1995, the FCC accepted for comment a proposed
         resolution of all complaints against the cable programming services
         tier ("CPST") currently pending against cable systems owned by the
         Company.  If the proposed resolution is accepted by the FCC, the
         Company will settle all pending complaints by a one-time credit to
         each subscriber in CPST regulated franchises.  The aggregate amount of
         such credits is approximately $9 million and had previously been
         accrued by the Company.  In addition, the FCC will find that the CPST
         rates in CPST regulated franchises on September 15, 1995 comply with
         federal regulations.  The Company has committed not to file any
         additional cost-of-service filings until May 15, 1996 in franchises
         that were subject to CPST regulation prior to September 15, 1995.
         However, the Company will be able to avail itself of the other
         mechanisms under FCC rules to recover costs, including abbreviated
         cost-of-service filings covering system rebuilds and upgrades.  In the
         proposed resolution, the Company does not admit any violation of, or
         any failure to conform to, the 1992 Cable Act or the rules promulgated
         thereunder.  The comment period has ended and the Company is awaiting
         action by the FCC.

         The Company is obligated to pay fees for the license to exhibit
         certain qualifying films that are released theatrically by various
         motion picture studios through February 28, 2009 (the "Film Licensing
         Obligations").  The aggregate minimum liability under certain of the
         license agreements is approximately $414 million.  The aggregate
         amount of the Film Licensing Obligations under other license
         agreements is not currently estimable because such amount is dependent
         upon certain variable factors.  Nevertheless, the Company's aggregate
         payments under the Film License Obligations could prove to be
         significant.  Additionally, the Company has guaranteed up to $67
         million of similar license fee obligations of an affiliate.

         The Company has long-term sports program rights contracts which
         require payments through 2006.  Future payments for each of the next
         five years as follows (amounts in millions):

<TABLE>
                 <S>                    <C>
                 1996                   $84
                 1997                    73
                 1998                    62
                 1999                    55
                 2000                    46
</TABLE>


                                                                     (continued)





                                     II-105
<PAGE>   172
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $222 million at December 31, 1995.  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 fulfill any of such guarantees, that they will not be
         material to the Company.

         The Company has also committed to provide additional debt or equity
         funding to certain of its affiliates.  At December 31, 1995, such
         commitments aggregated $95 million.


         The Company leases business offices, has entered into pole rental
         agreements and transponder lease agreements and uses certain equipment
         under lease arrangements.  Rental expense under such arrangements
         amounted to $142 million, $82 million and $70 million in 1995, 1994
         and 1993, respectively.

         Future minimum lease payments under noncancellable operating leases
         for each of the next five years are summarized as follows (amounts in
         millions):

<TABLE>
                 <S>                   <C>
                 1996                  $104
                 1997                   101
                 1998                    89
                 1999                    86
                 2000                    73
</TABLE>

         It is expected that, in the normal course of business, expiring leases
         will be renewed or replaced by leases on other properties; thus, it is
         anticipated that future minimum lease commitments will not be less
         than the amount shown for 1996.

         Certain key employees of the Company hold restricted stock awards and
         options with tandem SARs to acquire shares of certain subsidiaries'
         common stock.  Estimates of the compensation related to the restricted
         stock awards and options and/or SARs have been recorded in the
         accompanying consolidated financial statement, but 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 or the restricted stock awards are vested.

         The Company has contingent liabilities related to legal proceedings
         and other matters arising in the ordinary course of business.  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-106
<PAGE>   173
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




(16)     Information about the Company's Operations

         Subsequent to the consummation of the TCI/Liberty Combination, the
         Company operates primarily in two industry segments: cable and
         communications services ("Cable") and programming services
         ("Programming"). Programming includes the production, acquisition and
         distribution of globally branded entertainment, education and
         information programming services and software for distribution through
         all available formats and media; and home shopping via television and
         other interactive media, direct marketing, advertising sales,
         infomercials and transaction processing.  Home shopping is a
         programming service which includes a retail function.  Separate
         amounts of the aforementioned home shopping service have been provided
         to enhance the readers understanding of the Company.  The Company has
         investments, accounted for under the equity method and the cost
         method, which also operate in the Cable and Programming industries.
         The following is selected information about the Company's operations
         for the years ended December 31, 1995 and 1994:


<TABLE>
<CAPTION>
                                                          Programming          
                                                  -----------------------------
                                                   Electronic        Other          Intersegment
                                       Cable       Retailing       Programming       Eliminations       Total
                                       -----       ---------       -----------       ------------       -----
         1995                                                   amounts in millions
         ----                                                                      
         <S>                        <C>                  <C>              <C>                   <C>           <C>
         Revenue                      $  5,384           1,019              521                 (73)          6,851
                                      ========      ==========     ============        ============        ========
                                                    
         Operating income                                                                                          
            (loss)                    $    653             (85)             (26)                 --             542
                                      ========      ==========     ============        ============        ========
                                                                                                                   
         Depreciation and                                                                                          
            amortization              $  1,274              43               55                  --           1,372
                                      ========      ==========     ============        ============        ========
                                                                                                                   
         Capital                                                                                                   
            expenditures              $  1,733              13               36                  --           1,782 
                                      ========      ==========     ============        ============        ========
                                                                                                                   
         Identifiable assets          $ 22,612             725            1,793                  --          25,130          
                                      ========      ==========     ============        ============        ========

         1994
         ----

         Revenue                      $  4,247             482              240                 (33)          4,936
                                      ========      ==========     ============        ============        ========
                                                                                                                   
         Operating income                                                                                          
            (loss)                    $    781               9               (2)                 --             788
                                      ========      ==========     ============        ============        ========
                                                                                                                   
         Depreciation and                                                                                          
            amortization              $    992              15               11                  --           1,018
                                      ========      ==========     ============        ============        ========
                                                                                                                   
         Capital                                                                                                   
            expenditures              $  1,239              19                6                  --           1,264
                                      ========      ==========     ============        ============        ========
                                                                                                                   
         Identifiable assets          $ 17,121             739            1,448                 (32)         19,276 
                                      ========      ==========     ============        ============        ========
</TABLE>


                                                               (continued)





                                     II-107
<PAGE>   174
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(17)     Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                                     1st           2nd           3rd           4th
                                                                   Quarter       Quarter       Quarter       Quarter
                                                                   -------       -------       -------       -------
                                                                                   amounts in millions,
          1995:                                                                  except per share amounts
          ----                                                                                           
          <S>                                                   <C>                <C>           <C>           <C>
          Revenue:
             As previously reported                             $     1,524        1,660         1,761
             Adjustment to reflect Cablevision
                operations on a current basis                            --           14            --
                                                                   --------     --------      --------
             As adjusted                                        $     1,524        1,674         1,761         1,892              
                                                                   ========     ========      ========      ========

          Operating income:
             As previously reported                             $       180          151           182
             Adjustment to restate amortization of
                of intangibles upon reallocation of
                purchase price                
             Adjustment to reflect Cablevision                           --          (20)           (4)
                operations on a current basis
             As adjusted                                        $        --            4            (2)
                                                                   --------     --------      -------- 
                                                                        180          135           176            51
                                                                   ========     ========      ========      ========
          Income tax benefit:
             As previously reported                             $        19           48            37
             Adjustment for effect of adopting
                equity method of accounting for BET                      --           --            (1)
             Adjustment to restate amortization of
                of intangibles upon reallocation of
                purchase price
             Adjustment to reflect Cablevision                           --            8             1
                operations on a current basis                            --            3            (1)
                                                                   --------     --------      -------- 
             As adjusted                                        $        19           59            36             6
                                                                   ========     ========      ========      ========
                                                                                                                    
          Net earnings (loss):
             As previously reported                             $       (45)         (83)           36
             Adjustment for effect of adopting
                equity method of accounting for BET                       1           --            --
             Adjustment to restate amortization of
                of intangibles upon reallocation of
                purchase price
             Adjustment to reflect Cablevision                           --          (12)           (3)
                operations on a current basis                            --           --            (1)             
                                                                   --------     --------      -------- 
             As adjusted                                        $       (44)         (95)           32           (64)
                                                                   ========     ========      ========      ========

          Primary and fully diluted earnings
             (loss) attributable to common
             stockholders per common and
             common equivalent share:

                TCI Class A and Class B common stock
                    As previously reported                      $      (.08)        (.14)          .12
                    Adjustment for effect of adopting equity
                       method of accounting for BET                      --           --            --
                    Adjustment to restate amortization of
                       of intangibles upon reallocation of
                       purchase price
                    Adjustment to reflect Cablevision                    --         (.02)           --
                       operations on a current basis                     --           --            --
                                                                   --------     --------      --------
                    As adjusted                                 $      (.08)        (.16)          .12           N/A          
                                                                   ========     ========      ========
</TABLE>


                                                                     (continued)





                                     II-108

<PAGE>   175
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




<TABLE>
<CAPTION>
                                                                     1st            2nd            3rd            4th
                                                                   Quarter        Quarter        Quarter        Quarter
                                                                   -------        -------        -------        -------
                                                                                   amounts in millions,
          1995 (continued):                                                      except per share amounts
          ----------------                                                                               
          <S>                                                 <C>              <C>           <C>            <C>
                   Series A and Series B TCI Group Stock
                      As previously reported                                                 $   (.09)
                      Adjustment to reflect Cablevision
                         operations on a current basis                                             --
                                                                                             --------
                      As adjusted                                    N/A           N/A       $   (.09)          (.07)
                                                                                             ========       ========

                   Series A and Series B Liberty Group Stock
                      As previously reported                                                 $   (.02)
                      Adjustment for effect of adopting equity
                         method of accounting for BET                                              --
                      Adjustment to restate amortization of
                         of intangibles upon reallocation of
                         purchase price                                                          (.01)
                                                                                             -------- 
                      As adjusted                                    N/A           N/A       $   (.03)          (.13)
                                                                                             ========       ========

          1994:
          ---- 

             Revenue                                           $     1,060        1,081         1,286          1,509

             Operating income                                  $       234          205           186            163

             Income tax expense:
                As previously reported                         $       (31)         (21)          (33)           (31)
                Adjustment for effect of adopting
                  equity method of accounting for
                  investments:
                     QVC                                                --           (1)           --             (2)
                     BET                                                --           --            --             (1)
                                                                  --------     --------      --------       -------- 
                As adjusted                                    $       (31)         (22)          (33)           (34)
                                                                  ========     ========      ========       ======== 

             Net earnings (loss):
                As previously reported                         $        32            6            25             (8)
                Adjustment for effect of adopting
                  equity method of accounting for
                  investments:
                     QVC                                                --           --             2              3
                     BET                                                --            1            --              1
                                                                  --------     --------      --------       --------
                As adjusted                                    $        32            7            27             (4)
                                                                  ========     ========      ========       ======== 

             Primary and fully diluted
                earnings (loss) attributable to
                common stockholders per
                common and common equivalent
                share:
                   As previously reported                      $       .07          .01           .04           (.02)
                   Adjustment for effect of adopting
                      equity method of accounting for
                       investments:
                     QVC                                                --           --            --            .01
                     BET                                                --           --            --             --
                                                                  --------     --------      --------       --------
                   As adjusted                                 $       .07          .01           .04           (.01)
                                                                  ========     ========      ========       ======== 
</TABLE>





                                     II-109

<PAGE>   176



                          INDEPENDENT AUDITORS' REPORT




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


We have audited and reported separately herein on the consolidated financial
statements of Tele-Communications, Inc. and subsidiaries as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995.

We have also audited the accompanying combined balance sheets of Liberty Media
Group (a combination of certain assets of Tele-Communications, Inc. and its
affiliate,  Liberty Media Corporation, as defined in note 1) as of December 31,
1995 and 1994, and the related combined statements of operations, equity, and
cash flows for each of the years in the three- year period ended December 31,
1995.  These combined financial statements are the responsibility of the
Companies' managements.  Our responsibility is to express an opinion on these
combined 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.

The combined financial statements of Liberty Media Group are presented for
purposes of additional analysis of the consolidated financial statements of
Tele-Communications, Inc. and subsidiaries.  As more fully described in note 1,
the combined financial statements of Liberty Media Group are intended to
reflect the performance of the businesses of Tele- Communications, Inc. and its
affiliate, Liberty Media Corporation, which produce and distribute cable
television programming services.  The combined financial statements of Liberty
Media Group should be read in conjunction with the consolidated financial
statements of Tele-Communications, Inc. and subsidiaries and Liberty Media
Corporation and subsidiaries.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Liberty Media Group
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1995, in conformity with generally accepted accounting principles.



                                       /s/ KPMG Peat Marwick LLP

                                       KPMG Peat Marwick LLP


                                         


Denver, Colorado
March 18, 1996




                                    II-110
<PAGE>   177
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                            Combined Balance Sheets

                           December 31, 1995 and 1994

<TABLE>
<CAPTION>
                                                                            1995                  1994 *  
                                                                        ------------         -------------
Assets                                                                         amounts in thousands
------                                                                                             
<S>                                                                      <C>                   <C>
Cash                                                                     $   41,225               62,963

Trade and other receivables, net                                            107,180               95,081

Inventories, net                                                            103,968              119,814

Prepaid expenses                                                             14,176               14,560

Prepaid program rights                                                       28,395               11,257

Committed film inventory                                                     29,931               22,097

Investments in affiliates, accounted for under the
   equity method, and related receivables (note 4)                          299,331              279,487

Investment in Turner Broadcasting System, Inc.
   ("TBS") (note 5)                                                         945,282              653,691

Other investments, at cost, and related
   receivables (note 6)                                                     110,791              103,440

Property and equipment, at cost:
   Land                                                                      21,254               21,934
   Support equipment and buildings                                          180,051              150,165
   Computer and broadcast equipment                                          44,962               60,525
                                                                      -------------         ------------
                                                                            246,267              232,624
   Less accumulated depreciation                                             42,233               38,313
                                                                      -------------         ------------
                                                                            204,034              194,311
                                                                      -------------         ------------
Intangibles: (note 7)
   Excess cost over acquired net assets                                     364,995              549,770
   Other intangibles                                                        283,242               77,925
   Cable distribution fees                                                  115,746               71,871
                                                                      -------------         ------------
                                                                            763,983              699,566
   Less accumulated amortization                                            142,741               81,046
                                                                      -------------         ------------
                                                                            621,242              618,520
                                                                      -------------         ------------
                                                                                                        
Other assets, at cost, net of amortization                                   12,081               12,279
                                                                      -------------         ------------

                                                                         $2,517,636            2,187,500
                                                                      =============         ============
</TABLE>

* Restated - see note 4.
                                                                     (continued)


                                     II-111
<PAGE>   178
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Balance Sheets, continued

                           December 31, 1995 and 1994

<TABLE>
<CAPTION>
                                                                             1995                  1994 *  
                                                                         ------------         -------------
Liabilities and Combined Equity                                                 amounts in thousands
-------------------------------                                                                     
<S>                                                                       <C>                   <C>
Accounts payable                                                          $   95,313              111,239

Accrued liabilities                                                          161,967              111,990

Film licenses payable                                                         34,864               26,719

Accrued litigation settlements                                                 6,140               27,450

Deferred revenue                                                              50,803               46,845

Debt (note 8)                                                                250,990               92,944

Deferred tax liability (note 9)                                              201,909              132,475

Other liabilities                                                             14,261                4,320
                                                                         -----------          -----------

         Total liabilities                                                   816,247              553,982
                                                                         -----------          -----------

Minority interests in equity of consolidated
      subsidiaries                                                            87,960              115,165

Combined equity (note 10):
   Combined equity                                                         1,336,125            1,391,440
   Due to Tele-Communications, Inc. ("TCI")                                    7,496               28,724
   Unrealized gains on available-for-sale
      securities, net of taxes                                               269,808               98,189
                                                                         -----------          -----------
                                                                           1,613,429            1,518,353
                                                                         -----------          -----------

Commitments and contingencies (note 11)
                                                                          $2,517,636            2,187,500
                                                                         ===========          ===========
</TABLE>


* Restated - see note 4.

See accompanying notes to combined financial statements.


                                     II-112

<PAGE>   179
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Statements of Operations

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                         1995              1994 *          1993 *  
                                                                     ------------      ------------    ------------
                                                                                  amounts in thousands
                                                                                except per share amounts
<S>                                                                   <C>               <C>            <C>
Revenue:
   Net sales from electronic retailing services                       $1,018,625        1,125,917        942,940
   Programming services:
      From TCI (note 10)                                                  72,886           59,897         47,448
      From others                                                        448,164          297,134        216,512
                                                                    ------------      -----------    -----------
                                                                       1,539,675        1,482,948      1,206,900
                                                                    ------------      -----------    -----------

Cost of sales, operating costs and expenses:
   Cost of sales                                                         701,678          730,505        611,526
   Operating                                                             420,258          319,591        246,299
   Selling, general and administrative                                   380,586          346,436        266,860
   Charges by TCI (note 10)                                               23,899           14,180          5,655
   Compensation relating to stock
      appreciation rights (note 10)                                        9,503               --         40,366
   Adjustment to compensation relating to stock
      appreciation rights (note 10)                                           --           (8,574)            --
   Restructuring charges                                                  16,846               --             --
   Depreciation                                                           24,769           22,574         19,384
   Amortization                                                           73,242           26,762         20,808
                                                                     -----------      -----------    -----------  
                                                                       1,650,781        1,451,474      1,210,898
                                                                     -----------      -----------    -----------

         Operating income (loss)                                        (111,106)          31,474         (3,998)

Other income (expense):
   Interest expense                                                      (17,395)         (10,333)       (10,202)
   Interest expense to TCI (note 10)                                      (1,920)          (2,348)        (1,703)
   Dividend and interest income,
      primarily from affiliates                                           11,552           20,249         23,145
   Share of earnings (losses) of affiliates, net (note 4)                (15,092)          30,833         26,631
   Minority interests in losses (earnings) of
      consolidated subsidiaries                                           34,518          (10,083)            32
   Litigation settlements                                                 (9,003)              --         (7,475)
   Gain (loss) on disposition of assets (note 4)                          (2,195)         181,088         31,972
   Loss on early extinguishment of debt                                       --           (1,491)        (3,554)
   Other, net                                                                 17             (884)        (1,586)
                                                                     -----------      -----------    -----------  
                                                                             482          207,031         57,260
                                                                     -----------      -----------    -----------  
         Earnings (loss) before income taxes                            (110,624)         238,505         53,262

Income tax benefit (expense) (note 9)                                     54,292         (103,941)       (23,407)
                                                                     -----------      -----------    -----------  
         Net earnings (loss)                                         $   (56,332)         134,564         29,855
                                                                     ===========      ===========    ===========
Loss per common share (note 2)                                       $      (.16)
                                                                     ===========
</TABLE>  

* Restated - see note 4.                                             

See accompanying notes to combined financial statements.


                                     II-113
<PAGE>   180
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)



                         Combined Statements of Equity

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                                      Unrealized
                                                                                    holding gains            Total
                                                   Combined          Due to       on available-for-         combined
                                                   equity    *        TCI         sale securities *         equity  *
                                                --------------     ----------     -----------------       -----------
                                                                         amounts in thousands
<S>                                            <C>                 <C>                 <C>                <C>
Balance at January 1, 1993*                      $  893,816             --                   --             893,816
   Net earnings                                      29,855             --                   --              29,855
   Sale of programming to TCI                       (47,448)            --                   --             (47,448)
   Cost allocations from TCI                          5,655             --                   --               5,655
   Allocation of compensation relating                                                          
      to stock appreciation rights                   40,366                                                  40,366
   Payments of compensation                                                                     
      relating to stock appreciation rights         (21,541)            --                   --             (21,541)
   Interest expense allocation from TCI               1,703             --                   --               1,703
   Intergroup tax allocation                         25,404             --                   --              25,404
   Acquisition of Home Shopping                                                                 
      Network, Inc. ("HSN")                         123,000             --                   --             123,000
   Net cash transfers from TCI                      134,571          2,738                   --             137,309
                                                 ----------     ----------           ----------          ----------

Balance at December 31, 1993                      1,185,381          2,738                   --           1,188,119
   Unrealized holding gains for
      available-for-sale securities as of
      January 1, 1994                                    --             --              292,918             292,918
   Net earnings                                     134,564             --                   --             134,564
   Sale of programming to TCI                       (59,897)            --                   --             (59,897)
   Cost allocations from TCI                         14,180             --                   --              14,180
   Accrued cable distribution fees                                                             
      to TCI from HSN                                    --         28,170                   --              28,170
   Allocation of compensation relating                                                         
      to stock appreciation rights                   (8,574)                                                 (8,574)
   Interest expense allocation from TCI               2,348             --                   --               2,348
   Intergroup tax allocation                         78,238             --                   --              78,238
   Acquisition of Prime Sports-West                                                            
      (note 7)                                      210,796             --                   --             210,796
   Net cash transfers to TCI                       (165,596)        (2,184)                  --            (167,780)
   Change in unrealized holding gains
      for available-for-sale securities                  --            --              (194,729)           (194,729)
                                                 ----------     ----------            ----------         ----------

Balance at December 31, 1994                      1,391,440         28,724               98,189           1,518,353
   Net loss                                         (56,332)            --                   --             (56,332)
   Sale of programming to TCI                       (40,358)       (32,528)                  --             (72,886)
   Cost allocations from TCI                         14,480          9,419                   --              23,899
   Cable distribution fees paid to TCI                                                         
      from HSN                                           --        (26,540)                  --             (26,540)
   Allocation of compensation relating                                                         
      to stock appreciation rights                    6,765          2,738                   --               9,503
   Interest expense allocation from TCI               1,786            134                   --               1,920
   Intergroup tax allocation                            435           (407)                  --                  28
   Deferred tax assets transferred to TCI           (13,717)            --                   --             (13,717)
   Deferred tax assets transferred to TCI                                                      
      upon implementation of tax sharing                                                       
      agreement (note 9)                             (2,410)            --                   --              (2,410)
   Net cash transferred from TCI                     14,916         25,956                   --              40,872
   Contribution to combined equity for                                                         
      acquisitions                                   19,120             --                   --              19,120
   Change in unrealized holding gains for
      available-for-sale securities                      --             --              171,619             171,619
                                                 ----------     ----------           ----------          ----------

Balance at December 31, 1995                     $1,336,125          7,496              269,808           1,613,429
                                                 ==========     ==========           ==========          ==========
</TABLE>

* Restated - see note 4.

See accompanying notes to combined financial statements.





                                     II-114
<PAGE>   181
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)



                       Combined Statements of Cash Flows

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                                   1995             1994 *          1993 * 
                                                                                 ---------        ---------       ---------
                                                                                            amounts in thousands
                                                                                                (see note 3)
<S>                                                                             <C>               <C>              <C>
Cash flows from operating activities:
   Net earnings (loss)                                                        $   (56,332)         134,564           29,855
   Adjustments to reconcile net earnings (loss) to net
      cash provided by operating activities:
         Depreciation and amortization                                             98,011           49,336           40,192
         Compensation relating to stock appreciation rights                         9,503               --           40,366
         Adjustment to compensation relating to stock
            appreciation rights                                                        --           (8,574)              --
         Payment of compensation relating to stock appreciation
            rights                                                                     --               --          (21,541)
         Share of losses (earnings) of affiliates, net                             15,092          (30,833)         (26,631)
         Deferred income tax (benefit) expense                                    (53,900)          25,703           (1,997)
         Intergroup tax allocation                                                     28               --               --
         Noncash interest                                                           1,920               --               --
         Minority interests in earnings (losses)                                  (34,518)          10,083              (32)
         Litigation settlements                                                     9,003               --            7,475
         Payments of litigation settlements                                       (30,313)              --               --
         Loss (gain) on disposition of assets                                       2,195         (181,088)         (31,972)
         Loss on early extinguishment of debt                                          --            1,491            3,554
         Other noncash charges                                                      6,014               --               --
         Changes in operating assets and liabilities, net of the effect of
            acquisitions:
               Change in receivables                                              (11,851)         (13,437)         (34,532)
               Change in inventories                                                7,895          (18,455)          (8,672)
               Change in prepaid expenses                                         (16,658)         (10,418)         (10,678)
               Change in payables, accruals and                                                                            
                   deferred revenue                                                55,607           48,810           55,305
                                                                              -----------       ----------       ----------

                     Net cash provided by operating activities                      1,696            7,182           40,692
                                                                              -----------       ----------       ----------

Cash flows from investing activities:
   Cash paid for acquisitions                                                     (36,596)              --         (160,440)
   Capital expended for property and equipment                                    (48,700)         (32,455)         (18,627)
   Additional investments in and loans to affiliates and others                   (69,479)         (23,856)         (48,457)
   Return of capital from affiliates                                               20,009            9,880            4,750
   Collections on loans to affiliates and others                                    2,501          149,162           20,136
   Cash paid for cable distribution fees                                          (43,875)         (71,871)              --
   Proceeds from disposition of assets                                                373          180,429           44,061
   Other investing activities                                                      14,168           (2,245)          (3,569)
                                                                              -----------       ----------       ----------
                     Net cash provided (used) by investing activities            (161,599)         209,044         (162,146)
                                                                              -----------       ----------       ----------

Cash flows from financing activities:
   Borrowings of debt                                                             222,549           46,859          150,400
   Repayments of debt                                                             (50,284)        (139,096)        (212,181)
   Change in cash transfers from TCI                                              (34,655)        (149,442)         122,254
   Contributions by minority shareholders of subsidiaries                           2,084            6,272           48,932
   Distributions to minority shareholders of subsidiaries                          (1,529)            (400)              --
                                                                              -----------       ----------       ----------

                     Net cash provided (used) by financing activities             138,165         (235,807)         109,405
                                                                              -----------       ----------       ----------

                        Net decrease in cash                                      (21,738)         (19,581)         (12,049)

                        Cash at beginning of year                                  62,963           82,544           94,593
                                                                              -----------       ----------       ----------
                        Cash at end of year                                   $    41,225           62,963           82,544
                                                                              ===========       ==========       ==========
* Restated - see note 4.

</TABLE>  

See accompanying notes to combined financial statements.





                                     II-115
<PAGE>   182
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



                        December 31, 1995,1994 and 1993


(1)      Basis of Presentation

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue a new class of stock ("Liberty
         Group Stock") which is intended to reflect the separate performance of
         TCI's business which produces and distributes cable television
         programming services ("Liberty Media Group").  However, Liberty Group
         Stock constitutes common stock of TCI.  The issuance of Liberty Group
         Stock did not result in any transfer of assets or liabilities of TCI
         or any of its subsidiaries or affect the rights of holders of TCI's or
         any of its subsidiaries' debt.  On August 10, 1995, TCI distributed to
         its security holders of record on August 4, 1995, Liberty Group Stock
         representing one hundred percent of the equity value attributable to
         Liberty Media Group (the "Distribution").  Additionally, the
         stockholders of TCI approved the redesignation of the previously
         authorized TCI Class A and Class B common stock into Series A TCI
         Group and Series B TCI Group common stock ("TCI Group Stock").

         As of January 27, 1994, TCI Communications, Inc. (formerly
         Tele-Communications, Inc. or "TCIC") and Liberty Media Corporation
         ("Liberty") entered into a definitive merger agreement to combine the
         two companies (the "TCI/Liberty Combination").  The transaction was
         consummated on August 4, 1994.  Due to the significant economic
         interest held by TCIC through its ownership of Liberty preferred stock
         and Liberty common stock and other related party considerations, TCIC
         accounted for its investment in Liberty under the equity method prior
         to the consummation of the TCI/Liberty Combination.  Accordingly, TCIC
         had recognized 100% of Liberty's earnings or losses before deducting
         preferred stock dividends.  The TCI/Liberty Combination was accounted
         for using predecessor cost due to related party considerations.
         Accordingly, the accompanying combined financial statements of Liberty
         Media Group reflect the combination of the historical financial
         information of the assets of TCI and Liberty which produce and
         distribute cable television programming attributed to Liberty Media
         Group.

                                                                     (continued)





                                     II-116
<PAGE>   183
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         The subsidiaries of TCI and Liberty attributed to Liberty Media Group,
         as well as certain investments held by these or other subsidiaries of
         TCI and Liberty also attributed to Liberty Media Group at the time of
         the Distribution, are as follows (unless otherwise denoted, such
         subsidiaries and investments were held separately by Liberty through
         August 4, 1994, the date the TCI/Liberty Combination was consummated):

                 Subsidiaries

                     Encore Media Corporation ("Encore")
                     TV Network Corporation (formed in 1994)
                     HSN
                     Southern Satellite Systems, Inc. ("Southern")
                     Netlink USA (owned by TCIC prior to the TCI/Liberty
                         Combination)
                     Liberty Sports, Inc.
                     Affiliated Regional Communications, Ltd. ("ARC")
                     Vision Group Incorporated (owned by TCIC prior to the
                         TCI/Liberty Combination)
                     Americana Television Productions LLC (acquired in 1995)
                     MacNeil/Lehrer Productions (acquired in 1995)
                     Prime Ticket Networks, L.P. ("Prime Sports-West")
                         (acquired in 1994)
                     Encore International, Inc.
                     Liberty Productions, Inc. (formed in 1995)
                     Prime Sports Network - Northwest


                                                                     (continued)





                                     II-117
<PAGE>   184
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



                 Investments

                     BET Holdings, Inc. ("BET")
                     Video Jukebox Network, Inc.
                     Courtroom Television Network ("Court")
                     Discovery Communications, Inc. ("Discovery") (owned by TCIC
                         prior to the TCI/Liberty Combination)
                     DMX, Inc. (owned by TCIC prior to the TCI/Liberty 
                         Combination)
                     E! Entertainment Television, Inc. (owned by TCIC prior to
                         the TCI/Liberty Combination)
                     International Family Entertainment, Inc.
                     Ingenius (formed in 1994)
                     International Cable Channels Partnership, Ltd. ("ICCP") 
                         (acquired in 1994)
                     QE+ Ltd. ("QE+") (formed in 1994) (owned by TCIC prior to
                         the TCI/Liberty Combination)
                     QVC, Inc. ("QVC")
                     Reiss Media Enterprises, Inc. (owned by TCIC prior to the
                         TCI/Liberty Combination)
                     TBS (owned by TCIC prior to the TCI/Liberty Combination)
                     Prime SportsChannel Networks Associates
                     Home Team Sports Limited Partnership ("HTS")
                     SportsChannel Chicago Associates ("Chicago")
                     SportsChannel Pacific Associates
                     SportsChannel Prism Associates
                     Prime Sports Network - Upper Midwest
                     SportSouth Network, L.P. ("SportSouth")
                     Sunshine Network ("Sunshine")
                     American Movie Classics Company ("AMC")
                     Republic Pictures Television (owned by TCIC prior to the
                          TCI/Liberty Combination)
                     Sillerman Communications Management Corporation (owned by
                          TCIC prior to the TCI/Liberty Combination)
                     Technology Programming Ventures (formed in 1994)
                     Premier Sports ("Australia") (launched in 1995)
                     Silver King Communications, Inc. ("Silver King")
                     Asian Television and Communications LLC
                     Mountain Mobile Television LLC
                     Cutthroat Productions, LP (formed in 1994)
                     The National Registry
                     PPVN Holding Company (acquired in 1995)

                                                                     (continued)





                                     II-118
<PAGE>   185
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Upon the Distribution of the Liberty Group Stock and subsequent to the
         redesignation of TCI Class A and Class B common stock into Series A
         and Series B TCI Group Stock, the TCI Group Stock is intended to
         reflect the separate performance of the subsidiaries and assets not
         attributed to Liberty Media Group, including (i) TCI's Domestic Cable
         and Communications unit, (ii) TCI's International Cable and
         Programming unit and (iii) TCI's Technology/Venture Capital unit.
         Such subsidiaries and assets are collectively referred to as "TCI
         Group".  Intercompany balances resulting from transactions with such
         units are reflected as borrowings from or loans to TCI and, prior to
         the Distribution, are included in combined equity in the accompanying
         combined financial statements.  See note 10.

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense to Liberty Media Group for purposes of
         preparing its combined financial statements, the change in the capital
         structure of TCI does not affect the ownership or the respective legal
         title to assets or responsibility for liabilities of TCI or any of its
         subsidiaries.  TCI and its subsidiaries will each continue to be
         responsible for their respective liabilities.  Holders of Liberty
         Group Stock are holders of common stock of TCI and continue to be
         subject to risks associated with an investment in TCI and all of its
         businesses, assets and liabilities.  The issuance of Liberty Group
         Stock did not affect the rights of creditors of TCI.

         Financial effects arising from any portion of TCI that affect the
         consolidated results of operations or financial condition of TCI could
         affect the combined results of operations or financial condition of
         Liberty Media Group and the market price of shares of Liberty Group
         Stock.  In addition, net losses of any portion of TCI, dividends and
         distributions on, or repurchases of, any series of common stock, and
         dividends on, or certain repurchases of preferred stock would reduce
         funds of TCI legally available for dividends on all series of common
         stock.  Accordingly, Liberty Media Group financial information should
         be read in conjunction with the TCI consolidated financial
         information.

         Dividends on Liberty Group Stock are payable at the sole discretion of
         the Board out of the lesser of all assets of TCI legally available for
         dividends and the available dividend amount with respect to Liberty
         Media Group, as defined.  Determinations to pay dividends on Liberty
         Group Stock will be based primarily upon the financial condition,
         results of operations and business requirements of Liberty Media Group
         and TCI as a whole.


                                                                     (continued)


                                     II-119
<PAGE>   186
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         After the Distribution, existing preferred stock and debt securities
         of TCI that were convertible into or exchangeable for shares of TCI
         Class A common stock were, as a result of the operation of
         antidilution provisions, adjusted so that there will be delivered upon
         their conversion or exchange the number of shares of Series A Liberty
         Group Stock that would have been issuable in the Distribution with
         respect to the TCI Class A common stock issuable upon conversion or
         exchange had such conversion or exchange occurred prior to the record
         date for the Distribution.  Options to purchase TCI Class A common
         stock outstanding at the time of the Distribution were adjusted by
         issuing to the holders of such options separate options to purchase
         that number of shares of Series A Liberty Group Stock which the holder
         would have been entitled to receive had the holder exercised such
         option to purchase TCI Class A common stock prior to the record date
         for the Distribution and reallocating a portion of the aggregate
         exercise price of the previously outstanding options to the newly
         issued options to purchase Series A Liberty Group Stock.  The issuance
         of shares of Series A Liberty  Group Stock upon such conversion,
         exchange or exercise of such convertible securities will not result in
         any transfer of funds or other assets from TCI to Liberty Media Group
         in consideration of such issuance.  In the case of the exercise of
         such options to purchase Series A Liberty Group Stock, the proceeds
         received upon the exercise of such options will be attributed to
         Liberty Media Group.

 (2)     Summary of Significant Accounting Policies


         Trade and Other Receivables, Net

         A home shopping sales program with a deferred payment arrangement
         ("flex-pay") allows customers to charge their purchases to third party
         credit cards in installments, generally over three consecutive months.
         Flex-pay receivables totaled $13,015,000 and $23,621,000 at December
         31, 1995 and 1994, respectively.  An allowance for doubtful accounts
         is provided based on Liberty Media Group's past experience.

         Inventories, Net

         Merchandise inventories are valued at the lower of cost or market,
         cost being determined using the first-in, first-out method.  Cost
         includes freight, certain warehousing costs and other allocable
         overhead.  Market is determined on the basis of net realizable value,
         giving consideration to obsolescence and other factors.  Inventories
         are presented net of an inventory carrying adjustment of $33,259,000
         and $18,791,000 at December 31, 1995 and 1994, respectively.

         Program Rights

         Prepaid program rights are amortized on a film-by-film basis (or
         event-by-event basis for sports events) over the specific number of
         exhibitions.  Committed film inventory and program rights payable are
         recorded at the estimated costs of the programs when the film is
         available for airing.  These amounts are amortized on a film- by-film
         basis over the specific number of exhibitions.


                                                                     (continued)





                                     II-120
<PAGE>   187
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         Investments

         All marketable equity securities held by Liberty Media Group are
         classified as available-for-sale and are carried at fair value.
         Unrealized holding gains and losses on securities classified as
         available-for-sale are carried net of taxes as a separate component of
         combined equity.

         Other investments in which the ownership interest is less than 20% and
         are not considered marketable securities are generally carried at
         cost.  For those investments in affiliates in which Liberty Media
         Group'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 Liberty Media Group's share
         of net earnings or losses of the affiliates as they occur rather then
         as dividends or other distributions are received, limited to the
         extent of Liberty Media Group's investment in, advances to and
         commitments for the investee.  Liberty Media Group's share of net
         earnings or losses of affiliates includes the amortization of the
         difference between Liberty Media Group's investment and its share of
         the net assets of the investee.  However, recognition of gains on
         sales of properties to affiliates accounted for under the equity
         method is deferred in proportion to Liberty Media Group's ownership
         interest in such affiliates.

         Changes in Liberty Media Group'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
         Liberty Media Group's combined statements of operations.

         Long-Lived Assets

         (a)     Property and Equipment

                 Property and equipment, including significant improvements, is
                 stated at cost which includes acquisition costs allocated to
                 tangible assets acquired.  Construction cost, including
                 interest during construction and applicable overhead, are
                 capitalized.  Interest capitalized during the periods
                 presented was not material.

                 Depreciation is computed on a straight-line basis using
                 estimated useful lives of 3 to 40 years for support equipment
                 and buildings (furniture and other equipment are depreciated
                 from 3 to 8 years and buildings and improvements are
                 depreciated from 20 to 40 years) and 3 to 10 years for
                 computer and broadcast equipment.

                 Repairs and maintenance and any gains or losses on disposition
                 of assets in their entirety are included in operations.

         (b)     Excess Cost Over Acquired Net Assets

                 Excess cost over acquired net assets consists of the
                 difference between the cost of acquiring programming entities
                 and amounts assigned to their tangible assets.  Such amounts
                 are amortized on a straight-line basis over 30 years.

                                                                     (continued)





                                     II-121
<PAGE>   188
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         (c)     Other Intangibles

                 Other intangible assets include amounts assigned to covenants
                 not to compete and amounts in excess of tangible assets
                 assigned to sports program rights agreements, affiliate
                 agreements and distribution agreements.  The amounts assigned
                 to these agreements are amortized over the respective lives of
                 the agreements ranging from 1 to 10 years.

         (d)     Cable Distribution Fees

                 Liberty Media Group pays up front fees for long-term cable
                 contracts for carriage of Liberty Media Group's home shopping
                 programming.  Such cable distribution fees are amortized to
                 expense on a straight-line basis, over the terms of the
                 respective contracts, which range from 5 to 15 years.

                 Liberty Media Group periodically analyzes the value of its
                 cable distribution fees to determine if an impairment has
                 occurred.  Liberty Media Group measures the potential
                 impairment of recorded cable distribution fees by the
                 undiscounted amount of expected future operating cash flows in
                 relation to the net capital investment.  Based on its
                 analysis, Liberty Media Group does not believe that an
                 impairment of its cable distribution fees has occurred.

         In March of 1995, the Financial Accounting Standards Board (the
         "FASB") issued Statement of Financial Accounting Standards No. 121,
         Accounting for the Impairment of Long-Lived Assets and for Long-Lived
         Assets to Be Disposed Of ("Statement No. 121"), effective for fiscal
         years beginning after December 15, 1995.  Statement No. 121 requires
         impairment losses to be recorded on long-lived assets used in
         operations when indicators of impairment are present and the
         undiscounted cash flows estimated to be generated by those assets are
         less than the assets' carrying amount.  Statement No. 121 also
         addresses the accounting for long-lived assets that are expected to be
         disposed of.  Liberty Media Group will adopt Statement No. 121
         effective January 1, 1996.  The effect of such adoption is not
         expected to be significant.

         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 Liberty Media Group to repurchase
         such holders' common equity.

         Deferred Revenue

         Deferred revenue represents advance billings primarily to home
         satellite dish owners.  Such revenue is recognized in the month
         service is provided.


                                                                     (continued)


                                     II-122
<PAGE>   189
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         Net Sales From Electronic Retailing Services

         Revenue includes merchandise sales and shipping and handling revenue,
         and is reduced by incentive discounts and sales returns to arrive at
         net sales from home shopping services.  Revenue is recorded for credit
         card sales upon transaction authorization, and for check sales upon
         receipt of customer payment, which does not vary significantly from
         the time goods are shipped.  Liberty Media Group's sales policy allows
         merchandise to be returned at the customer's discretion, generally up
         to 30 days.  An allowance for returned merchandise is provided based
         upon past experience.


         Stock Based Compensation

         Statement of Financial Accounting Standards No. 123, Accounting for
         Stock-Based Compensation ("Statement No.  123") was issued by the FASB
         in October 1995.  Statement No. 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. Liberty Media Group
         will include the disclosures required by Statement No. 123 in the
         notes to future financial statements.

         Loss Per Common Share

         The loss per common share for the period from the Distribution to
         December 31, 1995 was computed by dividing net loss attributable to
         Liberty Media Group Series A and Series B common stockholders by the
         weighted average number of common shares of Liberty Media Group Series
         A and Series B common stock outstanding during the period (164.1
         million).  Common stock equivalents were not included in the
         computation of weighted average shares outstanding because their
         inclusion would be anti-dilutive.  Earnings per common share are
         omitted from the statements of operations for the periods from January
         1, 1995 through the Distribution and for the years ended December 31,
         1994 and 1993 as Liberty Group Stock was not part of the capital
         structure of TCI until August 10, 1995, the date of the Distribution.


                                                                     (continued)





                                     II-123
<PAGE>   190
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         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.

         Reclassification

         Certain amounts have been reclassified for comparability with the 1995
         presentation.

 (3)     Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $14,968,000, $8,853,000 and $14,018,000 for
         the years ended December 31, 1995, 1994 and 1993, respectively.  Cash
         paid for income taxes during the years ended December 31, 1995, 1994
         and 1993 was $1,707,000, $83,267,000 and $8,642,000, respectively.  In
         addition, Liberty Media Group received an income tax refund amounting
         to $11,258,000 during the year ended December 31, 1995.

         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                           Years  ended
                                                                           December 31,             
                                                              --------------------------------------
                                                                1995           1994            1993  
                                                              --------       --------        --------
                                                                       amounts in thousands
<S>                                                          <C>            <C>              <C>
Cash paid for acquisitions:
   Fair value of assets acquired                              $35,329        302,043          540,254
   Net liabilities assumed                                       (934)       (21,350)        (195,648)
   Contribution to combined equity from
      TCI for acquisition                                     (19,120)      (210,796)        (123,000)
   Deferred tax asset (liability) recorded                                                           
      in acquisition                                            1,084        (69,897)           1,115
   Minority interests in equity of
      acquired entities                                        20,237             --          (62,281)
                                                           ----------     ----------       ---------- 
         Cash paid for acquisitions                           $36,596             --          160,440
                                                           ==========     ==========       ==========
Conversion of debt into additional minority                                                          
   interest in consolidated subsidiary                        $14,215             --               --
                                                           ==========     ==========       ==========
                                                                                                     
Assets contributed for interest in                                                                   
   limited liability company                                 $  2,633             --               --
                                                           ==========     ==========       ==========
</TABLE>


                                                                     (continued)





                                     II-124
<PAGE>   191
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(4)      Investments in Affiliates

         Summarized unaudited results of operations for affiliates accounted
         for under the equity method are as follows:

<TABLE>
<CAPTION>
                                                                            December 31,         
                                                                    -----------------------------
                                                                    1995                   1994  
                                                                   -------                -------
                                                                         amounts in thousands
<S>                                                             <C>                     <C>
Combined Financial Position
---------------------------

   Property and equipment, net                                  $   310,858               242,742
   Program rights                                                   181,844               152,933
   Cable distribution rights                                        184,160               105,705
   Due from Liberty Media Group                                      11,313                11,253
   Other intangibles                                              1,118,050               351,971
   Other assets                                                   1,004,800               873,176
                                                                -----------           -----------
           Total assets                                          $2,811,025             1,737,780
                                                                ===========           ===========
                                                                                                 
   Debt                                                          $1,251,035               303,453
   Due to Liberty Media Group                                           682                 4,264
   Program rights payable                                            37,782                51,310
   Other liabilities                                                949,003               555,107
   Owners' equity                                                   572,523               823,646
                                                                -----------           -----------
           Total liabilities and equity                          $2,811,025             1,737,780
                                                                ===========           ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                       Years ended
                                                                        December 31,                
                                                     -----------------------------------------------
                                                       1995              1994               1993  
                                                      -------           -------            -------
                                                                   amounts in thousands
<S>                                                <C>                <C>                <C>
Combined Operations
-------------------

   Revenue                                           $2,577,752        2,104,423          1,781,359
   Operating expenses                                (2,285,307)      (1,855,746)        (1,522,382)
   Depreciation and amortization                       (122,289)         (76,106)           (58,197)
                                                   ------------     ------------       ------------ 

      Operating income                                  170,156          172,571            200,780

   Interest expense                                     (96,609)         (20,937)           (12,069)
   Other, net                                          (114,556)        (119,856)          (115,634)
                                                   ------------     ------------       ------------ 

      Net earnings (loss)                          $    (41,009)          31,778             73,077
                                                   ============     ============       ============
</TABLE>



                                                                     (continued)





                                     II-125
<PAGE>   192
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         The following table reflects the carrying value of Liberty Media
         Group's investments, accounted for under the equity method, including
         related receivables:

<TABLE>
<CAPTION>
                                                                                     December 31,          
                                                                           --------------------------------
                                                                              1995                 1994    
                                                                          ------------         ------------
                                                                                 amounts in thousands
                  <S>                                                        <C>                  <C>
                  Discovery                                                  $117,373             113,182
                  QVC                                                          81,160              72,100
                  Sunshine                                                      8,221               7,174
                  Chicago                                                      29,722              30,163
                  HTS                                                           3,514               4,292
                  ICCP                                                         11,563              13,686
                  Australia                                                     4,212                  --
                  BET                                                          15,353              11,195
                  Court                                                         7,711                  --
                  Other                                                        20,502              27,695
                                                                           ----------           ---------
                                                                             $299,331             279,487
                                                                           ==========           =========
</TABLE>


         The following table reflects Liberty Media Group's share of earnings
         (losses) of each of the aforementioned affiliates:

<TABLE>
<CAPTION>
                                                   Years ended
                                                   December 31,               
                                   -------------------------------------------
                                     1995            1994             1993  
                                    -------         -------          -------
                                              amounts in thousands
            <S>                   <C>                <C>             <C>
            Discovery             $   4,191           7,093           5,454
            QVC                       2,261          10,830          14,078
            Sunshine                  2,524           1,376            (957)
            Chicago                   6,560           6,465           5,859
            HTS                         744             531          (7,076)
            ICCP                     (1,973)         (1,469)             --
            AMC                          --           8,805          11,313
            Australia                (8,478)             --              --
            BET                       4,158           3,071           2,586
            Court                   (21,064)             --              --
            Other                    (4,015)         (5,869)         (4,626)
                                 ----------     -----------     ----------- 
                                   $(15,092)         30,833          26,631
                                 ==========     ===========     ===========
</TABLE>

         In August 1995, Liberty Media Group made an additional $28,775,000
         investment in Court which represented Liberty Media Group's pro rata
         share of capital calls made in prior years by the other partners of    
         Court that Liberty Media Group had no obligation to fund. Due to the
         additional investment in Court, which restored its 33% ownership
         interest, Liberty Media Group's share of losses of Court for the year
         ended December 31, 1995 includes $17,664,000 of previously
         unrecognized losses of Court.  These losses were not recognized in
         prior periods due to the fact that Liberty Media Group's investment in
         Court had been reduced to zero.


                                                                     (continued)






                                     II-126
<PAGE>   193
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         During 1995, BET repurchased a portion of its common stock.  As a
         result of the repurchases, Liberty Media Group's ownership of BET was
         increased from 19% to 22%.  Therefore, Liberty Media Group is deemed
         to exercise significant influence over BET and, accordingly, has
         adopted the equity method of accounting for its investment in BET.  As
         a result, Liberty Media Group restated its financial statements, which
         resulted in a decrease to its investment in BET, its unrealized
         holding gains on available-for-sale securities, its deferred taxes and
         accumulated deficit of $44,211,000, $32,263,000, $18,126,000 and
         $6,178,000, respectively, at December 31, 1994.  Upon restatement of
         Liberty Media Group's share of earnings of BET, Liberty Media Group's
         net earnings was increased by approximately $1,812,000 and $1,526,000
         for the years ended December 31, 1994 and 1993, respectively.

         Liberty Media Group has a 49.9% partnership interest in QE+, a limited
         partnership which distributes STARZ!, a first-run movie premium
         programming service launched in 1994.  Entities attributed to TCI
         Group hold the remaining 50.1% partnership interest.

         The QE+ limited partnership agreement provides that TCI Group will be
         required to make special capital contributions to QE+ through July 1,
         2005, up to a maximum amount of $350 million, approximately $86
         million of which was paid in 1995.  QE+ is obligated to pay TCI Group
         a preferred return of 10% per annum on the first $200 million of its
         special capital contributions beginning five years from the date of
         the contribution or five years from January 1, 1996, whichever is
         later.  Any TCI Group special capital contributions in excess of $200
         million will be entitled to a preferred return of 10% per annum from
         the date of the contribution.  QE+ is required to apply 75% of its
         available cash flow, as defined, to repay the TCI Group special
         capital contributions and any preferred return payable thereon.  To
         the extent such special capital contributions are insufficient to fund
         the cash requirements of QE+, TCI Group and Liberty Media Group will
         each have the option to fund such cash requirements in proportion to
         their respective ownership percentages.

         TCI Group has also entered into a long-term affiliation agreement with
         QE+ with respect to the distribution of the STARZ! service.  Rates per
         subscriber specified in the agreement are based upon customary rates
         charged to other cable system operators.  Payments to QE+ for 1995
         aggregated $31 million.  The affiliation agreement also provides that
         QE+ will not grant materially more favorable terms and conditions to
         other major cable system operators unless such more favorable terms
         and conditions are made available to TCI Group.  The affiliation
         agreement also requires TCI Group to make payments to QE+ with respect
         to a guaranteed minimum number of subscribers totaling approximately
         $339 million for the years 1996, 1997 and 1998.

         In connection with the launch of the STARZ! service, TCI Group became
         a direct obligor or guarantor of the payment of certain amounts that
         may be due pursuant to certain film output, distribution, and license
         agreements.  As of December 31, 1995, the minimum amount of such
         obligations or guarantees was approximately $251 million.  The future
         obligations of TCI Group with respect to these agreements is not
         currently determinable because such amount is dependent upon certain
         variable factors, principally the number of films released by the
         motion picture companies with which the agreements have been made and
         the performance of the theatrical distribution of the films.

                                                                     (continued)





                                     II-127
<PAGE>   194
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Liberty Media Group also has the right to acquire an additional 10.1%
         general partnership interest in QE+ based on a formula designed to
         approximate the fair value of such interest.  Such right is
         exercisable for a period of ten years beginning January 1, 1999 after
         QE+ has had positive cash flow for two consecutive calendar quarters.
         The right is exercisable only after all special capital contributions
         from TCI Group have been repaid, including any preferred return as
         discussed above.

         Encore (90% owned by Liberty Media Group) earns management fees from
         QE+ equal to 20% of managed costs, as defined. In addition, effective
         July 1, 1995, Liberty Media Group started earning a "Content Fee" for
         certain services provided to QE+ equal to 4% of the gross revenue of
         QE+.  Such Content Fees aggregated $972,000 for the six months ended
         December 31, 1995.  The Content Fee agreement expires on June 30,
         2001, subject to renewal on an annual basis thereafter.  Payment of
         the Content Fee will be subordinated to the repayment of the
         contributions made by TCI Group and the preferred return thereon.


         On November 11, 1993, Liberty Media Group entered into an agreement
         with the staff of the Federal Trade Commission pursuant to which
         Liberty Media Group agreed to divest all of its equity investments in
         QVC during an 18 month time period if QVC was successful in its offer
         to buy Paramount Communications, Inc. ("Paramount") and not to vote or
         otherwise exercise influence over QVC until such time as QVC withdrew
         its offer for Paramount.  Simultaneously, Liberty Media Group agreed
         to withdraw from a stockholders agreement pursuant to which Liberty
         Media Group and certain other stockholders exercised control over QVC
         (the "Previous Stockholders' Agreement").  On February 15, 1994, QVC
         terminated its offer for Paramount.  Upon termination of such offer,
         Liberty Media Group had the right to be reinstated as a party to the
         Previous Stockholders' Agreement so long as such option was exercised
         within 90 days after such termination.

         On November 16, 1993, Liberty Media Group sold shares of common stock
         of QVC to Comcast Corporation ("Comcast").  The sale to Comcast
         reduced Liberty Media Group's interest in QVC common stock (on a fully
         diluted basis) from 21.9% to 18.8%.  Liberty Media Group continued to
         account for its investment in QVC under the equity method, although it
         no longer exercised significant influence over such affiliate, due to
         the pending determination of whether it would rejoin the control group
         under the Previous Stockholders' Agreement.  As a result of the
         election on May 13, 1994 by Liberty Media Group to forego the exercise
         of its option to be reinstated as a party to the Previous
         Stockholders' Agreement, Liberty Media Group began, as of that date,
         to account for its investment in QVC under the cost method of
         accounting.

         Effective February 9, 1995 and pursuant to an Agreement and Plan of
         Merger, QVC Programming Holdings, Inc. (the "Purchaser"), a
         corporation which is jointly owned by Comcast and Liberty Media Group,
         merged (the "QVC Merger") with and into QVC with QVC continuing as the
         surviving corporation.  Liberty Media Group owns an approximate 43%
         interest in the post-merger QVC.


                                                                     (continued)





                                     II-128
<PAGE>   195
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Upon consummation of the QVC Merger, Liberty Media Group was deemed to
         exercise significant influence over QVC and, as such, adopted the
         equity method of accounting for its investment in QVC.  As a result,
         Liberty Media Group restated its financial statements, which resulted
         in a decrease to its investment in QVC, its unrealized gain on
         available-for-sale securities, its deferred tax liability and
         accumulated deficit of $207,837,000, $127,219,000, $85,213,000 and
         $4,595,000, respectively, at December 31, 1994.  The restatement
         resulted in an increase in Liberty Media Group's net earnings of
         $4,595,000 for the year ended December 31, 1994.  The restatement did
         not affect Liberty Media Group's results of operations for the year
         ended December 31, 1993 as QVC was accounted for under the equity
         method during that period.

         A credit facility entered into by QVC is secured by the common stock
         of certain subsidiaries of QVC and by certain of QVC's carriage and 
         distribution agreements.  In addition, Comcast and Liberty Media 
         Group have pledged their shares of QVC pursuant to such credit 
         facility.

         On July 11, 1994, Rainbow Program Enterprise purchased 49.9% of
         Liberty Media Group's 50% general partnership interest in AMC.
         Liberty Media Group recognized a gain of $183,321,000 on the sale of
         its interest in AMC.

         Certain of Liberty Media Group's affiliates are general partnerships
         and any subsidiary of Liberty Media Group 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.

(5)      Investment in Turner Broadcasting System, Inc.

         Liberty Media Group owns shares of a class of preferred stock of TBS
         which have voting rights and are convertible into shares of TBS common
         stock.  The holders of those preferred shares, as a group, are
         entitled to elect seven of fifteen members of the board of directors
         of TBS, and Liberty Media Group appoints three such representatives.
         However, voting control over TBS continues to be held by its chairman
         of the board and chief executive officer.  Liberty Media Group's total
         holdings of TBS common and preferred stocks represent an approximate
         7.5% voting interest for those matters for which preferred and common
         stock vote as a single class.

         At December 31, 1995 and 1994, Liberty Media Group's investment in TBS
         common stock had an aggregate market value of $767 million and $481
         million, respectively (including unrealized holding gains of $447
         million and $167 million, respectively).

         At December 31, 1995 and 1994, Liberty Media Group's investment in TBS
         preferred stock, carried at cost, had an aggregate market value of
         $927 million and $579 million, respectively, based upon the market
         value of the common stock into which it is convertible.  Such market
         value exceeded cost by $749 million and $406 million, respectively,
         for such periods.


                                                                     (continued)





                                     II-129
<PAGE>   196
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         As security for borrowings under one of its credit facilities, Liberty
         Media Group has pledged a portion of its TBS common stock (with a
         quoted market value of approximately $760 million at December 31,
         1995).  See note 8.

         On September 22, 1995, the boards of directors of Time Warner, Inc.
         ("Time Warner") and TBS approved plans to merge their respective
         companies (the "TBS/Time Warner Merger").  Under the terms of the
         agreement, TBS shareholders will receive 0.75 of a Time Warner common
         share for each TBS Class A and Class B common share.  Each holder of
         TBS Class C preferred stock will receive 0.80 of a Time Warner common
         share for each of the 6 shares of TBS Class B common stock into which
         each of the shares of Class C preferred stock may be converted.

         Subject to certain conditions, Liberty Media Group has agreed to vote
         its TBS shares for the TBS/Time Warner Merger.  The Time Warner shares
         of common stock received by Liberty Media Group will be exchanged
         immediately for a series of voting common stock ("Time Warner Series
         Common Stock") economically equivalent to the common stock and placed
         in a voting trust with Time Warner Chairman, Gerald M. Levin, as the
         trustee.

         In connection with the TBS/Time Warner Merger, TBS has agreed to sell
         its interest in SportSouth, a regional sports cable network, to
         Liberty Media Group for approximately $60 million; and Time Warner has
         agreed to issue shares of Time Warner Series Common Stock economically
         equivalent to 5 million shares of Time Warner common stock to Liberty
         Media Group in exchange for a 6-year option to purchase Southern.
         Time Warner has also agreed to issue additional shares of Time Warner
         Series Common Stock to Liberty Media Group having a market value of
         $160 million in the event Time Warner exercises such option.  Any
         shares of Time Warner common stock issuable in connection with the
         Southern option will be exchanged for Time Warner Series Common Stock.
         Additionally, Time Warner will grant Liberty Media Group an option to
         purchase Time Warner's interest in Sunshine, a Florida based sports
         cable network, for $14 million.

         The transaction is subject to, among other things, approval by the
         Federal Communications Commission ("FCC") and regulatory review by
         federal antitrust authorities, and approval by the shareholders of TBS
         and Time Warner.


                                                                     (continued)





                                     II-130
<PAGE>   197
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(6)      Other Investments

         Other investments, accounted for under the cost method, and related
         receivables, are summarized as follows:

<TABLE>
<CAPTION>
                                                                                     December 31,          
                                                                           --------------------------------
                                                                              1995                 1994    
                                                                          ------------         ------------
                                                                                 amounts in thousands
          <S>                                                               <C>                   <C>
          Marketable equity securities                                      $  16,681              31,870

          Convertible debt, accrued interest
             and preferred stock investments                                   23,000              46,109

          Other investments and related receivables                            71,110              25,461
                                                                           ----------          ----------
                                                                             $110,791             103,440
                                                                           ==========          ==========
</TABLE>

         Management of Liberty Media Group estimates that the market value,
         calculated utilizing a variety of approaches including multiple of
         cash flow, per subscriber value, a value of comparable public or
         private businesses or publicly quoted market prices, of all of Liberty
         Media Group's other investments aggregated $192 million and $155
         million at December 31, 1995 and December 31, 1994, respectively.  No
         independent external appraisals were conducted for those assets.

(7)      Acquisitions

         On August 8, 1994, Liberty Media Group acquired all the partnership
         interests of Prime Sports-West from an independent third party and
         Forum Partners ("Forum") for aggregate consideration of $220 million.
         On the closing date, TCI paid $33 million in cash to Forum in
         consideration of the purchase of the 16.667% partnership interest held
         by Forum and the payment of partnership indebtedness owed to Forum.
         Also on the closing date, a subsidiary of Liberty Media Group was
         merged with and into CVN, Inc. ("CVN"), and all outstanding stock of
         CVN, which was held by the independent third party, was converted into
         70,575 shares of TCI Convertible Preferred Stock, Series C.  CVN owns
         the remaining 83.333% general partnership interest in Prime
         Sports-West.  The consideration paid by TCI on behalf of Liberty Media
         Group has been reflected in combined equity of Liberty Media Group.

         Upon receipt of the final appraisal, the purchase price allocation for
         the Prime Sports-West acquisition was completed and amounts were
         reclassified from excess  cost to other intangibles.  Additional 
         amortization expense was recognized in the period that the purchase 
         price allocation was completed due to the difference in remaining
         estimated useful lives of the amounts reflected in other intangibles
         in comparison to excess costs.  See note 12.


                                                                     (continued)





                                     II-131
<PAGE>   198
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         On February 11, 1993, Liberty Media Group acquired 20,000,000 shares
         of the Class B stock of HSN from RMS Limited Partnership ("RMS") for
         aggregate consideration of $181,000,000.  Subsequent to such
         acquisition, Liberty Media Group's ownership represents 23.5% of the
         common equity and 65.6% of the controlling voting interests in HSN as
         of the date of acquisition.  As a result of the acquisition of the
         controlling voting interest, HSN became a consolidated subsidiary of
         Liberty Media Group for financial reporting purposes.

         On June 1, 1993, Liberty Media Group completed the purchase of
         approximately 16 million additional shares of HSN common stock at a
         price of $7 per share.  The shares had been tendered pursuant to a
         tender offer initiated by Liberty Media Group in April 1993.

 (8)     Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                           Weighted average
                                                          interest rate at
                                                          December 31, 1995           1995            1994  
                                                          -----------------         --------        --------
                                                                                      amounts in thousands
          <S>                                                     <C>               <C>               <C>
          Notes payable to bank (a)                                8.5%             $135,000          25,000
          Note payable to bank (b)                                 6.5%               20,000          18,000
          Note payable to bank (c)                                 7.17%              51,600          16,400
          Note payable to partnership (d)                         10.0%                5,654          11,253
          Bank credit facility (e)                                 6.5%               30,000              --
          Convertible notes payable (f)                             --                    --          14,141
          Other debt, with varying rates
             and maturities                                                            8,736           8,150
                                                                                  ----------      ----------

                                                                                    $250,990          92,944
                                                                                  ==========      ==========
</TABLE>



         (a)     Payable by HSN

                 This revolving credit facility, as amended, (the "Credit
                 Facility") provides for borrowings up to $150 million, expires
                 on April 1, 1997 and is secured by the capital stock of Home
                 Shopping Club, Inc. and HSN Realty, Inc., wholly-owned
                 subsidiaries of HSN.  Borrowings under the Credit Facility may
                 be used for general corporate purposes.  The interest rate on
                 borrowings under the Credit Facility is tied to the London
                 Interbank Offered Rate ("LIBOR"), Federal Funds Rate, or Prime
                 Rate, at HSN's option, plus an applicable margin.  HSN must
                 pay an annual facility fee of .375% of the total commitment 
                 plus $60,000.


                                                                     (continued)





                                     II-132
<PAGE>   199
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



                 On February 13, 1996, HSN amended the Credit Facility to give
                 consent to the anticipated change in control of HSN (see note
                 11), and to allow for additional subordinated financing and to
                 reduce the maximum borrowings under the Credit Facility to
                 $120 million.  On March 1, 1996, HSN completed a private
                 placement of $100 million of convertible subordinated
                 debentures due March 1, 2006.  The net proceeds were used to
                 repay borrowings under the Credit Facility leaving a balance
                 of $30 million with $90 million available for borrowings.

                 Restrictions contained in the Credit Facility include, but are
                 not limited to limitations on the encumbrance and disposition
                 of HSN's assets, certain restrictions on repurchases of HSN's
                 common stock and the maintenance of various financial
                 covenants and ratios.


         (b)     Payable by ARC Holding, Ltd.

                 ARC Holding, Ltd., a wholly-owned subsidiary of ARC, is a
                 party to a credit agreement, as amended, that provides for up
                 to $40,500,000 of borrowings at December 31, 1995.  Borrowings
                 bear interest at the agent bank's base rate, LIBOR, a 
                 certificate of deposit rate or a combination thereof, as 
                 selected by ARC Holding, Ltd., plus a margin depending on ARC
                 Holding, Ltd.'s ratio of total debt to cash flow (as defined).
                 The commitment amount is reduced in equal quarterly amounts 
                 to achieve annual reductions in the credit facility ranging 
                 from a 11% reduction in 1996 to the final 17% in 2000.  
                 Liberty Media Group must pay an annual commitment fee of 
                 .375% of the unfunded portion of the commitment.  Borrowings 
                 under the credit agreement are secured by the assets of ARC 
                 Holding, Ltd., including joint venture interests, and the 
                 stock and assets of its existing and future subsidiaries.

                 The credit agreement contains certain provisions which limit
                 ARC Holding, Ltd. as to additional indebtedness, sale of
                 assets, liens, guarantees and distributions.  Additionally,
                 ARC Holding, Ltd.  must maintain certain specified financial
                 ratios.

                                                                     (continued)





                                     II-133
<PAGE>   200
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         (c)     Payable by Prime Sports-West

                 The Prime Sports-West credit agreement, as amended (the
                 "Agreement"), provides for borrowings in the form of revolving
                 term loans aggregating up to $65 million.  Prime Sports-West
                 may specify the interest rate on the loans under various prime
                 and Eurodollar rate options plus an applicable margin, as
                 defined.  Prime Sports-West must pay an annual commitment fee
                 of .375% of the unfunded portion of the commitment.
                 Borrowings under the Agreement are secured by the assets of
                 Prime Sports-West.

                 The Agreement contains, among other things, requirements as to
                 indebtedness obligations, restrictions on distributions and
                 capital expenditures, as well as maintenance of certain
                 specified financial ratios.
                 
                 The Agreement was amended in March 1996 to provide for
                 borrowings in the form of revolving term loans aggregating up
                 to $80 million.

         (d)     Payable by Encore ICCP, Inc.

                 Encore ICCP, Inc. acquired a 50% general partnership interest
                 in ICCP in exchange for a note payable to the partnership with
                 an initial principal amount of $15 million.  The note payable
                 is guaranteed by Encore.

         (e)     Payable by Communications Capital Corp ("CCC").

                 This revolving credit agreement, as amended, provides for
                 borrowings up to $325 million through August of 1997.
                 Borrowings under such agreement bear interest at optional
                 measures which approximate the prime rate.  As security for
                 this indebtedness, Liberty Media Group has pledged
                 substantially all of its TBS Class B common stock.  CCC must
                 pay an annual commitment fee of .3125% of the unfunded portion
                 of the commitment.

         (f)     Payable by ARC

                 In January 1995, these notes were converted into partnership
                 units held by minority holders.


         Certain of Liberty Media Group's subsidiaries are subject to loan
         agreements that prohibit or limit the transfer of funds of such
         subsidiaries to the parent company in the form of loans, advances or
         cash dividends.

         The fair value of Liberty Media Group's debt is estimated based on the
         quoted market prices for the same or similar issues or on the current
         rates offered to Liberty Media Group for debt of the same remaining
         maturities.  The fair market value of such debt approximated its
         carrying value at December 31, 1995.

                                                                     (continued)





                                     II-134
<PAGE>   201
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


          As of December 31, 1995, annual maturities of debt for each of the
          next five years were as follows (amounts in thousands):

<TABLE>
         <S>                           <C>
         1996                          $    9,198
         1997                             168,729
         1998                              15,135
         1999                              20,273
         2000                              17,655
</TABLE>


(9)      Income Taxes

         TCI files a consolidated Federal income tax return with all of its 80%
         or more owned subsidiaries.  Consolidated subsidiaries in which TCI
         owns less than 80% each file a separate tax return.  TCI and such
         subsidiaries calculate their respective tax liabilities on a separate
         return basis.  Prior to the TCI/Liberty Combination, Liberty filed a
         consolidated Federal income tax return with all of its 80% or more
         owned subsidiaries.  Consolidated subsidiaries in which Liberty owned
         less than 80% each filed a separate income tax return.  Liberty and
         such subsidiaries calculated their respective tax liabilities on a
         separate return basis.  Prior to the TCI/Liberty Combination, income
         tax expense for Liberty Media Group was based upon those items in the
         consolidated tax calculation of TCI and Liberty which are applicable
         to Liberty Media Group.  Subsequent to the TCI/Liberty Combination,
         income tax expense for Liberty Media Group is based upon those items
         in the consolidated tax calculations of TCI applicable to Liberty
         Media Group.  Intergroup tax allocation represents an apportionment of
         tax expense or benefit (other than deferred taxes) and alternative
         minimum taxes to Liberty Media Group in relation to its amount of
         taxable earnings or losses.  Prior to the Distribution, the payable or
         receivable arising from the intergroup tax allocation has been
         reflected as an increase or decrease in combined equity.  Subsequent
         to the Distribution, such amounts are reflected as borrowings from or
         loans to TCI.

         A tax sharing agreement (the "Tax Sharing Agreement") among entities
         attributed to Liberty Media Group, TCI and certain subsidiaries of TCI
         was implemented effective July 1, 1995.  The Tax Sharing Agreement 
         formalizes certain of the elements of a pre-existing tax sharing 
         arrangement and contains additional provisions regarding the 
         allocation of certain consolidated income tax attributes and the 
         settlement procedures with respect to the intercompany allocation of 
         current tax attributes.  The Tax Sharing Agreement encompasses U.S. 
         federal, state, local and foreign tax consequences and relies upon 
         the U.S. Internal Revenue Code of 1986 as amended, and any applicable 
         state, local and foreign tax law and related regulations.  Beginning 
         on the July 1, 1995 effective date, Liberty Media Group will be 
         responsible to TCI for its share of current consolidated income tax 
         liabilities.  TCI will be responsible to Liberty Media Group to the 
         extent that Liberty Media Group's income tax attributes generated 
         after the effective date are utilized by TCI to reduce its 
         consolidated income tax liabilities.  Accordingly, all tax attributes 
         generated by Liberty Media Group's operations after the effective date
         including, but not limited to, net operating losses, tax credits, 
         deferred intercompany gains, and the tax basis of assets are 
         inventoried and tracked for the entities comprising Liberty Media
         Group.  In connection with the implementation of the Tax Sharing
         Agreement, Liberty Media Group recorded a decrease to its deferred
         income tax liability and an increase to its combined equity of
         $2,410,000.
 
                                                                    (continued)


                                     II-135
<PAGE>   202
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Income tax benefit (expense) consists of:

<TABLE>
<CAPTION>
                                                                        Current        Deferred        Total
                                                                        -------        --------        -----
                                                                                amounts in thousands
         <S>                                                         <C>              <C>            <C>
         Year ended December 31, 1995:
            State and local intergroup tax benefit
               (expense) allocation                                   $  (2,192)        8,920           6,728
            Federal intergroup tax benefit allocation                     2,584        44,980          47,564
                                                                     ----------    -----------    -----------
                                                                     $      392        53,900          54,292
                                                                     ==========    ===========    ===========
         Year  ended December 31, 1994:                                                                      
            State and local intergroup tax expense
                allocation                                             $(16,699)       (4,742)       (21,441)
            Federal intergroup tax expense
               allocation                                               (61,539)      (20,961)       (82,500)
                                                                     ----------    ----------     ---------- 
                                                                       $(78,238)      (25,703)      (103,941)
                                                                     ==========    ==========     ========== 
         Year  ended December 31, 1993:                                                                      
            State and local intergroup tax expense
                allocation                                            $  (3,275)        (1,296)        (4,571)
            Federal intergroup tax benefit (expense)
               allocation                                               (21,575)         2,739        (18,836)
            Intergroup alternative minimum tax
                allocation                                                 (554)           554             --
                                                                     ----------    -----------    -----------
                                                                       $(25,404)         1,997        (23,407)
                                                                     ==========    ===========    =========== 
                                                                                                             
</TABLE>



         Income tax benefit (expense) differs from the amounts computed by the
         Federal tax rate of 35% in 1995, 1994 and 1993 as a result of the
         following:

<TABLE>
<CAPTION>
                                                                                Year ended December 31,
                                                                                -----------------------
                                                                           1995          1994           1993  
                                                                         --------      --------       --------
                                                                                 amounts in thousands
         <S>                                                             <C>            <C>           <C>
         Computed expected tax benefit (expense)                         $38,726         (83,477)     (18,642)
         Dividends excluded for income tax purposes                        1,116           1,134        1,104
         Minority interest of consolidated subsidiaries                   13,333          (3,548)        (398)
         Amortization not deductible for income
            tax purposes                                                  (5,723)         (4,774)      (2,886)
         Excess executive compensation                                       688              --         (688)
         State and local income taxes, net of
            Federal income tax benefit                                     2,043         (13,937)      (2,971)
         Change in allocated state tax rate                                2,353              --           --
         Sale of wholly-owned subsidiary                                      --             920           --
         Other, net                                                        1,756            (259)       1,074
                                                                      ----------      ----------    ---------
                                                                         $54,292        (103,941)     (23,407)
                                                                      ==========      ==========    ========= 
</TABLE>


                                                                     (continued)





                                     II-136
<PAGE>   203
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined 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, 1995 and 1994 are presented below:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                                      1995             1994  
                                                                                    --------         --------
                                                                                      amounts in thousands
         <S>                                                                       <C>               <C>
         Deferred tax assets:
            Net operating and capital loss carryforwards                           $  36,254          11,629
            Charitable contribution carryforward                                         733             666
            Allocated alternative minimum tax paid credit
               carryforward                                                               --           2,444
            Inventory costs                                                           10,339           5,918
            Provision for returns and allowance                                        9,460           8,729
            Future deductible amount attributable to accrued
               stock appreciation rights and deferred 
                                                      
               compensation                                                            3,094          12,951
            Future deductible amount related to accrued 
                                                        
               litigation settlements                                                     --           3,065
            Other future deductible amounts primarily due
               to non-deductible accruals                                                996           1,056
                                                                                  ----------     -----------

                 Deferred tax assets                                                  60,876          46,458
                                                                                  ----------     -----------    

         Deferred tax liabilities:
            Property and equipment, principally due to
               differences in depreciation                                            12,162          11,916
            Intangible assets, primarily due to differences in
                                                              
               amortization                                                            3,392           4,172
            Investments in affiliates, due principally to
               undistributed earnings of affiliates                                  247,231         162,845
                                                                                  ----------     -----------    

                 Deferred tax liabilities                                            262,785         178,933
                                                                                  ----------     -----------    
                 Net deferred tax liabilities                                       $201,909         132,475
                                                                                  ==========     ===========
</TABLE>


         There was no valuation allowance for deferred tax assets as of
         December 31, 1995 and 1994.

         At December 31, 1995, Liberty Media Group had net operating and
         capital loss carryforwards for income tax purposes aggregating
         approximately $97,375,000 which, if not utilized to reduce taxable
         income in future periods, expire as follows: $2,352,000 in 2003,
         $478,000 in 2004, $11,345,000 in 2005, $9,249,000 in 2006, and
         $73,951,000 in 2010.

         New tax legislation was enacted in the third quarter of 1993 which,
         among other matters, increased the corporate Federal income tax rate
         from 34% to 35%.  Liberty Media Group has reflected the tax rate
         changes in its combined statements of operations.  Such tax rate
         changes resulted in a net increase of $314,000 in income tax expense
         in 1993. Liberty Media Group will carryback $8,900,000 of net
         operating losses to prior taxable years to obtain an income tax refund.



                                                                     (continued)





                                     II-137
<PAGE>   204
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(10)     Combined Equity

         Stock Options and Stock Appreciation Rights

         Liberty had granted certain stock options and/or stock appreciation
         rights prior to the TCI/Liberty Combination.  All such options and/or
         stock appreciation rights were assumed by TCI in conjunction with the
         TCI/Liberty Combination.  Additionally, subsequent to the TCI/Liberty
         Combination, certain key employees of Liberty were granted additional
         options with tandem stock appreciation rights.  Estimates of the
         compensation relating to the options and/or stock appreciation rights
         granted to employees of Liberty Media Group have been recorded in the
         accompanying combined financial statements, but are subject to future
         adjustment based upon the market value of Series A TCI Group common
         stock and the Series A Liberty Media Group common stock (see note 1)
         and, ultimately, on the final determination of market value when the
         rights are exercised.  Prior to the Distribution, the payable or
         receivable arising from the compensation related to the options and/or
         stock appreciation rights has been reflected as an increase or
         decrease in combined equity.  Subsequent to the Distribution, such
         amounts are reflected as borrowings from or loans to TCI.

         Transactions with TCI and Other Related Parties

         Certain TCI corporate general and administrative costs are charged to
         Liberty Media Group at rates set at the beginning of the year based on
         projected utilization for that year.  The utilization-based charges
         are set at levels that management believes to be reasonable and that
         approximate the costs Liberty Media Group would incur for comparable
         services on a stand alone basis.  The accompanying combined statements
         of operations through the date of the TCI/Liberty Combination do not
         reflect the allocation of corporate general and administrative costs
         in the aforementioned manner because the majority of the entities
         attributable to Liberty Media Group were owned, directly or
         indirectly, by Liberty through such dates.  During the year ended
         December 31, 1995, Liberty Media Group was allocated $3,066,000 in
         corporate general and administrative costs by TCI.

         Prior to the determination by the Board to seek approval of
         stockholders to distribute the Liberty Group Stock, TCI did not have
         formalized intercompany allocation methodologies.  In connection with
         such determination, management of TCI determined that TCI general
         corporate expenses should be allocated to Liberty Media Group based on
         the amount of time TCI corporate employees (e.g. legal, corporate,
         payroll, etc.) expend on Liberty Media Group matters.  TCI management
         evaluated several alternative allocation methods including assets,
         revenue, operating income, and employees.  Management did not believe
         that any of these methods would reflect an appropriate allocation of
         corporate expenses given the diverse nature of TCI's operating
         subsidiaries, the relative maturity of certain of the operating
         subsidiaries, and the way in which corporate resources are utilized.

         Entities included in Liberty Media Group lease satellite transponder
         facilities from TCI Group.  Charges by TCI Group for such arrangements
         for the years ended December 31, 1995, 1994 and 1993 aggregated
         $14,709,000, $7,542,000 and $4,455,000, respectively.

                                                                     (continued)





                                     II-138
<PAGE>   205
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Certain subsidiaries attributed to Liberty Media Group produce and/or
         distribute sports and other programming to cable television operators
         (including TCI Group) and others.  Charges to TCI Group are based upon
         customary rates charged to others.

         HSN pays a commission to TCI Group for merchandise sales to customers
         who are subscribers of TCI Group's cable systems.  Aggregate
         commissions and charges were $6,124,000, $6,638,000 and $1,200,000 for
         the years ended December 31, 1995, 1994 and 1993, respectively.

         Subsequent to the TCI/Liberty Combination, TCI manages certain
         treasury activities for Liberty Media Group on a centralized basis.
         Cash receipts of certain businesses attributed to Liberty Media Group
         are remitted to TCI and certain cash disbursements of Liberty Media
         Group are funded by TCI on a daily basis.  Prior to the Distribution,
         but subsequent to the TCI/Liberty Combination, the net amounts of such
         cash activities are included in combined equity.  Prior to the
         TCI/Liberty Combination, Liberty separately managed the treasury
         activities of its subsidiaries.  Subsequent to the Distribution, such
         cash activities are included in borrowings from or loans to TCI or, if
         determined by the Board, as an equity contribution to Liberty Media
         Group.

         The Board could determine from time to time that debt of TCI not
         incurred by entities attributed to Liberty Media Group or preferred
         stock and the proceeds thereof should be specifically attributed to
         and reflected on the combined financial statements of Liberty Media
         Group to the extent that the debt is incurred or the preferred stock
         is issued for the benefit of Liberty Media Group.

         For all periods prior to the Distribution, all financial impacts of
         equity offerings are attributed entirely to TCI.  After the
         Distribution, all financial impacts of issuances of additional shares
         of TCI Group Stock will be attributed entirely to TCI, and all
         financial impacts of issuances of additional shares of Liberty Group
         Stock, the proceeds of which are attributed to Liberty Media Group,
         will to such extent be reflected entirely in the combined financial
         statements of Liberty Media Group.  Financial impacts of dividends or
         other distributions on, and purchases of, TCI Group Stock will be
         attributed entirely to TCI Group, and financial impacts of dividends
         or other distributions of Liberty Group stock will be attributed
         entirely to Liberty Media Group.  Financial impacts of repurchases of
         Liberty Group Stock the consideration for which is charged to Liberty
         Media Group will be reflected entirely in the combined financial
         statements of Liberty Media Group, and financial impacts of
         repurchases of Liberty Group Stock the consideration for which is
         charged to TCI will be attributed entirely to TCI.

         Subsequent to the Distribution, borrowings from or loans to TCI will
         bear interest at such rates and have repayment schedules and other
         terms as are established by the Board.  The Board expects to make such
         determinations, either in specific instances or by setting generally
         applicable policies from time to time, after consideration of such
         factors as it deems relevant, including, without limitation, the use
         of proceeds by and creditworthiness of the recipient Group, the
         capital expenditure plans and investment opportunities available to
         each Group and the availability, cost and time associated with
         alternative financing sources.


                                                                     (continued)





                                     II-139
<PAGE>   206
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(11)     Commitments and Contingencies

         Liberty Media Group is obligated to pay fees for the license to
         exhibit certain qualifying films that are released theatrically by
         various motion picture studios through February 28, 2009 (the "Film
         Licensing Obligations").  As of December 31, 1995, the aggregate
         minimum liability under certain of the license agreements is
         approximately $163 million.  The aggregate amount of the Film
         Licensing Obligations under these license agreements is not currently
         estimable because such amount is dependent upon certain variable
         factors.  Nevertheless, required aggregate payments under the Film
         Licensing Obligations could prove to be significant.

         Liberty Media Group has long-term sports program rights contracts
         which require payments for each of the next five years as follows
         (amounts in thousands):

<TABLE>
         <S>                              <C>
         1996                             $  84,063
         1997                                72,884
         1998                                62,236
         1999                                54,685
         2000                                45,736
</TABLE>

         Liberty Media Group leases business offices, has entered into
         transponder lease agreements and uses certain equipment under lease
         arrangements.  Rental expense under such arrangements amounted to
         $47,569,000, $34,274,000 and $29,250,000 for the years ended December
         31, 1995, 1994 and 1993, respectively.

         Future minimum lease payments under noncancellable operating leases
         for each of the next five years are summarized as follows (amounts in
         thousands):

<TABLE>
         <S>                              <C>
         1996                             $  58,214
         1997                                57,580
         1998                                50,908
         1999                                49,983
         2000                                42,369
</TABLE>

         It is expected that in the normal course of business, leases that
         expire will be renewed or replaced by leases on other properties;
         thus, it is anticipated that future minimum lease commitments will not
         be less than the amounts shown for 1996.

         On October 31, 1995, Liberty Media Group announced that it had entered
         into a binding agreement in principle with The News Corporation Limited
         ("News Corp.") and Tele-Communications International, Inc. ("TINTA").
         In the United States, Liberty Media Group and News Corp. agreed to form
         a partnership (the "Fox-Liberty Venture") into which Liberty Media
         Group will contribute interests in its national and regional sports
         networks and into which News Corp. will contribute its fx cable network
         and certain other assets. Upon consummation, Liberty Media Group will
         receive a 50% interest in the Fox-Liberty Venture and $350 million in
         cash. The fx network will be transformed into a nationally distributed,
         general entertainment and sports network.  The regional sports networks
         currently operated under the Prime Sports name will be relaunched under
         the Fox Sports banner. 

                                                                     (continued)





                                     II-140
<PAGE>   207
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Internationally, News Corp., and a 50/50 partnership forms by Liberty
         Sports, a wholly-owned subsidiary of Liberty Media Group, and TINTA
         (the "Liberty-TINTA Partnership") have agreed to form a venture to
         operate currently existing sports services in Asia, Latin American and
         Australia and a variety of new sports services throughout the world
         except in the United Kingdom, Japan and New Zealand where prior
         arrangements preclude an immediate collaboration.  The Liberty-TINTA
         Partnership will own 50% of the international venture with News Corp.
         owning the other 50%.  News Corp. is contributing various
         international sports rights, including the Star Sports channel which
         is broadcast throughout Asia as part of the Star package of services.
         The Liberty-TINTA Partnership is contributing Prime Deportiva, a
         Spanish language sports service distributed in Latin American and in
         Hispanic markets in the United States, an interest in Torneos y
         Competencias S.A., an Argentinean sports programming and production
         business, various international sports and satellite transponder
         rights and cash.  The Liberty-TINTA Partnership will also contribute
         their 50% interest in Premiere Sports and All-Star Sports in
         Australia.  Both are 24-hour sports services available via MMDS or
         cable television in Australia.

         The transactions contemplated by the above agreements are expected to
         close during 1996.

         On November 27, 1995, Liberty Media Group announced that it had agreed
         to exchange its controlling interest in HSN for shares of Silver King.
         Liberty Media Group will receive approximately 11 million newly issued
         shares of Silver King in exchange for its 37.5 million shares of HSN.

         Liberty Media Group and Mr. Barry Diller and certain of their
         respective affiliates entered into an agreement in August 1995 pursuant
         to which an option owned by Liberty Media Group to purchase 2 million
         shares of Silver King Class B common stock (the "Option")(which shares
         would constitute voting control of Silver King) would be transferred to
         Silver Management Company ("Silver Company"), an entity in which
         Liberty Media Group would own all of the non-voting equity interests
         (which would constitute substantially all of the equity of such entity)
         and Mr. Diller would own all of the voting equity interests.  Silver
         Company would thereafter exercise the Option and hold the shares of the
         Silver King Class B Common Stock purchased thereunder.  In an amendment
         to such agreement entered into in November 1995, Liberty Media Group
         agreed to contribute all of its shares of HSN (which shares constitute
         approximately 41% of the equity of HSN and approximately 80% of the
         voting power of HSN) to Silver Company in return for additional
         non-voting equity interests in Silver Company.  Following such
         contribution Silver Company would exchange such HSN shares with Silver
         King for additional shares of Silver King Common Stock and Class B
         Common Stock (thereby increasing Silver Company's controlling interest
         in Silver King to in excess of 80% of the voting power of Silver King).
         Each such transaction is subject to the satisfaction of certain
         condition, including the receipt of all necessary regulatory consents
         and approvals.  If consummated, HSN would cease to be a subsidiary of
         Liberty Media Group and therefore, the financial results of HSN would
         not be consolidated with the financial results of Liberty Media Group.
         Although Liberty Media Group would cease to possess voting control over
         HSN, it would continue to have an indirect equity interest in HSN
         through its ownership of the equity securities of Silver Company.  No
         assurance can be given that the transaction will be consummated.

                                                                     (continued)






                                     II-141
<PAGE>   208
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(12)     Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                            1st           2nd           3rd          4th
                                                          Quarter       Quarter       Quarter      Quarter
                                                          -------       -------       -------      -------
                                                                       amounts in thousands,
          Year ended December 31, 1995:                                except per share data
          -----------------------------                                                     
          <S>                                          <C>              <C>        <C>             <C>
          Revenue                                      $   357,957      368,335      374,920       438,463
                                                          
          Operating loss:                                 
             As previously reported                    $   (25,538)     (17,247)      (5,453)      
             Adjustment to restate                        
                amortization of intangibles               
                upon reallocation of                      
                purchase price                                  --      (20,514)      (3,773)          
                                                       -----------     --------     --------     
                   As adjusted                         $   (25,538)     (37,761       (9,226)      (38,581)
                                                       ===========    =========     =========    =========
                                                                                                          
          Net loss:                                       
             As previously reported                    $   (10,691)         (59)      (5,646)    
             Adjustment to restate                        
                amortization of intangibles               
                upon reallocation of                      
                 purchase price                                 --      (12,600)      (2,799)           
             Adjustment to restate                        
                share of earnings of BET,                 
                net of taxes                                   541          537          646            
             Adjustment to properly reflect
                other expense, net                              --           --       (4,082)   

                                                       -----------     --------     --------      
                   As adjusted                         $   (10,150)     (12,122)      (11,881)     (22,179)
                                                       ===========     ========     ========      ========
                                                          
          Loss per share:                                 
             As previously reported                                                  $(0.02)           
             Adjustment to restate                        
                amortization of intangibles               
                upon reallocation of                      
             Adjustment to restate
                share of earnings of BET,                 
                net of taxes                                                           (.01)          
                                                                                   --------       --------
                   As adjusted                                 N/A          N/A      $(0.03)          (.13)  
                                                                                   ========       ========
                                                          
          Year ended December 31, 1994:                   
          ----------------------------                    
                                                          
          Revenue                                      $   350,855      357,789      363,929       410,375
                                                          
          Operating income (loss)                      $    25,292        9,190        1,325        (4,333)
                                                          
          Gain (loss) on disposition                      
             of assets                                 $    (2,233)          --      183,321            --
                                                          
          Net earnings                                    
             As previously reported                    $    15,444       10,736      106,568           109
             Adjustment to restate share                  
                of earnings of BET, net of                
                taxes                                          540          537          630            --
                                                       -----------     --------     --------      --------
                   As adjusted                         $    15,984       11,273      107,198           109
                                                       ===========     ========     ========      ========
</TABLE>





                                     II-142
<PAGE>   209



INDEPENDENT AUDITORS' REPORT


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


We have audited and reported separately herein on the consolidated financial
statements of Tele-Communications, Inc. and subsidiaries as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995.

We have also audited the accompanying combined balance sheets of TCI Group (a
combination of certain assets of Tele-Communications, Inc. and its affiliate,
Liberty Media Corporation, as defined in note 1) as of December 31, 1995 and
1994, and the related combined statements of operations, equity, and cash flows
for each of the years in the three-year period ended December 31, 1995.  These
combined financial statements are the responsibility of the companies'
managements.  Our responsibility is to express an opinion on these combined
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.

The combined financial statements of TCI Group are presented for purposes of
additional analysis of the consolidated financial statements of
Tele-Communications, Inc. and subsidiaries.  As more fully described in note 1,
the combined financial statements of TCI Group are intended to reflect the
performance of the remaining businesses of Tele-Communications, Inc. and its
affiliate, Liberty Media Corporation, which have not been attributed to the
Liberty Media Group.  Liberty Media Group includes the businesses of
Tele-Communications, Inc. and Liberty Media Corporation which produce and
distribute cable television programming services.  The combined financial
statements of TCI Group should be read in conjunction with the consolidated
financial statements of Tele-Communications, Inc. and subsidiaries and Liberty
Media Corporation and subsidiaries.

As more fully described in Note 1 to the combined financial statements, TCI
Group has accounted for its interest in the Liberty Media Group in a manner
similar to the equity method of accounting that, in our opinion, should be
consolidated with TCI Group to conform to generally accepted accounting
principles for the periods subsequent to the mergers of TCI Communications, Inc.
and Liberty Media Corporation on August 4, 1994.  The Liberty Media Group is
under the sole control of Tele-Communications, Inc.  If TCI Group's interest in
the Liberty Media Group were consolidated with the TCI Group subsequent to the
mergers, the combined financial position, combined results of operations, and
combined cash flows of the TCI Group would equal the consolidated financial
position, consolidated results of operations, and consolidated cash flows of
Tele-Communications, Inc. and subsidiaries, which financial statements are
included separately herein.

In our opinion, except for the effects of not consolidating TCI Group's
interest in Liberty Media Group as discussed in the preceding paragraph, the
combined financial statements referred to in the second paragraph above present
fairly, in all material respects, the financial position of TCI Group as of
December 31, 1995 and 1994, and the results of their operations and cash flows
for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.

                                                   /s/ KPMG Peat Marwick LLP
                                                   -------------------------
                                                   KPMG Peat Marwick LLP

Denver, Colorado
March 18, 1996


                                    II-143
<PAGE>   210
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)



                            Combined Balance Sheets

                           December 31, 1995 and 1994


<TABLE>
<CAPTION>
                                                                            1995                 1994 *  
                                                                        ------------         ------------
Assets                                                                         amounts in millions
------                                                                                            
<S>                                                                   <C>                        <C>

Cash                                                                  $         77                   11

Trade and other receivables, net                                               300                  206

Prepaid expenses                                                                51                   22

Prepaid program rights                                                          19                   13

Committed film inventory                                                        92                   36

Investments in affiliates, accounted for
   under the equity method, and related
   receivables (note 5)                                                      2,073                1,019

Property and equipment, at cost:
   Land                                                                         67                   69
   Distribution systems                                                      9,153                7,705
   Support equipment and buildings                                           1,213                  935
                                                                        ----------            ---------
                                                                            10,433                8,709
   Less accumulated depreciation                                             3,611                3,027
                                                                        ----------            ---------
                                                                             6,822                5,682
                                                                        ----------            ---------

Franchise costs                                                             14,322               11,152
   Less accumulated amortization                                             2,092                1,708
                                                                        ----------            ---------
                                                                            12,230                9,444
                                                                        ----------            ---------
Other assets, net of amortization                                              948                  688
                                                                        ----------            ---------

                                                                          $ 22,612               17,121
                                                                        ==========            =========
</TABLE>


* Restated - see note 13.

                                                                     (continued)





                                     II-144
<PAGE>   211
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Balance Sheets, continued

                           December 31, 1995 and 1994

<TABLE>
<CAPTION>
                                                                            1995                 1994 *  
                                                                        ------------         ------------
Liabilities and Combined Equity                                                amounts in millions
-------------------------------                                                                   
<S>                                                                   <C>                       <C>

Accounts payable                                                      $       148                   90

Accrued interest                                                              228                  183

Accrued programming expense                                                   272                  207

Other accrued expenses                                                        518                  435

Debt (note 7)                                                              12,960               11,068

Deferred income taxes (note 12)                                             4,328                3,377

Other liabilities                                                             181                  142
                                                                      -----------           ----------

      Total liabilities                                                    18,635               15,502
                                                                      -----------           ----------

Minority interests in equity
   of consolidated subsidiaries                                               563                  314

Redeemable preferred stock (note 8)                                           478                  168

Combined equity (note 9):
   Combined equity, including preferred
      stocks                                                                2,884                2,565
   Cumulative foreign currency
      translation adjustment                                                   (9)                  (4)
   TCI Group unrealized holding gains (losses)
      for available-for-sale securities, net of taxes                          68                   (4)
   Due from Liberty Media Group                                                (7)                 (29)
   Liberty Media Group unrealized holding
      gains for available-for-sale securities,
      net of taxes                                                             --                   98
   Interest in Liberty Media Group                                             --               (1,489)
                                                                      -----------           ---------- 

         Combined equity                                                    2,936                1,137
                                                                      -----------           ----------

Commitments and contingencies (note 14)

                                                                         $ 22,612               17,121
                                                                     ============          ===========
</TABLE>


* Restated - see note 13.

See accompanying notes to combined financial statements.


                                     II-145
<PAGE>   212
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Statements of Operations

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                      1995           1994*          1993* 
                                                                    --------       --------       --------
                                                                             amounts in millions,
                                                                           except per share amounts
<S>                                                             <C>                  <C>             <C>
Revenue                                                             $ 5,384          4,269           4,090

Operating costs and expenses:
   Operating                                                          1,677          1,232           1,341
   Programming charges from Liberty
      Media Group (note 13)                                              73             60              47
   Selling, general and administrative                                1,686          1,207             838
   Charges to Liberty Media Group (note 13)                             (24)           (14)             (6)
   Compensation relating to stock
      appreciation rights                                                45             --              31
   Adjustment to compensation relating to
      stock appreciation rights                                          --             (5)             --
   Depreciation                                                         874            694             628
   Amortization                                                         400            307             292
                                                                   --------       --------        -------- 
                                                                      4,731          3,481           3,171
                                                                   --------       --------        --------

         Operating income                                               653            788             919

Other income (expense):
   Interest expense                                                    (993)          (786)           (735)
   Interest and dividend income                                          41             21              18
   Interest income from Liberty Media
      Group (note 13)                                                     2              2               2
   Gain on sale of subsidiary stock (note 11)                           123             --              --
   Gain on sale of stock by equity investee
      (note 5)                                                          165            161              --
   Share of losses of affiliates,
      net (note 5)                                                     (178)          (117)            (66)
   Gain (loss) on disposition of assets                                  51            (13)             42
   Other, net                                                           (45)           (18)            (57)
                                                                   --------       --------        -------- 
                                                                       (834)          (750)           (796)
                                                                   --------       --------        -------- 
         Earnings (loss) before income taxes                           (181)            38             123

Income tax benefit (expense) (note 12)                                   66            (60)           (156)
                                                                   --------       --------        -------- 
         Loss before earnings
            (loss) of Liberty Media Group
            through the date of Distribution
            (note 1)                                                   (115)           (22)            (33)

Earnings (loss) of Liberty Media Group                                                                    
      through the date of Distribution
      (note 1)                                                          (29)           135              30
                                                                   --------       --------        -------- 
         Net earnings (loss)                                           (144)           113              (3)

Dividend requirements on
   preferred stocks                                                     (34)           (14)            (12)
                                                                   --------       --------        -------- 
         Net earnings (loss) attributable to
            common stockholders                                    $   (178)            99             (15)
                                                                   ========       ========        ======== 
                                                                                                          
Loss attributable to common stockholders                                                                  
   per common share (note 3)                                       $   (.16)
                                                                   ======== 
</TABLE>

* Restated - see note 13.

See accompanying notes to combined financial statements.


                                     II-146
<PAGE>   213
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)



                         Combined Statements of Equity

                  Years ended December 31, 1995, 1994 and 1993


<TABLE>
<CAPTION>
                                                                                            TCI      Liberty
                                                                                           Group      Media
                                                                                         unrealized   Group
                                                                                           holding  unrealized
                                        Combined     Cumulative     Note       gains         Due     holding    Interest
                                        equity,       foreign    receivable  (losses) for   from    gains for      in
                                        including     currency       from     available-   Liberty  available-  Liberty
                                        preferred   translation    related     for-sale    Media    for-sale     Media    Combined
                                        stocks      adjustment      party     securities   Group    securities*  Group*    equity
                                        ------      ----------   -----------  ----------  --------  ------------ ------   ---------
                                                                               amounts in millions
<S>                                     <C>           <C>           <C>          <C>         <C>    <C>          <C>       <C>
Balance at January 1, 1993               1,660        (19)          (15)          --          --       --         (894)      732
   Net loss                                 (3)        --            --           --          --       --          (30)      (33)
   Purchase of programming from
      Liberty Media Group                   --         --            --           --          --       --           47        47
   Cost allocations to Liberty
      Media Group                           --         --            --           --          --       --           (6)       (6)
   Allocation to Liberty Media Group
      of compensation related to stock
      appreciation rights                   --         --            --           --          --       --          (40)      (40)
   Payments of compensation related                                            
      to stock appreciation rights          --         --            --           --          --       --           22        22
   Interest income from Liberty
      Media Group                           --         --            --           --          --       --           (2)       (2)
   Intergroup tax allocation                --         --            --           --          --       --          (25)      (25)
   Net cash transfers to Liberty
      Media Group                           --         --            --           --          (3)      --         (134)     (137)
   Foreign currency translation                                
      adjustment                            --        (10)           --           --          --       --           --       (10)
   Payment of TCI and Liberty
      preferred stock dividends            (11)        --            --           --          --       --           --       (11)
   Issuance of Liberty Class A
      common stock for acquisition
      by Liberty Media Group               123         --            --           --          --       --         (123)       --
   Issuance of TCI Class A
      common stock upon
      conversion of notes                  403         --            --           --          --       --           --       403
   Issuance of TCI Class A
      common stock upon
      exercise of stock options              7         --            --           --          --       --           --         7
   Acquisition and retirement of
      TCI common stock                      (5)        --            --           --          --       --           --        (5)
                                      --------    -------       -------      -------     -------  -------      -------   ------- 

Balance at December 31, 1993             2,174        (29)          (15)          --          (3)      --       (1,185)      942
                                      --------    -------       -------      -------     -------  -------     --------   -------
</TABLE>

* Restated - see note 9.





                                     II-147
<PAGE>   214
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)



                   Combined Statements of Equity (continued)

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                          TCI                  Liberty
                                                                         Group                  Media
                                                                        unrealized              Group
                                                                        holding               unrealized
                                     Combined   Cumulative     Note      gains        Due       holding      Interest
                                      equity,   foreign     receivable (losses) for   from      gains for       in
                                     including  currency       from     available-   Liberty   available-     Liberty
                                     preferred  translation   related    for-sale     Media     for-sale       Media      Combined
                                      stocks    adjustment     party    securities    Group    securities *    Group *      equity
                                      ------    ----------  ----------- ----------   --------  ------------    -------      ------
                                                                            amounts in millions
<S>                                   <C>       <C>          <C>        <C>           <C>      <C>           <C>            <C>
                                      
Balance at December 31, 1993          2,174       (29)        (15)        --           (3)        --         (1,185)           942
   Unrealized holding gains for
      available-for-sale securities 
      as of January 1, 1994              --        --          --         22           --        293           (293)            22
   Net earnings (loss)                  113        --          --         --           --         --           (135)           (22)
   Purchase of programming from
      Liberty Media Group                --        --          --         --           --         --             60             60
   Cost allocations to Liberty 
      Media Group                        --        --          --         --           --         --            (14)           (14)
   Accrued cable distribution fees 
      to TCI from Home Shopping 
      Network, Inc. ('HSN")              --        --          --         --          (28)        --             --            (28)
   Allocation to Liberty Media 
      Group of compensation related 
      to stock appreciation rights       --        --          --         --           --         --              8              8
   Interest income from Liberty
      Media Group                        --        --          --         --           --         --             (2)            (2)
   Intergroup tax allocation             --        --          --         --           --         --            (78)           (78)
   Net cash transfers from Liberty
      Media Group                        --        --          --         --            2         --            166            168
   Change in unrealized holding 
      gains for available-for-sale 
      securities                         --        --          --        (26)          --       (195)           195            (26)
   Foreign currency translation
      adjustment                         --        25          --         --           --         --             --             25
   Payment of TCI and Liberty
      preferred stock dividends          (14)      --          --         --           --         --             --            (14)
   Issuance of TCI common stock
      for investments                    130       --          --         --           --         --             --            130
   Fees incurred in TCI/Liberty
       Combination                       (13)      --          --         --           --         --             --            (13)
   Issuance of TCI preferred stock 
       for acquisition by Liberty 
       Media Group                       168       --          --         --           --         --           (168)            --
   Acquisition by Liberty Media Group     --       --          --         --           --         --            (43)           (43)
   Conversion of redeemable preferred 
       stock                              18       --          --         --           --         --             --             18
   Issuance of TCI Class A common 
       stock upon conversion of notes      3       --          --         --           --         --             --              3
   Issuance of TCI Class A common                                                     
       stock upon exercise of stock 
       options                             3       --          --         --           --         --             --              3
   Acquisition and retirement of
      TCI common stock                    (2)      --          --         --           --         --             --             (2)
   Repayment of note receivable
      from related party with TCI
      common stock                       (15)      --          15         --           --         --             --             --
                                     -------   ------     -------     ------       -------    ------       --------      ---------

Balance at December 31, 1994           2,565       (4)         --         (4)          (29)       98         (1,489)         1,137
                                     -------   ------     -------     ------       -------    ------       --------      ---------
</TABLE>

* Restated - see note 9.




                                     II-148
<PAGE>   215
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)



                   Combined Statements of Equity (continued)

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                              TCI                 Liberty
                                                                             Group                 Media
                                                                             unrealized            Group
                                                                             holding             unrealized
                                      Combined   Cumulative     Note         gains        Due     holding     Interest
                                      equity,     foreign    receivable   (losses) for   from     gains for      in
                                     including   currency       from       available-   Liberty   available-   Liberty
                                     preferred  translation   related       for-sale     Media    for-sale     Media      Combined
                                      stocks    adjustment     party       securities    Group  securities*    Group*      equity
                                      ------    ----------   -----------   ----------  -------- ------------   -------    --------
                                                                                   amounts in millions
<S>                                   <C>        <C>            <C>           <C>       <C>      <C>         <C>         <C>
Balance at December 31, 1994            2,565       (4)            --            (4)      (29)     98        (1,489)       1,137
   Net loss                              (144)      --             --            --        --      --            29         (115) 
   Purchase of programming from                        
      Liberty Media Group                  --       --             --            --        33      --            40           73
   Cost allocations to Liberty                         
      Media Group                          --       --             --            --        (9)     --           (15)         (24)
   Cable distribution fees received                    
      from HSN                             --       --             --            --        27      --            --           27
   Allocation of compensation                          
      relating to stock appreciation                   
      rights                               --       --             --            --        (3)     --            (7)         (10)
   Interest income from Liberty                        
      Media Group                          --       --             --            --        --      --            (2)          (2)
   Deferred tax assets transferred                     
      from Liberty Media Group             --       --             --            --        --      --            14           14
   Turner Broadcasting System, Inc.                    
      ("TBS") stock received in                        
      acquisition transferred to                       
       Liberty Media Group                 --       --             --            --        --      --            (7)          (7)
   Net cash transfers to Liberty                       
      Media Group                          --       --             --            --       (26)     --           (15)         (41)
   Change in unrealized gains for                      
      available-for-sale securities        --       --             --            72        --     108          (108)          72
   Foreign currency translation                        
      adjustment                           --       (5)            --            --        --      --            --           (5)
   Accreted dividends on TCI preferred                 
      stock subject to mandatory                       
      redemption requirements             (24)      --             --            --        --      --            --          (24)
   Payment of TCI preferred stock                      
      dividends                           (10)      --             --            --        --      --            --          (10)
   Issuance of TCI Class A common                      
      stock for acquisitions and                       
      investments                       1,378       --             --            --       --       --            --        1,378
   Issuance of TCI Class A common                      
      stock for acquisition by Liberty                 
      Media Group                          10       --             --            --       --       --           (10)          --
   Cash paid by TCI Group for                          
      investment by Liberty Media                      
      Group contributed to Liberty                     
      Media Group combined equity          --       --             --            --       --       --            (2)          (2)
   Proceeds from issuances of TCI                      
      Class A common stock in                          
      public and private offerings        431       --             --            --       --       --            --          431
   Distribution of TCI Series A and                    
      Series B Liberty Media Group                     
      common stock to TCI common                       
       stockholders                    (1,364)      --             --            --       --     (206)        1,570           --
   Costs associated with                               
      Distribution to stockholders         (8)      --             --            --       --       --            --           (8)
   Adjustment to reflect elimination                   
      of reporting delay with                          
      respect to certain foreign                                                  
      subsidiaries (note 2)                (1)      --             --            --       --       --            --           (1)
   Deferred tax assets transferred 
      from Liberty Media Group 
      upon implementation of tax 
      sharing agreement                    --       --             --            --        --      --             2            2
   Issuance of Common stock by
      subsidiary (note 11)                 51       --             --            --        --      --            --           51

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

Balance at December 31, 1995         $  2,884       (9)            --            68        (7)     --            --        2,936   
                                     ========  =======      =========       =======    ======  ======     =========     ========
</TABLE>

* Restated - see note 9.

See accompanying notes to combined financial statements.





                                     II-149
<PAGE>   216
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Statements of Cash Flows

                  Years ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>
                                                                                  1995          1994            1993  
                                                                                --------      --------        --------
                                                                                          amounts in millions
                                                                                              (see note 4)
<S>                                                                            <C>             <C>             <C>
Cash flows from operating activities:
   Loss before earnings or loss of Liberty Media
      Group*                                                                     $(115)           (22)            (33)
   Adjustments to reconcile net loss before
      earnings or loss of Liberty Media Group to
      net cash provided by operating activities:
         Depreciation and amortization                                            1,274         1,001             920
         Compensation relating to stock
            appreciation rights                                                      45            --              31
         Adjustment to compensation relating to stock
            appreciation rights                                                      --            (5)             --
         Share of losses of affiliates                                              178           117              66
         Gain on sale of subsidiary stock                                          (123)           --              --
         Gain on sale of stock by equity investee                                  (165)         (161)             --
         Deferred income tax expense (benefit)                                      (99)           --             128
         Loss (gain) on disposition of assets                                       (51)           13             (42)
         Other noncash charges (credits)                                             11             1              84
         Changes in operating assets and liabilities,
            net of the effect of acquisitions:
               Change in receivables                                                (58)            4             (12)
               Change in prepaids                                                   (56)          (50)             (4)
               Change in accruals and payables                                       76            77              56
               Change in accrued interest                                            40            26              63   
   Net cash used in Flextech plc's operating activities
      during the month ended September 30, 1995 (note 2)                             (2)           --              --
                                                                               --------        ------          ------
                 Net cash provided by operating activities                          955         1,001           1,257
                                                                               --------        ------          ------

Cash flows from investing activities:
   Cash paid for acquisitions                                                      (440)         (541)           (262)
   Capital expended for property and equipment                                   (1,733)       (1,249)           (954)
   Proceeds from disposition of assets                                              148            41             146
   Additional investments in and
      loans to affiliates and others                                             (1,064)         (434)           (295)
   Change in due from Liberty Media Group                                            22             2              (3)
   Change in interest in Liberty Media Group                                         13           148            (119)
   Repayment of loans by affiliates and others                                       18            33              62
   Return of capital from affiliates                                                  2            21              81
   Payment received on preferred stock investment
      redemption                                                                     --            --             287
   Other investing activities                                                       (62)          (97)           (105)
   Net cash used in Flextech plc's investing activities
      during the month ended September 30, 1995 (note 2)                            (51)           --              --
                                                                               --------        ------          ------
                                                                                                                     
                 Net cash used in investing activities                           (3,147)       (2,076)         (1,162)
                                                                               --------        ------          ------

Cash flows from financing activities:
   Borrowings of debt                                                             7,929         4,648           6,399
   Repayments of debt                                                            (6,517)       (3,612)         (6,426)
   Proceeds from sale of subsidiary stock                                           445            --              --
   Preferred stock dividends of subsidiaries                                         (6)           (6)             (6)
   Preferred stock dividends                                                        (24)           (4)             (2)
   Issuances of common stock                                                        431             1               6
   Costs associated with Distribution to stockholders                                (8)           --              --
   Repurchases of preferred stock                                                    --            --             (92)
   Repurchases of common stock                                                       --            --              (4)
   Net cash provided by Flextech plc's financing activities
      during the month ended September 30, 1995 (note 2)                              8            --              --
                                                                               --------        ------          ------

                 Net cash provided by financing activities                        2,258         1,027            (125)
                                                                               --------        ------          ------

                 Net increase (decrease) in cash                                     66             2             (26)

                    Cash at beginning of year                                        11             9              35
                                                                               --------        ------          ------

                    Cash at end of year                                        $     77            11               9
                                                                               ========        ======          ======
</TABLE>

* Net earnings or loss of Liberty Media Group does not provide or use funds.

See accompanying notes to combined financial statements.


                                     II-150
<PAGE>   217
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



                        December 31, 1995, 1994 and 1993


(1)      Basis of Presentation

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue a new class of stock ("Liberty
         Group Stock") which is intended to reflect the separate performance of
         TCI's business which produces and distributes cable television
         programming services ("Liberty Media Group").  While the Liberty Group
         Stock constitutes common stock of TCI, issuance of the Liberty Group
         Stock did not result in any transfer of assets or liabilities of TCI
         or any of its subsidiaries or affect the rights of holders of TCI's or
         any of its subsidiaries' debt.  On August 10, 1995, TCI distributed
         one hundred percent of the equity value attributable to the Liberty
         Media Group (the "Distribution") to its security holders of record on
         August 4, 1995.  Additionally, the stockholders, of TCI approved the
         redesignation of the previously authorized Class A and Class B common
         stock into Series A TCI Group and Series B TCI Group common stock
         ("TCI Group Stock").

         Upon the distribution of the Liberty Group Stock and subsequent to the
         redesignation of TCI Class A and Class B common stock into TCI Group
         Stock, the TCI Group Stock is intended to reflect the separate
         performance of the subsidiaries and assets not attributed to Liberty
         Media Group, including (i) TCI's Cable and Communication unit, (ii)
         TCI's International Cable and Programming unit ("TINTA") and (iii)
         TCI's Technology/Venture Capital unit.  Such subsidiaries and assets
         are collectively referred to as "TCI Group".


                                                                     (continued)





                                     II-151
<PAGE>   218
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         On January 27, 1994, TCI Communications, Inc. (formerly
         Tele-Communications, Inc. or "TCIC") and Liberty Media Corporation
         ("Liberty") entered into a definitive merger agreement to combine the
         two companies (the "TCI/Liberty Combination").  The transaction was
         consummated on August 4, 1994.  Due to the significant economic
         interest held by TCIC through its ownership of Liberty preferred stock
         and Liberty common stock and other related party considerations, TCIC
         accounted for its investment in Liberty under the equity method prior
         to the consummation of the TCI/Liberty Combination.  Accordingly, TCIC
         had recognized 100% of Liberty's earnings or losses before deducting
         preferred stock dividends.  The TCI/Liberty Combination was accounted
         for using predecessor cost due to related party considerations.
         Accordingly, the accompanying combined financial statements of TCI
         Group reflect the combination of the historical financial information
         of the assets of TCI and Liberty which have not been attributed to
         Liberty Media Group.  For periods prior to the TCI/Liberty
         Combination, the combined financial statements of TCI Group and
         Liberty Media Group comprise all the accounts included in the
         consolidated financial statements of TCI and subsidiaries and the
         separate consolidated financial statements of Liberty and
         subsidiaries.  For periods subsequent to the TCI/Liberty Combination,
         the combined financial statements of TCI Group and Liberty Media Group
         comprise all the accounts included in the corresponding consolidated
         financial statements of TCI and subsidiaries.

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense to TCI Group for purposes of preparing its
         combined financial statements, the change in the capital structure of
         TCI does not affect the ownership or the respective legal title to
         assets or responsibility for liabilities of TCI or any of its
         subsidiaries.  TCI and its subsidiaries each continue to be
         responsible for their respective liabilities.  Holders of TCI Group
         Stock are holders of common stock of TCI and continue to be subject to
         risks associated with an investment in TCI and all of its businesses,
         assets and liabilities.  The issuance of Liberty Group Stock did not
         affect the rights of creditors of TCI.

         Financial effects arising from any portion of TCI that affect the
         consolidated results of operations or financial condition of TCI could
         affect the combined results of operations or financial condition of
         TCI Group and the market price of shares of the TCI Group Stock.  In
         addition, net losses of any portion of TCI, dividends or distributions
         on, or repurchases of, any series of common stock, and dividends on,
         or certain repurchases of preferred stock would reduce the funds of
         TCI legally available for dividends on all series of common stock.
         Accordingly, TCI Group financial information should be read in
         conjunction with the TCI and Liberty Media Group financial
         information.

         Dividends on the TCI Group Stock are payable at the sole discretion of
         the Board out of the lesser of assets of TCI legally available for
         dividends and the available dividend amount with respect to TCI Group,
         as defined.  Determinations to pay dividends on TCI Group Stock are
         based primarily upon the financial condition, results of operations
         and business requirements of TCI Group and TCI as a whole.

                                                                     (continued)





                                     II-152
<PAGE>   219
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         After the Distribution, existing preferred stock and debt securities
         of TCI that were convertible into or exchangeable for shares of TCI
         Class A common stock were, as a result of the operation of
         antidilution provisions, adjusted so that there will be delivered upon
         their conversion or exchange (in addition to the same number of shares
         of redesignated Series A TCI Group Stock as were theretofore issuable
         thereunder) the number of shares of Series A Liberty Group Stock that
         would have been issuable in the Distribution with respect to the TCI
         Class A common stock issuable upon conversion or exchange had such
         conversion or exchange occurred prior to the record date for the
         Distribution.  Options to purchase TCI Class A common stock
         outstanding at the time of the Distribution were adjusted by issuing
         to the holders of such options separate options to purchase that
         number of shares of Series A Liberty Group Stock which the holder
         would have been entitled to receive had the holder exercised such
         option to purchase TCI Class A common stock prior to the record date
         for the Distribution and reallocating a portion of the aggregate
         exercise price of the previously outstanding options to the newly
         issued options to purchase Series A Liberty Group Stock.  The issuance
         of shares of Series A Liberty Group Stock upon such conversion,
         exchange or exercise of such convertible securities will not result in
         any transfer of funds or other assets from TCI Group to Liberty Media
         Group or a reduction in any Inter-Group Interest that then may exist,
         in consideration of such issuance.  In the case of the exercise of
         such options to purchase Series A Liberty Group Stock, the proceeds
         received upon the exercise of such options will be attributed to
         Liberty Media Group.

         A number of wholly-owned subsidiaries which are part of TCI Group
         owned shares of TCI Class A common stock and TCI preferred stock
         ("Subsidiary Shares").  Because the distribution of the Liberty Group
         Stock was made as a dividend to all holders of TCI's Class A common
         stock and Class B common stock and, pursuant to the anti- dilution
         provisions set forth therein, to the holders of securities convertible
         into TCI Class A common stock and TCI Class B common stock upon the
         conversion thereof, shares of Liberty Group Stock would otherwise have
         been issued and become issuable in respect of the Subsidiary Shares
         held by these subsidiaries and would be attributed to TCI Group.  The
         Liberty Group Stock issued in connection with the Distribution is
         intended to constitute 100% of the equity value thereof to the holders
         of TCI Class A common stock and TCI Class B common stock, and TCI
         Group does not initially have any interest in Liberty Media Group
         represented by any outstanding shares of Liberty Group Stock (an
         "Inter-Group Interest").  Therefore, TCI determined to exchange all of
         the outstanding Subsidiary Shares for shares of a new series of Series
         Preferred Stock designated Convertible Redeemable Participating
         Preferred Stock, Series F (the "Series F Preferred Stock"). See note
         8.  The rights, privileges and preferences of the Series F Preferred
         Stock did not entitle its holders to receive Liberty Group Stock in
         the Distribution or upon conversion of the Series F Preferred Stock.


                                                                     (continued)





                                     II-153
<PAGE>   220
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         Prior to the Distribution, TCI Group had a 100% Inter-Group Interest
         in Liberty Media Group.  Following the Distribution of Liberty Group
         Stock, TCI Group has no Inter-Group Interest in Liberty Media Group.
         For periods in which an Inter-Group Interest exists, TCI Group would
         account for its Inter-Group Interest in a manner similar to the equity
         method of accounting.  For periods after the Distribution and before
         the creation of an Inter-Group Interest, TCI Group would not reflect
         any interest in Liberty Media Group.  An Inter-Group Interest would be
         created only if a subsequent transfer of cash or other property from
         TCI Group to Liberty Media Group is specifically designated by the
         Board as being made to create an Inter-Group Interest or if
         outstanding shares of Liberty Group Stock are purchased with funds
         attributable to TCI Group.  However, Liberty Media Group is under the
         sole control of TCI.  Management of TCI believes that generally
         accepted accounting principles require that Liberty Media Group be
         consolidated with TCI Group.  If Liberty Media Group were consolidated
         with TCI Group, the combined financial position, combined results of
         operations, and combined cash flows of TCI Group would equal the
         consolidated financial position, consolidated results of operations
         and consolidated cash flows of TCI and subsidiaries, which financial
         statements are included separately herein.  Management of TCI has
         elected to present the accompanying combined financial statements in a
         manner that does not comply with generally accepted accounting
         principles.

         During the fourth quarter of 1994, TCI was reorganized (the
         "Reorganization") based upon four lines of business:  Domestic Cable
         and Communications; Programming; TINTA and Technology/Venture Capital.
         Upon Reorganization, certain of the assets of TCIC and Liberty were
         transferred to the other operating units.  In the first quarter of
         1995, TCIC transferred additional assets to TINTA.

(2)      Summary of Significant Accounting Policies

         Receivables

         Receivables are reflected net of an allowance for doubtful accounts.
         Such allowance at December 31, 1995 and 1994 was not material.

         Investments

         All marketable equity securities held by TCI Group are classified as
         available-for-sale and are carried at fair value.  Unrealized holding
         gains and losses on securities classified as available-for-sale are
         carried net of taxes as a separate component of combined equity.



                                                                     (continued)





                                     II-154
<PAGE>   221
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Other investments in which the ownership interest is less than 20% but
         are not considered marketable securities are generally carried at
         cost.  For those investments in affiliates in which TCI Group'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 TCI Group's share of the net earnings or
         losses of the affiliates as they occur rather than as dividends or
         other distributions are received, limited to the extent of TCI Group's
         investment in, advances to and commitments for the investee. TCI
         Group's share of net earnings or losses of affiliates includes the
         amortization of the difference between TCI Group'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 TCI Group's ownership interest in
         such affiliates.

         Changes in TCI Group'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 TCI Group's combined
         statements of operations.

         Long-Lived Assets

         (a)     Property and Equipment

                 Property and equipment is stated at cost, including
                 acquisition costs allocated to tangible assets acquired.
                 Construction costs, including interest during construction and
                 applicable overhead, are capitalized.  During 1995, 1994 and
                 1993, interest capitalized was not material.

                 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.

         (b)     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 TCI
                 Group in obtaining franchises are being amortized on a
                 straight-line basis over the life of the franchise, generally
                 10 to 20 years.


                                                                     (continued)





                                     II-155
<PAGE>   222
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         In March of 1995, the Financial Accounting Standards Board (the
         "FASB") issued Statement of Financial Accounting Standards No. 121,
         Accounting for the Impairment of Long-Lived Assets and for Long-Lived
         Assets to Be Disposed Of ("Statement No. 121"), effective for fiscal
         years beginning after December 15, 1995.  Statement No. 121 requires
         impairment losses to be recorded on long-lived assets used in
         operations when indicators of impairment are present and the
         undiscounted cash flows estimated to be generated by those assets are
         less than the assets' carrying amount.  Statement No. 121 also
         addresses the accounting for long-lived assets that are expected to be
         disposed of.  TCI Group will adopt Statement No. 121 effective January
         1, 1996.  The effect of such adoption is not expected to be
         significant.

         Interest Rate Derivatives

         Amounts receivable or payable under derivative financial instruments
         used to manage interest rate risks arising from TCI Group's financial
         liabilities are recognized as interest expense.  Gains and losses on
         early terminations of derivatives are included in the carrying amount
         of the related debt and amortized as yield adjustments over the
         remaining terms of the debt.  TCI Group does not use such instruments
         for trading purposes.

         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 TCI Group to repurchase such
         holders' common equity.

         Included in minority interests in equity of consolidated subsidiaries
         is $49 million and $50 million in 1995 and 1994, respectively, of
         preferred stocks (and accumulated dividends thereon) of certain
         subsidiaries.  The current dividend requirements on these preferred
         stocks aggregate $6 million per annum and such dividend requirements
         are reflected as minority interests in the accompanying combined
         statements of operations.

         Subsequent to December 31, 1995, TCIC issued to the public 4.6 million
         shares of Cumulative Exchangeable Preferred Stock with an initial
         liquidation value of $230 million.  Such issuance will be reflected as
         an increase in TCI Group's minority interest in equity of consolidated
         subsidiaries.


                                                                     (continued)





                                     II-156
<PAGE>   223
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Trust Originated Preferred Securities(SM)

         Subsequent to December 31, 1995, TCI Communications Financing I (the
         "Trust"), an indirect wholly-owned subsidiary of TCI Group, issued
         $16 million in common securities and issued $500 million of 8.72% Trust
         Originated Preferred Securities(SM) (the "Preferred Securities", and
         together with the common securities, the "Trust Securities"). The
         Trust exists for the exclusive purpose of issuing Trust Securities and
         investing the proceeds thereof into an aggregate principal amount of
         $516 million of 8.72% Subordinated Deferrable Interest Notes due
         January 31, 2045 (the "Subordinated Debt Securities") of TCI Group.
         The Subordinated Debt Securities are unsecured obligations of TCI Group
         and are subordinate and junior in right of payment to certain other
         indebtedness of TCI Group.  Upon redemption of such Subordinated Debt
         Securities, the Preferred Securities will be mandatorily redeemable.
         TCI Group effectively provides a full and unconditional guarantee of
         the Trust's obligations under the Preferred Securities.  TCI Group will
         present the Preferred Securities as a separate line item in its balance
         sheet captioned "Company-obligated mandatorily redeemable preferred
         securities of subsidiary trust."


         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 combined equity.

         Stock Based Compensation

         Statement of Financial Accounting Standards No. 123, Accounting for
         Stock-Based Compensation ("Statement No.  123") was issued by the FASB
         in October 1995.  Statement No. 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.  TCI Group will
         include the disclosures required by Statement No. 123 in the notes to
         future financial statements.


                                                                     (continued)


                                     II-157
<PAGE>   224
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         Accounting for Foreign Subsidiaries

         Through the third quarter of 1995, TCI Group included certain of its
         foreign subsidiaries (Flextech plc ("Flextech") and Cablevision S.A.
         ("Cablevision")) in its financial statements on a one-month time delay.
         TCI Group eliminated such time delay from its December 31, 1995
         financial statements.  As a result, TCI Group's combined statements of
         operations for the year ended December 31, 1995 include (i)
         Cablevision's result of operations for the period from April 25, 1995
         (the date Cablevision was acquired - see note 6) through December 31,
         1995 and (ii) Flextech's results of operations for the period from
         December 1, 1994 through December 31, 1995 (exclusive of the one-month
         period ended September 30, 1995).  TCI Group's combined statement of
         cash flows for the year ended December 31, 1995 includes the cash flows
         of Cablevision and Flextech for the same periods except that Flextech's
         cash flows for the one-month period ended September 30, 1995 are
         included therein on a summarized basis.  In connection with the
         elimination of the above-described reporting delays, TCI Group (i)
         restated certain of its quarterly financial information in order to
         present Cablevision's 1995 results of operations on a current basis and
         (ii) charged Flextech's net loss for the one-month ended September 30,
         1995 ($1 million) directly to TCI Group's accumulated deficit so that
         TCI Group's combined statement of operations for the year ended
         December 31, 1995 would not include more than 12 months of Flextech's
         operating results.



         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 revenues and expenses during the reporting period.  Actual
         results could differ from those estimates.

         Reclassification

         Certain amounts have been reclassified for comparability with the 1995
         presentation.

(3)      Loss Per Common Share

         The loss attributable to common stockholders per common share for the
         period from the Distribution to December 31, 1995 was computed by
         dividing net loss  attributable to TCI Group Series A and Series B
         common stockholders by the weighted average number of common shares
         outstanding of TCI Group Series A and Series B Stock during the period
         (656.4 million).  Common stock equivalents were not included in the
         computation of weighted average shares outstanding because their
         inclusion would be anti-dilutive.  Earnings or loss per common and
         common equivalent share are omitted from the combined statements of
         operations for the period from January 1, 1995 through the
         Distribution and for the years ended December 31, 1994 and 1993 as TCI
         Group Stock was not part of the capital structure of TCI until August
         10, 1995, the date of the Distribution.

                                                                     (continued)



                                     II-158
<PAGE>   225
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




(4)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $953 million, $758 million and $646 million
         for the years ended December 31, 1995, 1994 and 1993, respectively.
         Cash paid for income taxes was $63 million in 1995 and was not material
         in 1994 or 1993.

         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                              Years ended December 31,       
                                                                        -------------------------------------
                                                                        1995           1994             1993   
                                                                     ----------     ----------       ----------
                                                                                 amounts in millions
                 <S>                                              <C>                   <C>               <C>
                 Cash paid for acquisitions:
                    Fair value of assets acquired                 $    3,540             694              318
                    Liabilities assumed, net of
                       current assets                                   (457)            (10)              (8)
                    Deferred tax liability recorded
                       in acquisitions                                (1,083)            (34)              (7)
                    Minority interests in equity of
                       acquired entities                                  43             (35)              (8)
                    Common stock issued in
                       acquisitions                                   (1,305)           (298)              --
                    Contribution to combined equity
                       of Liberty Media Group from
                       TCI Group for acquisition                           2             211               --
                    Noncash contribution for
                       acquisition                                         --             --              (33)
                    Redeemable preferred stock
                       issued in acquisition                            (300) 
                    Fees incurred in the TCI/Liberty
                       combination                                         --             13               --
                                                                  -----------         ------           ------
                       Cash paid for acquisitions                 $      440             541              262
                                                                  ===========         ======           ======

                 Issuance of subsidiary stock for                                                            
                    equity investment                             $       11              --               --
                                                                  ===========         ======           ======
                 Noncash exchange of equity
                    investment for consolidated
                    subsidiary and equity investment              $       --              --               22
                                                                  ===========         ======           ======

                 Noncash capital contribution                                                                
                    to equity investee                            $       --              --               22
                                                                  ===========         ======           ======
</TABLE>


                                                                     (continued)



                                     II-159
<PAGE>   226
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




(5)      Investments in Affiliates

         TCI Group has various investments accounted for under the equity
         method.  Certain of the more significant investments held by TCI Group
         at December 31, 1995 were MajorCo, L.P. ("MajorCo"), a partnership
         formed by TCI Group, Comcast Corporation ("Comcast"), Cox
         Communications, Inc. ("Cox") and Sprint Corporation ("Sprint")
         (carrying value of $689 million) (see note 14), Teleport
         Communications Group, Inc. and TCG Partners (collectively, "TCG")
         (carrying value of $244 million) and TeleWest plc ("New TeleWest")
         (carrying value of $550 million).

         Summarized unaudited results of operations for affiliates accounted for
         under the equity method are as follows:

<TABLE>
<CAPTION>
                                                                                       December 31,     
                                                                                  ----------------------
                  Combined Financial Position                                      1995            1994  
                  ---------------------------                                    --------        --------
                                                                                    amounts in millions
                     <S>                                                       <C>               <C>
                     Property and equipment, net                               $  3,555          2,186
                     Franchise costs, net                                         1,204          1,231
                     Other assets, net                                            2,923          1,219
                                                                               --------        -------

                        Total assets                                           $  7,682          4,636
                                                                               ========        =======

                     Debt                                                      $  4,085          2,410
                     Due to (from) TCI Group                                         44             (3)
                     Other liabilities                                              870            560
                     Owners' equity                                               2,683          1,669
                                                                               --------        -------

                        Total liabilities and equity                           $  7,682          4,636
                                                                               ========        =======
</TABLE>

<TABLE>
<CAPTION>
                                                                            Years ended December 31,   
                                                                         ------------------------------
                  Combined Operations                                   1995          1994          1993  
                  -------------------                                 --------      --------      --------
                                                                              amounts in millions
                     <S>                                            <C>              <C>          <C>
                     Revenue                                        $  1,924          1,431         1,044
                     Operating expenses                               (1,640)        (1,232)         (727)
                     Depreciation and amortization                      (411)          (324)         (276)
                                                                    --------       --------       ------- 

                        Operating income (loss)                         (127)          (125)           41

                     Interest expense                                   (241)          (159)         (123)
                     Other, net                                           (7)           111            99
                                                                    --------       --------       ------- 

                        Net earnings (loss)                         $   (375)          (173)           17
                                                                    ========       ========       =======
</TABLE>


                                                                     (continued)





                                     II-160
<PAGE>   227
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         At December 31, 1995, TCI Group had an effective ownership interest of
         approximately 27% in New TeleWest, a company that is currently
         operating and constructing cable television and telephone systems in
         the United Kingdom ("UK").  New TeleWest was formed on October 3, 1995
         upon the merger (the "TeleWest Merger") of TeleWest Communications plc
         ("TeleWest Communications") with SBC (CableComms) (UK).  Prior to the
         TeleWest Merger, TCI Group had an effective ownership interest of
         approximately 36% in TeleWest Communications.  As a result of the
         TeleWest Merger, TCI Group recognized a gain of $165 million (before
         deducting the related tax expense of $58 million), which gain
         represents the difference between TCI Group's recorded cost for
         TeleWest Communications and TCI Group's 27% effective proportionate
         share of New TeleWest's net assets.

         New TeleWest contributed $70 million, $43 million and $28 million of
         TCI Group's share of its affiliates' losses during the years ended
         December 31, 1995, 1994 and 1993, respectively.  In addition, TCI
         Group 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 equity method investments had a carrying
         value of $354 million at December 31, 1995 and accounted for $62
         million of TCI Group's share of its affiliates' losses in 1995.

         As a result of the TeleWest Communications' November 23, 1994 initial
         public offering and the associated dilution of TCI Group's ownership
         interest of TeleWest Communications, TCI Group recognized a gain
         amounting to $161 million (before deducting the related tax expense of
         $57 million).

         Certain of TCI Group's affiliates are general partnerships and any
         subsidiary of TCI Group that is a general partner in a general
         partnership is, as such, liable as a matter of partnership law for all
         debts of that partnership in the event liabilities of that partnership
         were to exceed its assets.

(6)      Acquisitions

         As of January 26, 1995, TCI Group and TeleCable Corporation
         ("TeleCable") consummated a transaction, whereby TeleCable was merged
         into TCI Group.  The aggregate $1.6 billion purchase price was
         satisfied by TCIC's assumption of approximately $300 million of
         TeleCable's net liabilities and the issuance to TeleCable's
         shareholders of approximately 42 million shares of TCI Class A common
         stock and 1 million shares of TCI Convertible Preferred Stock, Series
         D (the "Series D Preferred Stock") with an aggregate initial
         liquidation value of $300 million (see note 8).

         On April 25, 1995, TINTA acquired a 51% ownership interest in
         Cablevision for a purchase price of $282 million, before liabilities
         assumed.  The purchase price was paid with cash consideration of $195
         million and TINTA's issuance of $87 million principal amount of secured
         negotiable promissory notes payable (the "Cablevision Notes") to the
         selling shareholders.  TINTA has an option during the two-year period
         ended April 25, 1997 to increase its ownership interest in Cablevision
         up to 80% at a cost per subscriber similar to the initial purchase
         price, adjusted however for certain fluctuations in applicable foreign
         currency exchange rates.

                                                                     (continued)



                                     II-161
<PAGE>   228
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         The acquisitions of TeleCable and Cablevision were accounted for by
         the purchase method.  Accordingly, the results of operations of such
         acquired entities have been included with those of TCI Group since
         their respective dates of acquisition.  On a pro forma basis, TCI
         Group's revenue would have been increased by $77 million and TCI
         Group's net loss and net loss attributable to common stockholders
         would have been decreased by $13 million and $12 million,
         respectively, for the year ended December 31, 1995; and revenue, net
         earnings and earnings attributable to common stockholders would have
         increased by $441 million, $17 million and less than $1 million,
         respectively for 1994 had such acquired entities been combined with
         TCI Group on January 1, 1994.  The foregoing unaudited pro forma
         financial information was based upon historical results of operations
         adjusted for acquisition costs and, in the opinion of management, is
         not necessarily indicative of the results had TCI Group operated the
         acquired entities since January 1, 1994.

         Effective January 26, 1995, TCI Group purchased from Comcast the 19.9%
         minority interest in Heritage Communications, Inc. owned by Comcast
         for an aggregate consideration of approximately $290 million, the
         majority of which was paid in shares of TCI Class A common stock.

(7)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                   
                                                   Weighted average                   December 31,        
                                                   interest rate at          ------------------------------
                                                   December 31, 1995             1995              1994    
                                                   -----------------         ------------      ------------
                                                                                   amounts in millions
                <S>                                     <C>                    <C>                <C>
                 Senior notes                            8.5%                  $  6,713            5,412
                 Bank credit facilities                  6.8%                     3,473            3,986
                 Commercial paper                        6.4%                     1,469              445
                 Notes payable                          10.2%                       934            1,024
                 Convertible notes (a)                   9.5%                        45               45
                 Cablevision Notes (b)                  10.0%                        65               --
                 Other debt                                                         261              156
                                                                               --------           ------

                                                                               $ 12,960           11,068
                                                                               ========           ======
</TABLE>


         (a)     These convertible notes, which are stated net of unamortized
                 discount of $186 million at December 31, 1995 and 1994, mature
                 on December 18, 2021.  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.  At December 31, 1995, the notes were convertible, at
                 the option of the holders, into an aggregate of 38,707,574
                 shares of Series A TCI Group Stock and 9,676,893 shares of
                 Series A Liberty Group Stock.  See note 1.


                                                                     (continued)





                                     II-162
<PAGE>   229
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         (b)     The Cablevision Notes are secured by TINTA's pledge of stock
                 representing its 51% interest in Cablevision.

         The bank credit facilities and various other debt instruments
         attributable to the TCI Group 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.

         As security for borrowings under one of TCI Group's bank credit
         facilities, TCI Group as pledged 100,524,364 shares of Series A TCI
         Group Stock held by a subsidiary of TCI Group.

         In order to achieve the desired balance between variable and fixed
         rate indebtedness, TCI Group has entered into various interest rate
         exchange agreements pursuant to which it pays (i) fixed interest rates
         (the "Fixed Rate Agreements") ranging from 6.1% to 9.9% on notional
         amounts of $602 million at December 31, 1995 and (ii) variable
         interest rates (the "Variable Rate Agreements") on notional amounts of
         $2,520 million at December 31, 1995.  During the years ended December
         31, 1995, 1994 and 1993, TCI Group's net payments pursuant to the
         Fixed Rate Agreements were $13 million, $26 million and $38 million,
         respectively; and TCI Group's net receipts (payments) pursuant to the
         Variable Rate Agreements were (less than $1 million), $36 million and
         $32 million, respectively.  After giving effect to TCI Group's
         interest rate exchange agreements, approximately 46% of TCI Group's
         indebtedness bears interest at fixed rates.

         TCI Group's Fixed Rate Agreements and Variable Rate Agreements expire
         as follows (amounts in millions, except percentages):

<TABLE>
<CAPTION>
                        Fixed Rate Agreements                            Variable Rate Agreements
                        ---------------------                            ------------------------
                Expiration         Interest Rate     Notional       Expiration         Interest Rate       Notional
                   Date             To Be Paid        Amount           Date            To Be Received       Amount
              --------------       -------------      ------      --------------       --------------       ------
          <S>                      <C>              <C>        <C>                       <C>            <C>
          April 1996                    9.9%        $  30      April 1996                   6.8%        $       50
          May 1996                      8.3%           50      July 1996                    8.2%                10
          June 1996                     6.1%           42      August 1996                  8.2%                10
          July 1996                     8.2%           10      September 1996               4.6%               150
          August 1996                   8.2%           10      April 1997                   7.0%               200
          November 1996                 8.9%          150      September 1998            4.8%-5.2%             300
          October 1997                7.2%-9.3%        80      April 1999                   7.4%               100
          December 1997                 8.7%          230      September 1999            7.2%-7.4%             300
                                                    -----                                                         
                                                               February 2000             5.8%-6.6%             650
                                                    $ 602      March 2000                5.8%-6.0%             675
                                                    =====                                                         
                                                               September 2000               5.1%                75
                                                                                                        ----------

                                                                                                        $    2,520
                                                                                                        ==========
</TABLE>




                                                                     (continued)





                                     II-163
<PAGE>   230
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         TCI Group is exposed to credit losses for the periodic settlements of
         amounts due under these interest rate exchange agreements in the event
         of nonperformance by the other parties to the agreements.  However,
         TCI Group does not anticipate that it will incur any material credit
         losses because it does not anticipate nonperformance by the
         counterparties.

         The fair value of the interest rate exchange agreements is the
         estimated amount that TCI Group would pay or receive to terminate the
         agreements at December 31, 1995, taking into consideration current
         interest rates and assuming the current creditworthiness of the
         counterparties.  TCI Group would be required to pay an estimated $25
         million at December 31, 1995 to terminate the agreements.

         The fair value of the debt attributable to the TCI Group is estimated
         based on the quoted market prices for the same or similar issues or on
         the current rates offered to the TCI Group for debt of the same
         remaining maturities.  The fair value of debt, which has a carrying
         value of $12,960 million, was $13,553 million at December 31, 1995.

         Certain subsidiaries attributed to the TCI Group are required to
         maintain unused availability under bank credit facilities to the
         extent of outstanding commercial paper.  Also, certain of TCI Group's
         subsidiaries pay fees ranging from 1/4% to 1/2% per annum on the
         average unborrowed portion of the total amount available for
         borrowings under bank credit facilities.

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

<TABLE>
         <S>                             <C>
         1996                             $3,485*
         1997                                576
         1998                                831
         1999                                784
         2000                                902
</TABLE>

                 *Includes $1,469 million of commercial paper.

(8)      Redeemable Preferred Stock

         Convertible Preferred Stock, Series C ("Series C Preferred Stock").
         TCI has 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 .

         Each share of Series C Preferred Stock is convertible, at the option
         of the holders, into 100 shares of Series A TCI Group Stock and 25
         shares of Series A Liberty Group Stock, subject to anti-dilution
         adjustments.  The dividend, liquidation and redemption features of the
         Series C Preferred Stock will be determined by reference to the
         liquidation value of the Series C Preferred Stock, which as of any
         date of determination is equal, on a per share basis, to the sum of
         (i) $2,375, plus (ii) all dividends accrued on such share through the
         dividend payment date on or immediately preceding such date of
         determination to the extent not paid on or before such date, plus
         (iii), for purposes of determining liquidation and redemption
         payments, all unpaid dividends accrued on the sum of clauses (i) and
         (ii) above, to such date of determination.
                                                                     (continued)



                                     II-164
<PAGE>   231
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Subject to the prior preferences and other rights of any class or
         series of TCI preferred stock ranking pari passu with the Series C
         Preferred Stock, the holders of Series C Preferred Stock are entitled
         to receive and, subject to any prohibition or restriction contained in
         any instrument evidencing indebtedness of TCI, TCI is obligated to pay
         preferential cumulative cash dividends out of funds legally available
         therefor.  Dividends accrue cumulatively at an annual rate of 5-1/2%
         of the liquidation value per share, whether or not such dividends are
         declared or funds are legally or contractually available for payment
         of dividends, except that if TCI fails to redeem shares of Series C
         Preferred Stock required to be redeemed on a redemption date,
         dividends will thereafter accrue cumulatively at an annual rate of 15%
         of the liquidation value per share.  Accrued dividends are payable
         quarterly on January 1, April 1, July 1 and October 1 of each year,
         commencing on the first dividend payment date after the issuance of
         the Series C Preferred Stock.  Dividends not paid on any dividend
         payment date will be added to the liquidation value on such date and
         remain a part thereof until such dividends and all dividends accrued
         thereon are paid in full.  Dividends accrue on unpaid dividends at the
         rate of 5-1/2% per annum, unless such dividends remain unpaid for two
         consecutive quarters in which event such rate will increase to 15% per
         annum.  The Series C Preferred Stock ranks prior to the TCI common
         stock and Class B Preferred Stock and pari passu with the Series F
         Preferred Stock with respect to the declaration and payment of
         dividends.

         Upon the dissolution, liquidation or winding up of TCI, holders of the
         Series C Preferred Stock will be entitled to receive from the assets
         of TCI available for distribution to stockholders an amount in cash,
         per share, equal to the liquidation value.  The Series C Preferred
         Stock will rank prior to the TCI common stock and Class B Preferred
         Stock and pari passu with the Series F Preferred Stock as to any such
         distributions.

         The Series C Preferred Stock is subject to optional redemption at any
         time after the seventh anniversary of its issuance, in whole or in
         part, by TCI at a redemption price, per share, equal to the then
         liquidation value of the Series C Preferred Stock.  Subject to the
         rights of any other class or series of TCI's preferred stock ranking
         pari passu with the Series C Preferred Stock, the Series C Preferred
         Stock is required to be redeemed by TCI at any time after such seventh
         anniversary at the option of the holder, in whole or in part (provided
         that the aggregate liquidation value of the shares to be redeemed is
         in excess of $1 million), in each case at a redemption price, per
         share, equal to the liquidation value.


                                                                     (continued)





                                     II-165
<PAGE>   232
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         For so long as any dividends are in arrears on the Series C Preferred
         Stock or any class or series of TCI preferred stock ranking pari passu
         with the Series C Preferred Stock and until all dividends accrued up
         to the immediately preceding dividend payment date on the Series C
         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, TCI may not redeem or otherwise acquire any
         shares of Series C Preferred Stock, any such parity stock or any class
         or series of its preferred stock ranking junior (including the TCI
         common stock and Series C Preferred Stock) unless all then outstanding
         shares of Series C Preferred Stock and such parity stock are redeemed.
         If TCI fails to redeem shares of Series C Preferred Stock required to
         be redeemed on a redemption date, and until all such shares are
         redeemed in full, TCI may not redeem any such parity stock or junior
         stock, or otherwise acquire any shares of such stock or Series C
         Preferred Stock.  Nothing contained in the two immediately preceding
         sentences shall prevent TCI from acquiring (i) shares of Series C
         Preferred Stock and any such parity stock pursuant to a purchase or
         exchange offer made to holders of all outstanding shares of Series C
         Preferred Stock and such parity stock, if (a) as to holders of all
         outstanding shares of Series C Preferred Stock, the terms of the
         purchase or exchange offer for all such shares are identical, (b) as
         to holders for all outstanding shares of a particular series or class
         of parity stock, the terms of the purchase or exchange offer for all
         such shares are identical and (c) as among holders of all outstanding
         shares of Series C Preferred Stock and parity stock, the terms of each
         purchase or exchange offer are substantially identical relative to the
         respective liquidation prices of the shares of Series C Preferred
         Stock and each series or class of such parity stock, or (ii) shares of
         Series C Preferred Stock, parity stock or junior stock in exchange
         for, or through the application of the proceeds of the sale of, shares
         of junior stock.

         The Series C Preferred Stock is subject to restrictions on transfer
         although it has certain customary registration rights with respect to
         the underlying shares of TCI Group and Liberty Media Group common
         stock.  The Series C Preferred Stock may vote on all matters submitted
         to a vote of the holders of the TCI common stock, has one vote for
         each share of TCI Group and Liberty Media Group Stock into which the
         shares of Series C Preferred Stock are converted for such purpose, and
         may vote as a single class with the TCI common stock.  The Series C
         Preferred Stock has no other voting rights except as required by the
         Delaware General Corporation Law ("DGCL") and except that the consent
         of the holders of record of shares representing at least two-thirds of
         the liquidation value of the outstanding shares of the Series C
         Preferred Stock is necessary to (i) amend the designation, rights,
         preferences and limitations of the Series C Preferred Stock as set
         forth in the TCI Charter and (ii) to create or designate any class or
         series of TCI preferred stock that would rank prior to the Series C
         Preferred Stock.

         Convertible Preferred Stock, Series D.  TCI issued 1,000,000 shares of
         a series of TCI Series Preferred Stock designated "Convertible
         Preferred Stock, Series D", par value $.01 per share, as partial
         consideration for the merger between TCIC and TeleCable (see note 6).


                                                                     (continued)





                                     II-166
<PAGE>   233
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         The holders of the Series D Preferred Stock shall be entitled to
         receive, when and as declared by the Board out of unrestricted funds
         legally available therefor, cumulative dividends, in preference to
         dividends on any stock that ranks junior to the Series D Preferred
         Stock (currently the TCI Group Stock, the Liberty Group Stock, and the
         Class B Preferred Stock), that shall accrue on each share of Series D
         Preferred stock at the rate of 5-1/2% per annum of the liquidation
         value ($300 per share).  Dividends are cumulative, and in the event
         that dividends are not paid in full on two consecutive dividend
         payment dates or in the event that TCI fails to effect any required
         redemption of Series D Preferred Stock, accrue at the rate of 10% per
         annum of the liquidation value.  The Series D Preferred Stock ranks on
         parity with the Series F Preferred Stock and the Series C Preferred
         Stock.

         Prior to the Distribution, 431 shares of Series D Preferred Stock were
         converted into 4,310 shares of TCI Class A common stock.  Subsequent
         to the Distribution, each share of Series D Preferred Stock is
         convertible into 10 shares of Series A TCI Group Stock and 2.5 shares
         of Series A Liberty Group Stock, subject to adjustment upon certain
         events specified in the certificate of designation establishing Series
         D Preferred Stock.  To the extent any cash dividends are not paid on
         any dividend payment date, the amount of such dividends will be deemed
         converted into shares of common stock at a conversion rate equal to
         95% of the then current market price of common stock, and upon
         issuance of common stock to holders of Series D Preferred Stock in
         respect of such deemed conversion, such dividend will be deemed paid
         for all purposes.  See note 1.

         Shares of Series D Preferred Stock are redeemable for cash at the
         option of the holder at any time after the tenth anniversary of the
         issue date at a price equal to the liquidation value in effect as of
         the date of the redemption.  Shares of Series D Preferred Stock may
         also be redeemed for cash at the option of TCI after the fifth
         anniversary of the issue date at such redemption price or after the
         third anniversary of the issue date if the market value per share
         exceeds certain defined levels for periods specified in the
         certificate of designation.

         If TCI fails to effect any required redemption of Series D Preferred
         Stock, the holders thereof will have the option to convert their
         shares of Series D Preferred Stock into common stock at a conversion
         rate of 95% of the then current market value of common stock, provided
         that such option may not be exercised unless the failure to redeem
         continues for more than a year.

         Except as required by law, holders of Series D Preferred Stock are not
         entitled to vote on any matters submitted to a vote of the
         stockholders of TCI.


                                                                     (continued)





                                     II-167
<PAGE>   234
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Convertible Redeemable Participating Preferred Stock, Series F.
         Immediately prior to the record date for the Distribution, TCI Group
         caused each of its subsidiaries holding Subsidiary Shares to exchange
         such shares for shares of Series F Preferred Stock having an aggregate
         value of not less than that of the Subsidiary Shares so exchanged.
         TCI Group is authorized to issue 500,000 shares of Series F Preferred
         Stock, par value $.01 per share.  Subsidiaries of TCI hold all the
         issued and outstanding shares.  Subsidiaries of TCI exchanged all of
         the Subsidiary Shares for 355,141 shares of Series F Preferred Stock.
         Subsequent to such exchange, a holder of 78,077 shares of Series F
         Preferred Stock converted its holdings into 100,524,364 shares of
         Series A TCI Group Stock.  Such shares of Series A TCI Group Stock are
         reflected as a reduction in combined equity in the accompanying
         combined financial statements.

         Each share of Series F Preferred Stock was convertible into 1,000
         shares of Series A TCI Group Stock, subject to antidilution
         adjustments, at the option of the holder at any time.  The
         anti-dilution provisions of the Series F Preferred Stock provide that
         the conversion rate of the Series F Preferred Stock will be adjusted
         by increasing the number of shares of Series A TCI Group Stock
         issuable upon conversion in the event of any non- cash dividend or
         distribution of the Series A TCI Group Stock to give effect to the
         value of the securities, assets or other property so distributed;
         however, no such adjustment shall entitle the holder to receive the
         actual security, asset or other property so distributed upon the
         conversion of shares of Series F Preferred Stock.  Therefore, the
         Distribution resulted in an adjustment to the conversion rate of the
         Series F Preferred Stock such that each holder has the right to
         receive upon conversion 1,287.51 shares of Series A TCI Group Stock.

         The holders of the Series F Preferred Stock are entitled to
         participate, on an as-converted basis, with the holders of the Series
         A TCI Group Stock, with respect to any cash dividends or distribution
         declared and paid on the Series A TCI Group Stock.  Dividends or
         distribution on the Series A TCI Group Stock which are not paid in
         cash would result in the adjustment of the applicable conversion rate
         as described above.

         Upon the dissolution, liquidation or winding up of TCI, holders of the
         Series F Preferred Stock will be entitled to receive from the assets
         of TCI available for distribution to stockholders an amount, in cash
         or property or a combination thereof, per share of Series F Preferred
         Stock, equal to the sum of (x) $.01 and (y) the amount to be
         distributed per share of Series A TCI Group Stock in such liquidation,
         dissolution or winding up multiplied by the applicable conversion rate
         of a share of Series F Preferred Stock.


                                                                     (continued)





                                     II-168
<PAGE>   235
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         The Series F Preferred Stock is subject to optional redemption by TCI
         at any time after its issuance, in whole or in party, at a redemption
         price, per share, equal to the issue price of a share of Series F
         Preferred Stock (as adjusted in respect of stock splits, reverse
         splits and other events affecting the shares of Series F Preferred
         Stock), plus any dividends which have been declared but are unpaid as
         of the date fixed for such redemption.  TCI may elect to pay the
         redemption price (or designated portion thereof) of the shares of
         Series F Preferred Stock called for redemption by issuing to the
         holder thereof, in respect of its shares to be redeemed, a number of
         shares of Series A TCI Group Stock equal to the aggregate redemption
         price (or designated portion thereof) of such shares divided by the
         average of the last sales prices of the Series A TCI Group Stock for a
         period specified, and subject to the adjustments described, in the
         certificate of designation establishing the Series F 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").  Subsequent to
         December 31, 1995, TCI 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.

         The initial liquidation value for the Series G Preferred Stock and
         Series H Preferred Stock is $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.  No dividends will
         accrue on the Series G or Series H Preferred Stock if the sum of the
         last reported sale price of TCI Group Stock plus one-fourth of the
         last reported sale price of the Liberty Group Stock equals or exceeds
         $27 for any ten consecutive trading days during  the 65 trading days
         immediately prior to the first anniversary of issuance of the Series G
         and Series H  Preferred Stock.  If the sum of the amounts specified in
         the preceding sentence does not equal or exceed $27 for the specified
         period, dividends will begin 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 will thereafter be payable
         semi-annually commencing August 1, 1997, at the rate of 4% per annum
         on the liquidation value.  Any dividends paid on the Series G and
         Series H Preferred Stock may be paid, at TCI's election, in cash or
         shares of TCI Group Stock.  Additional dividends will accrue on unpaid
         dividends initially at a rate of 4% per annum.  The dividend rate on
         dividends that remain unpaid for six months will increase to 8.625%
         per annum.

         Each share of Series G Preferred Stock is convertible at the option of
         the holder at any time prior to the close of business on the last
         business day prior to redemption into 1.05 shares of Series A TCI
         Group Stock and each share of Series H Preferred Stock is convertible
         at any time prior to the close of business on the last business day
         prior to redemption into .2625 shares of Series A Liberty Group Stock.
         The conversion rights of Series G and Series H Preferred Stock are
         subject to adjustment in certain circumstances.


                                                                     (continued)





                                     II-169
<PAGE>   236
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Among other such adjustments, if the Liberty Group Stock, or any other
         redeemable capital stock of TCI into which either series of Preferred
         Stock may be convertible ("Redeemable Capital Stock"), is redeemed in
         full by TCI (the "Redemption Event"), then, except as otherwise
         described below, the shares of such Series G and Series H Preferred
         Stock will thereafter be convertible into the kind and amount of
         consideration that would have been received in such Redemption Event
         by a holder of the number of shares of Redeemable Capital Stock that
         would have been issuable upon conversion of such shares of Series G
         and Series H Preferred Stock, if they had been converted in full
         immediately prior to such Redemption Event.

         However, if any series of Redeemable Capital Stock into which a series
         of Series G or Series H Preferred Stock is then convertible is
         redeemed in full by TCI in exchange for securities of another issuer
         ("Redemption Securities"), TCI may elect to provide the holders of
         such Series G or Series H Preferred Stock with the right to exchange
         such Series G or Series H Preferred Stock, concurrently with the
         Redemption Event, for preferred stock of such other issuer ("Mirror
         Preferred Stock").  Such Mirror Preferred Stock shall be convertible
         into Redemption Securities and shall otherwise have terms and
         conditions comparable to the Series G or Series H Preferred Stock
         exchanged.  If TCI provides such an exchange right, any holder that
         does not then choose to participate in such exchange will continue to
         hold such Series G or Series H Preferred Stock but such holder will
         loose the conversion right with respect to the Redeemable Capital
         Stock redeemed in the Redemption Event and will not have any right to
         receive Redemption Securities in lieu thereof.  A holder that
         participates in such exchange will receive Mirror Preferred Stock
         convertible into Redemption Securities, but will no longer hold the
         Series G or Series H Preferred Stock so exchanged.

         An alternative provision will apply if, at the time of exercise of any
         such exchange right provided by TCI, the holder of the applicable
         series of Series G or Series H Preferred Stock would be entitled to
         receive on conversion any property in addition to the Redeemable
         Capital Stock being redeemed.  In that case, holders that choose to
         participate in the exchange will receive both Mirror Preferred Stock
         issued by the issuer of the Redemption Securities of the other issuer
         and a new preferred stock of TCI convertible into such additional
         property.  In such event, the Mirror Preferred Stock and such new TCI
         preferred stock will have a combined liquidation value equal to the
         liquidation value of the Series G or Series H Preferred Stock
         exchanged and will otherwise have terms and conditions comparable to
         such Series G or Series H Preferred Stock.

         The Series G and Series H Preferred Stock are redeemable at TCI's
         option, in whole or in part, any time on or after February 1, 2001.
         The Series G and Series H Preferred Stock will be redeemable in full
         on February 1, 2016, to the extent then outstanding.  In all cases,
         the redemption price per share will be the liquidation value thereof,
         including the amount of any accrued but unpaid  dividends thereon, to
         and including the redemption date.

         The Series G and Series H Preferred Stock will rank prior to TCI
         common stock and the TCI Class B Preferred Stock and pari passu with
         all other currently outstanding classes and series of TCI preferred
         stock with respect to the declaration and payment of dividends and in
         liquidation.

                                                                     (continued)





                                     II-170
<PAGE>   237
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         The Series G and Series H Preferred Stock will vote in any general
         election of directors of TCI and will have one vote per share for such
         purposes and will vote as a single class with the TCI common stock,
         the TCI Class B Preferred Stock and any other class or series of TCI
         Preferred Stock entitled to vote in any general election of directors.
         The Series G and Series H Preferred Stock will have no other voting
         rights except as required by the DGCL.

(9)      Combined Equity

         General

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

         Employee Benefit Plans

         TCI has several employee stock purchase plans (the "Plans") to provide
         employees an opportunity for ownership in TCI and to create a
         retirement fund.  Terms of the Plans generally provide for employees
         to contribute up to 10% of their compensation to a trust for
         investment in TCI common stock.  TCI, by annual resolution of the
         Board, generally contributes up to 100% of the amount contributed by
         employees.  Certain of TCI's subsidiaries have their own employee
         benefit plans.  Contributions to all plans aggregated $28 million, $21
         million and $16 million for 1995, 1994 and 1993, respectively.

         Preferred Stock

         Class A Preferred Stock.  TCI is authorized to issue 700,000 shares of
         Class A Preferred Stock, par value $.01 per share.  Subsidiaries of
         TCI held all of the issued and outstanding shares of such stock,
         amounting to 592,797 shares.  Such preferred stock eliminated in
         consolidation.  The holders of the Class A Preferred Stock exchanged
         such Subsidiary Shares for shares of Series F Preferred Stock
         immediately prior to the record date of the Distribution.

         Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock.
         TCI is authorized to issue 1,675,096 shares of Class B Preferred Stock
         and 1,620,026 of such shares are issued and outstanding.


                                                                     (continued)





                                     II-171
<PAGE>   238
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         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 Series A TCI Group 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 Series A TCI Group 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).  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 Series A TCI Group 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 Series A
         TCI Group Stock by the Average Market Price of the Series A TCI Group
         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 Series A TCI Group 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 liquidaton 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.

         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.


                                                                     (continued)





                                     II-172
<PAGE>   239
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         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 Notes.

                                                                     (continued)





                                     II-173
<PAGE>   240
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined 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, the Class A Preferred
         Stock and any other 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 DGCL.

         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.


                                                                     (continued)





                                     II-174
<PAGE>   241
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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 providing for the issue of any series of the TCI Series
         Preferred Stock.

         Redeemable Convertible Preferred Stock, Series E.  In connection with
         the Reorganization, the Board created and authorized the issuance of
         the Redeemable Convertible Preferred Stock, Series E, par value $.01
         per share.  TCI is authorized to issue 400,000 shares. Subsidiaries of
         TCI held all of the issued and outstanding shares of such stock,
         amounting to 246,402 shares.  All such preferred stock eliminated in
         consolidation.  The holders of the Series E Preferred Stock exchanged
         such Subsidiary Shares for shares of Series F Preferred Stock
         immediately prior to the record date of the Distribution.

         Stock Options and Stock Appreciation Rights

         Certain key employees of TCI Group hold options with tandem stock
         appreciation rights to acquire Series A TCI Group Stock and Series A
         Liberty Group Stock as well as restricted stock awards of Series A TCI
         Group Stock and Series A Liberty Group Stock.  Estimates of the
         compensation relating to the options and/or stock appreciation rights
         as well as restricted stock awards granted to such employees have been
         recorded in the accompanying combined financial statements, but are
         subject to future adjustment based upon the market value of Series A
         TCI Group Stock and Series A Liberty Group Stock (see note 1) and,
         ultimately, on the final determination of market value when the rights
         are exercised or the restricted shares are vested.

(10)     Transactions with Officers and Directors

         Effective January 31, 1996, a director of TCI purchased one-third of
         TCI Group's interest in two limited partnerships and obtained two
         ten-year options to purchase TCI Group's remaining partnership
         interests. The purchase price for the one-third partnership interests
         was 37.209 shares of WestMarc Communications, Inc. (a wholly-owned
         subsidiary of TCI Group) 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 are exercisable for cash
         in the aggregate amount of $3,000,000.

(11)     Sale of Subsidiary Stock

         On July 18, 1995, TINTA completed an initial public offering (the
         "IPO") in which it sold 20 million shares of TINTA Series A common
         stock to the public for consideration of $16.00 per share aggregating
         $320 million, before deducting related expenses (approximately $19
         million).  The shares sold to the public represented 17% of TINTA's
         total issued and outstanding common stock.  Also in July 1995, TINTA
         issued 687,500 Shares of TINTA Series A common stock as partial
         consideration for a 35% ownership interest in Torneos Y Competencias
         S.A., an Argentine sports programming company (the "TYC Acquisition").
         As a result of the IPO and the TYC Acquisition, TCI Group has
         recognized a nonrecurring gain amounting to $123 million. Subsequent to
         the IPO and the TYC Acquisition, TCI owns 82% of the issued and
         outstanding stock of TINTA, representing in excess of 90% of the voting
         power of TINTA.

         In June 1995, Flextech issued share capital for cash and preferred
         shares of Thomson Directories Limited. In connection with such
         issuance, TCI Group recorded a $51 million increase to stockholders'
         equity and a $93 million increase to minority interest in equity of
         consolidated subsidiaries. No gain was recognized in TCI Group's
         combined statement of operations due primarily to the existence of TCI
         Group's contingent obligations to repurchase certain of Flextech share
         capital.

(12)     Income Taxes

         TCI files a consolidated Federal income tax return with all of its 80%
         or more owned subsidiaries.  Consolidated subsidiaries in which TCI
         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 combined
         financial statements.

                                                                     (continued)


                                     II-175
<PAGE>   242
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         A tax sharing agreement (the "Tax Sharing Agreement") among entities
         attributed to TCI Group and certain other subsidiaries of TCI was
         implemented effective July 1, 1995.  The Tax Sharing Agreement
         formalizes certain of the elements of a pre- existing tax sharing
         arrangement and contains additional provisions regarding the allocation
         of certain consolidated income tax attributes and the settlement
         procedures with respect to the intercompany allocation of current tax
         attributes.  The Tax Sharing Agreement encompasses U.S. federal, state,
         local and foreign tax consequences and relies upon the U.S. Internal
         Revenue Code of 1986 as amended, and any applicable state, local and
         foreign tax law and related regulations.  Beginning on the July 1, 1995
         effective date, TCI Group is responsible to TCI for its share of
         current consolidated income tax liabilities.  TCI is responsible to TCI
         Group to the extent that TCI Group's income tax attributes generated
         after the effective date are utilized by TCI to reduce its consolidated
         income tax liabilities.  Accordingly, all tax attributes generated by
         TCI Group's operations after the effective date including, but not
         limited to, net operating losses, tax credits, deferred intercompany
         gains, and the tax basis of assets are inventoried and tracked for the
         entities comprising TCI Group.  In connection with the implementation
         of the Tax Sharing Agreement, TCI Group recorded an increase to its
         deferred income tax liability and a decrease to its combined equity of
         $2 million.

         Income tax benefit (expense) for the years ended December 31, 1995,
         1994 and 1993 consists of:

<TABLE>
<CAPTION>
                                                                    Current         Deferred          Total  
                                                                    -------         --------        ---------
                                                                              amounts in millions
                 <S>                                               <C>               <C>              <C>
                 Year ended December 31, 1995:
                          Federal                                   $(26)           $  85             $  59
                          State and local                             (8)              14                 6 
                                                                    -----           -----             ----- 
                                                                    $(34)              99                65
                                                                    =====           =====             =====
                                                                                                            
                 Year ended December 31, 1994:                                                              
                          Federal                                   $(49)              (4)             (53)
                          State and local                            (11)               4               (7)
                                                                    -----           -----             -----  
                                                                    $(60)              --              (60)
                                                                    =====           =====             ===== 
                                                                                                            
                 Year ended December 31, 1993:                                                              
                          Federal                                   $(12)            (110)            (122)
                          State and local                            (16)             (18)             (34)
                                                                    -----           ------            ----- 
                                                                    $(28)            (128)            (156)
                                                                    =====           ======            =====  
</TABLE>


                                     II-176
<PAGE>   243
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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,     
                                                                  ----------------------------------
                                                                 1995            1994            1993  
                                                               --------        --------        --------
                                                                          amounts in millions
                 <S>                                         <C>                    <C>            <C>
                 Computed "expected" tax benefit                      
                    (expense)                                $ 63                   (13)            (43)
                 Adjustment to deferred tax assets
                    and liabilities for enacted
                    change in Federal income
                    tax rate                                   --                    --             (76)
                 Amortization not deductible
                    for tax purposes                          (19)                  (12)            (13)
                 Minority interest in earnings
                    of consolidated subsidiaries               (3)                   (3)             (1)
                 Gain on sale of subsidiary
                    stock                                      43                    --              --
                 Gain recognized for tax
                    purposes on exchange of assets            (12)                   --              --
                 Recognition of losses of
                    consolidated partnership                   --                   (10)             (8)
                 State and local income taxes,
                    net of Federal income tax
                    benefit                                    (6)                   (9)            (22)
                 Valuation allowance on foreign
                    corporation                                --                   (10)             --
                 Other                                         (1)                   (3)              7
                                                             ----                ------            ----
                                                             $ 65                   (60)           (156)
                                                             ====                ======            ==== 
</TABLE>


                                                                     (continued)


                                     II-177
<PAGE>   244
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined 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, 1995 and 1994 are presented below:

<TABLE>
<CAPTION>
                                                                                            December 31,     
                                                                                     ------------------------
                                                                                       1995            1994
                                                                                     --------        --------
                 <S>                                                              <C>                  <C>
                 Deferred tax assets:
                    Net operating loss carryforwards                              $  547                 478
                       Less-valuation allowance                                     (121)               (100)
                    Investment tax credit carryforwards                              118                 122
                       Less-valuation allowance                                      (41)                (36)
                    Alternative minimum tax credit carryforwards                      95                  88
                    Investments in affiliates, due principally to
                       losses of affiliates recognized for financial
                       statement purposes in excess of losses
                       recognized for income tax purposes                            176                 294
                    Future deductible amounts principally due
                       to non-deductible accruals                                     86                  35
                    Other                                                             --                   4
                                                                                  ------               -----
                           Net deferred tax assets                                   860                 885
                                                                                  ------               -----

                 Deferred tax liabilities:
                    Property and equipment, principally due
                       to differences in depreciation                              1,099               1,185
                    Franchise costs, principally due to differences
                       in amortization                                             3,566               2,600
                    Investment in affiliates, due principally to
                       undistributed earnings of affiliates                          263                 290
                    Intangible assets, principally due to
                       differences in amortization                                    42                 104
                    Leases capitalized for tax purposes                               53                  --
                    Other                                                            165                  83
                                                                                  ------               -----
                            Total gross deferred tax liabilities                   5,188               4,262
                                                                                  ------               -----
                            Net deferred tax liability                            $4,328               3,377
                                                                                  ======               =====
</TABLE>

         The valuation allowance for deferred tax assets as of December 31,
         1995 and 1994 was $162 million and $136 million, respectively.

         At December 31, 1995, TCI Group had net operating loss carryforwards
         for income tax purposes aggregating approximately $1,089 million of
         which, if not utilized to reduce taxable income in future periods, $132
         million expires in 2003, $116 million in 2004, $333 million in 2005,
         $316 million in 2006, $138 million in 2009 and $54 million in 2010.
         Certain subsidiaries of TCI Group had additional net operating loss
         carryforwards for income tax purposes aggregating approximately $245
         million and these net operating losses are subject to certain rules
         limiting their usage.


                                                                     (continued)


                                     II-178
<PAGE>   245
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         At December 31, 1995, TCI Group 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 TCI Group had additional investment tax
         credit carryforwards aggregating approximately $55 million and these
         investment tax credit carryforwards are subject to certain rules
         limiting their usage.

         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 for the years 1981
         through 1992.  A subsidiary of TCI Group has filed a petition in
         United States Tax Court protesting the disallowance of certain
         Transitional Investment Tax Credits and such issue will likely be
         litigated in 1996.  In the opinion of management, any additional tax
         liability, not previously provided for, resulting from these
         examinations, ultimately determined to be payable, should not have a
         material adverse effect on the combined financial position of TCI
         Group.

         New tax legislation was enacted in the third quarter of 1993 which,
         among other matters, increased the corporate Federal income tax rate
         from 34% to 35%.  TCI Group has reflected the tax rate change in its
         combined statements of operations.  Such tax rate change resulted in
         an increase of $76 million to income tax expense and deferred income
         tax liability.

(13)     Transactions with Liberty Media Group and Other Related Parties

         Certain TCI corporate general and administrative costs are charged to
         Liberty Media Group at rates set at the beginning of the year based on
         projected utilization for that year.  The utilization-based charges
         are set at levels that management believes to be reasonable and that
         approximate the costs Liberty Media Group would incur for comparable
         services on a stand alone basis.  The accompanying combined statements
         of operations do not reflect the allocation of corporate general and
         administrative costs through the date of the TCI/Liberty Combination
         in the aforementioned manner because the majority of the entities
         attributable to Liberty Media Group were owned, directly or
         indirectly, by Liberty Media Corporation for the majority of the
         periods presented herein.  During the year ended December 31, 1995,
         Liberty Media Group was allocated $3 million in corporate general and
         administrative costs by TCI Group.


                                                                     (continued)





                                     II-179
<PAGE>   246
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Prior to the determination by the Board to seek approval of
         stockholders to distribute the Liberty Group Stock, TCI did not have
         formalized intercompany allocation methodologies.  In connection with
         such determination, management of TCI determined that TCI general
         corporate expenses should be allocated to Liberty Media Group based on
         the amount of time TCI corporate employees (e.g. legal, corporate,
         payroll, etc.) expend on Liberty Media Group matters.  TCI management
         evaluated several alternative allocation methods including assets,
         revenue, operating income, and employees.  Management did not believe
         that any of these methods would reflect an appropriate allocation of
         corporate expenses given the diverse nature of TCI's operating
         subsidiaries, the relative maturity of certain of the operating
         subsidiaries, and the way in which corporate resources are utilized.

         TCI Group has a 50.1% partnership interest in QE+Ltd Limited
         Partnership ("QE+"), which distributes STARZ!, a first-run movie
         premium programming service launched in 1994.  Entities attributed to
         Liberty Media Group hold the remaining 49.9% partnership interest.

         The QE+ limited partnership agreement provides that TCI Group will be
         required to make special capital contributions to QE+ through July 1,
         2005, up to a maximum amount of $350 million, approximately $86
         million of which was paid in 1995.  QE+ is obligated to pay TCI Group
         a preferred return of 10% per annum on the first $200 million of its
         special capital contributions beginning five years from the date of
         the contribution or five years from January 1, 1996, whichever is
         later.  Any TCI Group special capital contributions in excess of $200
         million will be entitled to a preferred return of 10% per annum from
         the date of the contribution.  QE+ is required to apply 75% of its
         available cash flow, as defined, to repay the TCI Group special
         capital contributions and any preferred return payable thereon.  To
         the extent such special capital contributions are insufficient to fund
         the cash requirements of QE+, TCI Group and Liberty Media Group will
         each have the option to fund such cash requirements in proportion to
         their respective ownership percentages.

         TCI Group has also entered into a long-term affiliation agreement with
         QE+ with respect to the distribution of the STARZ! service.  Rates per
         subscriber specified in the agreement are based upon customary rates
         charged to other cable system operators.  Payments to QE+ for 1995
         aggregated $31 million.  The affiliation agreement also provides that
         QE+ will not grant materially more favorable terms and conditions to
         other major cable system operators unless such more favorable terms
         and conditions are made available to TCI Group.  The affiliation
         agreement also requires TCI Group to make payments to QE+ with respect
         to a guaranteed minimum number of subscribers totaling approximately
         $339 million for the years 1996, 1997 and 1998.

         Liberty Media Group also has the right to acquire an additional 10.1%
         general partnership interest in QE+ based on a formula designed to
         approximate the fair value of such interest.  Such right is
         exercisable for a period of ten years beginning January 1, 1999 after
         QE+ has had positive cash flow for two consecutive calendar quarters.
         The right is exercisable only after all special capital contributions
         from TCI Group have been repaid, including any preferred return as
         discussed above.

                                                                     (continued)





                                     II-180
<PAGE>   247
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Encore Media Corporation (90% owned by Liberty Media Group) earns
         management fees from QE+ equal to 20% of managed costs, as defined.
         In addition, effective July 1, 1995, Liberty Media Group started
         earning a "Content Fee" for certain services provided to QE+ equal to
         4% of the gross revenue of QE+.  Such Content Fees aggregated $1
         million for the six months ended December 31, 1995.  The Content Fee
         agreement expires on June 30, 2001, subject to renewal on an annual
         basis thereafter.  Payment of the Content Fee will be subordinated to
         the repayment of the contributions made by TCI Group and the preferred
         return thereon.

         Subsidiaries of Liberty Media Group lease satellite transponder
         facilities from TCI Group.  Charges to Liberty Media Group for such
         arrangements for the years ended December 31, 1995, 1994 and 1993,
         aggregated $15 million, $8 million and $4 million, respectively.

         Certain subsidiaries attributed to Liberty Media Group produce and/or
         distribute sports and other programming to cable television operators
         (including TCI Group) and others.  Charges to TCI Group are based upon
         customary rates charged to others.

         HSN pays a commission to TCI Group for merchandise sales to customers
         who are subscribers of TCI Group's cable systems.  Aggregate
         commissions and charges to TCI Group were  $6 million, $7 million and
         $1 million for the years ended December 31, 1995 1994 and 1993,
         respectively.

         Subsequent to the TCI/Liberty Combination, TCI Group manages certain
         treasury activities for Liberty Media Group on a centralized basis.
         Cash receipts of certain businesses attributed to Liberty Media Group
         are remitted to TCI Group and certain cash disbursements of Liberty
         Media Group are funded by TCI Group on a daily basis.  Prior to the
         Distribution of the Liberty Group Stock, but subsequent to the
         TCI/Liberty Combination, the net amounts of such cash activities are
         included in investment in Liberty Media Group in the accompanying
         combined financial statements.  Prior to the TCI/Liberty Combination,
         Liberty Media Corporation separately managed the treasury activities
         of its subsidiaries.  Subsequent to the Distribution, such cash
         activities are included in borrowings from or loans to TCI Group or,
         if determined by the Board, as an equity contribution to be reflected
         as an Inter-Group Interest to Liberty Media Group.

         The Board could determine from time to time that debt of TCI Group not
         incurred by entities attributed to Liberty Media Group or preferred
         stock and the proceeds thereof should be specifically attributed to
         and reflected on the combined financial statements of Liberty Media
         Group to the extent that the debt is incurred or the preferred stock
         is issued for the benefit of Liberty Media Group.


                                                                     (continued)


                                     II-181
<PAGE>   248
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         For all periods prior to the Distribution, all financial impacts of
         equity offerings were attributed entirely to TCI Group.  After the
         Distribution, all financial impacts of issuances of additional shares
         of TCI Group Stock will be attributed entirely to TCI Group, all
         financial impacts of issuances of additional shares of Liberty Group
         Stock the proceeds of which are attributed to the Liberty Media Group
         will be reflected entirely in the combined financial statements of
         Liberty Media Group.  Financial impacts of dividends or other
         distributions on, and purchases of, TCI Group Stock will be attributed
         entirely to TCI Group, and financial impacts of dividends or other
         distributions on Liberty Group Stock will be attributed entirely to
         Liberty Media Group.  Financial impacts of repurchases of Liberty
         Group Stock, the consideration for which is charged to Liberty Media
         Group, will be reflected entirely in the combined financial statements
         of Liberty Media Group, and the financial impacts of repurchases of
         Liberty Group Stock the consideration for which is charged to TCI
         Group, will be attributed entirely to TCI Group.

         Subsequent to the Distribution, borrowings from or loans to TCI Group
         will bear interest at such rates and have repayment schedules and
         other terms as are established by the Board.  The Board expects to
         make such determinations, either in specific instances or by setting
         generally applicable policies from time to time, after consideration
         of such factors as it deems relevant, including, without limitation,
         the use of proceeds by and creditworthiness of the recipient Group,
         the capital expenditure plans and investment opportunities available
         to each Group and the availability, cost and time associated with
         alternative financing sources.

         During the first quarter of 1995, Liberty Media Group acquired an
         additional interest in an investment previously accounted for under
         the cost method.  Upon consummation of such transaction, Liberty Media
         Group is deemed to exercise significant influence over such entity
         and, as such, adopted the equity method of accounting.  As a result,
         TCI Group restated its interest in Liberty Media Group, its unrealized
         gain on available-for-sale securities and accumulated deficit by $122
         million, $127 million and $5 million, respectively, at December 31,
         1994.  The restatement resulted in an increase in the earnings from
         Liberty Media Group of $5 million for the year ended December 31,
         1994.

         During 1995, BET Holdings, Inc. ("BET") repurchased a portion of its
         common stock. As a result of the repurchase, Liberty Media Group's
         ownership of BET was increased from 19% to 22%. Therefore, Liberty
         Media Group is deemed to exercise significant influence over BET and,
         accordingly, has adopted the equity method of accounting for its
         investment in BET. As a result, Liberty Media Group restated its
         financial statements, which resulted in a decrease in its investment in
         BET, its unrealized holding gains on available-for-sale securities, its
         deferred taxes and accumulated deficit of $44 million, $32 million, $18
         million and $6 million, respectively, at December 31, 1994. In
         addition, TCI Group increased its earnings of Liberty Media Group by $2
         million for each of 1994 and 1993.

(14)     Commitments and Contingencies

         During 1994, TCI Group, Comcast, Cox (collectively, the "Cable
         Partners") and Sprint formed a partnership ("WirelessCo") to engage in
         the business of providing wireless communications services on a
         nationwide basis.  Through WirelessCo, in which TCI Group owns an
         indirect 30% interest, the partners participated in auctions ("PCS
         Auctions") of broadband personal communications services ("PCS")
         licenses conducted by the Federal Communications Commission ("FCC").
         In the first round auction, which concluded during the first quarter
         of 1995, WirelessCo was the winning bidder for PCS licenses for 29
         markets, including New York, San Francisco- Oakland-San Jose, Detroit,
         Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and
         Miami-Fort Lauderdale.  The aggregate license cost for these licenses
         was approximately $2.1 billion.

                                                                     (continued)





                                     II-182
<PAGE>   249
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         WirelessCo also invested in American PSC, L.P. ("APC"), which holds a
         PCS license granted under the FCC's pioneer preference program for the
         Washington-Baltimore market.  WirelessCo acquired its 49% limited
         partnership interest in APC for $23 million and agreed to make capital
         contributions to APC equal to 49/51 of the cost of APC's PCS license.
         Additional capital contributions may be required in the event APC is
         unable to finance the full cost of its PCS license.  WirelessCo may
         also be required to finance the build-out expenditures for APC's PCS
         system.  Cox, which holds a pioneer preference PCS license for the Los
         Angeles-San Diego market, and WirelessCo have also agreed on the
         general terms and conditions upon which Cox (with a 51% interest) and
         WirelessCo (with a 49% interest) would form a partnership to hold and
         develop a PCS system using the Los Angeles-San Diego license.  APC and
         the Cox partnership would affiliate their PCS systems with WirelessCo
         and be part of WirelessCo's nationwide integrated network, offering
         wireless communications services under the "Sprint" brand

         During 1994, subsidiaries of Cox, Sprint and TCI Group also formed a
         separate partnership ("PhillieCo"), in which TCI Group owns a 35.3%
         interest.  PhillieCo was the winning bidder in the first round auction
         for a PCS license for the Philadelphia market at a license cost of $85
         million.  To the extent permitted by law, the PCS system to be
         constructed by PhillieCo would also be affiliated with WirelessCo's
         nationwide network.

         WirelessCo may bid in subsequent rounds of the PCS Auctions and may
         invest in, affiliate with or acquire licenses from other successful
         bidders.  The capital that WirelessCo will require to fund the
         construction of the PCS systems, in addition to the license costs and
         investments described above, will be substantial.

         In March of 1995, the Cable Partners and Sprint (collectively, the
         "Partners") formed two new partnerships, of which the principal
         partnership is MajorCo, to which they contributed their respective
         interests in WirelessCo and through which they formed another
         partnership, NewTelco, L.P. ("New Telco") to engage in the business of
         providing local wireline communications services to residences and
         businesses on a nationwide basis.  The Cable Partners agreed to
         contribute their interests in TCG to NewTelco.  TCG is one of the
         largest competitive access providers in the United States in terms of
         route miles.

         Effective January 31, 1996, the Partners amended the MajorCo
         partnership agreement (the "Partnership Agreement") and certain other
         agreements related thereto.  Under the Partnership Agreement, the
         business of MajorCo and its subsidiaries will be the provision of
         certain wireless and other services described in the Partnership
         Agreement.  The Partners intend for WirelessCo and its subsidiary
         partnerships to be the exclusive vehicles through which they engage in
         the wireless telephony service businesses, subject to certain
         exceptions.  MajorCo will no longer be authorized to engage in the
         business of providing local wireline communications services to
         residences and businesses.  In connection with the amendment of the
         Partnership Agreement, the Partners, also agreed to the termination of
         the agreement to contribute the Cable Partners' interests in TCG to
         NewTelco.

                                                                     (continued)





                                     II-183
<PAGE>   250
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Pursuant to separate agreements, each of the Cable Partners and Sprint
         have agreed to negotiate in good faith on a market-by-market basis for
         the provision of local wireline telephony services over the cable
         television facilities of the respective Cable Partner under the Sprint
         brand.  Accordingly, local wireline telephony offerings in each market
         would be the subject of individual agreements to be negotiated with
         Sprint, rather than being provided by MajorCo, as originally
         contemplated.  The Cable Partners and Sprint also reaffirmed their
         intention to continue to attempt to integrate the business of TCG with
         that of MajorCo.  In addition, each Cable Partner agreed to certain
         restrictions on its ability to offer, promote, or package certain of
         its products or services with certain products and services of other
         persons and agreed to make its facilities available to Sprint for
         specified purposes to the extent and on the terms that it has made
         such facilities available to others for such purposes.  Such
         agreements have a term of five years, but under certain circumstances
         may terminate after three years.

         Execution of the foregoing agreements was a condition to the
         effectiveness of a previously approved business plan for the build out
         of WirelessCo's nationwide network for wireless personal
         communications services.  Pursuant to the business plan, the Partners
         are obligated to make additional cash capital contributions to MajorCo
         in the aggregate amount of approximately $1.9 billion during the
         two-year period that commenced January 1, 1996.  The business plan
         contemplates that MajorCo will require additional equity thereafter.


         In July, 1995, TCI Group entered into certain agreements with Viacom
         Inc. ("Viacom") and certain subsidiaries of Viacom regarding the
         purchase by TCI Group of all of the common stock of a subsidiary of
         Viacom ("Cable Sub") which, at the time of purchase, will own Viacom's
         cable systems and related assets.

         The transaction has been structured as a tax-free reorganization in
         which Cable Sub will initially transfer 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 will also
         transfer to New Viacom Sub the proceeds (the "Loan Proceeds") of a
         $1.7 billion loan facility (the "Loan Facility") to be arranged by TCI
         Group and Cable Sub.  Following these transfers, Cable Sub will retain
         cable assets with an estimated value at closing of approximately $2.2
         billion and the obligation to repay the Loan Proceeds borrowed under
         the Loan Facility.  Repayment of the Loan Proceeds  will be
         non-recourse to Viacom and New Viacom Sub.

         Viacom will offer 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 "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").  The Exchange Offer will be subject to a number of
         conditions, including a condition (the "Minimum Condition") that
         sufficient tenders are made of Viacom Common Stock that permit the
         number of shares of Cable Sub Class A Stock issued pursuant to the
         Exchange Offer to equal the total number of shares of Cable Sub Class
         A Stock issuable in the Exchange Offer.


                                                                     (continued)


                                     II-184
<PAGE>   251
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         Immediately following the completion of the Exchange Offer, TCI Group
         will acquire from Cable Sub shares of Cable Sub Class B common stock
         for $350 million (which will be used to reduce Cable Sub's obligations
         under the Loan Facility).  At the time of such acquisition, the Cable
         Sub Class A Stock received by Viacom stockholders pursuant to the
         Exchange Offer will automatically convert into a series of senior
         cumulative exchangeable preferred stock (the "Exchangeable Preferred
         Stock") of Cable Sub with a stated value of $100 per share (the
         "Stated Value").  The terms of the Exchangeable Preferred Stock,
         including its dividend, redemption and exchange features, will be
         designed to cause the Exchangeable Preferred Stock, in the opinion of
         two investment banks, to initially trade at the Stated Value.  The
         Exchangeable Preferred Stock will be exchangeable, at the option of
         the holder commencing after the fifth anniversary of the date of
         issuance, for shares of Series A TCI Group Stock.  The Exchangeable
         Preferred Stock will also be redeemable, at the option of Cable Sub,
         after the fifth anniversary of the date of issuance, and will be
         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, payable in cash or, at the election of
         Cable Sub, in shares of Series A TCI Group Stock, or in any
         combination of the foregoing.  If insufficient tenders are made by
         Viacom stockholders in the Exchange Offer to permit the Minimum
         Condition to be satisfied, Viacom will extend the Exchange Offer for
         up to 15 business days and, during such extension, TCI Group and
         Viacom are to negotiate in good faith to determine mutually acceptable
         changes to the terms and conditions for the Exchangeable Preferred
         Stock and the Exchange Offer that each believes in good faith will
         cause the Minimum Condition to be fulfilled and that would cause the
         Exchangeable Preferred Stock to trade at a price equal to the Stated
         Value immediately following the expiration of the Exchange Offer.  In
         the event the Minimum Condition is not thereafter met, TCI and Viacom
         will each have the right to terminate the transaction.  In addition,
         either party may terminate the transaction if the Exchange Offer has
         not commenced by June 24, 1996 or been consummated by July 24, 1996.

         Consummation of the transaction is subject to a number of conditions,
         including receipt of a favorable letter ruling from the Internal
         Revenue Service that the transaction qualifies as a tax-free
         transaction and the satisfaction or waiver of all of the conditions of
         the Exchange Offer.  A request for a letter ruling from the Internal
         Revenue Service has been filed by Viacom.  TCI Group believes that,
         based upon the unique and complex structure of the transaction, there
         exists significant uncertainty as to whether a favorable ruling will
         be obtained.  In light of the foregoing, management of TCI Group has
         concluded that consummation of the transaction is not yet probable.
         No assurance can be given that the transaction will be consummated.


                                                                     (continued)





                                     II-185
<PAGE>   252
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         On October 5, 1992, 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, TCI Group'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.

         TCI Group believes that it has complied in all material respects with
         the provisions of the 1992 Cable Act, including its rate setting
         provisions.  However, TCI Group's rates for regulated services are
         subject to review by the FCC, if a complaint has been filed, or the
         appropriate franchise authority, if such authority has been certified.
         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.


         On October 30, 1995, the FCC accepted for comment a proposed
         resolution of all complaints against the cable programming services
         tier ("CPST") currently pending against cable systems owned by TCI
         Group.  If the proposed resolution is accepted by the FCC, TCI Group
         will settle all pending complaints by a one-time credit to each
         subscriber in CPST regulated franchises.  The aggregate amount of such
         credits is approximately $9 million and had previously been accrued by
         TCI Group.  In addition, the FCC will find that the CPST rates in CPST
         regulated franchises on September 15, 1995 comply with federal
         regulations.  TCI Group has committed not to file any additional
         cost-of-service filings until May 15, 1996 in franchises that were
         subject to CPST regulation prior to September 15, 1995.  However, TCI
         Group will be able to avail itself of the other mechanisms under FCC
         rules to recover costs, including abbreviated cost-of-service filings
         covering system rebuilds and upgrades.  In the proposed resolution,
         TCI Group does not admit any violation of, or any failure to conform
         to, the 1992 Cable Act or the rules promulgated thereunder.  The
         comment period has ended and TCI Group is awaiting action by the FCC.

         TCI Group has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $212 million at December 31, 1995.  Although there can
         be no assurance, management of TCI Group 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 TCI Group.


                                                                     (continued)





                                     II-186
<PAGE>   253
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         TCI Group is obligated to pay fees for the license to exhibit certain
         films that are released theatrically by various motion picture studios
         through December 31, 2005 (the "Film Licensing Obligations").  As of
         December 31, 1995, these agreements require minimum payments
         aggregating approximately $251 million.  The aggregate amount of the
         Film Licensing Obligations is not currently estimable because such
         amount is dependent upon certain variable factors.  Nevertheless, TCI
         Group's required aggregate payments under the Film Licensing
         Obligations could prove to be significant.  Additionally, TCI Group
         has guaranteed up to $67 million of similar license fee obligations of
         another affiliate.

         TCI Group has also committed to provide additional debt or equity
         funding to certain of its affiliates.  At December 31, 1995, such
         commitments aggregated $95 million.


         TCI Group leases business offices, has entered into pole rental
         agreements and transponder lease agreements and uses certain equipment
         under lease arrangements.  Rental expense under such arrangements,
         amounted to $114 million, $75 million and $64 million in 1995, 1994 and
         1993, respectively.


         Future minimum lease payments under noncancellable operating leases
         for each of the next five years are summarized as follows (amounts in
         millions):


<TABLE>
                 <S>           <C>
                 1996          $  66
                 1997             64
                 1998             59
                 1999             57
                 2000             51
</TABLE>

         It is expected that, in the normal course of business, expiring leases
         will be renewed or replaced by leases on other properties; thus, it is
         anticipated that future minimum lease commitments will not be less
         than the amount shown for 1995.

         Certain key employees of TCI Group hold restricted stock awards and
         options with tandem SARs to acquire shares of certain subsidiaries'
         common stock.  Estimates of the compensation related to the restricted
         stock awards and options and/or SARs have been recorded in the
         accompanying consolidated financial statement, but 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.

         TCI Group has contingent liabilities related to legal proceedings and
         other matters arising in the ordinary course of business.  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 combined financial statements.





                                     II-187
<PAGE>   254





                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Liberty Media Corporation:


        We have audited the accompanying consolidated statement of operations,
stockholders' equity, and cash flows of Liberty Media Corporation and
subsidiaries for the year ended December 31, 1993.  These consolidated
financial statements are the responsibility of the Company's management. Our    
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Liberty Media Corporation and subsidiaries for the year ended December 31,
1993, in conformity with generally accepted accounting principles.

As discussed in note 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."



                             /s/ KPMG Peat Marwick LLP
                                 ------------------------
                                 KPMG Peat Marwick LLP


Denver, Colorado
March 18, 1994








                                       II-188
<PAGE>   255
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                      Consolidated Statement of Operations

                          Year ended December 31, 1993

<TABLE>
<CAPTION>
                                                                                           amounts in thousands,
                                                                                           except per share data
<S>                                                                                          <C>
Revenue:
   Net sales from home shopping services                                                         $   942,940
   From Tele-Communications Inc. ("TCI") (note 9)                                                     44,074
   From cable and programming services                                                               166,242
                                                                                                 -----------
                                                                                                   1,153,256
                                                                                                 -----------
Cost of sales, operating costs and expenses:
   Cost of sales                                                                                     611,526
   Operating, selling, general and administrative                                                    442,142
   Charges by TCI (note 9)                                                                            10,856
   Compensation relating to stock
      appreciation rights (note 8)                                                                    40,366
   Depreciation                                                                                       24,958
   Amortization                                                                                       24,311
                                                                                                 -----------

                                                                                                   1,154,159
                                                                                                 -----------

         Operating loss                                                                                 (903)

Other income (expense):
   Interest expense to TCI (note 9)                                                                  (13,039)
   Other interest expense                                                                            (18,041)
   Interest income from TCI (note 9)                                                                   3,788
   Dividend and interest income, primarily from affiliates                                            19,761
   Share of earnings of affiliates, net (note 4)                                                      34,044
   Gain on sale of investment                                                                         31,972
   Loss on transactions with TCI (note 9)                                                            (30,296)
   Litigation settlements                                                                             (7,475)
   Other, net                                                                                         (1,303)
                                                                                                 ----------- 

         Earnings before income taxes and extraordinary item                                          18,508

Income tax expense (note 6)                                                                          (11,522)
                                                                                                 -----------

         Earnings before extraordinary item                                                            6,986

Extraordinary item-loss on early extinguishment of debt, net of
   taxes                                                                                              (2,191)
                                                                                                 ----------- 

         Net earnings                                                                                  4,795

Dividend requirement on preferred stocks (notes 7 and 8)                                             (31,972)
                                                                                                 ----------- 

Net loss attributable to common shareholders                                                     $   (27,177)
                                                                                                 =========== 

Loss per share:

   Net loss before extraordinary item                                                            $     (0.19)
   Extraordinary item, net                                                                             (0.02)
                                                                                                 ----------- 
   Net loss attributable to common shareholders                                                  $     (0.21)
                                                                                                 =========== 
</TABLE>


See accompanying notes to consolidated financial statements.





                                     II-189
<PAGE>   256

<TABLE>
<CAPTION>
                                                                                                                                 
                                                                                                                                 
                                                                                                                                 
                                                         Preferred Stock          Common Stock         Additional              
                                                     -----------------------   ---------------------    paid-in   Retained      
                                                      Class C      Class E     Class A      Class B     capital   earnings      
                                                     ---------    ---------   ---------    ---------   ---------- ---------  
                                                                                amounts in thousands               
<S>                                                 <C>              <C>       <C>         <C>          <C>          <C>    
Balance at January 1, 1993                          $     4          16        76,036      43,340        323,855         --      
   Dividends, including accretion on all                                                                                         
      classes of preferred stock                         --          --            --          --        (27,177)    (4,795)     
   Dividends, including accretion on all                                                                                         
      classes of preferred stock not subject to                                                                                  
      mandatory redemption requirements                  --          --            --          --         19,229         --      
   Cash dividends on Class E preferred                                                                                           
      stock                                              --          --            --          --         (9,743)        --      
   Issuance of Class A common stock and                                                                                          
      Class E Preferred Stock upon                                                                                               
         conversion of preferred stock                                                                                           
          (note 9)                                       --          1          4,406          --          8,360         --      
   Issuance of Class A common stock                                                                                              
      for acquisition (note 5)                           --          --         8,000          --        115,000         --      
   Redemption of preferred stock (note 9)                (4)         --            --          --       (175,787)        --      
   Acquisition and retirement of                                                                                                 
      common stock (note 9)                              --          --          (928)         --        (17,611)        --      
   Exchange of Class B common stock                                                                                              
      for Class A common stock                           --          --             1          (1)            --         --      
   Accrued interest on note receivable                                                                                           
      from related party (note 8)                        --          --            --          --             --         --      
   Prepayment of interest on note receivable                                                                                     
      from related party (note 8)                        --          --            --          --             --         --      
   Net earnings                                          --          --            --          --             --      4,795      
                                                    --------  ---------      --------   ---------     ----------   --------   
                                                                                                                                 
Balance at December 31, 1993                        $    --          17        87,515      43,339        236,126          --     
                                                    =======   =========      ========   =========     ==========   =========    
<CAPTION>                                        
                                                              Note
                                                            receivable       Total
                                                               from          stock-
                                                             related       holders'
                                                              party         equity 
                                                          ------------     --------
                                                      
<S>                                                     <C>               <C>         
Balance at January 1, 1993                                  (14,500)       428,751
   Dividends, including accretion on all              
      classes of preferred stock                                 --        (31,972)
   Dividends, including accretion on all              
      classes of preferred stock not subject to       
      mandatory redemption requirements                          --         19,229
   Cash dividends on Class E preferred                
      stock                                                      --         (9,743)
   Issuance of Class A common stock and               
      Class E Preferred Stock upon                    
         conversion of preferred stock                
          (note 9)                                               --         12,767
   Issuance of Class A common stock                   
      for acquisition (note 5)                                   --        123,000
   Redemption of preferred stock (note 9)                        --       (175,791)
   Acquisition and retirement of                      
      common stock (note 9)                                      --        (18,539)
   Exchange of Class B common stock                   
      for Class A common stock                                   --             --
   Accrued interest on note receivable                
      from related party (note 8)                              (984)          (984)
   Prepayment of interest on note receivable          
      from related party (note 8)                               984            984
   Net earnings                                                  --          4,795
                                                          ---------      ---------
                                                                 
Balance at December 31, 1993                                (14,500)       352,497
                                                          =========      =========
</TABLE>                                              


See accompanying notes to consolidated financial statements.






                                     II-190
<PAGE>   257
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                      Consolidated Statement of Cash Flows

                          Year ended December 31, 1993

<TABLE>
<CAPTION>
                                                                                      amounts in thousands
                                                                                          (see note 3)
<S>                                                                                        <C>
Cash flows from operating activities:
   Net earnings                                                                            $   4,795
   Adjustments to reconcile net earnings to net cash
      provided by operating activities:
      Depreciation and amortization                                                           49,269
      Compensation relating to stock appreciation rights                                      40,366
      Payment of compensation relating to stock appreciation
         rights                                                                              (21,541)
      Share of earnings of affiliates, net,                                                  (34,044)
      Loss on transactions with TCI                                                           30,296
      Deferred income tax benefit                                                            (12,206)
      Noncash interest and dividends                                                          (4,941)
      Gain on sale of investment                                                             (31,972)
      Litigation settlements                                                                   7,475
      Payment of premium received upon redemption of
         preferred stock investment                                                            8,248
      Loss on early extinguishment of debt, net of tax                                         2,191
      Other noncash charges                                                                    8,636
      Changes in operating assets and liabilities, net of effect
         of acquisitions:
            Change in receivables                                                            (15,318)
            Change in inventories                                                             (7,606)
            Change in due to/from
               TCI, other than repayment
               for commercial paper                                                           22,660
            Change in prepaid expenses                                                       (10,347)
            Change in payables and accruals                                                   43,810
                                                                                           ---------

                  Net cash provided by operating activities                                $  79,771
                                                                                           ---------
</TABLE>


                                                                     (continued)






                                     II-191
<PAGE>   258
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                Consolidated Statement of Cash Flows, continued

                          Year ended December 31, 1993

<TABLE>
<CAPTION>
                                                                                      amounts in thousands
                                                                                          (see note 3)
<S>                                                                                        <C>
Cash flows from investing activities:
   Cash paid for acquisitions                                                              $(264,180)
   Capital expended for property and equipment                                               (25,476)
   Additional investments in and
      loans to affiliates and others                                                         (48,155)
   Return of capital from affiliates                                                          84,750
   Collections on loans to affiliates and others                                              20,541
   Cash received on redemption of
      preferred stock investment                                                             104,336
   Proceeds from disposition of assets                                                        53,228
   Other investing activities, net                                                            (2,719)
                                                                                           --------- 

               Net cash used by investing activities                                         (77,675)
                                                                                           --------- 

Cash flows from financing activities:
   Borrowings of debt                                                                        291,314
   Repayments of debt                                                                       (317,326)
   Dividends on preferred stock                                                               (9,743)
   Cash paid for redemption of preferred stock                                               (12,338)
   Contributions by minority shareholders of subsidiaries                                     41,049
                                                                                           ---------

               Net cash used by financing activities                                          (7,044)
                                                                                           ---------

               Net decrease in cash and cash equivalents                                      (4,948)

Cash and cash equivalents at beginning of year                                                96,253
                                                                                           ---------

Cash and cash equivalents at end of year                                                   $  91,305
                                                                                           =========
</TABLE>


See accompanying notes to consolidated financial statements.





                                     II-192
<PAGE>   259
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



                               December 31, 1993

(1)      Basis of Presentation

         The accompanying consolidated financial statements include the
         accounts of Liberty Media Corporation, those of all majority-owned
         subsidiaries and entities for which there is a controlling voting
         interest ("Liberty" or the "Company"). All significant intercompany
         accounts and transactions have been eliminated in consolidation. The
         Company made certain significant acquisitions in 1993 (see note 5).

         On January 27, 1994, Liberty and TCI entered into a definitive merger
         agreement (the "Merger Agreement"). Under the Merger Agreement, the
         transaction will be structured as a tax-free exchange of shares of
         Class A and Class B common stock of both companies and preferred stock
         of Liberty for like shares of a newly formed holding company,
         TCI/Liberty Holding Company ("TCI/Liberty"). TCI stockholders will
         receive one share of TCI/Liberty common stock for each of their
         shares. Liberty common stockholders will receive 0.975 of a share of
         TCI/Liberty common stock for each of their shares. Holders of Liberty
         Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
         (the "Class E Preferred Stock") will receive one share of a
         substantially identical class of voting preferred stock of TCI/Liberty
         for each of their shares. The transaction is subject to the approval
         of both sets of shareholders as well as various regulatory approvals
         and other customary conditions. Subject to timely receipt of such
         approvals, which cannot be assured, it is anticipated the closing of
         such transaction will take place during 1994.

         In these notes to the consolidated financial statements, any reference
         to TCI in connection with the issuance of the Company's preferred
         stock includes subsidiaries of TCI.

(2)      Summary of Significant Accounting Policies

         Cash Equivalents

         Cash equivalents consist of investments which are readily convertible
         into cash and have original maturities of three months or less.

         Investments

         Investments in which the ownership interest is less than 20% are
         generally carried at cost. 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 net earnings or losses of the affiliates as they occur rather
         than as dividends or other distributions are received, limited to the
         extent of the Company's investment in, advances to and guarantees for
         the investee. The Company's share of net earnings or losses of
         affiliates includes the amortization of purchase adjustments.

                                                                     (continued)





                                     II-193
<PAGE>   260
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Property and Equipment

         Property and equipment, including significant improvements, is stated
         at cost which includes acquisition costs allocated to tangible assets
         acquired. Construction costs, including interest during construction
         and applicable overhead, are capitalized. Interest capitalized during
         the periods presented was not material.

         Depreciation is computed on a straight-line basis using estimated
         useful lives of 5 to 15 years for cable distribution systems, 3 to 40
         years for support equipment and buildings and 6 to 13 years for
         computer and broadcast equipment.

         Repairs and maintenance and any gains or losses on disposition of
         assets in their entirety are included in operations. However,
         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.

         Franchise Costs

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

         Excess Cost Over Acquired Net Assets

         Excess cost over acquired net assets consists of the difference
         between the cost of acquiring programming entities and amounts
         assigned to their tangible assets. Such amounts are amortized on a
         straight-line basis over 30 years.

         Other Intangible Assets

         Other intangible assets consist of amounts assigned to covenants not
         to compete and amounts (in excess of tangible assets) assigned to
         sports program rights agreements, affiliate agreements and
         distribution agreements. The amounts assigned to these agreements are
         amortized over the respective lives of the agreements ranging from 1
         to 10 years.

         Net Sales

         Net Sales include merchandise sales and shipping and handling
         revenues, and are reduced by incentive discounts and sales returns to
         arrive at net sales. The Company's sales policy allows merchandise to
         be returned at the customer's discretion, generally up to 30 days
         after the date of sale. An allowance for returned merchandise is
         provided based upon past experience.

                                                                     (continued)





                                     II-194
<PAGE>   261
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Loss Per Common and Common Equivalent Share 

         Loss per common share attributable to common shareholders for the year
         ended December 31, 1993 was computed by dividing net loss attributable
         to common shareholders by the weighted average number of common shares
         outstanding (130,574,056). Common stock equivalents were not included
         in the computation of weighted average shares outstanding because
         their inclusion would be anti-dilutive.

(3)      Supplemental Disclosures to Consolidated Statement of Cash Flows

         Cash paid for interest was $20,354,000, for the year ended December
         31, 1993. Cash paid for income taxes during the year ended December
         31, 1993 was $6,621,000.

         Significant noncash investing and financing activities for the year
         ended December 31, 1993 (amounts in thousands):

<TABLE>
         <S>                                                                                 <C>
         Cash paid for acquisitions:
            Fair value of assets acquired                                                    $686,200
            Net liabilities assumed                                                          (197,536)
            Deferred tax asset recorded upon acquisition                                        1,115
            Common stock issued for acquisition                                              (123,000)
            Noncash contribution for acquisition                                              (32,673)
            Minority interests in equity of acquired entities                                 (69,926)
                                                                                             --------

                                                                                             $264,180
                                                                                             ========
         Liberty Class A common stock issued upon
            conversion of preferred stock                                                    $ 12,767
                                                                                             ========

         Note issued in exchange for Liberty Class A common
            stock                                                                            $ 18,539
                                                                                             ========

         Notes issued in redemption of preferred stocks                                      $163,057
                                                                                             ========

         Accreted and unpaid preferred stock dividends                                       $ 30,348
                                                                                             ========
</TABLE>

                                                                     (continued)





                                     II-195
<PAGE>   262
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(4)      Investments in Affiliates

         Summarized unaudited financial information for affiliates accounted
         for under the equity method, which operate in three related industries
         (see note 11) is as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                           Year ended
                                                                                        December 31, 1993
                                                                                        -----------------
         <S>                                                                               <C>
         Combined Operations
            Revenue                                                                        $ 2,131,210
            Operating expenses                                                              (1,595,103)
            Depreciation and amortization                                                     (199,304)
                                                                                           -----------

                  Operating income                                                             336,803

            Interest expense                                                                   (98,933)
            Other, net                                                                        (116,686)
                                                                                           ----------- 

                  Net earnings                                                             $   121,184
                                                                                           ===========
</TABLE>

         The following table reflects the Company's share of earnings (losses)
         of the Company's investments accounted for under the equity method for
         the year ended December 31, 1993 (amounts in thousands):


<TABLE>
         <S>                                                                                   <C>
         QVC, Inc. ("QVC")                                                                     $13,978
         Kansas City Cable Partners                                                             10,522
         US Cable of Lake County                                                                   637
         Columbia Associates, L.P.                                                              (5,256)
         Lenfest Communications, Inc.                                                           (6,710)
         Mile Hi Cablevision Associates, Ltd. ("Mile Hi")
            (see note 5)                                                                          (380)
         The Cable Partnerships of Country Cable and
            Knight-Ridder Cablevision, Inc.                                                     11,358
         Sunshine Network Joint Venture                                                           (957)
         American Movie Classics Company                                                        11,313
         Sioux Falls Cable Television                                                            1,788
         SportsChannel Chicago Associates                                                        5,859
         Home Team Sports Limited Partnership                                                   (7,076)
         Other investments                                                                      (1,032)
                                                                                               ------- 
                                                                                               $34,044
                                                                                               =======
</TABLE>


                                                                     (continued)





                                     II-196
<PAGE>   263
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         On November 11, 1993, Liberty entered into an agreement with the staff
         of the Federal Trade Commission pursuant to which Liberty agreed to
         divest all of its equity interests in QVC during an 18 month time
         period if QVC was successful in its offer to buy Paramount
         Communications, Inc. ("Paramount") and not to vote or otherwise
         exercise or influence control over QVC until such time as QVC withdrew
         its offer for Paramount. Simultaneously, Liberty agreed to withdraw
         from a stockholders agreement pursuant to which Liberty and certain
         other stockholders exercised control over QVC (the "Stockholders'
         Agreement").  On February 15, 1994, QVC terminated its offer for
         Paramount. Upon termination of such offer, Liberty has the right to be
         reinstated as a party to the Stockholders' Agreement so long as such
         option is exercised within 90 days after such termination. However,
         Liberty has not yet determined if it will rejoin the control group
         under the Stockholders' Agreement.

         On November 16, 1993, Liberty sold 1,690,041 shares of common stock of
         QVC to Comcast Corporation ("Comcast") for aggregate consideration of
         approximately $31,461,000. The sale to Comcast reduced Liberty's
         interest in QVC common stock (on a fully diluted basis) from 21.6% to
         18.5%. Liberty continues to account for its investment in QVC under
         the equity method, although it no longer exercises significant control
         over such affiliate, pending the determination of whether it will
         rejoin the control group under the Stockholders' Agreement. Liberty
         will change to the cost method of accounting in the event it elects
         not to be reinstated as a party to the Stockholders' Agreement.

         Certain of the shares of stock of QVC owned by Liberty are subject to
         repurchase by QVC in the event that commitments to carry its
         programming are not met. Approximately 46% of the shares which the
         Company holds or would hold upon exercise or conversion of convertible
         securities, are "unvested" and are subject to such repurchase rights
         by QVC. QVC's repurchase rights with respect to QVC securities held by
         the Company are exercisable over a period of time, ending in the year
         2004, if certain carriage commitments made by Satellite Services,
         Inc., ("SSI"), an indirect wholly owned subsidiary of TCI, are not
         met. Under the terms of a certain agreement pursuant to which the
         Company acquired from TCI a substantial number of the QVC securities
         it now beneficially owns, TCI has agreed to reimburse the Company in
         the event QVC exercises its right to repurchase certain of the
         "unvested" shares. Such reimbursement will be based on the value
         assigned such shares when the Company acquired them from TCI, which is
         substantially below the current market price of such shares. Pursuant
         to an agreement with Comcast and Mr. Barry Diller ("Diller"), Liberty
         may be required to sell approximately 1.63 million shares of QVC
         common stock to Diller. The purchase price under the Diller purchase
         right is $34.082 per share.

                                                                     (continued)





                                     II-197
<PAGE>   264
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         On October 1, 1993 KCCP made an $80,000,000 distribution to the
         Company. The Company recorded the amount received as a reduction of
         its investment in KCCP. Approximately $63,174,000 was used to repay a
         note payable to KCCP, including accrued interest.

         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.

(5)      Acquisitions

         On February 11, 1993, Liberty acquired 20,000,000 shares of the Class
         B Stock of Home Shopping Network, Inc.  ("HSN") from RMS Limited
         Partnership ("RMS") for $58,000,000 in cash and 8,000,000 shares of
         Liberty Class A common stock. Liberty had previously acquired shares
         of common stock of HSN in 1992. Such common stock acquired in 1992 and
         the Class B Stock acquired represented 23.5% of the common equity and
         65.6% of the controlling voting interest of HSN as of the date of
         acquisition. As a result of the acquisition of the controlling voting
         interest, HSN became a consolidated subsidiary of the Company for
         financial reporting purposes.

         On June 1, 1993, Liberty completed the purchase of approximately
         16,000,000 shares of HSN common stock at a price of $7 per share. The
         shares had been tendered pursuant to a tender offer initiated by the
         Company in April 1993.

         On March 15, 1993, Mile Hi Cable Partners, L.P. ("New Mile Hi")
         completed the acquisition (the "Mile Hi Acquisition") of all the
         general and limited partnership interests in Mile Hi, the owner of the
         cable television system serving Denver, Colorado. New Mile Hi is a
         limited partnership formed among Community Cable Television ("CCT") a
         general partnership owned 50.001% by the Company and 49.999% by TCI,
         (78% limited partnership interest), Daniels Communications, Inc.
         ("DCI") (1% limited partner) and P & B Johnson Corp.  ("PBJC") (21%
         general partnership interest), a corporation controlled by Robert L.
         Johnson, a member of the Company's Board of Directors. New Mile Hi is
         a consolidated subsidiary of the Company for financial reporting
         purposes. Liberty's investment in Mile Hi, which was previously
         accounted for under the cost method, was previously received from TCI.

         Prior to the Mile Hi Acquisition, the Company, indirectly owned a
         32.175% interest in Mile Hi through its ownership of a limited
         partnership interest in Daniels & Associates Partners Limited
         ("DAPL"), one of Mile Hi's general partners. DAPL was liquidated on
         March 12, 1993, at which time a subsidiary of Liberty (and partner in
         DAPL) received a liquidating distribution consisting of its
         proportionate interest in DAPL's partnership interest in Mile Hi,
         representing the aforementioned 32.175% interest in Mile Hi. The
         subsidiary of Liberty also received a note receivable of approximately
         $50 million (the "Mile Hi Note") in novation of a loan receivable from
         DAPL in an equal amount. The subsidiary then was merged into Liberty
         Cable Partner, Inc.  ("LCP") a wholly owned subsidiary of the Company
         and a general partner of CCT.

                                                                     (continued)





                                     II-198
<PAGE>   265
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         The total value of the Mile Hi Acquisition was approximately $180
         million. Of that amount, approximately $70 million was in the form of
         Mile Hi debt paid at the closing. Another $50 million was in the form
         of the Mile Hi Note, which debt was assumed by New Mile Hi and then by
         CCT. Of the remaining $60 million, approximately $40 million was paid
         in cash to partners in Mile Hi in exchange for their partnership
         interests. The remaining $20 million of interest in Mile Hi was
         acquired by New Mile Hi through the contribution by LCP to CCT and by
         CCT to New Mile Hi of the 32.175% interest in Mile Hi received in the
         DAPL liquidation and by DCI's contribution to New Mile Hi of a 0.4%
         interest in Mile Hi.

         Of the $110 million in cash required by New Mile Hi to complete the
         transaction, $105 million was loaned to New Mile Hi by CCT and $5
         million was provided by PBJC as a capital contribution to New Mile Hi.
         Of the $5 million contributed by PBJC, approximately $4 million was
         provided by CCT through loans to Mr. Johnson and trusts for the
         benefit of his children. CCT funded its loans to New Mile Hi and the
         Johnson interests by borrowing $93 million under its revolving credit
         facility and by borrowing $16 million from TCI in the form of a
         subordinated note.

         The acquisitions of HSN and all the general and limited partnership
         interests in Mile Hi were accounted for by the purchase method.
         Accordingly, the results of operations of such acquired entities have
         been consolidated with those of the Company since their respective
         dates of acquisition. On a pro forma basis the Company's revenue would
         have been increased by approximately $111,208,000 for the year ended
         December 31, 1993, had the acquisition occurred prior to January 1,
         1993.  Earnings before extraordinary item, on a pro forma basis would
         have been decreased by approximately $9,378,000 for the year ended
         December 31, 1993.  Net loss attributable to common shareholders and
         loss per common share would have increased by $14,429,000 and $0.11,
         respectively, for the year ended December 31, 1993.  The foregoing
         unaudited pro forma financial information was based upon historical
         results of operations adjusted for acquisition costs and, in the
         opinion of management, is not necessarily indicative of the results
         had the Company operated the acquired entities since prior to January
         1, 1993.


(6)      Income Taxes

         Liberty 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.
         Liberty and such subsidiaries calculate their respective tax
         liabilities on a separate return basis which are combined in the
         accompanying consolidated financial statements.

                                                                     (continued)





                                     II-199
<PAGE>   266
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Certain of the Federal income tax returns of a less than 80% owned
         subsidiary of Liberty (the "Subsidiary") are presently under
         examination by the IRS. During 1993, the IRS completed its examination
         of the Subsidiary's Federal income tax returns for its 1989 and 1988
         fiscal years, proposing adjustments of approximately $11 million, not
         including interest thereon. The adjustments related primarily to
         issues currently under protest for the Subsidiary's 1987 and 1986
         fiscal years, including the Subsidiary's amortization of acquired FCC
         broadcast licenses and related intangible assets and the Subsidiary's
         deduction of certain royalty payments to a related party. The
         Subsidiary's management believes that it has valid positions related
         to the adjustments and intends to vigorously defend its interests. The
         Subsidiary has protested all proposed adjustments to the Appellate
         Division of the IRS. Management of the Subsidiary believes that the
         ultimate resolution of the matters will not have a material effect on
         the results of operations of the Subsidiary.

         On February 9, 1994, the IRS announced a comprehensive Settlement
         Initiative which broadly addresses intangibles issues currently being
         contested by various taxpayers. The intangibles issues currently being
         protested by the Subsidiary are subject to this Settlement Initiative.
         At this time, it is not certain whether the IRS will make a settlement
         offer to the Subsidiary, nor whether the Subsidiary would accept such
         an offer if made.

         The Financial Accounting Standards Board Statement No. 109 requires a
         change from the deferred method of accounting for income taxes of APB
         Opinion No. 11 to the asset and liability method of accounting for
         income taxes. Under the asset and liability method of Statement No.
         109, deferred tax assets and liabilities are recognized for the
         estimated future tax consequences attributable to differences between
         the financial statement carrying amounts of existing assets and
         liabilities and their respective tax bases. Deferred tax assets and
         liabilities are measured using enacted tax rates in effect for the
         year in which those temporary differences are expected to be recovered
         or settled. Under Statement No. 109, the effect on deferred tax assets
         and liabilities of a change in tax rates is recognized in income in
         the period that includes the enactment date.  The Company adopted
         Statement No. 109 in 1993 and has applied the provisions of Statement
         No. 109 retroactively.

         Income tax benefit (expense) for the year ended December 31, 1993
         consists of (amounts if thousands):


<TABLE>
                <S>                                                                             <C>
                Current Federal tax expense                                                     $(19,396)
                Current state tax expense                                                         (4,332)
                                                                                                -------- 
                                                                                                 (23,728)
                                                                                                -------- 

                Deferred Federal tax benefit                                                      11,423
                Deferred state tax benefit                                                           783
                                                                                                --------
                                                                                                  12,206
                                                                                                --------
                                                                                                $(11,522)
                                                                                                ======== 
</TABLE>

                                                                     (continued)





                                     II-200
<PAGE>   267
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Income tax benefit (expense) for the year ended December 31, 1993
         differs from the amounts computed by the Federal tax rate of 35% as a
         result of the following (amounts in thousands):

<TABLE>
         <S>                                                                                   <C>
         Computed expected tax expense                                                         $  (6,478)
         Dividends excluded for income tax
            purposes                                                                                 182
         Amortization not deductible for income
            tax purposes                                                                          (3,944)
         Excess executive compensation                                                              (689)
         Minority interest in consolidated
            corporate subsidiaries                                                                   386
         State and local income taxes, net of
            Federal income tax benefit                                                            (2,307)
         Effect of change in anticipated state tax
            rate                                                                                   2,043
         Effect of change in Federal tax rate                                                       (707)
         Other, net                                                                                   (8)
                                                                                               --------- 
                                                                                               $ (11,522)
                                                                                               ========= 
</TABLE>

         The significant components of deferred tax benefit for the year ended
         December 31, 1993 are as follows (amounts in thousands):


<TABLE>
         <S>                                                                                     <C>
         Differences in recognition of earnings or losses of
            affiliates for income tax and financial statement
            purposes                                                                             $ 3,098
         Dividend income, including premium on redemption,
            recognized for financial statement purposes in excess
            of income recognized for income tax purposes                                            (814)
         Differences in recognition of compensation relating
            to stock appreciation rights and unearned
            compensation arrangements                                                              8,517
         Litigation settlement expenses recognized for financial
            statement purposes in excess of amount
            recognized for income tax purposes                                                     2,766
         Inventory costing                                                                         4,057
         Accrued liabilities for financial statement purposes
            in excess of amount recognized for income tax
            purposes attributable primarily to
            home shopping programming services                                                     3,200
         Utilization of net operating loss, capital loss,
            investment tax credit and alternative minimum tax
            credit                                                                                (8,931)
         Change in valuation allowance during the period                                            (134)
         Differences in depreciation and amortization for
            income tax and financial statement purposes                                             (871)
         Net benefit realized due to change in
            state and Federal income tax rates                                                     1,336
         Other, net                                                                                  (18)
                                                                                                 ------- 
                                                                                                 $12,206
                                                                                                 =======
</TABLE>


                                                                     (continued)





                                     II-201
<PAGE>   268
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         The valuation allowance for deferred tax assets as of December 31,
         1993 was $2,017,000 as compared to $1,138,000 at December 31, 1992.

         New tax legislation was enacted in the third quarter of 1993 which,
         among other matters, increased the corporate Federal income tax rate
         from 34% to 35%. In addition, the Company recognized the benefit of a
         reduction in its state income tax rate relating to its receipt of
         favorable tax rulings from certain state tax authorities. The Company
         has reflected the tax rate changes in its consolidated statements of
         operations in accordance with the treatment prescribed by Statement
         No. 109. Such tax rate changes resulted in a net decrease of
         $1,336,000 in income tax expense.

(7)      Preferred Stocks Subject to Mandatory Redemption Requirements

         Class A Redeemable Convertible Preferred Stock

         The 10,794 shares of Class A Preferred Stock outstanding at December
         31, 1992 held by TCI (representing 100% of the issued and outstanding
         shares at that time) were converted on January 15, 1993 in accordance
         to its terms, into 4,405,678 shares of Liberty Class A common stock
         and 55,070 shares of Liberty Class E Preferred Stock.  Such Class A
         Preferred Stock was retired and may not be reissued.

         Class B Redeemable Exchangeable Preferred Stock

         The Company is authorized to issue up to 106,000 shares of the Class B
         Preferred Stock.  The aggregate number of shares of such Class B
         Preferred Stock that was issued to TCI and outstanding at December 31,
         1993 is 105,353 shares (representing 100% of the issued and
         outstanding shares).  The accretion rate for the Class B Preferred
         Stock is 8.5% per annum, compounded semi-annually.

                                                                     (continued)





                                     II-202
<PAGE>   269
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         At the option of the Company, the shares of the Class B Preferred
         Stock are redeemable at any time, in whole or in part, at a redemption
         price equal to accreted value per share as of the redemption date,
         payable solely in cash, and at the option of the Company will also be
         exchangeable, in whole but not in part, for shares of a series of
         Class F Serial Preferred Stock or of any other class or series of
         preferred stock of the Company then authorized to be issued (the
         "Convertible Exchangeable Preferred Stock"), the rights, preferences
         and qualifications of which shall be substantially similar to those of
         the Class B Preferred Stock as to ranking, voting rights, rights of
         redemption for cash at the option of the Company and mandatory
         redemption on March 28, 2006.  If the Company elects to issue shares
         of Convertible Exchangeable Preferred Stock in exchange for Class B
         Preferred Stock, such shares will be convertible, in whole or in part,
         at the option of the holder into shares of Liberty Class A common
         stock, but will not be exchangeable at such holder's option for TCI
         common stock.  The holder will have optional redemption rights
         equivalent to those for the Class B Preferred Stock, as described
         below, but the Company will not have the right to satisfy its
         redemption obligations with respect thereto through the issuance of
         additional shares of Convertible Exchangeable Preferred Stock.  The
         shares of Convertible Exchangeable Preferred Stock may accrete
         dividends at a rate different from the accretion rate then applicable
         to the shares of Class B Preferred Stock for which they are exchanged
         or may provide for the accrual and payment of cash dividends (which
         may or may not be cumulative).  At the option of the Company, at any
         time after March 28, 1995, the shares of Convertible Exchangeable
         Preferred Stock will be exchangeable, in whole or in part, at the
         option of the holder into shares of Liberty Class A common stock (the
         "Convertible Subordinated Notes").  If the shares of Convertible
         Exchangeable Preferred Stock that are being exchanged for Convertible
         Subordinated Notes accrete dividends, then the Convertible
         Subordinated Notes will be zero coupon notes, the issue price of which
         shall be equal to the liquidation price of the shares of Convertible
         Exchangeable Preferred Stock for which they are exchanged as of the
         date of such exchange, and the principal amount of Exchangeable
         Preferred Stock at March 28, 2006.  If the shares of Convertible
         Exchangeable Preferred Stock that are being exchanged for Convertible
         Subordinated Notes provide for the accrual and payment of cash
         dividends, the principal amount of such Convertible Subordinated Notes
         shall be equal to the liquidation price of the shares of Convertible
         Exchangeable Preferred Stock for which they are exchanged as of the
         date of such exchange, plus (to the extent not already included in
         such liquidation price) all accumulated or accrued and unpaid
         dividends, if any, to the date of such exchange and interest will
         accrue, and be payable semiannually, on such principal amount at a
         rate per annum equivalent to the annual dividend rate for such shares
         of Convertible Exchangeable Preferred Stock for which they are
         exchanged, except for such variations as may be appropriate to reflect
         the differences between debt securities and equity securities and
         except that such Convertible Subordinated Notes will not be
         exchangeable for another issue of Convertible Subordinated Notes.

                                                                     (continued)





                                     II-203
<PAGE>   270
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         In addition, at any time after March 28, 1995, the shares of Class B
         Preferred Stock shall each be exchangeable, at the Company's option,
         in whole but not in part, for zero coupon subordinated notes of the
         Company (the "Exchangeable Subordinated Notes").  The principal amount
         of such Exchangeable Subordinated Notes shall be equal to the accreted
         value of the shares for which they are exchanged as of March 28, 2006
         (rounded down to the nearest $1,000) and the issue price of such
         Exchangeable Subordinated Notes (plus the amount of any cash
         adjustment payable in lieu of issuing Notes in other than authorized
         denominations) shall be equal to the accreted value of such shares as
         of the date of exchange.  The terms of the Exchangeable Subordinated
         Notes shall otherwise be substantially similar to those of the Class B
         Preferred Stock for which they are exchanged, except for such
         variations as may be appropriate to reflect the differences between
         debt securities and equity securities and except that such
         exchangeable Subordinated Notes will be exchangeable at the option of
         the Company at any time after issuance thereof for Convertible
         Subordinated Notes of the Company, but will not be exchangeable or
         redeemable for shares of Convertible Exchangeable Preferred Stock or
         for another issue of Exchangeable Subordinated Notes.  The rate at
         which the Exchangeable Subordinated Notes may be exchanged for shares
         of TCI common stock at the option of the holder shall be calculated so
         that the aggregate principal mount of the Exchangeable Subordinated
         Notes issued in exchange for shares of the Class B Preferred Stock
         will be exchangeable into the same aggregate number of shares of TCI
         common stock as the shares of Class B Preferred Stock for which they
         were exchanged.

         The shares of Class B Preferred Stock are also exchangeable or
         redeemable at the option of the holder as described below.

         The shares of Class B Preferred Stock, unless previously redeemed,
         will be exchangeable at the option of the holder at any time in whole
         or in part for shares of TCI common stock.  The Company will have the
         option of delivering shares of TCI Class A common stock or TCI Class B
         common stock or any combination thereof upon such exchange.  The
         exchange rate for the Class B Preferred Stock is 54.34 shares of TCI
         common stock for each share of Class B Preferred Stock, subject to
         adjustment under certain conditions.

         The exchange rights of the shares of Class B Preferred Stock will
         expire at the close of business on the business day immediately
         preceding March 28, 2006 or, in the case of shares of Class B
         Preferred Stock called for redemption or exchange, at the close of
         business on the date specified for such redemption or exchange, unless
         in either case the Company defaults in the payment of the redemption
         price or the making of the exchange.

         The Company deposited with an escrow agent all shares of TCI common
         stock acquired by the Company in connection with the Exchange.  The
         TCI common stock is held by the escrow agent for delivery to holders
         of Class B Preferred Stock upon exchange.  Upon surrender of shares of
         Class B Preferred Stock for exchange, the holder thereof shall be
         entitled to receive the shares of TCI common stock at the then
         applicable exchange rate.  Any shares of TCI common stock remaining in
         escrow after March 28, 2006 will be returned to and become the sole
         property of the Company.

                                                                     (continued)





                                     II-204
<PAGE>   271
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         The holders of shares of Class B Preferred Stock may, by delivery of a
         written notice of demand (a "Demand Notice"), require the Company to
         redeem all shares of Class B Preferred Stock covered by such Demand
         Notice on March 28, 1996 and March 28, 2001 (each such date a "Special
         Redemption Date"), at a redemption price (the "Special Redemption
         Price") equal to the accreted value of such shares as of such Special
         Redemption Date.

         The Special Redemption Price will be payable by the Company, at its
         option, in cash, Liberty Class A common stock, Convertible
         Exchangeable Preferred Stock, TCI common stock, the Company's
         convertible subordinated extension notes due on March 28, 2006 (the
         "Non-Convertible Extension Notes", and together with the Convertible
         Extension Notes, the "Extension Notes") or any combination thereof;
         provided, however, that if any Convertible Extension Notes are issued
         as such payment, Convertible Extension Notes shall constitute no less
         than 25% of the Special Redemption Price and if Non-Convertible
         Extension Notes are issued as such payment, Non-Convertible Extension
         Notes shall constitute no less than 25% of the Special Redemption
         Price.

         Unless all outstanding shares of Class B Preferred Stock to be
         redeemed or exchanged are at the time held by TCI, the Company's right
         to redeem shares of Class B Preferred Stock through the delivery of
         Extension Notes or shares of Liberty Class A common stock, Convertible
         Exchangeable Preferred Stock or TCI common stock is subject to the
         Company satisfying various conditions.

         Class D Redeemable Voting Preferred Stock

         The Company is authorized to issue up to 18,000 shares of Class D
         Redeemable Voting Preferred Stock (the "Class D Preferred Stock").
         The aggregate number of shares of such Class D Preferred Stock issued
         to TCI and outstanding at December 31, 1993 is 17,238 shares
         (representing 100% of the issued and outstanding shares).  The
         accretion rate for the Class D Preferred Stock is 10% per annum,
         compounded semi-annually.

         The Class D Preferred Stock is redeemable at the option of the Company
         at any time and from time to time on and after March 28, 1996, in
         whole or in part, for a redemption price, payable solely in cash,
         equal to the accreted value per share of such class as of the
         redemption date.  The Class D Preferred Stock is subject to a
         mandatory redemption requirement on March 28, 2006.

                                                                     (continued)





                                     II-205
<PAGE>   272
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Originally, TCI had the exclusive right to elect a number of directors
         equal to not less than 20% (rounded upward to the nearest whole
         number) of the total number of members of the Company's Board of
         Directors for so long as all of the outstanding shares of Class D
         Preferred Stock are owned by TCI, voting together as a separate class.
         On March 26, 1993 in conjunction with the Recapitalization Agreement
         described in note 9, the terms of the Class D Preferred was amended
         to reduce the number of directors elected by the holders of the Class
         D Preferred from 20% of the total number of the Company's Board of
         Directors to 11% (which shall include the right to fill any vacancy
         created by the death or resignation of any director elected by the
         holders of Class D Preferred Stock or by the removal by such holders
         of any director elected by them, and to elect such number of
         additional directors to fill any newly created directorships as is
         necessary to maintain such level of representation).  In the event
         that TCI ceases to own in the aggregate 100% of the outstanding shares
         of Class D Preferred Stock, the foregoing special voting rights of
         such class shall terminate.


(8)      Stockholders' Equity

         (a)   Preferred Stocks Not Subject to Mandatory Redemption Requirements

         Class C Redeemable Exchangeable Preferred Stock

         On March 26, 1993, 399,299 shares of Class C Redeemable Exchangeable
         Preferred Stock (the "Class C Preferred Stock") held by TCI
         (representing 100% of the issued and outstanding shares) were
         repurchased and retired and may not be reissued.

         Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock

         The Company is authorized to issue 2,000,000 shares of Class E
         Preferred Stock.  The Company issued 1,620,026 shares of Class E
         Preferred Stock on March 12, 1992.  When issued, the shares had a
         liquidation value of $100 per share. Dividends accrue on the Class E
         Preferred Stock at the rate of 6% per annum and are payable on March 1
         of each year in cash or, at the option of the Company, in whole or in
         part, in shares of its Class A common stock. No interest or additional
         dividends will accrue or be payable on accumulated, accrued and unpaid
         dividends.

         The Class E Preferred Stock is redeemable at the option of the Company
         at any time or from time to time, in whole or in part, for a
         redemption price payable solely in cash equal to the liquidation value
         of each share (including any accrued and unpaid dividends). There is
         no mandatory redemption requirement.

         In addition, the shares of Class E Preferred Stock may, at any time,
         at the option of the Company, be exchanged in whole for junior
         subordinated notes of the Company (the "Junior Exchange Notes"). The
         principal amount of the Junior Exchange Notes shall be equal to the
         liquidation value of each share (including accrued and unpaid
         dividends) on the exchange date.

         The Junior Exchange Notes will bear interest, payable annually, at a
         rate equal to the prevailing Fifteen Year Treasury Rate (as defined)
         plus 2.15% and will have a maturity date 15 years from the date of
         issuance.
                                                                     (continued)





                                     II-206
<PAGE>   273
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Class F Serial Preferred Stock

         The Company is authorized to issue 5,000,000 shares of Class F Serial
         Preferred Stock (the "Class F Preferred Stock") in one or more series
         and to fix and state the designations, powers, preferences,
         qualifications, limitations, restrictions and relative rights of the
         shares of each such series. At any time that shares of any class or
         series of the above-described preferred stock (other than the Class F
         Preferred Stock) are issued and outstanding, the number of shares of
         Class F Preferred Stock of any series that may be issued shall not
         exceed the difference between five million (the number of Class F
         Preferred Stock currently authorized) and the sum of (i) the number of
         shares of all classes and series of the above-described preferred
         stock (other than the Class F Preferred Stock) issued and outstanding
         and (ii) the number of shares of all series of Class F Preferred Stock
         issued and outstanding, in each case at the time the resolution of the
         Board of Directors authorizing the issuance of shares of such series
         of Class F Preferred Stock is adopted.

         (b)     Common Stock

         General

         Liberty is authorized to issue 300,000,000 Class A shares and
         100,000,000 Class B shares. Liberty had 87,515,378 Class A shares and
         43,338,720 Class B shares outstanding at December 31, 1993.

         The Class A common stock has one vote per share and the Class B common
         stock has ten votes per share. Each share of Class B common stock is
         convertible, at the option of the holder, into one share of Class A
         common stock.

         Stock Option

         The Company has an employment agreement with an officer (who is also a
         director). Pursuant to this agreement, such officer was granted an
         option to acquire 100,000 shares of Liberty Class B common stock at a
         purchase price of $256 per share (reflects actual shares issued). The
         employment agreement was amended and the option was exercised with
         cash and a $25,500,000 note. This note bears interest at 7.54% per
         annum.  During October 1991, such officer tendered to the Company in
         partial payment of such note, 800,000 shares of TCI Class B common
         stock, resulting in a net reduction of $12,195,000 in the amount
         payable under the note.

         The 100,000 shares issued by Liberty upon exercise of this option,
         together with all subsequent dividends and distributions thereon,
         including shares issued in connection with certain stock splits of the
         Company (collectively totaling 16,000,000 shares of Liberty Class B
         common stock and 200,000 shares of Class E Preferred Stock at December
         31, 1993, the "Option Units"), are subject to repurchase by the
         Company under certain circumstances. The Company's repurchase right
         will terminate as to 20% of the Option Units per year, commencing
         March 28, 1992, and will terminate as to all of the Option Units in
         the event of death, disability or under certain other circumstances.

                                                                     (continued)





                                     II-207
<PAGE>   274
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         On October 24, 1992, said officer of the Company entered into a letter
         agreement with respect to the timing and method of payment under the
         promissory note and the release of the 200,000 shares of Class E
         Preferred Stock from the collateral securing the promissory note. A
         payment of approximately $984,000 for all interest accruing during
         calendar 1993 (after giving effect to a discount at the rate of 7.54%
         per annum to reflect the time value of money received prior to the
         scheduled payment date) was made in March 1993. After giving effect to
         the payment and the terms of the letter agreement, the remaining
         principal balance on the note is approximately $14,500,000. The next
         scheduled payment will be on October 24, 1994 in the principal amount
         of approximately $4,300,000 plus interest accrued from December 31,
         1993 to the payment date.

         Stock Plan

         The Company has a Stock Incentive Plan (the "Stock Plan") in order to
         provide a special incentive to officers and other persons. Under the
         Stock Plan, stock options, stock appreciation rights, restricted stock
         and other awards valued by reference to, or that are otherwise based
         on, the value of Class A common stock may be granted in respect to a
         maximum of 40,000,000 shares of Class A common stock. Shares to be
         delivered under the Stock Plan will be available from authorized but
         unissued shares of Class A common stock or from shares of Class A
         common stock reacquired by the Company. Shares of Class A common stock
         that are subject to options or other awards that terminate or expire
         unexercised will return to the pool of such shares available for grant
         under the Stock Plan.

         In June 1993, the Company granted an aggregate of 56,000 non-qualified
         stock options with stock appreciation rights to certain officers and
         key employees under the Stock Plan. Each option is exercisable for one
         share of Class A common stock at an exercise price of $19.08. The
         options vest in five equal annual installments commencing June 3, 1994
         and expire in June 2003. Estimates of compensation relating to these
         stock options with stock appreciation rights have been recorded
         through December 31, 1993, but are subject to future adjustments based
         upon market value and, ultimately, on the final determination of
         market value when the rights are exercised.

         Stock Appreciation Rights

         The Company has granted to certain of its officers stock appreciation
         rights with respect to 2,240,000 shares of Liberty Class A common
         stock. These rights have an adjusted strike price of $0.80 per share,
         become exercisable and vest evenly over seven years. Stock
         appreciation rights expire on March 28, 2001. Estimates of
         compensation relating to these stock appreciation rights have been
         recorded through December 31, 1993, but are subject to future
         adjustment based upon market value and, ultimately, on the final
         determination of market value when the rights are exercised.  Stock
         appreciation rights with respect to 526,000 shares were exercised on
         October 29, 1993 and on November 2, 1993 stock appreciation rights
         with respect to 240,000 shares were exercised resulting in an
         aggregate payment of $21,541,200 (the difference between the market
         price and exercise price on the dates exercised) to the officers
         exercising such rights.

                                                                     (continued)





                                     II-208
<PAGE>   275
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         In 1993, the President of HSN received stock appreciation rights with
         respect to 984,876 shares of HSN's common stock at an exercise price
         of $8.25 per share. These rights vest over a four year period and are
         exercisable until February 23, 2003. The stock appreciation rights
         will vest upon termination of employment other than for cause and will
         be exercisable for up to one year following the termination of
         employment. In the event of a change in ownership control of HSN, all
         unvested stock appreciation rights will vest immediately prior to the
         change in control and shall remain exercisable for a one year period.
         Stock appreciation rights not exercised will expire to the extent not
         exercised. These rights may be exercised for cash or, so long as HSN
         is a public company, for shares of HSN's common stock equal to the
         excess of the fair market value of each share of common stock over
         $8.25 at the exercise date. The stock appreciation rights also will
         vest in the event of death or disability.

         Estimated compensation relating to these stock appreciation rights has
         been recorded through December 31, 1993, but is subject to future
         adjustment based upon market value, and ultimately, on the final
         determination of market value when the rights are exercised.

(9)      Transactions with TCI and Other Related Parties

         Certain subsidiaries of Liberty produce and/or distribute sports and
         other programming to cable television operators (including TCI) and
         others. Charges to TCI are based upon customary rates charged to
         others.

         Certain subsidiaries of Liberty purchase, at TCI's cost plus an
         administrative fee, certain pay television and other programming
         through a subsidiary of TCI. In addition, HSN pays a commission to TCI
         for merchandise sales to customers who are subscribers of TCI's cable
         systems. Aggregate commissions and charges to TCI were approximately
         $10,650,000 for the year ended December 31, 1993.

         Pursuant to a Cable Television Management Agreement, a subsidiary of
         TCI provides management services for cable television systems owned by
         CCT. The subsidiary receives a fee equal to 3% of the gross cable
         television revenue of the partnership.

         Liberty has an 11.6% note payable to TCI with a principal amount of
         $76,952,000 which is due on February 1, 1997 and is secured by the
         Company's partnership interest in CCT and in the Mile Hi Note.  In
         addition, Liberty has a 6% note payable to TCI with a principle amount
         of $104,644.  A subsidiary of Liberty also has a 6% note payable to
         TCI totaling $4,322,000.

                                                                     (continued)





                                     II-209
<PAGE>   276
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         CCT has a note payable to TCI of approximately $58 million, including
         accrued interest, due January 1, 2000.  The note bears interest at 8%
         per annum.  Additionally, CCT has approximately $36 million, including
         accrued interest, in notes receivable from TCI due January 1, 2000.
         The notes receivable earn interest at 11.6% per annum.


         On March 26, 1993, Liberty and TCI and certain of their respective
         subsidiaries entered into a series of agreements regarding the
         repurchase by Liberty of certain shares of its common and preferred
         stock from TCI and the purchase by TCI of certain cable television
         investments from Liberty and on June 3, 1993, Liberty completed the
         transactions contemplated by said agreements. The first such agreement
         (the "Recapitalization Agreement") was between Liberty, TCIL and
         Tele-Communications of Colorado, Inc. ("TCIC") both of which are wholly
         owned subsidiaries of TCI. The Recapitalization Agreement provided for
         the Company's repurchase of 927,900 shares of Liberty Class A common
         stock owned by TCIL, and repurchase of all of the outstanding shares of
         the Class C Preferred Stock. Liberty paid an aggregate purchase price
         for the Class C Preferred Stock of approximately $175 million and
         approximately $19 million for the shares of Class A common stock. The
         aggregate price of approximately $194 million was satisfied by delivery
         of approximately $12 million in cash and four promissory notes totaling
         approximately $182 million. The shares of Class A common stock sold by
         TCIL are part of those received upon conversion of the Class A
         Preferred Stock into 4,405,678 shares of Liberty Class A common stock
         and 55,070 shares of Class E Preferred Stock.

         In connection with the Recapitalization Agreement, TCIC and LCP
         entered into an Option-Put Agreement (the "Option-Put Agreement")
         which was amended on November 30, 1993. Under the amended Option-Put
         Agreement, between June 30, 1994 and September 28, 1994, and between
         January 1, 1996 and January 31, 1996, TCIC will have the option to
         purchase LCP's interest in CCT and the Mile Hi Note for an amount
         equal to $77 million plus interest on such amount from June 3, 1993.
         Between April 1, 1995 and June 29, 1995, and between January 1, 1997
         and January 31, 1997, LCP will have the right to require TCIC to
         purchase LCP's interest in CCT and the Mile Hi Note for an amount
         equal to $77 million plus interest on such amount from June 3, 1993.

         Also on June 3, 1993, Liberty and a subsidiary of TCI entered into the
         second such agreement (the "Purchase and Sale Agreement") pursuant to
         which a TCI subsidiary purchased from the Company a 16% limited
         partnership interest in Intermedia Partners from LCP and all of LCP's
         interest in a special allocation of income and gain of $7 million
         under the partnership agreement of Intermedia Partners, for a purchase
         price of approximately $9 million (which resulted in a loss in the
         Company's statement of operations of approximately $22 million). Also
         pursuant to which TCI has an option to purchase the Company's
         remaining 6% interest in Intermedia Partners prior to December 31,
         1995 for approximately $3.6 million plus interest at 8% per annum from
         June 3, 1993 (which resulted in a provision for impairment of
         investment in the Company's statement of operations of approximately
         $8 million). The Company's obligation to sell such partnership
         interest and to grant such option were conditioned upon consummation
         of the transactions contemplated by the Recapitalization Agreement.

                                                                     (continued)





                                     II-210
<PAGE>   277
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(10)     Commitments and Contingencies


         The Company has long-term sports program rights contracts which
         require payments through 1998. Future payments by year are as follows
         (amounts in thousands):

<TABLE>
                 <S>                                   <C>
                 1994                                  $15,345
                 1995                                   11,503
                 1996                                    8,580
                 1997                                    5,926
                 1998                                    1,300
</TABLE>

         Liberty leases business offices, has entered into pole rental
         agreements and transponder lease agreements, and uses certain
         equipment under lease arrangements. Rental expense under such
         arrangements amounted to approximately $22,515,000, for the year ended
         December 31, 1993.

         Future minimum lease payments under noncancellable operating leases
         for each of the next five years are summarized as follows (amounts in
         thousands):

<TABLE>
                 <S>                                   <C>
                 1994                                  $22,810
                 1995                                   20,029
                 1996                                   19,526
                 1997                                   19,296
                 1998                                   14,985
</TABLE>


         It is expected that in the normal course of business, leases that
         expire will be renewed or replaced by leases on other properties;
         thus, it is anticipated that future minimum lease commitments will not
         be less than the amounts shown for 1994.

         The Company is obligated to pay fees for the license to exhibit
         certain qualifying films that are released theatrically by various
         motion picture studios through December 31, 2006 (the "Film License
         Obligations"). As of December 31, 1993, these agreements require
         minimum payments aggregating approximately $189 million. The aggregate
         amount of the Film License Obligations is not currently estimable
         because such amount is dependent upon the number of qualifying films
         produced by the motion picture studios, the amount of United States
         theatrical film rentals for such qualifying films, and certain other
         factors. Nevertheless, the Company's aggregate payments under the Film
         License Obligations could prove to be significant.

                                                                     (continued)





                                     II-211
<PAGE>   278
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




(11)     Information About Liberty's Operations

         Liberty operates primarily in the United States in two industry
         segments, cable television systems ("Cable") and production and
         distribution of cable television programming services ("Programming").
         Home shopping is a programming service which includes a retail
         function. Separate amounts have been provided for home shopping
         programming services to enhance the reader's understanding of the
         Company. Operating income is total revenue less operating costs and
         expenses which includes an allocation of corporate general and
         administrative expenses.  Liberty has investments, accounted for under
         the equity method, which also operate in the United States in the
         Cable and Programming industries. The following is selected
         information about Liberty's operations for the year ended December 31,
         1993.

<TABLE>
<CAPTION>
                                                              Home
                                             Corporate      Shopping      Cable      Programming      Total    
                                             ---------      --------    ---------    -----------    ---------
                                                                    amounts in thousands
            <S>                              <C>            <C>          <C>            <C>          <C>
                                                                                                                 
            Revenue                          $       --     942,940       56,744       153,572       1,153,256
                                             ==========     =======      =======       =======       =========
            Revenue from TCI                 $       --          --           --        44,074          44,074
                                             ==========     =======      =======       =======       =========
            Operating income (loss)          $  (43,327)     15,975        9,834        16,615            (903)
                                             ===========    =======      =======       =======       =========
            Depreciation and                                                          
               amortization                  $      164      24,029       11,169        13,907          49,269
                                             ==========     =======      =======       =======       =========
            Capital expenditures,                                                     
               including acquisitions        $      426      13,156        8,374         3,520          25,476
                                             ==========     =======      =======       =======       =========
</TABLE> 


(12)     Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                     1st            2nd            3rd           4th
                                                   Quarter        Quarter        Quarter       Quarter
                                                   -------        -------        -------       -------
                                                                          amounts in thousands,
                                                                          except per share data
          <S>                                      <C>             <C>           <C>          <C>
          1993:                                    
          ----                                     
          Revenue                                  $179,072        303,685       313,083      357,416
          Operating income (loss)                  $  2,089         (2,603)        1,302       (1,691)
          Gain on sale of investment               $ 10,613             --            --       21,359
          Loss on transactions with TCI            $     --        (30,296)           --           --
          Extraordinary item, net                  $ (1,792)          (399)           --           --
          Net earnings (loss)                      $ 10,454        (18,016)       11,161        1,196
          Net earnings (loss) attributable to      
             common shareholders                   $   (441)       (27,520)        5,429       (4,645)
          Primary and fully diluted                
             earnings (loss) per common and        
             common equivalent share               $   0.00          (0.21)         0.04        (0.04)
</TABLE>                                           





                                     II-212
<PAGE>   279
                                   PART III.


Item 10.         Directors and Executive Officers of the Registrant.

         The following lists the directors and executive officers of
Tele-Communications, Inc. ("TCI" or the "Company"), their birth dates, a
description of their business experience and positions held with the Company as
of January 31, 1996.  Directors of TCI are elected to staggered three-year
terms with one-third elected annually.  The date the present term of office
expires for each director is the date of the Annual Meeting of the Company's
stockholders held during the year footnoted opposite their names.  All officers
are appointed for an indefinite term, serving at the pleasure of the Board of
Directors.

<TABLE>
<CAPTION>
             Name                                                   Positions                            
 ----------------------------          ------------------------------------------------------------------
 <S>                                   <C>
 Bob Magness (3)                       Chairman of the Board and director of TCI since June of 1994 and  of TCI
 Born June 3, 1924                     Communications, Inc. ("TCIC")  (predecessor company to TCI)  since 1973;
                                       TCIC director since 1968.


 John C. Malone (1)                    TCI director since June of  1994; Chief Executive Officer  and President
 Born March 7, 1941                    of  TCI since  January of  1994; Chief  Executive Officer  of TCIC  from
                                       March  of 1992 to  October of 1994  and President  of TCIC from  1973 to
                                       October  of  1994;  Chairman  of   the  Board  and  director   of  Tele-
                                       Communications  International, Inc. since  May 1995; is  President and a
                                       director  of many  of  the Company's  subsidiaries;  also a  director of
                                       Turner  Broadcasting System,  Inc., BET  Holdings,  Inc., Home  Shopping
                                       Network, Inc. and The Bank of New York; TCIC director since 1973.

 Donne  F. Fisher (2)                  Executive Vice President of  TCI from January of 1994 through January 1,
 Born May 24, 1938                     1996; on January 1, 1996, Mr. Fisher  resigned his position as Executive
                                       Vice President of TCI;   Executive Vice President of TCIC from  December
                                       of 1991 to  October of  1994; was  previously Senior  Vice President  of
                                       TCIC since  1982 and Treasurer  since 1970;  TCI director since  June of
                                       1994;   TCIC  director   since   1980;  also   a  director   of  General
                                       Communication, Inc.

 John W. Gallivan (3)                  Chairman  of  the  Board of  Kearns-Tribune  Corporation  ("Kearns"),  a
 Born June 28, 1915                    newspaper  publishing  concern; also  a director  of Silver  King Mining
                                       Company; TCI director  since June of  1994; TCIC director  from 1980  to
                                       August of 1994.  Reinstated as TCIC director in January of 1996.

 Kim Magness (2)                       TCI director since  June of 1994; TCIC  director from 1985 to  August of
 Born May 17, 1952                     1994; reinstated as TCIC director  in January of 1996.  Manages numerous
                                       personal and  business investments, and  is Chairman and  President of a
                                       company developing liners for irrigation canals.

 Robert A. Naify (1)                   TCI director since  June of 1994; TCIC  director from 1987 to  August of
 Born February 17, 1922                1994;  also Co-Chairman,  Co-Chief Executive  Officer and  a director of
                                       The Todd-AO Corporation.
</TABLE>
                                                                     (continued)





                                     III-1
<PAGE>   280
<TABLE>
<CAPTION>
             Name                                                   Positions                            
 ----------------------------          ------------------------------------------------------------------
 <S>                                   <C>
 Jerome H. Kern (3)                    TCI director since June  of 1994; TCIC director from December of 1993 to
 Born June 1, 1937                     August  of  1994;  director of  Tele-Communications  International, Inc.
                                       ("International"),  a subsidiary  of  TCI, since  May,  1995; also  is a
                                       senior  partner  with  the law  firm  of  Baker &  Botts,  L.L.P., since
                                       September of  1992.  Prior to joining Baker  & Botts, L.L.P., was senior
                                       partner with the  Law Offices of Jerome H. Kern  from January 1, 1992 to
                                       September 1, 1992 and, prior  to that, was a senior partner with the law
                                       firm of Shea & Gould from 1986 through December 31, 1991.

 Tony Coelho (1)                       TCI director since  June, 1994; Appointed  TCIC director  from March  of
 Born June 14, 1942                    1994 to August  of 1994; is  chairman  of  the  board and  chief
                                       executive officer of ETC w/tci  (TCI's newly formed education  division)
                                       since October 1995;  President  and Chief Executive  Officer of
                                       Wertheim  Schroder Investment  Services from 1990 to June of 1995 and;  
                                       Managing Director  of Wertheim Schroder  &  Co., Incorporated from 1989 
                                       to June of 1995; also a director of Circus Circus Enterprises, Inc., ICF 
                                       Kaiser  International,  Inc., Service  Corporation  International, 
                                       Specialty Retail Group, Inc., and Tanknology Environmental, Inc. 

 Stephen M. Brett                      Executive  Vice President,  General Counsel and  Secretary of  TCI since
 Born September 20, 1940               January of  1994.   Appointed  TCI  Senior  Vice President  and  General
                                       Counsel of TCIC  as of December of  1991.  Vice President  and Secretary
                                       and a  director of  most of  TCI's subsidiaries.   From  August of  1988
                                       through  December  of  1991,  was  Executive  Vice  President-Legal  and
                                       Secretary  of  United  Artists Entertainment  Company  ("UAE")  and  its
                                       predecessor, United Artists Communications, Inc. ("UACI").

 Fred A. Vierra                        Executive Vice President of TCI since January of  1994.  Chairman of the
 Born November 9, 1931                 Board  and Chief Executive  Officer of International  since October of
                                       1994.   Vice Chairman of the Board of International since May of 1995.
                                       Executive  Vice President  of  TCIC  from December  of  1991  to
                                       October of 1994.   Was President, Chief Operating Officer and a director
                                       of UAE from May of 1989 through December of 1991.

 Peter R. Barton                       Executive Vice President  of TCI since  January of  1994; President  and
 Born April 6, 1951                    Chief  Executive Officer  of Liberty  Media  Corporation ("Liberty"),  a
                                       wholly-owned subsidiary of  TCI subsequent to August 4, 1994, since June
                                       of 1990; was Senior Vice President of TCIC from 1988 to March of 1991.
</TABLE>


                                                                     (continued)





                                     III-2
<PAGE>   281
<TABLE>
<CAPTION>
             Name                                                   Positions                            
 ----------------------------          ------------------------------------------------------------------
 <S>                                   <C>
 Brendan R. Clouston                   Executive Vice President  of TCI since  January of  1994; President  and
 Born April 28, 1953                   Chief Executive  Officer of TCIC  since October of  1994; Executive Vice
                                       President and  Chief Operating  Officer of  TCIC from  March of  1992 to
                                       October  of  1994;  previously  Senior  Vice  President  of  TCIC  since
                                       December  of 1991; from January  of 1987 through  December of 1991, held
                                       various executive  positions with  UAE and  its predecessor,  UACI, most
                                       recently Executive Vice President and Chief Financial Officer.

 Larry E. Romrell                      Executive Vice  President of TCI since January of 1994. President of TCI
 Born December 30, 1939                Technology  Ventures, Inc.,  a  wholly-owned  subsidiary of  TCI,  since
                                       September of 1994 and  a director of same since December of 1994; Senior
                                       Vice  President of  TCIC from 1991  to October of  1994; previously held
                                       various   executive  positions   with   WestMarc  Communications,   Inc.
                                       ("WestMarc"), a wholly-owned subsidiary of TCI.

 Barry P. Marshall                     Executive Vice  President  and Chief  Operating  Officer of  TCIC  since
 Born March 4, 1946                    October of 1994.  Executive  Vice President and Chief  Operating Officer
                                       of   TCI  Cable   Management  Corporation,   TCIC's  primary   operating
                                       subsidiary,  from  March of  1992  through  January  1,  1994, where  he
                                       directly oversaw all  of TCIC's regional operating divisions.  From 1986
                                       to March  of 1992,  was Vice  President and  Chief Operating Officer  of
                                       TCIC's largest regional operating division.

 Gary K. Bracken                       Controller of TCIC since 1969.   Appointed Senior Vice President of TCIC
 Born July 29, 1939                    in December of 1991.  Was named  Vice President and Principal Accounting
                                       Officer of TCIC in 1982.

 Bernard W. Schotters                  Appointed  Senior  Vice  President-Finance  and  Treasurer  of  TCIC  in
 Born November 25, 1944                December  of 1991.    Was appointed  Vice  President-Finance of  TCIC in
                                       1984.  Vice President and Treasurer of most of TCI's subsidiaries.

 Robert N. Thomson                     Appointed Senior Vice  President of TCIC  in February of  1995.   Senior
 Born December 19, 1943                Vice President of  Communications and Policy Planning for TCIC from 1991
                                       to October  of 1994.   Previously, Vice President  of Government Affairs
                                       for TCIC from January of 1987 to 1991.
</TABLE>


_______________________________

(1)  Director's term expires in 1996.
(2)  Director's term expires in 1997.
(3)  Director's term expires in 1998.

                                                                     (continued)





                                     III-3
<PAGE>   282
    Mr. J. C. Sparkman, previously an Executive Vice President of TCI, retired
in March of 1995 and Mr. R. E. Turner resigned from the Board of Directors in
October of 1995.

    There are no family relations, of first cousin or closer, among the above
named individuals, by blood, marriage or adoption, except that Bob Magness and
Kim Magness are father and son, respectively.

    During the past five years, none of the above persons have had any
involvement in such legal proceedings as would be material to an evaluation of
his ability or integrity.

    Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
TCI's 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, 1995, 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 one
transaction, was filed late by Mr. Robert Thomson, an officer of the Company,
and except that two reports, one covering shares held by minor children and one
covering a transaction relating to the exercise of stock options, were filed
late by Mr. Bernard Schotters, another officer of the Company.  

Item 11.     Executive Compensation.

    (a)      Summary Compensation Table of Tele-Communications, Inc.  

         On August 3, 1995, TCI amended its Restated Certificate of
         Incorporation to, among other things, (i) redesignate the TCI Class A
         Common Stock as "Tele-Communications, Inc. Series A TCI Group Common
         Stock" ("Series A Stock") and TCI's Class B Common Stock as
         "Tele-Communications, Inc. Series B TCI Group Common Stock" ("Series B
         Stock") and (ii) authorize two additional series of TCI common stock,
         designated as "Tele-Communications, Inc. Series A Liberty Media Group
         Common Stock" ("Liberty Series A Stock") and "Tele-Communications, Inc.
         Series B Liberty Media Group Common Stock" ("Liberty Series B Stock").
         Thereafter, TCI distributed to the holders of TCI common stock
         one-fourth of a share of the corresponding series of Liberty Media
         Group common stock in respect of each share of TCI Group common stock
         held of record as of August 4, 1995, the record date for such
         distribution (the "Distribution"). Certain of the stock options with
         tandem stock appreciation rights relative to Series A Stock and Liberty
         Series A Stock indicated in the following tables were granted prior to
         the foregoing redesignation and Distribution. Options to purchase TCI
         Class A common stock outstanding at the time of the Distribution were
         adjusted by issuing to the holders of such options separate options to
         purchase that number of shares of Liberty Series A Stock which the
         holder would have been entitled to receive had the holder exercised
         such option to purchase TCI Class A common stock prior to the record
         date for the Distribution and reallocating a portion of the aggregate
         exercise price of the previously outstanding options to the newly
         issued options to purchase Liberty Series A Stock.

         The following table shows, for the three years ended December 31, 1995,
         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, 1995:




































<TABLE>
<CAPTION>
                                                            Long-Term Compensation
                                                            ----------------------
                               Annual Compensation                 Awards          
                        --------------------------------    ----------------------
                                                Other
                                                Annual         Restricted
                                                Compen-           Stock           Options/         All Other
                                                sation          Award(s)            SARs         Compensation
Position                Year    Salary ($)       ($)              ($)               (#)              ($)        
--------                ----   -----------   -----------    ----------------   -------------   ----------------
<S>                    <C>     <C>           <C>            <C>                <C>             <C>                
Bob Magness            1995    $850,000           ---              ---         1,250,000 (7)   $17,500 (10)(11)   
Chairman of the        1994    $830,769           ---              ---               ---       $ 2,500 (11)       
   Board               1993    $800,000           ---              ---               ---       $ 2,500 (11)       
                                                                                                                  
John C. Malone         1995    $850,000 (1)  $  3,758 (3)          ---         1,250,000 (7)   $17,500 (10)(11)   
President and Chief    1994    $821,731 (1)  $  2,610 (3)          ---               ---       $17,500 (10)(11)   
   Executive Officer   1993    $800,000 (1)  $  2,726 (3)          ---               ---       $17,500 (10)(11)   
                                                                                                                  
Fred A. Vierra         1995    $650,000 (2)  $  3,207 (3)   $  380,625 (5)       400,000 (7)   $15,000 (10)       
Executive Vice         1994    $669,613 (2)  $  1,024 (3)          ---           250,000 (8)   $15,000 (10)       
   President           1993    $623,617 (2)  $    263 (3)          ---           125,000 (9)   $15,000 (10)       
                                                                                                                  
Brendan R. Clouston    1995    $550,000      $  3,181 (3)   $2,062,500(6)      1,000,000 (7)   $15,000 (10)       
Executive Vice         1994    $525,000      $  1,000 (3)          ---           625,000 (8)   $15,000 (10)       
   President           1993    $519,231      $    263 (3)          ---           625,000 (9)   $15,000 (10)       
                                                                                                                  
Donne F. Fisher        1995    $450,000      $341,670 (3)(4)       ---                  ---    $17,500 (10)(11)   
Executive Vice         1994    $440,385      $388,135 (3)(4)       ---           250,000 (8)   $17,500 (10)(11)   
   President           1993    $400,000      $432,860 (3)(4)       ---                  ---    $17,500 (10)(11)   
</TABLE>

____________________

                                                                     (continued)





                                     III-4
<PAGE>   283
(1)      Includes deferred compensation of $320,000 in 1995, $320,000 in 1994
         and $150,000 in 1993.

(2)      Includes deferred compensation of $250,000 in each of the years
         presented.

(3)      Consists of amounts reimbursed during the year for the payment of
         taxes.  During 1995, 1994 and 1993, a total of $5,673, $4,138 and
         $864, respectively, was paid to Mr. Fisher.

(4)      Includes $335,997, $383,997 and $431,996 dividend income received on
         WestMarc preferred stock which is subject to forfeiture.

(5)      International, a majority owned subsidiary of TCI, has a stock
         incentive plan (the "International Plan") which is subject to the
         approval of the International shareholders.  On December 13, 1995,
         pursuant to the International Plan, Mr. Vierra was granted 15,000
         restricted shares of Series A Tele-Communications International, Inc.
         common stock ("TINTA Series A Stock").  Such restricted shares vest as
         to 50% of such shares on December 13, 1999 and as to the remaining
         shares 50% on December 13, 2000.  The value of such restricted stock
         award was $341,250 at the end of 1995 based upon the closing price of
         TINTA Series A Stock on December 29, 1995.  International has not paid
         cash dividends on TINTA Series A Stock and does not anticipate
         declaring and paying cash dividends on the TINTA Series A Stock at any
         time in the foreseeable future.

(6)      The Company has a stock incentive plan, the Tele-Communications, Inc.
         1994 Stock Incentive Plan (the "1994 Plan").  On December 13, 1995,
         pursuant to the 1994 Plan, Mr. Clouston was granted 100,000 restricted
         shares of Series A Stock.  Such restricted shares vest as to 50% of
         such shares on December 13, 1999 and as to the remaining shares 50% on
         December 13, 2000.  The value of such restricted stock award was
         $1,987,500 at the end of 1995 based upon the closing price of Series A
         Stock on December 29, 1995.  TCI has not paid cash dividends on the
         Series A Stock and does not anticipate declaring and paying cash
         dividends on the Series A Stock at any time in the foreseeable future.

(7)      For additional information regarding this award, see Option/SAR Grants
         Table below.

(8)      On November 17, 1994, pursuant to the 1994 Plan, certain executive
         officers and other key employees were granted an aggregate of 3,191,000
         options in tandem with stock appreciation rights to acquire shares of
         Series A Stock at an adjusted purchase price of $16.50 per share and an
         aggregate of 797,750 options in tandem with stock appreciation rights
         to acquire shares of Liberty Series A Stock at a purchase price of
         $22.00 per share.  Such options vest evenly over five years, became
         exercisable beginning on November 17, 1995 and expire on November 17,
         2004.  Notwithstanding the vesting schedule as set forth in the option
         agreement, the option shares shall become available for purchase 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 provisions of a written
         employment agreement, if any, between the grantee and the Company which
         expressly permits the grantee to terminate such employment upon
         occurrence of specified events (other than the giving of notice and
         passage of time), or (c) if grantee dies while employed by the Company.
         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 Plan), unless in the case of an Approved
         Transaction, the Compensation Committee under the circumstances
         specified in the Plan determines otherwise.

                                                                     (continued)





                                     III-5
<PAGE>   284
(9)      On October 12, 1993 certain executive officers and other key employees
         were granted an aggregate of 1,355,000 options in tandem with stock
         appreciation rights to acquire shares of Series A Stock at an adjusted
         purchase price of $12.50 per share and an aggregate of 338,750 options
         in tandem with stock appreciation rights to acquire shares of Liberty
         Series A Stock at a purchase price of $16.75 per share.  On November
         12, 1993, an additional grant of stock options in tandem with stock
         appreciation rights to purchase an aggregate of 600,000 shares of
         Series A Stock was made to Messrs. Clouston and Vierra at an adjusted
         purchase price of $12.50 per share and an aggregate of 150,000 options
         in tandem with stock appreciation rights to acquire shares of Liberty
         Series A Stock at a purchase price of $16.75 per share.  Such options
         vest evenly over four years, first became exercisable on October 12,
         1994 and expire on October 12, 2003. Notwithstanding the vesting
         schedule as set forth in the option agreement, the option shares shall
         become available for purchase 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
         provisions of a written employment agreement, if any, between the
         grantee and the Company which expressly permits the grantee to
         terminate such employment upon occurrence of specified events (other
         than the giving of notice and passage of time), or (c) if grantee dies
         while employed by the Company.  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 1994 Plan), unless
         in the case of an Approved Transaction, the Compensation Committee
         under the circumstances specified in the 1994 Plan determines
         otherwise.

(10)     Includes dollar value of annual TCI contributions to the TCI Employee
         Stock Purchase Plan ("ESPP") in which all named executive officers are
         fully vested.  Directors who are not employees of TCI are ineligible
         to participate in the ESPP.  The ESPP, a defined contribution plan,
         enables participating employees to acquire a proprietary interest in
         TCI and benefits upon retirement.  Under the terms of the ESPP,
         employees are eligible for participation after one year of service.
         The ESPP's normal retirement age is 65 years.  Participants may
         contribute up to 10% of their compensation and TCI (by annual
         resolution of the Board of Directors) may contribute up to 100% of the
         participants' contributions.  The ESPP includes a salary deferral
         feature in respect of employee contributions.  Forfeitures (due to
         participants' withdrawal prior to full vesting) are used to reduce
         TCI's otherwise determined contributions.  Generally, participants
         acquire a vested right in TCI contributions as follows:

<TABLE>
<CAPTION>
                    Years of service                  Vesting Percentage
                    ----------------                  ------------------
                    <S>                                     <C> 
                    Less than 1                              0   
                          1-2                               20  
                          2-3                               30  
                          3-4                               45  
                          4-5                               60  
                          5-6                               80  
                          6 or more                        100 
</TABLE>

         Participant contributions are fully vested.  Although TCI has not
         expressed an intent to terminate the ESPP, it may do so, at any time.
         The ESPP provides for full and immediate vesting of all participants'
         rights upon termination.  In each of the years ending December 31,
         1995, 1994 and 1993, TCI contributed $15,000 to the ESPP for Dr.
         Malone and Mr. Fisher.  In the year ending December 31, 1995, TCI
         contributed $15,000 to the ESPP for Mr. Magness.

(11)     Includes fees paid to directors for attendance at each meeting of the
         Board of Directors ($500 per meeting).  During 1995, 1994 and 1993, a
         total of $2,500 of such fees, respectively, were paid to each of Dr.
         Malone, Mr.  Magness and Mr. Fisher.

                                                                     (continued)





                                     III-6
<PAGE>   285
    (b)      Option/SAR Grants Table of Tele-Communications, Inc.  The
following table shows all individual grants of stock options and stock
appreciation rights ("SARs") granted to each of the named executive officers of
TCI during the year ended December 31, 1995:

<TABLE>
<CAPTION>
                        Number of
                        Securities
                        Underlying      % of Total
                         Options/      Options/SARs                     Market
                           SARs          Granted       Exercise or     Price on                           Grant Date
                          Granted      to Employees    Base Price     Grant Date       Expiration       Present Value
Name                        (#)       in Fiscal Year     ($/Sh)         ($/Sh)            Date               ($)      
----                    -----------  ----------------  -----------    -----------     -------------    ---------------
<S>                    <C>                <C>            <C>           <C>             <C>               <C>
Bob Magness
   Series A            1,000,000          (1)            $17.00        $20.625 (5)     August 4, 2005    $14,133,800 (8)
   Liberty Series A      250,000          (1)            $24.00        $26.25  (6)     August 4, 2005    $ 4,543,150 (9)

John C. Malone
   Series A            1,000,000          (2)            $17.00        $20.625 (5)     August 4, 2005    $14,133,800 (8)
   Liberty Series A      250,000          (2)            $24.00        $26.25  (6)     August 4, 2005    $ 4,543,150 (9)

Fred A. Vierra
   TINTA Series A        400,000          (3)            $16.00        $25.375 (7)     August 4, 2005    $ 6,913,440 (10)

Brendan R. Clouston
   Series A            1,000,000          (4)            $17.00        $20.625 (5)     August 4, 2005    $14,133,800 (8)
</TABLE>

_________________________

(1)      On December 13, 1995, pursuant to an incentive plan subject to the
         approval of shareholders (the "1996 Plan"), certain executive officers
         of TCI, including Dr. Malone and Mr. Magness, were granted an
         aggregate of 2,000,000 options in tandem with stock appreciation
         rights to acquire shares of Series A Stock and 1,100,000 options in
         tandem with stock appreciation rights to acquire shares of Liberty
         Series A Stock.  Each such grant of options with tandem stock
         appreciation rights vests evenly over five years with such vesting
         period beginning August 4, 1995, first becomes exercisable beginning
         on August 4, 1996 and expires on August 4, 2005.  Mr. Magness' grant
         of 1,000,000 options in tandem with stock appreciation rights to
         purchase Series A Stock represents 50% of the total options granted to
         purchase Series A Stock pursuant to the 1996 Plan and, together with
         the options granted to purchase Series A Stock described in note 4
         below, represents 13.5% of all options granted in 1995 to purchase
         Series A Stock.  Additionally, Mr. Magness' grant of 250,000 options
         in tandem with stock appreciation rights to purchase Liberty Series A
         Stock represents 22.7% of the total options granted to purchase
         Liberty Series A Stock pursuant to the 1996 Plan and, together with
         the options granted to purchase Liberty Series A Stock described in
         note 4 below, represents 11.3% of all options granted in 1995 to
         purchase Liberty Series A Stock.

(2)      Dr. Malone's grant of 1,000,000 options in tandem with stock
         appreciation rights to purchase Series A Stock represents 50% of the
         total options granted to purchase Series A Stock pursuant to the 1996
         Plan and, together with the options granted to purchase Series A Stock
         described in note 4 below, represents 13.5% of all options granted in
         1995 to purchase Series A Stock.  Additionally, Dr. Malone's grant of
         250,000 options in tandem with stock appreciation rights to purchase
         Liberty Series A Stock represents 22.7% of the total options granted
         to purchase Liberty Series A Stock pursuant to the 1996 Plan and,
         together with the options granted to purchase Liberty Series A Stock
         described in note 4 below, represents 11.3% of all options granted in
         1995 to purchase Liberty Series A Stock.

                                                                     (continued)





                                     III-7
<PAGE>   286
(3)      On December 13, 1995, pursuant to the International Plan, certain
         executive officers and other key employees of TCI were granted an
         aggregate of 1,302,000 options in tandem with stock appreciation
         rights to acquire shares of TINTA Series A Stock.  Additionally, one
         executive officer of TCI was granted an aggregate of 50,000 options
         in tandem with stock appreciation rights to acquire from TCI shares of
         TINTA Series A Stock owned by it.  Each such grant of options vests
         evenly over 5 years with such vesting period beginning August 4, 1995,
         first becomes exercisable beginning August 4, 1996 and expires on
         August 4, 2005.  Mr. Vierra's grant of 400,000 options in tandem with
         stock appreciation rights represents 30.7% of the total options
         granted pursuant to the International Plan and, together with the
         grant by TCI of options in tandem with stock appreciation rights to
         purchase its ownership of TINTA Series A Stock, represents 29.6% of
         all options granted in 1995 to purchase TINTA Series A Stock.

(4)      On December 13, 1995, pursuant to the 1994 Plan, certain executive
         officers were granted an aggregate of 2,650,000 options in tandem with
         stock appreciation rights to acquire shares of Series A Stock and an
         aggregate of 675,000 options in tandem with stock appreciation rights
         to acquire shares of Liberty Series A Stock.  Additionally, the
         Company has a stock incentive plan, the Tele-Communications, Inc. 1995
         Stock Incentive Plan (the "1995 Plan").  On December 13, 1995,
         pursuant to the 1995 Plan, certain key employees were granted an
         aggregate of 2,757,500 options in tandem with stock appreciation
         rights to acquire shares of Series A Stock and an aggregate of 436,000
         options in tandem with stock appreciation rights to acquire shares of
         Liberty Series A Stock.  Each such grant of options with tandem stock
         appreciation rights vests evenly over five years with such vesting
         period beginning August 4, 1995, first becomes exercisable beginning
         on August 4, 1996 and expires on August 4, 2005.  Mr. Clouston's
         grant, pursuant to the 1994 Plan, of 1,000,000 options in tandem with
         stock appreciation rights to acquire shares of Series A Stock
         represents 37.7% of the total options granted to purchase Series A
         Stock pursuant to the 1994 Plan and, together with the options granted
         to purchase Series A Stock pursuant to the 1995 Plan and the 1996
         Plan, represents 13.5% of all options granted in 1995 to purchase
         Series A Stock.

(5)      Represents the closing market price per share of Series A Stock on
         December 13, 1995.

(6)      Represents the closing market price per share of Liberty Series A
         Stock on December 13, 1995.

(7)      Represents the closing market price per share of TINTA Series A Stock
         on December 13, 1995.

(8)      The values shown 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 this calculation include
         the following: (a) a 5.65% discount rate; (b) a volatility factor
         based upon the historical trading pattern of Series A Stock; (c) the
         10-year option term; and (d) the closing price of Series A Stock on
         February 8, 1996.  The actual value an executive may realize will
         depend upon the extent to which the stock price exceeds the exercise
         price on the date the option is exercised.  Accordingly, the value, if
         any, realized by an executive will not necessarily be the value
         determined by the model.


                                                                     (continued)





                                     III-8
<PAGE>   287
(9)      The values shown 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 this calculation include
         the following: (a) a 5.65% discount rate; (b) a volatility factor
         based upon the historical trading pattern of Liberty Series A Stock;
         (c) the 10-year option term; and (d) the closing price of Liberty
         Series A Stock on February 8, 1996.  The actual value an executive may
         realize will depend upon the extent to which the stock price exceeds
         the exercise price on the date the option is exercised.  Accordingly,
         the value, if any, realized by an executive will not necessarily be
         the value determined by the model.

(10)     The values shown 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 this calculation include
         the following: (a) a 5.75% discount rate; (b) a volatility factor
         based upon the historical trading pattern of TINTA Series A Stock; (c)
         the 10-year option term; and (d) the closing price of TINTA Series A
         Stock on January 15, 1996.  The actual value an executive may realize
         will depend upon the extent to which the stock price exceeds the
         exercise price on the date the option is exercised.  Accordingly, the
         value, if any, realized by an executive will not necessarily be the
         value determined by the model.

                                                                     (continued)





                                     III-9
<PAGE>   288
    (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, 1995 by
each of the named executive officers of TCI and the December 31, 1995 number
and year-end value of unexercised options and SARs on an aggregated basis:

<TABLE>
<CAPTION>
                                                                                   Number of
                                                                                   Securities         Value of
                                                                                   Underlying        Unexercised
                                                                                   Unexercised      In-the-Money
                                                                                   Options/SARs      Options/SARs
                                                                                       at                at
                                                                                   December 31,      December 31,
                                                                                     1995 (#)          1995 ($)
                                      Shares Acquired         Value Realized       Exercisable/      Exercisable/
          Name                         on Exercise (#)             ($)             Unexercisable     Unexercisable
          -----                      ------------------  -----------------------   -------------     -------------
          <S>                               <C>           <C>                           <C>             <C>
          Bob Magness                                                           
             Exercisable                                                        
                Series A                       --                      --                 600,000        $ 4,425,000
                Liberty Series A               --                      --                 150,000        $ 1,518,750
             Unexercisable                                                      
                Series A                       --                      --               1,400,000        $ 5,825,000
                Liberty Series A               --                      --                 350,000        $ 1,731,250
                                                                                
          John C. Malone                                                        
             Exercisable                                                        
                Series A                       --                      --                 600,000        $ 4,425,000
                Liberty Series A               --                      --                 150,000        $ 1,518,750
             Unexercisable                                                      
                Series A                       --                      --               1,400,000        $ 5,825,000
                Liberty Series A               --                      --                 350,000        $ 1,731,250
                                                                                
          Fred A. Vierra                                                        
             Exercisable                                                        
                Series A                    9,714             $   100,054                 150,000        $   946,250
                Liberty Series A               --                      --                  37,500        $   327,188
                TINTA Series A                 --                      --                      --                 --
             Unexercisable                                                      
                Series A                       --                      --                 250,000        $ 1,203,750
                Liberty Series A               --                      --                  62,500        $   422,813
                TINTA Series A                 --                      --                 400,000        $ 2,700,000
                                                                                
          Brendan R. Clouston                                                   
             Exercisable                                                        
                Series A                       --             $ 2,396,875 (1)             265,000        $ 1,794,375
                Liberty Series A               --             $   873,438 (1)              66,250        $   618,281
             Unexercisable                                                      
                Series A                       --                      --               1,610,000        $ 6,733,750
                Liberty Series A               --                      --                 152,500        $ 1,334,063
                                                                                
          Donne F. Fisher                                                       
             Exercisable                                                        
                Series A                       --                      --                  40,000        $   135,000
                Liberty Series A               --                      --                  10,000        $    48,750
             Unexercisable                                                      
                Series A                       --                      --                 160,000        $   540,000
                Liberty Series A               --                      --                  40,000        $   195,000
</TABLE>
-----------------------                                                        

                                                                     (continued)





                                     III-10
<PAGE>   289
(1)      Mr. Clouston received an aggregate payment of $3,270,313 from the
         Company (based on the market value of Series A Stock of $19.875 per
         share and Liberty Series A Stock of $27.50 per share) in September of
         1995, in cancellation of his options with tandem stock appreciation
         rights covering 325,000 shares of Series A Stock and 81,250 shares of
         Liberty Series A Stock.

         (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 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 receives additional compensation of $30,000 per
year.  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
that 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 Series A Stock and 12,500 shares of Liberty Series A Stock.
Such options have a purchase price of $16.50 per share and $22.00 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.  The exercise price of each
such subsequently granted option will be equal to the fair market value of the
Series A Stock 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 Series A Stock
as reported on the Nasdaq Stock Market 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 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 1995 in addition to or
in lieu of that specified by the aforedescribed standard arrangement.


                                                                     (continued)





                                     III-11
<PAGE>   290
         (e)     Employment Contracts and Termination of Employment and Change
of Control Arrangements.  Effective November 1, 1992 the employment agreements
between TCIC and Mr. Magness and Dr. Malone, as amended, were further amended
and restated.  Pursuant to an Assignment and Assumption Agreement, dated August
4, 1994, the payment, performance and other obligations of such employment
agreements were assumed by TCI.  The term of each agreement is extended daily
so that the remainder of the employment term shall at all times on and prior to
the effective date of the termination of employment as provided by each
agreement be five years.  Dr. Malone's and Mr. Magness' employment agreements
provide for annual salaries of $800,000, subject to increase upon approval of
the board of directors.  During 1995, Dr. Malone and Mr. Magness were each
given a salary increase such that their annual salary is currently $850,000.
Additionally, these employment agreements provide 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 (40% in 1993 and not in excess of 40% thereafter) of the
monthly compensation payable to him.  Pursuant to a letter agreement entered
into between Dr. Malone and the Company subsequent to the date of his
employment agreement, Dr. Malone deferred $150,000 in 1993 in lieu of 40% of
his compensation for such year.  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, discussed below.

         Mr. Magness' and Dr. Malone's agreements described above also provide
that upon termination of such executive's employment by the Company (other than
for cause, as defined in the agreement), or if Mr. Magness or 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 and Mr. Magness' agreements provide that during their
employment with the Company and for a period of two years following the
effective date of their termination of employment with the Company, unless
termination results from a change in control of the Company, they will not be
connected with any entity in any manner, as defined in the agreement, which
competes in a material respect with the business of the Company.  However, the
agreements provide that both executives may own securities of any corporation
listed on a national securities exchange or quoted in the Nasdaq System to the
extent of an aggregate of 5% of the amount of such securities outstanding.

         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.


                                                                     (continued)





                                     III-12
<PAGE>   291
         The Company pays a portion of the annual premiums (equal to the
"PS-58" costs) 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.

         Effective January 1, 1992, the Company entered into an employment
agreement with Mr. Fisher which provided for a salary of $375,000 in the first
year with annual increases of $25,000 in each succeeding year of his employment
term.  The term of the agreement (of which his initial term was January 1, 1992
through December 31, 1996) was extended daily so that the remainder of the
employment term shall at all times be five years unless Mr. Fisher's employment
was terminated as provided by the agreement.  Mr. Fisher's employment agreement
provided for the restricted stock grant of WestMarc preferred stock discussed
in Item 13 below and provided for personal use of the Company's aircraft and
flightcrew, limited to an aggregate value of $35,000 per year.

         Effective January 1, 1996, Mr. Fisher resigned as an executive officer
of the Company and the Company and Mr.  Fisher 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:  (i)
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
(ii) from and after January 1, 2001 throughout the balance of the Term, 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.


                                                                     (continued)





                                     III-13
<PAGE>   292
         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.

         Mr. Fisher's consulting agreement provides that during its term, Mr.
Fisher will not be connected in any manner specified 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 in the Nasdaq System to the extent of an aggregate of 5% of the
amount of such securities outstanding.

         International and TCI have entered into an Amended and Restated
Employment Agreement with Mr. Vierra relating to Mr. Vierra's employment with
International as Vice Chairman and Chief Executive Officer, providing for a
base salary of $650,000 per year.  Mr. Vierra's salary is subject to annual
review by the board of directors, which may in its sole discretion increase his
salary.  Mr. Vierra's salary for 1995 is currently set at $650,000.  Mr.
Vierra's employment agreement provides for the deferral of a portion of each
monthly salary payment so as to result in the deferral of salary at the rate of
$250,000 per annum.  The deferred amounts are to be paid in monthly
installments over a 240-month period commencing on the later of December 31,
1998 and the termination of Mr. Vierra's full-time employment with
International, together with interest thereon at the rate of 8% per annum
compounded annually from the date of deferral to the payment date.  In the
event of Mr. Vierra's death, all outstanding deferred amounts will be paid in a
lump sum to his beneficiaries.

         While he is employed by International pursuant to his employment
agreement, Mr. Vierra 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 or International's executive officers or employees generally.
Additionally, Mr. Vierra's employment agreement provides for personal use of
TCI's aircraft and flight crew, limited to an aggregate value of $35,000 per
year.

         Mr. Vierra's employment agreement has a stated termination date of
December 31, 1998.  It also provides that upon an earlier termination of Mr.
Vierra's employment by International without cause, all remaining compensation
due under such agreement for the balance of the employment term would become
immediately due and payable to Mr. Vierra.  Upon his death during the
employment term, International would pay to Mr. Vierra's beneficiaries a lump
sum in an amount equal to the lesser of (i) the compensation due under his
employment agreement for the balance of the employment term and (ii) one year's
salary.  In the event of his disability, International would continue to pay
Mr. Vierra 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.


                                                                     (continued)





                                     III-14
<PAGE>   293
         Mr. Vierra's agreement further provides that during his employment
with International and for the longer of a period of two years following the
effective date of his termination of employment or if Mr. Vierra terminates his
employment before the end of the term of his employment in breach of the
employment agreement, or if Mr. Vierra is terminated "for cause" (as defined in
the employment agreement) by International, until December 31, 1998 with
International, he will not be connected with any entity in any manner, as
defined in the agreement, which competes in a material respect with the
business of International or any of International's or TCI's majority owned
subsidiaries.  However, the agreement provides that Mr. Vierra may own
securities of any corporation listed on a national securities exchange or
quoted in the Nasdaq National Market System to the extent of an aggregate of 5%
of the amount of such securities outstanding.  Under the employment agreement,
substantially all of Mr. Vierra's business time, attention and efforts will be
devoted to the affairs of International.

         (f)     Additional information with respect to Compensation Committee
Interlocks and Insider Participation in Compensation Decisions.

         The members of the Company's compensation committee are Messrs. Robert
A. Naify and John W. Gallivan, both directors of the Company.  Neither Mr.
Naify nor Mr. Gallivan are or were officers of the Company or any of its
subsidiaries.

         Dr. Malone is an executive officer and a director of TCI and is
Chairman of the Board and a member of the compensation committee of
International.  Also, Mr. Kern is a director of TCI and a partner with the law
firm of Baker & Botts, L.L.P., the principal outside counsel for TCI.  He is
also a director and member of the compensation committee of International.

         Mr. R.E. Turner, a director of the Company through October 4, 1995, is
the Chairman of the Board and President of Turner Broadcasting System, Inc.
("TBS") and the beneficial owner of 67.6% of the total voting power of all
outstanding TBS stock as of December 31, 1995.  Mr. Fred A. Vierra, an Executive
Vice President of the Company, serves on the compensation committee of the Board
of Directors of TBS.  During the year ended December 31, 1995, the Company and
its affiliates paid approximately $128 million to purchase certain cable
television programming from TBS.

         During the year ended December 31, 1995, the Company paid
approximately $1.8 million to TBS relating to the lease of a satellite
transponder.  The Company is committed to pay approximately $9 million through
the year 2000 pursuant to such lease.

         During the year ended December 31, 1995, the Company and its
affiliates paid license fees of approximately $1.5 million to TBS for the
rights to exhibit certain motion pictures.

         The TBS SuperStation signal is retransmitted by a common carrier,
Southern Satellite Systems, Inc.  ("Southern"), which is controlled by an
indirect wholly-owned subsidiary of the Company.  Southern is compensated by
the local cable systems receiving the retransmission of the TBS SuperStation
and does not have a contract with, or receive compensation from, TBS with
respect to such retransmission.

         TBS and the Company each own a 44% indirect interest in SportSouth
Network, Ltd.  ("SportSouth"), a limited partnership that operates a regional
sports network serving the Southeast United States.  SportSouth's revenue is
primarily derived from the sale of advertising and the subscription sale of its
service to cable television operators.





                                     III-15
<PAGE>   294
Item 12.         Security Ownership of Certain Beneficial Owners and
                 Management.

         (a)     Security ownership of certain beneficial owners.  The following
table sets forth, as of January 31, 1996, information with respect to the
ownership of Series A Stock , Series B Stock, Liberty Series A Stock, Liberty
Series B Stock, TCI Group Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock ("Class B Preferred Stock"), Convertible Preferred Stock, Series
C ("Series C 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.  Shares issuable upon exercise or conversion of
convertible securities are deemed to be outstanding for the purpose of computing
the percentage of ownership and overall voting power of persons beneficially
owning such convertible 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 TCI Class B Preferred Stock,
the Series G Preferred Stock and the Series H Preferred Stock are included in
the calculation.  The number of shares of Dr. Malone includes interests of such
individual in shares held by the trustee of TCI's ESPP.  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 and except for the shares held by the trustee of the ESPP
for the benefit of Dr. Malone, which shares are voted at the discretion of the
trustee.

<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>
 Series A              Bob Magness, Chairman of            5,626,938 (2)(3)(4)            *           26.2%
 Series B                 the Board and a Director        37,132,076 (2)(4)(7)         43.9%
 Liberty Series A      5619 DTC Parkway                    1,406,734 (2)(3)(4)            *
 Liberty Series B      Englewood, Colorado                 9,283,019 (2)(4)(7)         43.8%
 Class B Pref.                                               125,000                    7.7%
 Series C Pref.                                                   --                     --
 Series G Pref.                                                   --                     --
 Series H Pref.                                                   --                     --

 Series A              John C. Malone, President           2,171,395 (5)                  *           17.8%
 Series B                 and a Director                  25,287,083 (6)(7)(8)         29.9%
 Liberty Series A      5619 DTC Parkway                      542,819 (5)                  *
 Liberty Series B      Englewood, Colorado                 6,349,270 (6)(7)(8)         30.0%
 Class B Pref.                                               306,000 (6)(8)            18.9%
 Series C Pref.                                                   --                     -- 
 Series G Pref.                                                   --                     -- 
 Series H Pref.                                                   --                     -- 

 Series A              Kearns-Tribune Corporation          8,792,514 (4)                1.5%           7.0%
 Series B              400 Tribune Building                9,112,500 (4)(7)            10.8%
 Liberty Series A      Salt Lake City, Utah                2,198,128 (4)                1.5% 
 Liberty Series B                                          2,278,125 (4)(7)            10.8%
 Class B Pref                                                     --                     -- 
 Series C. Pref                                                   --                     -- 
 Series G Pref.                                                   --                     -- 
 Series H Pref.                                                   --                     -- 
</TABLE>


                                                                     (continued)





                                     III-16
<PAGE>   295
<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>
 Series A              The Associated Group, Inc.          12,479,976               2.2%           5.8%
 Series B              200 Gateway Towers                   7,071,852               8.4%
 Liberty Series A      Pittsburgh, Pennsylvania             3,119,994               2.2%
 Liberty Series B                                           1,767,963               8.3%
 Class B Pref.                                                 41,598               2.6%
 Series C Pref.                                                    --                --
 Series G Pref.                                                    --                --
 Series H Pref.                                                    --                --

 Series A              The Equitable Companies             41,193,448 (9)           7.2%           3.1%
 Series B                 Incorporated                             --                --
 Liberty Series A      787 Seventh Avenue                  14,685,004 (10)         10.3%
 Liberty Series B      New York, New York; and                     --                --
 Class B Pref.         The Mutuelles AXA and AXA                   --                --
 Series C Pref.        101-100 Terrasse Boieldieu                  --                --
 Series G Pref.        92042 Paris La Defense                      --                --
 Series H Pref.        France                                      --                --

 Series A              The Capital Group                   39,546,870 (11)          6.9%           2.9%
 Series B                 Companies, Inc.                          --                --
 Liberty Series A      333 South Hope Street               13,037,740 (12)          9.1%
 Liberty Series B      Los Angeles, California                     --                --
 Class B Pref.                                                     --                --
 Series C Pref.                                                    --                --
 Series G Pref.                                                    --                --
 Series H Pref.                                                    --                --

 Series A              Bill Daniels                               259 (13)            *              *  
 Series B              c/o Daniels & Associates                    --                --   
 Liberty Series A      3200 Cherry Creek Drive South               64 (13)            *  
 Liberty Series B      Denver, Colorado                            --                --   
 Class B Pref.                                                     --                --     
 Series C Pref.                                                70,575               100%
 Series G Pref.                                                    --                --
 Series H Pref.                                                    --                --

 Series A              Lawrence Flinn, Jr.                  1,102,500 (13)            *              *  
 Series B              209 Taconic Road                        24,000 (13)            *   
 Liberty Series A      Greenwich, Connecticut                 275,611 (13)            *  
 Liberty Series B                                               6,000 (13)            *   
 Class B Pref.                                                     --                --     
 Series C Pref.                                                    --                -- 
 Series G Pref.                                             6,186,647 (13)         85.2%
 Series H Pref.                                             6,186,647 (13)         85.2%

 Series A              Cedefast                                    --                --              *  
 Series B              Box 20                                      --                --   
 Liberty Series A      Bowling Green Station                       --                --  
 Liberty Series B      New York, New York                          --                --   
 Class B Pref.                                                     --                --     
 Series C Pref.                                                    --                -- 
 Series G Pref.                                               484,954 (13)          6.7%
 Series H Pref.                                               484,954 (13)          6.7%
</TABLE>


____________________

*  Less than one percent.

(1)      Based on 571,692,645 shares of Series A Stock (after elimination of
         shares of TCI held by subsidiaries of TCI), 84,685,554 shares of
         Series B Stock, 142,896,264 shares of Liberty Series A Stock,
         21,196,868 shares of Liberty Series B Stock, 1,620,026 shares of Class
         B Preferred Stock, 70,575 shares of Series C Preferred Stock,
         7,259,380 shares of Series G Preferred Stock and 7,259,380 shares of
         Series H Preferred Stock outstanding on January 31, 1996.


                                                                     (continued)





                                     III-17
<PAGE>   296
(2)      Mr. Magness, as executor of the Estate of Betsy Magness, is the
         beneficial owner of all shares of Series A Stock, Series B Stock,
         Liberty Series A Stock and  Liberty Series B Stock held of record by
         the Estate of Betsy Magness.  The number of shares held by Mr. Magness
         includes 2,105,332 shares of Series A Stock, 6,346,212 shares of
         Series B Stock, 526,333 shares of Liberty Series A Stock and 1,586,553
         shares of Liberty Series B Stock of which Mr. Magness is beneficial
         owner as executor.

(3)      Assumes the exercise in full of  stock options granted in tandem with
         stock appreciation rights in November of 1992 to acquire 1,000,000
         shares of Series A Stock and 250,000 shares of Liberty Series A Stock.
         Options to acquire 600,000 and 150,000 shares of Series A Stock and
         Liberty Series A Stock, respectively, are currently exercisable.
         Additionally assumes the exercise in full of stock options granted in
         tandem with stock appreciation rights in December of 1995 to acquire
         1,000,000 shares of Series A Stock and 250,000 shares of Liberty
         Series A Stock.  None of the options are exercisable until August 4,
         1996.  Such grant is subject to the approval by shareholders of the
         1996 Plan.  See note 1 to the table in Item 11(b) for additional
         information.

(4)      Mr. Magness and Kearns are parties to a buy-sell agreement, entered
         into in October of 1968, as amended, under which neither party may
         dispose of their shares without notification of the proposed sale to
         the other, who may then buy such shares at the offered price, sell all
         of their shares to the other at the offered price or exchange one of
         their Series A shares for each Series B share or one of their Liberty
         Series A shares for each Liberty Series B hare held by the other and
         purchase any remaining Series B shares or Liberty Series B shares at
         the offered price.  There are certain exceptions, including transfers
         to specified persons or entities, certain public sales of Series A
         shares or Liberty Series A shares and exchanges of Series A shares for
         Series B shares or Liberty Series A shares for Liberty Series B
         shares.

(5)      Assumes the exercise in full of stock options granted in tandem with
         stock appreciation rights in November of 1992 to acquire 1,000,000
         shares of Series A Stock and 250,000 shares of Liberty Series A Stock.
         Options to acquire 600,000 and 150,000 shares of Series A Stock and
         Liberty Series A Stock, respectively, are currently exercisable.
         Additionally assumes the exercise in full of stock options granted in
         tandem with stock appreciation rights in December of 1995 to acquire
         1,000,000 shares of Series A Stock and 250,000 shares of Liberty
         Series A Stock.  None of the options are exercisable until August 4,
         1996.  Such grant is subject to the approval by shareholders of the
         1996 Plan.  See note 2 to the table in Item 11(b) for additional
         information.

(6)      Includes 1,173,000 shares of Series B Stock, 293,250 shares of Liberty
         Series B Stock and 6,900 shares of Class B Preferred Stock held by Dr.
         Malone's wife, Mrs. Leslie Malone, but Dr. Malone has disclaimed any
         beneficial ownership of such shares.

(7)      Pursuant to a letter agreement, dated June 17, 1988, Mr. Magness and
         Kearns each agreed with Dr. Malone that prior to making a disposition
         of a significant portion of their respective holdings of Series B
         Stock or Liberty Series B Stock, he or it would first offer Dr. Malone
         the opportunity to purchase such shares.


                                                                     (continued)





                                     III-18
<PAGE>   297
(8)      The number of shares of Series B Stock, Liberty Series B Stock and
         Class B Preferred Stock held by Dr. Malone includes 3,120,000, 780,000
         and 40,000 TCI Restricted Voting Shares, respectively, that are
         subject to repurchase by TCI under certain circumstances.  Until they
         cease to be subject to TCI's repurchase right (March 28, 1996), such
         shares may not be transferred and, with respect to any matter
         submitted to a vote of the stockholders of TCI, the votes represented
         thereby will be cast in the same proportion as all other votes are
         cast with respect to such matter.  The number of shares of Series A
         Stock, Series B Stock, Liberty Series A Stock, Liberty Series B Stock
         and Class B Preferred Stock held by Dr. Malone which are not subject
         to such repurchase rights and voting requirements represent 16.1% of
         the total voting power of the shares of TCI common stock, TCI Class B
         Preferred Stock and Series C Preferred Stock outstanding (excluding
         3,120,000, 780,000 and 40,000 TCI Restricted Voting Shares from such
         total voting power).

(9)      The number of shares in the table is based upon a Schedule 13G, dated
         February 9, 1996, filed by The Equitable Companies Incorporated which
         Schedule 13G reflects that said corporation has sole voting power over
         30,729,443 shares and shared voting power over 1,002,725 shares of
         Series A Stock.  No information is given with respect to voting power
         over the remaining shares.

(10)     The number of shares in the table is based upon a Schedule 13G, dated
         January 9, 1996, filed by the Equitable Companies Incorporated which
         Schedule 13G reflects that said corporation has sole voting power over
         11,219,798 shares and shared voting power over 273,681 shares of
         Liberty Series A Stock.  No information is given with respect to
         voting power over the remaining shares.

(11)     Certain operating subsidiaries of The Capital Group Companies, Inc.
         exercised investment discretion over various institutional accounts
         which held as of December 29, 1995, 39,546,870 shares of Series A
         Stock.  Capital Guardian Trust Company, a bank, and one of such
         operating companies, exercised investment discretion over 3,636,820 of
         said shares.  Capital Research and Management Company, a registered
         investment advisor, and Capital International Limited and Capital
         International, S.A., other operating subsidiaries, had investment
         discretion with respect to 35,565,750, 137,770 and 206,510 shares,
         respectively, of the above shares.

(12)     Certain operating subsidiaries of The Capital Group Companies, Inc.
         exercised investment discretion over various institutional accounts
         which held as of December 29, 1995, 13,037,740 shares of Liberty
         Series A Stock.  Capital Guardian Trust Company, a bank, and one of
         such operating companies, exercised investment discretion over
         3,123,430 of said shares.  Capital Research and Management Company, a
         registered investment advisor, and Capital International Limited and
         Capital International, S.A., other operating subsidiaries, had
         investment discretion with respect to 9,825,430, 34,440 and 54,420
         shares, respectively, of the above shares.

(13)     Based upon the Company's review of the record of shareholders provided
         by the Company's transfer agent, The Bank of New York.

                                                                     (continued)





                                     III-19
<PAGE>   298
    (b)      Security ownership of management.  The following table sets forth,
as of January 31, 1996, information with respect to the ownership of TCI voting
securities (Series A Stock, Series B Stock, Liberty Series A Stock, Liberty
Series B Stock (other than directors' qualifying shares), Class B Preferred
Stock, Series C Preferred Stock, Series G Preferred Stock and Series H
Preferred Stock), TCIC voting securities (Class A common stock ("Class A
Stock"), Class B common stock ("Class B Stock"), and Cumulative Exchangeable
Preferred Stock, Series A ("Series A Preferred Stock")) and International
voting securities (Series A Tele-Communications International, Inc. common
stock ("TINTA Series A Stock") and Series B Tele-Communications International,
Inc. common stock ("TINTA Series B Stock")) 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 or conversion of convertible
securities and upon vesting of restricted shares 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.  The number of Series A Stock,
Series B Stock, Liberty Series A Stock and Liberty Series B 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
TCI's ESPP and shares held by the trustee of UAE'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 and except for the shares held by the trustee of TCI's ESPP for the
benefit of such person, which shares are voted at the discretion of the
trustee.


                                                                     (continued)





                                     III-20
<PAGE>   299
<TABLE>
<CAPTION>
                                                                                         Percent       Voting
                                 Name of              Amount and Nature            of Class       Power
    Title of Class          Beneficial Owner       of Beneficial Ownership         (1)(2)(3)    (1)(2)(3)
    --------------          ----------------       -----------------------         ---------    ---------
 <S>                    <C>                               <C>                        <C>           <C>
 Series A               Bob Magness                        5,626,938 (4)                *          26.2%
 Series B                                                 37,132,076 (4)             43.9%
 Liberty Series A                                          1,406,734 (4)                *
 Liberty Series B                                          9,283,019 (4)             43.8%
 Class B Pref.                                               125,000 (4)              7.7%
 Series C Pref.                                                   --                   --
 Series G Pref.                                                   --                   --
 Series H Pref.                                                   --                   --
 TINTA Series A                                              450,000                    *             *
 TINTA Series B                                                   --                   --
 Class A                                                          --                   --            --
 Class B                                                          --                   --
 Series A Pref.                                                   --                   --
                                                                                
 Series A               John C. Malone                     2,171,395 (5)                *          17.8%
 Series B                                                 25,287,083 (5)             29.9%
 Liberty Series A                                            542,819 (5)                *
 Liberty Series B                                          6,349,270 (5)             30.0%
 Class B Pref.                                               306,000 (5)             18.9%
 Series C Pref.                                                   --                   --
 Series G Pref.                                                   --                   --
 Series H Pref.                                                   --                   --
 TINTA Series A                                              450,000                    *             *
 TINTA Series B                                                   --                   --
 Class A                                                          --                   --            --
 Class B                                                          --                   --
 Series A Pref.                                                   --                   --
                                                                                
                                                                                
 Series A               Donne F. Fisher                      536,367 (6)                *             *
 Series B                                                    249,072                    *
 Liberty Series A                                            136,358 (6)                *
 Liberty Series B                                             62,268                    *
 Class B Pref.                                                 3,464                    *
 Series C Pref.                                                   --                   --
 Series G Pref.                                                   --                   --
 Series H Pref.                                                   --                   --
 TINTA Series A                                                   --                   --            --
 TINTA Series B                                                   --                   --
 Class A                                                          --                   --            --
 Class B                                                          --                   --
 Series A Pref.                                                   --                   --
                                                                                
 Series A               John W. Gallivan                      52,124 (7)(17)            *             *
 Series B                                                         --                   -- 
 Liberty Series A                                             13,031 (7)(17)            * 
 Liberty Series B                                                 --                   -- 
 Class B Pref.                                                    14 (17)               * 
 Series C Pref.                                                   --                   -- 
 Series G Pref.                                                   --                   -- 
 Series H Pref.                                                   --                   -- 
 TINTA Series A                                                   --                   --            --
 TINTA Series B                                                   --                   -- 
 Class A                                                          --                   --            --
 Class B                                                          --                   -- 
 Series A Pref.                                                   --                   -- 
</TABLE>
                                                                     (continued)





                                     III-21
<PAGE>   300
<TABLE>
<CAPTION>
                                                                                Percent         Voting
                                 Name of              Amount and Nature         of Class         Power
    Title of Class          Beneficial Owner        of Beneficial Ownership     (1)(2)(3)       (1)(2)(3)
    --------------          ----------------        -----------------------     ---------       ---------
 <S>                    <C>                                 <C>                      <C>             <C>
 Series A               Kim Magness                          50,000 (8)               *               *
 Series B                                                   518,000                   *
 Liberty Series A                                            12,500 (8)               *
 Liberty Series B                                           129,500                   *
 Class B Pref.                                                   --                  --
 Series C Pref.                                                  --                  --
 Series G Pref.                                                  --                  --
 Series H Pref.                                                  --                  --
 TINTA Series A                                               2,000                   *               *
 TINTA Series B                                                  --                  --
 Class A                                                         --                  --              --
 Class B                                                         --                  --
 Series A Pref.                                                  --                  --
                                                                            
 Series A               Jerome H. Kern                    2,050,000 (9)               *               *
 Series B                                                        --                  --
 Liberty Series A                                           512,500 (9)               *
 Liberty Series B                                                --                  --
 Class B Pref.                                                   --                  --
 Series C Pref.                                                  --                  --
 Series G Pref.                                                  --                  --
 Series H Pref.                                                  --                  --
 TINTA Series A                                                  --                  --              --
 TINTA Series B                                                  --                  --
 Class A                                                         --                  --              --
 Class B                                                         --                  --
 Series A Pref.                                                  --                  --
                                                                            
 Series A               Tony Coehlo                         150,800 (10)              *               *
 Series B                                                        --                  --
 Liberty Series A                                            12,700 (10)              *
 Liberty Series B                                                --                  --
 Class B Pref.                                                   --                  --
 Series C Pref.                                                  --                  --
 Series G Pref.                                                  --                  --
 Series H Pref.                                                  --                  --
 TINTA Series A                                               1,000                   *               *
 TINTA Series B                                                  --                  --
 Class A                                                         --                  --              --
 Class B                                                         --                  --
 Series A Pref.                                                  --                  --
                                                                            
 Series A               Robert A. Naify                  23,697,826 (11)            4.0%            1.6%
 Series B                                                        --                  --
 Liberty Series A                                         5,922,192 (11)            4.0%
 Liberty Series B                                                --                  --
 Class B Pref.                                                1,000                   *
 Series C. Pref                                                  --                  --
 Series G Pref.                                                  --                  --
 Series H Pref.                                                  --                  --
 TINTA Series A                                                  --                  --              --
 TINTA Series B                                                  --                  --
 Class A                                                         --                  --              --
 Class B                                                         --                  --
 Series A Pref.                                                  --                  --
</TABLE>
                                                                     (continued)





                                     III-22
<PAGE>   301
<TABLE>
<CAPTION>
                                                                                    Percent       Voting
                                 Name of           Amount and Nature                of Class      Power
    Title of Class          Beneficial Owner       of Beneficial Ownership          (1)(2)(3)    (1)(2)(3)
    --------------          ----------------       -----------------------          ---------    ---------
 <S>                    <C>                        <C>                                   <C>         <C>
 Series A               Fred A. Vierra                580,321 (12)                        *           *
 Series B                                                  --                            --
 Liberty Series A                                     140,994 (12)                        *
 Liberty Series B                                          --                            --
 Class B Pref.                                            200                             *
 Series C Pref.                                            --                            --
 Series G Pref.                                            --                            --
 Series H Pref.                                            --                            --
 TINTA Series A                                       442,000 (13)                        *           *
 TINTA Series B                                            --                            --
 Class A                                                   --                            --          --
 Class B                                                   --                            --
 Series A Pref.                                            --                            --

 Series A               Brendan R. Clouston         1,985,391 (14)                        *           *
 Series B                                                 230                             *
 Liberty Series A                                     221,347 (14)                        *
 Liberty Series B                                          57                             *
 Class B Pref.                                             --                            --
 Series C Pref.                                            --                            --
 Series G Pref.                                            --                            --
 Series H Pref.                                            --                            --
 TINTA Series A                                            --                            --          --
 TINTA Series B                                            --                            --
 Class A                                                   --                            --          --
 Class B                                                   --                            --
 Series A Pref.                                            --                            --

 Series A               All directors and          38,774,044 (1)(4)(5)(6)(7)(8)(9)     6.4%       45.7%
                        executive officers                    (10)(11)(12)(14)(15)
 Series B               as a group                 63,187,091 (1)(4)(5)(13)            74.6%
 Liberty Series A       (17 persons)               10,393,899 (1)(4)(5)(6)(7)(8)(9)     6.8%
                                                              (10)(11)(12)(14)(15)
 Liberty Series B                                  15,824,271 (1)(4)(5)                74.7%
 Class B Pref.                                        437,052 (1)(5)                   27.0%
 Series C Pref.                                            --                            --
 Series G Pref.                                            --                            --
 Series H Pref.                                            --                            --
 TINTA Series A                                     1,396,000 (2)(13)(16)               1.3%          *
 TINTA Series B                                            --                            --
 Class A                                                   --                            --          --
 Class B                                                   --                            --
 Series A Pref.                                            --                            --
</TABLE>


_________________________

*  Less than one percent.

(1)      See note 1 to the table in Item 12(a).

(2)      Based on 106,487,500 shares of TINTA Series A Stock and 11,700,000
         shares of TINTA Series B Stock outstanding on January 31, 1996.

                                                                     (continued)





                                     III-23
<PAGE>   302
(3)      Based on 811,655 shares of Class A Stock, 94,447 shares of Class B
         Stock and 4,600,000 shares of Series A Preferred Stock outstanding on
         January 31, 1996.

(4)      See notes (2) through (4) and note (7) to the table in Item 12(a).

(5)      See notes (5) through (8) to the table in Item 12(a).

(6)      Assumes the exercise in full of stock options granted in tandem with
         stock appreciation rights in November of 1994 to acquire 200,000
         shares of Series A Stock and 50,000 shares of Liberty Series A Stock.
         Options to acquire 40,000 shares of Series A Stock and 10,000 shares
         of Liberty Series A Stock are currently exercisable.  See note 8 to
         the table in Item 11(a) for additional information.

(7)      Includes 1,524 shares of Series A Stock and 381 shares of Liberty
         Series A Stock held by Mr. Gallivan's wife.  Also, assumes the
         exercise in full of options granted, pursuant to the Director Stock
         Option Plan, to acquire 50,000 shares of Series A Stock and 12,500
         shares of Liberty Series A Stock.  Options to acquire 10,000 shares of
         Series A Stock and 2,500 shares of Liberty Series A Stock are
         currently exercisable.  See Item 11(d) for additional information.

(8)      Assumes the exercise in full of options granted, pursuant to the
         Director Stock Option Plan, to acquire 50,000 shares of Series A Stock
         and 12,500 shares of Liberty Series A Stock.  Options to acquire
         10,000 shares of Series A Stock and 2,500 shares of Liberty Series A
         Stock are currently exercisable.  See Item 11(d) for additional
         information.

(9)      Assumes the exercise in full of stock options granted in tandem with
         stock appreciation rights to acquire 1,500,000 shares of Series A
         Stock and 375,000 shares of Liberty Series A Stock.  Options to
         acquire 700,000 shares and 175,000 shares of Series A Stock and
         Liberty Series A Stock, respectively, are currently exercisable and
         the remainder vest and become exercisable evenly over two years.  The
         options expire on October 12, 1998.  Additionally, assumes the
         exercise in full of stock options granted in tandem with stock
         appreciation rights to acquire 500,000 shares of Series A Stock and
         125,000 shares of Liberty Series A Stock.  None of the options are
         exercisable until August 4, 1996.  Also assumes the exercise in full
         of stock options granted, pursuant to the Director Stock Option Plan,
         to acquire 50,000 shares of Series A Stock and 12,500 shares of
         Liberty Series A Stock.  Options to acquire 10,000 shares of Series A
         and 2,500 shares of Liberty Series A Stock are currently exercisable.
         See Item 11(d) for additional information.

(10)     Assumes the exercise in full of stock options granted to acquire
         50,000 shares of Series A Stock and 12,500 shares of Liberty Series A
         Stock.  Options to acquire 10,000 shares of Series A Stock and 2,500
         shares of Liberty Series A Stock are currently exercisable.  See Item
         11(d) for additional information.  Additionally assumes the exercise
         in full of stock options granted in tandem with stock appreciation
         rights granted to acquire 100,000 shares of Series A Stock.  None of
         these options are exercisable until August 4, 1996.

                                                                     (continued)





                                     III-24
<PAGE>   303
(11)     Mr. Robert Naify received notes, which are currently convertible into
         22,446,926 shares of Series A Stock and 5,611,731 shares of Liberty
         Series A Stock, as partial consideration for the sale to TCI of the
         stock owned by him in UACI.  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 which holds additional notes convertible into
         341,606 shares of Series A Stock and 85,401 shares of Liberty 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, pursuant to the Director Stock Option Plan, to
         acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty
         Series A Stock.  Options to acquire 10,000 shares of Series A Stock
         and 2,500 shares of Liberty Series A Stock are currently exercisable.
         See Item 11(d) for additional information.

(12)     Assumes the exercise in full of stock options granted in tandem with
         stock appreciation rights in November 1992 to acquire 100,000 shares
         of Series A Stock and 25,000 shares of Liberty Series A Stock.
         Options to acquire 60,000 shares of Series A Stock and 15,000 shares
         of Liberty Series A Stock are currently exercisable.  Also assumes the
         exercise in full of stock options granted in tandem with stock
         appreciation rights in November of 1993 to acquire 100,000 shares of
         Series A Stock and 25,000 shares of Liberty Series A Stock.  Options
         to acquire 50,000 shares of Series A Stock and 12,500 shares of
         Liberty Series A Stock are currently exercisable.  See note 9 to the
         table in Item 11(a) for additional information.  Additionally assumes
         the exercise in full of stock options granted in tandem with stock
         appreciation rights in November of 1994 to acquire 200,000 shares of
         Series A Stock and 50,000 shares of Liberty Series A Stock.  Options
         to acquire 40,000 shares of Series A Stock and 10,000 shares of
         Liberty Series A Stock are currently exercisable.  See note 8 to the
         table in Item 11(a) for additional information.

(13)     Assumes the exercise in full of options granted in tandem with stock
         appreciation rights in December of 1995 to acquire 400,00 shares of
         TINTA Series A Stock.  None of the options are exercisable until
         August 4, 1996.  See note 3 to the table in Item 11(b) for additional
         information.  Additionally assumes the vesting in full of 15,000 TINTA
         Series A restricted stock.  None of the stock is currently vested.
         See note 5 to the table in Item 11(a) for additional information.

(14)     Assumes the exercise in full of stock options granted in tandem with
         stock appreciation rights in November of 1992 to acquire 300,000
         shares of Series A Stock and 75,000 shares of Liberty Series A Stock.
         Options to acquire 100,000 shares of Series A Stock and 25,000 shares
         of Liberty Series A Stock are currently exercisable.  Additionally
         assumes the exercise in full of stock options granted in tandem with
         stock appreciation rights in November of 1993 to acquire 375,000
         shares of Series A Stock and 93,750 shares of Liberty Series A Stock.
         Options to acquire 125,000 shares of Series A Stock and 31,250 shares
         of Liberty Series A Stock are currently exercisable.  See note 9 to
         the table in Item 11(a) for additional information.  Also assumes the
         exercise in full of stock options granted in tandem with stock
         appreciation rights in November of 1994 to acquire  200,000 shares of
         Series A Stock and 50,000 shares of Liberty Series A Stock.  Options
         to acquire 40,000 shares of Series A Stock and 10,000 shares of
         Liberty  Series A Stock are currently exercisable.  See note 8 to the
         table in Item 11(a) for additional information.  Assumes the exercise
         in full of stock options granted in tandem with stock appreciation
         rights in December of 1995 to purchase 1,000,000 shares of Series A
         Stock.  None of the options are exercisable until August 4, 1996.  See
         note 4 to the table in Item 11(b) for additional information.
         Additionally assumes the vesting in full of 100,000 Series A
         restricted stock.  None of the stock is currently vested.  See note 6
         to the table in Item 11(a) for additional information.

                                                                     (continued)





                                     III-25
<PAGE>   304
(15)     Certain executive officers and directors of TCI (10 persons, including
         Messrs. Magness, Malone, Vierra and Clouston) hold options which were
         granted in tandem with stock appreciation rights in November of 1992,
         to acquire an aggregate of 3,025,000 shares of Series A Stock and an
         aggregate of 756,250 shares of Liberty Series A Stock at purchase
         prices of $12.50 per shares and $16.75 per share, respectively.
         Options to acquire 1,735,000 shares of Series A Stock and 433,750
         shares of Liberty Series A Stock are currently exercisable.
         Additionally certain executive officers (8 persons including Messrs.
         Vierra and Clouston) hold stock options granted in tandem with stock
         appreciation rights in October and November of 1993 to acquire an
         aggregate of 1,100,000 shares of Series A Stock and an aggregate of
         275,000 shares of Liberty Series A Stock at purchase prices of $12.50
         per share and $16.75 per share, respectively.  Options to acquire
         487,500 shares of Series A Stock and 121,875 shares of Liberty Series
         A Stock are currently exercisable.  Also, certain executive officers
         and directors (10 persons including Messrs. Fisher, Vierra and
         Clouston) hold stock options which were granted in tandem with stock
         appreciation rights in November of 1994 to acquire an aggregate of
         1,450,000 shares of Series A Stock and an aggregate of 362,500 shares
         of Liberty Series A Stock at purchase prices of $16.50 per share and
         $22.50 per share, respectively.  Options to acquire 290,000 shares of
         Series A Stock and 72,500 shares of Liberty Series A Stock are
         currently exercisable.  Additionally, certain executive officers and
         directors (11 persons, including Messrs. Magness, Malone, Kern and
         Clouston) hold stock options which were granted, pursuant to the 1994
         Plan and the 1996 Plan (the 1996 Plan is subject to approval by
         shareholders), in tandem with stock appreciation rights in December of
         1995 to acquire an aggregate of 4,650,000 shares of Series A Stock at
         $17.00 per share.  None of the options are exercisable until August 4,
         1996.  Additionally, certain executive officers and directors (6
         persons, including Messrs. Magness, Malone and Kern) hold stock
         options which were granted, pursuant to the 1994 Plan and the 1996
         Plan, in tandem with stock appreciation rights in December of 1995 to
         acquire an aggregate of 1,775,000 shares of Liberty Series A Stock at
         a purchase price of $24.00 per share.  None of the options are
         exercisable until August 4, 1996.  Also, certain executive officers (7
         persons, including Mr. Clouston) hold  an aggregate of 240,000 shares
         of Series A restricted stock.  None of the shares are currently
         vested.  Certain executive officers (2 persons) hold an aggregate of
         20,000 shares of Liberty Series A restricted stock.  None of the
         shares are currently vested.  Mr. Kern holds an option to acquire
         1,500,000 shares of Series A Stock and 375,000 shares of Liberty
         Series A Stock as described in note 5 above.  Also, Messrs. Gallivan,
         Kim Magness, Kern, Coelho and Naify hold options to purchase an
         aggregate of 250,000 shares of Series A Stock and an aggregate of
         62,500 shares of Liberty Series A Stock at purchase prices of $16.50
         per share and $22.50 per share, respectively.  Options to purchase
         50,000 shares of Series A Stock and 12,500 shares of Liberty Series A
         Stock 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.

(16)     Two executive officers, including Mr. Vierra, hold options which were
         granted in tandem with stock appreciation rights in December of 1995 to
         acquire an aggregate of 450,000 shares of TINTA Series A Stock.  None
         of the options are exercisable until August 4, 1996.  Additionally Mr.
         Vierra holds 15,000 shares of TINTA Series A restricted stock.  None of
         the shares are currently vested. Additionally, one executive officer
         holds options granted in tandem with stock appreciation rights in
         December of 1995 by TCI to acquire 50,000 shares of its TINTA Series A
         Stock.  None of the options are exercisable until August 4, 1996.


                                                                     (continued)





                                     III-26
<PAGE>   305
(17)     The number of shares in the table does not include any shares held by
         Kearns, of which Mr. Gallivan is an officer.

         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 those shares of TINTA
         Series A Stock reflected in the tables in Item 12 and except that Mr.
         Bob Magness, a director and an executive officer of the Company, owns
         944 shares of WestMarc Series C Cumulative Compounding Redeemable
         Preferred Stock; Mr. Kim Magness, a director of the Company, owns 31
         shares of WestMarc Series C Cumulative Compounding Redeemable
         Preferred Stock; Dr. Malone, a director and an executive officer of
         the Company, owns, as trustee for his children, 68 shares of WestMarc
         Series C Cumulative Compounding Redeemable Preferred Stock; Mr. Larry
         Romrell, an officer of the Company, owns 103 shares of WestMarc Series
         C Cumulative Compounding Redeemable Preferred Stock and Mr. Jerome
         Kern, a director of the Company, is deemed to have beneficial
         ownership over 116 shares of WestMarc Series C Cumulative Compounding
         Redeemable Preferred Stock owned by his wife, Diane D. Kern.  Mr. Kern
         has disclaimed any beneficial ownership of such shares owned by Mrs.
         Kern.

    (c)      Change of control.  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-27
<PAGE>   306
Item 13.     Certain Relationships and Related Transactions.

    (a)      Transactions with management and others.

    Pursuant to a Restricted Stock Award Agreement dated December 10, 1992, the
Company transferred to Mr. Fisher, a director and until January 1, 1996, an
officer of the Company, 124.03 shares (having a liquidation value of $4
million) of WestMarc Series C Cumulative Compounding Preferred Stock owned by
the Company, subject to forfeiture in the event of certain circumstances from
the date of grant through February 1, 2002, with the number of shares subject
to forfeiture decreasing by 10% on February 1 of each year.  Upon Mr. Fisher's
resignation as an officer of the Company effective January 1, 1996, he acquired
vested title to 37.209 of such shares of WestMarc Series C Cumulative
Compounding Preferred Stock and forfeited the balance of such shares.  As
described below, effective as of January 31, 1996, the 37.209 vested shares of
WestMarc Series C Cumulative Compounding Preferred Stock owned by Mr. Fisher
were used by one of his affiliates as the consideration for the purchase of
certain partnership interests held by subsidiaries of the Company.

    In 1989, ECP Holdings, Inc., a subsidiary of the Company ("ECP"), and
Halcyon Communications, Inc., an Oklahoma corporation which is not an affiliate
of the Company  ("HCI"), formed Halcyon Communications Partners, an Oklahoma
general partnership ("HCP"), for the purpose of acquiring, owning and operating
cable television systems.  In 1994, HCI and American Televenture of Minersville,
Inc., a subsidiary of the Company ("ATM"), as general partners, and three other
subsidiaries of the Company, TCI Cablevision of Nevada, Inc. ("TCINV"), TEMPO
Cable, Inc. ("Tempo Cable"), and TCI Cablevision of Utah, Inc. ("TCIU") as
limited partners, formed Halcyon Communications Limited Partnership, an Oklahoma
limited partnership ("HCLP"), for the purpose of acquiring, owning and operating
certain other cable television systems. Effective as of January 31, 1996, Fisher
Communication Associates, L.L.C., a Colorado limited liability company ("Fisher
Communications") controlled by Mr. Donne F. Fisher, a director (and, until
January 1, 1996, an executive officer) of the Company purchased one-third of
ECP's partnership interest in HCP and one-third of the partnership interest of
each of ATM, TCINV, TCIU and Tempo Cable in HCLP, a ten-year option to purchase
the balance of ECP's partnership interest in HCP and ten-year options to
purchase the balance of the partnership interest in HCLP of each of ATM, TCINV,
TCIU and Tempo Cable.  The purchase price for each such partnership interest
purchased by Fisher Communications consisted of shares of Series C Cumulative
Compounding Preferred Stock of WestMarc Communications, Inc., a subsidiary of
the Company (the "WestMarc Shares").  The purchase price for each such option
acquired by Fisher Communications was $100 in cash, and each such option is
exercisable for cash in a specified amount. The number of WestMarc Shares
delivered to each of the Company's subsidiaries named above as consideration for
one-third of its partnership interest in HCP or HCLP, and the cash exercise
price which Fisher Communications would be required to pay in order to exercise
the options granted by those subsidiaries, are as follows:

<TABLE>
<CAPTION>
                                                                           Cash Exercise Price
                                Number of WestMarc Shares                       Of Option        
                                -------------------------               -------------------------
           <S>                         <C>                                        <C>
           ECP                         14.8836                                    $ 1,200,000
           ATM                          0.5224                                         42,120
           TCINV                        2.8911                                        233,100
           TCIU                         4.3557                                        351,180
           Tempo Cable                 14.5562                                      1,173,600
                                       -------                                    -----------
                                       37.2090                                    $ 3,000,000
                                       =======                                    ===========
</TABLE>


                                                                     (continued)





                                     III-28
<PAGE>   307
    The WestMarc Shares are not publicly traded.  The dividend, liquidation,
and redemption features of the WestMarc Shares are determined by reference to
"Liquidation Price," which is defined, per share, as the sum of (i) $32,250
plus (ii) an amount equal to all dividends which accrued during any quarterly
dividend period and were not paid in full at the end of that period or
subsequently.

    See also Item 11(g) above.

    The Company believes that the foregoing business dealings with management
during 1995 were based upon terms no less advantageous to the Company than
those which would be available in dealing with unaffiliated persons.

    (b)      Certain business relationships

    Mr. Jerome H. Kern, a director of TCI, is a partner with the law firm of
Baker & Botts, L.L.P., the principal outside counsel for TCI.  Fees paid to
Baker & Botts, L.L.P. by TCI and consolidated subsidiaries were $8.8 million
for the last full fiscal year.

    See also Item 13(a) above.

    (c)      Indebtedness of management

             None.





                                     III-29
<PAGE>   308


                                  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-56

         Consolidated Balance Sheets,
            December 31, 1995 and 1994                                                  II-57  to II-58

         Consolidated Statements of Operations,
            Years ended December 31, 1995, 1994 and 1993                                          II-59

         Consolidated Statements of Stockholders' Equity,
            Years ended December 31, 1995, 1994 and 1993                                 II-60 to II-62

         Consolidated Statements of Cash Flows,
            Years ended December 31, 1995, 1994 and 1993                                          II-63

         Notes to Consolidated Financial Statements,
            December 31, 1995, 1994 and 1993                                            II-64 to II-108

"Liberty Media Group":

         Independent Auditors' Report                                                            II-109

         Combined Balance Sheets,
            December 31, 1995 and 1994                                                 II-110 to II-111

         Combined Statements of Operations,
            Years ended December 31, 1995, 1994 and 1993                                         II-112

         Combined Statements of Equity,
            Years ended December 31, 1995, 1994 and 1993                                         II-113

         Combined Statements of Cash Flows,
            Years ended December 31, 1995, 1994 and 1993                                         II-114

         Notes to Combined Financial Statements,
            December 31, 1995, 1994 and 1993                                           II-115 to II-141
</TABLE>


                                     IV-1
<PAGE>   309
<TABLE>
<S>                                                                                    <C>
"TCI Group":

         Independent Auditors' Report                                                      II-142

         Combined Balance Sheets,
            December 31, 1995 and 1994                                           II-143 to II-144

         Combined Statements of Operations,
            Years ended December 31, 1995, 1994 and 1993                                   II-145

         Combined Statements of Equity,
            Years ended December 31, 1995, 1994 and 1993                         II-146 to II-148

         Combined Statements of Cash Flows,
            Years ended December 31, 1995, 1994 and 1993                                   II-149

         Notes to Combined Financial Statements,
            December 31, 1995, 1994 and 1993                                     II-150 to II-185

Liberty Media Corporation:

         Independent Auditors' Report                                                      II-186

         Consolidated Statement of Operations,
            Year ended December 31, 1993                                                   II-187

         Consolidated Statement of Stockholders' Equity,
            Year ended December 31, 1993                                                   II-188

         Consolidated Statement of Cash Flows,
            Year ended December 31, 1993                                         II-189 to II-190

         Notes to Consolidated Financial Statements,
            December 31, 1993                                                    II-191 to II-210
</TABLE>


                                      IV-2
<PAGE>   310
(a) (2)  Financial Statement Schedules


Included in Part IV of this Report:

<TABLE>
<CAPTION>
(i)      Financial Statement Schedules required to be filed:                              Page No.
                                                                                          --------
         <S>                                                                           <C>
         Independent Auditors' Report                                                           IV-15

         Schedule I - Condensed Information as to the
            Financial Position of the Registrant, December 31, 1995
               and 1994; Condensed Information as to the Operations
            and Cash Flows of the Registrant, Years ended
               December 31, 1995 and 1994                                              IV-16 to IV-18

         Schedule II - Valuation and Qualifying Accounts,
            Years ended December 31, 1995, 1994 and 1993                                        IV-19
</TABLE>





                                      IV-3
<PAGE>   311
(ii)     Separate financial statements for TeleWest plc:

<TABLE>
<CAPTION>
         Consolidated Financial Statements                                                Page No.
         ---------------------------------                                                --------
            <S>                                                                      <C>
            Independent Auditors' Report                                                       IV-20

            Consolidated Statements of Operations                                              IV-21

            Consolidated Balance Sheets                                                        IV-22

            Consolidated Statements of Cash Flows                                              IV-23

            Consolidated Statement of Shareholders' Equity                                     IV-24

            Notes to Consolidated Financial Statements                                IV-25 to IV-43
</TABLE>





                                      IV-4
<PAGE>   312
(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 August 4, 1994,
                 as amended on August 4, 1994, August 16, 1994, October 11,
                 1994, October 21, 1994, January 26, 1995, August 3, 1995,
                 August 3, 1995, January 25, 1996 and January 25, 1996.


     3.2     The Bylaws as adopted June 16, 1994.
                    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 - Material Contracts:

    10.1     Tele-Communications, Inc. 1994 Stock Incentive Plan.*
                    Incorporated herein by reference to the Company's Form S-4
                       Registration Statement (Commission File No. 33-54263).

    10.2     Tele-Communications, Inc. 1995 Employee Stock Incentive Plan.*

    10.3     Tele-Communications, Inc. 1996 Stock Incentive Plan.*

    10.4     Restated and Amended Employment Agreement, dated as of November 1,
                 1992, between the Company and Bob Magness.*
                    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 Bob Magness.*
                    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     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).

    10.7     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).


    10.8     Employment Agreement, dated as of January 1, 1992, 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, 1992, as amended by Form 10-K/A for the
                       year ended December 31, 1992 (Commission File No.
                       0-5550).


                                                                     (continued)





                                      IV-5
<PAGE>   313
10 - Material contracts, continued:


    10.9     Assignment and Assumption Agreement, dated as of August 4, 1994,
                 among TCI/Liberty Holding Company, Tele- Communications, Inc.
                 and Donne F. Fisher.*
                    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).


    10.10    Restricted Stock Award Agreement, made as of December 10, 1992,
                 among Tele-Communications, Inc., Donne F.  Fisher and WestMarc
                 Communications, Inc.*
                    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    Consulting Agreement, dated as of January 1, 1996, between
                 Tele-Communications, Inc. and Donne F. Fisher.



    10.12    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).


    10.13    Amended and Restated Employment Agreement, dated as of July 18,
                 1995, among Tele-Communications, Inc., Tele-Communications
                 International, Inc. and Fred A. Vierra.*
                    Incorporated herein by reference to Tele-Communications
                       International, Inc.'s Registration Statement on Form S-1
                       (Commission File No. 33-80491).


    10.14    Employment Agreement, dated as of January 1, 1993, between
                 Tele-Communications, Inc. and Larry E. Romrell.*
                    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).


    10.15    Assignment and Assumption Agreement, dated as of August 4, 1994,
                 among TCI/Liberty Holding Company, Tele- Communications, Inc.
                 and Larry E. Romrell.*
                    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).


    10.16    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).


                                                                     (continued)





                                      IV-6
<PAGE>   314
10 - Material contracts, continued:


    10.17    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).
        

    10.18    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).


    10.19    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).


    10.20    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).


    10.21    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).


    10.22    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).



                                                                     (continued)





                                      IV-7
<PAGE>   315
10 - Material contracts, continued:


    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 grants pursuant to the Agreement and
                 Plan of Merger dated June 6, 1991 between United Artists
                 Entertainment Company and Tele-Communications, Inc.*
                    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).


    10.24    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).


    10.25    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).


    10.26    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).


    10.27    Forms of Assumption and Amended and Restated Stock Option
                 Agreements relating to options granted under the United
                 Artists Entertainment Company 1988 Incentive and Non-Qualified
                 Stock Option Plan and executed by employees who did not have
                 employment agreements with United Artists Entertainment
                 Company.*
                    Incorporated herein 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- 43009).


    10.28    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).


    10.29    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).


                                                                     (continued)





                                      IV-8
<PAGE>   316
10- Material contracts, continued:



    10.30    Qualified Employee Stock Purchase Plan of Tele-Communications,
                 Inc., as amended.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-57635).


    10.31    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.*

    10.32    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.*


    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. 1994 Stock
                 Incentive Plan.*


    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. 1994
                 Stock Incentive Plan.*


    10.35    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.*


    10.36    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.*


    10.37    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.*


    10.38    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.*


    10.39    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).
        
    10.40    Form of Restricted Stock Award Agreement for 1995 Award of Series A
                 Tele-Communications International, Inc.  Restricted Stock
                 pursuant to the Tele-Communications International 1995 Stock
                 Incentive Plan.


                                                                     (continued)





                                      IV-9
<PAGE>   317
10- Material contracts, continued:



    10.41    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.*


    10.42    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.*


    10.43    Employee Stock Purchase Plan for Bargaining Unit Employees of
                 United Cable Television of Baltimore Limited Partnership.*
                    Incorporated herein by reference to the 
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-60839).


    10.44    Employee Stock Purchase Plan for Bargaining Unit Employees of
                 Heritage Cable Vision Associates, L.P. D/B/A TCI of Michiana.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-60843).


    10.45    Employee Stock Purchase Plan for Bargaining Unit Employees of UACC
                 Midwest, Inc. d/b/a TCI of Central Indiana.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-64827).


    10.46    The Settlement Plan and Rabbi Trust Agreement Entered into
                 Pursuant to Thomas Adams, Mark Adamski, et. al.  v. TCI of
                 Northern New Jersey, Inc. and the Tele-Communications, Inc.
                 Employee Stock Purchase Plan.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-64829).


    10.47    Employee Stock Purchase Plan for Bargaining Unit Employees of TCI
                 of Northern New Jersey, Inc.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-64831).

    10.48    Amended and Restated Agreement of Limited Partnership of MajorCo,
                 L.P., dated as of January 31, 1996, among Sprint Spectrum,
                 L.P., TCI Network Services, Comcast Telephony Services and Cox
                 Telephony Partnership.
             Second Amended and Restated Joint Venture Formation Agreement,
                 dated as of January 31, 1996, by and between Sprint
                 Corporation, Tele-Communications, Inc., Comcast Corporation
                 and Cox Communications, Inc.
             Parents Agreement, dated as of January 31, 1996, by
                 Tele-Communications, Inc. and Sprint Corporation.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated February 9, 1996 (Commission
                       File No. 0-20421).


                                                                     (continued)





                                     IV-10
<PAGE>   318
10- Material contracts, continued:



    10.49    Amended and Restated Stock Purchase Agreement, dated as of April
                 25, 1995, by and among Eduardo Eurnekian, stockholders of
                 shares of the Common Stock of Cablevision S.A., Televisora
                 Belgrano S.A., Construred S.A., Univent's S.A., and TCI
                 International Holdings, Inc.
             Amended and Restated Stockholders Agreement, dated April 25, 1995,
                 between Eduardo Eurnekian and TCI International Holdings, Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated May 4, 1995, as amended by
                       Form 8-K/A (Commission File No. 0-20421).


    10.50    Parents Agreement, dated as of July 24, 1995, among Viacom, Inc.,
                 Tele-Communications, Inc. and TCI Communications, Inc.
             Subscription Agreement, dated as of July 24, 1995, among Viacom
                 International, Inc., Tele-Communications, Inc. and TCI
                 Communications, Inc.
             Implementation Agreement, dated as of July 24, 1995, between Viacom
                 International, Inc. and Viacom International Services, Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated July 26, 1995 (Commission File
                       No. 0-20421).


    10.51    Agreement and Plan of Merger, dated as of January 27, 1994, by and
                 among Tele-Communications, Inc., Liberty Media Corporation,
                 TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty
                 Mergeco, Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated February 15, 1994 (Commission
                       File No. 0-5550).


    10.52    Amendment No. 1, dated as of March 30, 1994, to Agreement and Plan
                 of Merger, dated as of January 27, 1994, by and among
                 Tele-Communications, Inc., Liberty Media Corporation,
                 TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty
                 Mergeco, Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated April 6, 1994 (Commission File
                       No. 0-5550).


    10.53    Amendment No. 2, dated as of August 4, 1994, to Agreement and Plan
                 of Merger, dated as of January 27, 1994, by and among
                 Tele-Communications, Inc., Liberty Media Corporation,
                 TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty
                 Mergeco, Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated August 18, 1994 (Commission
                       File No. 0-20421).


    10.54    Agreement and Plan of Merger, dated as of August 8, 1994, among
                 Tele-Communications, Inc., TCI Communications, Inc. and
                 TeleCable Corporation
                    Incorporated herein by reference to Tele-Communications,
                       Inc.'s Current Report on Form 8-K, dated August 18, 1994
                       (Commission File No. 0-20421).


    10.55    Agreement of Purchase and Sale of Partnership Interest, dated as
                 of January 31, 1996, among Halcyon Communications, Inc., ECP
                 Holdings, Inc. and Fisher Communications Associates, L.L.C.


                                                                     (continued)





                                     IV-11
<PAGE>   319
10- Material contracts, continued:



    10.56    Consent and Amendment of Amended Agreement of Partnership for
                 Halcyon Communications Partners, dated as of January 31, 1996,
                 by and among Halcyon Communications, Inc., ECP Holdings, Inc.
                 and Fisher Communications Associates, L.L.C.


    10.57    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between ECP Holdings, Inc. and Fisher Communications
                 Associates, L.L.C.


    10.58    Option Agreement, dated as of January 31, 1996, between Fisher
                 Communications Associates, L.L.C. and ECP Holdings, Inc.


    10.59    Agreement of Purchase and Sale of Partnership Interests, dated as
                 of January 31, 1996, among Halcyon Communications, Inc.,
                 American Televenture of Minersville, Inc., TCI Cablevision of
                 Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc.
                 and Fisher Communications Associates, L.L.C.


    10.60    Consent and First Amendment of Amended and Restated Agreement of
                 Limited Partnership for Halcyon Communications Limited
                 Partnership, dated as of January 31, 1996, by and among
                 Halcyon Communications, Inc., American Televenture of
                 Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI
                 Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher
                 Communications Associates, L.L.C.


    10.61    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between TCI Cablevision of Utah, Inc. and Fisher
                 Communications Associates, L.L.C.


    10.62    Option Agreement, dated as of January 31, 1996, between Fisher
                 Communications Associates, L.L.C. and TCI Cablevision of Utah,
                 Inc.


    10.63    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between TCI Cablevision of Nevada, Inc.  and Fisher
                 Communications Associates, L.L.C.


    10.64    Option Agreement, dated as of January 31, 1996, between Fisher
                 Communications Associates, L.L.C. and TCI Cablevision of 
                 Nevada, Inc.


    10.65    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between American Televenture of Minersville, Inc. and Fisher
                 Communications Associates, L.L.C.


    10.66    Option Agreement, dated as of January 31, 1996, between Fisher
                 Communications Associates, L.L.C. and American Televenture of
                 Minersville, Inc.


    10.67    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between TEMPO Cable, Inc. and Fisher Communications
                 Associates, L.L.C.


    10.68    Option Agreement, dated as of January 31, 1996, between Fisher
                 Communications Associates, L.L.C. and TEMPO Cable, Inc.


                                                                   (continued)





                                     IV-12
<PAGE>   320
21- Subsidiaries of Tele-Communications, Inc.


23.1   Consent of KPMG Peat Marwick LLP

23.2   Consent of KPMG Peat Marwick LLP

23.3   Consent of KPMG Peat Marwick LLP

23.4   Consent of KPMG Peat Marwick LLP

23.5   Consent of KPMG 

27- Financial data schedule

*Constitutes management contract or compensatory arrangement.





                                     IV-13
<PAGE>   321
(b)      Reports on Form 8-K filed during the quarter ended December 31, 1995:

                               Item
      Date of Report           Reported         Financial Statements Filed
      --------------           --------         --------------------------
      December 18, 1995        Item 5           None





                                     IV-14
<PAGE>   322
                          INDEPENDENT AUDITORS' REPORT




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

Under date of March 18, 1996, we reported on the consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1995, which are included in the December 31, 1995 annual report on Form
10-K.  In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related 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.



                                       
                                        /s/ KPMG Peat Marwick LLP

                                        KPMG Peat Marwick LLP



Denver, Colorado
March 18, 1996





                                     IV-15
<PAGE>   323
                                                                      Schedule I
                                                                     Page 1 of 3


                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                        Condensed Information as to the
                      Financial Position of the Registrant

                           December 31, 1995 and 1994


<TABLE>
<CAPTION>
                 Assets                                                                           1995            1994*  
                 ------                                                                         --------         --------
                                                                                                   amounts in millions
                 <S>                                                                            <C>                 <C>
                 Investments in and advances to consolidated
                    subsidiaries - eliminated upon consolidation                                 $ 6,879            4,708

                 Other assets, at cost, net of amortization                                            4                3
                                                                                                 -------          -------

                                                                                                 $ 6,883            4,711
                                                                                                 =======          =======

                 Liabilities and Stockholders' Equity
                 ------------------------------------

                 Accrued liabilities                                                            $    109               23

                 Minority interests in equity of consolidated subsidiaries                           201               --

                 Redeemable preferred stocks                                                         478              168

                 Stockholders' equity:
                    Series Preferred Stock, $.01 par value                                            --               --
                    Class B 6% Cumulative Redeemable Exchangeable
                       Junior Preferred Stock, $.01 par value                                         --               --
                    Tele-Communications, Inc. Series A TCI Group
                       common stock, $1 par value                                                    672               --
                    Tele-Communications, Inc. Series B TCI Group
                       common stock, $1 par value                                                     85               --
                    Tele-Communications, Inc. Series A Liberty Media
                       Group common stock, $1 par value                                              143               --
                    Tele-Communications, Inc. Series B Liberty Media
                       Group common stock, $1 par value                                               21               --
                    Class A common stock, $1 par value                                                --              577
                    Class B common stock, $1 par value                                                --               89
                    Additional paid-in capital                                                     5,613            4,656
                    Cumulative foreign currency translation adjustment,
                       net of taxes                                                                   (9)              (4)
                    Unrealized holding gains for available-for-sale
                       securities, net of taxes                                                      338               94
                    Accumulated deficit                                                             (454)            (282)
                                                                                                 -------          ------- 

                    Treasury stock, at cost                                                         (314)            (610)
                                                                                                 -------          ------- 

                                                                                                 $ 6,883            4,711
                                                                                                 =======          =======
</TABLE>

* Restated - see notes 5 and 6 to the consolidated financial statements.



                                     IV-16


<PAGE>   324
                                                                      Schedule I
                                                                     Page 2 of 3


                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                        Condensed Information as to the
                          Operations of the Registrant

                     Years ended December 31, 1995 and 1994


<TABLE>
<CAPTION>
                                                                                                  1995            1994*  
                                                                                                --------         --------
                                                                                                   amounts in millions
                 <S>                                                                               <C>                <C>
                 Operating income (expenses):
                    Selling, general and administrative                                            $ (21)             (10)
                    Compensation relating to stock appreciation rights                               (21)              --
                    Adjustment to compensation
                       relating to stock appreciation rights                                          --                1
                    Gain on sale of subsidiary stock                                                 123               --
                    Minority interests in earnings of consolidated
                       subsidiaries                                                                  (11)              --
                                                                                                  ------           ------

                          Earnings (loss) before share
                             of earnings (loss) of consolidated subsidiaries                          70               (9)


                 Share of earnings (loss) of consolidated subsidiaries                              (241)              71
                                                                                                  ------           ------
                       Net earnings (loss)                                                          (171)              62
                                                                                                  ======           ======
                 Preferred stock dividend requirements                                               (34)              (8)
                                                                                                  ------           ------ 
                          Net earnings (loss) attributable                                                               
                             to common stockholders                                                $(205)              54
                                                                                                  ======           ======
</TABLE>

* Restated - see notes 5 and 6 to the consolidated financial statements.



                                     IV-17
<PAGE>   325
                                                                      Schedule I
                                                                     Page 3 of 3


                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                          Condensed Information as to
                          Cash Flows of the Registrant

                     Years ended December 31, 1995 and 1994


<TABLE>
<CAPTION>
                                                                                                  1995             1994*
                                                                                                --------         --------
                                                                                                   amounts in millions
                 <S>                                                                         <C>                <C>
                 Cash flows from operating activities:
                    Earnings (loss) before share of earnings (loss)
                       of consolidated subsidiaries                                           $      70               (9)
                    Adjustments to reconcile earnings (loss) to net
                       cash provided by operating activities:
                          Compensation relating to stock
                             appreciation rights                                                     21               --
                          Adjustment to compensation
                             relating to stock appreciation rights                                   --               (1)
                          Gain on sale of subsidiary stock                                         (123)              --
                          Minority interests in earnings                                             11               --
                          Change in accrued liabilities                                              53               24
                                                                                              ---------        ---------
                             Net cash provided by operating activities                               32               14
                                                                                              ---------        ---------

                 Cash flows from investing activities:
                    Reduction in or additional
                       investments in and advances to                                              (430)              (8)
                       consolidated subsidiaries, net
                    Other investing activities                                                       (9)              (3)
                                                                                              ---------        --------- 
                             Net cash used by investing activities                                 (439)             (11)
                                                                                              ---------        --------- 

                 Cash flows from financing activities:
                    Preferred stock dividends                                                       (24)              (4)
                    Issuances of common stock                                                       431                1
                                                                                              ---------        ---------
                             Net cash provided (used) by financing activities                       407               (3)
                                                                                              ---------        --------- 

                                   Change in cash                                                    --               --

                                   Cash at beginning of year                                         --               --
                                                                                              ---------        ---------

                                   Cash at end of year                                        $      --               --
                                                                                              =========        =========
</TABLE>


* Restated - see notes 5 and 6 to the consolidated financial statements.

See also note 3 to the consolidated financial statements.





                                     IV-18
<PAGE>   326
                                                                     Schedule II


                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                       Valuation and Qualifying Accounts

                  Years ended December 31, 1995, 1994 and 1993


<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, 1995:
                       Allowance for doubtful
                          receivables - trade                    $ 23               86              (75)                34
                                                                 ====             ====             ====               ====
                 Year ended                                                                                               
                    December 31, 1994:                                                                                    
                       Allowance for doubtful                                                                             
                          receivables - trade                    $ 19               58              (54)                23
                                                                 ====             ====             ====               ====
                 Year ended                                                                                               
                    December 31, 1993:                                                                                    
                       Allowance for doubtful                                                                             
                          receivables - trade                    $ 15               58              (54)                19
                                                                 ====             ====             ====               ====
                                                                                                                          
</TABLE>





                                     IV-19
<PAGE>   327




                          Independent Auditors' Report





To the Board of Directors and Shareholders of
TeleWest plc


We have audited the consolidated balance sheet of TeleWest plc
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations and cash flows for each of the years in the three year
period ended December 31, 1995.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TeleWest plc and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1995, in conformity with generally accepted accounting
principles in the United States of America.


/s/ KPMG


KPMG
Chartered Accountants
Registered Auditors


March 6, 1996
London, England





                                     IV-20
<PAGE>   328


               CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31
                                                                      1995         1995         1994        1993
                                                                     $'000       L.'000       L.'000      L.'000
               <S>                                                             <C>          <C>          <C>
               REVENUE                                             (note 2)
               Cable television                                    100,574       64,740       35,875      20,729
               Telephony - residential                              89,477       57,597       23,471      11,261
               Telephony - business                                 27,107       17,449        8,812       4,908
               Other (L.1,451, L.1,481 and L.2,371 in 1995, 1994 and
                 1993, respectively, from related parties)           7,764        4,998        3,869       3,440
               -------------------------------------------------------------------------------------------------
                                                                   224,922      144,784       72,027      40,338
               =================================================================================================

               OPERATING COSTS AND EXPENSES:
               Programing                                          (50,013)     (32,194)     (15,500)     (8,403)
               Telephony                                           (45,869)     (29,526)     (14,714)    (10,203)
               Selling, general and administrative (including
                 L.3,257, L.2,128 and L.4,451 in 1995, 1994 and
                 1993, respectively, to related parties)          (163,720)    (105,388)     (60,414)    (32,505)
               Depreciation                                        (93,240)     (60,019)     (30,320)    (17,635)
               Amortization of goodwill                            (12,201)      (7,854)      (1,827)       (840)
               -------------------------------------------------------------------------------------------------
                                                                  (365,043)    (234,981)    (122,775)    (69,586)
               =================================================================================================

               OPERATING LOSS                                     (140,121)     (90,197)     (50,748)    (29,248)
               OTHER INCOME/(EXPENSE):
               Interest income (including L.1,583, L.465
                 and L.1,504 in 1995, 1994 and 1993, respectively,
                 from related parties)                              24,305       15,645        2,291       1,974
               Interest expense (L.1,083 in 1994 to related 
                 parties                                           (41,399)     (26,649)     (10,069)     (2,537)
                                                                                                                 
               Loss on disposal of interest rate swaps             (13,374)      (8,609)           -           -
               Unrealized gain on interest rate swaps                    -            -        1,636           -
               Foreign exchange losses, net                        (22,642)     (14,575)         (21)        (72)
               Share of net losses of affiliates                   (19,849)     (12,777)      (8,466)     (7,540)
               (Loss)/gain on disposal of assets                      (651)        (419)          26         (16)
               Minority interests in losses of consolidated 
                 subsidiaries, net                                     (25)         (16)          39           -
               Other, net                                              127           82          (25)          -
               =================================================================================================
               LOSS BEFORE INCOME TAXES                           (213,629)    (137,515)     (65,337)    (37,439)
               Income tax expense (note 14)                            (25)         (16)           -           -
               -------------------------------------------------------------------------------------------------
               LOSS BEFORE EXTRAORDINARY GAIN                     (213,654)    (137,531)     (65,337)    (37,439)
               Extraordinary gain (note 15)                              -            -        7,287           -
               =================================================================================================
               NET LOSS                                           (213,654)    (137,531)     (58,050)    (37,439)
               =================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31
                                                                                                       Pro forma
                                                                               1995          1995           1994
                                                                                  $            L.             L.
                                                                     (except number(except number (except number
                                                                          of shares)    of shares)     of shares)
               <S>                                                      <C>           <C>            <C>
               LOSS PER ORDINARY SHARE
               Weighted average number of ordinary shares outstanding   861,424,848   861,424,848    630,756,392
               Loss per ordinary share before extraordinary gain              (0.25)        (0.16)         (0.10)
               Extraordinary gain                                                 -             -           0.01
               LOSS PER ORDINARY SHARE                                        (0.25)        (0.16)         (0.09)
</TABLE>

               See accompanying notes to consolidated financial statements.




                                     IV-21

<PAGE>   329


               CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31
                                                                                 1995         1995          1994
                                                                                $'000       L.'000        L.'000
               <S>                                                          <C>          <C>             <C>
               ASSETS                                                         (note 2)
               Cash and cash equivalents                                      722,095      464,818       248,002
               Trade receivables (net of allowance for doubtful accounts
                 of L.4,695 and L.1,736)                                       35,921       23,123         6,182
               Other receivables (note 7)                                      39,858       25,657        26,124
               Prepaid expenses                                                 9,528        6,133         1,544
               Investments in affiliates, accounted for under the equity
                 method, and related receivables (note 8)                     125,372       80,703        81,907
               Other investments, at cost                                      32,105       20,666        20,666
               Property and equipment (less accumulated depreciation
                 of L.182,142 and L.67,290) (note 9)                        1,652,626    1,063,808       454,843
               Goodwill (less accumulated amortization of
                 L.11,758 and L.3,904)                                        770,351      495,881        38,863
               Other assets (less accumulated amortization of
                 L.742) (note 11)                                             169,224      108,931            25
               -------------------------------------------------------------------------------------------------
               TOTAL ASSETS                                                 3,557,080    2,289,720       878,156
               =================================================================================================

               LIABILITIES AND STOCKHOLDERS' EQUITY
               Accounts payable                                                62,764       40,402        37,362
               Other liabilities (note 12)                                    161,291      103,824        45,270
               Debt (note 13)                                               1,230,784      792,265         3,886
               Capital lease obligations                                       47,093       30,314        14,553
               -------------------------------------------------------------------------------------------------
               TOTAL LIABILITIES                                            1,501,932      966,805       101,071
               =================================================================================================
               MINORITY INTERESTS                                                 259          167           151
               =================================================================================================

               SHAREHOLDERS' EQUITY (note 16)
               Convertible preference shares, 10p par value;
                 661,000,000 and 204,000,000 shares authorized
                 in 1995 and 1994, respectively; 496,066,708
                 and 153,000,000 shares issued and outstanding
                 in 1995 and 1994, respectively                                77,064       49,607        15,300
               Ordinary shares, 10p par value;
                 2,010,000,000 and 1,293,835,000 shares
                 authorized in 1995 and 1994, respectively;
                 919,963,400 and 848,244,940 issued and
                 outstanding in 1995 and 1994, respectively                   142,916       91,996        84,824
               Additional paid-in capital                                   2,055,235    1,322,971       686,276
               Accumulated deficit                                           (217,050)    (139,717)       (2,186)
               -------------------------------------------------------------------------------------------------
                                                                            2,058,165    1,324,857       784,214
               Ordinary shares held in trust for The Telewest
                 Restricted Share Scheme (note 16)                             (3,276)      (2,109)       (7,280)
               TOTAL STOCKHOLDERS' EQUITY                                   2,054,889    1,322,748       776,934
               -------------------------------------------------------------------------------------------------
               Commitments and contingencies (note 17)

               TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   3,557,080    2,289,720       878,156
               =================================================================================================
</TABLE>

               See accompanying notes to consolidated financial statements.




                                     IV-22

<PAGE>   330


               CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31
                                                                    1995         1995         1994          1993
                                                                   $'000       L.'000       L.'000        L.'000
               <S>                                            <C>            <C>          <C>           <C>
               CASH FLOWS FROM OPERATING ACTIVITIES:             (note 2)
               Loss before extraordinary gain                   (213,654)    (137,531)     (65,337)      (37,439)
               Adjustments to reconcile loss before
                 extraordinary gain to net cash used in
                 operating activities:
                 Depreciation                                     93,240       60,019       30,320        17,635
                 Amortization of goodwill                         12,201        7,854        1,827           840
                 Amortization of deferred financing costs
                   and issue discount on senior discount
                   debentures                                     25,796       16,605            -             -
                 Accrued interest on senior debentures             8,468        5,451            -             -
                 Unrealized loss on foreign currency
                   translation                                    22,642       14,575            -             -
                 Loss on disposal of interest rate swap           13,374        8,609            -             -
                 Unrealized gain on interest rate swap                 -            -       (1,636)            -
                 Share of losses of affiliates                    19,849       12,777        8,466         7,540
                 Loss/(gain) on disposals of assets                  651          419          (26)           16
                 Minority interests in profit/(loss)                  25           16          (39)            -
               Changes in operating assets and liabilities,
                 net of effect of acquisition of subsidiaries:
                 Change in receivables                            (8,206)      (5,282)      (8,102)       (4,981)
                 Change in prepaid expenses                       (5,231)      (3,367)       1,004        (1,484)
                 Change in accounts payable                       (8,704)      (5,603)      15,293         6,503
                 Change in liability relating to the
                   TeleWest Restricted Share Scheme                2,406            -        1,549             -
                 Change in other liabilities                      27,430       19,206        7,518         1,530
               Other                                                (553)        (356)           -             -
               =================================================================================================
               NET CASH USED IN OPERATING ACTIVITIES             (10,266)      (6,608)      (9,163)       (9,840)
               -------------------------------------------------------------------------------------------------

               CASH FLOWS FROM INVESTING ACTIVITIES:
               Cash paid for property and equipment             (395,293)    (254,453)    (202,683)     (102,962)
               Cash paid for acquisition of subsidiaries          (5,021)      (3,232)        (236)      (45,465)
               Additional investments in and loans
                 to affiliates                                   (14,204)      (9,143)     (23,761)      (24,250)
               Proceeds from disposals of assets                   1,069          688          294           166
               Proceeds from disposals of interest
                 in affiliates                                         -            -            -         2,552
               Other investing activities                            521          335       (5,505)         (908)
               -------------------------------------------------------------------------------------------------
               NET CASH USED IN INVESTING ACTIVITIES            (412,928)    (265,805)    (231,891)     (170,867)

               =================================================================================================
               CASH FLOWS FROM FINANCING ACTIVITIES:
               Proceeds from debenture issue                   1,172,600      754,812            -             -
               Cash premium paid for foreign
                 currency option                                (136,817)     (88,070)           -             -
               Repayment of borrowings                          (245,344)    (157,930)    (219,700)      (20,000)
               Cash paid for debenture issue costs               (31,962)     (20,574)           -             -
               Cash paid for share issue costs                    (9,540)      (6,141)     (28,543)            -
               Proceeds from share issues                              -            -      511,800             -
               Proceeds from borrowings                                -            -      174,200        46,000
               Capital element of finance lease
                 repayments                                       (2,005)      (1,291)        (210)          170
               Net contributions from Joint Venturers
                 and minorities                                        -            -       44,995       160,313
               -------------------------------------------------------------------------------------------------
               NET CASH PROVIDED BY FINANCING ACTIVITIES         746,932      480,806      482,542       186,483
               -------------------------------------------------------------------------------------------------

               NET INCREASE IN CASH AND CASH EQUIVALENTS         323,738      208,393      241,488         5,776
               Effect of exchange rate changes on cash and
                 cash equivalents                                 13,086        8,423            -             -
               Cash and cash equivalents at beginning
                 of year                                         385,271      248,002        6,514           738
               -------------------------------------------------------------------------------------------------
               CASH AND CASH EQUIVALENTS AT END OF YEAR          722,095      464,818      248,002         6,514
               =================================================================================================
</TABLE>

               See accompanying notes to consolidated financial statements.




                                     IV-23

<PAGE>   331


               CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                                   Net assets of
                                                                                               the Joint Venture
                                                                                                          L.'000
               <S>                                                                                       <C>
               JOINT VENTURE:                                                                            (note 2)
               Year ended December 31 1993
               Balance at January 1 1993                                                                 189,015
               Capital contributions                                                                     160,119
               Net loss                                                                                  (37,439)
               -------------------------------------------------------------------------------------------------
               BALANCE AT DECEMBER 31 1993                                                               311,695
               =================================================================================================

               PERIOD FROM JANUARY 1 1994 TO NOVEMBER 22 1994
               Balance at January 1 1994                                                                 311,695
               Capital contribution                                                                      121,873
               Repayment of the Joint Venturers' capital accounts                                        (75,700)
               Net loss                                                                                  (55,864)
               -------------------------------------------------------------------------------------------------
               BALANCE AT NOVEMBER 22 1994                                                               302,004
               =================================================================================================
</TABLE>

               On November 22 1994 the net assets of Joint Venture were
               contributed to the Company, as described in Note 1 to the
               consolidated financial statements. The contribution appears as an
               increase in additional paid-in capital in the following table.

<TABLE>
<CAPTION>
                                                     Convertible                          Additional
                                                      preference   Ordinary   Shares held    paid-in  Accumulated
                                                          shares     shares      in trust    capital      deficit      Total
                                                          L.'000     L.'000        L.'000     L.'000       L.'000     L.'000
               <S>                                        <C>        <C>          <C>      <C>          <C>        <C>
               COMPANY:
               Shares issued during the year              15,300      84,824           -     384,272           -     484,396
               Ordinary shares held in trust
                 for Restricted Share Scheme                   -           -      (7,280)          -           -      (7,280)
               Contribution of Joint Venture
                 to the Company on
                 November 22 1994                              -           -           -     302,004           -     302,004
               Net loss                                        -           -           -           -      (2,186)     (2,186)
               -------------------------------------------------------------------------------------------------------------
               BALANCE AT
               DECEMBER 31 1994                           15,300      84,824      (7,280)    686,276      (2,186)    776,934
               Conversion of ordinary
                 shares into convertible
                 preference shares                        11,227     (11,227)          -           -           -           -
               Accrued employee
                 compensation relating to
                 the Restricted Share Scheme                   -           -       2,462           -           -       2,462
               Net loss for the period
                 to October 2 1995                             -           -           -           -     (71,185)    (71,185)
               -------------------------------------------------------------------------------------------------------------
               BALANCE AT
               OCTOBER 2 1995                             26,527      73,597      (4,818)    686,276     (73,371)    708,211
               Shares issued in connection
                 with the acquisition of SBCC             23,080      18,399           -     636,695           -     678,174
               Accrued employee compensation
                 relating to the Restricted
                 Share Scheme                                  -           -       2,709           -           -       2,709
               Net loss for the period to
                 December 31 1995                              -           -           -           -     (66,346)    (66,346)
               -------------------------------------------------------------------------------------------------------------
               BALANCE AT
               DECEMBER 31 1995                           49,607      91,996      (2,109)  1,322,971    (139,717)  1,322,748
               =============================================================================================================
</TABLE>

               The consolidated financial statements have been prepared on the
               basis that the organization structure of TeleWest plc and its
               subsidiaries as set out above on October 2 1995 had been in
               existence throughout the periods covered by the consolidated
               financial statements. Further details regarding the basis of
               presentation are set out in Note 2 to the consolidated financial
               statements.

               See accompanying notes to consolidated financial statements.




                                     IV-24

<PAGE>   332


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             years ended december 31, 1995 and 1994 (amounts in thousands)

    NOTE 1   ORGANIZATION AND HISTORY

             TELEWEST PLC

             TeleWest plc ("the Company") is a cable television and telephony
             operator which offers these services to business and residential
             customers in the United Kingdom ("UK"). The Company derives its
             cable television revenues from installation fees, monthly basic
             and premium service fees and advertising charges. The Company
             derives its telephony revenues from connection charges, monthly
             line rentals, call charges, special residential service charges
             and interconnection fees payable by other operators. Based on
             revenue, the cable television and telephony services are
             approximately equal in size although revenue is predominantly
             derived from residential, rather than business, customers.

             The Company was incorporated on October 20, 1994 under the laws of
             England and Wales. On October 2, 1995, the entire issued share
             capital of TeleWest Communications plc ("Old TeleWest") was
             transferred to the Company in exchange for fully paid up shares of
             the Company pursuant to a court-approved scheme of arrangement
             (the "Scheme of Arrangement") made between Old TeleWest, the
             Company and the shareholders of Old TeleWest. The organization and
             history of Old TeleWest is described below. Details regarding the
             basis upon which the consolidated financial statements are
             presented are set out in Note 2.

             Under the Scheme of Arrangement, the Company issued 735,468,440
             ordinary shares of 10 pence each and 265,276,500 convertible
             preference shares of 10 pence each in consideration for the
             transfer of shares of Old TeleWest to the Company. Dealings in
             ordinary shares and ADSs representing ordinary shares of Old
             TeleWest ceased on the London Stock Exchange and NASDAQ National
             Market immediately prior to the execution of the Scheme of
             Arrangement, and upon completion of the Scheme of the Arrangement
             on October 2, 1995, dealings in the ordinary shares and ADSs
             representing ordinary shares of the Company commenced. Prior to
             the execution of the Scheme of Arrangement, the Company did not
             trade and hence did not incur any income or expenditure on its own
             account.

             On October 3, 1995, immediately following the completion of the
             Scheme of the Arrangement, the Company acquired the entire issued
             share capital of SBC CableComms (UK) ("SBCC"), a company that
             holds cable television and telephony interests in the UK, from its
             former shareholders in exchange for fully paid up shares of the
             Company. Further details on this acquisition are described in Note
             5 to the consolidated financial statements.

             OLD TELEWEST

             Old TeleWest was incorporated on January 1, 1994 under the laws of
             England and Wales. On November 22, 1994, affiliates of
             Tele-Communications, Inc. ("the TCI Affiliates") and affiliates of
             U S WEST, Inc. ("the U S WEST Affiliates") contributed their UK
             cable interests to Old TeleWest (the "Contribution"). These
             interests were previously held by the TCI Affiliates and the U S
             WEST Affiliates through TCI/U S WEST Cable Communications Group, a
             general partnership which was formed on December 18, 1991. Old
             TeleWest did not trade prior to November 22, 1994. TCI/U S WEST
             Cable Communications Group and its subsidiaries collectively are
             referred to herein as the "Joint Venture". The TCI Affiliates and
             the U S WEST Affiliates are collectively referred to herein as the
             "Joint Venturers".

             On November 22, 1994, immediately following the Contribution, Old
             TeleWest issued 604,000,000 ordinary shares and 153,000,000
             convertible preference shares to the Joint Venturers and completed
             an initial public offering ("the Global Offering") in which
             239,744,940 ordinary shares were issued to the public market.

             Immediately prior to the completion of the Scheme of Arrangement
             on October 2, 1995, Old TeleWest restructured its share capital by
             converting 112,276,500 ordinary shares of 10 pence each which were
             held by the Joint Venturers into 112,276,500 convertible
             preference shares of 10 pence each.




                                     IV-25

<PAGE>   333


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

    NOTE 2   BASIS OF PRESENTATION

             The consolidated financial statements have been prepared in
             accordance with generally accepted accounting principles in the
             United States of America ("US GAAP"). The preparation of financial
             statements in conformity with US GAAP 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 revenues and expenses during the reporting
             period. Actual results could differ from those estimates. The
             Contribution and the transactions executed pursuant to the Scheme
             of Arrangement are effectively internal reorganizations of the
             Company and its subsidiaries and hence the consolidated financial
             statements present the financial position, results of operations,
             and cash flows of the Company as if the ownership structure
             established on October 2, 1995, had been in existence throughout
             the periods covered by the consolidated financial statements. The
             acquisition of SBCC has been accounted for under the purchase
             method of accounting and hence its results have been included in
             the statement of operations only from the date of acquisition.

             The Company's historical shareholders' equity for periods prior to
             November 22, 1994, is the excess of the Joint Venture's assets
             over the Joint Venture's liabilities and represents the historical
             cost of the capital contributions made by the Joint Venturers less
             the accumulated deficit arising from the Joint Venture's
             operations. The Company's shareholders' equity for the period
             November 22, 1994 to October 2, 1995 reflects the accumulated
             deficit arising from the operations of Old TeleWest and the issue
             of ordinary and convertible preference shares by Old TeleWest.

             The economic environment and currency in which the Company
             operates is the United Kingdom and hence its reporting currency is
             Pounds Sterling (L.). Certain financial information for the year
             ended December 31, 1995 has also been translated into US Dollars,
             with such US Dollar amounts being unaudited and presented solely
             for the convenience of the reader, at the rate of $1.5535 =
             L.1.00, the Noon Buying Rate of the Federal Reserve Bank of New
             York on December 29, 1995. The presentation of the US Dollar
             amounts should not be construed as a representation that the
             Pounds Sterling amounts could be so converted into US Dollars at
             the rate indicated or at any other rate.

    NOTE 3   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             PRINCIPLES OF CONSOLIDATION

             The consolidated financial statements include the accounts of the
             Company and those of all majority-owned subsidiaries. All
             significant intercompany accounts and transactions have been
             eliminated upon consolidation.

             All acquisitions have been accounted for under the purchase method
             of accounting. Under this method, the results of subsidiaries and
             affiliates acquired in the year are included in the consolidated
             statement of operations from the date of acquisition.

             Goodwill arising on consolidation (representing the excess of the
             fair value of the consideration given over the fair value of the
             identifiable net assets acquired) is amortized over the
             acquisitions' useful life or over a maximum period of 40 years.
             The Company assesses the recoverability of this intangible asset
             by determining whether the amortization of the goodwill balance
             over its remaining life can be recovered. The amount of goodwill
             impairment, if any, is measured based on the expected undiscounted
             cash flows of the acquired operations.

             CASH AND CASH EQUIVALENTS

             Cash and cash equivalents include highly-liquid investments with
             original maturities of three months or less that are readily
             convertible into cash.




                                    IV-26
<PAGE>   334


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

    NOTE 3   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

             FINANCIAL INSTRUMENTS

             The Company uses foreign currency option contracts which permit,
             but do not require, the Company to exchange foreign currencies at
             a future date with another party at a contracted exchange rate.
             The Company also enters into combined foreign currency and
             interest rate swap contracts ("Foreign Currency Swaps"). Such
             contracts are used to hedge against adverse changes in foreign
             currency exchange rates associated with obligations denominated in
             foreign currency.

             The foreign currency option and Foreign Currency Swaps are
             recorded on the balance sheet in other assets or other liabilities
             at their fair value at the end of each reporting period with
             changes in their fair value during the reporting period being
             reported as part of the foreign exchange gain or loss in the
             statement of operations. Such gains and losses are offset against
             foreign exchange gains and losses on the obligations denominated
             in foreign currencies which have been hedged.

             Other interest rate swaps which are held as trading assets are
             recorded on the balance sheet at their fair value at the end of
             each reporting period with changes in their fair value being
             recorded as gains and losses in the statement of operations.

             INVESTMENTS

             Investments in partnerships, joint ventures and subsidiaries in
             which the Company's voting interest is 20% to 50%, and others
             where the Company has significant influence, are accounted for
             using the equity method. Investments which do not have a readily
             determinable fair value, in which the Company's voting interest is
             less than 20%, and in which the Company does not have significant
             influence, are carried at cost and written down to the extent that
             there has been an other-than-temporary diminution in value.

             ADVERTISING COSTS

             Advertising costs are expensed as incurred. The amount of
             advertising costs expensed was L.10,246,000,  L.4,313,000 and
             L.1,958,000 for the years ended December 31, 1995, 1994 and 1993,
             respectively.

             PROPERTY AND EQUIPMENT

             Property and equipment is stated at cost, including the historical
             carryover basis cost from the Contribution. Except during the
             prematurity period as described below, depreciation is provided to
             write off the cost, less estimated residual value, of property and
             equipment by equal instalments over their estimated useful
             economic lives as follows:

<TABLE>
             <S>                                           <C>
             Freehold and long leasehold buildings         50 years
             Cable and ducting                             25-30 years
             Electronic equipment
             - System electronics                          10 years
             - Switching equipment                         8 years
             - Subscriber electronics                      5 years
             - Headend, studio and playback facilities     5 years
             Other equipment
             - Office furniture and fittings               5 years
             - Motor vehicles                              4 years
</TABLE>




                                    IV-27
<PAGE>   335


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

    NOTE 3   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

             During the prematurity period, depreciation of cable and ducting
             and system electronics is charged monthly to write off the
             estimated cost at the end of the prematurity period over a useful
             life of 30 and 10 years, respectively. In accordance with
             Statement of Financial Accounting Standards ("SFAS") No 51,
             "Financial Reporting by Cable Television Companies", the monthly
             charge is scaled down by a ratio of average customers in the
             current period to the estimated customer base at the end of the
             prematurity period. The prematurity period covers the period
             between connecting the first customer and substantial completion
             of the network.

             Preconstruction costs which are included within cable and ducting
             are amortized over the life of the franchise from the date of the
             first customer.

             The Company accounts for costs, expenses and revenues applicable
             to the construction and operation of its cable systems under SFAS
             No. 51.

             FRANCHISE COSTS

             Expenditure incurred on successful applications for franchise
             licences is included in property and equipment and is amortized
             over the remaining life of the original franchise term, generally
             15 years. Costs relating to unsuccessful applications are charged
             to the statement of operations.

             DEFERRED FINANCING COSTS

             Costs incurred to issue debentures are deferred and amortized to
             the consolidated statement of operations at a constant rate to the
             carrying value of the debentures over the life of the debentures.

             MINORITY INTERESTS

             Recognition of the minority interests' share of losses of
             consolidated subsidiaries is limited to the amount of such
             minority interests' allocable portion of the equity of those
             consolidated subsidiaries.

             FOREIGN CURRENCIES

             Transactions in foreign currencies are recorded using the rate of
             exchange in effect at the date of the transaction. Monetary assets
             and liabilities denominated in foreign currencies are translated
             using the rate of exchange ruling at the balance sheet date and
             the gains or losses on translation are included in the statement
             of operations.

             REVENUE RECOGNITION

             Revenue is recognized as services are delivered. Other revenues
             include connection fees which are recognized in the period of
             connection to the extent that the fee is offset by direct selling
             costs. The remainder is recognized over the estimated average
             period that subscribers are expected to remain connected to the
             system.

             PENSION COSTS

             The Company does not have a defined benefit pension plan but
             operates a defined contribution scheme or contributes up to
             specified limits to the third-party scheme of the employee's
             choice. The amount included in losses in 1995, 1994 and 1993 of
             L.1,538,000, L.839,000 and L.482,000, respectively, represents the
             contributions payable to the selected schemes in respect of the
             relevant accounting periods.

             INCOME TAXES

             Prior to November 22, 1994 no provision has been made for income
             tax expense or benefit in the accompanying financial statements as
             the earnings or losses of the Joint Venture are reported in the
             respective income tax returns of the individual Joint Venturers.




                                    IV-28
<PAGE>   336


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

    NOTE 3   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

             Following from the reorganization effective on November 22, 1994,
             the Company became subject to UK taxation and adopted SFAS No 109,
             "Accounting for Income Taxes". The adoption of SFAS No 109 does
             not give rise to any cumulative adjustment to be made in the 1994
             consolidated statement of operations. Under the asset and
             liability method of SFAS No 109, deferred tax assets and
             liabilities are recognized for the future tax consequences
             attributable to differences between the financial statement
             carrying amounts of existing assets and liabilities and their
             respective tax bases. Deferred tax assets and liabilities are
             measured using enacted tax rates expected to apply to taxable
             income in the years in which those temporary differences are
             expected to be recovered.

             RESTRICTED SHARE SCHEME

             The Company operates the TeleWest Restricted Share Scheme to
             provide for a portion of the future payments to employees under
             the Company's existing compensation programs. Shares purchased by
             the trust are valued at the market price on the date on which they
             are purchased and are reflected as a reduction of shareholders'
             equity in the balance sheet.  This equity account is reduced based
             on the original cost of the shares to the trust when the shares
             are awarded to employees.

             The value of awards of ordinary shares to be made to employees in
             future years are charged to the statement of operations to the
             extent that they have been awarded to and earned by employees in
             the current accounting period. The value of shares which have been
             awarded to, but have not been earned by employees, is included as
             deferred compensation expense within other assets.

             LOSS PER ORDINARY SHARE

             Loss per ordinary share is based on the weighted average number of
             ordinary shares outstanding during the year. Ordinary share
             equivalents are not included in the computation as their effect
             would be to decrease the loss per share. The pro forma loss per
             ordinary share calculated for the year ended December 31, 1994
             assumes that ordinary shares issued to the Joint Venturers in
             return for the Contribution had been outstanding for the entire
             year.  Shares issued for cash in the Global Offering have been
             treated as outstanding from that date.

             RECENTLY ISSUED ACCOUNTING STANDARDS

             In March 1995, the Financial Accounting Standards Board issued
             SFAS No 121 "Accounting for the Impairment of Long-Lived Assets
             and for Long-Lived Assets to be Disposed Of". The statement
             requires that those assets to be held and used by an entity be
             reviewed for impairment whenever events or changes in
             circumstances indicate that the carrying amount of an asset may
             not be recoverable, and those assets to be disposed of be reported
             at the lower of carrying amount or fair value less cost to sell.

             The Company is required to first comply with the requirements of
             SFAS No 121 not later than in its consolidated financial
             statements for the year ending December 31, 1996. The Company is
             currently evaluating the effect that implementation of the new
             standard will have on its results of operations and financial
             position.

             In October 1995, the Financial Accounting Standards Board issued
             SFAS No 123 "Accounting for Stock-Based Compensation" which allows
             companies to adopt a fair-value method for recognizing stock-based
             expense in the financial statements. The Company is required to
             first comply with the requirements of SFAS No 123 not later than
             in its consolidated financial statements for the year ending
             December 31, 1996. The Company is currently evaluating the effect
             that implementation of the new standard will have on its results
             of operations and financial position.

             RECLASSIFICATIONS

             Certain reclassifications have been made between asset categories
             presented on the balance sheet as at December 31, 1994 to conform
             with the 1995 presentation.




                                    IV-29
<PAGE>   337


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

    NOTE 4   FINANCIAL INSTRUMENTS

             FOREIGN CURRENCY OPTION CONTRACT

             At December 31, 1995, the Company held a Pounds Sterling put
             option to purchase US$1,537,000,000 to hedge its exposure to
             adverse fluctuations in exchange rates on the principal amount at
             maturity of its US Dollar-denominated Senior Discount Debentures
             due 2007 ("Senior Discount Debentures"). The expiry date of this
             option contract is September 28, 2000. The put option has a strike
             price at expiration of L.1.00 = US$1.4520. The foreign currency
             option has been included in other assets at its fair value on
             December 31, 1995 of L.85,742,000.

             FOREIGN CURRENCY SWAP

             The Company has entered into a Foreign Currency Swap to hedge its
             exposure to adverse fluctuations in exchange rates on the
             principal amount of its US Dollar-denominated Senior Debentures
             due 2006 ("Senior Debentures"). The terms of the contract provided
             for the Company to make an initial exchange of principal of
             US$300,000,000 in exchange for L.196,078,000. On expiry on October
             1, 2000, the initial principal amounts will be re-exchanged. The
             interest element of the Foreign Currency Swap requires the Company
             to make Pounds Sterling fixed-rate interest payments and to
             receive US Dollar fixed-rate interest payments on the initial
             exchange amounts on a semi annual basis. The Foreign Currency Swap
             has been included in other liabilities at its fair value on
             December 31, 1995 of L.3,983,000.

             FAIR VALUE OF FINANCIAL INSTRUMENTS

             SFAS No 119 "Disclosures about Derivative Financial Instruments
             and Fair Value of Financial Instruments" requires disclosure of an
             estimate of the fair values of certain financial instruments. SFAS
             No 119 defines the fair value of a financial instrument as the
             amount at which the instrument could be exchanged in a current
             transaction between willing parties other than in a forced sale.
             Fair value estimates are made at a specific point in time, based
             upon relevant market information and information about the
             financial instrument. These estimates are subjective in nature and
             involve uncertainties and matters of significant judgment, and
             therefore cannot be determined precisely. Changes in assumptions
             could significantly affect the estimates.

             At December 31, 1995, the Company's significant financial
             instruments include cash and cash equivalents, trade receivables,
             the foreign currency option contract, the Foreign Currency Swap,
             trade payables and long-term borrowings. The following table
             summarizes the fair value of the foreign currency option contract,
             the Foreign Currency Swap, the interest rate swaps, the Senior
             Discount Debentures and the Senior Debentures. The fair value of
             the other financial instruments held by the Company approximates
             their recorded carrying amount due to the short maturity of these
             instruments and these instruments are not presented in the
             following table.

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,1995        AT DECEMBER 31,1994
                                                              CARRYING                  Carrying
                                                                AMOUNT   FAIR VALUE       amount    Fair value
                                                                L.'000       L.'000       L.'000        L.'000
             <S>                                               <C>          <C>            <C>           <C>
             Assets:
             Foreign currency option contract                   85,742       85,742            -             -
             Interest rate swap agreement                            -            -        9,568         9,568
             Liabilities:
             Interest rate swap agreement                            -            -          645           645
             Foreign Currency Swap                               3,983        3,983            -             -
             Senior Discount Debentures                        595,266      601,222            -             -
             Senior Debentures                                 193,113      196,975            -             -
</TABLE>

             Interest rate swaps held by the Company at December 31, 1994 were
             sold during the year.




                                    IV-30
<PAGE>   338


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

    NOTE 4   FINANCIAL INSTRUMENTS (CONTINUED)

             The estimated fair value of the foreign currency option contract
             and the Foreign Currency Swap are based on quotations received
             from independent, third party financial institutions and represent
             the net amount receivable or payable to terminate the position,
             taking into consideration market rates and counterparty credit
             risk. The estimated fair value of the Senior Discount Debentures
             and the Senior Debentures are also based on quotations from
             independent, third party financial institutions and are based on
             discounting the future cash flows to net present values using
             appropriate market interest rates prevailing at the year end.

             MARKET RISK AND CONCENTRATIONS OF CREDIT RISK

             Market risk is the sensitivity of the value of the financial
             instruments to changes in related currency and interest rates.
             Generally, the Company is not exposed to such market risk because
             gains and losses on the financial instruments are offset by gains
             and losses on the underlying assets and liabilities.

             The Company may be exposed to potential losses due to the credit
             risk of non-performance by the counterparties to its foreign
             currency option and Foreign Currency Swap contracts; however, such
             losses are not anticipated as these counterparties are major
             international financial institutions.

             Temporary cash investments also potentially expose the Company to
             concentrations of credit risk, as defined by SFAS No. 105
             "Disclosure of Information about Financial Instruments with
             Off-Balance-Sheet Risk and Financial Instruments with
             Concentrations of Credit Risks". The Company places its temporary
             cash investments with major international financial institutions
             and limits the amount of credit exposure to any one financial
             institution.  Concentrations of credit risk with respect to trade
             receivables are limited due to the large number of customers
             comprising the Company's customer base.

             At December 31, 1995, the Company had no significant concentration
             of credit risk.

    NOTE 5   BUSINESS COMBINATIONS

             On October 3, 1995, the Company acquired the entire issued share
             capital of SBC CableComms (UK) ("SBCC"), a company which holds
             cable television and telephony interests in the UK, from an
             affiliate of Cox Communications, Inc. and affiliates of SBC
             Communications, Inc. in exchange for an aggregate of 183,994,960
             ordinary shares of 10 pence each and 230,790,208 convertible
             preference shares of 10 pence each (the "SBCCShare Exchange
             Agreement"). The value attributable to the shares issued was
             L.1.635 per share, being the market price of the shares on June 8,
             1995, the day the terms of the acquisition were agreed to and
             announced.  The fair value of the share consideration using this
             share price was L.678,174,000. The aggregate cost of acquisition
             was L.689,878,000 including the costs of acquisition.

             This acquisition has been accounted for under the purchase method
             of accounting. The goodwill arising on acquisition is
             L.464,872,000 and is being amortized on a straight-line basis over
             20 years.

             On September 8, 1993, the Joint Venture acquired for cash
             consideration of L.48,302,000 the entire issued share capital of
             certain companies, which build and operate cable television and
             telephony networks in Scotland. This acquisition has been
             accounted for under the purchase method of accounting. The amount
             of goodwill arising as a result of the acquisition is L.25,022,000
             and is being amortized on a straight-line basis over 20 years.

             The operating results of these acquisitions are included in the
             Company's consolidated statement of operations from their
             respective dates of acquisition. The following unaudited pro forma
             information presents the consolidated results of operations of the
             Company as if the acquisitions had occurred at the beginning of
             1994, after giving effect to the amortization of goodwill arising
             as a result of each of the acquisitions:

<TABLE>
<CAPTION>
                                                           1995          1994
                                                         L.'000       L.'0000
             <S>                                       <C>           <C>
             Revenue                                    191,195       108,038
             Net loss                                  (188,142)     (113,247)
</TABLE>




                                    IV-31

<PAGE>   339


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

    NOTE 5   BUSINESS COMBINATIONS (CONTINUED)

             The above unaudited pro forma financial information is presented
             for information purposes only and is not necessarily indicative of
             the operating results that would have occurred had the acquisition
             been completed as of the dates indicated above, nor is it
             indicative of future results.

    NOTE 6   SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

             Cash paid for interest was L.6,041,000, L.8,013,000 and
             L.2,417,000 for the years ended December 31, 1995, 1994 and 1993,
             respectively.

             Significant non-cash investing activities of the Company are
             described below. The amounts stated for 1995 represent the
             purchase of SBCC for largely share consideration, as described in
             Note 5 to the consolidated financial statements. The amounts
             stated for 1994 represent the contribution of UK cable interests
             to the Company by the Joint Venturers.

<TABLE>
<CAPTION>
                                                                           DECEMBER 31
                                                                       1995          1994
                                                                     L.'000        L.'000
             <S>                                                   <C>             <C>
             Purchase of SBCC/contribution of cable interests:     
               Assets                                               428,080         3,967
               Liabilities assumed                                  (45,144)       (2,744)
               Debt assumed                                        (157,930)            -
               Minority interest in subsidiaries                          -           (44)
             -----------------------------------------------------------------------------
             Net assets acquired/contributed                        225,006         1,179
             Goodwill on acquisition                                464,872             -
             =============================================================================
                                                                    689,878         1,179
             =============================================================================
             Share consideration/capital contribution               678,174         1,179
             Costs of acquisition                                    11,704             -
             -----------------------------------------------------------------------------
                                                                    689,878         1,179
             =============================================================================
</TABLE>

    NOTE 7   OTHER RECEIVABLES

<TABLE>
<CAPTION>
                                                                            DECEMBER 31
                                                                        1995          1994
                                                                      L.'000        L.'000
             <S>                                                      <C>           <C>
             Value Added Tax refund                                    5,145         7,709
             Interconnection receivables                               3,019         2,624
             Interest rate swaps                                           -         9,568
             Interest receivable                                       3,341           811
             Accrued income                                            3,311           548
             Recoverable expenses                                      2,808         1,951
             Other                                                     8,033         2,913
             -----------------------------------------------------------------------------
                                                                      25,657        26,124
             =============================================================================
</TABLE>




                                    IV-32

<PAGE>   340


               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               continued

    NOTE 8   INVESTMENTS

             The Company has investments in affiliates accounted for under the
             equity method at December 31, 1995 and 1994 as follows:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31
                                                                         1995          1994
                                                                       L.'000        L.'000
             <S>                                                       <C>           <C>
             Cable London plc                                          49.00%        48.90%
             Birmingham Cable Corporation Limited                      27.47%        27.47%
             London Interconnect Limited                               16.67%        16.67%
             Central Cable Sales Limited                               50.00%            -
</TABLE>

             The Company has accounted for its investment in London
             Interconnect Limited under the equity method because it is in a
             position to exercise a significant influence over London
             Interconnect Limited.

             Summarized financial information for such affiliates which operate
             principally in the cable television and telephony industries is as
             follows:

             COMBINED FINANCIAL POSITION
<TABLE>
<CAPTION>
                                                                          AT DECEMBER 31
                                                                        1995          1994
                                                                      L.'000        L.'000
             <S>                                                     <C>           <C>
             Property and equipment, net                             311,265       224,899
             Intangible assets, net                                    4,644        16,201
             Other assets, net                                       149,786        28,909
             -----------------------------------------------------------------------------
             TOTAL ASSETS                                            465,695       270,009
             =============================================================================
             Debt                                                    247,653        25,500
             Other liabilities                                        50,268        43,673
             Owners' equity                                          167,774       200,836
             -----------------------------------------------------------------------------
             TOTAL LIABILITIES AND EQUITY                            465,695       270,009
             =============================================================================
</TABLE>
             COMBINED OPERATIONS
<TABLE>
<CAPTION>
                                                                            YEAR ENDED
                                                                            DECEMBER 31
                                                                        1995          1994
                                                                      L.'000        L.'000
             <S>                                                     <C>           <C>
             Revenue                                                  70,016        38,669
             Operating expenses                                      (99,184)      (58,869)
             -----------------------------------------------------------------------------
             Operating loss                                          (29,168)      (20,200)
             Interest income/(expense)                                (4,615)         (488)
             -----------------------------------------------------------------------------
             NET LOSS                                                (33,783)      (20,688)
             =============================================================================
</TABLE>

             The Company's investments in affiliates are comprised as follows:

<TABLE>
<CAPTION>
                                                                        1995          1994
                                                                      L.'000        L.'000
             <S>                                                      <C>           <C>
             Loans                                                    24,593        13,163
             Share of net assets                                      56,110        68,744
             -----------------------------------------------------------------------------
                                                                      80,703        81,907
             =============================================================================
</TABLE>

             Any excess of the purchase cost over the value of the net assets
             acquired is included in goodwill and amortized over 20 years on a
             straight-line basis.




                                    IV-33
<PAGE>   341


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

    NOTE 9   PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                             Cable and   Electronic        Other
                                         Land    Buildings     ducting    equipment    equipment         Total
                                       L.'000       L.'000      L.'000       L.'000       L.'000        L.'000
             <S>                                    <C>        <C>          <C>           <C>        <C>
             ACQUISITION COSTS
             Balance at January 1, 1995 4,055       16,643     321,208      149,652       30,575       522,133
             On acquisition of SBCC       168       14,551     284,670      131,682       25,681       456,752
             Additions                      -        4,811     161,439       78,729       24,097       269,076
             Disposals                      -            -        (451)        (446)      (1,114)       (2,011)
             -------------------------------------------------------------------------------------------------
             Balance at
               December 31, 1995        4,223       36,005     766,866      359,617       79,239     1,245,950
             =================================================================================================

             ACCUMULATED DEPRECIATION
             Balance at January 1, 1995     -        2,106      25,926       28,040       11,218        67,290
             On acquisition of SBCC         -          833      26,201       17,080       11,660        55,774
             Charge for year                -        1,981      22,507       25,791        9,740        60,019
             Disposals                      -            -        (102)        (101)        (738)         (941)
             -------------------------------------------------------------------------------------------------
             Balance at
               December 31, 1995            -        4,920      74,532       70,810       31,880       182,142
             =================================================================================================

             1995 NET BOOK VALUE        4,223       31,085     692,334      288,807       47,359     1,063,808
             =================================================================================================

             ACQUISITION COSTS
             Balance at January 1, 1994 2,950        6,591     208,812       71,095       18,806       308,254
             Additions                  1,105       10,052     113,182       78,898       12,220       215,457
             Disposals                      -            -        (786)        (341)        (451)       (1,578)
             -------------------------------------------------------------------------------------------------
             Balance at
               December 31, 1994        4,055       16,643     321,208      149,652       30,575       522,133
             =================================================================================================

             ACCUMULATED DEPRECIATION
             Balance at January 1, 1994     -        1,077      16,945       13,959        6,299        38,280
             Charge for year                -        1,029       9,767       14,386        5,138        30,320
             Disposals                      -            -        (786)        (305)        (219)       (1,310)
             -------------------------------------------------------------------------------------------------
             Balance at
               December 31, 1994            -        2,106      25,926       28,040       11,218        67,290
             =================================================================================================
             1994 NET BOOK VALUE        4,055       14,537     295,282      121,612       19,357       454,843
             =================================================================================================
</TABLE>

             Cable and ducting consists principally of the civil engineering
             and fibre optic costs. In addition, cable and ducting includes net
             book value of preconstruction and franchise costs of L.14,388,000,
             and L.15,586,000 as of December 31, 1995, and 1994, respectively.
             Electronic equipment includes the Company's switching, headend and
             converter equipment.  Other equipment consists principally of
             motor vehicles, office furniture and fixtures and leasehold
             improvements.




                                    IV-34
<PAGE>   342


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

   NOTE 10   VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                     ADDITIONS CHARGED TO
                                 Balance at  Acquisition     Costs and        Other                    Balance
                                  January 1      of SBCC      expenses     accounts   Deductions   December 31
                                     L.'000       L.'000        L.'000       L.'000       L.'000        L.'000
             <S>                      <C>          <C>           <C>             <C>      <C>            <C>
             1995
             Allowance for doubtful
               accounts               1,736        1,063         5,920            -       (4,024)        4,695
             -------------------------------------------------------------------------------------------------
             1994
             Allowance for doubtful
               accounts                 577            -         3,392           26       (2,259)        1,736
             -------------------------------------------------------------------------------------------------
             1993
             Allowance for doubtful
               accounts                 107            -           515           70         (115)          577
             -------------------------------------------------------------------------------------------------
</TABLE>
   NOTE 11   OTHER ASSETS

             The components of other assets, net of amortization, are as
             follows:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31
                                                                        1995          1994
                                                                      L.'000        L.'000
             <S>                                                     <C>                <C>
             Deferred financing costs of debentures                   20,716             -
             Foreign currency option contract                         85,742             -
             Other                                                     2,473            25
             -----------------------------------------------------------------------------
                                                                     108,931            25
             =============================================================================
</TABLE>
   NOTE 12   OTHER LIABILITIES

             Other liabilities are summarized as follows:
<TABLE>
<CAPTION>
                                                                        1995          1994
                                                                      L.'000        L.'000
             <S>                                                     <C>            <C>
             Amount due to affiliated or other related parties         2,052           395
             Accrued interest                                          5,740         1,507
             Accrued construction costs                               14,859         5,492
             Accrued expenses and deferred income                     58,507        25,976
             Foreign Currency Swap                                     3,983             -
             Other liabilities                                        18,683        11,900
             -----------------------------------------------------------------------------
                                                                     103,824        45,270
             =============================================================================
</TABLE>

   NOTE 13   DEBT

             Debt is summarized as follows at December 31, 1995 and 1994:

<TABLE>
<CAPTION>
                                              Weighted average
                                              interest rate at          1995          1994
                                                 December 31          L.'000        L.'000
                                              1995         1994
             <S>                           <C>           <C>         <C>             <C>
             Senior Debentures              9.625%            -      193,113             -
             Senior Discount Debentures    11.000%            -      595,266             -
             Other debt                     8.450%       6.600%        3,886         3,886
             -----------------------------------------------------------------------------
                                                                     792,265         3,886
             =============================================================================
</TABLE>




                                    IV-35
<PAGE>   343


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

   NOTE 13   DEBT (CONTINUED)

             SENIOR DEBENTURES

             In October 1995, the Company issued US$300,000,000 principal
             amount of Senior Debentures with a yield to maturity of 9.625%.
             The cash consideration received at the date of issue was
             L.188,703,000. The Senior Debentures mature on October 1, 2006.
             Interest on the Senior Debentures accrues semi annually and is
             payable in arrears with the payments commencing on April 1, 1996.
             The Senior Debentures are redeemable, in whole or in part, at the
             option of the Company at any time on or after October 1, 2000 at
             the redemption price of 104.813% of the principal amount during
             the year commencing October 1, 2000, 102.406% of the principal
             amount during the year commencing October 1, 2001 and thereafter
             at 100% of the principal amount plus accrued and unpaid interest.

             The Senior Debentures and the Senior Discount Debentures, which
             are described below, were issued to finance general working
             capital, capital expenditure, foreign currency swap and options to
             hedge against adverse fluctuations in exchange rates and
             additional investments in affiliated companies or other companies
             engaged in the cable/telecommunications business.  A portion of
             the net proceeds of the issue also was used to repay the
             L.157,930,000 indebtedness outstanding under the loan facility
             held by SBCC at the date that it was acquired by the Company.

             The indenture under which the Senior Debentures were issued
             contains various covenants which, among other things, will
             restrict the ability of the Company to incur additional
             indebtedness, pay dividends, create certain liens, enter into
             certain transactions with shareholders or affiliates, or sell
             certain assets. The Company was in compliance with the covenants
             at December 31, 1995.

             The Company has entered into a Foreign Currency Swap to hedge its
             exposure to adverse fluctuations in exchange rates on the
             principal amount which will be outstanding on October 1, 2000, the
             earliest redemption date, and the associated interest payments of
             the Senior Debentures. The terms of the Foreign Currency Swap are
             described in Note 4 to the consolidated financial statements.

             The Senior Debentures are unsecured liabilities of the Company.

             SENIOR DISCOUNT DEBENTURES

             In October 1995, the Company issued US$1,536,413,000 principal
             amount at maturity of Senior Discount Debentures with a yield to
             maturity of 11%. The cash consideration received at the date of
             issue was L.566,109,000 (US$900,000,000). At December 31, 1995,
             the unamortized portion of the discount on issue was L.393,466,000
             (US$611,250,000). The Senior Discount Debentures mature on October
             1, 2007. Interest on the Senior Discount Debentures accrues semi
             annually. Cash interest will not accrue on the Senior Discount
             Debentures prior to October 1, 2000 and is thereafter payable in
             arrears on April 1 and October 1 of each year at a rate of 11% per
             annum. The Senior Discount Debentures are redeemable, in whole or
             in part, at the option of the Company at any time on or after
             October 1, 2000 at the redemption price of 100% of the principal
             amount plus accrued and unpaid interest.

             The indenture under which the Senior Discount Debentures were
             issued contains various covenants as set out for the Senior
             Debenture above with which the Company was in compliance with at
             December 31, 1995.

             The Company has purchased a five year Pounds Sterling put option
             to purchase US$1,537,000,000 to hedge its exposure to adverse
             fluctuations in exchange rates on the principal amount which will
             be outstanding on October 1, 2000, the earliest redemption date,
             of the Senior Discount Debentures. The terms of the foreign
             currency option contract are described in Note 4 to the
             consolidated financial statements.

             The Senior Discount Debentures are unsecured liabilities of the 
             Company.




                                    IV-36

<PAGE>   344


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

   NOTE 13   DEBT (CONTINUED)

             REVOLVING CREDIT FACILITIES

             Subsidiaries of the Company operating in the London South, Avon,
             and Scotland Regional Franchise Areas are party to revolving
             credit facilities available for future drawdowns to finance the
             construction of the cable network in these Regional Franchise
             Areas. The total amount available for drawdown is L.190,000,000
             for the London South/Avon facility and L.195,000,000 for the
             Scotland facility.

             Borrowings under the credit facilities are secured by the assets
             and shares of the London South, Avon, and Scotland Regional
             Franchise Areas and bear interest at a floating rate based on
             LIBOR. The credit facilities contain covenants regarding financial
             and operating ratios and targets.

             The credit facilities are divided into two tranches: a
             non-recourse portion (Tranche A) and a recourse portion (Tranche
             B). Any amounts outstanding under Tranche A must be repaid by
             December 31, 2001 under the London South/Avon facility and by
             December 31, 2003 under the Scotland facility. Any amounts
             outstanding under Tranche B must be repaid by March 31, 1998 and
             by December 31, 1999 for the London South/Avon facility and
             Scotland facility, respectively. No amounts had been drawn under
             these facilities at the date of these financial statements.
             Commitment fees relating to the facilities paid for the years
             ended December 31, 1995, 1994 and 1993 were L.1,863,000, L.801,000
             and L.134,000, respectively.

             OTHER DEBT

             Other debt is represented by property loans which are secured on
             freehold land and buildings held by the Company of which L.937,000
             matures in 1996 and L.2,949,000 matures in 1997. The property
             loans bear interest at a rate of 1.5% to 1.75% above LIBOR.

   NOTE 14   INCOME TAXES

             As discussed in Note 3 to the consolidated financial statements,
             the Company has adopted SFAS No 109 as of November 22, 1994. The
             adoption of this standard has no cumulative effect to be reported
             in the 1994 consolidated statement of operations.

             Loss before income taxes is solely attributable to the UK:

             The provision for income tax is as follows:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31
                                                                        1995          1994
                                                                      L.'000        L.'000
             <S>                                                          <C>            <C>
             Currently payable                                            16             -
             =============================================================================
</TABLE>




                                    IV-37
<PAGE>   345


               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               continued

   NOTE 14   INCOME TAXES (CONTINUED)

             A reconciliation of income taxes determined using the statutory UK
             rate of 33% to the effective rate of income tax is as follows:

<TABLE>
<CAPTION>
                                                                            YEAR ENDED
                                                                            DECEMBER 31
                                                                        1995          1994
                                                                           %             %
             <S>                                                         <C>           <C>
             Corporate tax at UK statutory rates                         (33)          (33)
             Permanent differences                                         3             1
             Valuation allowance                                          26            28
             Share of losses of affiliates                                 4             4
             -----------------------------------------------------------------------------
             Effective rate                                                -             -
             =============================================================================
</TABLE>

             Deferred income tax assets and liabilities at December 31, 1995
             and 1994 are summarized as follows:

<TABLE>
<CAPTION>
                                                                        1995          1994
                                                                      L.'000        L.'000
             <S>                                                     <C>           <C>
             Deferred tax assets relating to:                        
             Fixed assets                                              2,200         1,031
             Net operating loss carryforward                          97,000        41,582
             Other                                                     9,200         1,329
             -----------------------------------------------------------------------------
             Deferred tax asset                                      108,400        43,942
             Valuation allowance                                     (96,300)      (40,537)
             -----------------------------------------------------------------------------
                                                                      12,100         3,405
             Deferred tax liabilities relating to:                   
             Liabilities and provisions                                    -          (460)
             Other                                                   (12,100)       (2,945)
             -----------------------------------------------------------------------------
             Deferred tax liabilities                                (12,100)       (3,405)
             -----------------------------------------------------------------------------
             DEFERRED TAX ASSET PER BALANCE SHEET                          -             -
             =============================================================================
</TABLE>

             Following the reorganization effective on November 22, 1994, the
             Company became subject to UK taxation.

             At December 31, 1995 and 1994 the Company estimates that is has,
             subject to Inland Revenue agreement, net operating losses ("NOLs")
             of L.294,000,000 and L.126,000,000, respectively, available to
             relieve against future profits.

             The NOLs have an unlimited carryforward period under UK tax law,
             but are limited to their use to the type of business which has
             generated the loss.

   NOTE 15   EXTRAORDINARY GAIN

             The Company had entered into interest rate swap agreements in
             order to manage the interest rate risk on its revolving credit
             facilities by swapping the interest rate on part of its variable
             rate debt for a fixed interest rate. Following the Global Offering
             of the Company in November 1994, the Company used a portion of the
             proceeds from the offering to repay all amounts outstanding under
             these credit facilities and the interest rate swap agreements
             ceased to be a hedge of the interest rate liability. The interest
             rate swaps were retained pending their use as hedges of interest
             rates on future drawdowns of the credit facilities.  They had been
             placed on the balance sheet at their fair value at the date upon
             which the debt was repaid and an extraordinary gain equal to the
             aggregate fair value of the interest rate swaps at this date was
             recognized in the consolidated statement of operations. Any change
             in the aggregate fair value of the swap agreements since this date
             had been recognized in the consolidated statement of operations.
             On October 12, 1995, the Company sold the interest rate swaps,
             recognizing a loss on disposal.




                                    IV-38
<PAGE>   346


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

   NOTE 16   SHAREHOLDERS' EQUITY

             As described in Note 2 to the consolidated financial statements,
             the transactions executed under the Scheme of the Arrangement are
             effectively internal reorganizations of the Company and its
             subsidiaries. The transactions do not affect the composition or
             amount of shareholders' equity and hence are not discussed below.

             MOVEMENTS IN SHARE CAPITAL

             On August 14, 1995, the authorized share capital of the Company
             was increased to L.267,100,000 being 2,010,000,000 ordinary shares
             of 10 pence each and 661,000,000 convertible preference shares of
             10 pence each. On October 2, 1995, 112,276,500 ordinary shares of
             10 pence each were converted into 112,276,500 convertible
             preference shares of 10 pence each. Both transactions were made to
             enable the Company to execute the Scheme of Arrangement.

             On 3 October, 1995, pursuant to the SBCC Share Exchange Agreement,
             the Company issued 183,994,960 ordinary shares of 10 pence each at
             par and 230,790,208 convertible preference shares of 10 pence each
             at par to the former shareholders of SBCC in consideration for the
             transfer of the shares of SBCC to the Company. See Note 5 to the
             consolidated financial statements.

             CONVERTIBLE PREFERENCE SHARES

             The convertible preference shares are convertible into fully paid
             up ordinary shares at any time on the basis of one ordinary share
             for every convertible preference share provided that, immediately
             following the conversion, the percentage of the issued ordinary
             share capital of the Company held by members of the public, as
             defined by the listing rules of the London Stock Exchange, does
             not fall below 25%. The ordinary shares arising on conversion will
             rank pari passu in all respects with the ordinary shares then in
             issue.

             The holders of the convertible preference shares are entitled to
             receive a dividend of such amount as is declared and paid in
             relation to each ordinary share, subject to the dividend to be
             paid not exceeding 20 pence per share net of any associated tax
             credit.

             In the event of a winding-up of the Company or other return of
             capital, the assets of the Company available for distribution will
             be paid first to the holders of the convertible preference shares
             up to the sum of capital paid-up or credited as paid-up unless the
             right of election upon a winding-up of the Company has been
             exercised in respect of the convertible preference shares ("the
             Elected Shares"). If the election has been exercised, the holders
             of the ordinary shares and the Elected Shares will receive any
             surplus in accordance with the amount paid-up or credited as
             paid-up on the shares held.

             The holders of the convertible preference shares are not entitled
             to vote at any general meeting of the Company unless the meeting
             includes the consideration of a resolution for winding up the
             Company or a resolution modifying the rights or privileges
             attaching to the convertible preference shares.

             SHARES HELD IN TRUST FOR THE TELEWEST RESTRICTED SHARE SCHEME

             The Company operates the TeleWest Restricted Share Scheme in
             conjunction with an employment trust, which has been designed to
             provide incentives to employees based on the performance of the
             Company. The TeleWest Restricted Share Scheme enables ordinary
             shares to be awarded to employees of the Company which will
             normally be available for release to the employee three years
             after the date of the award, subject to any price, which normally
             will be only a nominal price, which the Trustees may specify.

             4,000,000 ordinary shares are held in trust by the Trustees for
             release as awards to employees participating in the TeleWest
             Restricted Share Scheme. During the year, the Trustees awarded an
             aggregate of 2,857,000 ordinary shares to employees of which an
             award of 16,000 shares was cancelled leaving 2,841,000 ordinary
             shares which had been awarded to employees at December 31, 1995.




                                    IV-39
<PAGE>   347


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

   NOTE 16   SHAREHOLDERS' EQUITY (CONTINUED)

             EMPLOYEE SHARE OPTION SCHEMES

             Under the TeleWest Executive Share Option Scheme, certain officers
             and key employees may be granted options to purchase ordinary
             shares of the Company.

             During the year, options were granted to employees to purchase an
             aggregate of 8,871,398 ordinary shares of which 226,169 options
             had been surrendered during the year, leaving 8,645,229 ordinary
             shares under option at December 31, 1995. The exercise price of
             the options ranges from 154.5 pence to 173.5 pence. The options
             are exercisable between three and ten years after the date of the
             grant with exercise conditional on the out-performance by the
             price of the FT-SE100 Index over the three year period preceding
             exercise.

             The Company also operates the TeleWest Sharesave Scheme. At
             December 31, 1995, options to purchase 1,177,784 ordinary shares,
             exercisable in 2000 at an exercise price of 150 pence, and options
             to purchase 2,168,157 ordinary shares, exercisable in 2001 at an
             exercise price of 134 pence (the latter for which the related
             savings contracts became effective February 1, 1996) were
             outstanding.

   NOTE 17   COMMITMENTS AND CONTINGENCIES

             CAPITAL AND OPERATING LEASES

             The Company leases a number of assets under arrangements accounted
             for as capital leases, as follows:

<TABLE>
<CAPTION>
                                                    Acquisition  Accumulated      Net book
                                                          costs depreciation         value
                                                         L.'000       L.'000        L.'000
             <S>                                         <C>          <C>           <C>
             At December 31, 1995                   
             Electronic equipment                        27,148       (3,352)       23,796
             Other equipment                              1,512         (432)        1,080
                                                    
             At December 31, 1994                   
             Electronic equipment                        14,462       (1,438)       13,024
             Other equipment                              1,025         (650)          375
             -----------------------------------------------------------------------------
</TABLE>

             The Company leases business offices and uses certain equipment
             under lease arrangements accounted for as operating leases.
             Minimum rental expense under such arrangements amounted to
             L.2,276,000, L.1,535,000 and L.1,229,000 for the years ended
             December 31, 1995, 1994 and 1993, respectively.

             Future minimum lease payments under capital and operating leases
             are summarized as follows as at December 31, 1995:

<TABLE>
<CAPTION>
                                                                     Capital     Operating
                                                                      leases        leases
                                                                      L.'000        L.'000
             <S>                                                      <C>            <C>
             1996                                                      2,722         3,104
             1997                                                      3,433         2,726
             1998                                                      4,798         2,167
             1999                                                      6,293         1,620
             2000                                                      6,488         1,102
             2001 and thereafter                                      16,277         9,681
             ===============================================================
                                                                      40,011
             ---------------------------------------------------------------
             Imputed interest                                         (9,697)
             ---------------------------------------------------------------
             TOTAL                                                    30,314
             ===============================================================
</TABLE>

             It is expected that, in the normal course of business, expiring
             leases will be renewed or replaced.




                                    IV-40

<PAGE>   348


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

   NOTE 17   COMMITMENTS AND CONTINGENCIES (CONTINUED)

             MINORITY INTERESTS

             In October 1993, the Company acquired all of the outstanding
             minority interests in the London South Regional Franchise Area
             from various shareholders other than the interest of one
             shareholder holding an approximately 0.03% interest in the London
             South Regional Franchise Area. In consideration for such minority
             interests, the Company made an initial payment to the sellers of
             approximately L.790,000 and may be required to make an additional
             payment to one of the sellers upon the occurrence of certain
             events (including the completion of certain share issuances by the
             Company). The amount of this payment is based upon the valuation
             of the London South Regional Franchise Area and the percentage of
             such franchise formerly owned by the minority shareholders. The
             Company does not expect any payments to have a material effect on
             the liquidity or capital resources of the Company.

             In connection with the Company's acquisition of the South East
             Regional Franchise Area, the Company granted to Trans-Global (UK)
             Limited an option to acquire up to 9.9% of the equity in the South
             East Regional Franchise Area. If Trans-Global elects to exercise
             its option in full, the Company's interest in the South East
             Regional Franchise Area would decrease to 90.1% and the Company
             would be entitled to a payment from Trans-Global pro rata share
             (9.9%) of all funding provided by the Company to the South East
             Regional Franchise Area through to the date of exercise. As of the
             date of hereof, such option has not been exercised.

             CONTINGENT LIABILITIES

             The Company is a party of various legal proceedings in the
             ordinary course of business which it does not believe will result,
             in aggregate, in a material adverse effect on its financial
             condition.

   NOTE 18   RELATED PARTY TRANSACTIONS

             The Company, in the normal course of providing cable television
             services, purchases certain of its programing from certain UK
             affiliates of Tele-Communications, Inc. ("TCI"). Such programing
             is purchased on commercially-available terms.

             The Company has management agreements with TCI and U S WEST, Inc.
             ("U S WEST") under which amounts are paid by the Company relating
             to TCI and U S WEST employees who have been seconded to the
             Company. For the years ended December 31, 1995, 1994, and 1993,
             fees paid by the Company under the agreements were L.3,042,000,
             L.2,128,000 and L.4,451,000, respectively. The Company has similar
             management agreements with Cox Communications, Inc.  and SBC
             Communications, Inc. For the year ended December 31, 1995, fees
             paid by the Company under these agreements were L.233,000.




                                    IV-41

<PAGE>   349


             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             continued

   NOTE 18   RELATED PARTY TRANSACTIONS (CONTINUED)

             The Company has entered into consulting agreements with its
             affiliates pursuant to which the Company provides consulting
             services relating to telephony operations. Under the agreements,
             the Company receives an annual fee from each affiliate based upon
             the affiliate's revenues.  Fees received for the years ended
             December 31, 1995, 1994 and 1993 were L.566,000, L.557,000 and
             L.1,801,000, respectively. The Company also receives a fee for
             providing switching support services, comprising of a fixed
             element based on a number of switches, and a variable element
             based on a number of lines. Fees received for the years ended
             December 31, 1995 and 1994 were L.827,000 and L.822,000,
             respectively.

   NOTE 19   SUBSEQUENT EVENTS

             On January 10, 1996, the Company purchased the entire issued share
             capital of Bell Cablemedia (Worcester) Limited, owner of the
             Worcester cable franchise, for cash consideration of L.9,800,000.
             Bell Cablemedia (Worcester) Limited is otherwise a dormant company
             with net assets of L.2 representing its called up share capital.

             On January 18, 1996, The Independent Television Commission
             notified the Company that it had been awarded the Southport cable
             franchise.

   NOTE 20   QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                                               1995
                                                                Fourth        Third       Second         First
                                                   Total       quarter      quarter      quarter       quarter
                                                  L.'000        L.'000       L.'000       L.'000        L.'000
             <S>                                <C>            <C>          <C>          <C>           <C>
             Revenue                             144,784        57,144       32,240       28,969        26,431
             Operating loss                      (90,197)      (33,464)     (20,135)     (19,209)      (17,389)
             Net loss                           (137,531)      (66,346)     (27,325)     (23,547)      (20,313)
             Loss per ordinary share            16 pence       7 pence      3 pence      3 pence       2 pence
</TABLE>

             The following summary of the financial information sets out
             comparative figures for the fourth quarter ended December 31,
             1994.

<TABLE>
<CAPTION>
                                                                                  9 months
                                                                      Fourth         ended
                                                                     quarter  September 30
                                                          Total         1994          1994
                                                         L.'000       L.'000        L.'000
             <S>                                        <C>          <C>           <C>
             Revenue                                     72,027       22,727        49,300
             Operating loss                             (50,748)     (17,808)      (32,940)
             Unrealized gain on interest rate swap        1,636        1,636             -
             Loss before extraordinary gain             (65,337)     (20,874)      (44,463)
             Extraordinary gain                           7,287        7,287             -
             Net loss                                   (58,050)     (13,587)      (44,463)
             Pro forma loss per ordinary share          9 pence            -             -
</TABLE>




                                    IV-42
<PAGE>   350


             SELECTED FINANCIAL INFORMATION - FIVE YEAR SUMMARY

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31
                                                           Company        Joint Venture(1) Predecessor Businesses(2)
                                                    1995(3)         1994         1993         1992         1991
                                                    L.'000        L.'000       L.'000       L.'000       L.'000
             <S>                                                                           <C>          <C>
             BALANCE SHEET DATA:
             Property and equipment, net         1,063,808       454,843      269,974      149,571       87,202
             Total assets                        2,289,720       878,156      413,865      236,474      114,602
             Investment in affiliates               80,703        81,907       68,838       54,849           75
             Debt(4)                               792,265         3,886       49,386       23,386       13,885
             Equity                              1,322,748       776,934      311,695      189,015       57,023
             INCOME STATEMENT DATA:
             REVENUE
             Cable television                       64,740        35,875       20,729       12,600        8,400
             Telephony - residential                57,597        23,471       11,261        3,462          630
             Telephony - business                   17,449         8,812        4,908        2,043          612
             Other                                   4,998         3,869        3,440          602          502
             --------------------------------------------------------------------------------------------------
             TOTAL REVENUE                         144,784        72,027       40,338       18,707       10,144
             --------------------------------------------------------------------------------------------------
             OPERATING COSTS AND EXPENSES:
             Programing                            (32,194)      (15,500)      (8,403)      (5,286)      (2,656)
             Telephony                             (29,526)      (14,714)     (10,203)      (3,916)      (1,568)
             Selling, general and administrative  (105,388)      (60,414)     (32,505)     (17,411)     (11,571)
             Depreciation                          (60,019)      (30,320)     (17,635)      (9,942)      (6,002)
             Amortization                           (7,854)       (1,827)        (840)        (326)        (163)
             --------------------------------------------------------------------------------------------------
             OPERATING LOSS                        (90,197)      (50,748)     (29,248)     (18,174)     (11,816)
             --------------------------------------------------------------------------------------------------
             Share of (loss)/income of affiliates  (12,777)       (8,466)      (7,540)      (6,905)          61
             Financial expenses, net(4)            (34,607)       (6,137)        (651)      (1,057)      (1,319)
             Extraordinary gain                          -         7,287(5)         -            -            -
             Net loss                             (137,531)      (58,050)     (37,439)     (26,136)      (8,268)
             Loss per ordinary share before
               extraordinary gain (pro forma loss
               for 1994)                               (16) pence    (10) pence
             Extraordinary gain                          -             1  pence
             Loss per ordinary share (pro forma
               loss for 1994)                          (16) pence     (9) pence
</TABLE>

             (1) See Note 1 (Organization and history) to the US GAAP
                 Consolidated Financial Statements

             (2) Predecessor Businesses refers to certain businesses owned by
                 TCI prior to the formation of the Joint Venture and which are
                 now owned by the Company.

             (3) See Note 5 (Business Combinations) to the USGAAP Consolidated
                 Financial Statements

             (4) See Note 13 (Debt) to the USGAAP Consolidated Financial
                 Statements

             (5) See Note 15 (Extraordinary Gain) to the US GAAP Consolidated
                 Financial Statements




                                    IV-43

<PAGE>   351
                                   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.

<TABLE>
<S>                                               <C>      
                                                  TELE-COMMUNICATIONS, INC.



Dated:  March 26, 1996                             By       /s/ John C. Malone           
                                                     ------------------------------------
                                                                John C. Malone
                                                                President and
                                                            Chief Executive Officer
</TABLE>


         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/ Bob Magness                  Chairman of the Board             March 26, 1996
-----------------------------       and Director                                                    
       Bob Magness                            



 /s/ John C. Malone               President, Chief Executive        March 26, 1996
-----------------------------       Officer and Director                                                          
       John C. Malone                



 /s/ Jerome H. Kern               Director                          March 26, 1996
-----------------------------                                                              
       Jerome H. Kern



 /s/ John W. Gallivan             Director                          March 26, 1996
-----------------------------                                                               
       John W. Gallivan



 /s/ D. F. Fisher                 Director                          March 26, 1996
-----------------------------                                                                 
       D. F. Fisher



 /s/ Stephen M. Brett             Executive Vice President          March 26, 1996
-----------------------------        and Secretary                                              
       Stephen M. Brett              



 /s/ Bernard W. Schotters         Senior Vice President of          March 26, 1996
---------------------------         TCI Communications, Inc.                                                          
       Bernard W. Schotters         (Principal Financial Officer)          
                                              



 /s/ Gary K. Bracken              Senior Vice President of          March 26, 1996
-----------------------------       TCI Communications, Inc.                                                 
       Gary K. Bracken              (Principal Accounting Officer)       
                                              
</TABLE>





                                     IV-44

<PAGE>   352
                                 EXHIBIT INDEX



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 August 4, 1994, 
                 as amended on August 4, 1994, August 16, 1994, October 11,
                 1994, October 21, 1994, January 26, 1995, August 3, 1995, 
                 August 3, 1995, January 25, 1996 and January 25, 1996.   
        
      3.2    The Bylaws as adopted June 16, 1994.
                    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.
                       0-2041).

10 - Material Contracts:

    10.1     Tele-Communications, Inc. 1994 Stock Incentive Plan.
                    Incorporated herein by reference to the Company's Form S-4
                       Registration Statement (Commission File No. 33-54263).

    10.2     Tele-Communications, Inc. 1995 Employee Stock Incentive Plan.

    10.3     Tele-Communications, Inc. 1996 Stock Incentive Plan.

    10.4     Restated and Amended Employment Agreement, dated as of November 1,
                 1992, between the Company and Bob Magness.*
                    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 Bob Magness.*
                    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.
                       0-2041).

    10.6     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).

    10.7     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.
                       0-2041).

    10.8     Employment Agreement, dated as of January 1, 1992, 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,
                       1992, as amended by Form 10-K/A for the year ended
                       December 31, 1992 (Commission File No. 0-5550).

                                                                     (continued)
<PAGE>   353
10 - Material contracts, continued:


    10.9     Assignment and Assumption Agreement, dated as of August 4, 1994,
                 among TCI/Liberty Holding Company, Tele- Communications, Inc.
                 and Donne F. Fisher.*
                    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).

    10.10    Restricted Stock Award Agreement, made as of December 10, 1992,
                 among Tele-Communications, Inc., Donne F.  Fisher and WestMarc
                 Communications, Inc.*
                    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    Consulting Agreement, dated as of January 1, 1996, between
               Tele-Communications, Inc. and Donne F. Fisher.

    10.12    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).

    10.13    Amended and Restated Employment Agreement, dated as of July 18,
                 1995, among Tele-Communications, Inc., Tele-Communications
                 International, Inc. and Fred A. Vierra.*
                    Incorporated herein by reference to Tele-Communications
                       International, Inc.'s Registration Statement on Form S-1
                       (Commission File No. 33-80491).

    10.14    Employment Agreement, dated as of January 1, 1993, between
               Tele-Communications, Inc. and Larry E. Romrell.*
                    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).

    10.15    Assignment and Assumption Agreement, dated as of August 4, 1994,
                 among TCI/Liberty Holding Company, Tele- Communications, Inc.
                 and Larry E. Romrell.*
                    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).

    10.16    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).

                                                                     (continued)
<PAGE>   354
10 - Material contracts, continued:


    10.17    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).

    10.18    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).

    10.19    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).

    10.20    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).

    10.21    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).

    10.22    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).


                                                                     (continued)
<PAGE>   355
10 - Material contracts, continued:


    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 grants pursuant to the Agreement and
                 Plan of Merger dated June 6, 1991 between United Artists
                 Entertainment Company and Tele-Communications, Inc.*
                    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).

    10.24    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).

    10.25    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).

    10.26    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).

    10.27    Forms of Assumption and Amended and Restated Stock Option
                 Agreements relating to options granted under the United
                 Artists Entertainment Company 1988 Incentive and Non-Qualified
                 Stock Option Plan and executed by employees who did not have
                 employment agreements with United Artists Entertainment
                 Company.*
                    Incorporated herein 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- 43009).

    10.28    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).

    10.29    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).

                                                                     (continued)
<PAGE>   356
10- Material contracts, continued:


    10.30    Qualified Employee Stock Purchase Plan of Tele-Communications,
               Inc., as amended.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-57635).

    10.31    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.*

    10.32    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.*

    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. 1994 Stock
                 Incentive Plan.*

    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. 1994
                 Stock Incentive Plan.*

    10.35    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.*

    10.36    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.*

    10.37    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.*

    10.38    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.*

    10.39    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).

    10.40    Form of Restricted Stock Award Agreement for 1995 Award of Series
                 A Tele-Communications International, Inc.  Restricted Stock
                 pursuant to the Tele-Communications International 1995 Stock
                 Incentive Plan.

                                                                     (continued)
<PAGE>   357
10- Material contracts, continued:


    10.41    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.*

    10.42    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.*

    10.43    Employee Stock Purchase Plan for Bargaining Unit Employees of
                 United Cable Television of Baltimore Limited Partnership.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-60839).

    10.44    Employee Stock Purchase Plan for Bargaining Unit Employees of
                 Heritage Cable Vision Associates, L.P. D/B/A TCI of Michiana.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-60843).

    10.45    Employee Stock Purchase Plan for Bargaining Unit Employees of UACC
                 Midwest, Inc. d/b/a TCI of Central Indiana.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-64827).

    10.46    The Settlement Plan and Rabbi Trust Agreement Entered into
                 Pursuant to Thomas Adams, Mark Adamski, et. al.  v. TCI of
                 Northern New Jersey, Inc. and the Tele-Communications, Inc.
                 Employee Stock Purchase Plan.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-64829).

    10.47    Employee Stock Purchase Plan for Bargaining Unit Employees of TCI
               of Northern New Jersey, Inc.*
                    Incorporated herein by reference to the
                       Tele-Communications, Inc. Registration Statement on Form
                       S-8 (Commission File No. 33-64831).

    10.48    Amended and Restated Agreement of Limited Partnership of MajorCo,
                 L.P., dated as of January 31, 1996, among Sprint Spectrum,
                 L.P., TCI Network Services, Comcast Telephony Services and Cox
                 Telephony Partnership.
             Second Amended and Restated Joint Venture Formation Agreement,
                 dated as of January 31, 1996, by and between Sprint
                 Corporation, Tele-Communications, Inc., Comcast Corporation
                 and Cox Communications, Inc.
             Parents Agreement, dated as of January 31, 1996, by
                    Tele-Communications, Inc. and Sprint Corporation.
                    Incorporated herein by reference to the Company's Current
                    Report on Form 8-K, dated February 9, 1996 (Commission File
                    No. 0-20421).

                                                                     (continued)
<PAGE>   358
10- Material contracts, continued:


    10.49    Amended and Restated Stock Purchase Agreement, dated as of April
                 25, 1995, by and among Eduardo Eurnekian, stockholders of
                 shares of the Common Stock of Cablevision S.A., Televisora
                 Belgrano S.A., Construred S.A., Univent's S.A., and TCI
                 International Holdings, Inc.
             Amended and Restated Stockholders Agreement, dated April 25, 1995,
                 between Eduardo Eurnekian and TCI International Holdings, Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated May 4, 1995, as amended by
                       Form 8-K/A (Commission File No. 0-20421).

    10.50    Parents Agreement, dated as of July 24, 1995, among Viacom, Inc.,
                 Tele-Communications, Inc. and TCI Communications, Inc.
             Subscription Agreement, dated as of July 24, 1995, among Viacom
                 International, Inc., Tele-Communications, Inc. and TCI
                 Communications, Inc.
             Implementation Agreement, dated as of July 24, 1995, between
                 Viacom International, Inc. and Viacom International Services,
                 Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated July 26, 1995 (Commission File
                       No. 0-20421).

    10.51    Agreement and Plan of Merger, dated as of January 27, 1994, by and
                 among Tele-Communications, Inc., Liberty Media Corporation,
                 TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty
                 Mergeco, Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated February 15, 1994 (Commission
                       File No. 0-5550).

    10.52    Amendment No. 1, dated as of March 30, 1994, to Agreement and Plan
                 of Merger, dated as of January 27, 1994, by and among
                 Tele-Communications, Inc., Liberty Media Corporation,
                 TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty
                 Mergeco, Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated April 6, 1994 (Commission File
                       No. 0-5550).

    10.53    Amendment No. 2, dated as of August 4, 1994, to Agreement and Plan
                 of Merger, dated as of January 27, 1994, by and among
                 Tele-Communications, Inc., Liberty Media Corporation,
                 TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty
                 Mergeco, Inc.
                    Incorporated herein by reference to the Company's Current
                       Report on Form 8-K, dated August 18, 1994 (Commission
                       File No. 0-20421).

    10.54    Agreement and Plan of Merger, dated as of August 8, 1994, among
                 Tele-Communications, Inc., TCI Communications, Inc. and
                 TeleCable Corporation Incorporated herein by reference to
                 Tele-Communications, Inc.'s Current Report on Form 8-K, dated
                 August 18, 1994 (Commission File No.     0-20421).

    10.55    Agreement of Purchase and Sale of Partnership Interest, dated as
                 of January 31, 1996, among Halcyon Communications, Inc., ECP
                 Holdings, Inc. and Fisher Communications Associates, L.L.C.

                                                                     (continued)
<PAGE>   359
10- Material contracts, continued:


    10.56    Consent and Amendment of Amended Agreement of Partnership for
                 Halcyon Communications Partners, dated as of January 31, 1996,
                 by and among Halcyon Communications, Inc., ECP Holdings, Inc.
                 and Fisher Communications Associates, L.L.C.

    10.57    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between ECP Holdings, Inc. and Fisher Communications
                 Associates, L.L.C.

    10.58    Option Agreement, dated as of January 31, 1996, between Fisher
                 Communications Associates, L.L.C. and ECP Holdings, Inc.

    10.59    Agreement of Purchase and Sale of Partnership Interests, dated as
                 of January 31, 1996, among Halcyon Communications, Inc.,
                 American Televenture of Minersville, Inc., TCI Cablevision of
                 Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc.
                 and Fisher Communications Associates, L.L.C.

    10.60    Consent and First Amendment of Amended and Restated Agreement of
                 Limited Partnership for Halcyon Communications Limited
                 Partnership, dated as of January 31, 1996, by and among
                 Halcyon Communications, Inc., American Televenture of
                 Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI
                 Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher
                 Communications Associates, L.L.C.

    10.61    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between TCI Cablevision of Utah, Inc. and Fisher
                 Communications Associates, L.L.C.

    10.62    Option Agreement, dated as of January 31, 1996, between Fisher
                 Communications Associates, L.L.C. and TCI Cablevision of Utah,
                 Inc.

    10.63    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between TCI Cablevision of Nevada, Inc.  and Fisher
                 Communications Associates, L.L.C.

    10.64    Option Agreement, dated as of January 31, 1996, between Fisher
             Communications Associates, L.L.C. and TCI Cablevision of Nevada,
             Inc.

    10.65    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between American Televenture of Minersville, Inc. and Fisher
                 Communications Associates, L.L.C.

    10.66    Option Agreement, dated as of January 31, 1996, between Fisher
                 Communications Associates, L.L.C. and American Televenture of
                 Minersville, Inc.

    10.67    Assignment and Assumption Agreement, made as of January 31, 1996,
                 between TEMPO Cable, Inc. and Fisher Communications
                 Associates, L.L.C.

    10.68    Option Agreement, dated as of January 31, 1996, between Fisher
                 Communications Associates, L.L.C. and TEMPO Cable, Inc.


                                                                     (continued)
<PAGE>   360
21- Subsidiaries of Tele-Communications, Inc.

23.1   Consent of KPMG Peat Marwick LLP

23.2   Consent of KPMG Peat Marwick LLP

23.3   Consent of KPMG Peat Marwick LLP

23.4   Consent of KPMG Peat Marwick LLP

23.5   Consent of KPMG

27- Financial data schedule

*Constitutes management contract or compensatory arrangement.