<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D. C.  20549

                                  F O R M 10-Q


  [X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995

                                       OR

  [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the transition period from      to
                                                             -----   -----

Commission File Numbers 0-20421 and 0-5550


                           TELE-COMMUNICATIONS, INC.
                                      and
                           TCI COMMUNICATIONS, INC.                 
           ----------------------------------------------------------   
           (Exact name of Registrants as specified in their charters)


           State of Delaware                    84-1260157 and 84-0588868     
      ----------------------------          ----------------------------------
      (State or other jurisdiction of      (I.R.S. Employer Identification Nos.)
       incorporation or organization)


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


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


         TCI Communications, Inc. meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with
the reduced disclosure format.

         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 number of shares outstanding of Tele-Communications, Inc.'s common
stock (net of shares held in treasury) as of November 1, 1995, was:

Tele-Communications, Inc. Series A TCI Group common stock - 571,576,645 shares,
Tele-Communications, Inc. Series B TCI Group common stock -  84,801,554 shares,
    Tele-Communications, Inc. Series A Liberty Media Group common stock -
                           142,892,796 shares, and
    Tele-Communications, Inc. Series B Liberty Media Group common stock -
                              21,200,336 shares.
<PAGE>   2
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES




                          Consolidated Balance Sheets
                                  (unaudited)


<TABLE>
<CAPTION>
                                                  September 30, December 31,
                                                      1995         1994 *     
                                                  ------------ ------------      
Assets                                               amounts in millions
------                                                                                           
<S>                                                <C>         <C>
Cash                                               $      142          74

Trade and other receivables, net                          310         301

Inventories, net                                          141         121

Prepaid expenses                                           63          36

Prepaid program rights                                     56          24

Committed film inventory                                   97          58

Investments in affiliates, accounted for
   under the equity method, and related
   receivables (note 5)                                 2,076       1,285

Investment in Turner Broadcasting System, Inc.
   ("TBS") (note 6)                                     1,000         660

Property and equipment, at cost:
   Land                                                    94          91
   Distribution systems                                 9,393       7,705
   Support equipment and buildings                      1,300       1,085
   Computer and broadcast equipment                        62          61
                                                   ----------  ----------      
                                                       10,849       8,942
   Less accumulated depreciation                        3,696       3,066
                                                   ----------  ----------      
                                                        7,153       5,876
                                                   ----------  ----------      

Franchise costs                                        13,735      11,152
   Less accumulated amortization                        1,957       1,708
                                                   ----------  ----------      
                                                       11,778       9,444
                                                   ----------  ----------      

Other assets, at cost, net of amortization              1,785       1,438
                                                   ----------  ----------      

                                                   $   24,601      19,317
                                                   ==========  ==========
</TABLE>


* Restated - see note 5.

                                                                     (continued)





                                      I-1
<PAGE>   3
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


                     Consolidated Balance Sheets, continued
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                              September 30,         December 31,
                                                                                  1995                 1994 *      
                                                                             ---------------       ---------------
Liabilities and Stockholders' Equity                                                 amounts in millions
------------------------------------                                                              
<S>                                                                           <C>                       <C>
Accounts payable                                                              $      307                   201
Accrued interest                                                                     170                   183
Accrued programming expense                                                          304                   248
Other accrued expenses                                                               513                   561
Debt (note 8)                                                                     12,660                11,162
Deferred income taxes                                                              4,636                 3,524
Other liabilities                                                                    184                   160
                                                                              ----------               -------
      Total liabilities                                                           18,774                16,039
                                                                              ----------               -------
Minority interests in equity
   of consolidated subsidiaries                                                      684                   429
Redeemable preferred stock (note 9)                                                  474                   168
Stockholders' equity (notes 2 and 10):
   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 1,100,000,000 shares;
      issued 672,101,009 shares in 1995                                              672                    --
   Tele-Communications, Inc. Series B TCI Group
      common stock, $1 par value
      Authorized 150,000,000 shares;
      issued 84,801,554 shares in 1995                                                85                    --
   Tele-Communications, Inc. Series A Liberty
      Media Group common stock,
      $1 par value.  Authorized 750,000,000 shares;
      issued 142,892,796 shares in 1995                                              143                    --
   Tele-Communications, Inc. Series B Liberty
      Media Group common stock,
      $1 par value, Authorized 75,000,000 shares;
      issued 21,200,336 shares 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                                                      4,025                 2,791
   Cumulative foreign currency
      translation adjustment                                                          (3)                   (4)
   Unrealized holding gains for
      available-for-sale securities, net of taxes                                    420                   126
   Accumulated deficit                                                              (380)                 (288)
                                                                              ----------               -------
                                                                                   4,983                 3,291
   Treasury stock, at cost (100,524,364 shares
      of Series A TCI Group common stock
      in 1995; and 86,030,992 shares
      and 4,172,629 shares of Class A common
      stock and Class B common stock,
      respectively, in 1994)                                                        (314)                 (610)
                                                                              ----------               -------
         Total stockholders' equity                                                4,669                 2,681
                                                                              ----------               -------
Commitments and contingencies (note 12)
                                                                              $   24,601                19,317
                                                                              ==========               =======
</TABLE>                          
                                                                                
* Restated - see note 5.

See accompanying notes to consolidated financial statements.


                                      I-2
<PAGE>   4
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


                     Consolidated Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>
                                                               Three months                       Nine months
                                                                   ended                             ended
                                                               September 30,                     September 30,       
                                                        ---------------------------       ---------------------------
                                                           1995             1994 *           1995             1994 *
                                                         --------         --------         --------         --------
                                                                            amounts in millions,
                                                                          except per share amounts
<S>                                                      <C>                    <C>              <C>              <C>
Revenue (note 7):
   From cable and programming services                      $  1,521            1,107            4,215            3,248
   Net sales from electronic retailing services                  240              179              730              179
                                                            --------         --------         --------         --------
                                                               1,761            1,286            4,945            3,427
                                                            --------         --------         --------         --------
Operating costs and expenses:
   Operating                                                     544              368            1,517            1,012
   Cost of sales from electronic retailing services              163              117              491              117
   Selling, general and administrative                           521              364            1,434              959
   Compensation relating to stock
      appreciation rights                                          8               10               26               --
   Adjustment to compensation relating to
      stock appreciation rights                                   --               --               --               (8)
   Restructuring charges                                           6               --                8               --
   Depreciation                                                  226              163              655              499
   Amortization                                                  111               78              301              223
                                                            --------         --------         --------         --------
                                                               1,579            1,100            4,432            2,802
                                                            --------         --------         --------         --------

         Operating income                                        182              186              513              625

Other income (expense):
   Interest expense                                             (262)            (205)            (745)            (568)
   Interest and dividend income                                   18                6               36               26
   Gain on sale of subsidiary stock (note 11)                    123               --              123               --
   Share of earnings of Liberty Media
      Corporation ("Liberty")                                     --              101               --              125
   Share of losses of other affiliates,
      net (note 5)                                               (64)             (26)            (136)             (56)
   Minority interests in losses of
      consolidated subsidiaries, net                              19               --               40               --
   Other, net                                                    (17)              (4)             (27)              (4)
                                                            --------         --------         --------         --------
                                                                (183)            (128)            (709)            (477)
                                                            --------         --------         --------         --------
      Earnings (loss) before income taxes                         (1)              58             (196)             148

Income tax benefit (expense)                                      37              (33)             104              (85)
                                                            --------         --------         --------         --------
      Net earnings (loss) (note 7)                                36               25              (92)              63

Dividend requirements on
   preferred stocks                                               (9)              (3)             (26)              (3)
                                                            --------         --------         --------         --------
      Net earnings (loss) attributable
         to common shareholders (note 7)                    $     27               22             (118)              60
                                                            ========         ========         ========         ========

Net earnings (loss) attributable to
   common shareholders (note 3):
      TCI Class A and Class B common stock                  $     86               22              (59)              60      
      TCI Group Series A and Series B
         common stock                                            (56)              --              (56)              --
      Liberty Media Group Series A and
         Series B common stock                                    (3)              --               (3)              --            
                                                            --------         --------         --------         --------
                                                            $     27               22             (118)              60
                                                            ========         ========         ========         ========
Primary and fully diluted net earnings (loss)
   attributable to common shareholders
   per common and common equivalent                        
   share (note 3):
      TCI Class A and Class B common stock                  $    .12              .04             (.09)             .12
      TCI Group Series A and Series B
          common stock                                          (.09)              --             (.09)              --
      Liberty Media Group Series A and  
          Series B common stock                                 (.02)              --             (.02)              --             
</TABLE>

* Restated - see note 5.

See accompanying notes to consolidated financial statements.


                                      I-3
<PAGE>   5
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


                 Consolidated Statement of Stockholders' Equity

                      Nine months ended September 30, 1995
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                                                                         
                                                                                        Common Stock                          
                                                                 ---------------------------------------------------------------  
                                                    Class B             TCI                 TCI Group       Liberty Media Group   
                                                   Preferred     ------------------    ------------------   --------------------  
                                                     Stock       Class A   Class B     Series A    Series B    Series A  
                                                   -----------   -------   -------     --------    --------    --------  
                                                                               amounts in millions              
<S>                                              <C>             <C>        <C>         <C>         <C>         <C>   
Balance at January 1, 1995 *                     $       --          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 7)               --           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 (note 9)                                  --          (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 shareholders                                                                                                     
     (note 2)                                            --           --          --          --          --        143      
   Costs associated with Distribution to Shareholders    --           --          --          --          --         --      
   Redesignation of TCI common stock into                                                                                    
     Series A and Series B TCI Group                                                                                         
     common stock (note 2)                               --         (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                  --           --          --          --          --         --      
   Foreign currency translation adjustment               --           --          --          --          --         --      
   Change in unrealized holding gains for                                                                                    
     available-for-sale securities                       --           --          --          --          --         --      
                                                   --------     --------    --------      ------     -------    -------      
                                                                                                                             
Balance at September 30, 1995                      $     --           --          --         672          85        143      
                                                   ========     ========    ========        ====       =====       ====      
<CAPTION>
                                                                          
                                                                                                                    
                                                                                                           Unrealized 
                                                                                             Cumulative      holding    
                                                                                              foreign       gains for  
                                                       Liberty Media Group     Additional     currency      available- 
                                                       -------------------      paid-in      translation     for-sale    
                                                           Series B             capital       adjustment    securities *      
                                                           --------            ----------    ------------   ------------            
                                                                                 amounts in millions
<S>                                                           <C>               <C>               <C>            <C>         
Balance at January 1, 1995 *                                  --                2,791             (4)            126         
                                                                       
   Net loss                                                   --                   --             --              --         
   Issuance of common stock in                                         
      public offering                                         --                  381             --              --         
   Issuance of common stock in                                         
      private offering                                        --                   29             --              --         
   Issuance of common stock for                                        
     acquisitions and investments (note 7)                    --                1,329             --              --         
   Issuance of Class A common                                          
     stock to subsidiary of TCI in                                     
     Reorganization                                           --                   (6)            --              --         
   Issuance of Class A common stock to                                 
     subsidiary in exchange for investment                    --                   (1)            --              --         
   Retirement of Class A common                                        
     stock previously held by                                          
     subsidiary                                               --                   29             --              --         
   Exchange of common stock held                                       
     by subsidiaries of TCI for                                        
     Convertible Redeemable                                            
     Participating Preferred Stock,                                    
      Series F (note 9)                                       --                 (542)            --              --         
   Conversion of Series F Preferred Stock                              
     held by subsidiary for Series A TCI                               
     Group common stock                                       --                  213             --              --         
   Distribution of Series A and                                        
     Series B Liberty Media Group                                      
     common stock to TCI                                               
     common shareholders                                               
     (note 2)                                                 21                 (164)            --              --         
   Costs associated with Distribution to Shareholders         --                   (6)            --              --              
   Redesignation of TCI common stock into                              
     Series A and Series B TCI Group                                   
     common stock (note 2)                                    --                   --             --              --         
   Accreted dividends on all classes of                                
     preferred stock                                          --                  (26)            --              --         
   Accreted dividends on all classes of                                                                                      
     mandatory redemption requirements                        --                    8             --              --         
   Payment of preferred stock dividends                       --                  (10)            --              --         
   Foreign currency translation adjustment                    --                   --              1              --         
   Change in unrealized holding gains for                                                                                    
     available-for-sale securities                            --                   --             --             294         
                                                           -----                -----        -------           -----         
                                                                                                                             
Balance at September 30, 1995                                 21                4,025             (3)            420         
                                                           =====                =====        ========          =====         
<CAPTION>

                                                                                    Total
                                                      Accumulated     Treasury    stockholders'
                                                        deficit *      stock          equity *   
                                                    ---------------  ----------  ----------------
                                                                amounts in millions
<S>                                                         <C>          <C>             <C>
Balance at January 1, 1995 *                                (288)        (610)           2,681
                                                 
   Net loss                                                  (92)          --              (92)
   Issuance of common stock in                   
      public offering                                         --           --              401
   Issuance of common stock in                   
      private offering                                        --           --               30
   Issuance of common stock for                  
     acquisitions and investments (note 7)                    --           --            1,388
   Issuance of Class A common                    
     stock to subsidiary of TCI in               
     Reorganization                                           --            6               --
   Issuance of Class A common stock to           
     subsidiary in exchange for investment                    --            1               --
   Retirement of Class A common                  
     stock previously held by                    
     subsidiary                                               --          (29)              --
   Exchange of common stock held                 
     by subsidiaries of TCI for                  
     Convertible Redeemable                      
     Participating Preferred Stock,              
      Series F (note 9)                                       --          632               --
   Conversion of Series F Preferred Stock        
     held by subsidiary for Series A TCI         
     Group common stock                                       --         (314)              --
   Distribution of Series A and                  
     Series B Liberty Media Group                
     common stock to TCI                         
     common shareholders                         
     (note 2)                                                 --           --               --
   Costs associated with Distribution to Shareholders         --           --               (6)
   Redesignation of TCI common stock into        
     Series A and Series B TCI Group             
     common stock (note 2)                                    --           --               --
   Accreted dividends on all classes of          
     preferred stock                                          --           --              (26)
   Accreted dividends on all classes of          
     preferred stock not subject to              
     mandatory redemption requirements                        --           --                8
   Payment of preferred stock dividends                       --           --              (10)
   Foreign currency translation adjustment                    --           --                1
   Change in unrealized holding gains for        
     available-for-sale securities                            --           --              294
                                                            ----         ----            -----
                                                 
Balance at September 30, 1995                               (380)        (314)           4,669
                                                            ====         ====            =====
</TABLE>


*Restated - see note 5.

See accompanying notes to consolidated financial statements.


                                      I-4
<PAGE>   6
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


                     Consolidated Statements of Cash Flows
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                                         Nine months ended
                                                                                            September 30,   
                                                                                        -------------------
                                                                                          1995      1994 *
                                                                                        --------   --------
                                                                                        amounts in millions
                                                                                           (see note 4)
<S>                                                                                  <C>               <C>
Cash flows from operating activities:
   Net earnings (loss)                                                               $   (92)              63
   Adjustments to reconcile net earnings (loss) to
      net cash provided by operating activities:
         Depreciation and amortization                                                   956              722
         Compensation relating to stock
            appreciation rights                                                           26               --
         Adjustment to compensation relating to stock
            appreciation rights                                                           --               (8)
         Gain on sale of subsidiary stock                                               (123)              --
         Share of earnings of Liberty                                                     --             (125)
         Share of losses of other affiliates                                             136               56
         Deferred income tax expense (benefit)                                          (140)              42
         Minority interests in losses                                                    (40)              --
         Noncash interest and dividend income                                             (7)              (6)
         Other noncash charges (credits)                                                   9               (3)
         Changes in operating assets and liabilities,
            net of the effect of acquisitions:
               Change in receivables                                                      14               (1)
               Change in inventories                                                     (18)              --
               Change in prepaids                                                        (86)             (87)
               Change in accrued interest                                                (18)             (16)
               Change in other accruals and payables                                      53               63
                                                                                     -------          -------
                 Net cash provided by operating activities                               670              700
                                                                                     -------          -------
Cash flows from investing activities:
   Cash received from (paid for) acquisitions                                           (251)              67
   Capital expended for property and equipment                                        (1,205)            (949)
   Proceeds from disposition of assets                                                    29               32
   Additional investments in and
      loans to affiliates and others                                                    (958)            (308)
   Repayment of loans by affiliates and others                                            20              144
   Return of capital from affiliates                                                      13               22
   Other investing activities                                                           (222)            (225)
                                                                                     -------          -------
                 Net cash used in investing activities                                (2,574)          (1,217)
                                                                                     -------          -------
Cash flows from financing activities:
   Borrowings of debt                                                                  7,088            3,014
   Repayments of debt                                                                 (5,970)          (2,449)
   Proceeds from sale of subsidiary stock                                                445               --
   Preferred stock dividends of subsidiaries                                              --               (3)
   Preferred stock dividends                                                             (22)              --
   Issuance of common stock                                                              431               --
                                                                                     -------          -------
                 Net cash provided by financing activities                             1,972              562
                                                                                     -------          -------
                 Net increase in cash                                                     68               45

                    Cash at beginning of period                                           74                1
                                                                                     -------          -------
                    Cash at end of period                                            $   142               46
                                                                                     =======          =======
</TABLE>


* Restated - see note 5.

See accompanying notes to consolidated financial statements.


                                      I-5
<PAGE>   7
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




                               September 30, 1995
                                  (unaudited)


(1)      General

         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.

         The accompanying interim consolidated financial statements are
         unaudited but, in the opinion of management, reflect all adjustments
         (consisting of normal recurring accruals) necessary for a fair
         presentation of the results for such periods.  The results of
         operations for any interim period are not necessarily indicative of
         results for the full year.  These consolidated financial statements
         should be read in conjunction with the consolidated financial
         statements and notes thereto contained in TCI's Annual Report on Form
         10-K, as amended, for the year ended December 31, 1994.

         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. ("TCIC") and TCI/Liberty Holding
         Company changed its name to Tele-Communications, Inc.  Old TCI
         shareholders received one share of TCI for each of their shares.
         Liberty common shareholders received 0.975 of a share of TCI for each
         of their common shares.  Upon consummation of the TCI/Liberty
         Combination, certain subsidiaries of TCIC exchanged their shares of
         Old TCI Class A common stock for shares of TCI Class A common stock.
         Additionally, subsidiaries of TCI exchanged their shares of Liberty
         Class A common stock for TCI Class A common stock and Liberty
         exchanged its shares of Old TCI Class A and Class B common stock for
         like shares of TCI common stock.  Subsidiaries of TCI also exchanged
         their shares of various preferred stock issuances of Liberty for
         preferred stock of TCI. (See note 2).  Preferred stock of TCI, which
         is owned by subsidiaries of TCI, eliminates in consolidation.

         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.


                                                                     (continued)





                                      I-6
<PAGE>   8
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         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
         ("TCI International"); 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 TCI International.

         In March of 1995, the Financial Accounting Standards Board 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 has not yet determined the financial
         statement impact of the adoption of Statement No. 121.

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

(2)      Liberty Group Stock

         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
         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.

                                                                     (continued)





                                      I-7
<PAGE>   9
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The subsidiaries of TCI attributed to Liberty Media Group, as well as
         certain investments held by these or other subsidiaries of TCI also
         attributed to Liberty Media Group at the time of the Distribution, are
         as follows:

                 Subsidiaries
                 ------------ 
                          Encore Media Corporation ("Encore")
                          TV Network Corporation
                          Home Shopping Network, Inc. ("HSN")
                          Southern Satellite Systems, Inc. ("Southern")
                          Netlink USA
                          Liberty Sports, Inc.
                          Affiliated Regional Communications, Ltd.
                          Vision Group Incorporated
                          Americana Television Productions LLC
                          MacNeil/Lehrer Productions
                          Prime Ticket Networks, L.P.
                          Encore International, Inc.
                          Liberty Productions, Inc.
                          Prime Sports Network - Northwest

                 Investments
                 ----------- 
                          BET Holdings, Inc.
                          Video Jukebox Network, Inc.
                          Courtroom Television Network ("Court")
                          Discovery Communications, Inc.
                          DMX, Inc.
                          E! Entertainment Television, Inc.
                          International Family Entertainment, Inc.
                          Ingenius
                          International Cable Channels Partnership, Ltd.
                          QE+ Ltd.
                          QVC, Inc. ("QVC")
                          Reiss Media Enterprises, Inc.
                          TBS
                          Prime SportsChannel Networks Associates
                          Home Team Sports Limited Partnership
                          SportsChannel Chicago Associates
                          SportsChannel Pacific Associates
                          SportsChannel Prism Associates
                          Prime Sports Network - Upper Midwest
                          SportSouth Network, L.P. ("SportSouth")
                          Sunshine Network
                          American Movie Classics Company
                          Republic Pictures Television
                          Sillerman Communications Management Corporation
                          Technology Programming Ventures
                          Premier Sports
                          Silver King Communications, Inc.
                          Asian Television and Communications LLC
                          Mountain Mobile Television LLC
                          Cutthroat Productions, LP
                          The National Registry                     
                          PPVN Holding Company
                                                                     (continued)

                                      I-8
<PAGE>   10
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated 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 common stock, the Series A and Series B TCI
         Group common 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
         Communication unit, (ii) TCI International and (iii) TCI's
         Technology/Venture Capital unit.  Liberty Media Group includes the
         businesses of TCI which distribute cable television programming
         services.  The businesses of TCI not attributed to Liberty Media Group
         are referred to as "TCI Group".

         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 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 TCI Group common 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 the TCI Group common 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 common 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 the Liberty Group Stock are payable at the sole
         discretion of the Board out of the lesser of (i) all assets of TCI
         legally available for dividends and (ii) 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)





                                      I-9
<PAGE>   11
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated 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 Common 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.  Such
         convertible or exchangeable preferred stock and debt securities and
         options outstanding on the record date for the Distribution are
         referred to as "Pre-Distribution Convertible Securities."  The
         issuance of shares of Series A Liberty Group Stock upon such
         conversion, exchange or exercise of Pre-Distribution 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 Pre- Distribution
         Convertible Securities consisting of options to purchase Series A
         Liberty Group Stock, the proceeds received upon the exercise of such
         options will be attributed to Liberty Media Group.  If Pre-
         Distribution Convertible Securities remain outstanding at the time of
         any disposition of all or substantially all of the properties and
         assets of Liberty Media Group and TCI elects to distribute to holders
         of Liberty Group Stock their proportionate interest in the net
         proceeds of the disposition, the proportionate interest of the holders
         of Liberty Group Stock will be determined on a basis that allocates to
         the TCI Group a portion of such net proceeds, in addition to the
         portion attributable to any Inter-Group Interest, sufficient to
         provide for the payment of the portion of the consideration payable by
         TCI on any post-Distribution conversion, exercise or exchange of
         Pre-Distribution Convertible Securities that becomes so payable in
         substitution for shares of Liberty Group Stock that would have been
         issuable upon such conversion, exercise or exchange if it had occurred
         prior to the record date for the disposition.  Likewise, if
         Pre-Distribution Convertible Securities remain outstanding at the time
         of any redemption for all the outstanding shares of Liberty Group
         Stock in exchange for stock of any one or more wholly-owned
         subsidiaries of TCI which hold all of the assets and liabilities of
         Liberty Media Group, the portion of the shares of such subsidiaries
         deliverable in redemption of the outstanding shares of Liberty Group
         Stock will be determined on a basis that allocates to TCI Group a
         portion of the shares of such subsidiaries, in addition to the number
         of shares so allocated in respect to any Inter-Group Interest,
         sufficient to provide for the payment of the portion of the
         consideration payable by TCI upon any post-redemption conversion,
         exercise or exchange of Pre-Distribution Convertible Securities that
         becomes so payable in substitution for shares of Liberty Group Stock
         that would have been issuable upon such conversion, exercise or
         exchange if it had occurred prior to such redemption.


                                                                     (continued)





                                      I-10
<PAGE>   12
                   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 the 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 does not initially
         have any interest in the 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 9.  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.

(3)      Earnings (Loss) Per Common and Common Equivalent Share

         TCI Class A and Class B Common Stock

         Primary earnings per common and common equivalent share attributable to
         common shareholders was computed by dividing net earnings attributable
         to common shareholders by the weighted average number of common and
         common equivalent shares outstanding (628.3 million and 536.2 million
         for the three months and nine months ended September 30, 1994,
         respectively, and 703.9 million for the period from July 1, 1995 
         through the Distribution).

         Fully diluted earnings per common and common equivalent share
         attributable to common shareholders was computed by dividing earnings
         attributable to common shareholders by the weighted average number of
         common and common equivalent shares outstanding (628.3 million and
         536.2 million for the three months and nine months ended September 30,
         1994, respectively, and 704.0 million for the period from July 1, 1995
         through the Distribution).

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

         TCI Group Series A and Series B Common Stock

         The loss attributable to common shareholders per common share for the
         period from the Distribution to September 30, 1995 was computed by
         dividing net loss attributable to TCI Group Series A and Series B
         common shareholders by the weighted average number of common shares
         outstanding of TCI Group Series A and Series B common 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.
                                                                     (continued)


                                      I-11
<PAGE>   13
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Liberty Media Group Series A and Series B Common Stock

         The loss per common share for the period from the Distribution to
         September 30, 1995 was computed by dividing net loss attributable to
         Liberty Media Group Series A and Series B common shareholders by the
         weighted average number of common shares outstanding of Liberty Media
         Group Series A and Series B common 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.

4)       Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest and income taxes is as follows:

<TABLE>
<CAPTION>
                                                                                       Nine months ended
                                                                                         September 30,  
                                                                                       ------------------
                                                                                        1995        1994
                                                                                       ------      ------
                                                                                       amount in millions
                 <S>                                                                <C>                   <C>
                 Cash paid for interest                                             $      763            573
                                                                                    ==========    ===========
                 Cash paid for income taxes                                         $       53             27
                                                                                    ==========    ===========
</TABLE>

         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                                               Nine months ended
                                                                                                  September 30,  
                                                                                              ---------------------
                                                                                               1995           1994 
                                                                                              ------         ------
                                                                                               amounts in millions
                 <S>                                                                      <C>               <C>
                 Cash paid for (received from) acquisitions:            
                    Fair value of assets acquired                                            $ 3,394          1,398
                    Liabilities assumed                                                         (495)          (449)
                    Deferred tax liability recorded      
                       in acquisitions                                                        (1,095)          (244)
                    Minority interests in equity of      
                       acquired entities                                                          62           (164)
                    Note receivable from related party assumed                                    --             15
                    Common stock and preferred stock issued      
                       in acquisitions                                                        (1,615)          (650)
                    Common stock issued to TCIC and Liberty      
                       in the TCI/Liberty Combination reflected      
                       as treasury stock (note 4)                                                 --            313
                    Unrealized gains on available-for-sale      
                       securities reflected on acquired entities                                  --           (286)
                                                                                             -------        ------- 
                       Cash paid for (received from) acquisitions                            $   251        $   (67)
                                                                                             =======        =======
                 Conversion of debt into additional minority      
                    interest in consolidated subsidiary                                      $    14             --
                                                                                             =======        =======
                 Common stock issued to subsidiaries in      
                    Reorganization                                                           $     6             --
                                                                                             =======        =======
                 Assets contributed for interest in limited liability      
                    company                                                                  $     3             --
                                                                                             =======        =======
                                                                                                            
</TABLE>

                                                                     (continued)


                                      I-12
<PAGE>   14
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                                                        Nine months ended
                                                                                          September 30,  
                                                                                     ------------------------
                                                                                       1995            1994 
                                                                                     --------        --------
                                                                                       amounts in millions
                 <S>                                                                 <C>            <C>
                 Retirement of Class A common stock
                    previously held by subsidiary                                    $     29              --
                                                                                     ========        ========
                 Exchange of common stock held by
                    subsidiaries for Series F Preferred Stock                        $    632              -- 
                                                                                     ========        ========
                 Distribution of Series A and Series B Liberty
                    Group common stock to TCI common
                    shareholders                                                     $    164              -- 
                                                                                     ========        ========
                 Redesignation of TCI common stock into
                    Series A and Series B TCI Group common
                    stock                                                            $    656              -- 
                                                                                     ========        ========
                 Conversion of Series F Preferred Stock by
                    subsidiary of TCI into Series A TCI Group
                    common stock                                                     $    314              --
                                                                                     ========        ========
                 Common stock issued in exchange for
                    cost investment                                                  $     73              --
                                                                                     ========        ========
                 Effect of foreign currency translation
                    adjustment on book value of foreign
                    equity investments                                               $      1              24
                                                                                     ========        ========
                 Unrealized gains, net of deferred taxes,
                    on available-for-sale securities
                    as of January 1, 1994                                            $     --             304
                                                                                     ========        ========
                 Change in unrealized gains, net of deferred
                    income taxes, on available-for-sale
                    securities exclusive of unrealized gains
                    recorded in the TCI/Liberty Combination                          $    294              53
                                                                                     ========        ========
                 Accrued preferred stock dividends                                   $      4               3
                                                                                     ========        ========
                 Issuance of subsidiary stock for equity
                    investment                                                       $     11              --
                                                                                     ========        ========
                 Common stock issued to subsidiary in
                    exchange for investment                                          $      1              --
                                                                                     ========        ========
                 Noncash exchange of equity investments
                    and consolidated subsidiaries for
                    consolidated subsidiary                                          $     --              38
                                                                                     ========        ========
                 Common stock issued upon conversion of
                    redeemable preferred stock                                       $     --              18
                                                                                     ========        ========
                 Common stock issued upon conversion
                    of notes                                                         $     --               3
                                                                                     ========        ========
</TABLE>


                                                                     (continued)


                                      I-13
<PAGE>   15
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




(5)      Investments in Affiliates

         Summarized unaudited results of operations for affiliates, other than
         Liberty and its affiliates through August 4, 1994, accounted for under
         the equity method are as follows:
<TABLE>
<CAPTION>
                                                                                           Nine months
                                                                                              ended
                  Combined Operations                                                      September 30,   
                  -------------------                                                  ---------------------
                                                                                        1995           1994 
                                                                                       ------         ------
                                                                                        amounts in millions
                     <S>                                                               <C>             <C>
                     Revenue                                                           $ 3,057          1,929
                     Operating expenses                                                 (2,666)        (1,749)
                     Depreciation and amortization                                        (370)          (188)
                                                                                       -------        ------- 

                        Operating income (loss)                                             21             (8)

                     Interest expense                                                     (227)           (63)
                     Other, net                                                            (84)          (220)
                                                                                       -------        ------- 

                        Net loss                                                       $  (290)          (291)
                                                                                       =======        ======= 
</TABLE>


         The Company has various investments accounted for under the equity
         method.  Some of the more significant investments held by the Company
         at September 30, 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 $675 million) (see note 12), TeleWest
         Communications plc (carrying value of $424 million), Teleport
         Communications Group, Inc. and TCG Partners (collectively, "TCG")
         (carrying value of $142 million) and Discovery Communications, Inc.
         (carrying value of $122 million).

         In August 1995, Liberty Media Group made an additional $29 million
         investment in Court.  Such additional investment represented unpaid
         prior years' capital calls which had diluted Liberty Media Group's
         ownership of Court.  Upon payment of the $29 million, Liberty Media
         Group restored its 1/3 ownership interest in Court.  Due to the
         additional investment in Court, Liberty Media Group's share of losses
         of Court for the nine months ended September 30, 1995, which amounts
         to $19 million, includes an $18 million adjustment to reflect the
         Company's share 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.

         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 of that partnership in the event liabilities of that partnership
         were to exceed its assets.

         Pursuant to an Agreement and Plan of Merger dated as of August 4,
         1994, as amended (the "QVC Merger Agreement"), QVC Programming
         Holdings, Inc. (the "Purchaser"), a corporation which is jointly owned
         by Comcast and Liberty, commenced an offer (the "QVC Tender Offer") to
         purchase all outstanding shares of common stock and preferred stock of
         QVC.
                                                                     (continued)





                                      I-14
<PAGE>   16
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         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.

         A credit facility entered into by the Purchaser is secured by
         substantially all of the assets of QVC.  In addition, Comcast and
         Liberty have pledged their shares of QVC pursuant to such credit
         facility.

         TCI received its ownership of QVC in the TCI/Liberty Combination.
         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 shareholders agreement.  Prior to such determination,
         Liberty had accounted for its investment in QVC under the equity
         method.

         Upon consummation of the aforementioned QVC transactions, the Company
         was deemed to exercise significant influence over QVC and, as such,
         adopted the equity method of accounting.  As a result, TCI restated
         its investment in QVC, its unrealized gain on available-for-sale
         securities, its deferred taxes and accumulated deficit by $211
         million, $127 million, $89 million and $5 million, respectively, at
         December 31, 1994.  The restatement resulted in an increase in the
         Company's net earnings of $2 million for the nine months ended
         September 30, 1994.

(6)      Investment in Turner Broadcasting System, Inc.

         The Company owns shares of a class of preferred stock of TBS which has
         voting rights and is convertible into 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. See
         note 8.

         At September 30, 1995, the Company's investment in TBS preferred
         stock, carried at cost, had an aggregate market value of $980 million
         (which exceeded cost by $802 million), based upon the market value of
         the common stock into which it is convertible.

         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 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.

                                                                     (continued)


                                      I-15
<PAGE>   17
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Subject to certain conditions, The Company has agreed to vote its TBS
         shares for the merger.  The Time Warner shares of common stock received
         by the Company will be exchanged for voting preferred stock ("Time
         Warner Preferred 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 the
         Company for approximately $60 million; and Time Warner has agreed to
         issue 5 million shares of common stock to TCI in exchange for a 6-year
         option to purchase Southern.  Time Warner has also agreed to issue
         shares of Time Warner common stock to the Company with a market value
         of $160 million in the event it exercised 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.


(7)      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 Convertible Preferred Stock, Series D (the "Series D
         Preferred Stock") with an aggregate initial liquidation value of $300
         million (see note 9).

         On April 25, 1995, TCI International 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 (including a previously paid $20 million deposit) and TCI
         International's issuance of $87 million principal amount of secured
         negotiable promissory notes payable (the "Cablevision Notes") to the
         selling shareholders.  TCI International 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)


                                      I-16
<PAGE>   18
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated 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 consolidated with those of the Company
         since the respective dates of acquisition.  On a pro forma basis, the
         Company's revenue, net loss, net loss attributable to common
         shareholders and net loss per share of Class A Common Stock would have
         been increased by $93 million, $6 million, $7 million and $.01,
         respectively, for the nine months ended September 30, 1995; and revenue
         would have increased by $323 million, and net earnings, net earnings
         attributable to common shareholders and net earnings per share would
         have been reduced by $1 million, $13 million and $.02, respectively,
         for the nine months ended September 30, 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 entity since January 1, 1994.

         Comcast had the right, through December 31, 1994, to require TCI to
         purchase or cause to be purchased from Comcast all shares of Heritage
         Communications, Inc. ("Heritage") directly or indirectly owned by
         Comcast for either cash or assets or, at TCI's election shares of TCI
         common stock.  On October 24, 1994, the Company and Comcast entered
         into a purchase agreement whereby the Company would repurchase the
         entire 19.9% minority interest in Heritage owned by Comcast for an
         aggregate consideration of approximately $290 million, the majority of
         which was payable in shares of TCI Class A common stock.  Such
         acquisition was consummated in the first quarter of 1995.

(8)      Debt

         Debt is summarized as follows:
<TABLE>
<CAPTION>
                                                                        September 30,         December 31,
                                                                            1995                 1994       
                                                                     ------------------    -----------------
                                                                               amounts in millions
          <S>                                                        <C>                   <C>
          Senior notes                                               $         6,704               5,412
          Bank credit facilities                                               3,392               4,045
          Commercial paper                                                     1,157                 445
          Notes payable                                                          964               1,024
          Convertible notes (a)                                                   45                  45
          Cablevision Notes (b)                                                   78                  --
          Other debt                                                             320                 191
                                                                     ---------------       -------------

                                                                     $        12,660              11,162
                                                                     ===============       =============
</TABLE>

         (a)     These convertible notes, which are stated net of unamortized
                 discount of $186 million at September 30, 1995 and December
                 31, 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 September 30, 1995, the notes were
                 convertible, at the option of the holders, into an aggregate
                 of 38,707,574 shares of Series A TCI Group common stock and
                 9,676,894 shares of Series A Liberty Group Stock.  See note 2.

                                                                     (continued)


                                      I-17
<PAGE>   19
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         (b)     The Cablevision Notes are secured by TCI International'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 the Company's bank credit
         facilities, the Company has pledged 100,524,364 shares of Series A TCI
         Group common stock held by a subsidiary of the Company.  As security
         for borrowings under one of the Company's credit facilities, the
         Company pledged a portion of its TBS common stock (with a quoted
         market value of $804 million at September 30, 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 September 30, 1995 and (ii) variable
         interest rates (the "Variable Rate Agreements") on notional amounts of
         $2,520 million at September 30, 1995.  During the nine months ended
         September 30, 1995 and 1994, the Company's net payments pursuant to
         the Fixed Rate Agreements were $1 million and $13 million,
         respectively; and the Company's net receipts pursuant to the Variable
         Rate Agreements were less than $1 million and $33 million,
         respectively.

         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
                                                                    March 2000          5.8%-6.0%          675
                                                      $  602        September 2000        5.1%              75
                                                      ======                                          --------

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


                                                                     (continued)


                                      I-18
<PAGE>   20
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         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.

         In order to diminish its exposure to extreme increases in variable
         interest rates, the Company has entered into various interest rate
         hedge agreements on notional amounts of $225 million which fix the
         maximum variable interest rates at 11%  Such agreements expire during
         the fourth quarter of 1995.

         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 September 30, 1995, taking into consideration
         current interest rates and the current creditworthiness of the
         counterparties.  The Company would be required to pay $27 million at
         September 30, 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 subsidiaries of the Company for debt
         of the same remaining maturities.  The fair value of debt, which has a
         carrying value of $12,660 million, was $13,024 million at 
         September 30, 1995.

         Certain of TCI's subsidiaries are required to maintain unused
         availability under bank credit facilities to the extent of outstanding
         commercial paper.

(9)      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 common 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)


                                      I-19
<PAGE>   21
                   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 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 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)


                                      I-20
<PAGE>   22
                   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 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 common 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 7).


                                                                     (continued)


                                      I-21
<PAGE>   23
                   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 Series A TCI Group common stock, the Series B TCI
         Group common stock, the Series A Liberty Media Group common stock, the
         Series B Liberty Media Group common 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 common 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 2.

         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
         shareholders of TCI.

                                                                     (continued)


                                      I-22
<PAGE>   24
                   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 common stock. Such shares of Series A TCI Group
         common 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 common 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 common stock
         issuable upon conversion in the event of any non-cash dividend or
         distribution of the Series A TCI Group common 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 common
         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 common stock, with respect to any cash dividends or
         distribution declared and paid on the Series TCI Group common stock.
         Dividends or distribution on the Series A TCI Group common 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
         common stock in such liquidation, dissolution or winding up multiplied
         by the applicable conversion rate of a share of Series F Preferred
         Stock.

                                                                     (continued)


                                      I-23
<PAGE>   25
                   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 common 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 common stock for a period specified, and subject to
         the adjustments described, in the certificate of designation
         establishing the Series F Preferred Stock.

(10)     Stockholders' Equity

         Common Stock

         The Series A TCI Group common stock and Series A Liberty Group Stock
         each have one vote per share, and the Series B TCI Group common stock
         and Series B Liberty Group Stock each have ten votes per share.  Each
         share of Series B TCI Group common stock is convertible, at the option
         of the holder, into one share of Series A TCI Group common 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 2.

         The rights of holders of the TCI Group common stock upon liquidation
         of TCI are based upon the ratio of the aggregate market
         capitalization, as defined, of the TCI Group common stock to the
         aggregate market capitalization, as defined, of the TCI Group common
         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 common stock.

         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.

         Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock.
         The Company is authorized to issue 1,675,096 shares of Class B
         Preferred Stock.  All such shares are issued and outstanding.
         Subsidiaries of TCIC hold 55,070 of such issued and outstanding
         shares.


                                                                     (continued)


                                      I-24
<PAGE>   26
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated 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), commencing March 1, 1995, and, in the sole discretion
         of the Board, may be declared and paid in cash, in shares Series A TCI
         Group common 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 common 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 common 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 common stock by the Average Market Price of the
         Series A TCI Group common 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 common
         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 distribution to stockholders an
         amount in cash or property or a 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)


                                      I-25
<PAGE>   27
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated 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)





                                      I-26
<PAGE>   28
                   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, 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)


                                      I-27
<PAGE>   29
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated 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.  The Company 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

         The Company has adopted the Tele-Communications, Inc. 1994 Stock
         Incentive Plan (the "Plan"). Awards may be made as grants of stock
         options, stock appreciation rights, restricted shares, stock units or
         any combination thereof.

         The Plan will be adjusted to provide that the number and type of
         shares subject to future awards would consist of a number of shares of
         Series A TCI Group common 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 common
         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 Stock Incentive Plan, as adjusted.

         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 common 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)





                                      I-28
<PAGE>   30
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Stock options to acquire 142,800 shares of Series A TCI Group common
         stock at an adjusted purchase price of $6.60 per share were
         outstanding at September 30, 1995.  Such options expire December 15,
         1988.  During the nine months ended September 30, 1995, 19,428 options
         were exercised and no options were canceled.

         Stock options in tandem with stock appreciation rights to purchase
         3,600,250 shares of Series A TCI Group common stock at a purchase
         price of $12.50 per share were outstanding at September 30, 1995.
         Such options become exercisable and vest evenly over five years, first
         became exercisable beginning November 11, 1993 and expire on November
         11, 2002.  During the nine months ended September 30, 1995, stock
         appreciation rights covering 355,250 shares of Series A TCI Group
         common stock were exercised and the tandem stock options were
         canceled.  In addition, 7,500 options were canceled during the nine
         months ended September 30, 1995.

         Stock options in tandem with stock appreciation rights to purchase
         1,782,500 shares of Series A TCI Group common stock at a purchase
         price of $12.50 per share were outstanding at September 30, 1995.
         Such options become exercisable and vest evenly over four years, first
         became exercisable beginning October 12, 1994 and expire on October
         12, 2003.  During the nine months ended September 30, 1995, stock
         appreciation rights covering 150,000 shares of Series A TCI Group
         common stock were exercised and the tandem stock options were
         canceled.  In addition, 7,500 options were canceled during the nine
         months ended September 30, 1995.

         Stock options in tandem with stock appreciation rights to purchase
         2,000,000 shares of Series A TCI Group common stock at a purchase
         price of $12.50 per share were outstanding at September 30, 1995.  On
         November 12, 1993, twenty percent of such options vested and became
         exercisable immediately and the remainder become exercisable evenly
         over 4 years.  The options expire October 12, 1998.

         Stock options in tandem with stock appreciation rights to purchase
         3,181,000 shares of Series A TCI Group common stock at a purchase
         price of $16.50 per share were outstanding at September 30, 1995.
         Such options become exercisable and vest evenly over five years, first
         become exercisable beginning November 17, 1995 and expire on November
         17, 2004.  During the nine months ended September 30, 1995, 33,000
         options were canceled.

         Stock options in tandem with stock appreciation rights to acquire
         54,600 shares of Series A TCI Group common stock at an adjusted
         purchase price of $14.65 were outstanding at September 30, 1995.  The
         options vest in five equal annual installments commencing June 3, 1994
         and expire on June 3, 2003.

         Stock appreciation rights with respect to 1,423,500 shares of Series A
         TCI Group common stock were outstanding at September 30, 1995.  These
         rights have an adjusted strike price of $0.60 per share, become
         exercisable and vest evenly over seven years, beginning March 28,
         1992.  Stock appreciation rights expire on March 28, 2001.

                                                                     (continued)





                                      I-29
<PAGE>   31
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         Stock options to acquire 35,700 shares of Series A Liberty Group Stock
         at a purchase price of $8.83 per share were outstanding at September
         30, 1995.  Such options expire December 15, 1998.  During the nine
         months ended September 30, 1995, 2,428 options were exercised and no
         options were canceled.

         Stock options in tandem with stock appreciation rights to purchase
         903,313 shares of Series A Liberty Group Stock at a purchase price of
         $16.75 per share were outstanding at September 30, 1995.  Such options
         become exercisable and vest evenly over five years and expire on
         November 11, 2002.  During the nine months ended September 30, 1995,
         stock appreciation rights covering 65,000 shares of Series A Liberty
         Group Stock were exercised and the tandem stock options were canceled.
         In addition, 1,875 options were canceled during the nine months ended
         September 30, 1995.

         Stock options in tandem with stock appreciation rights to purchase
         448,750 shares of Series A Liberty Group Stock at a purchase price of
         $16.75 per share were outstanding at September 30, 1995.  Such options
         become exercisable and vest evenly over four years and expire on
         October 12, 2003.  During the nine months ended September 30, 1995,
         stock appreciation rights covering 34,375 shares of Series A Liberty
         Group Stock were exercised and the tandem stock options were canceled.
         In addition, 1,875 options were canceled during the nine months ended
         September 30, 1995.

         Stock options in tandem with stock appreciation rights to purchase
         500,000 shares of Series A Liberty Group Stock at a purchase price of
         $16.75 per share were outstanding at September 30, 1995.  Such options
         become exercisable and vest evenly over 4 years.  The options expire
         October 12, 1998.

         Stock options in tandem with stock appreciation rights to purchase
         795,250 shares of Series A Liberty Group Stock at a purchase price of
         $22.00 per share were outstanding at September 30, 1995.  Such options
         become exercisable and vest evenly over five years, first become
         exercisable beginning November 17, 1995 and expire on November 17,
         2004.  During the nine months ended September 30, 1995, 8,250 options
         were canceled.

         Stock options in tandem with stock appreciation rights to acquire
         13,651 shares of Series A Liberty Group Stock at an adjusted purchase
         price of $19.56 were outstanding at September 30, 1995.  The options
         vest in five equal annual installments and expire on June 3, 2003.

         Stock appreciation rights with respect to 355,875 shares of Series A
         Liberty Group Stock were outstanding at September 30, 1995.  These
         rights have an adjusted strike price of $0.82 per share, become
         exercisable and vest evenly over seven years.  Stock appreciation
         rights expire on March 28, 2001.


                                                                     (continued)





                                      I-30
<PAGE>   32
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On August 3, 1995, shareholders 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 nine months ended September 30, 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 stock appreciation rights has been
         recorded through September 30, 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.

         Other

         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 September 30, 1995, there were 68,295,414 shares of Series A TCI
         Group common stock and 17,080,230 shares of Series A Liberty Group
         Stock reserved for issuance under exercise privileges related to
         options, convertible debt securities and convertible preferred stock.
         In addition, one share of Series A TCI Group common stock is reserved
         for each share of Series B TCI Group common stock, and one share of
         Series A Liberty Group Stock is reserved for each share of Series B
         Liberty Group Stock.  See note 2 for the effect of the Distribution on
         the conversion rights of holders of convertible securities.

(11)     Sale of Subsidiary Stock

         On July 18, 1995, TCI International completed an initial public
         offering (the "IPO") in which it sold 20 million shares of TCI
         International 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 TCI International's total issued and outstanding
         common stock and 9% of the aggregate voting interest represented by
         such issued and outstanding common stock.  Also in July 1995, TCI
         International issued 687,500 shares of TCI International 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 nonrecurring gain amounting
         to $123 million (before deducting the related deferred income tax
         expense of $50 million).  Subsequent to the IPO and the TYC
         Acquisition, TCI owns 82% of the issued and outstanding stock of TCI
         International.


                                                                     (continued)


                                      I-31
<PAGE>   33
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




(12)     Commitments and Contingencies

         During 1994, subsidiaries of the Company, Comcast, Cox and Sprint
         formed WirelessCo to engage in the business of providing wireless
         communications services on a nationwide basis.  Through WirelessCo, of
         which the Company owns a 30% interest, the partners have been
         participating in auctions ("PCS Auctions") of broadband personal
         communications services ("PCS") licenses being 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 is 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 60%
         interest) and WirelessCo (with a 40% 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.


                                                                     (continued)





                                      I-32
<PAGE>   34
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         In March 1995, subsidiaries of the Company, Comcast, Cox and Sprint
         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. ("NewTelco") to engage in the business of providing
         local wireline communications services to residences and businesses on
         a nationwide basis.  NewTelco will serve its customers primarily
         through the cable television facilities of cable television operators
         that affiliate with NewTelco in exchange for agreed-upon compensation.
         The modification of existing regulations and laws governing the local
         telephony market will be necessary in order for NewTelco to provide
         its proposed services on a competitive basis in most states.  Subject
         to agreement upon a schedule for upgrading its cable television
         facilities in selected markets and certain other matters, the Company
         has agreed to affiliate certain of its cable systems with NewTelco.
         The capital required for the upgrade of the Company's cable facilities
         for the provision of telephony services is expected to be substantial.

         Subsidiaries of the Company, Cox and Comcast, together with
         Continental Cablevision, Inc. ("Continental"), own TCG, which is one
         of the largest competitive access providers in the United States in
         terms of route miles.  The Company, Cox and Comcast have entered into
         an agreement with MajorCo and NewTelco to contribute their interests
         in TCG and its affiliated entities to NewTelco.  The Company currently
         owns an approximate 29.9% interest in TCG.  The closing of this
         contribution is subject to the satisfaction of certain conditions,
         including the receipt of necessary regulatory and other consents and
         approvals.  In addition, the Company, Comcast and Cox intend to
         negotiate with Continental, which owns a 20% interest in TCG,
         regarding their acquisition of Continental's TCG interest.  If such
         agreement cannot be reached, they will need to obtain Continental's
         consent to certain aspects of their agreement with Sprint.

         Subject to agreement upon an initial business plan, the MajorCo
         partners have committed to make cash capital contributions to MajorCo
         of $4.0 to $4.4 billion in the aggregate over a three- to five-year
         period.  The partners intend for MajorCo and its subsidiary
         partnerships to be the exclusive vehicles through which they engage in
         the wireless and wireline telephony service businesses, subject to
         certain exceptions.

         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)





                                      I-33
<PAGE>   35
                   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 the later of September 1, 1993 or one year prior to the
         certification date of the applicable franchise authority.

         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 of $1.90 (aggregating
         approximately $9 million).  Such amount 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 will end 30 days from October 30, 1995.

         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 $454 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.

         The Company also has guaranteed the obligation of an Australian
         affiliate to pay similar fees for the license to exhibit certain films
         through the year 2000.  If the Company failed to fulfill its
         obligation under this guarantee, the beneficiaries have the right to
         demand an aggregate payment from the Company of $67 million.  Although
         the aggregate amount of the Australian affiliate's film license fee
         obligations is not currently estimable, the Company believes that the
         aggregate payments pursuant to such affiliate's obligations could be
         significant.

                                                                     (continued)


                                      I-34
<PAGE>   36
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company also 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 September
         30, 1995 was $469 million.  It is expected 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.

         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $241 million at September 30, 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 obligations, 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 September 30, 1995, such
         commitments aggregated $124 million.

         TCIC and its sole shareholder, TCI, have 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 $2.25 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.
                                                                     (continued)


                                      I-35
<PAGE>   37
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         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 in
         exchange for a capital contribution of $350 million (which will be
         used to reduce Cable Sub's obligations under the Loan Facility).  At
         the time of such contribution, 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 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 TCI Group common stock ("Parent Common
         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 Parent Common 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 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.

         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, the expiration or early termination of the waiting period
         under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
         receipt of necessary consents of the FCC and local cable franchise
         authorities, and the satisfaction or waiver of all of the conditions
         of the Exchange Offer.  Accordingly, no assurance can be given that
         the transaction will be consummated.

         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.





                                      I-36
<PAGE>   38
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES





Management's Discussion and Analysis of
  Financial Condition and Results of Operations


(1)      Material changes in financial condition:

         As of January 27, 1994, Old TCI and Liberty entered into a definitive
merger agreement to combine the two companies.  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.  Old TCI shareholders received one share of TCI for
each of their shares.  Liberty common shareholders received 0.975 of a share of
TCI for each of their common shares.  Upon consummation of the TCI/Liberty
Combination, certain subsidiaries of TCIC exchanged their shares of Old TCI
Class A common stock for shares of TCI Class A common stock.  Additionally,
subsidiaries of TCI exchanged their shares of Liberty Class A common stock for
TCI Class A common stock and Liberty exchanged its shares of Old TCI Class A
and Class B common stock for like shares of TCI common stock.  Subsidiaries of
TCI also exchanged their shares of various preferred stock issuances of Liberty
for preferred stock of TCI.  Preferred stock of TCI, which is owned by
subsidiaries of TCI, eliminates in consolidation.

         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.

         The TCI/Liberty Combination was accounted for using predecessor cost
due to the aforementioned related party considerations.

         During the fourth quarter of 1994, the Company was reorganized based
upon four lines of business:  Domestic Cable and Communications; Programming;
TCI International; 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 TCI International 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 focus.

         On July 18, 1995, TCI International completed the IPO in which it sold
20 million shares of TCI International 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 TCI International's total issued and outstanding common
stock and 9% of the aggregate voting interest represented by such issued and
outstanding common stock.


                                                                     (continued)





                                      I-37
<PAGE>   39
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES





(1)      Material changes in financial condition (continued):

         On August 3, 1995, the stockholders of TCI authorized the Board to
issue the Liberty Group Stock which corresponds to Liberty Media Group.  The
programming services include 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.  While the Liberty
Group Stock constitutes common stock of TCI, it is intended to reflect the
separate performance of such programming services.  On August 10, 1995, TCI
distributed to its security holders of record on August 4, 1995, one hundred
percent of the equity value of TCI attributable to Liberty Media Group.

         During 1994, subsidiaries of the Company, Comcast, Cox and Sprint
formed WirelessCo to engage in the business of providing wireless
communications services on a nationwide basis.  Through WirelessCo, of which,
the Company owns a 30% interest, the partners have been participating in PCS
Auctions of PCS licenses being 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 is approximately $2.1 billion.

         WirelessCo has 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 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 60% interest) and WirelessCo (with a 40%
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
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.  The Company anticipates funding its portion of WirelessCo's
capital requirements through borrowings under a new credit facility.

                                                                     (continued)





                                      I-38
<PAGE>   40
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES





(1)      Material changes in financial condition (continued):

         In March of 1995, subsidiaries of the Company, Comcast, Cox and Sprint
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, to engage in the business of
providing local wireline communications services to residences and businesses
on a nationwide basis.  NewTelco will serve its customers primarily through the
cable television facilities of cable television operators that affiliate with
NewTelco in exchange for agreed-upon compensation.  The modification of
existing regulations and laws governing the local telephony market will be
necessary in order for NewTelco to provide its proposed services on a
competitive basis in most states.  Subject to agreement upon a schedule for
upgrading its cable television facilities in selected markets and certain other
matters, the Company has agreed to affiliate certain of its cable systems with
NewTelco.  The capital required for the upgrade of the Company's cable
facilities for the provision of telephony services is expected to be
substantial.

         Subsidiaries of the Company, Cox and Comcast, together with
Continental, own TCG, which is one of the largest competitive access providers
in the United States in terms of route miles.  The Company, Cox and Comcast
have entered into an agreement with MajorCo and NewTelco to contribute their
interests in TCG and its affiliated entities to NewTelco.  The Company
currently owns an approximate 29.9% interest in TCG.  The closing of this
contribution is subject to the satisfaction of certain conditions, including
the receipt of necessary regulatory and other consents and approvals.  In
addition, the Company, Comcast and Cox intend to negotiate with Continental,
which owns a 20% interest in TCG, regarding their acquisition of Continental's
TCG interest.  If such agreement cannot be reached, they will need to obtain
Continental's consent to certain aspects of their agreement with Sprint.

         Subject to agreement upon an initial business plan, the MajorCo
partners have committed to make cash capital contributions to MajorCo of $4.0
to $4.4 billion in the aggregate over a three- to five-year period.  The
partners intend for MajorCo and its subsidiary partnerships to be the exclusive
vehicles through which they engage in the wireless and wireline telephony
service businesses, subject to certain exceptions.

         As of January 26, 1995, TCI, TCIC and TeleCable consummated 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 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 common stock and
2,500,000 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.


                                                                     (continued)





                                      I-39
<PAGE>   41
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES





(1)      Material changes in financial condition (continued):

         Pursuant to the QVC Merger Agreement, the Purchaser, a corporation
which is jointly owned by Comcast and Liberty, commenced the QVC Tender Offer
to purchase all outstanding shares of common stock and preferred stock of 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.

         Upon consummation of the aforementioned QVC transactions, the Company
was deemed to exercise significant influence over QVC and, as such, adopted the
equity method of accounting.  As a result, TCI restated its investment in QVC,
its unrealized gain on available-for-sale securities, its deferred taxes and
accumulated deficit by $211 million, $127 million, $89 million and $5 million,
respectively, at December 31, 1994.  The restatement resulted in an increase in
the Company's net earnings of $2 million for the nine months ended September
30, 1994.

         In connection with the financing of the QVC merger, the Purchaser
entered into a credit facility.  The credit facility is secured by
substantially all of the assets of QVC.  In addition, Comcast and Liberty have
pledged their shares of QVC (as the surviving corporation following the QVC
merger) pursuant to the credit facility.  Neither Liberty nor Comcast has
provided any guarantees of the credit facility.

         TCIC and its sole shareholder, TCI, have entered into certain
agreements with Viacom and certain subsidiaries of Viacom regarding the
purchase by TCIC 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 TCIC, TCI and Cable Sub.  Following
these transfers, Cable Sub will retain cable assets with an estimated value at
closing of approximately $2.25 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 of 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.


                                                                     (continued)





                                      I-40
<PAGE>   42
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in financial condition (continued):

         Immediately following the completion of the Exchange Offer, TCIC will
acquire from Cable Sub shares of Cable Sub Class B Common Stock in exchange for
a capital contribution of $350 million (which will be used to reduce Cable
Sub's obligations under the Loan Facility).  At the time of such contribution,
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 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 Parent Common 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 Parent Common
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 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.

         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, the
expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt of necessary
consents of the FCC and local cable franchise authorities, and the satisfaction
or waiver of all of the conditions of the Exchange Offer.  Accordingly, no
assurance can be given that the transaction will be consummated.

         On September 22, 1995, the boards of directors of Time Warner and TBS
approved plans to merge their respective companies. 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, the Company has agreed to vote its TBS
shares for the merger.  The Time Warner shares of common stock received by the
Company will be exchanged for Time Warner Preferred Stock economically
equivalent to the common stock and placed in a voting trust with Time Warner
Chairman, Gerald M. Levin, as the trustee.

                                                                     (continued)


                                      I-41
<PAGE>   43
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in financial condition (continued):

         In connection with the TBS/Time Warner Merger, TBS has agreed to sell
its interest in Sport South, a regional sports cable network, to the Company for
approximately $60 million; and Time Warner has agreed to issue 5 million shares
of common stock to TCI in exchange for a 6-year option to purchase Southern.
Time Warner has also agreed to issue shares of Time Warner common stock to the
Company with 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 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.

         The Company is currently the sole satellite carrier of WTBS, a 24-hour
independent UHF television station originated by TBS 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.
Other independent television stations are transmitted by other carriers.  The
Company's satellite carrier of WTBS, 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 Revision Act of 1976, as amended
and any applicable requirements of the Communications Act of 1934, as amended,
or, if the carrier serves home satellite dish owners, so long as the carrier
meets the requirements of the Satellite Home Viewer Act of 1988.  Further,
Southern has no control over the programming on such station.  TBS produces and
distributes other cable programming services, 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 revenue from the sale of advertising time on WTBS, however, and the
Company therefore believes that TBS has an economic incentive to maintain the
audience appeal of WTBS's programming.

         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 $401 million.  Such proceeds were immediately used to
reduce outstanding indebtedness under credit facilities.

         The Company's assets consist primarily of investments in its
subsidiaries.  The Company's rights, and therefore 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).

         The Company's ability to pay dividends on any class or series of
preferred stock is dependent upon the ability of the Company's subsidiaries to
distribute amounts to the Company in the form of dividends, loans or advances
or in the form of repayment of loans and advances from the Company.  The
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 their payments.  The payment of dividends, loans or
advances to the Company by its subsidiaries may be subject to statutory or
regulatory restrictions, is contingent upon the cash flows generated by those
subsidiaries and is 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.

         Dividends on the TCI Group common 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 common stock will be
based primarily upon the financial condition, results of operations and
business requirements of TCI Group and TCI as a whole.


                                                                     (continued)


                                      I-42
<PAGE>   44
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in financial condition (continued):

         Dividends on the Liberty Group Stock are payable at the sole
discretion of the Board out of the lesser of (i) all assets of TCI legally
available for dividends and (ii) 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.

         During the nine months ended September 30, 1995, TCIC sold $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.

         Subsidiaries of the Company had $2.8 billion in unused lines of credit
at September 30, 1995, excluding amounts related to lines of credit which
provide availability to support commercial paper.  Although such 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 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 8 to the accompanying consolidated financial statements for additional
information regarding the material terms of the subsidiaries' 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) ($1,503 million and $1,339 million for the nine
months ended September 30, 1995 and 1994, respectively) to interest expense
($745 million and $568 million for the nine months ended September 30, 1995 and
1994, respectively), is determined by reference to the consolidated statements
of operations.  The Company's interest coverage ratio was 2.02% and 2.36% for
the nine months ended September 30, 1995 and 1994, respectively.  The decrease
in the Company's interest coverage for the nine months ended September 30, 1995
is due to increased interest expense due to higher debt levels in 1995.
Management of the Company believes that the foregoing interest coverage ratio is
adequate in light of the consistent and nonseasonal nature of its cable
television operations and the relative predictability of the Company's interest
expense, over 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.

                                                                     (continued)


                                      I-43
<PAGE>   45
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in financial condition (continued):

         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 ($670 million and $700
million for the nine months ended September 30, 1995 and 1994, 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 and interest rate hedge agreements.  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 September 30, 1995 and (ii)
variable interest rates on notional amounts of $2,520 million at September 30,
1995.  During the nine months ended September 30, 1995 and 1994, the Company's
net payments pursuant to the Fixed Rate Agreements were $1 million and $13
million, respectively.  During the nine months ended September 30, 1995 and
1994, the Company's net receipts pursuant to the Variable Rate Agreements were
less than $1 million and $33 million, respectively.  The Company's interest
rate hedge agreements fix the maximum variable interest rates on notional
amounts of $225 million at 11%.  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.

         Approximately thirty-five percent of the franchises held by the
Company, involving approximately 3.8 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.

                                                                     (continued)


                                      I-44
<PAGE>   46
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in financial condition (continued):

         The Company competes with operators who provide, via alternative
methods of distribution, the same or similar video programming as that offered
by the Company's cable systems.  Technologies competitive with cable television
have been encouraged by Congress and the FCC.  One such technology is direct
broadcast satellite ("DBS").  DBS services are offered directly to subscribers
owning home satellite dishes ("HSDs") that vary in size depending upon the
power of the satellite.  The Company has an interest in an entity, Primestar
Partners ("Primestar"), that distributes a multichannel programming service via
a medium power communications satellite to HSDs of approximately three feet in
size.  Two other DBS operators offer video services that can be received by a
satellite that measures approximately eighteen inches in diameter.  DBS
operators can acquire the right to distribute over satellite all of the
significant cable television programming currently available on the Company's
cable systems.  As the cost of equipment needed to receive these transmissions
declines, the Company expects that it will experience increased and substantial
competition from DBS operators.

         The 1984 Cable Act and FCC rules prohibit telephone companies from
offering video programming directly to subscribers in their telephone service
areas (except in limited circumstances in rural areas).  However, a number of
Federal Court decisions have held that the cross-entry prohibition in the 1984
Cable Act is unconstitutional as a violation of the telephone companies' First
Amendment right to free expression.  In addition, certain proposals are also
pending before the FCC and Congress which would eliminate or relax these
restrictions on telephone companies.  As the current cross-entry restrictions
are removed or relaxed, the Company will face increased competition from
telephone companies which, in most cases, have greater financial resources than
the Company.  All major telephone companies have announced plans to acquire
cable television systems or provide video services to the home through fiber
optic technology.

         The Company's entertainment and information programming services 
subsidiaries and 50% owned affiliates lease satellite transponders on full time
leases and shared leases on a "protected" or "transponder protected" basis, and
full time "unprotected" leases on 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
lessors' "protected" transponders 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.
        
         Although the Company believes it has 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 the programming group.

                                                                     (continued)


                                      I-45
<PAGE>   47
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in financial condition (continued):

         The availability of replacement satellites and transponder time beyond
current leases is dependent on a number of factors over which the Company has
no control, including competition among prospective users for 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 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.

         The Company is upgrading and installing optical fiber in its cable
systems at a rate such that in two years TCI anticipates that it will be
serving the majority of its customers with state-of-the-art fiber optic cable
systems.  The Company made capital expenditures of $1,264 million in 1994 and
the Company 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 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 $241
million at September 30, 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 obligations,
that they will not be material to the Company.

                                                                     (continued)


                                      I-46
<PAGE>   48
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in financial condition (continued):

         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 29, 2009.  The aggregate minimum liability
under certain of the license agreements is approximately $454 million.  The
aggregate amount of the Film License 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.

         The Company also has guaranteed the obligation of an Australian
affiliate to pay similar fees for the license to exhibit certain films through
the year 2000.  If the Company failed to fulfill its obligation under this
guarantee, the beneficiaries have the right to demand an aggregate payment from
the Company of $67 million.  Although the aggregate amount of the Australian
affiliate's film license fee obligations is not currently estimable, the
Company believes that the aggregate payments pursuant to such affiliate's
obligation could be significant.

         The Company has committed to provide additional debt or equity funding
to certain of its affiliates.  At September 30, 1995, such commitments
aggregated $124 million.

         The Company also 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 September 30, 1995 was $469
million.  It is expected 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.

         The Company believes that the FCC's comprehensive system of rate
regulation, including regulation of the changes in rates when programming
services are added or deleted from service tiers, also may have an adverse
effect on the programming services in which the Company has an ownership
interest by limiting the carriage of such services and/or the ability and
willingness of cable operators to pay the rights fees for such carriage.

         The FCC has adopted rules providing for mandatory carriage by cable
systems after June 2, 1993 of all local full-power commercial television
broadcast signals (up to one-third of all channels), including the signals of
stations carrying home-shopping programming after October 6, 1993, and,
depending on a cable system's channel capacity, non- commercial television
broadcast signals.  Alternatively, after October 6, 1993, commercial
broadcasters have the right to deny such carriage unless they grant
retransmission consent.  The "must-carry" statutory provisions and regulations
remain in effect pending the outcome of ongoing judicial proceedings to resolve
challenges to their constitutionality.  TCI believes that, by requiring such
carriage of broadcast signals, these regulations may adversely affect the
ability of TCI's programming services to obtain carriage on cable systems with
limited channel capacity.  To the extent that carriage is thereby limited, the
subscriber and advertising revenues available to TCI's programming services
also will be limited.  However, as discussed below, such regulations have
resulted in expanded cable distribution of HSN, which is carried by a number of
full-power commercial broadcast television stations.

                                                                     (continued)


                                      I-47
<PAGE>   49
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in financial condition (continued):

         The FCC has adopted regulations limiting carriage by a cable operator
of national programming services in which that operator holds an attributable
interest to 40 percent of the first 75 activated channels on each of the
operator's systems.  The rules provide for the use of two additional channels
or a 45 percent limit, whichever is greater, provided that the additional
channels carry minority controlled programming services.  The regulations
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, which
currently are subject to pending petitions for reconsideration before the FCC,
may limit carriage of the Company's programming services on certain cable
systems of cable operators in which TCI has ownership interests.

         On September 23, 1993, the FCC also adopted regulations establishing a
30% limit on the number of homes passed nationwide that a cable operator may
reach through cable systems in which it holds an attributable interest, with an
increase to 35% if the additional cable systems are minority controlled.
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.  Under the FCC regulations, if the ownership limits are determined to
be constitutional, they may limit TCI's future ability to acquire interests in
additional cable systems.

         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.  For example, Congress presently is considering
telecommunications legislation which, if enacted into law, would substantially
change existing law, including among other things, the rate regulation of cable
television systems and the restrictions on telephone companies in the provision
of cable television service.  The Senate approved the Telecommunications
Competition and Deregulation Act of 1995 on June 15, 1995.  The House approved
the Communications Act of 1995 on August 4, 1995.  The differences between the
two bills must be reconciled in Conference Committee, and the resulting
compromise must be voted on by the House and Senate and signed by the
President.  Further 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.

         A number of petitions for reconsideration of various aspects of the
regulations implementing the 1992 Cable Act remain pending before the FCC.
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 Company is uncertain how the courts and/or the FCC
ultimately will rule or whether such rulings will materially change any
existing rules or statutory requirements.


                                                                     (continued)


                                      I-48
<PAGE>   50
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in financial condition (continued):

         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.

(2)      Material changes in results of operations:

         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, the Company's Regulated Services are subject to the jurisdiction of
local franchising authorities and the FCC.

         Cable operators may justify rates higher than the benchmark rates
established by the FCC by demonstrating higher costs based upon a
cost-of-service showing.  Under this methodology, cable operators may be
allowed to recover through the rates they charge for Regulated Services, their
normal operating expenses plus an interim rate of return of 11.25% on the rate
base, as defined, which rate may be subject to change in the future.

         The FCC rate regulations govern changes in the rates which cable
operators may charge when adding or deleting a service from a regulated tier of
service.  Such regulations allow an increase of either (i) the sum of a
prescribed channel addition factor, the license fee expense and a 7.5% markup,
or (ii) a flat fee increase per added channel and an aggregate limit on such
increases with an additional license fee reserve.  For systems with more than
one tier of cable service, the methodology described in (ii) is not available
for the basic level of service.  The FCC's rate regulations also permit cable
operators to "pass through" increases in programming costs and certain other
external costs which 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 prevailing prices offered in the marketplace by the programmer to
unaffiliated third parties or the fair market value of the programming. On 
September 22, 1995, the FCC released its Thirteenth Order on Reconsideration of 
its rate regulations, which provides cable operators with an optional annual 
methodology for adjusting rates for Regulated Services.

         The Company believes that it has complied, in all material respects,
with the provisions of the 1992 Cable Act, including its rate setting
provisions.  However, the Company's rates for Regulated Services are subject to
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.
                                                                     (continued)


                                      I-49
<PAGE>   51
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(2)      Material changes in results of operations (continued):

         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 of $1.90 (aggregating
approximately $9 million).  Such amount 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 will end 30 days from October 30, 1995.

         Based on the foregoing, 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.

         During 1995, TCIC's revenue and expenses related to its Primestar
operations have increased significantly as the number of TCIC's Primestar
subscribers increased from approximately 100,000 subscribers at January 1, 1995
to approximately 370,000 subscribers at September 30, 1995.  During the nine
months ended September 30, 1995, revenue increased from $13 million to $118
million and operating, selling, general and administrative expenses increased
from $10 million to $107 million, as compared to the nine months ended September
30, 1994.  Primestar incurs significant sales commission and installation
expenses when customers initially subscribe.  Therefore, as long as Primestar
continues to increase its subscriber base at such a rapid pace, management
expects that operating costs and expenses will increase as well.

         Revenue increased 37% and 44% for the three months and nine months
ended September 30, 1995, respectively, as compared to the corresponding
periods of 1994.  The three month increase is due to the effect of certain
acquisitions (11%), the TCI/Liberty Combination (9%), growth in subscriber
levels within the Company's cable television systems (4%), growth in the
Company's Primestar subscribers (4%) and various other individually
insignificant increases (9%).  The nine month increase is due to the
TCI/Liberty Combination (22%), the effect of certain acquisitions (10%), growth
in subscriber levels within the Company's cable television systems (4%), growth
in the Company's Primestar subscribers (3%) and various other individually
insignificant increases (5%).

         Included in the Company's cable revenue of $1,307 million and $3,734
million for the three months and nine months ended September 30, 1995,
respectively, is $1,290 million and $3,684 million attributable to TCIC, and
$17 million and $50 million attributable to other cable operations.


                                                                     (continued)


                                      I-50
<PAGE>   52
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(2)      Material changes in results of operations (continued):

         During the three months and nine months ended September 30, 1995,
advertising sales accounted for $74 million or 4% and $220 million or 4%,
respectively, of the Company's total revenue.  Such amounts represent increases
of 42% and 53% (including increases due to acquisitions) over the comparable
periods in 1994.

         Net sales from electronic retailing services reflects the results of
HSN which became a consolidated subsidiary of the Company in the TCI/Liberty
Combination.  Net sales from HSN represented $61 million (5%) and $551 million
(16%) of the increase in the Company's revenue due to the TCI/Liberty
Combination for the three months and nine months ended September 30, 1995,
respectively.  HSN believes that future levels of net sales 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 HSN programming.  Market penetration
represents the level of active purchasers within a market.

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

         The 1992 Cable Act contains "must carry" provisions which mandate that
cable companies within a broadcast television station's reach retransmit its
signal, subject to certain limitations on this obligation depending upon a
cable system's channel capacity.  The FCC adopted rules which extend such "must
carry" provisions to broadcast television stations with shop-at-home formats
effective October 6, 1993.  As a result of the mandatory carriage of stations
carrying home-shopping programming, HSN has experienced growth in cable
carriage.  However, the constitutionality of the "must carry" provisions of the
1992 Cable Act has been challenged in the courts.  Although the "must carry"
provisions were upheld as constitutional by a three-judge panel of the United
States District Court for the District of Columbia, the Supreme Court vacated
the District Court's decision because genuine issues of material fact remain
unresolved.  The "must-carry" statutory provisions and regulations remain in
effect pending the outcome of the ongoing proceedings before the District
Court.  During the past year, HSN has aggressively pursued and obtained long
term carriage commitments from a number of cable operators.  As a result of
HSN's success in obtaining such commitments, the exposure to loss of revenue
should the "must-carry" rules be declared unconstitutional has been largely
mitigated.

         Operating expenses increased 48% and 50%, and selling, general and
administrative expenses increased 43% and 50% for the three months and nine
months ended September 30, 1995, respectively.  Such increases are slightly
higher than the increases in revenue discussed above and are primarily
attributable to the TCI/Liberty Combination and certain acquisitions.  As a
percent of revenue, operating expenses and selling, general and administrative
expenses were relatively comparable over the 1995 and 1994 periods.

         Programming expenses represented $913 million or 23% of total
operating costs and expenses (excluding cost of sales) for the nine months
ended September 30, 1995.  The Company cannot determine whether and to what
extent increases in the cost of programming will affect its operating costs.
However, such programming costs have increased at a greater percentage than
increases in revenue of Regulated Services.

                                                                     (continued)


                                      I-51
<PAGE>   53
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(2)      Material changes in results of operations (continued):

         Cost of sales of HSN represented 68% and 67% of HSN revenue for the
three months and nine months ended September 30, 1995, respectively, as
compared to 65% for the comparable periods in 1994.  HSN expects that certain
of its costs will increase in the future.  Management believes that selling and
marketing expenses will be at higher levels in future periods as HSN maintains
its efforts to (i) increase the number of cable systems carrying HSC
programming, (ii) increase market penetration and (iii) develop new electronic
opportunities.  In addition, these expenses will increase if program carriage
increases.  Broadcast expenses are expected to increase in future periods.
"Must carry" legislation, as discussed above, is expected to result in
increases in certain operating expenses related to cable and broadcast carriage
in dollars.  However, as a percentage of sales, the effect is not currently
determinable.

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

         Due to the aforementioned program to upgrade and install optical fiber
in its cable systems, the Company's capital expenditures and depreciation
expense have increased.

         The Company incurred $11 million of programming and marketing costs
associated with the launch in February of 1994 of a new premium programming
service to its subscribers.  Although there can be no assurance, as the
Domestic Cable and Communications group increases its distribution of this
service to its subscribers, management of the Company believes that the
consolidated impact from such premium service should be positive.

         As a result of the IPO and the TYC Acquisition, the Company recognized
a nonrecurring gain amounting to $123 million (before deducting the related
deferred income tax expense of $50 million) during the three months ended
September 30, 1995.

         At September 30, 1995, the Company had an effective ownership interest
of approximately 36% in TeleWest Communications plc ("TeleWest Communications"),
a company that is currently operating and constructing cable television and
telephone systems in the United Kingdom ("UK").  TeleWest Communications, which
is accounted for under the equity method, had a carrying value at September 30,
1995 of $424 million and comprised $43 million of the Company's share of its
affiliates' losses during the nine months ended September 30, 1995.  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 $223
million at September 30, 1995 and accounted for $38 million of the Company's
share of its affiliates' losses in 1995.

         TeleWest Communications, 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 Communications' networks ultimately
will provide TeleWest Communications with a revenue base that will exceed its
expenses, (ii) that TeleWest Communications' present and future sources of
liquidity (including the net proceeds from TeleWest Communications' November
23, 1994 initial public offering and certain bank credit facilities) will be
sufficient to meet TeleWest Communications' liquidity requirements.  The
Company has no present intention to make significant loans to or investments in
TeleWest Communications.

         Subsequent to September 30, 1995, TeleWest Communications completed a 
merger (the "TeleWest Merger") with SBC (CableComms)(UK) the result of which 
was the formation of a new company. TeleWest plc ("New TeleWest"). Subsequent 
to the TeleWest Merger, the Company has an effective ownership interest in New 
TeleWest of approximately 27%. As a result of the TeleWest Merger, the Company 
currently estimates that it will recognize a nonrecurring gain of approximately 
$164 million (before deducting deferred income taxes of $57 million) during the 
fourth quarter of 1995. Such 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.

                                                                     (continued)


                                      I-52
<PAGE>   54
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(2)      Material changes in results of operations (continued):

         In connection with its investments in the above-described 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 ("Y."), 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 TCI International 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.

         The Company's net earnings (before preferred stock dividends) of $36 
million for the three months ended September 30, 1995 represents an increase of 
$11 million, as compared to the Company's net earnings of $25 million for the 
three months ended September 30, 1994.  Such increase is the net result of the 
recognition of the aforementioned nonrecurring gain recognized as a result of 
the IPO and the TYC Acquisition offset by higher interest expense, increased 
share of losses of affiliates and the decrease in share of earnings of Liberty, 
principally resulting from the gain recognized by Liberty ($183 million) upon 
the sale of its investment in American Movie Classics Company ("AMC") in 1994.

         The Company's net loss (before preferred stock dividends) of $92
million for the nine months ended September 30, 1995 represents a decrease of
$155 million, as compared to the Company's net earnings of $63 million for the
nine months ended September 30, 1994.  Such decrease is the net result of an
increase in interest expense due to higher debt levels, a decrease in share of
earnings of Liberty due to the gain recognized by Liberty upon the sale of its
investment in AMC, a decrease in operating income and an increase in share of
losses of affiliates offset by the recognition of the aforementioned
nonrecurring gain recognized as a result of the IPO and TYC Acquisition.

         In March of 1995, the Financial Accounting Standards Board 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.  The
Company has not yet determined the financial statement impact of the adoption
of Statement No. 121.


                                      I-53
<PAGE>   55

                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


                          Consolidated Balance Sheets
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                       September 30,    December 31,
                                                                            1995           1994       
                                                                       -------------    ------------
Assets                                                                      amounts in millions
------                                                                                            
<S>                                                                          <C>          <C>

Cash                                                                   $       --              6

Trade and other receivables, net                                              196            198

Investments in affiliates, accounted for
   under the equity method, and related
   receivables (note 3)                                                     1,024            341

Property and equipment, at cost:
   Land                                                                        69             68
   Distribution systems                                                     9,152          7,589
   Support equipment and buildings                                          1,069            921
                                                                       ----------      ---------
                                                                           10,290          8,578
   Less accumulated depreciation                                            3,583          2,999
                                                                       ----------      ---------    
                                                                            6,707          5,579
                                                                       ----------      ---------
                                             
Franchise costs                                                            13,015         10,994
   Less accumulated amortization                                            1,929          1,697
                                                                       ----------      ---------    
                                                                           11,086          9,297
                                                                       ----------      ---------  

Other assets, at cost, net of amortization                                    516            459
                                                                       ----------      ---------

                                                                       $   19,529         15,880
                                                                       ==========      =========
</TABLE>


                                                                     (continued)


                                      I-54
<PAGE>   56
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


                     Consolidated Balance Sheets, continued
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                             September 30,         December 31,
                                                                                 1995                 1994       
                                                                           ------------------   -----------------
Liabilities and Stockholder's Equity                                                amounts in millions
------------------------------------                                                              
<S>                                                                            <C>                     <C>
Accounts payable                                                               $    158                    74

Accrued interest                                                                    164                   179

Accrued programming expense                                                         203                   178

Other accrued expenses                                                              377                   425

Debt (note 5)                                                                    12,143                10,712

Deferred income taxes                                                             4,267                 3,299

Other liabilities                                                                    88                    96
                                                                               --------                ------
      Total liabilities                                                          17,400                14,963
                                                                               --------                ------
Minority interests in equity
   of consolidated subsidiaries                                                     216                   271

Stockholder's equity (note 6):
   Class A common stock, $1 par value.
      Authorized 904,000 shares;
      issued 811,655 shares                                                           1                     1
   Class B common stock, $1 par value.
      Authorized 96,000 shares;
      issued 94,447 shares                                                           --                    --
   Additional paid-in capital                                                     3,114                 2,842
   Unrealized holding gains for
      available-for-sale securities, net of taxes                                    19                     2
   Accumulated deficit                                                             (306)                 (256)
                                                                               --------                ------
                                                                                  2,828                 2,589
   Investment in Tele-Communications, Inc.
      ("TCI") (note 1)                                                           (1,146)               (1,096)
   Due to (from) TCI                                                                231                  (847)
                                                                               --------                ------
         Total stockholder's equity                                               1,913                   646
                                                                               --------                ------
Commitments and contingencies (note 7)

                                                                               $ 19,529                15,880
                                                                               ========                ======
</TABLE>


See accompanying notes to consolidated financial statements.


                                      I-55
<PAGE>   57
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


                     Consolidated Statements of Operations
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                   Three months                      Nine months
                                                                       ended                             ended
                                                                   September 30,                    September 30,  
                                                                 -----------------                -----------------
                                                               1995             1994             1995            1994  
                                                             --------         --------         --------        --------
                                                                                amounts in millions
<S>                                                        <C>                 <C>            <C>               <C>
Revenue (note 4)                                           $   1,310            1,072            3,741           3,213

Operating costs and expenses:
   Operating                                                     406              336            1,155             980
   Selling, general and administrative                           378              313            1,045             908
   Compensation relating to stock
      appreciation rights                                          2               12                7              --
   Adjustment to compensation relating
      to stock appreciation rights                                --               --               --              (6)
   Depreciation                                                  211              158              620             494
   Amortization                                                   91               72              254             217
                                                              ------           ------           ------          ------
                                                               1,088              891            3,081           2,593
                                                              ------           ------           ------          ------

         Operating income                                        222              181              660             620

Other income (expense):
   Interest expense                                             (249)            (203)            (713)           (566)
                                                                                    `
   Interest and dividend income                                    8                6               25              26
   Share of earnings of Liberty Media
      Corporation ("Liberty")                                     --              101               --             125
   Share of losses of other affiliates,
      net (note 3)                                               (10)             (29)             (34)            (59)
   Minority interests in losses
      of consolidated subsidiaries, net                           (1)               1                4               1
   Other, net                                                    (11)              (5)             (17)             (5)
                                                              ------           ------           ------          ------
                                                                (263)            (129)            (735)           (478)
                                                              ------           ------           ------          ------

      Earnings (loss) before income taxes                        (41)              52              (75)            142

Income tax benefit (expense)                                      15              (29)              25             (81)
                                                           ---------           ------         --------          ------
      Net earnings (loss) (note 4)                         $     (26)              23         $    (50)             61
                                                           =========           ======         ========          ======
</TABLE>


See accompanying notes to consolidated financial statements.


                                      I-56
<PAGE>   58
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                 Consolidated Statement of Stockholder's Equity

                      Nine months ended September 30, 1995
                                  (unaudited)

<TABLE>
<CAPTION>                                                                                                           
                                                                            
                                                                                           Unrealized                 
                                                                                            holding                   
                                                                                           gains for                  
                                                        Common stock        Additional     available-                 
                                                        ------------          paid-in       for-sale      Accumulated 
                                                    Class A     Class B       capital      securities       deficit   
                                                    -------     -------       -------      ----------       -------   
                                                                        amounts in millions     
<S>                                                 <C>            <C>        <C>               <C>          <C>     
Balance at January 1, 1995                          $   1          --         2,842              2             (256)  
                                                                                                                      
   Net loss                                            --          --            --             --              (50)  
   Effect of Reorganization (note 1)                   --          --            --             --               --   
   Effect of implementation of tax
      sharing agreement (note 1)                       --          --            --             --               --
   Retirement of TCI Class A common                                                                                   
      stock received in Reorganization                 --          --            38             --               --   
   TCI Class A common stock issued in                                                                                 
      acquisition of remaining minority                                                                               
      interest of Heritage                                                                                            
      Communications, Inc. contributed                                                                                
      to TCI Communications, Inc.                                                                                     
      ("TCIC") (note 4)                                --          --           234             --               --   
   Issuance of TCI Class A common                                                                                     
      stock and TCI preferred stock                                                                                   
      in acquisition (note 4)                          --          --            --             --               --   
   Turner Broadcasting System, Inc.                                                                                   
      stock received in acquisition                                                                                   
      transferred to Liberty Media                                                                                    
      Group                                            --          --            --             --               --   
   Proceeds from issuance of TCI                                                                                      
      Class A common stock to public                                                                                  
      utilized to repay TCIC                                                                                          
      indebtedness                                     --          --            --             --               --   
   Proceeds from issuance of TCI                                                                                      
      Class A common stock in                                                                                         
      private offering                                 --          --            --             --               --   
   Change in unrealized holding gains                                                                                 
      for available-for-sale securities                --          --            --             17               --   
   Change in due to TCI                                --          --            --             --               --   
                                                    -----      ------         -----           ----           ------   
                                                                                                                      
Balance at September 30, 1995                       $   1          --         3,114             19             (306)  
                                                    =====      ======         =====           ====           ======   

<CAPTION>
                                            
                                            
                                            
                                                    
                                                  Investment         Due            Total    
                                                      in          to (from)     stockholder's    
                                                      TCI            TCI           equity        
                                                   --------        --------       --------        
                                                             amounts in millions
<S>                                                <C>              <C>              <C>
Balance at January 1, 1995                         (1,096)          (847)             646
                                            
   Net loss                                            --             --              (50)
   Effect of Reorganization (note 1)                  (12)           (68)             (80)
   Effect of implementation of tax
      sharing agreement (note 1)                       --            (71)             (71)
   Retirement of TCI Class A common         
      stock received in Reorganization                (38)            --               --
   TCI Class A common stock issued in       
      acquisition of remaining minority     
      interest of Heritage                  
      Communications, Inc. contributed      
      to TCI Communications, Inc.           
      ("TCIC") (note 4)                                --             58              292
   Issuance of TCI Class A common           
      stock and TCI preferred stock         
      in acquisition (note 4)                          --          1,313            1,313
   Turner Broadcasting System, Inc.         
      stock received in acquisition         
      transferred to Liberty Media          
      Group                                            --             (7)              (7)
   Proceeds from issuance of TCI            
      Class A common stock to public        
      utilized to repay TCIC                
      indebtedness                                     --            401              401
   Proceeds from issuance of TCI            
      Class A common stock in               
      private offering                                 --             30               30
   Change in unrealized holding gains       
      for available-for-sale securities                --             --               17
   Change in due to TCI                                --           (578)            (578)
                                                  -------        -------          -------
Balance at September 30, 1995                      (1,146)           231            1,913
                                                  =======        =======          =======
                                            
</TABLE>

See accompanying notes to consolidated financial statements.


                                      I-57
<PAGE>   59
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


                    Consolidated Statements of Cash Flows
                                 (unaudited)
<TABLE>
<CAPTION>
                                                                                      Nine months ended
                                                                                        September 30,  
                                                                                      -----------------
                                                                                     1995           1994 
                                                                                    ------         ------
                                                                                      amounts in millions
                                                                                         (see note 2)
<S>                                                                            <C>                <C>
Cash flows from operating activities:                                      
   Net earnings (loss)                                                         $      (50)            61
   Adjustments to reconcile net earnings (loss) to                         
      net cash provided by operating activities:                           
         Depreciation and amortization                                                874            711
         Compensation relating to stock appreciation rights                             7             --
         Adjustment to compensation relating to stock                      
            appreciation rights                                                        --             (6)
         Share of earnings of Liberty                                                  --           (125)
         Share of losses of other affiliates                                           34             59
         Deferred income tax expense (benefit)                                        (32)            37
         Minority interests in losses                                                  (4)            (1)
         Noncash interest and dividend income                                          (7)            (6)
         Other noncash charges (credits)                                                3             (3)
         Changes in operating assets and liabilities,                      
            net of the effect of acquisitions:                             
               Change in receivables                                                   14             16
               Change in accrued interest                                             (20)            (6)
               Change in other accruals and payables                                   35             85
                                                                               ----------      --------- 
                 Net cash provided by operating activities                            854            822
                                                                               ----------      --------- 
Cash flows from investing activities:                                      
   Cash paid for acquisitions                                                         (40)          (260)
   Capital expended for property and equipment                                     (1,123)          (944)
   Proceeds from disposition of assets                                                 25             32
   Additional investments in and                                           
      loans to affiliates and others                                                 (736)          (312)
   Repayment of loans by affiliates and others                                          8            194
   Return of capital from affiliates                                                    1             22
   Other investing activities                                                         (63)          (118)
                                                                               ----------      --------- 
                 Net cash used in investing activities                             (1,928)        (1,386)
                                                                               ----------      --------- 
Cash flows from financing activities:                                      
   Borrowings of debt                                                               6,738          3,014
   Repayments of debt                                                              (5,523)        (2,448)
   Change in due from TCI                                                            (147)            --
   Preferred stock dividends of subsidiaries                                           --             (3)
                                                                               ----------      --------- 
                 Net cash provided by financing activities                          1,068            563
                                                                               ----------      --------- 
                 Net decrease in cash                                                  (6)            (1)
                                                                           
                    Cash at beginning of period                                         6              1
                                                                               ----------      ---------
                                                                           
                    Cash at end of period                                      $       --             --
                                                                               ==========      =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                     I-58
<PAGE>   60
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




                               September 30, 1995
                                  (unaudited)


(1)      General

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

         The accompanying interim consolidated financial statements are
         unaudited but, in the opinion of management, reflect all adjustments
         (consisting of normal recurring accruals) necessary for a fair
         presentation of the results for such periods.  The results of
         operations for any interim period are not necessarily indicative of
         results for the full year.  These consolidated financial statements
         should be read in conjunction with the consolidated financial
         statements and notes thereto contained in TCIC's Annual Report on Form
         10-K, as amended, for the year ended December 31, 1994.

         As of January 27, 1994, 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.  Old TCI shareholders received
         one share of TCI for each of their shares.  Liberty common
         shareholders received 0.975 of a share of TCI for each of their common
         shares.  Upon consummation of the TCI/Liberty Combination, certain
         subsidiaries of TCIC exchanged their shares of Old TCI Class A common
         stock for shares of TCI Class A common stock.  Additionally,
         subsidiaries of TCI exchanged their shares of Liberty Class A common
         stock for TCI Class A common stock.  Subsidiaries of TCI also
         exchanged their shares of various preferred stock issuances of Liberty
         for preferred stock of TCI.  Such preferred stock of TCI is reflected
         as investment in TCI at such entities' historical cost in the
         accompanying consolidated financial statements.

         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.

                                                                     (continued)





                                      I-59
<PAGE>   61
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         During the fourth quarter of 1994, TCI was reorganized (the
         "Reorganization") based upon four lines of business:  Domestic Cable
         and Communications; Programming ("Liberty Media Group"); International
         Cable and Programming ("TCI International"); and Technology/Venture
         Capital.  The assets of TCI not included in Liberty Media Group are
         referred to as TCI Group.  Upon Reorganization, certain of the assets
         of TCIC were transferred to the other operating units.  The most
         significant transfers were as follows:  (i) Turner Broadcasting
         System, Inc. ("TBS") and Discovery Communications, Inc. were
         transferred to the Programming unit and (ii) TCI/US WEST Cable
         Communications Group ("TeleWest UK") was transferred to TCI
         International.  In the first quarter of 1995, TCIC transferred certain
         additional assets to TCI International.

         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
         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.

         In connection with the Distribution, subsidiaries of TCIC exchanged all
         of the TCI Class A common stock and TCI preferred stock owned by such
         subsidiaries for 267,944 shares of a new series of TCI Series Preferred
         Stock designated Convertible Redeemable Participating Preferred Stock
         Series F (the "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 Common stock.

         A tax sharing agreement (the "Tax Sharing Agreement") among TCIC 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, TCIC will be responsible
         to TCI for its share of current consolidated income tax liabilities.
         TCI will be responsible to TCIC to the extent that TCIC'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 TCIC'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 TCIC. In connection with the
         implementation of the Tax Sharing Agreement, TCIC recorded an increase 
         to its deferred income tax liability and a decrease to its amounts due
         to TCI of $7.1 million.

         In March of 1995, the Financial Accounting Standards Board 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.  TCIC has not yet determined the financial statement
         impact of the adoption of Statement No. 121.

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

(2)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest and income taxes is as follows:
<TABLE>
<CAPTION>
                                                                                       Nine months ended
                                                                                         September 30,
                                                                                      1995           1994  
                                                                                     -------        -------
                                                                                       amounts in millions
                 <S>                                                                 <C>            <C>
                 Cash paid for interest                                              $     733           573 
                                                                                     =========      =========
                 Cash paid for income taxes                                          $       8             23   
                                                                                     =========      =========
</TABLE>
                                                                     (continued)

                                      I-60
<PAGE>   62
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                                        Nine months ended
                                                                                           September 30,  
                                                                                         -----------------
                                                                                       1995            1994 
                                                                                      ------           ------
                                                                                        amounts in millions
                 <S>                                                                <C>                  <C>
                 Cash paid for acquisitions:
                    Fair value of assets acquired                                   $    2,784            312
                    Liabilities assumed                                                   (266)           (21)
                    Deferred tax liability recorded in
                       acquisitions                                                       (920)            --
                    Minority interests in equity of
                       acquired entities                                                    47            (31)
                    Common stock of TCI issued in
                       acquisition contributed to TCIC                                    (234)            --
                    Increase in amounts due to TCI resulting
                       from common stock of TCI issued in
                       acquisition                                                      (1,371)            --
                                                                                        ------           ----

                          Cash paid for acquisitions                                $       40            260
                                                                                    ==========           ====

                 Unrealized gains, net of deferred taxes,
                    on available-for-sale securities as of
                    January 1, 1994                                                 $       --            304
                                                                                    ==========           ====

                 Change in unrealized gains, net of
                    deferred taxes, on available-for-sale
                    securities                                                      $       17            135
                                                                                    ==========           ====

                 TBS stock received in acquisition
                    transferred to Liberty Media Group                              $        7             --
                                                                                    ==========           ====

                 Net assets of TCIC transferred in the
                    Reorganization in exchange for TCI
                    common stock reflected as investment
                    in TCI                                                          $       12             --
                                                                                    ==========           ====

                 Net assets of TCIC transferred in the
                    Reorganization through due to TCI                               $       68             --
                                                                                    ==========           ====

                 Retirement of TCI Class A common stock
                    received in Reorganization                                      $       38             --
                                                                                    ==========           ====

                 Increase in deferred tax liability due to
                    implementation of tax sharing agreement                         $       71             --
                                                                                    ==========           ====

                 Common stock issued upon conversion
                    of redeemable preferred stock                                   $       --             18
                                                                                    ==========           ====

                 Effect of foreign currency translation
                    adjustment on book value of foreign
                    equity investments                                              $       --             24
                                                                                    ==========           ====

                 Exchange of TCIC common stock owned by
                    subsidiaries of TCIC for common stock of
                    TCI, classified as Investment in TCI                            $       --            333
                                                                                    ==========           ====
                                                                                                            
                 Exchange of Liberty common stock and
                    preferred stock owned by subsidiaries
                    of TCIC for TCI common stock and
                    preferred stock in TCI/Liberty Combination
                    classified as Investment in TCI                                 $       --            356
                                                                                    ==========           ====
</TABLE>
                                                                    (continued)


                                      I-61
<PAGE>   63
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




<TABLE>
<CAPTION>

                                                                                           September 30,  
                                                                                         -----------------
                                                                                        1995          1994 
                                                                                       ------         ------
                                                                                        amounts in millions
                 <S>                                                                  <C>                 <C>
                 Reversal of deferred tax liability recorded
                    in TCI/Liberty Combination                                        $     --             38
                                                                                      ========       ========

                 Common stock issued upon conversion
                    of notes                                                          $     --              3
                                                                                      ========       ========
                 Noncash exchange of equity investments
                    and consolidated subsidiaries for
                    consolidated subsidiary                                           $     --             38
                                                                                      ========       ========
                 Reclassification and change of common stock                          $     --            532
                                                                                      ========       ========
</TABLE>
3)       Investments in Other Affiliates
         -------------------------------

         Summarized unaudited results of operations for affiliates, other than
         Liberty, accounted for under the equity method are as follows:

<TABLE>
<CAPTION>
                                                                                            Nine months
                                                                                               ended
                  Combined Operations                                                      September 30,  
                  -------------------                                                    -----------------
                                                                                        1995           1994 
                                                                                       ------         ------
                                                                                        amounts in millions
                     <S>                                                               <C>               <C>
                     Revenue                                                            $  329            829
                     Operating expenses                                                   (292)          (830)
                     Depreciation and amortization                                         (61)          (130)
                                                                                      --------        -------- 

                        Operating loss                                                     (24)          (131)

                     Interest expense                                                      (22)           (46)
                     Other, net                                                              2           (158)
                                                                                      --------        -------- 
                        Net loss                                                       $   (44)          (335)
                                                                                      ========        ========
</TABLE>


         TCIC has various investments accounted for under the equity method.
         The most significant investment held by TCIC at September 30, 1995 was
         its investment in MajorCo, L.P. ("MajorCo"), a partnership formed by
         TCIC, Comcast Corporation ("Comcast"), Cox Communications, Inc.
         ("Cox") and Sprint Corporation ("Sprint") (carrying value of $675
         million).  See note 7.  Additionally, TCIC has an investment in
         TelePort Communications Group, Inc. and TCG Partners (collectively,
         "TCG") (carrying value of $142 million).

         Certain of TCIC's affiliates are general partnerships and any
         subsidiary of TCIC 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.

                                                                     (continued)





                                      I-62
<PAGE>   64
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements




(4)      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 with an
         aggregate initial liquidation value of $300 million.

         The acquisition of TeleCable was accounted for by the purchase method.
         Accordingly, TeleCable's results of operations have been consolidated
         with those of TCIC since its date of acquisition.  On a pro forma
         basis, TCIC's revenue would have been increased by $25 million and
         $219 million for the nine months ended September 30, 1995 and 1994,
         respectively, and net loss for the nine months ended September 30,
         1995 would have been decreased by $1 million and net earnings for the
         nine months ended September 30, 1994 would have been increased by $6
         million, had TeleCable been consolidated with TCIC 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 TCIC operated TeleCable since January 1, 1994.

         Comcast had the right, through December 31, 1994, to require TCI to
         purchase or cause to be purchased from Comcast all shares of Heritage
         Communications, Inc. ("Heritage") directly or indirectly owned by
         Comcast for either cash or assets or, at TCI's election shares of TCI
         common stock.  On October 24, 1994, TCI and Comcast entered into a
         purchase agreement whereby TCI would repurchase the entire 19.9%
         minority interest in Heritage owned by Comcast for an aggregate
         consideration of approximately $290 million, the majority of which was
         payable in shares of TCI Class A common stock.  Such acquisition was
         consummated in the first quarter of 1995.

(5)      Debt

         Debt is summarized as follows:
<TABLE>
<CAPTION>
                                                                          September 30,        December 31,
                                                                               1995                 1994       
                                                                          -------------        ------------
                                                                                  amounts in millions
          <S>                                                               <C>                      <C>
          Parent company debt:                            
             Senior notes                                                   $   6,704                 5,412
             Bank credit facilities                                                79                   869
             Commercial paper                                                   1,157                   445
             Other debt                                                             2                     2
                                                                            ---------              --------
                                                                                7,942                 6,728
                                                          
          Debt of subsidiaries:                           
             Bank credit facilities                                             3,167                 2,828
             Notes payable                                                        964                 1,024
             Convertible notes (a)                                                 45                    45
             Other debt                                                            25                    87
                                                                            ---------              --------
                                                                            $  12,143                10,712
                                                                            =========              ========
</TABLE>

                                                                     (continued)





                                      I-63
<PAGE>   65
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         (a)     These convertible notes, which are stated net of unamortized
                 discount of $186 million at September 30, 1995 and December
                 31, 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.  The notes are convertible, at the option
                 of the holders, into shares of Series A TCI Group common stock
                 and Series A Liberty Media Group common stock.

         TCIC's bank credit facilities and various other debt instruments
         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 TCIC's bank credit facilities,
         TCIC has pledged 100,524,364 shares of Series A TCI Group common stock
         held by a subsidiary of TCIC.

         In order to achieve the desired balance between variable and fixed
         rate indebtedness, TCIC 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 September 30, 1995 and (ii) variable
         interest rates (the "Variable Rate Agreements") on notional amounts of
         $2,520 million at September 30, 1995.  During the nine months ended
         September 30, 1995 and 1994, TCIC's net payments pursuant to the Fixed
         Rate Agreements were $1 million and $13 million, respectively; and
         TCIC's net receipts pursuant to the Variable Rate Agreements were less
         than $1 million and $33 million, respectively.

         TCIC's Fixed Rate Agreements and Variable Rate Agreements expire as
         follows:

<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
                                                                 March 2000                 5.8%-6.0%             675
                                                       $602      September 2000               5.1%                 75
                                                       ====                                                   -------

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


                                                                     (continued)


                                      I-64
<PAGE>   66
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         TCIC 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,
         TCIC 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 TCIC would pay or receive to terminate the
         agreements at September 30, 1995, taking into consideration current
         interest rates and assuming the current creditworthiness of the
         counterparties.  TCIC would pay an estimated $27 million at September
         30, 1995 to terminate the agreements.

         In order to diminish its exposure to extreme increases in variable
         interest rates, TCIC has also entered into various interest rate hedge
         agreements on notional amounts of $225 million which fix the maximum
         variable interest rates at 11%.  Such agreements expire during the
         fourth quarter of 1995.

         The fair value of TCIC's debt is estimated based on the quoted market
         prices for the same or similar issues or on the current rates offered
         to TCIC for debt of the same remaining maturities.  The fair value of
         debt, which has a carrying value of $12,143 million, was $12,507
         million at September 30, 1995.

         TCIC is required to maintain unused availability under bank credit
         facilities to the extent of outstanding commercial paper.  Also, TCIC
         pays 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.

(6)      Stockholder's Equity

         Common Stock

         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 Options

         TCIC had granted or assumed certain options and/or stock appreciation
         rights.  All such options and/or stock appreciation rights previously
         granted by TCIC were assumed by TCI in conjunction with the
         TCI/Liberty Combination.  Estimates of the compensation relating to
         the stock appreciation rights granted to employees of TCIC have been
         recorded through September 30, 1995, but are subject to future
         adjustment based upon market value and, ultimately, on the final
         determination of market value when the rights are exercised.


                                                                     (continued)


                                      I-65
<PAGE>   67
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




(7)      Commitments and Contingencies

         During 1994, TCIC, Comcast, Cox and Sprint formed WirelessCo to engage
         in the business of providing wireless communications services on a
         nationwide basis.  Through WirelessCo, of which TCIC owns a 30%
         interest, the partners have been participating in auctions ("PCS
         Auctions") of broadband personal communications services ("PCS")
         licenses being 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 is 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 60%
         interest) and WirelessCo (with a 40% 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 TCIC also formed a
         separate partnership ("PhillieCo"), in which TCIC 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.


                                                                     (continued)





                                      I-66
<PAGE>   68
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         In March of 1995, TCIC, Comcast, Cox and Sprint 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. ("NewTelco") to
         engage in the business of providing local wireline communications
         services to residences and businesses on a nationwide basis.  NewTelco
         will serve its customers primarily through the cable television
         facilities of cable television operators that affiliate with NewTelco
         in exchange for agreed-upon compensation.  The modification of
         existing regulations and laws governing the local telephony market
         will be necessary in order for NewTelco to provide its proposed
         services on a competitive basis in most states.  Subject to agreement
         upon a schedule for upgrading its cable television facilities in
         selected markets and certain other matters, TCIC has agreed to
         affiliate certain of its cable systems with NewTelco.  The capital
         required for the upgrade of TCIC's cable facilities for the provision
         of telephony services is expected to be substantial.

         TCIC, Cox and Comcast, together with Continental Cablevision, Inc.
         ("Continental"), own TCG, which is one of the largest competitive
         access providers in the United States in terms of route miles.  TCIC,
         Cox and Comcast have entered into an agreement with MajorCo and
         NewTelco to contribute their interests in TCG and its affiliated
         entities to NewTelco.  TCIC currently owns an approximate 29.9%
         interest in TCG.  The closing of this contribution is subject to the
         satisfaction of certain conditions, including the receipt of necessary
         regulatory and other consents and approvals.  In addition, TCIC,
         Comcast and Cox intend to negotiate with Continental, which owns a 20%
         interest in TCG, regarding their acquisition of Continental's TCG
         interest.  If such agreement cannot be reached, they will need to
         obtain Continental's consent to certain aspects of their agreement
         with Sprint.

         Subject to agreement upon an initial business plan, the MajorCo
         partners have committed to make cash capital contributions to MajorCo
         of $4.0 to $4.4 billion in the aggregate over a three- to five-year
         period.  The partners intend for MajorCo and its subsidiary
         partnerships to be the exclusive vehicles through which they engage in
         the wireless and wireline telephony service businesses, subject to
         certain exceptions.

         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, TCIC'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)





                                      I-67
<PAGE>   69
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         TCIC believes that it has complied in all material respects with the
         provisions of the 1992 Cable Act, including its rate setting
         provisions.  However, TCIC'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 the later of September 1, 1993 or one year prior to the
         certification date of the applicable franchise authority.

         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 TCIC.  If the proposed
         resolution is accepted by the FCC, TCIC will settle all pending
         complaints by a one-time credit to each subscriber in CPST regulated
         franchises of $1.90 (aggregating approximately $9 million). Such amount
         had previously been accrued by TCIC.  In addition, the FCC will find
         that the CPST rates in CPST regulated franchises on September 15, 1995
         comply with federal regulations.  TCIC 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, TCIC 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, TCIC does not admit any violation of, or any failure to
         conform to, the 1992 Cable Act or the rules promulgated thereunder.
         The comment period will end 30 days from October 30, 1995.

         TCIC has guaranteed notes payable and other obligations of affiliated
         and other companies with outstanding balances of approximately $192
         million at September 30, 1995.  Although there can be no assurance,
         management of TCIC 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 TCIC.

         TCIC has also committed to provide additional debt or equity funding
         to certain of its affiliates.  At September 30, 1995, such commitments
         aggregated $47 million.

         In connection with the launch of a premium service in 1994, TCIC
         became a direct obligor or guarantor of the payment of certain amounts
         that may be due pursuant to motion picture output, distribution, and
         license agreements.  As of September 30, 1995, the maximum amount of
         such obligations or guarantees was approximately $149 million.  The
         future obligations of TCIC with respect to these agreements is not
         currently determinable because such amount is dependent upon certain
         variable factors.

         TCIC and its sole shareholder, TCI, have 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.

                                                                     (continued)


                                      I-68
<PAGE>   70
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         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 $2.25 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 in
         exchange for a capital contribution of $350 million (which will be
         used to reduce Cable Sub's obligations under the Loan Facility).  At
         the time of such contribution, 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 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 TCI Group common stock ("Parent Common
         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 Parent Common 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 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.

                                                                     (continued)





                                      I-69
<PAGE>   71
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements




         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, the expiration or early termination of the waiting period
         under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
         receipt of necessary consents of the FCC and local cable franchise
         authorities, and the satisfaction or waiver of all of the conditions
         of the Exchange Offer.  Accordingly, no assurance can be given that
         the transaction will be consummated.

         TCIC 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.





                                      I-70
<PAGE>   72
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES




(1)      Material changes in results of operations:

                 As of January 27, 1994, Old TCI and Liberty entered into a
         definitive merger agreement to combine the two companies.  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.  Old TCI shareholders received one share
         of TCI for each of their shares.  Liberty common shareholders received
         0.975 of a share of TCI for each of their common shares.  Upon
         consummation of the TCI/Liberty Combination, certain subsidiaries of
         TCIC exchanged their shares of Old TCI Class A common stock for shares
         of TCI Class A common stock.  Additionally, subsidiaries of TCIC
         exchanged their shares of Liberty Class A common stock for TCI Class A
         common stock. Subsidiaries of TCIC also exchanged their shares of
         various preferred stock issuances of Liberty for preferred stock of
         TCI.  Such preferred stock of TCI is reflected as investment in TCI at
         such entities' historical cost in the accompanying consolidated
         financial statements.

                 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.

                 During the fourth quarter of 1994, TCI was reorganized based
         upon four lines of business:  Domestic Cable and Communications;
         Programming; TCI International; and Technology/Venture Capital.  Upon
         Reorganization, certain of the assets of TCIC were transferred to the
         other operating units.  The most significant transfers were as
         follows:  (i) TBS and Discovery Communications, Inc. were transferred
         to the Programming unit and (ii) TeleWest UK was transferred to TCI
         International.  In the first quarter of 1995, TCIC transferred certain
         additional assets to TCI International.

                 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, TCIC's Regulated Services are subject to
         the jurisdiction of local franchising authorities and the FCC.

                 Cable operators may justify rates higher than the benchmark
         rates established by the FCC through demonstrating higher costs based
         upon a cost-of-service showing.  Under this methodology, cable
         operators may be allowed to recover through the rates they charge for
         Regulated Services, their normal operating expenses plus an interim
         rate of return of 11.25% on the rate base, as defined, which rate may
         be subject to change in the future.


                                                                     (continued)





                                      I-71
<PAGE>   73
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in results of operations (continued):

                 The FCC rate regulations govern changes in the rates which
         cable operators may charge when adding or deleting a service from a
         regulated tier of service.  Such regulations allow an increase of
         either (i) the sum of a prescribed channel addition factor, the license
         fee expense and a 7.5% mark-up, or (ii) a flat fee increase per added
         channel and an aggregate limit on such increases with an additional
         license fee reserve.  For systems with more than one tier of cable
         service, the methodology described in (ii) is not available for the
         basic level of service.  The FCC's rate regulations also permit cable
         operators to "pass through" increases in programming costs and certain
         other external costs which 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 prevailing prices
         offered in the marketplace by the programmer to unaffiliated third
         parties or the fair market value of the programming. On September 22,
         1995, the FCC released its Thirteenth Order on Reconsideration of its
         rate regulations, which provides cable operators with an optional
         annual methodology for adjusting the rates for Regulated Services.

                 TCIC believes that it has complied in all material respects
         with the provisions of the 1992 Cable Act, including its rate setting
         provisions.  However, TCIC'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 the later of September 1, 1993 or one year prior to the
         certification date of the applicable franchise authority.

                 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 TCIC.  If the
         proposed resolution is accepted by the FCC, TCIC will settle all
         pending complaints by a one-time credit to each subscriber in CPST
         regulated franchises of $1.90 (aggregating approximately $9 million).
         Such amount had previously been accrued by TCIC.  In addition, the FCC
         will find that the CPST rates in CPST regulated franchises on
         September 15, 1995 comply with federal regulations.  TCIC 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, TCIC 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, TCIC does not admit any
         violation of, or any failure to conform to, the 1992 Cable Act or the
         rules promulgated thereunder.  The comment period will end 30 days
         from October 30, 1995.

                 Based on the foregoing, TCIC believes that the 1993 and 1994
         rate regulations have had and will continue to have a material adverse
         effect on its results of operations.
                                                                     (continued)


                                      I-72
<PAGE>   74
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in results of operations (continued):

                 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.  For example,
         Congress presently is considering telecommunications legislation
         which, if enacted into law, would substantially change existing law,
         including among other things, the rate regulation of cable television
         systems and the restrictions on telephone companies in the provision
         of cable television service.  The Senate approved the
         Telecommunications Competition and Deregulation Act of 1995 on June
         15, 1995.  The House approved the Communications Act of 1995 on August
         4, 1995.  The differences between the two bills must be reconciled in
         Conference Committee, and the resulting compromise must be voted on by
         the House and Senate and signed by the President.  Further material
         changes in the law and regulatory requirements must be anticipated and
         there can be no assurance that TCIC's business will not be affected
         adversely by future legislation, new regulation or deregulation.

                 TCIC has an investment in a direct broadcast satellite
         partnership, Primestar Partners ("Primestar").  During 1995, TCIC's
         revenue and expenses related to its Primestar operations have increased
         significantly as the number of TCIC's Primestar subscribers increased
         from approximately 100,000 subscribers at January 1, 1995 to
         approximately 370,000 subscribers at September 30, 1995.  During the
         nine months ended September 30, 1995, revenue increased from $13
         million to $118 million and operating, selling, general and
         administrative expenses increased from $10 million to $107 million, as
         compared to the nine months ended September 30, 1994.  Primestar incurs
         significant sales commission and installation expenses when customers
         initially subscribe.  Therefore, as long as Primestar continues to
         increase its subscriber base at such a rapid pace, management expects
         that operating costs and expenses will increase as well.

                 Revenue increased 22% and 16% for the three months and nine
         months ended September 30, 1995, respectively, as compared to the
         corresponding periods of 1994.  The three month increase is the result
         of the effect of certain acquisitions (9%), growth in TCIC's Primestar
         subscribers (5%), growth in subscriber levels within TCIC's cable
         television systems (4%), and various other individually insignificant
         increases (7%), net of a decrease in revenue due to the transfer of
         Netlink USA to the Programming unit in the Reorganization (3%).  The
         nine month increase is the result of the effect of certain acquisitions
         (9%), growth in subscriber levels within TCIC's cable television
         systems (4%), growth in TCIC's Primestar subscribers (3%), and various
         other individually insignificant increases (3%), net of a decrease in
         revenue due to the transfer of Netlink USA (3%).

                 Included in TCIC's total revenue is revenue generated by
         TCIC's common carrier microwave assets amounting to $20 million and
         $57 million for the three months and nine months ended September 30,
         1995, respectively compared to $14 million and $40 million for the
         three months and nine months ended September 30, 1994, respectively.

                 During the three months and nine months ended September 30,
         1995, advertising sales accounted for $62 million or 5% and $179
         million or 5%, respectively, of TCIC's total revenue.  Such amounts
         represent increases of 26% and 27% (including the effects of
         acquisitions) over the comparable periods in 1994.

                                                                     (continued)


                                      I-73
<PAGE>   75
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


(1)      Material changes in results of operations (continued):

                 Operating expenses increased 21% and 18% and selling, general
         and administrative expenses increased 21% and 15% for the three months
         and nine months ended September 30, 1995, respectively, as compared to
         the corresponding periods in 1994.  Such increases are consistent with
         the increases in revenue discussed above and are due primarily to
         acquisitions and increased Primestar expenses.  Additionally, TCIC
         incurred $11 million of programming and marketing costs associated
         with the launch in February 1994 of a new premium programming service
         to its subscribers.  TCIC cannot determine whether and to what extent
         increases in the cost of programming will affect its operating costs.
         Additionally, TCIC cannot predict how these increases on the cost of
         programming will affect its revenue, but intends to recover additional
         costs to the extent allowed by the aforementioned FCC rate
         regulations.

                 TCIC is upgrading and installing optical fiber in its cable
         systems at a rate such that in two years TCIC anticipates that it will
         be serving the majority of its customers with state-of-the-art fiber
         optic cable systems.  Due to such program, TCIC's capital expenditures
         and depreciation expense have increased.

                 TCIC had an investment in TeleWest UK in 1994, a company that
         is currently operating and constructing cable television and telephone
         systems in the UK.  TeleWest UK, which was accounted for under the
         equity method, comprised $32 million of TCIC's share of its
         affiliates' losses for the nine months ended September 30, 1994.  In
         addition, TCIC had other less significant 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 investments accounted for $18 million of
         TCIC's share of its affiliates' losses for the nine months ended
         September 30, 1994.  In connection with the Reorganization, TCIC's
         ownership in the aforementioned entities was transferred to TCI
         International effective December 1, 1994, and TCIC is no longer
         exposed to the risk associated with unfavorable fluctuations in
         foreign currency exchange rates nor will it continue to incur the
         aforementioned losses associated with such investments.

                 TCIC's net loss of $26 million and $50 million for the three
         months and nine months ended September 30, 1995, respectively,
         represent changes of $49 million and $111 million as compared to TCIC's
         net earnings of $23 million and $61 million for the corresponding
         periods of 1994.  Such decreases are principally the result of the
         effect of an increase in interest expense due to an increase in debt
         balances and a decrease in share of earnings of Liberty, net of the
         increase in operating income from the acquisition of TeleCable.

                 In March of 1995, the Financial Accounting Standards Board
         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.  TCIC has not yet determined the
         financial statement impact of the adoption of Statement No. 121.


                                      I-74
<PAGE>   76

                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)





                            Combined Balance Sheets
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                         September 30,          December 31,*
                                                                               1995                 1994        
                                                                         ----------------     -----------------
Assets                                                                            amounts in thousands
------                                                                                             
<S>                                                                        <C>                       <C>
Cash and cash equivalents                                                  $     17,585                 62,963

Trade and other receivables, net                                                108,530                 95,081

Inventories, net                                                                139,349                119,814

Prepaid expenses                                                                 18,078                 14,560

Prepaid program rights                                                           26,310                 11,257

Committed film inventory                                                         28,679                 22,097

Investments in affiliates, accounted for under the
   equity method, and related receivables (note 4)                              298,871                268,292

Investment in Turner Broadcasting System, Inc.
   ("TBS") (note 5)                                                             989,603                653,691

Other investments, at cost, and related
   receivables (note 6)                                                         199,892                158,846

Property and equipment, at cost:
   Land                                                                          21,871                 21,934
   Support equipment and buildings                                              178,168                150,165
   Computer and broadcast equipment                                              62,317                 60,525
                                                                           ------------             ----------
                                                                                262,356                232,624
   Less accumulated depreciation                                                 52,237                 38,313
                                                                           ------------             ----------
                                                                                210,119                194,311
                                                                           ------------             ----------

Excess cost over acquired net assets                                            573,440                549,770
   Less accumulated amortization                                                 35,659                 22,217
                                                                           ------------             ----------
                                                                                537,781                527,553
                                                                           ------------             ----------

Other intangibles                                                                75,905                 77,925
   Less accumulated amortization                                                 56,747                 54,936
                                                                           ------------             ----------
                                                                                 19,158                 22,989
                                                                           ------------             ----------

Cable distribution fees                                                         107,550                 71,871
   Less accumulated amortization                                                 12,573                  3,893
                                                                           ------------             ----------
                                                                                 94,977                 67,978
                                                                           ------------             ----------

Other assets, at cost, net of amortization                                       11,748                 12,279
                                                                           ------------             ----------

                                                                           $  2,700,680              2,231,711
                                                                           ============             ==========
</TABLE>


* Restated - see note 4.

                                                                     (continued)





                                      I-75
<PAGE>   77
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Balance Sheets, continued
                                  (unaudited)

<TABLE>
<CAPTION>                                                            
                                                                              September 30,          December 31,*
                                                                                  1995                  1994        
                                                                            ----------------       -----------------
Liabilities and Combined Equity                                                 amounts in thousands
-------------------------------                                                                     
<S>                                                                           <C>                    <C>
Accounts payable                                                              $   168,611               111,239

Accrued liabilities                                                               107,069               111,990

Film licenses payable                                                              36,400                26,719

Accrued litigation settlements                                                      8,050                27,450

Deferred revenue                                                                   47,277                46,845

Debt (note 7)                                                                     223,097                92,944

Deferred tax liability                                                            272,927               164,127

Other liabilities                                                                  10,269                 4,320
                                                                              -----------            ----------

         Total liabilities                                                        873,700               585,634
                                                                              -----------            ----------

Minority interests in equity of consolidated
      subsidiaries                                                                101,546               115,165

Combined equity (note 8):
   Combined equity                                                              1,368,361             1,371,736
   Due to Tele-Communications, Inc. ("TCI")                                         8,311                28,724
   Unrealized gains on available-for-sale
      securities, net of taxes                                                    348,762               130,452
                                                                               ----------            ----------
                                                                                1,725,434             1,530,912
                                                                              -----------            ----------

Commitments and contingencies (note 9)

                                                                              $ 2,700,680             2,231,711
                                                                              ===========            ==========
</TABLE>


* Restated - see note 4.

See accompanying notes to combined financial statements.


                                      I-76
<PAGE>   78
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                 Three months                   Nine months
                                                                    ended                         ended
                                                                 September 30,                   September 30,      
                                                              -------------------      ----------------------------
                                                              1995         1994 *          1995            1994   *
                                                              ----         ------      -----------     ------------
                                                                             amounts in thousands
<S>                                                            <C>           <C>            <C>             <C>
Revenue:
   Net sales from home shopping services                       $239,894      274,919          730,163         823,139
   Programming services:
      From TCI (note 8)                                          18,457        8,647           53,090          34,325
      From others                                               116,569       80,363          317,959         215,109
                                                               --------      -------      -----------       ---------
                                                                374,920      363,929        1,101,212       1,072,573
                                                               --------      -------      -----------       ---------

Cost of sales, operating costs and expenses:
   Cost of sales                                                162,311      180,203          490,402         534,621
   Operating                                                     98,411       86,322          297,859         229,295
   Selling, general and administrative                           85,394       77,923          277,630         239,075
   Charges by TCI (note 8)                                        5,795        2,875           18,343           8,232
   Compensation relating to stock
      appreciation rights (note 8)                                2,277        2,515            4,238              --
   Adjustment to compensation relating to stock
      appreciation rights (note 8)                                   --           --               --          (8,212)
   Restructuring charges                                          6,267           --            8,308              --
   Depreciation                                                   6,066        5,764           17,981          17,003
   Amortization                                                  13,852        7,002           34,110          16,752
                                                               --------      -------      -----------       ---------
                                                                380,373      362,604        1,148,871       1,036,766
                                                               --------      -------      -----------       ---------

         Operating income (loss)                                 (5,453)       1,325          (47,659)         35,807

Other income (expense):
   Interest expense                                              (4,149)      (2,273)         (10,045)         (7,628)
   Interest expense to TCI (note 8)                                (270)        (648)          (1,796)         (1,699)
   Dividend and interest income,
      primarily from affiliates                                   3,854        3,306            7,793          15,736
   Share of earnings (losses) of affiliates, net (note 4)       (17,142)      (1,730)         (15,607)         20,958
   Minority interests in losses (earnings) of
      consolidated subsidiaries                                   9,167       (2,015)          20,485          (7,815)
   Litigation settlements                                        (3,200)          --           (5,820)             --
   Gain on disposition of assets (note 4)                            --      183,321               --         181,088
   Loss on early extinguishment of debt                              --       (1,491)              --          (1,491)
   Other, net                                                     5,320          171            4,966          (2,135)
                                                               --------      -------      -----------       --------- 
                                                                 (6,420)     178,641              (24)         197,014
                                                               --------      -------      -----------       ---------

         Earnings (loss) before income taxes                    (11,873)     179,966          (47,683)        232,821

Income tax benefit (expense)                                      6,227      (73,398)          27,205        (100,073)
                                                               --------      -------      -----------       --------- 

         Net earnings (loss)                                   $ (5,646)     106,568          (20,478)        132,748
                                                               ========      =======      ===========       =========

Loss per common share (note 2)                                 $   (.02)                         (.02)               
                                                               ========                   ===========
</TABLE>

* Restated - see note 4.

See accompanying notes to combined financial statements.


                                      I-77
<PAGE>   79
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                          Combined Statement of Equity

                      Nine months ended September 30, 1995
                                  (unaudited)
<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, 1995*                          $1,371,736         28,724         130,452              1,530,912

   Net loss                                             (20,478)            --              --                (20,478)
   Sale of programming to TCI                           (40,358)       (12,732)             --                (53,090)
   Cost allocations from TCI                             14,480          3,863              --                 18,343
   Allocation of compensation
      relating to stock appreciation
      rights                                              6,765         (2,527)             --                  4,238
   Interest expense allocation from TCI                   1,786             10              --                  1,796
   Intergroup tax allocation                                556          5,142              --                  5,698
   Net cash transfers from (to) TCI                      14,754        (14,169)             --                    585
   Contribution to combined equity for
      acquisitions                                       19,120             --              --                 19,120
   Change in unrealized holding gains
      for available-for-sale securities                      --             --         218,310                218,310
                                                     ----------       --------         -------              ---------

Balance at September 30, 1995                        $1,368,361          8,311         348,762              1,725,434
                                                     ==========       ========         =======              =========
</TABLE>


* Restated - see note 4.

See accompanying notes to combined financial statements


                                      I-78
<PAGE>   80
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Statements of Cash Flows
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                       Nine months ended
                                                                                         September 30,      
                                                                                  ---------------------------
                                                                                    1995             1994  * 
                                                                                  ---------        ----------
                                                                                      amounts in thousands
                                                                                          (see note 3)
<S>                                                                                <C>                <C>
Cash flows from operating activities:
   Net earnings (loss)                                                             $  (20,478)         132,748
   Adjustments to reconcile net earnings (loss) to net
      cash provided by operating activities:
         Depreciation and amortization                                                 52,091           33,755
         Compensation relating to stock appreciation rights                             4,238               --
         Adjustment to compensation relating to stock
            appreciation rights                                                            --           (8,212)
         Share of losses (earnings) of affiliates, net                                 15,607          (20,958)
         Deferred income tax (benefit) expense                                        (28,793)          15,741
         Intergroup tax allocation                                                      5,698           76,401
         Noncash interest                                                               1,796            1,699
         Minority interests in earnings (losses)                                      (20,485)           7,815
         Litigation settlements                                                         3,200               --
         Payments of litigation settlements                                           (22,600)          (3,100)
         Gain on disposition of assets                                                     --         (181,088)
         Loss on early extinguishment of debt                                              --            1,491
         Noncash restructuring charges                                                  1,303               --
         Changes in operating assets and liabilities, net of
            acquisitions:
               Change in receivables                                                  (13,584)         (10,779)
               Change in inventories                                                  (25,044)           8,854
               Change in prepaid expenses                                             (18,558)          (8,091)
               Change in payables, accruals and deferred revenue                       73,613           40,752
                                                                                   ----------       ----------

                     Net cash provided by operating activities                          8,004           87,028
                                                                                   ----------       ----------

Cash flows from investing activities:
   Cash paid for acquisitions                                                         (36,446)              --
   Capital expended for property and equipment                                        (35,132)         (19,671)
   Additional investments in and loans to
      affiliates and others                                                           (70,381)         (15,259)
   Return of capital from affiliates                                                   11,820            7,360
   Collections on loans to affiliates and others                                        1,798          145,351
   Cash paid for cable distribution fees                                              (35,679)         (55,655)
   Proceeds from disposition of assets                                                    373          180,429
   Other investing activities                                                             195            2,675
                                                                                   ----------       ----------

                     Net cash provided (used) by investing activities                (163,452)         245,230
                                                                                   ----------       ----------

Cash flows from financing activities:
   Borrowings of debt                                                                 162,513           18,000
   Repayments of debt                                                                 (18,141)        (133,588)
   Change in cash transfers from TCI                                                  (34,409)        (247,142)
   Contributions by minority shareholders of subsidiaries                               1,264            4,295
   Distributions to minority shareholders of subsidiaries                              (1,157)            (400)
                                                                                   ----------       ---------- 

                     Net cash provided (used) by financing activities                 110,070         (358,835)
                                                                                   ----------       ---------- 
                        Net decrease in cash and
                           cash equivalents                                           (45,378)         (26,577)

                        Cash and cash equivalents at
                           beginning of period                                         62,963           82,544
                                                                                   ----------       ----------

                        Cash and cash equivalents at end of period                 $   17,585           55,967
                                                                                   ==========       ==========
</TABLE>

* Restated - see note 4.

See accompanying notes to combined financial statements.


                                      I-79
<PAGE>   81
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


                               September 30, 1995
                                  (unaudited)


(1)      Basis of Presentation

         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").  However, the 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 the Liberty Media Group (the "Distribution") .

         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 the Liberty
         Media Group.

                                                                     (continued)


                                      I-80
<PAGE>   82
                             "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)
                          Home Shopping Network, Inc. ("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)


                                      I-81
<PAGE>   83
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


                 Investments
                 -----------
                          BET Holdings, Inc.
                          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 ("Sports")
                          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.
                          Asian Television and Communications LLC
                          Mountain Mobile Television LLC
                          Cutthroat Productions, LP (formed in 1994)
                          The National Registry
                          PPVN Holding Company (acquired 1995)


                                                                     (continued)


                                      I-82
<PAGE>   84
                             "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 common stock, the Series A and Series B TCI
         Group common stock is intended to reflect the separate performance of
         the TCI Group, which is generally comprised of the subsidiaries and
         assets not attributed to the 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 the Liberty Media Group are
         referred to as the "TCI Group".  Intercompany balances resulting from
         transactions with such units are reflected as borrowings from or loans
         to TCI and, prior to the Distribution of the Liberty Group Stock, are
         included in combined equity in the accompanying combined financial
         statements.  See note 8.

         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 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
         the Liberty Media Group and the market price of shares of the 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 the Liberty Group Stock are payable at the sole
         discretion of the Board out of the lesser of (i) all assets of TCI
         legally available for dividends and (ii) the available dividend amount
         with respect to the 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)





                                      I-83
<PAGE>   85
                             "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.  Such
         convertible or exchangeable preferred stock and debt securities and
         options outstanding on the record date for the Distribution are
         referred to as "Pre- Distribution Convertible Securities."  The
         issuance of shares of Series A Liberty  Group Stock upon such
         conversion, exchange or exercise of Pre-Distribution 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 Pre-Distribution Convertible Securities
         consisting of options to purchase Series A Liberty Group Stock, the
         proceeds received upon the exercise of such options will be attributed
         to Liberty Media Group.  If Pre-Distribution Convertible Securities
         remain outstanding at the time of any disposition of all of the
         properties and assets of Liberty Media Group and TCI elects to
         distribute to holders of Liberty Group Stock their proportionate
         interest in the net proceeds of the disposition, the proportionate
         interest of the holders of Liberty Group Stock will be determined on a
         basis that allocates to TCI Group a portion of such net proceeds,
         sufficient to provide for the payment of the portion of the
         consideration payable by TCI on any post- Distribution conversion,
         exercise or exchange of Pre-Distribution Convertible Securities that
         becomes so payable in substitution for shares of Liberty Group Stock
         that would have been issuable upon such conversion, exercise or
         exchange if it had occurred prior to the record date for the
         disposition.  Likewise, if Pre- Distribution Convertible Securities
         remain outstanding at the time of any redemption for all the
         outstanding shares of Liberty Group Stock in exchange for stock of any
         one or more wholly-owned subsidiaries of TCI which hold all of the
         assets and liabilities of Liberty Media Group, the portion of the
         shares of such subsidiaries deliverable in redemption of the
         outstanding shares of Liberty Group Stock will be determined on a
         basis that allocates to TCI Group a portion of the shares of such
         subsidiaries, sufficient to provide for the payment of the portion of
         the consideration payable by TCI upon any post-redemption conversion,
         exercise or exchange of Pre-Distribution Convertible Securities that
         becomes so payable in substitution for shares of Liberty Group Stock
         that would have been issuable upon such conversion, exercise or
         exchange if it had occurred prior to such redemption.

                                                                    (continued)

                                                            
                                      I-84
<PAGE>   86
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


                                                                     (continued)


         The accompanying interim combined financial statements are unaudited
         but, in the opinion of management, reflect all adjustments (consisting
         of normal recurring accruals) necessary for a fair presentation of the
         results for such periods.  The results of operations for any interim
         period are not necessarily indicative of results for the full year.
         These combined financial statements should be read in conjunction with
         the audited combined financial statements of Liberty Media Group for
         the year ended December 31, 1994.  Certain amounts have been
         reclassified for comparability with the 1995 presentation.

         In March of 1995, the Financial Accounting Standards Board 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 has not yet determined the financial
         statement impact of the adoption of Statement No. 121.

(2)      Loss Per Common Share

         The loss per common share for the period from the Distribution to
         September 30, 1995 was computed by dividing net loss attributable to
         Liberty Media Group Series A and Series B common shareholders by the
         weighted average number of common shares outstanding of Liberty Media 
         Group Series A and Series B common 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.

(3)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $9,070,000 and $6,947,000 for the nine
         months ended September 30, 1995 and 1994, respectively.  Cash paid for
         income taxes during the nine months ended September 30, 1995 and 1994
         was $385,000 and $23,670,000, respectively.  In addition, Liberty
         Media Group received an income tax refund amounting to $11,006,000 and
         $227,000 during the nine months ended September 30, 1995 and 1994,
         respectively.


                                                                     (continued)


                                      I-85
<PAGE>   87
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                               Nine months ended
                                                                                 September 30,    
                                                                             ----------------------
                                                                              1995            1994 
                                                                             ------          ------
                                                                             amounts in thousands
<S>                                                                      <C>            <C>
Cash paid for acquisitions:                              
   Fair value of assets acquired                                         $  36,274          302,043
   Net liabilities assumed                                                    (934)         (21,350)
   Contribution to combined equity from                  
      TCI for acquisition                                                  (19,120)        (210,796)
   Deferred tax liability recorded                       
      in acquisition                                                           (11)         (69,897)
   Minority interests in equity of                       
      acquired entities                                                     20,237               --
                                                                         ---------     ------------
                                                                         $  36,446               --
                                                                         =========     ============
                                                         
Unrealized gains, net of deferred income taxes,          
   on available-for-sale securities as of                
   January 1, 1994                                                       $      --          335,177
                                                                         =========     ============
Change in unrealized gains, net of deferred              
   income taxes, on available-for-sale securities                        $ 218,310          138,106
                                                                         =========     ============
                                                         
Conversion of debt into additional minority              
   interest in consolidated subsidiary                                   $  14,215               --
                                                                         =========     ============
                                                         
Assets contributed for interest in                       
   limited liability company                                             $   2,633               --
                                                                         =========     ============

Deferred tax assets transferred from TCI                                 $   2,392               --
                                                                         =========     ============

Deferred tax asset transferred from TCI upon 
   implementation of tax sharing agreement (note 8)                      $   2,444               --
                                                                         =========     ============
</TABLE>


                                                                     (continued)


                                      I-86
<PAGE>   88
                             "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>
                                                                           Nine months ended
                                                                              September 30,      
                                                                    --------------------------------
                                                                       1995                  1994  
                                                                    ----------            ----------
                                                                           amounts in thousands
                 <S>                                                <C>                 <C>
                 Combined Operations
                 -------------------

                    Revenue                                         $   1,704,942          1,400,578
                    Operating expenses                                 (1,526,627)        (1,213,355)
                    Depreciation and amortization                         (80,562)           (51,346)
                                                                    -------------       ------------

                       Operating income                                    97,753            135,877

                    Interest expense                                      (68,647)            (8,180)
                    Other, net                                            (68,823)           (81,527)
                                                                    -------------       ------------

                       Net earnings (loss)                          $     (39,717)            46,170
                                                                    =============       ============
</TABLE>

         The following table reflects the carrying value of Liberty Media
         Group's investments, accounted for under the equity method, including
         related receivables:

<TABLE>
<CAPTION>
                                                                     September 30,         December 31,
                                                                         1995                  1994       
                                                                  -------------------   ------------------
                                                                             amounts in thousands
                  <S>                                               <C>                    <C>
                  Discovery                                         $     122,104            113,182
                  QVC                                                      80,950             72,100
                  Sunshine                                                  8,977              7,174
                  Sports                                                   30,183             30,163
                  HTS                                                       4,658              4,292
                  ICCP                                                     12,670             13,686
                  Australia                                                 2,135                 --
                  Court                                                     9,786                 --
                  Other                                                    27,408             27,695
                                                                    -------------          ---------
                                                                    $     298,871            268,292
                                                                    =============          =========
</TABLE>

                                                                     (continued)


                                      I-87
<PAGE>   89
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


        The following table reflects Liberty Media Group's share of earnings
        (losses) of each of the aforementioned affiliates:

<TABLE>
<CAPTION>                                  
                                                                       Nine months ended
                                                                          September 30,    
                                                                    ------------------------
                                                                     1995             1994  
                                                                    -------          -------
                                                                      amounts in thousands
                        <S>                                       <C>                 <C>
                        Discovery                                 $   8,922            5,320
                        QVC                                          (1,416)           6,185
                        Sunshine                                      1,803              759
                        Sports                                        5,020            5,104
                        HTS                                             366              621
                        ICCP                                         (1,016)              --
                        AMC                                              --            8,805
                        Australia                                    (8,367)              --
                        Court                                       (18,989)              --
                        Other                                        (1,930)          (5,836)
                                                                  ---------         -------- 
                                                                  $ (15,607)          20,958 
                                                                  =========         ========                    
</TABLE>


        In August 1995, Liberty Media Group made an additional investment in
        Court of $29 million.  This represented unpaid prior years' capital
        calls which had diluted Liberty Media Group's ownership of Court. Upon
        payment of the $29 million, Liberty Media Group restored its 1/3
        ownership interest in Court.  Due to the additional investment in
        Court, Liberty Media Group's share of losses of Court for the period,
        which amounts to $18,989,000, includes an adjustment to reflect the
        Company's share of previously unrecognized losses of Court aggregating
        $17,664,000.  These losses were not recognized in prior periods due to
        the fact that the Liberty Media Group's investment in Court had been
        reduced to zero.

        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 the TCI
        Group hold the remaining 50.1% partnership interest.

        The QE+ limited partnership agreement provides that the 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 $90 million
        of which is required 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+, the
        TCI Group and the Liberty Media Group will each have the option to fund
        such cash requirements in proportion to their respective ownership
        percentages.


                                                                     (continued)


                                      I-88
<PAGE>   90
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         The 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 are anticipated to aggregate approximately $30 million to
         $40 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 the TCI Group.  The affiliation
         agreement also requires the 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, the 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 September 30, 1995, the maximum amount of
         such obligations or guarantees was approximately $290 million.  The
         future obligations of the TCI Group with respect to these agreements
         is not currently determinable because such amount is dependent upon
         certain variable factors.

         Liberty Media Group also has the right to acquire an additional 10.1%
         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 the
         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 will earn a "Content Fee" for
         certain services provided to QE+ equal to 4% of the gross revenue of
         QE+, estimated to be $1.2 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 the
         TCI Group and the preferred return thereon.

         Liberty Media Group accounts for its interest in QE+ under the equity
         method of accounting.


                                                                     (continued)





                                      I-89
<PAGE>   91
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         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.

         Pursuant to an Agreement and Plan of Merger dated August 4, 1994, as
         amended (the "QVC Merger Agreement"), QVC Programming Holdings, Inc.
         (the "Purchaser"), a corporation which is jointly owned by Comcast and
         Liberty Media Group, commenced an offer (the "QVC Tender Offer") to
         purchase all outstanding shares of common stock and preferred stock of
         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.  Liberty Media Group owns an
         approximate 43% interest in the post-merger QVC.

         A credit facility entered into by the Purchaser is secured by
         substantially all of the assets of QVC.  In addition, Comcast and
         Liberty Media Group have pledged their shares of QVC pursuant to such
         credit facility.


                                                                     (continued)





                                      I-90
<PAGE>   92
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Upon consummation of the aforementioned QVC transactions, Liberty
         Media Group was deemed to exercise significant influence over QVC and,
         as such, has adopted the equity method of accounting.  As a result,
         Liberty Media Group restated its investment in QVC, its unrealized
         gain on available-for-sale securities, its deferred taxes and
         accumulated deficit by $208 million, $127 million, $86 million and $5
         million, respectively, at December 31, 1994.  The restatement resulted
         in an increase in Liberty Media Group's net earnings of $1,854,000 for
         the nine months ended September 30, 1994.

         On July 11, 1994, Rainbow Program Enterprise ("Rainbow") purchased
         49.9% of Liberty Media Group's 50% general partnership interest in AMC
         under the terms of a buy/sell provision contained in the AMC
         partnership agreement.  In connection with the purchase, Rainbow
         acquired an option to purchase the remaining 0.1% general partnership
         interest in AMC from Liberty Media Group for approximately $373,000.
         The proceeds of $180,429,000 included the economic benefit of Liberty
         Media Group's consulting agreement with AMC assigned by Liberty Media
         Group to Cablevision Systems Corporation, the parent company of
         Rainbow.  Liberty Media Group recognized a gain of approximately $183
         million on the sale of its interest in AMC. On September 25, 1995,
         Rainbow exercised its option and purchased Liberty Media Group's
         remaining general partnership interest in AMC for $373,000 plus
         interest.

         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 has voting rights and is convertible into 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 September 30, 1995, Liberty Media Group's investment in TBS
         preferred stock, carried at cost, had an aggregate market value of
         $980 million  (which exceeded cost by $802 million), based upon the
         market value of the common stock into which it is convertible.

         As security for borrowings under one of Liberty Media Group's credit
         facilities, Liberty Media Group pledged a portion of its TBS common
         stock (with a quoted market value of approximately $804 million at
         September 30, 1995).  See note 7.

                                                                     (continued)


                                      I-91
<PAGE>   93
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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 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 for
         voting preferred stock ("Time Warner Preferred 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 5 million shares of common stock to Liberty Media 
         Group in exchange for a 6-year option to purchase Southern. Time Warner
         has also agreed to issue shares of Time Warner Common Stock to Liberty
         Media Group with 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 Preferred 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. It is expected to be completed in 1996.

(6)      Other Investments

         Other investments, accounted for under the cost method, and related
         receivables, are summarized as follows:

<TABLE>
<CAPTION>
                                                                              September 30,          December 31,
                                                                                  1995                   1994      
                                                                            ----------------      ----------------
                                                                                      amounts in thousands
          <S>                                                                   <C>                    <C>
          Marketable equity securities                                          $ 123,689                87,276

          Convertible debt, accrued interest
             and preferred stock investments                                       46,993                46,109

          Other investments and related receivables                                29,210                25,461
                                                                                ---------             ---------

                                                                                $ 199,892               158,846
                                                                                =========             =========
</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 $291 million and $225
         million at September 30, 1995 and December 31, 1994, respectively,
         including amounts previously disclosed for marketable equity
         securities.  No independent external appraisals were conducted for
         those assets.
                                                                     (continued)


                                      I-92
<PAGE>   94
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(7)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                           September 30,         December 31,
                                                                               1995                  1994       
                                                                        -------------------   -------------------
                                                                                 amounts in thousands

          <S>                                                              <C>                           <C>
          Convertible note payable (a)                                     $           --                14,141
          Notes payable to bank (b)                                               115,000                25,000
          Note payable to bank (c)                                                 32,500                18,000
          Note payable to bank (d)                                                 31,800                16,400
          Note payable to partnership (e)                                           7,776                11,253
          Bank credit facility (f)                                                 33,000                    --
          Other debt, with varying rates and
             maturities                                                             3,021                 8,150
                                                                           --------------             ---------
                                                                           $      223,097                92,944
                                                                           ==============             =========

</TABLE>
                                                  


         (a)     Payable by ARC

                 These notes were converted in January 1995 into partnership 
                 units held by minority holders.

         (b)     Payable by HSN

                 This revolving credit facility, as amended, provides for
                 borrowings up to $150 million.  The facility was further
                 amended on September 28, 1995 with respect to certain covenants
                 and borrowing limits.  This revolving credit facility 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 (8.6% at September 30,
                 1995) is tied to the London Interbank Offered Rate("LIBOR")
                 plus an applicable margin.

                                                                     (continued)


                                      I-93
<PAGE>   95
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         (c)     Payable by ARC Holding, Ltd.

                 In 1994, ARC Holding, Ltd., a wholly-owned subsidiary of ARC,
                 entered into a credit agreement, as amended, with a group of
                 banks providing for up to $45 million of borrowings.
                 Borrowings bear interest (6.7% at September 30, 1995) at the
                 agent bank's base rate, LIBOR, a CD 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).  Beginning June 30, 1995 and quarterly
                 thereafter through December 31, 2000, the commitment amount
                 will be reduced in equal quarterly amounts to achieve annual
                 reductions in the credit facility ranging from a 10% reduction
                 in 1995 to the final 17% in 2000.  As of September 30, 1995,
                 the outstanding commitment was reduced to $42 million.
                 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.

         (d)     Payable by Prime Sports-West

                 Prime Sports-West had a credit agreement (the "Agreement")
                 with a bank that provided for borrowings in the form of
                 revolving term loans aggregating up to a maximum commitment of
                 $24 million at December 31, 1994.  On June 1, 1995, the
                 Agreement was amended to allow for borrowings 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 (6.9% at September 30, 1995).
                 Borrowings under the credit 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.

         (e)     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
                 accrues interest at 10% per annum and is guaranteed by Encore.

                                                                     (continued)


                                      I-94
<PAGE>   96
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         (f)     Payable by Communications Capital Corp.

                 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 (8.75% at September
                 30, 1995).  As security for this indebtedness, Liberty Media
                 Group has pledged substantially all of its TBS Class B common
                 stock.

         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 September 30, 1995.

(8)      Combined Equity

         Stock Options and Stock Appreciation Right

         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.

                                                                     (continued)


                                      I-95
<PAGE>   97
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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 nine months
         ended September 30, 1995, Liberty Media Group was allocated $2,300,000
         in corporate general and administrative costs by TCI.

         Prior to the determination by 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 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.  Charges by TCI for such arrangements for the
         nine months ended September 30, 1995 and 1994, aggregated
         $11,489,000 and $4,420,000, respectively.

         Certain subsidiaries attributed to Liberty Media Group 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.

         HSN pays a commission to TCI for merchandise sales to customers who
         are subscribers of TCI's cable systems.  Aggregate commissions and
         charges by TCI were approximately $4,554,000 and $3,812,000 for the
         nine months ended September 30, 1995 and 1994, respectively.

                                                                     (continued)


                                      I-96
<PAGE>   98
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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
         of the Liberty Group Stock, 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 of the Liberty Group Stock, 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 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 are attributed entirely to TCI.  After the
         Distribution, all financial impacts of issuances of additional shares
         of Series A TCI Group common stock and Series B TCI Group common 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, Series A TCI Group common stock and Series B TCI
         Group common stock will be attributed entirely to TCI, 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 of the Liberty Group Stock, 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)


                                      I-97
<PAGE>   99
                             "LIBERTY MEDIA 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 Liberty
         Media Group and certain subsidiaries of TCI was implemented effective
         July 1, 1995. The Tax Sharing Agreement formalizes certain of the
         elements of a pre-exisiting 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
         $2,444,000.

(9)      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 September 30, 1995, the aggregate
         minimum liability under certain of the license agreements is
         approximately $164 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 leases business offices, has entered into
         transponder lease agreements, and uses certain equipment under lease
         arrangements.  In addition, as of September 30, 1995, Liberty Media
         Group has long-term sports program rights contracts which require
         payments aggregating approximately $469 million.

(10)     Subsequent Events

         As of October 30, 1995, Liberty Media Group entered into a binding
         agreement in principle with The News Corporation Limited ("News Corp.")
         pursuant to which Liberty Media Group and News Corp. will form a joint
         venture (the "US Venture") to own and operate sports programming,
         regional sports networks and the fx cable network ("fx"), which will be
         transformed into a nationally distributed general entertainment and
         sports network. Liberty Media Group will contribute to the US Venture
         its interests in regional and national sports networks. News Corp. will
         contribute fx and $350 million in cash. Liberty Media Group will own a
         50.01% interest in the US Venture with News Corp. owning the remaining
         49.99% interest.

         Also as of October 30, 1995, Liberty Media Group and
         Tele-Communications International, Inc. ("TINTA"), 82% of the stock of
         which is held by TCI, entered into a binding agreement in principle
         with News Corp. to form a joint venture (the "International Venture")
         to conduct a sports programming business on a world-wide basis,
         excluding the United States, the United Kingdom, Japan and New Zealand.
         News Corp. will own a 50% interest in the International Venture with
         the remaining 50% owned by a 50/50 partnership between Liberty Media
         Group and TINTA (the "LMG/TINTA Partnership"). Liberty Media Group's
         initial contribution will include its interests in Latin American and
         Australian sports programming services and its rights under various
         television sports programming agreements with teams, leagues and event
         sponsors. TINTA's initial contribution will include its interests in an
         Argentine sports programming and production business. News Corp.'s
         initial contribution will include Star Sports, which is a sports
         programming service currently distributed by satellite in Asia, and
         News Corp.'s rights under various television sports programming
         agreements. Liberty Media Group may be required to make cash
         contributions in connection with the formation and operation of the
         International Venture.

         The US Venture will be managed by a board of directors comprised
         equally of members from News Corp. and Liberty Media Group. The
         International Venture will be governed by a board of directors with
         equal representation of News Corp. and the LMG/TINTA Partnership.

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

                                      I-98
<PAGE>   100
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


Management's Discussion and Analysis of
   Financial Condition and Results of Operations

(1)      Material Changes in Financial Condition:

         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 the Liberty Media Group.  However, the 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 the Liberty Media Group.

         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 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 the 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 were consummated):

                 Subsidiaries
                 ------------

                          Encore
                          TV Network Corporation ("tv!") (formed in 1994)
                          HSN
                          Netlink USA ("Netlink") (owned by TCIC prior to the
                            TCI/Liberty Combination)
                          Southern
                          Liberty Sports, Inc.
                          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
                          Prime Sports-West (formerly Prime Ticket Networks, 
                          L.P.) (acquired in 1994) Encore International, Inc.
                          Liberty Productions, Inc. (formed in 1995) Prime
                          Sports Network - Northwest
                            
                                                                     (continued)


                                      I-99
<PAGE>   101
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(1)      Material changes in financial condition (continued):
                 Investments
                 -----------
                          BET Holdings, Inc.
                          Video Jukebox Network, Inc.
                          Court
                          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)
                          ICCP (acquired in 1994)
                          QE+ (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
                          HTS
                          Sports
                          SportsChannel Pacific Associates
                          SportsChannel Prism Associates
                          Prime Sports Network - Upper Midwest
                          SportSouth
                          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)
                          Australia (launched in 1995)
                          Silver King Communications, Inc.
                          Asian Television and Communications LLC
                          Mountain Mobile Television LLC
                          Cutthroat Productions, LP (formed in 1994)
                          The National Registry 
                          PPVN Holding Company (acquired 1995)
                         
                                                                     (continued)


                                     I-100
<PAGE>   102
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(1)      Material changes in financial condition (continued):

         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 common stock, the Series A and Series B TCI Group common stock is
intended to reflect the separate performance of the TCI Group, which is
generally comprised of the subsidiaries and assets not attributed to the
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 the
Liberty Media Group is referred to as the "TCI Group".  Intercompany balances
resulting from transactions with such units are reflected as borrowings from or
loans to TCI and, prior to the Distribution of the Liberty Group Stock, are
included in combined equity in the accompanying combined financial statements.
See note 8.

         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
will be 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 the 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 the Liberty Media
Group and the market price of shares of the 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 the Liberty Group Stock will be payable at the sole
discretion of the Board out of the lesser of (i) all assets of TCI legally
available for dividends and (ii) the available dividend amount with respect to
the 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)


                                     I-101
<PAGE>   103
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)





(1)      Material changes in financial condition (continued):

         After the Distribution, existing preferred stock and debt securities
of TCI that are 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.  Such
convertible or exchangeable preferred stock and debt securities and options
outstanding on the record date for the Distribution are referred to as
"Pre-Distribution Convertible Securities."  The issuance of shares of Series A
Liberty Group Stock upon such conversion, exchange or exercise of
Pre-Distribution 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 Pre-Distribution Convertible
Securities consisting of options to purchase Series A Liberty Group Stock, the
proceeds received upon the exercise of such options will be attributed to
Liberty Media Group.  If Pre-Distribution Convertible Securities remain
outstanding at the time of any disposition of all of the properties and assets
of Liberty Media Group and TCI elects to distribute to holders of Liberty Group
Stock their proportionate interest in the net proceeds of the disposition, the
proportionate interest of the holders of Liberty Group Stock will be determined
on a basis that allocates to the TCI Group a portion of such net proceeds,
sufficient to provide for the payment of the portion of the consideration
payable by TCI on any post-Distribution conversion, exercise or exchange of
Pre-Distribution Convertible Securities that becomes so payable in substitution
for shares of Liberty Group Stock that would have been issuable upon such
conversion, exercise or exchange if it had occurred prior to the record date
for the disposition.  Likewise, if Pre-Distribution Convertible Securities
remain outstanding at the time of any redemption for all the outstanding shares
of Liberty Group Stock in exchange for stock of any one or more wholly-owned
subsidiaries of TCI which hold all of the assets and liabilities of the Liberty
Media Group, the portion of the shares of such subsidiaries deliverable in
redemption of the outstanding shares of Liberty Group Stock will be determined
on a basis that allocates to the TCI Group a portion of the shares of such
subsidiaries, sufficient to provide for the payment of the portion of the
consideration payable by TCI upon any post-redemption conversion, exercise or
exchange of Pre-Distribution Convertible Securities that becomes so payable in
substitution for shares of Liberty Group Stock that would have been issuable
upon such conversion, exercise or exchange if it had occurred prior to such
redemption.


                                                                     (continued)





                                     I-102
<PAGE>   104
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(1)      Material changes in financial condition (continued):

         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 of the Liberty Group Stock, 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 of the Liberty
Group Stock, 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 are attributed entirely to TCI.  After the Distribution, all
financial impacts of issuances of additional shares of Series A TCI Group
common stock and Series B TCI Group common 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, Series A TCI Group common stock and Series B TCI Group common
stock will be attributed entirely to TCI, 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 of the Liberty Group Stock, 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)


                                     I-103
<PAGE>   105
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(1)      Material changes in financial condition (continued):

         Pursuant to the QVC Merger Agreement, the Purchaser commenced the QVC
Tender Offer.  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
into 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.  Liberty Media Group owns an approximate 43% interest of the post-
merger QVC.  A credit facility entered into by the Purchaser is secured by
substantially all of the assets of QVC.  In addition, Comcast and Liberty Media
Group have pledged their shares of QVC pursuant to such credit facility.

         Upon consummation of the aforementioned QVC transactions, Liberty Media
Group is deemed to exercise significant influence over QVC and, as such, has
adopted the equity method of accounting.  The December 31, 1994 combined balance
sheet included herein has been restated to reflect the equity method of
accounting in the first quarter of 1995.

         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 the Liberty Media Group exceed cash provided by the
Liberty Media Group, TCI may transfer funds to the Liberty Media Group.
Conversely, to the extent cash provided by the Liberty Media Group exceeds cash
needs of the Liberty Media Group, the Liberty Media Group may transfer funds to
TCI.

         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.

         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 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 for Time Warner 
preferred stock economically equivalent to the common stock and placed in a
voting trust with Time Warner Chairman, Gerald M. Levin, as the trustee.

                                                                     (continued)


                                     I-104
<PAGE>   106
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(1)      Material changes in financial condition (continued):

         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 5
million shares of common stock to Liberty Media Group in exchange for a 6-year
option to purchase Southern.  Time Warner has also agreed to issue shares of
Time Warner Common Stock to Liberty Media Group with a market value of $160
million at such time as it 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 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.
It is expected to be completed in 1996.

         Liberty Media Group is currently the sole satellite carrier of WTBS, a
24-hour independent UHF television station originated by TBS 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. Other independent television stations are transmitted by other
carriers. Liberty Media Group's satellite carrier of WTBS, 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 Revision Act of
1976, as amended and any applicable requirements of the Communications Act of
1934, as amended, or, if the carrier serves home satellite dish owners, so long
as the carrier meets the requirements of the Satellite Home Viewer Act of 1988.
Further, Southern has no control over the programming on such station.  TBS
produces and distributes other cable programming services, 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 revenue 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.

         Liberty Media Group has a revolving line of credit which provides for
borrowings of up to $325 million, $33 million of which was outstanding at
September 30, 1995.  Several subsidiaries of Liberty Media Group have credit
facilities.  HSN has a revolving credit facility for $150 million, $115 million
of which was outstanding on September 30, 1995.  ARC Holding, Ltd. ("ARCH"), a
wholly-owned subsidiary of ARC, has a $42 million revolving credit facility
with a group of banks, $32.5 million of which was outstanding at September 30,
1995.  Another subsidiary, Prime Sports- West, has a $65 million credit
facility with a bank, $32 million of which was outstanding at September 30,
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.

         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.

         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.  As of September 30, 1995, Liberty
Media Group's future minimum obligation related to certain film licensing
agreements was $164 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 as of September 30, 1995 was $469 million.  It is expected 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 and its existing credit
facilities.

                                                                     (continued)


                                     I-105
<PAGE>   107
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)





(1)      Material changes in financial condition (continued):

         The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") provides for comprehensive federal and local regulation
of the cable television industry, including Liberty Media Group's programming
operations.  The FCC has adopted extensive rate regulations governing cable
systems not subject to "effective competition".  The FCC has established
standards and procedures governing regulation of rates for basic cable service
and equipment to be implemented by state and local cable franchising
authorities and for the FCC's review of the "reasonableness" of rates for
additional tiers of cable service upon complaint from a franchising authority
or a cable subscriber.  The FCC also has adopted interim "cost-of-service"
rules governing attempts by cable operators to justify higher than benchmark
rates based on unusually high costs.  Separately offered services, such as pay
television and pay- per-view services, are not currently subject to rate
regulation although packages or collective offerings of such services may be
subject to rate regulation.   The FCC also has identified and established
regulations for New Product Tiers, which are tiers of services not subject to
rate regulation.

         The FCC's rate regulations also govern changes in the rates which
cable operators may charge when adding or deleting a service from a regulated
tier of service.  The FCC substantially revised its rules for adding and
deleting services in November 1994 and has provided an alternative methodology
for adding services to cable programming service tiers which includes a flat
fee increase per added channel and an aggregate limit on such increases with an
additional license fee reserve.  The FCC's rate regulations also permit cable
operators to "pass through" increases in programming costs and certain other
external costs which 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 prevailing prices offered in the marketplace by the programmer to
unaffiliated third parties or the fair market value of the programming.

         Liberty Media Group believes that the FCC's comprehensive system of
rate regulation, including regulation of the changes in rates when programming
services are added or deleted from service tiers, has had and will continue to
have an adverse effect on the programming services in which Liberty Media Group
has an ownership interest by limiting the carriage of such services and/or the
ability and willingness of cable operators to pay the rights fees for such
carriage.

                                                                     (continued)





                                     I-106
<PAGE>   108
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)





(1)      Material changes in financial condition (continued):

         The FCC has adopted rules providing for mandatory carriage by cable
systems after June 2, 1993 of all local full-power commercial television
broadcast signals (up to one-third of all channels), including the signals of
stations carrying home-shopping programming after October 6, 1993, and between
one and three non-commercial television broadcast signals, depending upon the
cable system's channel capacity.  Alternatively, after October 6, 1993,
commercial broadcasters have the right to deny such carriage unless they grant
retransmission consent.  Although the "must carry" provisions were upheld as
constitutional by a three-judge panel of the United States District Court for
the District of Columbia, the Supreme Court vacated the District Court's
decision because genuine issues of material fact remain unresolved.  The "must
carry" statutory provisions and regulations remain in effect pending the
outcome of ongoing judicial proceedings before the District Court.  Liberty
Media Group believes that, by requiring such carriage of broadcast signals,
these regulations may adversely affect the ability of Liberty Media Group's
programming services to obtain carriage on cable systems with limited channel
capacity.  To the extent that carriage is thereby limited, the subscriber and
advertising revenues available to Liberty Media Group's programming services
also will be limited.  However, such regulations have resulted in expanded
cable distribution of HSN, which is carried by a number of full- power
commercial broadcast television stations.

         The FCC has adopted regulations limiting carriage by a cable operator
of national programming services in which that operator holds an attributable
interest to 40 percent of the first 75 activated channels on each of the
operator's systems.   The rules provide for the use of two additional channels
or a 45 percent 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 cable
systems of TCI and its affiliates.

         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 with cable operators (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 multichannel multi-point
distribution systems and direct broadcast satellite services on terms and
conditions that do not unfairly discriminate among such technologies.

         In response to numerous petitions for review of the FCC's rate
regulations, the United States Court of Appeals for the District of Columbia
upheld the material provisions of those regulations in Time Warner
Entertainment Co., L.P.  v. F.C.C. on June 6, 1995.  The Court upheld the
constitutionality of the FCC's regulations and generally ruled that they were
authorized by the 1992 Cable Act.

                                                                     (continued)





                                     I-107
<PAGE>   109
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(1)      Material changes in financial condition (continued):

         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.  For example, Congress presently is considering
telecommunications legislation which, if enacted into law, would substantially
change existing law, including among other things, the rate regulation of cable
television systems and the restrictions on telephone companies in the provision
of cable television service.  The Senate approved the Telecommunications
Competition and Deregulation Act of 1995 on June 15, 1995.  The House approved
the Communications Act of 1995 on August 4, 1995.  The differences between the
two bills must be reconciled in Conference Committee, and the resulting
compromise must be voted on by the House and Senate and signed by the
President.  Further material changes in the law and regulatory requirements
must be anticipated and there can be no assurance that the Liberty Media
Group's business will not be affected adversely by future legislation, new
regulation or deregulation.

         A number of petitions for reconsideration of various aspects of the
regulations implementing the 1992 Cable Act remain pending before the FCC.
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.  Liberty Media Group is uncertain how the courts and/or the FCC
ultimately will rule or whether such rulings will materially change any
existing rules or statutory requirements.

         Liberty Media Group's subsidiaries and 50% owned affiliates lease
satellite transponders on full time leases and shared leases on a "protected" or
"transponder protected" basis, and full time "unprotected" leases on 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 lessors' "protected" transponders 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.

         Although the Liberty Media Group believes it has 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.

                                                                     (continued)


                                     I-108
<PAGE>   110
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(1)      Material changes in financial condition (continued):

         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 for
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 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.



                                     I-109
<PAGE>   111
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(2)      Material Changes in Results 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 the Liberty
Media Group.  Corporate expenses have not been reflected in the following table
but are included in the following discussion.  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>
                                                                  Nine months ended September 30,     
                                                     ---------------------------------------------------------
                                                                1995                         1994           
                                                     -------------------------     ---------------------------
                                                                    dollar amounts in thousands
<S>                                                     <C>           <C>            <C>            <C>
Entertainment and Information
-----------------------------
Programming Services
--------------------

   Revenue                                              100%          $ 371,049      100%           $ 249,434
   Operating, selling, general &
      administrative                                     91%            335,828       89%             222,836
   Depreciation and amortization                          5%             19,574        4%              11,058
                                                      -----           ---------   ------            ---------

         Operating income                                 4%          $  15,647        7%           $  15,540
                                                      =====           ========    ======            =========

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

   Revenue                                              100%          $ 730,163      100%           $ 823,139
   Cost of sales                                         67%            490,402       65%             534,621
   Operating, selling, general and
      administrative                                     36%            262,997       30%             248,914
   Depreciation and amortization                          4%             32,470        3%              22,637
                                                      -----           ---------   ------            ---------

         Operating income (loss)                         (7%)         $ (55,706)       2%           $  16,967
                                                      ======          =========   ======            =========

</TABLE>


                                                                     (continued)


                                     I-110
<PAGE>   112
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(2) Material changes in results of operations (continued):

Entertainment and Information Programming Services

    Revenue from Entertainment and Information Programming Services increased
by 34% and 33%, or $46 million and $122 million, in the three and nine month
periods ended September 30, 1995, respectively, over the corresponding periods
of 1994.  Liberty Media Group's regional sports programming businesses had
increased revenue of $24 million and $74 million for the respective two
periods.  Prime Sports-West was acquired by Liberty Media Group in August 1994,
and was responsible for $7 million and $42 million of the increase in the third
quarter and the first nine months of 1995 revenue from Liberty Media Group's
regional sports programming businesses, respectively.  Other new regional
sports programming businesses accounted for increases of $11 million and $14
million for the three months and nine months ended September 30, 1995.  The
remaining increase in the regional sports programming businesses is primarily
due to direct broadcast satellite subscriber growth.  Encore's six new thematic
multiplex services (three launched in July 1994 and three launched in September
1994) and tv! (launched in July 1994) accounted for a combined increase in
revenue of $12 million and $29 million for the quarter and the nine months
ended September 30, 1995, respectively, over the quarter and the nine months
ended September 30, 1994.  The remaining increase in revenue of Liberty Media
Group's Entertainment and Information Programming services is primarily  due to
a combination of growth in subscribers and rate increases.

    Operating expenses, exclusive of depreciation and amortization, increased
by 22% and 34%, or $24 million and $113 million, in the 1995 third quarter and
nine month period ended September 30, 1995, respectively.  The new services
launched during 1994 were responsible for $2 million of the increase for the
quarter and $16 million of the increase for the nine months ended September 30,
1995 compared to the respective periods of 1994.  Prime Sports-West was
responsible for $4 million and $32 million of the increase for the two periods
in expenses of Liberty Media Group's sports programming businesses.  Other new
businesses in the regional sports programming businesses increased expenses by
$12 million and $30 million for the three month and nine month periods ending
September 30, 1995, respectively, compared to the respective periods of 1994.
Expenses at Liberty Media Group's regional sports programming businesses,
excluding the impact of new businesses increased $12 million and $28 million
for the quarter and nine months ended September 30, 1995, respectively,
compared to the respective periods of 1994.  Such increase was caused by
programming rights fees for increased subscribers, new rights fees, and
increased production costs due to a larger number of events.  Higher
programming costs caused by additional subscribers is the primary reason for
the remaining increase in expenses.


                                                                     (continued)


                                     I-111
<PAGE>   113
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(2) Material changes in results of operations (continued):

    Operating income for Entertainment and Information Programming Services was
$20 million for the quarter and $16 million for the nine months ended September
30, 1995, respectively.  This compared with operating income of $1 million in
the 1994 third quarter and $16 million for the nine months ended September 30,
1994.  Encore and tv! accounted for a combined increase of $12 million in
operating income for the nine month and three month periods in 1995 compared to
the respective periods in 1994 due to increased cable subscribers and Encore's
increased direct broadcast satellite subscribers.  This increase for the nine
months ended September 30, 1995, compared to the nine months ended September 30,
1994, was offset by a decrease in operating income in the regional sports
programming businesses due to start-up costs of new businesses.  The remaining
increase in operating income of Liberty Media Group's Entertainment and
Information Programming Services is primarily a result of growth in subscribers.

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 Home Shopping Club, Inc. ("HSC"), a wholly-
owned subsidiary of HSN.

    For the quarter and nine months ended September 30, 1995, revenue for HSN
decreased $37 million, or 13%, to $240 million from $276 million and $95
million, or 12%, to $730 million from $823 million, respectively, compared to
the same periods in 1994.  Net sales of HSC decreased $50 million or 20%, and
$131 million or 17%, for the quarter and nine months ended September 30, 1995.
HSC's sales reflect decreases of 29% and 21% in the number of packages shipped
while the average price per unit sold increased 18% and 7% for the quarter and
nine months ended September 30, 1995, respectively, compared to the same
periods in 1994.  The decreases in HSC sales were offset by sales increases by
HSN's infomercial joint venture, HSN Direct Joint Venture ("HSND") and
wholly-owned subsidiaries of HSN, HSN Mail Order, Inc., ("Mail Order") and Vela
Research, Inc. ("Vela") totaling $12 million and $37 million, respectively, for
the quarter and nine months ended September 30, 1995.

    Since September 1994, HSN has appointed new management personnel with
expertise in merchandising and has also instituted procedures intended to
improve purchasing and other merchandising practices.  Management's strategies
include offering a greater variety of products, developing strong private label
lines, selling higher margin items and offering name brand and other high
quality merchandise.  Management attributes the decline in net sales for the
quarter and nine months ended September 30, 1995, to the impact of HSN's new
merchandising and programming strategies.

    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 casual, fun format, including new graphics, music and
less scheduled programming.  These changes, which are ongoing, are designed to
eliminate programming redundancies, distinguish the networks and reach a
broader range of potential customers.


                                                                     (continued)


                                     I-112
<PAGE>   114
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(2) Material changes in results of operations (continued):

    HSN has made significant progress in executing these strategies, which are
aimed at long-term improvement in sales by attracting new customers and
increasing the frequency of repeat purchases.  While management believes HSN's
new merchandising and programming strategies will improve both sales and
operating results, the fourth quarter of 1995, when compared to the prior year,
may continue to be negatively affected by these changes.  Management has also
instituted additional promotional programs to help increase sales, including no
interest and no payments through February 1996 for certain purchases made using
HSN's private label credit card.  There can be no assurance that these changes
will achieve management's intended results.

    For the quarter and nine months ended September 30, 1995, cost of sales
decreased $18 million, or 10%, to $162 million from $180 million and $45
million, or 8% to $490 million from $535 million, respectively, compared with
the same periods in 1994.  As a percentage of net sales, cost of sales
increased to 68% from 66%, and 67% from 65% for the quarter and nine months
ended September 30, 1995, respectively, compared to the same periods in 1994.

    Cost of sales of HSC decreased $26 million and $66 million, respectively,
for the quarter and nine months ended September 30, 1995.  Such decrease was
primarily offset by increases in cost of sales by HSND, Mail Order and Vela
totaling $8 million and $21 million, respectively.  As a percentage of HSC's
net sales, cost of sales increased to 70% from 67% and to 70% from 66%, for the
quarter and nine months ended September 30, 1995, compared to the same periods
in 1994.

    The dollar decreases in cost of sales relate to the lower sales volumes,
and the increases in cost of sales percentages compared with the third quarter
and first nine months of 1994 relate primarily to promotional price discounts.

    Operating expenses, exclusive of depreciation and amortization, increased
by $7 million, to 37% of sales in the 1995 third quarter, compared with 30% of
sales in the 1994 third quarter.  Expenses increased $14 million to 36% of
sales for the nine months ended September 30, 1995, compared with 30% of sales
for the same period in 1994.  Most of this increase was a result of selling,
marketing, engineering and programming expenses related to HSND.  These costs
are expected to remain at this level for the remainder of 1995.  In addition,
HSN incurred $7.5 million in restructuring charges during the nine months ended
September 30, 1995.  The restructuring charges for the quarter ended September
30, 1995 of $5.4 million consist of severance costs of $2 million related to a
reduction in work force, and a $2.1 million payment made to the former president
and chief executive officer as provided for under his employment agreement in
connection with the termination of his employment.  In addition, HSN recorded a
write-down of inventory totaling $1.3 million to net realizable value in
connection with the pending sale of a division of Mail Order, Ortho-Vent, Inc.
Included in the restructuring charges for the nine months ended September 30,
1995 is $2 million associated with the consolidation of HSN's distribution
facilities.

    In August of 1995, 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 the quarter ended September 30,
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.

                                                                     (continued)


                                     I-113
<PAGE>   115
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(2) Material changes in results of operations (continued):

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

Corporate Expenses

    Corporate expenses are not reflected in the preceding table.  During the
nine months ended September 30, 1995, corporate expenses were $11.0 million,
compared with a net reversal of $2.1 million for the corresponding period in
1994.  Such amounts are primarily attributable to changes in compensation
expense associated with management incentive stock appreciation rights. 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.

     Excluding the impact of the stock appreciation rights, corporate expenses
remained relatively comparable during the three months and nine months ended
September 30, 1995, as compared to the same periods in 1994.

    Upon distribution of the Liberty Group Stock, certain corporate general and
administrative costs will be 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 will be 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 nine months ended September 30, 1995, Liberty Media Group
was allocated $2.3 million in corporate general and administrative costs by TCI.

    Prior to the determination by the Board to seek approval by 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.


                                                                     (continued)


                                     I-114
<PAGE>   116
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


(2) Material changes in results of operations (continued):

     Entities included in Liberty Media Group lease satellite transponder
facilities from TCI.  Charges by TCI for such arrangements for the nine months
ended September 30, 1995 and 1994, aggregated $11,489,000 and $4,420,000,
respectively.

    Certain subsidiaries attributed to Liberty Media Group 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.

     HSN paid a commission to TCI for merchandise sales to customers who are
subscribers of TCI's cable systems.  Aggregate commissions and charges by TCI
were $4,554,000 and $3,812,000 for the nine months ended September 30, 1995 and
1994, respectively.

Other Income and Expense

    Dividend and interest income was $4 million and $8 million for the three
month and nine month periods ended September 30, 1995, respectively and $3
million and $16 million for the corresponding two periods of 1994.  The
decrease was primarily the result of the repayment of an HSN note receivable in
August 1994.

    Liberty Media Group's share of losses of affiliates was $17 million and $2
million for the third quarter of 1995 and 1994, respectively.  The increase in
losses is primarily due to the share of losses of Court.  Due to the additional
$29 million investment in Court made in August 1995, Liberty Media Group's share
of losses of Court for the third quarter, which amounted to $19 million,
included an adjustment to reflect Liberty Media Group's share of previously
unrecognized losses of Court aggregating $18 million.  These losses were not
recognized in prior periods to the extent Liberty Media Group's investment in
Court had been reduced to zero.  Liberty Media Group's share of losses from
affiliates was $16 million for the nine months ended September 30, 1995 compared
with share of earnings from affiliates of $21 million for the nine months ended
September 30, 1995.  This increase in losses was partially due to the sale of
substantially all of Liberty Media Groups interest in AMC in July 1994, which
investment contributed $9 million to the 1994 earnings.  The previously
unrecognized losses in Court contributed $18 million to the losses for the nine
month period of 1995.  Liberty Media Group's share of earnings in affiliates
attributable to its interest in QVC decreased from earnings of $6 million during
the nine months ended September 30, 1994 to losses of $1 million for the same
period of 1995.  This 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.

In March of 1995, the Financial Accounting Standards Board 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 has not
yet determined the financial statement impact of the adoption of Statement No.
121.



                                     I-115
<PAGE>   117
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                            Combined Balance Sheets
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                            September 30,        December 31,
                                                                                1995                1994 *     
                                                                         ------------------   -----------------
Assets                                                                            amounts in millions
------                                                                                            
<S>                                                                         <C>                        <C>
Cash                                                                        $       124                    11

Trade and other receivables, net                                                    201                   206

Prepaid expenses                                                                     45                    22

Prepaid program rights                                                               30                    13

Committed film inventory                                                             68                    36

Investments in affiliates, accounted for
   under the equity method, and related
   receivables (note 4)                                                           1,777                 1,019

Property and equipment, at cost:
   Land                                                                              72                    69
   Distribution systems                                                           9,385                 7,705
   Support equipment and buildings                                                1,130                   935
                                                                            -----------               -------
                                                                                 10,587                 8,709
   Less accumulated depreciation                                                  3,644                 3,027
                                                                            -----------               -------
                                                                                  6,943                 5,682
                                                                            -----------               -------

Franchise costs                                                                  13,735                11,152
   Less accumulated amortization                                                  1,957                 1,708
                                                                            -----------               -------
                                                                                 11,778                 9,444
                                                                            -----------               -------

Other assets, at cost, net of amortization                                          934                   688
                                                                            -----------               -------

                                                                            $    21,900                17,121
                                                                            ===========               =======
</TABLE>


* Restated - see note 9.

                                                                     (continued)


                                     I-116
<PAGE>   118
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)




                       Combined Balance Sheets, continued
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                             September 30,        December 31,
                                                                                 1995                1994 *     
                                                                           ---------------       ---------------
Liabilities and Combined Equity                                                     amounts in millions
-------------------------------                                                                   
<S>                                                                          <C>                       <C>
Accounts payable                                                             $      138                    90

Accrued interest                                                                    166                   183

Accrued programming expense                                                         256                   207

Other accrued expenses                                                              366                   408

Debt (note 6)                                                                    12,437                11,068

Deferred income taxes                                                             4,363                 3,363

Other liabilities (note 9)                                                          174                   170
                                                                             ----------             ---------

      Total liabilities                                                          17,900                15,489
                                                                             ----------             ---------

Minority interests in equity
   of consolidated subsidiaries                                                     582                   314

Redeemable preferred stock (note 7)                                                 474                   168

Combined equity (note 8):
   Combined equity, including preferred
      stocks                                                                      2,884                 2,559
   Cumulative foreign currency
      translation adjustment                                                         (3)                   (4)
   TCI Group unrealized holding gains (losses)
      for available-for-sale securities, net of taxes                                71                    (5)
   Due from Liberty Media Group                                                      (8)                  (29)
   Liberty Media Group unrealized holding
      gains for available-for-sale securities,
      net of taxes                                                                   --                   131
   Interest in Liberty Media Group                                                   --                (1,502)
                                                                             ----------             --------- 

         Combined equity                                                          2,944                 1,150
                                                                             ----------             ---------

Commitments and contingencies (note 11)

                                                                             $   21,900                17,121
                                                                             ==========             =========
</TABLE>


* Restated - see note 9.

See accompanying notes to combined financial statements.





                                     I-117
<PAGE>   119
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                 Three months              Nine months
                                                                     ended                    ended
                                                                 September 30,            September 30,
                                                              ------------------        ------------------
                                                               1995        1994 *        1995        1994 *
                                                              ------       -----        ------       -----
                                                                          amounts in millions,
                                                                        except per share amounts
<S>                                                         <C>         <C>          <C>          <C>
Revenue                                                     $  1,404       1,043         3,897       3,144

Operating costs and expenses:
   Operating                                                     446         300         1,219         881
   Programming charges from Liberty
      Media Group (note 9)                                        18           8            53          34
   Selling, general and administrative                           436         312         1,157         902
   Charges to Liberty Media Group (note 9)                        (6)         (3)          (18)         (8)
   Compensation relating to stock
      appreciation rights                                          6          12            22          --
   Adjustment to compensation relating to
      stock appreciation rights                                   --          --            --          (6)
   Depreciation                                                  220         159           637         499
   Amortization                                                   97          74           267         221
                                                            --------    --------     ---------    --------
                                                               1,217         862         3,337       2,523
                                                            --------    --------     ---------    --------

         Operating income                                        187         181           560         621

Other income (expense):
   Interest expense                                             (258)       (207)         (735)       (572)
   Interest and dividend income                                   15           7            28          15
   Interest income from Liberty Media            
      Group (note 9)                                              --           1             2           2
   Gain on sale of subsidiary stock (note 10)                    123          --           123          --
   Share of losses of other affiliates,
      net (note 4)                                               (47)        (23)         (120)        (54)
   Minority interests in losses of                                                     
      consolidated subsidiaries, net                              10           2            20           2
   Other, net                                                    (19)         (5)          (27)         (4)
                                                            --------    ---------    ---------    --------
                                                                (176)       (225)         (709)       (611)
                                                            --------    --------     ---------    -------- 

         Earnings (loss) before income taxes                      11         (44)         (149)         10

Income tax benefit (expense)                                      31         (24)           77         (80)
                                                            --------    --------     ---------    -------- 

         Earnings (loss) before earnings                       
            (loss) of Liberty Media Group
            through the date of Distribution (note 1)             42         (68)          (72)        (70)

Earnings (loss) of Liberty Media Group
   through the date of Distribution (note 1)                      (3)        107           (17)        133
                                                            --------    --------     ---------    --------
         Net earnings (loss)                                      39          39           (89)         63

Dividend requirements on                                 
   preferred stocks                                               (9)         (3)          (26)         (3)
                                                            --------    --------     ---------    --------

         Net earnings (loss) attributable to
            common shareholders                             $     30          36          (115)         60
                                                            ========    ========     =========    ========

Loss attributable to common shareholders
   per common share (note 2)                                $   (.09)                     (.09) 
                                                            ========                 =========

</TABLE>
* Restated - see note 9.

See accompanying notes to combined financial statements.


                                     I-118
<PAGE>   120
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                          Combined Statement of Equity

                      Nine months ended September 30, 1995
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                       TCI       
                                                                      Group                            Liberty     
                                                                    unrealized                          Media      
                                                                     holding                            Group      
                                        Combined      Cumulative      gains                           unrealized    
                                         equity,       foreign     (losses) for     Due From          gains for    
                                        including      currency     available-       Liberty          available-    
                                        preferred    translation     for-sale         Media            for-sale     
                                         stocks       adjustment    securities        Group          securities *   
                                         ------       ----------    ----------      ---------        ------------   
                                                         amounts in millions                                        
<S>                                        <C>                 <C>           <C>        <C>             <C>  
Balance at January 1, 1995 *               $ 2,559             (4)           (5)        (29)                  131  
                                                                                                                    
   Net loss                                    (89)            --            --          --                    --  
   Purchase of programming from                                                                                     
      Liberty Media Group                       --             --            --          13                    --  
   Cost allocations to Liberty                                                                                      
      Media Group                               --             --            --          (4)                   --  
   Allocation of compensation                                                                                       
      relating to stock                                                                                             
      appreciation rights                       --             --            --           3                    --  
   Interest income from Liberty                                                                                     
      Media Group                               --             --            --          --                    --  
   Intergroup tax allocation                                                                    
      to Liberty Media Group                    --             --            --          (5)                   --  
   Turner Broadcasting System,                                                                                      
      Inc. ("TBS") stock received in                                                                                
      acquisition transferred to                                                                                    
      Liberty Media Group                       --             --            --          --                    --
   Net cash transfers to Liberty                                                                                    
      Media Group                               --             --            --          14                    --  
   Change in unrealized gains                                                                                       
      for available-for-sale                                                                                        
      securities                                --             --            76          --                   116  
   Foreign currency translation                                                                                     
      adjustment                                --              1            --          --                    --  
   Accreted dividends on TCI                                                                                        
      preferred stock subject to                                                                                    
      mandatory redemption                                                                                          
      requirements                             (18)            --            --          --                    --  
   Payment of TCI preferred stock                                                                                   
      dividends                                (10)            --            --          --                    --  
   Issuance of TCI Class A                                                                                          
      common stock for                                                                                              
      acquisitions and investments           1,378             --            --          --                    --  
   Issuance of TCI Class A                                                                                          
      common stock for acquisition                                                                                  
      by Liberty Media Group                    10             --            --          --                    --  
   Cash paid by TCI Group for
      investment by Liberty Media
      Group contributed to Liberty
      Media Group's combined equity             --             --            --          --                    --    
   Proceeds from issuances of                                                                                       
      TCI Class A common stock                                                                                      
      in public and private                                                                                         
      offerings                                431             --            --          --                    --  
   Distribution of TCI Series A                                                                                     
      and Series B Liberty Media                                                                                    
      Group common stock to                                                                                         
      TCI common shareholders               (1,371)            --            --          --                  (247)  
   Costs associated with
      Distribution to shareholders              (6)            --            --          --                    --
                                           -------       --------      --------     -------              --------  
                                                                                                                    
Balance at September 30, 1995              $ 2,884             (3)           71          (8)                   --  
                                           =======       ========     =========     =======              ========  


<CAPTION>

                                      
                                            Interest
                                               in                   
                                             Liberty                
                                              Media             Combined
                                             Group *             equity
                                             -------             -------
                                                amounts in millions                   
<S>                                          <C>                 <C>
Balance at January 1, 1995 *                (1,502)               1,150
                                                            
   Net loss                                     17                  (72)
   Purchase of programming from                             
      Liberty Media Group                       40                   53
   Cost allocations to Liberty                              
      Media Group                              (14)                 (18)
   Allocation of compensation                               
      relating to stock                                     
      appreciation rights                       (7)                  (4)
   Interest income from Liberty                             
      Media Group                               (2)                  (2)
   Intergroup tax allocation                                
      to Liberty Media Group                    --                   (5)
   Turner Broadcasting System,                              
      Inc. ("TBS") stock received in                        
      acquisition transferred to                            
      Liberty Media Group                       (7)                  (7)
   Net cash transfers to Liberty                            
      Media Group                              (15)                  (1)
   Change in unrealized gains                               
      for available-for-sale                                
      securities                              (116)                  76
   Foreign currency translation                             
      adjustment                                --                    1
   Accreted dividends on TCI                                
      preferred stock subject to                            
      mandatory redemption                                  
      requirements                              --                  (18)
   Payment of TCI preferred stock                           
      dividends                                 --                  (10)
   Issuance of TCI Class A                                  
      common stock for                                      
      acquisitions and investments              --                1,378
   Issuance of TCI Class A                                  
      common stock for acquisition                          
      by Liberty Media Group                   (10)                  --
   Cash paid by TCI Group for
      investment by Liberty Media
      Group contributed to Liberty
      Media Group's combined equity             (2)                  (2)    
   Proceeds from issuances of                               
      TCI Class A common stock                              
      in public and private                                 
      offerings                                 --                  431
   Distribution of TCI Series A                             
      and Series B Liberty Media                            
      Group common stock to                                 
      TCI common shareholders                1,618                   --
   Costs associated with
      Distribution to shareholders              --                   (6)
                                        ----------             --------
Balance at September 30, 1995                   --                2,944
                                        ==========             ========
                                      
</TABLE>

* Restated - see note 9.

See accompanying notes to combined financial statements.


                                     I-119
<PAGE>   121
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                       Combined Statements of Cash Flows
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                          Nine months ended
                                                                                            September 30,  
                                                                                        --------------------
                                                                                         1995           1994 
                                                                                        ------         ------
                                                                                         amounts in millions
                                                                                            (see note 4)
<S>                                                                                     <C>             <C>
Cash flows from operating activities:
   Net loss before net earnings
      or loss of Liberty Media Group*                                                     (72)            (70)
   Adjustments to reconcile net loss before
      net earnings or loss of Liberty Media Group to
      net cash provided by operating activities:
         Depreciation and amortization                                                     904            720
         Compensation relating to stock
            appreciation rights                                                             22             --
         Adjustment to compensation relating to stock
            appreciation rights                                                             --             (6)
         Share of losses of other affiliates                                               120             54
         Gain on sale of subsidiary stock                                                 (123)            --
         Deferred income tax expense (benefit)                                            (111)            64
         Minority interests in losses                                                      (20)            (2)
         Noncash interest and dividend income                                               (9)            (7)
         Other noncash charges (credits)                                                     8             --
         Changes in operating assets and liabilities,
            net of the effect of acquisitions:
               Change in receivables                                                        28            (14)
               Change in prepaids                                                          (60)           (36)
               Change in accruals and payables                                              14             29
               Change in accrued interest                                                  (22)           (14)
                                                                                        ------         ------
                 Net cash provided by operating activities                                 679            718
                                                                                        ------         ------

Cash flows from investing activities:
   Cash paid for acquisitions                                                             (213)          (116)
   Capital expended for property and equipment                                          (1,170)          (947)
   Proceeds from disposition of assets                                                      29             34
   Additional investments in and
      loans to affiliates and others                                                      (900)          (306)
   Change in due from Liberty Media Group                                                   21             -- 
   Change in interest in Liberty Media Group                                                16            247
   Repayment of loans by affiliates and others                                              18             33
   Return of capital from affiliates                                                         1             22
   Other investing activities                                                             (196)          (257)
                                                                                        ------         ------ 
                 Net cash used in investing activities                                  (2,394)        (1,290)
                                                                                        ------         ------ 

Cash flows from financing activities:
   Change in cash overdraft                                                                 --             10
   Borrowings of debt                                                                    6,926          3,015
   Repayments of debt                                                                   (5,952)        (2,459)
   Preceeds from sale of subsidiary stock                                                  445             --
   Preferred stock dividends of subsidiaries                                                --             (3)
   Preferred stock dividends                                                               (22)            --
   Issuance of common stock                                                                431             --
                                                                                        ------        -------
                 Net cash provided by financing activities                               1,828            563
                                                                                        ------        -------

                 Net increase (decrease) in cash                                           113             (9)

                    Cash at beginning of period                                             11              9
                                                                                        ------        -------

                    Cash at end of period                                               $  124             --
                                                                                        ======        =======

</TABLE>
* Net earnings or loss of Liberty Media Group does not provide or use funds.

See accompanying notes to combined financial statements.


                                     I-120
<PAGE>   122
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





                               September 30, 1995
                                  (unaudited)


(1)      Liberty Group Stock

         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, 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.

         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 common stock, the Series A and Series B TCI
         Group common 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
         Communication unit, (ii) TCI's International Cable and Programming
         unit ("TCI International") and (iii) TCI's Technology/Venture Capital
         unit.  Liberty Media Group includes the businesses of
         Tele-Communications, Inc. and Liberty Media Corporation which
         distribute cable television programming services.  The businesses of
         TCI not attributed to Liberty Media Group are referred to as "TCI
         Group".


                                                                     (continued)





                                     I-121
<PAGE>   123
                                  "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 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 common 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 common
         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 common 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 common stock are based primarily upon the financial condition,
         results of operations and business requirements of TCI Group and TCI
         as a whole.

                                                                     (continued)





                                     I-122
<PAGE>   124
                                  "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 common 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.  Such
         convertible or exchangeable preferred stock and debt securities and
         options outstanding on the record date for the Distribution are
         referred to as "Pre-Distribution Convertible Securities."  The
         issuance of shares of Series A Liberty Group Stock upon such
         conversion, exchange or exercise of Pre-Distribution 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 Pre- Distribution
         Convertible Securities consisting of options to purchase Series A
         Liberty Group Stock, the proceeds received upon the exercise of such
         options will be attributed to Liberty Media Group.  If Pre-
         Distribution Convertible Securities remain outstanding at the time of
         any disposition of all or substantially all of the properties and
         assets of Liberty Media Group and TCI elects to distribute to holders
         of Liberty Group Stock their proportionate interest in the net
         proceeds of the disposition, the proportionate interest of the holders
         of Liberty Group Stock will be determined on a basis that allocates to
         the TCI Group a portion of such net proceeds, in addition to the
         portion attributable to any Inter-Group Interest, sufficient to
         provide for the payment of the portion of the consideration payable by
         TCI on any post-Distribution conversion, exercise or exchange of
         Pre-Distribution Convertible Securities that becomes so payable in
         substitution for shares of Liberty Group Stock that would have been
         issuable upon such conversion, exercise or exchange if it had occurred
         prior to the record date for the disposition.  Likewise, if
         Pre-Distribution Convertible Securities remain outstanding at the time
         of any redemption for all the outstanding shares of Liberty Group
         Stock in exchange for stock of any one or more wholly-owned
         subsidiaries of TCI which hold all of the assets and liabilities of
         Liberty Media Group, the portion of the shares of such subsidiaries
         deliverable in redemption of the outstanding shares of Liberty Group
         Stock will be determined on a basis that allocates to TCI Group a
         portion of the shares of such subsidiaries, in addition to the number
         of shares so allocated in respect to any Inter-Group Interest,
         sufficient to provide for the payment of the portion of the
         consideration payable by TCI upon any post-redemption conversion,
         exercise or exchange of Pre-Distribution Convertible Securities that
         becomes so payable in substitution for shares of Liberty Group Stock
         that would have been issuable upon such conversion, exercise or
         exchange if it had occurred prior to such redemption.

                                                                     (continued)





                                     I-123
<PAGE>   125
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         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
         7.  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.

         Prior to the Distribution of Liberty Group Stock, 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 the TCI Group to the 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 the 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 the
         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.
                                                                     (continued)





                                     I-124
<PAGE>   126
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         During the fourth quarter of 1994, TCI was reorganized (the
         "Reorganization") based upon four lines of business:  Domestic Cable
         and Communications; Programming; TCI International 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 TCI International.

         The accompanying interim combined financial statements are unaudited
         but, in the opinion of management, reflect all adjustments (consisting
         of normal recurring accruals) necessary for a fair presentation of the
         results for such periods.  The results of operations for any interim
         period are not necessarily indicative of results for the full year.
         These combined financial statements should be read in conjunction with
         the audited combined financial statements of TCI Group for the year
         ended December 31, 1994.

         In March of 1995, the Financial Accounting Standards Board 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 has not yet determined the financial statement
         impact of the adoption of Statement No.  121.

                                                                     (continued)





                                     I-125
<PAGE>   127
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(2)      Loss Per Common Share

         The loss attributable to common shareholders per common share for the
         period from the Distribution to September 30, 1995 was computed by
         dividing net loss  attributable to TCI Group Series A and Series B
         common shareholders by the weighted average number of common shares
         outstanding of TCI Group Series A and Series B common 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.

(3)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest and income taxes is as follows:

<TABLE>
<CAPTION>
                                                                                          Nine months ended
                                                                                            September 30,  
                                                                                         --------------------
                                                                                         1995           1994
                                                                                         -----          -----
                                                                                          amount in millions
                                                                                         --------------------
                 <S>                                                                     <C>          <C>
                 Cash paid for interest                                                  $   757          575
                                                                                         =======      =======
                 Cash paid for income taxes                                              $    53           27        
                                                                                         =======      =======
</TABLE>

         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                                                Nine months ended
                                                                                                  September 30,  
                                                                                                -----------------
                                                                                               1995           1994 
                                                                                              ------         ------
                                                                                               amounts in millions
                 <S>                                                                          <C>          <C>
                 Cash paid in acquisitions:
                    Fair value of assets acquired                                             $ 3,365          123
                    Liabilities assumed                                                          (494)         (18)
                    Deferred tax liability recorded
                       in acquisitions                                                         (1,095)         (33)
                    Minority interests in equity of
                       acquired entities                                                           42           (7)
                    Common stock issued in acquisitions                                        (1,305)          --
                    Redeemable preferred stock issued
                       in acquisition                                                            (300)          --    
                    Fees incurred in the TCI/Liberty Combination                                   --            8
                    Increase in due from Libery Media Group                                        --           43
                                                                                              -------      -------

                       Cash paid in acquisitions                                              $   213          116     
                                                                                              =======      =======
                 TBS stock received in acquisition transferred
                    to Liberty Media Group                                                    $     7           --
                                                                                              =======      =======

</TABLE>


                                                                     (continued)


                                     I-126
<PAGE>   128
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


<TABLE>
<CAPTION>
                                                                                       Nine months ended
                                                                                          September 30,  
                                                                                      --------------------
                                                                                       1995           1994 
                                                                                      ------         ------
                                                                                     amounts in millions
                 <S>                                                                <C>             <C>

                 Common stock issued in exchange for
                    cost investment                                                 $     73             --
                                                                                    ========       ========

                 Effect of foreign currency translation
                    adjustment on book value of foreign
                    equity investments                                              $      1             24
                                                                                    ========       ========

                 Unrealized gains, net of deferred income
                    taxes, on available-for-sale securities
                    as of January 1, 1994                                           $     --            356
                                                                                    ========       ========

                 Change in unrealized gains, net of deferred
                    income taxes, on available-for-sale
                    securities exclusive of unrealized                              
                    gains recorded in the TCI/Liberty                               
                    Combination                                                     $    192            105
                                                                                    ========       ========

                 Accrued preferred stock dividends                                  $      4              3
                                                                                    ========       ========

                 Issuance of TCI Class A common stock
                    for acquisition by Liberty Media Group                          $     10             --
                                                                                    ========       ========

                 Distribution of TCI Series A and Series B
                    Liberty Group Stock to TCI common 
                    shareholders                                                    $  1,618             --
                                                                                    ========       ========

                 Change in deferred income taxes due to
                    implementation of tax sharing agreement                         $      2             --
                                                                                    ========       ========

                 Issuance of subsidiary stock for
                    equity investment                                               $     11             --
                                                                                    ========       ========

                 Common stock issued to subsidiary in
                    exchange for investment                                         $      1             --
                                                                                    ========       ========

                 Deferred tax assets transferred to
                    Liberty Media Group                                             $      2             --
                                                                                    ========       ========

                 Noncash exchange of equity investments
                    and consolidated subsidiaries for
                    consolidated subsidiary                                         $     --             38
                                                                                    ========       ========

                 Common stock issued upon conversion of
                    redeemable preferred stock                                      $     --             18
                                                                                    ========       ========

                 Common stock issued upon conversion
                    of notes                                                        $     --              3
                                                                                    ========       ========

                 Issuance of convertible preferred stock
                    for acquisition by Liberty Media Group                          $     --            168
                                                                                    ========       ========


                 
</TABLE>
                                                                     (continued)


                                     I-127
<PAGE>   129
                                  "TCI 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>
                                                                                        Nine months ended
                  Combined Operations                                                      September 30,  
                  -------------------                                                  ---------------------
                                                                                        1995           1994 
                                                                                       ------         ------
                                                                                        amounts in millions
                     <S>                                                              <C>                <C>
                     Revenue                                                          $  1,352            986
                     Operating expenses                                                 (1,140)          (835)
                     Depreciation and amortization                                        (289)          (235)
                                                                                      --------       -------- 

                        Operating loss                                                     (77)           (84)

                     Interest expense                                                     (159)          (109)
                     Other, net                                                            (15)          (104)
                                                                                      --------       -------- 

                        Net loss                                                      $   (251)          (297)
                                                                                      ========       ========

</TABLE>


         TCI Group has various investments accounted for under the equity
         method.  Some of the more significant investments held by TCI Group at
         September 30, 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 $675 million) (see note 10), TeleWest
         Communications plc (carrying value of $424 million) and Teleport
         Communications Group, Inc. and TCG Partners (collectively, "TCG")
         (carrying value of $142 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.

(5)      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") with an aggregate initial liquidation
         value of $300 million (see note 7).


                                                                     (continued)





                                     I-128
<PAGE>   130
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         On April 25, 1995, TCI International 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 (including a previously paid $20 million
         deposit) and TCI International's issuance of $87 million principal
         amount of secured negotiable promissory notes payable (the
         "Cablevision Notes") to the selling shareholders.   TCI International
         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 TCI Group since
         their respective dates of acquisition.  On a pro forma basis, TCI
         Group's revenue, net loss and net loss attributable to common
         shareholders would have been increased by $93 million, $6 million and
         $7 million, respectively, for the nine months ended September 30,
         1995; and revenue would have increased by $323 million,  and net
         earnings and earnings attributable to common shareholders would have
         been reduced by $1 million and $13 million, respectively, for the nine
         months ended September 30, 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.

         Comcast had the right, through December 31, 1994, to require TCI Group
         to purchase or cause to be purchased from Comcast all shares of
         Heritage Communications, Inc. ("Heritage") directly or indirectly
         owned by Comcast for either cash or assets or, at TCI Group's election
         shares of TCI common stock.  On October 24, 1994, TCI Group and
         Comcast entered into a purchase agreement whereby TCI Group would
         repurchase the entire 19.9% minority interest in Heritage owned by
         Comcast for an aggregate consideration of approximately $290 million,
         the majority of which was payable in shares of TCI Class A common
         stock.  Such acquisition was consummated in the first quarter of 1995.

                                                                     (continued)





                                     I-129
<PAGE>   131
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





(6) Debt

    Debt is summarized as follows:

<TABLE>
<CAPTION>                                                                                    
                                                                            September 30,        December 31,
                                                                               1995                 1994       
                                                                          ---------------       ---------------
                                                                                   amounts in millions

          <S>                                                                 <C>                    <C>
          Senior notes                                                        $   6,704                 5,387
          Bank credit facilities                                                  3,294                 4,011
          Commercial paper                                                        1,157                   445
          Notes payable                                                             964                 1,024
          Convertible notes (a)                                                      45                    45
          Cablevision Notes (b)                                                      78                    --
          Other debt                                                                195                   156
                                                                              ---------              --------
                                                                              $  12,437                11,068
                                                                              =========              ========

</TABLE>

         (a)     These convertible notes, which are stated net of unamortized
                 discount of $186 million at September 30, 1995 and December
                 31, 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 September 30, 1995, the notes were
                 convertible, at the option of the holders, into an aggregate
                 of 38,707,574 shares of Series A TCI Group common stock and
                 9,676,894 shares of Series A Liberty Group Stock.  See note 1.

         (b)     The Cablevision Notes are secured by TCI International'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 common stock held by a subsidiary of TCI Group.

                                                                     (continued)





                                     I-130
<PAGE>   132
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         In order to achieve the desired balance between variable and fixed
         rate indebtedness, the 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 September 30, 1995 and (ii)
         variable interest rates (the "Variable Rate Agreements") on notional
         amounts of $2,520 million at September 30, 1995.  During the nine
         months ended September 30, 1995 and 1994, the TCI Group's net payments
         pursuant to the Fixed Rate Agreements were $1 million and $13 million,
         respectively; and TCI Group's net receipts pursuant to the Variable
         Rate Agreements were less than $1 million and  $33 million,
         respectively.

         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>


         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.

         In order to diminish its exposure to extreme increases in variable
         interest rates, TCI Group has entered into various interest rate hedge
         agreements on notional amounts of $225 million which fix the maximum
         variable interest rates at 11%. Such agreements expire during the
         fourth quarter of 1995.

         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 September 30, 1995, taking into consideration current
         interest rates and the current creditworthiness of the counterparties.
         TCI Group would be required to pay $27 million at September 30, 1995
         to terminate the agreements.

                                                                     (continued)





                                     I-131
<PAGE>   133
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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 $12,437 million, was $12,801 million at September 30, 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.

(7)      Redeemable Preferred Stock

         Convertible Preferred Stock,"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 common 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.

         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. 

                                                                     (continued)


                                     I-132
<PAGE>   134
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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.

         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.

                                                                     (continued)


                                     I-133
<PAGE>   135
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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 common 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 4).
        
         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 Series A TCI Group common stock, the Series B TCI
         Group common stock, the Series A Liberty Media Group common Stock, the
         Series B Liberty Media Group common 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 common 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.
                                                                     (continued)


                                     I-134
<PAGE>   136
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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
         shareholders of TCI.

         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 common stock.  Such shares of Series A TCI Group 
         common stock are reflected as treasury stock in the accompanying
         consolidated financial statements.

         Each share of Series F Preferred Stock was convertible into 1,000
         shares of Series A TCI Group common 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 common stock
         issuable upon conversion in the event of any non-cash dividend or
         distribution of the Series A TCI Group common 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 common
         stock.


                                                                     (continued)


                                     I-135
<PAGE>   137
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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 common stock, with respect to any cash dividends or
         distribution declared and paid on the Series TCI Group common stock.
         Dividends or distribution on the Series A TCI Group common 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 common stock in such
         liquidation, dissolution or winding up multiplied by the applicable
         conversion rate of a share of Series F Preferred Stock.

         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 common 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 common stock for a period specified, and subject to the
         adjustments described, in the certificate of designation establishing
         the Series F Preferred Stock.

(8)      Combined Equity

         General

         The rights of holders of the TCI Group common stock upon liquidation
         of TCI are  based upon the ratio of the aggregate market
         capitalization, as defined, of the TCI Group common stock to the
         aggregate market capitalization, as defined, of the TCI Group common
         stock and the Liberty Group Stock.


                                                                     (continued)


                                     I-136
<PAGE>   138
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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.  All such shares are issued and outstanding.
         Subsidiaries of TCIC hold 55,070 of such issued and outstanding
         shares.

         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), commencing March 1, 1995, and, in the sole discretion
         of the Board, may be declared and paid in cash, in shares Series A TCI
         Group common 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 common 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 common 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 common stock by the Average Market Price of the
         Series A TCI Group common 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 common
         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)


                                     I-137
<PAGE>   139
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined 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 distribution to stockholders an
         amount in cash or property or a 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).  Accordingly, holders of Class B
         Preferred Stock who receive Junior Exchange Notes in exchange therefor
         may have difficulty selling such Notes.

                                                                     (continued)





                                     I-138
<PAGE>   140
                                  "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)





                                     I-139
<PAGE>   141
                                  "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 the TCI Group hold options with tandem stock
         appreciation rights to acquire TCI Group Series A common stock and
         Liberty Media Group Series A common stock. Estimates of the
         compensation relating to the options and/or stock appreciation rights
         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 TCI Group Series A common stock and
         Liberty Media Group Series A common stock (see note 1) and, ultimately,
         on the final determination of market value when the rights are
         exercised.

         
                                                                     (continued)


                                     I-140
<PAGE>   142
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





(9)      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 nine months ended September 30,
         1995, Liberty Media was allocated $2,300,000 in corporate general and
         administrative costs by TCI Group.

         Prior to the determination by 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 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.

         Liberty Media Group has a 49.9% partnership interest in QE+Ltd Limited
         Partnership ("QE+"), 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 2005, up
         to a maximum amount of $350 million, $90 million of which is required
         in 1995.  QE+ is obligated to pay TCI Group a preferred return of 10%
         per annum on its special capital contributions of up to $200 million
         beginning five years from the date of the contribution or 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 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 be obligated to fund such cash
         requirements in proportion to their respective ownership percentages.


                                                                     (continued)





                                     I-141
<PAGE>   143
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         TCI Group has also entered into a long-term affiliation agreement with
         QE+ in 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 are
         anticipated to aggregate approximately $30 million to $40 million.
         The affiliation agreement also provides that QE+ will not grant
         materially more favorable terms and conditions to other 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 the 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 the preferred return thereon.

         Encore Media Corporation (90% owned by Liberty Media Group) earns
         management fees from QE+ equal to 20% of managed costs, as defined.
         Payment of such fees is subordinated to the repayment of the TCI Group
         special capital contributions and the preferred return thereon.  In
         addition, effective July 1, 1995, Liberty Media Group will earn a
         "Content Fee" for certain services provided to QE+ equal to 4% of the
         gross revenue of QE+, estimated to be approximately $1.2 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 office space and satellite
         transponder facilities from TCI Group.  Charges by TCI Group for such
         arrangements for the nine months ended September 30, 1995 and 1994,
         aggregated $11 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 $5 million and $4 million
         for the nine months ended September 30, 1995 and 1994, respectively.

                                                                     (continued)





                                     I-142
<PAGE>   144
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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 $2 million for the nine months ended September
         30, 1994.

         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 of the Liberty
         Group Stock, 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 are attributed entirely to TCI Group.  After the
         Distribution, all financial impacts of issuances of additional shares
         of Series A TCI Group common stock and Series B TCI Group common 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 the Liberty Media
         Group.  Financial impacts of dividends or other distributions on, and
         purchases of, Series A TCI Group common stock and Series B TCI Group
         common 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.

                                                                     (continued)


                                     I-143
<PAGE>   145
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Subsequent to the Distribution of the Liberty Group Stock, 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.

         A tax sharing agreement (the "Tax Sharing Agreement") among 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-exisiting 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 will be responsible to TCI for its share of current consolidated
         income tax liabilities. TCI will be 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.

(10)     Sale of Subsidiary Stock

         On July 18, 1995, TCI International completed an initial public
         offering (the "IPO") in which it sold 20 million shares of TCI
         International 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 TCI International's total issued and outstanding
         common stock and 9% of the aggregate voting interest represented by
         such issued and outstanding common stock.  Also in July 1995, TCI
         International issued 687,500 Shares of TCI International 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 (before deducting the related deferred income tax expense
         of $50 million).  Subsequent to the IPO and the TYC Acquisition, TCI
         owns 82% of the issued and outstanding stock of TCI International.

(11)     Commitments and Contingencies

         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, of which TCI Group owns a
         30% interest, the partners have been participating in auctions ("PCS
         Auctions") of broadband personal communications services ("PCS")
         licenses being 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 PSC 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 is approximately $2.1 billion.

                                                                     (continued)


                                    I-144
<PAGE>   146
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         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 60%
         interest) and WirelessCo (with a 40% 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, TCI Group, Comcast, Cox and Sprint 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. ("NewTelco") to
         engage in the business of providing local wireline communications
         services to residences and businesses on a nationwide basis.  NewTelco
         will serve its customers primarily through the cable television
         facilities of cable television operators that affiliate with NewTelco
         in exchange for agreed-upon compensation.  The modification of
         existing regulations and laws governing the local telephony market
         will be necessary in order for NewTelco to provide its proposed
         services on a competitive basis in most states.  Subject to agreement
         upon a schedule for upgrading its cable television facilities in
         selected markets and certain other matters, TCI Group has agreed to
         affiliate certain of its cable systems with NewTelco.  The capital
         required for the upgrade of TCI Group's cable facilities for the
         provision of telephony services is expected to be substantial.

                                                                     (continued)





                                     I-145
<PAGE>   147
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         TCI Group, Cox and Comcast, together with Continental Cablevision,
         Inc. ("Continental"), own TCG, which is one of the largest competitive
         access providers in the United States in terms of route miles.  TCI
         Group, Cox and Comcast have entered into an agreement with MajorCo and
         NewTelco to contribute their interests in TCG and its affiliated
         entities to NewTelco.  TCI Group currently owns an approximate 29.9%
         interest in TCG.  The closing of this contribution is subject to the
         satisfaction of certain conditions, including the receipt of necessary
         regulatory and other consents and approvals.  In addition, TCI Group,
         Comcast and Cox intend to negotiate with Continental, which owns a 20%
         interest in TCG, regarding their acquisition of Continental's TCG
         interest.  If such agreement cannot be reached, they will need to
         obtain Continental's consent to certain aspects of their agreement
         with Sprint.

         Subject to agreement upon an initial business plan, the MajorCo
         partners have committed to make cash capital contributions to MajorCo
         of $4.0 to $4.4 billion in the aggregate over a three- to five-year
         period.  The partners intend for MajorCo and its subsidiary
         partnerships to be the exclusive vehicles through which they engage in
         the wireless and wireline telephony service businesses, subject to
         certain exceptions.

         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 the later of September 1, 1993 or one year prior to the
         certification date of the applicable franchise authority.


                                                                     (continued)





                                     I-146
<PAGE>   148
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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 of $1.90 (aggregating
         approximately $9 million).  Such amount 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 will end 30 days from October 30, 1995.

         TCI Group has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $229 million at September 30, 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.

         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
         September 30, 1995, these agreements require minimum payments
         aggregating approximately $290 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.

         TCI Group has also committed to provide additional debt or equity
         funding to certain of its affiliates.  At September 30, 1995, such
         commitments aggregated $124 million.

         TCI Group has 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.

                                                                     (continued)


                                     I-147
<PAGE>   149
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         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 $2.25
         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, TCI Group
         will acquire from Cable Sub shares of Cable Sub Class B Common Stock
         in exchange for a capital contribution of $350 million (which will be
         used to reduce Cable Sub's obligations under the Loan Facility).  At
         the time of such contribution, 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 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 TCI Group common stock ("Parent Common
         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 Parent Common 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 Group and Viacom are to negotiate in good faith to
         determine mutually acceptable 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.
                                                                     (continued)





                                     I-148
<PAGE>   150
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements





         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, the expiration or early termination of the waiting period
         under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
         receipt of necessary consents of the FCC and local cable franchise
         authorities, and the satisfaction or waiver of all of the conditions
         of the Exchange Offer.  Accordingly, no assurance can be given that
         the transaction will be consummated.

         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.





                                     I-149
<PAGE>   151
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)





Management's Discussion and Analysis of
  Financial Condition and Results of Operations

(1) Material changes in financial condition:

    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 will 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 TCI Group and Series B
TCI Group common 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 common stock, the Series A and Series B TCI Group common 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) TCI International and
(iii) TCI's Technology/Venture Capital unit.  The businesses of TCI not
attributed to Liberty Media Group are referred to as "TCI Group".

    On 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.

    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 common 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.

                                                                     (continued)





                                     I-150
<PAGE>   152
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)





(1) Material changes in financial condition (continued):


    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 common 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 common 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 common stock would be based
primarily upon the financial condition, results of operations and business
requirements of TCI Group and TCI as a whole.


                                                                     (continued)





                                     I-151
<PAGE>   153
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)





(1) Material changes in financial condition (continued):

    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 common 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.  Such convertible or exchangeable preferred stock and debt
securities and options outstanding on the record date for the Distribution are
referred to as "Pre-Distribution Convertible Securities."  The issuance of
shares of Series A Liberty Group Stock upon such conversion, exchange or
exercise of Pre-Distribution 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 Pre-Distribution Convertible
Securities consisting of options to purchase Series A Liberty Group Stock, the
proceeds  received  upon  the  exercise of such options will be attributed to
Liberty Media Group.  If Pre-Distribution Convertible Securities remain
outstanding at the time of any disposition of all or substantially all of the
properties and assets of Liberty Media Group and TCI elects to distribute to
holders of Liberty Group Stock their proportionate interest in the net proceeds
of the disposition the proportionate interest of the holders of Liberty Group
Stock will be determined on a basis that allocates to TCI Group a portion of
such net proceeds, in addition to the portion attributable to any Inter-Group
Interest, sufficient to provide for the payment of the portion of the
consideration payable by TCI on any post- Distribution conversion, exercise or
exchange of Pre-Distribution Convertible Securities that becomes so payable in
substitution for shares of Liberty Group Stock that would have been issuable
upon such conversion, exercise or exchange if it had occurred prior to the
record date for the disposition.  Likewise, if Pre-Distribution Convertible
Securities remain outstanding at the time of any redemption for all the
outstanding shares of Liberty Group Stock in exchange for stock of any one or
more wholly-owned subsidiaries of TCI which hold all of the assets and
liabilities of the Liberty Media Group, the portion of the shares of such
subsidiaries deliverable in redemption of the outstanding shares of Liberty
Group Stock will be determined on a basis that allocates to the TCI Group a
portion of the shares of such subsidiaries, in addition to the number of shares
so allocated in respect to any Inter-Group Interest, sufficient to provide for
the payment of the portion of the consideration payable by TCI upon any
post-redemption conversion, exercise or exchange of Pre-Distribution
Convertible Securities that becomes so payable in substitution for shares of
Liberty Group Stock that would have been issuable upon such conversion,
exercise or exchange if it had occurred prior to such redemption.


                                                                     (continued)





                                     I-152
<PAGE>   154
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


(1) Material changes in financial condition (continued):

     A number of wholly-owned subsidiaries which are part of TCI Group owned
shares of Class A common stock and preferred stock of TCI. 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 Class A common stock and 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 the 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. Therefore, TCI has 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. See
note 7. 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.

  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 common stock.


                                    I-153
<PAGE>   155
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


(1) Material changes in financial condition (continued):

    Prior to the Distribution of Liberty Group Stock, 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 financial
position, results of operations, and cash flows of TCI Group would equal the
financial position, results of operations and 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.

    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 of the Liberty
Group Stock, 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.
                                                                     (continued)


                                     I-154
<PAGE>   156
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)





(1) Material changes in financial condition (continued):

    For all periods prior to the Distribution, all financial impacts of equity
offerings are attributed entirely to TCI Group.  After the Distribution, all
financial impacts of issuances of additional shares of Series A TCI Group
common stock and Series B TCI Group common 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, Series A TCI Group common stock and Series B TCI Group common 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, 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 of the Liberty Group Stock, 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.

    On July 18, 1995, TCI International completed the IPO in which it sold 20
million shares of TCI International Series A common stock to the public for
aggregate 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 TCI International's total issued and outstanding
common stock and 9% of the aggregate voting interest represented by such issued
and outstanding common stock.

    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, of which TCI Group owns a 30% interest, the
partners have been participating in PCS Auctions of broadband PCS licenses
being conducted by the FCC.  In the first round auction, which concluded during
the first quarter of 1995, WirelessCo was the winning bidder for PSC 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 is approximately
$2.1 billion.

                                                                     (continued)





                                     I-155
<PAGE>   157
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)





(1) Material changes in financial condition (continued):

    WirelessCo has 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 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 60% interest) and WirelessCo (with a 40%
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. TCI Group anticipates funding its portion of WirelessCo's
capital requirements through borrowings under a new credit facility.

    In March of 1995, TCI Group, Comcast, Cox and Sprint 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 NewTelco to engage in the business of providing local wireline
communications services to residences and businesses on a nationwide basis.
NewTelco will serve its customers primarily through the cable television
facilities of cable television operators that affiliate with NewTelco in
exchange for agreed-upon compensation.  The modification of existing
regulations and laws governing the local telephony market will be necessary in
order for NewTelco to provide its proposed services on a competitive basis in
most states.  Subject to agreement upon a schedule for upgrading its cable
television facilities in selected markets and certain other matters, TCI Group
has agreed to affiliate certain of its cable systems with NewTelco.  The
capital required for the upgrade of TCI Group's cable facilities for the
provision of telephony services is expected to be substantial.


                                                                     (continued)





                                     I-156
<PAGE>   158
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)





(1) Material changes in financial condition (continued):

    TCI Group, Cox and Comcast, together with Continental, own TCG, which is
one of the largest competitive access providers in the United States in terms
of route miles.  TCI Group, Cox and Comcast have entered into an agreement with
MajorCo and NewTelco to contribute their interests in TCG and its affiliated
entities to NewTelco.  TCI Group currently owns an approximate 29.9% interest
in TCG.  The closing of this contribution is subject to the satisfaction of
certain conditions, including the receipt of necessary regulatory and other
consents and approvals.  In addition, TCI Group, Comcast and Cox intend to
negotiate with Continental, which owns a 20% interest in TCG, regarding their
acquisition of Continental's TCG interest.  If such agreement cannot be
reached, they will need to obtain Continental's consent to certain aspects of
their agreement with Sprint.

    Subject to agreement upon an initial business plan, the MajorCo partners
have committed to make cash capital contributions to MajorCo of $4.0 to $4.4
billion in the aggregate over a three- to five-year period.  The partners
intend for MajorCo and its subsidiary partnerships to be the exclusive vehicles
through which they engage in the wireless and wireline telephony service
businesses, subject to certain exceptions.

    During the fourth quarter of 1994, TCI was reorganized based upon four
lines of business:  Domestic Cable and Communications; Programming; TCI
International; 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 TCI
International.

    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 common stock and 2,500,000 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.

    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 Inter-Group
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 earnings from Liberty Media Group of $2 million for the nine months
ended September 30, 1994.

    TCI Group has 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.

                                                                     (continued)





                                     I-157
<PAGE>   159
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)





(1) Material changes in financial condition (continued):

    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 $2.25 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.

    Immediately following the completion of the Exchange Offer, TCI Group will
acquire from Cable Sub shares of Cable Sub Class B Common Stock in exchange for
a capital contribution of $350 million (which will be used to reduce Cable
Sub's obligations under the Loan Facility).  At the time of such contribution,
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 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 Parent Common 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 Parent Common
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 Group
and Viacom are to negotiate in good faith to determine mutually acceptable
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.

                                                                     (continued)





                                     I-158
<PAGE>   160
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)





(1) Material changes in financial condition (continued):

    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, the
expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt of necessary
consents of the FCC and local cable franchise authorities, and the satisfaction
or waiver of all of the conditions of the Exchange Offer.  Accordingly, no
assurance can be given that the transaction will be consummated.

    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.

    TCI's ability to pay dividends on any classes or series of preferred stock
attributable to TCI Group is dependent upon the ability of subsidiaries
attributable to TCI Group to distribute amounts to TCI in the form of
dividends, loans or advances or in the form of repayment of loans and advances
from TCI.  The 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 their payments.  The payment of dividends, loans
or advances to TCI by its subsidiaries may be subject to statutory or
regulatory restrictions, is contingent upon the cash flows generated by those
subsidiaries and is subject to various business considerations.  Further,
certain of TCI Group's subsidiaries are subject to loan agreements that
prohibit or limit the transfer of funds by such subsidiaries to TCI in the form
of dividends, loans, or advances and require that such subsidiaries'
indebtedness to TCI be subordinate to the indebtedness under such loan
agreements.  The amount of net assets of subsidiaries subject to such
restrictions exceeds TCI's consolidated net assets.  TCI Group's subsidiaries
currently have the ability to transfer funds to TCI in amounts exceeding TCI'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.

    TCI Group had approximately $2.5 billion in unused lines of credit at
September 30, 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 the
subsidiaries' 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 5 to the accompanying
combined financial statements for additional information regarding the material
terms of the lines of credit.

    During the nine months ended September 30, 1995, TCI Group sold $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.

                                                                     (continued)





                                     I-159
<PAGE>   161
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


(1) Material changes in financial condition (continued):

    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) $1,486 million and $1,335 million for the nine
months ended September 30, 1995 and 1994, respectively) to interest expense
($735 million and $572 million for the nine months ended September 30, 1995 and
1994, respectively), is determined by reference to the combined statements of
operations.  TCI Group's interest coverage ratio was 2.02% and 2.33% for the
nine months ended September 30, 1995 and 1994, respectively. The decrease in
TCI Group's interest coverage in 1995 is due to 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, over 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 ($679 million and $718 million for the nine
months ended September 30, 1995 and 1994, respectively) reflects net cash from
the operations of the 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, 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 and interest rate hedge agreements.  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 September 30, 1995 and (ii)
variable interest rates on notional amounts of $2,520 million at September 30,
1995.  During the nine months ended September 30, 1995 and 1994, TCI Group's
net payments pursuant to the Fixed Rate Agreements were $1 million and $13
million, respectively.  During the nine months ended September 30, 1995 and
1994, TCI Group's net receipts pursuant to the Variable Rate Agreements were
less than $1 million and $33 million, respectively.  TCI Group's interest rate
hedge agreements fix the maximum variable interest rates on notional amounts of
$225 million at 11%.  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.

                                                                     (continued)


                                     I-160
<PAGE>   162
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)





(1) Material changes in financial condition (continued):

    Approximately thirty-five percent of the franchises held by TCI Group,
involving approximately 3.8 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 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, 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.

    TCI Group competes with operators who provide, via alternative methods of
distribution, the same or similar video programming as that offered by TCI
Group's cable systems.  Technologies competitive with cable television have
been encouraged by Congress and the FCC.  One such technology is direct
broadcast satellite ("DBS").  DBS services are offered directly to subscribers
owning home satellite dishes ("HSDs") that vary in size depending upon the
power of the satellite.  TCI Group has an interest in an entity, Primestar
Partners ("Primestar"), that distributes a multichannel programming service via
a medium power communications satellite to HSDs of approximately three feet in
size.  Two other DBS operators offer video services that can be received by a
satellite that measures approximately eighteen inches in diameter.  DBS
operators can acquire the right to distribute over satellite all of the
significant cable television programming currently available on TCI Group's
cable systems.  As the cost of equipment needed to receive these transmissions
declines, TCI Group expects that it will experience increased and substantial
competition from DBS operators.

    The 1984 Cable Act and FCC rules prohibit telephone companies from offering
video programming directly to subscribers in their telephone service areas
(except in limited circumstances in rural areas).  However, a number of Federal
Court decisions have held that the cross-entry prohibition in the 1984 Cable
Act is unconstitutional as a violation of the telephone company's First
Amendment right to free expression.  In addition, certain proposals are also
pending before the FCC and Congress which would eliminate or relax these
restrictions on telephone companies.  As the current cross-entry restrictions
are removed or relaxed, TCI Group will face increased competition from
telephone companies which, in most cases, have greater financial resources than
TCI Group.  All major telephone companies have announced plans to acquire cable
television systems or provide video services to the home through fiber optic
technology.

    TCI Group is upgrading and installing optical fiber in its cable systems at
a rate such that in two years TCI Group anticipates that it will be serving the
majority of its customers with state-of-the-art fiber optic cable systems.  TCI
Group made capital expenditures of $1,249 million in 1994 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.  


                                                                     (continued)





                                     I-161
<PAGE>   163
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


(1) Material changes in financial condition (continued):

    TCI Group has guaranteed notes payable and other obligations of affiliated
and other companies with outstanding balances of approximately $229 million at
September 30, 1995.  Although there can be no assurance, management of TCI
Group believes that it will not be required to meet any of such obligations,
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
December 31, 2005.  As of September 30, 1995, these agreements require minimum
payments aggregating approximately $290 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.

    TCI Group has guaranteed the obligation of an Australian affiliate to pay
fees for the license to exhibit certain films through the year 2000.  If TCI
Group failed to fulfill its obligation under this guarantee, the beneficiaries
have the right to demand an aggregate payment from TCI Group of $67 million.
Although the aggregate amount of the Australian affiliate's film license fee
obligations is not currently estimable, TCI Group believes that the aggregate
payments pursuant to such affiliate's obligation could be significant.

    TCI Group has committed to provide additional debt or equity funding to
certain of its affiliates.  At September 30, 1995, such commitments aggregated
$124 million.

    On September 23, 1993, the FCC also adopted regulations establishing a 30%
limit on the number of homes passed nationwide that a cable operator may reach
through cable systems in which it holds an attributable interest, with an
increase to 35% if the additional cable systems are minority controlled.
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.  Under the FCC regulations, if the ownership limits are determined to
be constitutional, they may limit TCI Group's future ability to acquire
interests in additional cable systems.

        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.  For example, Congress presently is considering
telecommunications legislation which, if enacted into law, would substantially
change existing law, including among other things, the rate regulation of cable
television systems and the restrictions on telephone companies in the provision
of cable television service.  The Senate approved the Telecommunications
Competition and Deregulation Act of 1995 on June 15, 1995.  The House approved
the Communications Act of 1995 on August 4, 1995.  The differences between the
two bills must be reconciled in Conference Committee, and the resulting
compromise must be voted on by the House and Senate and signed by the
President.  Further material changes in the law and regulatory requirements
must be anticipated and there can be no assurance that TCI Group's business
will not be affected adversely by future legislation, new regulation or
deregulation.
                                                                     (continued)


                                     I-162
<PAGE>   164
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


(1) Material changes in financial condition (continued):

    A number of petitions for reconsideration of various aspects of the
regulations implementing the 1992 Cable Act remain pending before the FCC.
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.  TCI Group is uncertain how the courts and/or the FCC
ultimately will rule or whether such rulings will materially change any
existing rules or statutory requirements.

    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.

(2) Material changes in results of operations:

    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.

    Cable operators may justify rates higher than the benchmark rates
established by the FCC by demonstrating higher costs based upon a
cost-of-service showing.  Under this methodology, cable operators may be
allowed to recover through the rates they charge for Regulated Services, their
normal operating expenses plus an interim rate of return of 11.25% on the rate
base, as defined, which rate may be subject to change in the future.

    The FCC rate regulations govern changes in the rates which cable operators
may charge when adding or deleting a service from a regulated tier of service.
Such regulations allow an increase of either (i) the sum of a prescribed
channel addition factor, the license fee expense and a 7.5% markup, or (ii) a
flat fee increase per added channel and an aggregate limit on such increases
with an additional license fee reserve.  For systems with more than one tier of
cable service, the methodology described in (ii) is not available for the basic
level of service.  The FCC's rate regulations also permit cable operators to
"pass through" increases in programming costs and certain other external costs
which 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
prevailing prices offered in the marketplace by the programmer to unaffiliated
third parties or the fair market value of the programming. On September 22, 
1995, the FCC released its Thirteenth Order on Reconsideration of its rate 
regulations, which provides cable operators with an optional annual methodology 
for adjusting the rates for Regulated Services.
                                                                     (continued)


                                     I-163
<PAGE>   165
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


(2) Material changes in results of operations (continued):

    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 of $1.90 - the aggregate
amount will be approximately $8.7 million.  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 will end 30 days from October 30, 1995.

    Based on the foregoing, 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.

    During 1995, TCI Group's revenue and expenses related to its Primestar
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 370,000 subscribers at September 30, 1995.  During the nine
months ended September 30, 1995, revenue increased from $13 million to $118
million and operating, selling, general and administrative expenses increased
from $10 million to $107 million, as compared to the nine months ended
September 30, 1994.  Primestar incurs significant sales commission and
installation expenses when customers initially subscribe.  Therefore, as long
as Primestar continues to increase its subscriber base at such a rapid pace,
management expects that operating costs and expenses will increase as well.

    Revenue increased 35% and 24% for the three months and nine months ended
September 30, 1995, respectively, as compared to the corresponding periods of
1994.  The three months increase is the result of the effect of certain
acquisitions (16%), an increase in TCI Group's Primestar subscribers (5%),
growth in subscriber levels within TCI Group's cable television systems (4%),
and various other individually insignificant increases (10%).  The nine month
increase is the result of the effect of certain acquisitions (12%), growth in
subscriber levels within TCI Group's cable television systems (4%), an increase
in TCI Group's Primestar subscribers (3%), and various other individually
insignificant increases (5%). 
                                                                     (continued)


                                     I-164
<PAGE>   166
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


(2) Material changes in results of operations (continued):

    Operating and programming expenses increased 51% and 39%, and selling,
general and administrative expenses increassed 40% and 28% for the three months
and nine months ended September 30, 1995, respectively, as compared to the
corresponding periods of 1994.  Such increases are primarily the result of
certain acquisitions and  the increases in Primestar expenses described above.

Due to the aforementioned program to upgrade and install optical fiber in its 
cable systems, TCI Group's capital expenditures and depreciation expense have 
increased.  TCI Group cannot determine whether and to what extent increases in 
the cost of programming will affect its operating costs.  However, such 
programming costs have increased at a greater percentage than increases in 
revenue of Regulated Services.

    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 the nine months ended September 30, 1995, Liberty
Media was allocated $2 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.

    As a result of the IPO and TYC Acquisition, TCI Group recognized a
nonrecurring gain amounting to $123 million (before deducting the related
deferred income tax expense of $50 million) during the three months ended
September 30, 1995.

    At September 30, 1995, TCI Group had an effective ownership interest of
approximately 36% in TeleWest Communications plc ("TeleWest Communications"), a
company that is currently operating and constructing cable television and
telephone systems in the United Kingdom ("UK").  TeleWest Communications, which
is accounted for under the equity method, had a carrying value at September 30,
1995 of $424 million and comprised $43 million of TCI Group's share of its
affiliates' losses during the nine months ended September 30, 1995.  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 $223
million at September 30, 1995 and accounted for $38 million of TCI Group's share
of its affiliates' losses in 1995. 

                                                                     (continued)
        


                                     I-165
<PAGE>   167
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


(2) Material changes in results of operations (continued):

    TeleWest Communications, 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 Communications' networks ultimately will
provide TeleWest Communications with a revenue base that will exceed its
expenses, (ii) that TeleWest Communications' present and future sources of
liquidity (including the net proceeds from TeleWest Communications' November
23, 1994 initial public offering and certain bank credit facilities) will be
sufficient to meet TeleWest Communications' liquidity requirements.  TCI Group
has no present intention to make significant loans to or investments in
TeleWest Communications.

    Subsequent to September 30, 1995, TeleWest Communications completed a merger
( the "TeleWest Merger") with SBC (CableComms) (UK) the result of which was the
formation of a new company, TeleWest plc ("New TeleWest).  Subsequent to the
TeleWest Merger, TCI Group has an effective ownership interest in New TeleWest
of approximately 27%.  As a result of the TeleWest Merger, TCI Group currently
estimates that it will recognize a nonrecurring gain of approximately $164
million (before deducting deferred income taxes of $57 million) during the
fourth quarter of 1995.  Such 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.

    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 ("Y."),
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 International 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.

    TCI Group's net earnings (before earnings of Liberty Media Group and
preferred stock dividends) of $42 million for the three months ended September
30, 1995 represents an increase of $110 million, as compared to TCI Group's net
loss of $68 million for the three months ended September 30, 1994.  Such
increase is primarily the result of the recognition of the aforementioned
nonrecurring gain recognized as a result of the IPO and the TYC Acquisition.

     TCI Group's net loss (before earnings of Liberty Media Group and preferred
stock dividends) of $72 million for the nine months ended September 30, 1995
represents a decrease of $2 million, as compared to TCI Group's net loss of $70
million for the nine months ended Septmeber 30, 1994.  Such decrease is the net
result of the nonrecurring gain recognized as a result of the IPO and the TYC
Acquisition, offset by an increase in interest expense as a result of higher
debt balances and an increase in share of losses of affiliates.    

    In March of 1995, the Financial Accounting Standards Board 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 has not
yet determined the financial statement impact of the adoption of Statement No.
121.


                                     I-166
<PAGE>   168

                           TELE-COMMUNICATIONS, INC.
                                      and
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

         There were no new material legal proceedings or material developments
         in previously reported legal proceedings during the quarter ended
         September 30, 1995 to which TCI or TCIC or any of their consolidated
         subsidiaries is a party or of which any of their property is the
         subject, except as follows:

         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.  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 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.  The defendants
         include, among others, Tele-Communications, Inc., Peter Barton and
         Fred Vierra.  Plaintiffs claim, in part, breach of fiduciary in
         connection with the proposed merger between TBS and Time Warner. 
         Plaintiffs claim that they are being denied an opportunity to maximize
         the value of their TBS stock, and seek to enjoin the defendants from
         entering into any transactions as well as unspecified consequential
         damages and costs and fees.  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.





                                      II-1
<PAGE>   169




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

         At the Annual Meeting of Stockholders held on August 3, 1995, the
         following matters were voted upon by the stockholders of
         Tele-Communications, Inc.:

         1.      To consider and vote upon a proposal (the "Liberty Media Group
                 Stock Proposal") to adopt amendments to the Company's Restated
                 Certificate of Incorporation which would (a) provide for the
                 Company's common stock, par value $1.00 per share, to be
                 divided into four series and for an increase of 825,000,000 in
                 the number of authorized shares so that the Common Stock would
                 consist of (i) 750,000,000 newly authorized shares designated
                 Tele-Communications, Inc. Series A Liberty Media Group common
                 stock, (ii) 75,000,000 newly authorized shares designated
                 Tele-Communications, Inc. Series B Liberty Media Group common
                 stock, (iii) 1,100,000,000 shares of Tele-Communications, Inc.
                 Series A TCI Group common stock created by redesignation of
                 the Company's previously authorized Class A common stock, par
                 value $1.00 per share (including redesignation of outstanding
                 shares), and (iv) 150,000,000 shares of Tele- Communications,
                 Inc. Series B TCI Group common stock created by redesignation
                 of the Company's previously authorized Class B common stock,
                 par value $1.00 per share (including redesignation of
                 outstanding shares), and (b) provide for the voting powers and
                 relative, participating, optional and other special rights and
                 qualifications, limitations and restrictions of each of the
                 four series.  Such proposal required the affirmative vote of
                 66 2/3% of the combined voting power of the outstanding shares
                 of the Class A common stock, Class B common stock and Series C
                 Preferred Stock, voting together as a single class
                 (1,119,453,523 votes for, 8,962,836 votes against, 4,328,185
                 abstentions and 66,903,399 broker non-votes), a majority of
                 the total number of shares of Class A common stock, voting as
                 a separate class (387,473,452 votes for, 7,758,400 votes
                 against, 3,581,307 abstentions and 53,283,558 broker
                 non-votes), and a majority of the total number of shares of
                 Class B common stock, voting as a separate class (72,718,641
                 votes for, 104,699 votes against, 67,716 abstentions and
                 1,262,128 broker non-votes).

         2.      To consider and vote upon a proposal to adopt amendments to
                 the Company's Restated Certificate of Incorporation which
                 would increase the number of authorized shares of Class A
                 common stock, par value $1.00 per share (which would be
                 redesignated Series A TCI Group common stock if the Liberty
                 Media Group Stock Proposal is adopted), from 1,100,000,000 to
                 1,750,000,000 and the number of authorized shares of Series
                 Preferred Stock, par value $.01 per share, from 10,000,000 to
                 50,000,000 and clarify that the rights, powers and preferences
                 of any series of the Series Preferred Stock may differ in any
                 respect from those of any other series thereof (except as
                 limited by the rights of any outstanding class or series of
                 preferred stock).  Such proposal required the affirmative vote
                 of 66 2/3% of the combined voting power of the outstanding
                 shares of the Class A common stock, Class B common stock and
                 Series C Preferred Stock, voting together as a single class
                 (1,084,058,646 votes for, 44,466,371 votes against, 4,219,527
                 abstentions and 66,903,399 broker non-votes).

                                                                     (continued)





                                      II-2
<PAGE>   170




                           TELE-COMMUNICATIONS, INC.
                                      and
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


         3.      To consider and vote upon a proposal to approve the
                 Tele-Communications, Inc. 1994 Non-employee Director Stock
                 Option Plan.  Such proposal required the affirmative vote of a
                 majority of the combined voting power of the outstanding
                 shares of Class A common stock, Class B common stock and
                 Series C Preferred Stock, voting as a single class
                 (1,100,722,975 votes for, 98,216,708 votes against and
                 5,682,834 abstentions), and a majority of the combined number
                 of the outstanding shares of Class A common stock, Class B
                 common stock and Series C Preferred Stock, voting as a single
                 class (428,780,740 votes for, 93,835,229 votes against and
                 4,098,296 abstentions).

         4.      The election of John W. Gallivan to the Board of Directors by
                 99.7% of the votes cast at such meeting (1,202,403,461 for;
                 3,468,204 withheld), the election of Jerome H. Kern to the
                 Board of Directors by 99.7% of the votes cast at such meeting
                 (1,201,804,203 for; 4,067,462 withheld) and the election of
                 Bob Magness to the Board of Directors by 99.7% of the votes
                 cast at such meeting (1,201,949,370 for; 3,922,295 withheld).
                 Election of directors required a plurality of the votes of the
                 outstanding shares of Class A common stock, Class B common
                 stock, Class B Preferred Stock and Class C Preferred Stock,
                 voting as a single class.  Additionally, subsequent to the
                 meeting, Messrs. Donne F. Fisher, John C.  Malone, Kim
                 Magness, R.E. Turner, Tony Coelho and Robert A Naify continued
                 to serve as members of the Board of Directors subject to
                 re-election over staggered three year terms.





                                      II-3
<PAGE>   171





                           TELE-COMMUNICATIONS, INC.
                                      and
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES


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

    (a)      Exhibits:

             (27.1)  Tele-Communications, Inc. Financial Data Schedule

             (27.2)  TCI Communications, Inc. Financial Data Schedule

    (b)      Reports on Form 8-K filed during the quarter ended September 30,
             1995:

<TABLE>
<CAPTION>
                      Date of                 Item
                      Report                Reported    Financial Statements Filed
                      -------               --------    --------------------------
             <S>                             <C>                            <C>
             Tele-Communications, Inc.:
             --------------------------
             
             
             July 26, 1995                   Item 5                         None.
             August 10, 1995                 Item 5                         None.
             
             
             TCI Communications, Inc.:
             -------------------------
             
             July 26, 1995                   Item 5                         None.
             August 1, 1995                  Item 5                         None.
             
             September 13, 1995              Item 5                         None.
</TABLE>





                                      II-4
<PAGE>   172


                                   SIGNATURES

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

                                              TELE-COMMUNICATIONS, INC.
                                        
                                        
                                        
                                        
                                        
 Date:  November 13, 1995              By:    /s/ John C. Malone              
                                              ---------------------------------
                                                    John C. Malone
                                                      President, and Chief
                                                        Executive Officer
                                        
                                        
                                        
                                        
                                        
 Date:  November 13, 1995              By:    /s/ Donne F. Fisher             
                                              ---------------------------------
                                                    Donne F. Fisher
                                                      Executive Vice President
                                                         (Principal Financial 
                                                         and Accounting Officer)
                                        
                                        
                                        
                                        
                                        
                                              TCI COMMUNICATIONS, INC.
                                        
                                        
                                        
                                        
                                        
 Date:  November 13, 1995              By:    /s/ Brendan R. Clouston         
                                              ---------------------------------
                                        
                                                    Brendan R. Clouston
                                                      President, and Chief
                                                        Executive Officer
                                        
                                        
                                        
                                        
 Date:  November 13, 1995              By:    /s/ Gary K. Bracken             
                                              ---------------------------------
                                                    Gary K. Bracken, Controller
                                                      and Senior Vice President
                                                     (Principal Financial 
                                                       Officer and Chief 
                                                       Accounting Officer)


                                      II-5
<PAGE>   173



                                 EXHIBIT INDEX


The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:


    (27.1)      Tele-Communications, Inc. Financial Data Schedule

    (27.2)      TCI Communications, Inc. Financial Data Schedule