<PAGE>   1
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                    FORM 10-Q


[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 
        For the quarterly period ended June 30, 1998

                                       OR

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


Commission File Number 0-20421


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


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


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


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


         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 treasury shares and shares held by subsidiaries) as of July 31,
1998, was:

Tele-Communications, Inc. Series A TCI Group common stock - 473,411,579 shares,

Tele-Communications, Inc. Series B TCI Group common stock - 49,932,623 shares,

             Tele-Communications, Inc. Series A Liberty Media Group
                       common stock - 326,005,365 shares,

      Tele-Communications, Inc. Series B Liberty Media Group common stock
                              - 31,699,575 shares,

       Tele-Communications, Inc. Series A TCI Ventures Group common stock
                              - 376,964,436 shares,
                                       and

       Tele-Communications, Inc. Series B TCI Ventures Group common stock
                              - 45,433,352 shares.




<PAGE>   2


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                        June 30,       December 31,
                                                                          1998             1997
                                                                      ------------     ------------
Assets                                                                     amounts in millions

<S>                                                                   <C>                       <C>
Cash and cash equivalents                                             $        295              244

Restricted cash (note 4)                                                       314               40

Trade and other receivables, net                                               578              529

Prepaid program rights                                                         120              104

Committed program rights                                                       132              115

Investments in affiliates, accounted for under the equity method,
    and related receivables (note 5)                                         4,455            3,063

Investment in Time Warner, Inc. ("Time Warner") (note 6)                     4,899            3,555
                                                                             
Property and equipment, at cost:
    Land                                                                        70               96
    Distribution systems                                                     9,854           10,784
    Support equipment and buildings                                          1,741            1,558
                                                                      ------------     ------------
                                                                            11,665           12,438
    Less accumulated depreciation                                            4,789            4,759
                                                                      ------------     ------------
                                                                             6,876            7,679
                                                                      ------------     ------------

Franchise costs                                                             16,083           17,910
    Less accumulated amortization                                            2,645            2,763
                                                                      ------------     ------------
                                                                            13,438           15,147
                                                                      ------------     ------------

Other assets, net of amortization                                            2,170            1,837
                                                                      ------------     ------------

                                                                      $     33,277           32,313
                                                                      ============     ============
</TABLE>


                                                                     (continued)


                                      I-1
<PAGE>   3

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Balance Sheets, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                  June 30,        December 31,
                                                                                    1998              1997
                                                                                ------------      ------------
Liabilities and Stockholders' Equity                                                  amounts in millions
<S>                                                                             <C>                <C>
Accounts payable                                                                $        121               169

Accrued interest                                                                         256               258

Accrued programming expense                                                              442               399

Other accrued expenses                                                                   988               997

Deferred option premium (note 6)                                                          --               306

Debt (note 8)                                                                         14,422            15,250

Deferred income taxes                                                                  6,934             6,104

Other liabilities                                                                      1,061               664
                                                                                ------------      ------------

    Total liabilities                                                                 24,224            24,147
                                                                                ------------      ------------

Minority interests in equity of consolidated subsidiaries                              1,399             1,565

Redeemable securities:
    Preferred stock (note 9)                                                             299               655
    Common stock                                                                          37                 5

Company-obligated mandatorily redeemable preferred securities of subsidiary
    trusts ("Trust Preferred Securities") holding solely subordinated debt
    securities of TCI Communications, Inc.  ("TCIC")(note 10)                          1,500             1,500

Stockholders' equity (note 11):
    Series Preferred Stock, $.01 par value                                                --                --
    Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
       Stock, $.01 par value                                                              --                --
    Common stock, $1 par value:
       Series A TCI Group. Authorized 1,750,000,000 shares; issued
          610,489,561 shares in 1998 and 605,616,143 shares in 1997                      610               606
       Series B TCI Group. Authorized 150,000,000 shares; issued
          73,942,428 shares in 1998 and 78,203,044 shares in 1997                         74                78
       Series A Liberty Media Group.  Authorized 750,000,000 shares;
          issued 357,740,005 shares in 1998 and 344,962,521 shares in 1997               358               345
       Series B Liberty Media Group.  Authorized 75,000,000 shares;
          issued 35,245,018 shares in 1998 and 35,180,385 shares in 1997                  35                35
       Series A TCI Ventures Group. Authorized 750,000,000 shares;
          issued 377,092,104 shares in 1998 and 377,386,032 shares in 1997               377               377
       Series B TCI Ventures Group. Authorized 75,000,000 shares;
          issued 45,799,330 shares in 1998 and 32,532,800 shares in 1997                  46                33
    Additional paid-in capital                                                         5,271             5,063
    Accumulated other comprehensive earnings, net of taxes (note 1)                    1,630               772
    Accumulated deficit                                                                 (852)             (877)
                                                                                ------------      ------------
                                                                                       7,549             6,432
    Treasury stock and common stock held by subsidiaries, at cost (note 11)           (1,731)           (1,991)
                                                                                ------------      ------------

          Total stockholders' equity                                                   5,818             4,441
                                                                                ------------      ------------
Commitments and contingencies (notes 2, 5, 7 and 14)
                                                                                $     33,277            32,313
                                                                                ============      ============
</TABLE>


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 ended         Six months ended
                                                                                           June 30,                  June 30,
                                                                                     --------------------      --------------------
                                                                                       1998        1997         1998         1997
                                                                                     -------      -------      -------      -------
                                                                                                  amounts in millions,
                                                                                                except per share amounts
<S>                                                                                  <C>            <C>          <C>          <C>  
Revenue                                                                              $ 1,813        1,882        3,685        3,703

Operating costs and expenses:
   Operating                                                                             685          731        1,423        1,421
   Selling, general and administrative                                                   462          435          890          828
   Stock compensation                                                                    183           56          412           71
   Cost of distribution agreements (note 13)                                              --           --           83           --
   Depreciation and amortization                                                         420          407          843          781
                                                                                     -------      -------      -------      -------
                                                                                       1,750        1,629        3,651        3,101
                                                                                     -------      -------      -------      -------

         Operating income                                                                 63          253           34          602

Other income (expense):
   Interest expense                                                                     (251)        (294)        (536)        (583)
   Interest and dividend income                                                           18           18           39           39
   Share of losses of affiliates, net (note 5)                                          (351)        (182)        (589)        (338)
   Loss on early extinguishment of debt (note 8)                                         (22)         (11)         (38)         (11)
   Minority interests in earnings of consolidated subsidiaries, net
      (note 10)                                                                          (43)         (56)         (29)         (94)
   Gain on issuance of equity interest by subsidiary (note 7)                             --           21           38           21
   Gain on issuance of stock by equity investee (note 5)                                 201           --          201           --
   Gain on disposition of assets (notes 6 and 7)                                          36           43        1,099           62
   Other, net                                                                            (19)          (4)         (29)          (6)
                                                                                     -------      -------      -------      -------
                                                                                        (431)        (465)         156         (910)
                                                                                     -------      -------      -------      -------

      Earnings (loss) before income taxes                                               (368)        (212)         190         (308)

Income tax benefit (expense)                                                              75           58         (165)          96
                                                                                     -------      -------      -------      -------

      Net earnings (loss)                                                               (293)        (154)          25         (212)

Dividend requirements on preferred stocks                                                 (2)         (11)         (13)         (21)
                                                                                     -------      -------      -------      -------

      Net earnings (loss) attributable to common stockholders                        $  (295)        (165)          12         (233)
                                                                                     =======      =======      =======      =======

Net earnings (loss) attributable to common stockholders:
   TCI Group Series A and Series B common stock                                      $  (144)        (171)          83         (255)
   Liberty Media Group Series A and Series B common stock                                (65)           6          238           22
   TCI Ventures Group Series A and Series B common stock                                 (86)          --         (309)          --
                                                                                     -------      -------      -------      -------

                                                                                     $  (295)        (165)          12         (233)
                                                                                     =======      =======      =======      =======
Basic earnings (loss) attributable to common stockholders per
   common share (note 3):
     TCI Group Series A and Series B common stock                                    $  (.28)        (.25)         .16         (.38)
                                                                                     =======      =======      =======      =======
     Liberty Media Group Series A and Series B common stock                          $  (.18)         .02          .67          .06
                                                                                     =======      =======      =======      =======
     TCI Ventures Group Series A and Series B common stock                           $  (.20)          --         (.73)          --
                                                                                     =======      =======      =======      =======

Diluted earnings (loss) attributable to common stockholders per common and
   potential common share (note 3):
     TCI Group Series A and Series B common stock                                    $  (.28)        (.25)         .15         (.38)
                                                                                     =======      =======      =======      =======
     Liberty Media Group Series A and Series B common stock                          $  (.18)         .02          .61          .05
                                                                                     =======      =======      =======      =======
     TCI Ventures Group Series A and Series B common stock                           $  (.20)          --         (.73)          --
                                                                                     =======      =======      =======      =======

Comprehensive earnings (loss) (note 1)                                               $   215         (127)         883         (210)
                                                                                     =======      =======      =======      =======
</TABLE>


See accompanying notes to consolidated financial statements.



                                      I-3
<PAGE>   5




                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                 Consolidated Statement of Stockholders' Equity

                         Six months ended June 30, 1998
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                                                                  
                                                                                                                                  
                                                                                          Common Stock                            
                                                                  --------------------------------------------------------------  
                                                        Class B         TCI Group       Liberty Media Group   TCI Ventures Group  
                                                       Preferred  -------------------   ------------------   -------------------  
                                                        Stock      Series A  Series B   Series A  Series B   Series A   Series B  
                                                       --------   --------   --------   --------  --------   --------   --------  
                                                                                  amounts in millions 
<S>                                                    <C>             <C>         <C>       <C>        <C>       <C>         <C> 
Balance at January 1, 1998                             $     --        606         78        345        35        377         33  
                                                                                                                                  
    Net earnings                                             --         --         --         --        --         --         --  
    Exchange of common stock in connection with                                                                                   
      the Magness Settlement (note 12)                       --         --         11         --        --         --         13  
    Issuance of common stock in connection with                                                                                   
      settlement of litigation                               --          1          1         --        --         --         --  
    Reclassification to redeemable securities                                                                                     
      of redemption amount of common stock                                                                                        
      subject to put obligation                              --         --         --         --        --         --         --  
    Premium received in connection with put                                                                                       
      obligation                                             --         --         --         --        --         --         --  
    Issuance of common stock for acquisitions                                                                                     
      (note 7)                                               --          1         --          7        --         13         --  
    Repurchase of common stock to be held in                                                                                      
      treasury                                               --         --         --         --        --         --         --  
    Repurchase and retirement of common stock                --         --         --         --        --         --         --  
    Retirement of common stock held in treasury              --        (12)       (16)        --        --        (13)        --  
    Gain from issuance of equity by subsidiary                                                                                    
      and equity investee, net of taxes (note 5)             --         --         --         --        --         --         --  
    Issuance of common stock upon conversion of                                                                                   
      notes and preferred stock (notes                                                                                            
      8 and 9)                                               --         14         --          6        --         --         --  
    Payment of call premiums (note 12)                       --         --         --         --        --         --         --  
    Recognition of fees related to Exchange                                                                                       
      (note 12)                                              --         --         --         --        --         --         --  
    Reimbursement of fees related to Exchange                                                                                     
      (note 12)                                              --         --         --         --        --         --         --  
    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, net of                                                                                       
      taxes                                                  --         --         --         --        --         --         --  
                                                       --------   --------   --------   --------  --------   --------   --------  
                                                                                                                                  
Balance at June 30, 1998                               $     --        610         74        358        35        377         46  
                                                       ========   ========   ========   ========  ========   ========   ========  


<CAPTION>
                                                                                                  Treasury
                                                                                                  stock and
                                                                                                   common
                                                                      Accumulated                   stock
                                                           Additional   other                       held by           Total
                                                            paid-in  comprehensive  Accumulated   subsidiaries,   stockholders' 
                                                            capital    earnings       deficit       at cost           equity    
                                                            --------   --------       --------      --------         --------   
                                                                                      amounts in millions
<S>                                                            <C>          <C>            <C>      <C>               <C>       
Balance at January 1, 1998                                     5,063        772            (877)    (1,991)           4,441     
                                                                                                                                
    Net earnings                                                  --         --              25         --               25     
    Exchange of common stock in connection with                                                                                 
      the Magness Settlement (note 12)                           509         --              --       (533)              --     
    Issuance of common stock in connection with                                                                                 
      settlement of litigation                                    48         --              --         (3)              47     
    Reclassification to redeemable securities                                                                                   
      of redemption amount of common stock                                                                                      
      subject to put obligation                                  (32)        --              --         --              (32)    
    Premium received in connection with put                                                                                     
      obligation                                                   3         --              --         --                3     
    Issuance of common stock for acquisitions                                                                                   
      (note 7)                                                   353         --              --         --              374     
    Repurchase of common stock to be held in                                                                                    
      treasury                                                    --         --              --         (5)              (5)    
    Repurchase and retirement of common stock                     (8)        --              --         --               (8)    
    Retirement of common stock held in treasury                 (760)        --              --        801               --     
    Gain from issuance of equity by subsidiary                                                                                  
      and equity investee, net of taxes (note 5)                  67         --              --         --               67     
    Issuance of common stock upon conversion of                                                                                 
      notes and preferred stock (notes                                                                                          
      8 and 9)                                                   329         --              --         --              349     
    Payment of call premiums (note 12)                          (274)        --              --         --             (274)    
    Recognition of fees related to Exchange                                                                                     
      (note 12)                                                  (20)        --              --         --              (20)    
    Reimbursement of fees related to Exchange                                                                                   
      (note 12)                                                   11         --              --         --               11     
    Accreted dividends on all classes of                                                                                        
      preferred stock                                            (13)        --              --         --              (13)    
    Accreted dividends on all classes of                                                                                        
      preferred stock not subject to mandatory                                                                                  
      redemption requirements                                      5         --              --         --                5     
    Payment of preferred stock dividends                         (10)        --              --         --              (10)    
    Foreign currency translation adjustment                       --         (3)             --         --               (3)    
    Change in unrealized holding gains for                                                                                      
      available-for-sale securities, net of                                                                                     
      taxes                                                       --        861              --         --              861     
                                                            --------   --------        --------   --------         --------     
                                                                                                                                
Balance at June 30, 1998                                       5,271      1,630            (852)    (1,731)           5,818     
                                                            ========   ========        ========   ========         ========     
</TABLE>


See accompanying notes to consolidated financial statements.



                                      I-4
<PAGE>   6


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                Six months ended
                                                                                    June 30,
                                                                           ---------------------------
                                                                               1998           1997
                                                                           ------------   ------------
                                                                                amounts in millions
                                                                                   (see note 4)
<S>                                                                        <C>                    <C>  
Cash flows from operating activities:
   Net earnings (loss)                                                     $         25           (212)
   Adjustments to reconcile net earnings (loss) to net cash provided by
      operating activities:
        Depreciation and amortization                                               843            781
        Cost of distribution agreements                                              83             --
        Stock compensation                                                          412             71
        Payments of obligation relating to stock compensation                      (136)           (14)
        Share of losses of affiliates, net                                          589            338
        Loss on early extinguishment of debt                                         38             11
        Minority interests in earnings of consolidated subsidiaries, net             29             94
        Gain on issuance of equity interest by subsidiary                           (38)           (21)
        Gain on issuance of stock by equity investee                               (201)            --
        Gain on disposition of assets                                            (1,099)           (62)
        Deferred income tax expense (benefit)                                       122           (147)
        Payments of restructuring charges                                            (5)           (19)
        Other noncash credits                                                        (1)            --
        Changes in operating assets and liabilities, net of
          the effect of acquisitions:
             Change in receivables                                                  (40)          (125)
             Change in prepaids                                                     (33)           (92)
             Change in other accruals and payables                                  (46)           162
                                                                           ------------   ------------

                Net cash provided by operating activities                           542            765
                                                                           ------------   ------------

Cash flows from investing activities:
   Cash paid for acquisitions                                                       (72)          (206)
   Capital expended for property and equipment                                     (560)          (215)
   Investments in and loans to affiliates                                          (788)          (184)
   Collections of loans to affiliates                                               952             72
   Proceeds from disposition of assets                                              643            193
   Change in restricted cash                                                       (274)           (13)
   Cash received in exchanges                                                        --             15
   Other investing activities                                                       (10)           (14)
                                                                           ------------   ------------

               Net cash used in investing activities                               (109)          (352)
                                                                           ------------   ------------

Cash flows from financing activities:
   Borrowings of debt                                                             2,966          1,238
   Repayments of debt                                                            (2,895)        (2,030)
   Prepayment penalties                                                             (34)            (7)
   Repurchase of common stock to be held in treasury                                 (5)           (13)
   Repurchase and retirement of common stock                                         (8)            --
   Repurchase of subsidiary common stock                                             (7)           (42)
   Payment of preferred stock dividends                                             (23)           (23)
   Payment of dividends on subsidiary preferred stock and Trust Preferred
      Securities                                                                    (95)           (85)
   Payment of call premiums                                                        (274)            --
   Proceeds from issuance of subsidiary preferred stock                              --             48
   Proceeds from issuance of Trust Preferred Securities                              --            490
   Other financing activities                                                        (7)            10
                                                                           ------------   ------------

               Net cash used in financing activities                               (382)          (414)
                                                                           ------------   ------------

               Net increase (decrease) in cash and cash equivalents                  51             (1)

               Cash and cash equivalents at beginning of period                     244            355
                                                                           ------------   ------------

               Cash and cash equivalents at end of period                  $        295            354
                                                                           ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.



                                      I-5
<PAGE>   7


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                                  June 30, 1998
                                   (unaudited)


(1)      Basis of Presentation

         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 for the year
         ended December 31, 1997.

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

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


                                                                     (continued)




                                      I-6
<PAGE>   8

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

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

         Targeted Stock

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue two new series of stock,
         Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series A Stock") and
         Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series B Stock," and together
         with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
         Liberty Group Stock is intended to reflect the separate performance of
         TCI's assets which produce and distribute programming services
         ("Liberty Media Group"). Additionally, the stockholders, of TCI
         approved the redesignation of the previously authorized Class A and
         Class B common stock into Tele-Communications, Inc. Series A TCI Group
         Common Stock, par value $1.00 per share (the "TCI Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Group Common Stock,
         par value $1.00 per share (the "TCI Group Series B Stock", and together
         with the TCI Group Series A Stock, the "TCI Group Stock"),
         respectively. On August 10, 1995, TCI distributed, in the form of a
         dividend, 2.25 shares of Liberty Group Stock for each four shares of
         TCI Group Stock owned (the "Liberty Distribution").

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
         Stock, par value $1.00 per share (the "TCI Ventures Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
         Common Stock, par value $1.00 per share (the "TCI Ventures Group Series
         B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
         Ventures Group Stock"). The TCI Ventures Group Stock is intended to
         reflect the separate performance of the "TCI Ventures Group," which is
         comprised of TCI's principal international assets and businesses and
         substantially all of TCI's non-cable and non-programming assets.


                                                                     (continued)



                                      I-7
<PAGE>   9

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


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

         The TCI Group Stock is intended to reflect the separate performance of
         TCI and its subsidiaries and assets not attributed to Liberty Media
         Group or TCI Ventures Group. Such subsidiaries and assets are referred
         to as "TCI Group" and are comprised primarily of TCI's domestic cable
         and communications business. Collectively, the TCI Group, the Liberty
         Media Group and the TCI Ventures Group are referred to as the "Groups"
         and individually, may be referred to herein as a "Group." The TCI Group
         Series A Stock, TCI Ventures Group Series A Stock and the Liberty Group
         Series A Stock are sometimes collectively referred to herein as the
         "Series A Stock," and the TCI Group Series B Stock, TCI Ventures Group
         Series B Stock and Liberty Group Series B Stock are sometimes
         collectively referred to herein as the "Series B Stock."

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense among TCI Group, Liberty Media Group and
         TCI Ventures Group for the purpose of preparing their respective
         combined financial statements, each such Group in the capital structure
         of TCI, which encompasses the TCI Group Stock, Liberty Group Stock and
         TCI Ventures Group Stock, does not affect the ownership or the
         respective legal title to such assets or responsibility for liabilities
         of TCI or any of its subsidiaries. TCI and its subsidiaries each
         continue to be responsible for their respective liabilities. Holders of
         TCI Group Stock, Liberty Group Stock and TCI Ventures Group Stock are
         common stockholders of TCI and are subject to risks associated with an
         investment in TCI and all of its businesses, assets and liabilities.
         The redesignation of TCI Group Stock and the issuance of Liberty Group
         Stock and TCI Ventures 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
         separate Groups and the market prices of shares of TCI Group Stock,
         Liberty Group Stock and TCI Ventures Group Stock. In addition, net
         losses of any portion of TCI, dividends or distributions on, or
         repurchases of, any series of common stock, and dividends on, or
         certain repurchases of preferred stock would reduce funds of TCI
         legally available for dividends on all series of common stock.
         Accordingly, financial information of any one Group should be read in
         conjunction with the financial information of TCI and the other Groups.

                                                                     (continued)



                                      I-8
<PAGE>   10

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The common stockholders' equity value of TCI Ventures Group or Liberty
         Media Group that, at any relevant time, is attributed to TCI Group, and
         accordingly not represented by outstanding TCI Ventures Group Stock or
         Liberty Group Stock, respectively, is referred to as "Inter-Group
         Interest." Prior to consummation of the Liberty Distribution and TCI
         Ventures Exchange, TCI Group had a 100% Inter-Group Interest in Liberty
         Media Group and TCI Ventures Group, respectively. Following
         consummation of the Liberty Distribution and TCI Ventures Exchange, TCI
         Group no longer has Inter-Group Interests in Liberty Media Group and
         TCI Ventures Group, respectively. For periods in which an Inter-Group
         Interest exists, TCI Group accounts for its Inter-Group Interest in a
         manner similar to the equity method of accounting. Following
         consummation of the Liberty Distribution and the TCI Ventures Exchange,
         an Inter-Group Interest would be created with respect to Liberty Media
         Group or TCI Ventures Group only if a subsequent transfer of cash or
         other property from TCI Group to Liberty Media Group or TCI Ventures
         Group is specifically designated by the Board as being made to create
         an Inter-Group Interest or if outstanding shares of Liberty Group Stock
         or TCI Ventures Stock, respectively, are purchased with funds
         attributable to TCI Group. Management of TCI believes that generally
         accepted accounting principles require that Liberty Media Group or TCI
         Ventures Group be consolidated with TCI Group for all periods in which
         TCI Group held an Inter-Group Interest in Liberty Media Group or TCI
         Ventures Group, respectively.

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

         All debt incurred or preferred stock issued by TCI and its subsidiaries
         is (unless the Board otherwise provides) specifically attributed to and
         reflected in the combined financial statements of the Group that
         includes the entity which incurred the debt or issued the preferred
         stock or, in case the entity incurring the debt or issuing the
         preferred stock is Tele-Communications, Inc., the TCI Group. The Board
         could, however, determine from time to time that debt incurred or
         preferred stock issued by entities included in a Group should be
         specifically attributed to and reflected in the combined financial
         statements of one of the other Groups to the extent that the debt is
         incurred or the preferred stock is issued for the benefit of such other
         Group.

                                                                     (continued)



                                      I-9
<PAGE>   11

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Although it is management's intention that each Group would normally
         arrange for the external financing required to satisfy its respective
         liquidity requirements, the cash needs of one Group may exceed the
         liquidity sources of such Group. In such circumstances, one of the
         other Groups may transfer funds to such Group. Such transfers of funds
         among the Groups will be reflected as borrowings or, if determined by
         the Board, in the case of a transfer from TCI Group to either Liberty
         Media Group or TCI Ventures Group, reflected as the creation of, or
         increase in, TCI Group's Inter-Group Interest in such Group or, in the
         case of a transfer from either Liberty Media Group or TCI Ventures
         Group to TCI Group, reflected as a reduction in TCI Group's Inter-Group
         Interest in such Group. There are no specific criteria for determining
         when a transfer will be reflected as a borrowing or as an increase or
         reduction in an Inter-Group Interest. 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 needs
         of TCI, the financing needs and objectives of the Groups, the
         investment objectives of the Groups, the availability, cost and time
         associated with alternative financing sources, prevailing interest
         rates and general economic conditions.

         Loans from one Group to another Group generally will bear interest at
         such rates and have such repayment schedules and other terms as are
         established from time to time by, or pursuant to procedures 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 needs of TCI, the use of proceeds by
         and creditworthiness of the recipient Group, the capital expenditure
         plans of and investment opportunities available to each Group and the
         availability, cost and time associated with alternative financing
         sources.

         The combined balance sheets of a Group reflect its net loans or
         advances to or loans or advances from the other Groups. Similarly, the
         respective combined statements of operations of the Groups reflect
         interest income or expense, as the case may be, associated with such
         loans or advances and the respective combined statements of cash flows
         of the Groups reflect changes in the amounts of loans or advances
         deemed outstanding. In the historical combined financial statements,
         net loans or advances between Groups have been and will continue to be
         included as a component of each respective Group's combined equity.

         Although any increase in TCI Group's Inter-Group Interest in Liberty
         Media Group or TCI Ventures Group resulting from an equity contribution
         by the TCI Group to Liberty Media Group or TCI Ventures Group or any
         decrease in such Inter-Group Interest resulting from a transfer of
         funds from Liberty Media Group or TCI Ventures Group to TCI Group would
         be determined by reference to the market value of the Liberty Group
         Series A Stock, or the TCI Ventures Group Series A Stock, respectively,
         as of the date of such transfer, such an increase could occur at a time
         when such shares could be considered undervalued and such a decrease
         could occur at a time when such shares could be considered overvalued.

                                                                     (continued)



                                      I-10
<PAGE>   12
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         All financial impacts of issuances and purchases of shares of TCI Group
         Stock, TCI Ventures Group Stock or Liberty Group Stock, which are
         attributed to TCI Group, TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group, TCI Ventures Group or Liberty Media
         Group, respectively. All financial impacts of issuances of shares of
         TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
         are attributed to TCI Group in respect of a reduction in TCI Group's
         Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group. Financial impacts of dividends or
         other distributions on TCI Group Stock, TCI Ventures Group Stock or
         Liberty Group Stock, will be attributed entirely to TCI Group, TCI
         Ventures Group or Liberty Media Group, respectively, except that
         dividends or other distributions on TCI Ventures Group Stock or Liberty
         Group Stock will (if at the time there is an Inter-Group Interest in
         TCI Ventures Group or Liberty Media Group, respectively) result in TCI
         Group being credited, and TCI Ventures Group or Liberty Media Group
         being charged (in addition to the charge for the dividend or other
         distribution paid), with an amount equal to the product of the
         aggregate amount of such dividend or other distribution paid or
         distributed in respect of outstanding shares of TCI Ventures Group
         Stock or Liberty Group Stock and a fraction of the numerator of which
         is TCI Ventures Group or Liberty Media Group "Inter-Group Interest
         Fraction" and the denominator of which is the TCI Ventures Group or the
         Liberty Media Group "Outstanding Interest Fraction" (both as defined).
         Financial impacts of repurchases of TCI Ventures Group Stock or Liberty
         Group Stock, the consideration for which is charged to TCI Group, will
         be to such extent reflected in the combined financial statements of TCI
         Group and will result in an increase in TCI Group's Inter-Group
         Interest in TCI Ventures Group or Liberty Media Group, respectively.


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



(2)      Proposed Merger

         TCI and AT&T Corp. ("AT&T") have agreed to a merger (the "Merger")
         pursuant to, and subject to the terms and conditions set forth in, the
         Agreement and Plan of Restructuring and Merger, dated as of June 23,
         1998 (the "Merger Agreement"), among TCI, AT&T and Italy Merger Corp.,
         an indirect wholly-owned subsidiary of AT&T. In the Merger, TCI will
         become a wholly-owned subsidiary of AT&T and (i) each share of TCI
         Group Series A Stock will be converted into .7757 of a share of common
         stock, par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii)
         each share of TCI Group Series B Stock will be converted into .8533 of
         a share of AT&T Common Stock, (iii) each share of Liberty Group Series
         A Stock will be converted into one share of a newly authorized class of
         AT&T common stock to be designated as the Class A Liberty Group Common
         Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
         Stock") and (iv) each share of Liberty Group Series B Stock will be
         converted into one share of a newly authorized class of AT&T common
         stock to be designated as the Class B Liberty Group Common Stock, par
         value $1.00 per share (the "AT&T Liberty Class B Tracking Stock" and
         together with the AT&T Liberty Class A Tracking Stock, the "AT&T
         Liberty Tracking Stock"). In addition, TCI has announced its intention,
         subject to stockholder approval, to combine the assets and businesses
         of Liberty Media Group and TCI Ventures Group and reclassify each share
         of TCI Ventures Group Series A Stock as .52 of a share of Liberty Group
         Series A Stock and each share of TCI Ventures Group Series B Stock as
         .52 of a share of Liberty Group Series B Stock. If such combination and
         reclassification does not occur prior to the Merger, then in the Merger
         each share of TCI Ventures Group Series A Stock and TCI Ventures Group
         Series B Stock will be converted into .52 of a share of the
         corresponding series of AT&T Liberty Tracking Stock. In general, the
         holders of shares of AT&T Liberty Class A Tracking Stock and the
         holders of shares of AT&T Liberty Class B Tracking Stock will vote
         together as a single class with the holders of shares of AT&T Common
         Stock on all matters presented to such stockholders, with the holders
         being entitled to one-tenth (1/10th) of a vote for each share of AT&T
         Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
         Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
         held.

         In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
         Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
         Preferred Stock, Series C-TCI Group will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current conversion
         rate of such preferred stock (132.86 shares per preferred share), (iii)
         TCI's Convertible Preferred Stock Series C-Liberty Media Group will be
         converted into a number of shares of AT&T Liberty Class A Tracking
         Stock equal to the current conversion rate of such preferred stock
         (56.25 shares per preferred share), (iv) TCI's Redeemable Convertible
         TCI Group Preferred Stock, Series G will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current conversion
         rate of such preferred stock (1.19 shares per preferred share) and (v)
         TCI's Redeemable Convertible Liberty Media Group Preferred Stock,
         Series H will be converted into a number of shares of AT&T Liberty
         Class A Tracking Stock equal to the current conversion rate of such
         preferred stock (0.590625 of a share per preferred share).


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         The shares of AT&T Liberty Tracking Stock to be issued in the Merger
         will be a newly authorized class of common stock of AT&T which will be
         intended to reflect the separate performance of the businesses and
         assets attributed to the "Liberty/Ventures Group." The Liberty/Ventures
         Group following the Merger will be made up of the corporations,
         partnerships and other entities and interests which comprise Liberty
         Media Group and TCI Ventures Group at the time of the Merger. Pursuant
         to the Merger Agreement, immediately prior to the Merger, certain
         assets currently held by TCI Ventures Group (including, among others,
         the shares of AT&T Common Stock received in the merger of AT&T and
         Teleport Communications Group, Inc. ("TCG"), the stock of At Home
         Corporation ("@Home") held by TCI Ventures Group and the assets and
         business of the National Digital Television Center, Inc. ("NDTC")) will
         be transferred to TCI Group in exchange for approximately $5.5 billion
         in cash. Also, upon consummation of the Merger, Liberty/Ventures Group
         will become entitled to the benefit of all of the net operating loss
         carryforwards available to the entities included in TCI's consolidated
         income tax return as of the date of the Merger. Additionally, certain
         warrants currently attributed to TCI Group will be transferred to
         Liberty/Ventures Group in exchange for up to $176 million in cash.
         Certain agreements to be entered into at the time of the Merger as
         contemplated by the Merger Agreement will, among other things, provide
         preferred vendor status to Liberty/Ventures Group for digital basic
         distribution on AT&T's systems of new programming services created by
         Liberty/Ventures Group provide for a renewal of existing affiliation
         agreements and provide for the business of the Liberty/Ventures Group
         to continue to be managed following the Merger by certain members of
         TCI's management who currently manage the businesses of Liberty Media
         Group and TCI Ventures Group.

         If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
         stockholders to approve the Merger prior to March 31, 1999, (ii) the
         withdrawal or modification by the AT&T Board of Directors of its
         approval of the transaction, or (iii) the failure to obtain necessary
         governmental and regulatory approvals by September 30, 1999, which
         failure occurs as a result of the announcement by AT&T of a significant
         transaction which delays receipt of such governmental approvals, AT&T
         will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
         the Merger Agreement due to the failure of TCI stockholders to approve
         the transaction prior to March 31, 1999 or the withdrawal or
         modification by the TCI Board of Directors of its approval of the
         Merger, TCI will pay to AT&T the sum of $1.75 billion in cash.

         Consummation of the Merger is subject to the satisfaction or waiver of
         customary conditions to closing, including but not limited to, the
         separate approvals of the stockholders of AT&T and TCI, receipt of all
         necessary governmental consents and approvals, and effectiveness of the
         registration statement registering the AT&T Common Stock and AT&T
         Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
         As a result, there can be no assurance that the Merger will be
         consummated or, if the Merger is consummated, as to the date of such
         consummation.

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

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


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements

(a)      TCI Group Stock

         The basic earnings (loss) attributable to TCI Group common stockholders
         per common share for the three months and six months ended June 30,
         1998 and 1997 was computed by dividing net earnings (loss) attributable
         to TCI Group common stockholders by the weighted average number of
         common shares outstanding of TCI Group Stock during the period.

         The diluted earnings attributable to TCI Group common stockholders per
         common share for the six months ended June 30, 1998 was computed by
         dividing net earnings attributable to TCI Group common stockholders,
         which is adjusted by the addition of preferred stock dividends and
         interest accrued during the six months ended June 30, 1998 to net
         earnings, assuming conversion of TCI Group convertible securities as of
         the beginning of the period, by the weighted average number of common
         shares outstanding of TCI Group Stock during the period. Shares
         issuable upon conversion of the Convertible Preferred Stock, Series
         C-TCI Group ("Series C-TCI Group Preferred Stock"), the Redeemable
         Convertible TCI Group Preferred Stock, Series G ("Series G Preferred
         Stock"), preferred stock of subsidiaries, convertible notes payable,
         stock options and other performance awards have been included in the
         computation of weighted average shares, as illustrated below. Shares of
         TCI Group Stock issuable upon exercise of the Malone Right (as defined
         in note 12), and issuable upon conversion of Convertible Preferred
         Stock, Series D ("Series D Preferred Stock") and associated dividend
         payments for the six months ended June 30, 1998 have been excluded as
         adjustments in computing the diluted earnings attributable to TCI Group
         common shareholders per common share as such potential common shares
         are antidilutive for the six months ended June 30, 1998.

         The diluted loss attributable to TCI Group common stockholders per
         common share for the three months ended June 30, 1998 and the three
         months and six months ended June 30, 1997 was computed by dividing net
         loss attributable to TCI Group common stockholders by the weighted
         average number of common shares outstanding of TCI Group Stock during
         the period. Potential common shares were not included in the
         computation of weighted average shares outstanding because their
         inclusion would be anti-dilutive. As a result of the TCI Ventures
         Exchange, the earnings (loss) per share information of TCI Group for
         the three and six months ended June 30, 1997 was restated to exclude
         those assets and related liabilities, which prior to being attributed
         to TCI Ventures Group in connection with the issuance of the TCI
         Ventures Group Stock, had been attributed to TCI Group.

         No material changes in the weighted average outstanding shares or
         potential common shares occurred after June 30, 1998.

                                                                     (continued)


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

                   Notes to Consolidated Financial Statements



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

<TABLE>
<CAPTION>
                                             Three months ended June 30, Six months ended June 30,
                                             --------------------------- -------------------------
                                                   1998         1997         1998        1997
                                               ----------   ----------   ----------  ----------
                                                amounts in millions, except per share amounts
<S>                                            <C>                <C>            <C>       <C>  
Basic EPS:
  Earnings (loss) attributable to
    common stockholders                        $     (144)        (171)          83        (255)
                                               ==========   ==========   ==========  ==========
  Weighted average common shares                      523          683          520         680
                                               ==========   ==========   ==========  ==========
  Basic earnings (loss) per share
    attributable to common
    stockholders                               $     (.28)        (.25)         .16        (.38)
                                               ==========   ==========   ==========  ==========

Diluted EPS:
  Earnings (loss) attributable to
    common stockholders                        $     (144)        (171)          83        (255)
  Add preferred dividend
    requirements                                       --           --            6          --
  Add interest expense                                 --           --            1          --
                                               ----------   ----------   ----------  ----------
  Adjusted earnings (loss)
    attributable to common
    stockholders assuming
    conversion of preferred
    shares and notes payable                   $     (144)        (171)          90        (255)
                                               ==========   ==========   ==========  ==========

  Weighted average common shares                      523          683          520         680
                                               ----------   ----------   ----------  ----------
  Add dilutive potential common
    shares:
    Employee and director
      options and other
      performance awards                               --           --            9          --
    Malone Right                                       --           --           --          --
    Convertible notes payable                          --           --           24          --
    Series C-TCI Group
      Preferred Stock                                  --           --            7          --
    Series D Preferred Stock                           --           --           --          --
    Series G Preferred Stock                           --           --            8          --
    Preferred stock of
      subsidiaries                                     --           --           45          --
                                               ----------   ----------   ----------  ----------
        Dilutive potential
          common shares                                --           --           93          --
                                               ----------   ----------   ----------  ----------
  Diluted weighted average common
    shares                                            523          683          613         680
                                               ==========   ==========   ==========  ==========
  Diluted earnings (loss) per
    share attributable to
    common stockholders                        $     (.28)        (.25)         .15        (.38)
                                               ==========   ==========   ==========  ==========
</TABLE>



                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



(b)      Liberty Group Stock

         The basic earnings (loss) attributable to Liberty Media Group common
         stockholders per common share for the three months and six months ended
         June 30, 1998 and 1997 was computed by dividing net earnings
         attributable to Liberty Media Group common stockholders by the weighted
         average number of common shares outstanding of Liberty Group Stock
         during the period.

         The diluted earnings attributable to Liberty Media Group common
         stockholders per common and potential common share for the six months
         ended June 30, 1998 and the three months and six months ended June 30,
         1997 was computed by dividing earnings attributable to Liberty Media
         Group common stockholders by the weighted average number of common and
         potential common shares outstanding of Liberty Group Stock during the
         period. Shares issuable upon conversion of the Convertible Preferred
         Stock, Series C-Liberty Media Group ("Series C-Liberty Media Group
         Preferred Stock"), the Series D Preferred Stock, the Redeemable
         Convertible Liberty Media Group Preferred Stock, Series H (the "Series
         H Preferred Stock"), convertible notes payable, stock options and other
         performance awards have been included in the computation of weighted
         average shares, as illustrated below. Numerator adjustments for
         dividends and interest associated with the convertible preferred shares
         and convertible notes payable, respectively, were not made to the
         computation of diluted earnings per share as such dividends and
         interest are paid or payable by TCI Group.

         The diluted loss attributable to Liberty Media Group common
         stockholders per common share for the three months ended June 30, 1998
         was computed by dividing the net loss attributable to Liberty Media
         Group common stockholders by the weighted average number of common
         shares outstanding of Liberty Group Stock during the period. Potential
         common shares were not included in the computation of weighted average
         shares outstanding because their inclusion would be anti-dilutive.

         No material changes in the weighted average outstanding shares or
         potential common shares occurred after June 30, 1998.

                                                                     (continued)



                                      I-16
<PAGE>   18

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


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

<TABLE>
<CAPTION>
                                               Three months ended June 30,    Six months ended June 30,
                                               ---------------------------  --------------------------
                                                   1998           1997          1998          1997
                                               ------------   ------------  ------------  ------------
                                                   amounts in millions, except per share amounts
<S>                                            <C>                       <C>         <C>            <C>
Basic EPS:
   Earnings (loss) attributable to
        common stockholders                    $        (65)             6           239            22
                                               ============   ============  ============  ============
   Weighted average common shares                       358            375           356           374
                                               ============   ============  ============  ============
   Basic earnings (loss) per share
        attributable to common
        stockholders                           $       (.18)           .02           .67           .06
                                               ============   ============  ============  ============

Diluted EPS:
   Earnings (loss) attributable to
        common stockholders                    $        (65)             6           239            22
                                               ============   ============  ============  ============
   Weighted average common shares                       358            375           356           374
                                               ------------   ------------  ------------  ------------
   Add dilutive potential common
        shares:
        Employee and director
           options                                       --              2             8             3
        Convertible notes payable                        --             20            19            20
        Series C-Liberty Media
           Group Preferred Stock                         --              4             4             4
        Series D Preferred Stock                         --              6            --             6
        Series H Preferred Stock                         --              4             4             4
                                               ------------   ------------  ------------  ------------
           Dilutive potential
              common shares                              --             36            35            37
                                               ------------   ------------  ------------  ------------
   Diluted weighted average common
        shares                                          358            411           391           411
                                               ============   ============  ============  ============
   Diluted earnings (loss) per
        share attributable to
        common stockholders                    $       (.18)           .02           .61           .05
                                               ============   ============  ============  ============
</TABLE>

(c)      TCI Ventures Group Stock

         The basic and diluted loss attributable to TCI Ventures Group common
         stockholders per common share for the three and six months ended June
         30, 1998 was computed by dividing net loss attributable to TCI Ventures
         Group common stockholders by the weighted average number of common
         shares outstanding of TCI Ventures Group Stock during the period (422
         million and 421 million for the three and six months ended June 30,
         1998, respectively). Potential common shares were not included in the
         computation of weighted average shares outstanding because their
         inclusion would be anti-dilutive.

                                                                     (continued)



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

                   Notes to Consolidated Financial Statements


                  At June 30, 1998, there were 37 million potential common
                  shares consisting of stock options and other performance
                  awards, and convertible securities that could potentially
                  dilute future EPS calculations in periods of net earnings.
                  Such potential common share amount does not take into account
                  the assumed number of shares that would be repurchased by the
                  Company upon the exercise of the stock options and other
                  performance awards and the conversion of the convertible
                  securities. No material changes in the weighted average
                  outstanding shares or potential common shares occurred after
                  June 30, 1998.

(4)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $538 million and $589 million for the six
         months ended June 30, 1998 and 1997, respectively. Cash paid for income
         taxes was $19 million and $22 million for the six months ended June 30,
         1998 and 1997, respectively.

         Summary of cash paid for acquisitions and cash received in exchanges is
         as follows:
          
<TABLE>
<CAPTION>
                                                                          Six months ended
                                                                              June 30,
                                                                          ----------------
                                                                           1998      1997
                                                                          -----     ------
                                                                         amounts in millions
          <S>                                                             <C>       <C>    
          Cash paid for acquisitions:                                               
             Aggregate cost basis of assets acquired                      $ (729)   (1,123)
             Liabilities assumed, net of current assets                        3       622
             Deferred tax liability recorded in acquisitions                 107        34
             Acquisition of minority interests in equity of consolidated            
                subsidiaries                                                (179)        3
             Elimination of notes receivable from affiliates                 350        --
             Common stock and preferred stock issued in acquisitions         376       258
                                                                          ------    ------
                  Cash paid for acquisitions                              $  (72)     (206)
                                                                          ======    ======
          Cash received in exchanges:                                               
             Aggregate cost basis of assets acquired                      $   --      (395)
             Historical cost of assets exchanged                              --       399
             Gain recorded on exchange of assets                              --        11
                                                                          ------    ------
                  Cash received in exchanges                              $   --        15
                                                                          ======    ======
</TABLE>


         For a description of certain non-cash transactions, see note 7.

         The Company's restricted cash includes proceeds received in connection
         with certain asset dispositions. Such proceeds, which aggregated $303
         million and $34 million at June 30, 1998 and December 31, 1997,
         respectively, are designated to be reinvested in certain identified
         assets for income tax purposes. The Company's restricted cash also
         includes amounts held as collateral for interest payment obligations
         pursuant to certain bank credit facilities. Such amounts aggregated $9
         million and $5 million at June 30, 1998 and December 31, 1997,
         respectively.

                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



(5)      Investments in Affiliates

         The Company has various investments accounted for under the equity
         method. The following table includes the Company's carrying value of
         the more significant investments:

<TABLE>
<CAPTION>
                                                                       June 30,    December 31, 
                                                                         1998           1997              
                                                                     ------------  ------------              
                                                                         amounts in millions
               <S>                                                   <C>              <C>
               Cablevision Systems Corporation ("CSC")               $      1,099            15
               TCG                                                            464           295              
               USA Networks, Inc. ("USAI")                                    717           229              
               Sprint Spectrum Holding Company, L.P., MinorCo, L.P.                                          
                   and PhillieCo, L.P.                                        352           607              
               Various foreign equity investments (other than                                                
                   Telewest Communications plc, Flextech p.l.c. and                                          
                   Cablevision S.A.)                                          264           213              
               Telewest Communications plc ("Telewest")                       263           324              
               Flextech p.l.c. ("Flextech")                                   259           261              
               InterMedia Capital Partners IV, L.P. and InterMedia                                           
                   Capital Management IV, L.P.                                254           262              
               Cablevision S.A. ("Cablevision")                               232           239              
               QVC, Inc.                                                      155           134              
               Home Shopping Network, Inc. ("HSN")                            147           119              
</TABLE>

         Summarized unaudited combined results of operations for the Company's
         affiliates for the periods in which the Company used the equity method
         to account for such affiliates are as follows:

<TABLE>
<CAPTION>
                                                         Six months ended
               Combined Operations                           June 30,
                                                  ---------------------------
                                                      1998           1997
                                                  ------------   ------------
                                                       amounts in millions
               <S>                                <C>            <C>  
                   Revenue                        $      8,209          3,586
                   Operating expenses                   (7,211)        (3,472)
                   Depreciation and amortization        (1,585)          (620)
                                                  ------------   ------------
               
                     Operating loss                       (587)          (506)
               
                   Interest expense                     (1,110)          (364)
                   Other, net                             (172)          (262)
                                                  ------------   ------------

                     Net loss                     $     (1,869)        (1,132)
                                                  ============   ============
</TABLE>

                                                                     (continued)


                                      I-19
<PAGE>   21
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         On March 4, 1998, the Company contributed to CSC certain of its cable
         television systems serving approximately 830,000 customers in exchange
         for approximately 24.5 million newly issued CSC Class A common shares
         (as adjusted for a stock dividend) (the "CSC Transaction"). CSC also
         assumed and repaid approximately $574 million of debt owed by the
         Company to external parties and $95 million of debt owed to the
         Company. As a result of the CSC Transaction, the Company recognized a
         $511 million gain in the accompanying consolidated statement of
         operations for the six months ended June 30, 1998. Such gain represents
         the excess of the $1,161 million fair value of the CSC Class A common
         shares received over the historical cost of the net assets transferred
         by the Company to CSC. The Company has also entered into letters of
         intent with CSC which provide for the Company to acquire a cable system
         in Michigan and an additional 3% of CSC's Class A common shares and for
         CSC to (i) acquire cable systems serving approximately 250,000
         customers in Connecticut and (ii) assume $110 million of the Company's
         debt. The ability of the Company to sell or increase its investment in
         CSC is subject to certain restrictions and limitations set forth in a
         stockholders agreement with CSC.

         At June 30, 1998, the Company owned 24,991,286 shares of CSC Class A
         common stock, which had a closing market price of $83.50 per share on
         such date. Such shares represented an approximate 33.2% equity interest
         in CSC's total outstanding shares and an approximate 9% voting interest
         in CSC in all matters except for (i) the election of directors, in
         which case the Company effectively has the right to designate two of
         CSC's directors, and (ii) any increase in authorized shares, in which
         case the Company has agreed to vote its interest in proportion with the
         public holders of CSC Class A common shares. During the six months
         ended June 30, 1998, CSC accounted for $80 million of the Company's
         share of affiliate losses.

         The Company is a partner in a series of partnerships formed to engage
         in the business of providing wireless communications services, using
         the radio spectrum for broadband personal communications services
         ("PCS"), to residential and business customers nationwide, using the
         "Sprint"(R) brand (a registered trademark of Sprint Communications
         Company, L.P.) (the "PCS Ventures"). The PCS Ventures include Sprint
         Spectrum Holding Company, L. P. ("Sprint Spectrum") and MinorCo, L.P.
         (collectively, "Sprint PCS" or the "Sprint PCS Partnerships") and
         PhillieCo, L.P. ("PhillieCo"). The partners of each of the Sprint PCS
         Partnerships are subsidiaries of Sprint Corporation ("Sprint"), Comcast
         Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and the
         Company. The partners of PhillieCo are subsidiaries of Sprint, Cox and
         the Company. The Company has a 30% partnership interest in each of the
         Sprint PCS Partnerships and a 35% interest as a partner in PhillieCo.
         During the six months ended June 30, 1998 and 1997, the PCS Ventures
         accounted for $324 million and $157 million, respectively, of the
         Company's share of affiliate losses.

                                                                     (continued)



                                      I-20
<PAGE>   22
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         From inception through June 1998, the four partners have contributed
         $4.2 billion to the Sprint PCS Partnerships (of which the Company
         contributed an aggregate of $1.3 billion). Sprint PCS's business plan
         will require additional capital financing prior to the end of 1998.
         Sources of funding for Sprint PCS's capital requirements may include
         vendor financing, public offerings or private placements of equity
         and/or debt securities, commercial bank loans and/or capital
         contributions from the Sprint PCS partners. However, there can be no
         assurance that any additional financing can be obtained on a timely
         basis, on terms acceptable to Sprint PCS or the Sprint PCS partners and
         within the limitations contained in the agreements governing Sprint
         PCS's existing debt.

         Additionally, the proposed budget for 1998 has not yet been approved by
         the Sprint PCS partnership board, although the board has authorized
         management to operate Sprint PCS in accordance with such budget. The
         Sprint PCS partners may mutually agree to make additional capital
         contributions. However, the Sprint PCS partners have no such obligation
         in the absence of an approved budget, and there can be no assurance the
         Sprint PCS partners will reach such an agreement or approve the 1998
         proposed budget. In addition, the failure by the Sprint PCS partners to
         approve a business plan may impair the ability of Sprint PCS to obtain
         required financing. Failure to obtain any such additional financing or
         capital contributions from the Sprint PCS partners could result in the
         delay or abandonment of Sprint PCS's development and expansion plans
         and expenditures, the failure to meet regulatory requirements or other
         potential adverse consequences.

         Furthermore, the fact that the proposed budget for Sprint PCS for
         fiscal 1998 has not yet been approved by the Sprint PCS partnership
         board has resulted in the occurrence of a "Deadlock Event" under the
         Sprint PCS partnership agreement as of January 1, 1998. Under the
         Sprint PCS partnership agreement, if one of the Sprint PCS partners
         refers the budget issue to the chief executive officers of the
         corporate parents of the Sprint PCS partners for resolution pursuant to
         specified procedures and the issue remains unresolved, buy/sell
         provisions would be triggered, which may result in the purchase by one
         or more of the Sprint PCS partners of the interests of the other Sprint
         PCS partners, or, in certain circumstances, liquidation of Sprint PCS.


                                                                     (continued)



                                      I-21
<PAGE>   23
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         In May 1998 the Sprint PCS partners entered into a series of agreements
         pursuant to which the Company, Comcast and Cox would exchange their
         respective interests in Sprint PCS and PhillieCo for shares of a new
         class of tracking stock of Sprint which would track the performance of
         Sprint's newly created PCS Group (which would initially consist of
         Sprint PCS, PhillieCo and certain PCS licenses which are separately
         owned by Sprint). The consummation of such transactions is subject to a
         number of conditions, including the approval of such transactions by
         the stockholders of Sprint and the receipt of required Federal
         Communications Commission ("FCC") approvals. If such transactions are
         consummated, the Company will initially hold shares of Sprint PCS Group
         stock (as well as certain additional securities of Sprint exercisable
         for or convertible into such securities) representing approximately 24%
         of the equity value of Sprint attributable to the PCS Group, subject to
         further dilution as a result of additional expected issuances of shares
         of Sprint PCS stock (including in connection with a proposed initial
         public offering of shares of Sprint PCS stock that may be consummated
         in connection with such transactions). In connection with the execution
         of such agreements, the Sprint PCS partners agreed to make up to $400
         million in additional capital contributions (of which the Company's
         share is $120 million) to Sprint PCS pending the closing of such
         transactions. If the above-described transactions are consummated, the
         Company would begin to use the cost method to account for its
         investment in the Sprint PCS stock. No assurance can be given that the
         above-described transactions will be consummated.

         On June 30, 1998, TCI owned 1,011,528 shares of TCG's Class A common
         stock and 48,779,000 shares of TCG's Class B common stock. TCG's Class
         A common stock had a closing price on the Nasdaq financial market of
         $54.25 per share on June 30, 1998.

         On April 22, 1998, TCG completed a merger transaction with ACC Corp.
         ("ACC") in which ACC shares were exchanged with shares of TCG in the
         ratio of .90909 share of TCG stock for each share of ACC stock. The
         transaction was valued at approximately $1.1 billion. As a result of
         such merger transaction, TCI's interest in TCG was reduced to
         approximately 26%. In connection with the dilution of TCI's interest in
         TCG, TCI recorded a non-cash gain of $201 million (before deducting
         deferred income tax expense of $71 million).

         In January 1998, TCG entered into certain agreements pursuant to which
         it agreed to be acquired by AT&T. Such merger was consummated on July
         23, 1998. As a result of such merger, TCI received in exchange for all
         of its interest in TCG, approximately 47 million shares of AT&T Common
         Stock, which shares are attributed to TCI Ventures Group. TCI will
         account for its ownership interest in AT&T Common Stock using the cost
         method. See note 2.


                                                                     (continued)



                                      I-22
<PAGE>   24
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

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

         At the closing of the Universal Transaction, Liberty Media Group was
         issued approximately 1.2 million shares of USAI's Class B Common Stock,
         representing all of the remaining shares of USAI's Class B Common Stock
         issuable pursuant to Liberty Media Group's contractual right to receive
         shares of Class B common stock of USAI upon the occurrence of certain
         events. Of such shares, 800,000 shares of Class B Common Stock were
         contributed to BDTV IV INC. (and collectively with BDTV INC., BDTV-II
         INC. and BDTV III INC., "BDTV"), a newly-formed entity having
         substantially the same terms as BDTV INC., BDTV-II INC. and BDTV III
         INC. (with the exception of certain transfer restrictions) in which
         Liberty Media Group owns over 99% of the equity and none of the voting
         power (except for protective rights with respect to certain fundamental
         corporate actions) and Barry Diller owns less than 1% of the equity and
         all of the voting power. In addition, Liberty Media Group purchased 10
         LLC Shares at the closing of the Universal Transaction for an aggregate
         purchase price of $200.


                                                                     (continued)



                                      I-23
<PAGE>   25
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         In connection with the dilution of Liberty Media Group's ownership
         interest that resulted from the issuance of common stock by USAI in the
         Universal Transaction, the Company recorded a $33 million increase to
         additional paid in capital (after deducting a deferred tax liability of
         $21 million) and an increase to investments in affiliates of $54
         million. On June 24, 1998, USAI consummated the previously announced
         agreement to acquire the remaining stock of Ticketmaster Group, Inc.
         which it did not previously own through a tax-free merger (the
         "Ticketmaster Transaction"). In connection with the dilution of Liberty
         Media Group's ownership interest that resulted from the issuance of
         common stock by USAI in the Ticketmaster Transaction, the Company
         recorded a $32 million increase to additional paid-in capital (after
         deducting a deferred tax liability of $20 million) and an increase to
         investment in affiliates of $52 million. No gain was recognized in the
         consolidated statements of operations due primarily to Liberty Media
         Group's commitment to purchase additional equity interests in USAI.

         In connection with the Universal Transaction, each of Universal and
         Liberty Media Group was granted a preemptive right with respect to
         future issuances of USAI's capital stock, subject to certain
         limitations, to maintain their respective percentage ownership
         interests in USAI that they had prior to such issuances. In connection
         with such right, on June 4, 1998, Liberty Media Group purchased
         approximately 4.7 million shares of USAI's capital stock at $20 per
         share as a result of the conversion by USAI of certain convertible
         debentures whereby USAI common stock was issued to retire such
         debentures. Additionally, on June 30 1998, Liberty Media Group
         contributed $300 million in cash to USANi LLC in exchange for an
         aggregate of approximately 15 million LLC Shares. Liberty Media Group's
         cash purchase price was increased at an annual interest rate of 7.5%
         beginning from the date of the closing of the Universal Transaction
         through the date of Liberty Media Group's purchase of such securities.
         In addition, on July 27, 1998, Liberty Media Group purchased
         approximately 7.9 million LLC Shares at $20 per share as a result of
         the issuance of common stock by USAI in the Ticketmaster Transaction.
         Pursuant to the LLC Exchange Agreement, each LLC Share issued or to be
         issued to Liberty Media Group is exchangeable for one share of USAI's
         Common Stock. Including indirect ownership interests in USAI of 8% held
         through BDTV, Liberty Media Group held direct and indirect ownership
         interests in USAI as of June 30, 1998 of approximately 20%.

         At June 30, 1998 Tele-Communications International, Inc. ("TINTA"), a
         majority-owned subsidiary of the Company, indirectly owned through its
         50% ownership interest in TW Holdings, L.L.C., 132,638,250 or 26.7% of
         the issued and outstanding non-voting Telewest convertible preference
         shares and 246,111,750 or 26.5% (assuming no conversion of the Telewest
         convertible preference shares) of the issued and outstanding Telewest
         ordinary shares. The reported closing price on the London Stock
         Exchange of Telewest ordinary shares was (pound)1.41 ($2.35) per share
         at June 30, 1998. Telewest is a company that is currently operating and
         constructing cable television and telephone systems in the United
         Kingdom ("UK"). Telewest accounted for $64 million and $73 million of
         the Company's share of its affiliates' losses during the six months
         ended June 30, 1998 and 1997, respectively.


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         On April 15, 1998, it was announced that Telewest and General Cable PLC
         ("General Cable") had agreed to the terms of a proposed merger (the
         "Merger Offer") in which holders of General Cable will be offered 1.243
         new Telewest shares and (pound)0.65 ($1.08) in cash for each share of
         General Cable. In addition, holders of American Depository shares of
         General Cable ("General Cable ADSs") (each representing five General
         Cable shares) will be offered 6.215 new Telewest shares and (pound)3.25
         ($5.42) in cash for each share of General Cable ADSs. Based upon
         Telewest's closing share price of (pound)0.89 ($1.48) on April 14,
         1998, the Merger Offer is valued at approximately (pound)649 million
         ($1.1 billion).

         The cash portion of the Merger Offer will be financed through an offer
         to qualifying Telewest shareholders for the purchase of approximately
         261 million new Telewest shares at a price of (pound)0.925 ($1.54) per
         share. Mediaone Group, Inc. ("Mediaone") (formerly a division of U S
         WEST, Inc.), TINTA and Cox have agreed to subscribe for their full
         allocation of new Telewest shares (approximately 69 million shares in
         the case of TINTA) and to subscribe on a pro rata basis for any new
         Telewest shares not subscribed for by other Telewest shareholders.
         Together, Mediaone, TINTA and Cox held 67.9% of the issued and
         outstanding Telewest ordinary shares at June 30, 1998. In addition, it
         is anticipated that Mediaone, TINTA, Cox and SBC Communications, Inc.
         will convert their entire respective holdings of Telewest convertible
         preference shares into new Telewest shares. Following the issuance of
         new Telewest shares with respect to the above transactions, and
         assuming the exercise of all options under General Cable's share option
         schemes, it is anticipated that existing Telewest shareholders would
         hold 79% and existing General Cable shareholders would hold 21% of the
         then issued ordinary share capital of the combined group.

         Consummation of the merger is subject to regulatory approval and other
         conditions. There can be no assurance that such merger will be
         consummated or consummated on the terms contemplated by the parties.

         On October 9, 1997, TINTA sold a portion of its 51% interest in
         Cablevision, a company engaged in the multi-channel video distribution
         business in Buenos Aires, Argentina, to unaffiliated third parties (the
         "Buyers") for cash proceeds of $120 million. In addition, on October 9,
         1997, Cablevision issued 3,541,829 shares of stock in the aggregate to
         the Buyers for $320 million. The above transactions, (collectively, the
         "Cablevision Sale") reduced TINTA's interest in Cablevision to 26.2%.
         TINTA recognized a gain of $49 million on the Cablevision Sale. As a
         result of the Cablevision Sale, effective October 1, 1997, TINTA ceased
         to consolidate Cablevision and began to account for Cablevision using
         the equity method of accounting. Cablevision accounted for $8 million
         of the Company's share of its affiliates' losses during the six months
         ended June 30, 1998.

         In addition to Telewest and Cablevision, the Company has an equity
         method investment in Flextech, an entity engaged in the distribution
         and production of programming for multichannel video distribution
         systems in the UK, and other less significant equity method investments
         in video distribution and programming businesses located in the UK,
         other parts of Europe, Asia, Latin America and certain other foreign
         countries. In the aggregate, such other foreign equity method
         investments accounted for $39 million and $41 million of the Company's
         share of its affiliates' losses during the six months ended June 30,
         1998 and 1997, respectively.

                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



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

(6)      Investment in Time Warner

         Liberty Media Group holds approximately 57 million shares of a separate
         series of Time Warner common stock with limited voting rights (the "TW
         Exchange Stock"). Holders of the TW Exchange Stock are entitled to one
         one-hundredth (l/100th) of a vote for each share with respect to the
         election of directors. Holders of the TW Exchange Stock will not have
         any other voting rights, except as required by law or with respect to
         limited matters, including amendments of the terms of the TW Exchange
         Stock adverse to such holders. Subject to the federal communications
         laws, each share of the TW Exchange Stock will be convertible at any
         time at the option of the holder on a one-for-one basis for a share of
         Time Warner common stock. Holders of TW Exchange Stock are entitled to
         receive dividends ratably with the Time Warner common stock and to
         share ratably with the holders of Time Warner common stock in assets
         remaining for common stockholders upon dissolution, liquidation or
         winding up of Time Warner. See note 8.

         On June 24, 1997, Liberty Media Group granted Time Warner an option,
         expiring October 10, 2002, to acquire the business of Southern
         Satellite Systems, Inc. ("Southern") and certain of its subsidiaries
         (together with Southern, the "Southern Business") through a purchase of
         assets (the "Southern Option") and received 6.4 million shares of TW
         Exchange Stock valued at $306 million in consideration for the grant.
         Such amount had been reflected as a deferred option premium in the
         accompanying consolidated financial statements. Pursuant to the
         Southern Option, Time Warner acquired the Southern Business, effective
         January 1, 1998 for $213 million in cash. The Company recognized a $515
         million pre-tax gain in connection with such transactions in the first
         quarter of 1998.


                                                                     (continued)



                                      I-26
<PAGE>   28
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(7)      Acquisitions and Dispositions

         During the first six months of 1998, the Company completed three
         transactions whereby the Company contributed cable television systems
         serving in the aggregate approximately 670,000 customers to three
         separate joint ventures (collectively, the "1998 Joint Ventures") in
         exchange for non-controlling ownership interests in each of the 1998
         Joint Ventures, and the assumption and repayment by the 1998 Joint
         Ventures of debt owed by the Company to external parties aggregating
         $323 million and intercompany debt owed to the Company aggregating $833
         million. In connection with such transactions, the Company has agreed
         to take certain steps to support compliance by each of the 1998 Joint
         Ventures with their payment obligations under certain debt instruments,
         up to an aggregate contingent commitment of $784 million. In light of
         such contingent commitments, the Company has deferred any gains on the
         formation of the 1998 Joint Ventures. Such deferred gains, which
         aggregated $163 million, will not be recognized until such time as the
         Company's contingent commitments with respect to the 1998 Joint
         Ventures are eliminated. The Company uses the equity method of
         accounting to account for its investments in the 1998 Joint Ventures.
         The CSC Transaction (see note 5) and the formation of the 1998 Joint
         Ventures are collectively referred to herein as the "1998 Contribution
         Transactions."

         Including the 1998 Contribution Transactions, the Company, as of July
         31, 1998, has, since January 1, 1997, contributed, or signed agreements
         or letters of intent to contribute within the next twelve months,
         certain cable television systems (the "Contributed Cable Systems")
         serving approximately 3.9 million basic customers to joint ventures in
         which the Company will retain non-controlling ownership interests (the
         "Contribution Transactions"). Following the completion of the
         Contribution Transactions, the Company will no longer consolidate the
         Contributed Cable Systems. Accordingly it is anticipated that the
         completion of the Contribution Transactions, as currently contemplated,
         will result in an aggregate estimated reduction (based on actual
         amounts with respect to the 1998 Contribution Transactions and
         currently contemplated amounts with respect to the pending Contribution
         Transactions) to the Company's debt of $4.8 billion and aggregate
         estimated reductions (based on 1997 amounts) to the Company's annual
         revenue and annual operating income before depreciation, amortization
         and other non-cash items and stock compensation of $1.8 billion and
         $815 million, respectively. No assurance can be given that any of the
         pending Contribution Transactions will be consummated.

                                                                     (continued)


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

                   Notes to Consolidated Financial Statements



         Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision")
         contributed the assets, obligations and operations of its retail C-band
         satellite business to Superstar/Netlink Group LLC ("Superstar/Netlink")
         in exchange for an approximate 20% interest in Superstar/Netlink. As a
         result of this transaction, the Company's ownership interest in
         Superstar/Netlink decreased from 100% to approximately 80% and the
         Company recognized a gain of $38 million (before deducting deferred
         income tax expense of $15 million). Turner Vision's contribution to
         Superstar/Netlink was accounted for as a purchase, and the $61 million
         excess of the purchase price over the fair value of the assets acquired
         was recorded as goodwill and is being amortized over five years.

         On June 11, 1998, United Video Satellite Group, Inc. ("UVSG") and The
         News Corporation Limited ("News Corp.") announced the signing of a
         definitive agreement whereby News Corp.'s TV Guide properties will be
         combined with UVSG to create a platform for offering television guide
         services to consumers and advertising. As part of this combination, a
         unit of News Corp. will receive consideration consisting of $800
         million in cash and 30 million shares of UVSG's stock, including
         11,251,706 shares of its Class A common stock and 18,748,294 shares of
         its Class B common stock. As a result of the transaction, and certain
         other pending transactions, News Corp., TCI and UVSG's public
         stockholders will own on an economic basis approximately 40%, 44% (of
         which 34% will be attributable to TCI Ventures Group and 10% will be
         attributable to Liberty Media Group) and 16%, respectively, of UVSG.
         Following the transaction, News Corp. and TCI will each have
         approximately 48% of the voting power of UVSG's outstanding stock.


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



(8)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                        June 30,    December 31,
                                                          1998          1997
                                                      ------------  ------------
                                                         amounts in millions
         <S>                                          <C>                  <C>  
         Notes payable (a)                            $      9,727         9,017
         Bank credit facilities (b)                          3,540         5,233
         Commercial paper                                      717           533
         Convertible notes (c)                                  40            40
         Capital lease obligations and other debt              398           427
                                                      ------------  ------------

                                                      $     14,422        15,250
                                                      ============  ============ 
</TABLE>

         (a)      During the six months ended June 30, 1998, the Company
                  purchased certain notes payable which had an aggregate
                  principal balance of $299 million and fixed interest rates
                  ranging from 8.67% to 10.125% (the "1998 Purchases"). In
                  connection with the 1998 Purchases, the Company recognized a
                  loss on early extinguishment of debt of $38 million. Such loss
                  related to prepayment penalties amounting to $34 million and
                  the retirement of deferred loan costs.

                  During the six months ended June 30, 1997, the Company
                  purchased certain notes payable which had an aggregate
                  principal balance of $190 million and fixed interest rates
                  ranging from 8.75% to 10.13% (the "1997 Purchases"). In
                  connection with the 1997 Purchases, the Company recognized a
                  loss on early extinguishment of debt of $11 million. Such loss
                  related to prepayment penalties amounting to $7 million and
                  the retirement of deferred loan costs.

         (b)      At June 30, 1998, subsidiaries of the Company had
                  approximately $3.6 billion in unused lines of credit,
                  excluding amounts related to lines of credit which provide
                  availability to support commercial paper.

                  As security for borrowings under one of the Company's credit
                  facilities, the Company has pledged a portion of its Time
                  Warner common stock with an estimated market value at June 30,
                  1998 of $1.9 billion based upon the market value of the
                  marketable common stock into which it is convertible.
                  Additionally, as security for borrowings under another of its
                  credit facilities, the Company pledged its holdings in
                  Discovery Communications, Inc., QVC, Inc. and a 30 year
                  non-convertible 9% preferred stock of Fox Kids Worldwide, Inc.
                  At June 30, 1998, the carrying value of such holdings
                  aggregated $595 million.

                  Certain of TCI's subsidiaries are required to maintain unused
                  availability under bank credit facilities to the extent of
                  outstanding commercial paper. Also, certain of TCI's
                  subsidiaries pay fees ranging from 1/4% to 1/2% per annum on
                  the average unborrowed portion of the total amount available
                  for borrowings under bank credit facilities.


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         (c)      The convertible notes, which are stated net of unamortized
                  discount of $166 million at June 30, 1998 and December 31,
                  1997, 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 June 30, 1998, the notes were
                  convertible, at the option of the holders, into an aggregate
                  of 24,163,259 shares of Series A TCI Group Stock, 19,416,910
                  shares of Series A Liberty Group Stock, 20,711,373 shares of
                  Series A TCI Ventures Group Stock and 3,451,897 shares of
                  Series A Common Stock, $1.00 par value per share, of TCI
                  Satellite Entertainment, Inc.

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

         The fair value of the debt of the Company's subsidiaries is estimated
         based on the quoted market prices for the same or similar issues or on
         the current rates offered to the Company for debt of the same remaining
         maturities. At June 30, 1998, the fair value of the Company's debt was
         $15,083 million, as compared to a carrying value of $14,422 million on
         such date.

         In order to achieve the desired balance between variable and fixed rate
         indebtedness, the Company has entered into variable and fixed interest
         rate exchange agreements ("Interest Rate Swaps") pursuant to which it
         (i) pays a fixed interest rate (the "Fixed Rate Agreement") of 6.2% and
         receives variable interest rates on a notional amount of $10 million at
         June 30, 1998 and (ii) pays variable interest rates (the "Variable Rate
         Agreements") and receives fixed interest rates ranging from 4.8% to
         9.7% on notional amounts of $2,400 million at June 30, 1998. During the
         six months ended June 30, 1998 and 1997, the Company's net payments
         pursuant to the Fixed Rate Agreement were less than $1 million and $4
         million, respectively; and the Company's net receipts pursuant to the
         Variable Rate Agreements were $4 million and $11 million, respectively.


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         Information concerning the Company's Variable Rate Agreements at June
         30, 1998 is as follows (dollar amounts in millions):

<TABLE>
<CAPTION>
                                                                                            Amount to be paid
                    Expiration              Interest rate            Notional                (received) upon
                        date                to be received            amount                 termination (a)
           ---------------------------      --------------       --------------      -------------------------------
<S>                                           <C>                <C>                          <C>        
           September 1998                     4.8%-5.4%          $       450                  $         2
           April 1999                            7.4%                     50                           (1)
           September 1999                        6.4%                    350                           (3)
           February 2000                      5.8%-6.6%                  300                           (3)
           March 2000                         5.8%-6.0%                  675                           (1)
           September 2000                        5.1%                     75                            1
           March 2027                            9.7%                    300                          (30)
           December 2036                         9.7%                    200                           (8)
                                                                 -----------                  -----------
                                                                 $     2,400                  $       (43)
                                                                 ===========                  ===========
</TABLE>

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

         (a)      The estimated amount that the Company would pay or receive to
                  terminate the agreements at June 30, 1998, taking into
                  consideration current interest rates and the current
                  creditworthiness of the counterparties, represents the fair
                  value of the Interest Rate Swaps.

         The Fixed Rate Agreement expires in August 1998. At June 30, 1998, the
         Company would be required to pay less than $1 million to terminate the
         Fixed Rate Agreement.

         In addition to the Fixed Rate and Variable Rate Agreements, the Company
         entered into Interest Rate Swaps pursuant to which it pays a variable
         rate based on the London Interbank Offered Rate ("LIBOR") (6.1% at June
         30, 1998) and receives a variable rate based on the Constant Maturity
         Treasury Index ("CMT") (5.9% at June 30, 1998) on a notional amount of
         $400 million through September 2000; and pays a variable rate based on
         LIBOR (6.0% at June 30, 1998) and receives a variable rate based on CMT
         (6.0% at June 30, 1998) on notional amounts of $95 million through
         February 2000. During the six months ended June 30, 1998, the Company's
         net payments pursuant to such agreements were less than $1 million. At
         June 30, 1998, the Company would be required to pay an estimated $3
         million to terminate such Interest Rate Swaps.

         The Company is exposed to credit losses for the periodic settlements of
         amounts due under the Interest Rate Swaps in the event of
         nonperformance by the other parties to the agreements. However, the
         Company does not anticipate that it will incur any material credit
         losses because it does not anticipate nonperformance by the
         counterparties. Further, the Company does not anticipate material
         near-term losses in future earnings, fair values or cash flows
         resulting from derivative financial instruments as of June 30, 1998.


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



(9)      Redeemable Preferred Stock

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

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

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying consolidated balance sheets captioned
         "Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts holding solely subordinated debt securities of TCI
         Communications, Inc." Dividends accrued on the Trust Preferred
         Securities aggregated $71 million and $61 million during the six months
         ended June 30, 1998 and 1997, respectively, and are included in
         minority interests in earnings of consolidated subsidiaries in the
         accompanying consolidated financial statements.

(11)     Stockholders' Equity

         Stock Repurchases

         During the six months ended June 30, 1998, pursuant to a stock
         repurchase program, 66,041 shares of TCI Group Series A Stock, 145,450
         shares of TCI Ventures Group Series A Stock, 94,000 shares of TCI
         Ventures Group Series B Stock and 266,783 shares of Liberty Group
         Series A Stock were repurchased at an aggregate cost of approximately
         $13 million.

         Treasury Stock and Common Stock Held by Subsidiaries, at Cost

<TABLE>
<CAPTION>
                                                             June 30, 1998                   December 31, 1997
                                                  -------------------------------   --------------------------------
                                                      Number of                         Number of
                                                       shares         Cost basis         shares         Cost basis
                                                  --------------   --------------    -------------  ----------------
                                                                     (dollar amounts in millions)
<S>                                                   <C>          <C>                  <C>          <C>           
         Treasury stock is summarized as follows:
               TCI Group Series A Stock               11,362,365   $          182       11,296,324   $          180
               TCI Group Series B Stock               14,842,472              250       30,876,766              518
               Liberty Group Series A Stock           25,126,455              490       25,082,172              489
               Liberty Group Series B Stock               82,074                2           82,074                2
               TCI Ventures Group Series A Stock          61,450                1               --               --
               TCI Ventures Group Series B Stock         432,196                5          338,196                4

         Common stock held by subsidiaries is
           summarized as follows:
               TCI Group Series A Stock              125,728,816              466      125,645,656              464
               TCI Group Series B Stock                9,154,134              161        9,112,500              160
               Liberty Group Series A Stock            6,654,367              113        6,654,367              113
               Liberty Group Series B Stock            3,417,187               61        3,417,187               61
                                                                   --------------                    --------------
                                                                   $        1,731                    $        1,991
                                                                   ==============                    ==============
</TABLE>




                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         Stock Based Compensation

         Certain key employees of the Company and members of the Board hold
         options with tandem stock appreciation rights ("SARs") to acquire TCI
         Group Series A Stock, Liberty Group Series A Stock and TCI Ventures
         Group Series A Stock as well as restricted stock awards of TCI Group
         Series A Stock, Liberty Group Series A Stock and TCI Ventures Group
         Series A Stock. Estimated compensation relating to SARs has been
         recorded through June 30, 1998, and is subject to future adjustment
         based upon vesting and market values and, ultimately, on the final
         determination of market values when such rights are exercised.

         Other

         During the fourth quarter of 1997, the Company entered into a Total
         Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
         the Equity Swap Facility, the Company has the right to direct the
         counterparty (the "Counterparty") to use the Equity Swap Facility to
         purchase shares ("Equity Swap Shares") of TCI Group Series A Stock and
         TCI Ventures Group Series A Stock with an aggregate purchase price of
         up to $300 million. The Company has the right, but not the obligation,
         to purchase Equity Swap Shares through the September 30, 2000
         termination date of the Equity Swap Facility. During such period, the
         Company is to settle periodically any increase or decrease in the
         market value of the Equity Swap Shares. If the market value of the
         Equity Swap Shares exceeds the Counterparty's cost, Equity Swap Shares
         with a fair value equal to the difference between the market value and
         cost will be segregated from the other Equity Swap Shares. If the
         market value of Equity Swap Shares is less than the Counterparty's
         cost, the Company, at its option, will settle such difference with
         shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock
         or, subject to certain conditions, with cash or letters of credit. In
         addition, the Company is required to periodically pay the Counterparty
         a fee equal to a LIBOR-based rate on the Counterparty's cost to acquire
         the Equity Swap Shares. Due to the Company's ability to issue shares to
         settle periodic price fluctuations and fees under the Equity Swap
         Facility, the Company records all amounts received or paid under this
         arrangement as increases or decreases, respectively, to equity. As of
         June 30, 1998, the Equity Swap Facility had acquired 4,935,780 shares
         of TCI Group Series A Stock and 1,151,800 shares of TCI Ventures Group
         Series A Stock at an aggregate cost that was approximately $48 million
         less than the fair value of such Equity Swap Shares at June 30, 1998.

         At June 30, 1998, there were 98,598,176 shares of TCI Group Series A
         Stock, 14,511,570 shares of TCI Group Series B Stock, 38,863,193 shares
         of Liberty Group Series A Stock, 33,704,949 shares of TCI Ventures
         Group Series A Stock and 2,800,000 shares of TCI Ventures Group Series
         B Stock reserved for issuance under exercise privileges related to
         options, convertible debt securities and convertible preferred stock.
         Also, one share of Series A Stock is reserved for each share of Series
         B Stock. Additionally, subsidiaries of TCI own an aggregate of 278,307
         shares of TCI Convertible Redeemable Participating Preferred Stock,
         Series F ("Series F Preferred Stock"). Each share of Series F Preferred
         Stock is convertible into 1496.65 shares of TCI Group Series A Stock.


                                                                     (continued)



                                      I-33
<PAGE>   35
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(12)     Transactions with Officers and Directors

         On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
         shares of TCI Group Series A Stock for the same number of shares of TCI
         Group Series B Stock owned by the Estate of Bob Magness (the "Magness
         Estate"), the late founder and former Chairman of the Board of TCI.
         Subsequent to the Exchange, the Magness Estate sold (the "Sale") the
         shares of TCI Group Series A Stock received in the Exchange, together
         with approximately 1.5 million shares of TCI Group Series A Stock that
         the Magness Estate previously owned (collectively, the "Option
         Shares"), to two investment banking firms (the "Investment Bankers")
         for approximately $530 million (the "Sale Price"). Subsequent to the
         Sale, TCI entered into an agreement with the Investment Bankers whereby
         TCI has the option, but not the obligation, to purchase the Option
         Shares at any time within two years (the "Option Period") from the date
         of the Sale. During the Option Period, the Company and the Investment
         Bankers are to settle quarterly any increase or decrease in the market
         value of the Option Shares. If the market value of the Option Shares
         exceeds the Investment Bankers' cost, Option Shares with a fair value
         equal to the difference between the market value and cost will be
         segregated from the other Option Shares in an account at the Investment
         Bankers. If the market value of the Option Shares is less than the
         Investment Bankers' cost, the Company, at its option, will settle such
         difference with shares of TCI Group Series A Stock or TCI Ventures
         Group Series A Stock or, subject to certain conditions, with cash or
         letters of credit. In addition, the Company is required to pay the
         Investment Bankers a quarterly fee equal to the LIBOR plus 1% on the
         Sale Price, as adjusted for payments made by the Company pursuant to
         any quarterly settlement with the Investment Bankers. Due to the
         Company's ability to settle quarterly price fluctuations and fees with
         shares of TCI Group Series A Stock or TCI Ventures Group Series A
         Stock, the Company records all amounts received or paid under this
         arrangement as increases or decreases, respectively, to equity. During
         the fourth quarter of 1997, the Company repurchased 4,000,000 shares of
         TCI Group Series A Stock from one of the Investment Bankers for an
         aggregate cash purchase price of $66 million. Additionally, as a result
         of the Exchange Offers and certain open market transactions, the
         Investment Bankers disposed of 4,210,308 shares of TCI Group Series A
         Stock and acquired 23,407,118 shares of TCI Ventures Group Series A
         Stock during the last half of 1997. As a result of the foregoing
         transactions and certain transactions related to the January 5, 1998
         settlement of litigation involving the Magness Estate, as described
         below, the Option Shares were comprised of 6,201,042 shares of TCI
         Group Series A Stock and 11,740,610 shares of TCI Ventures Group Series
         A Stock at June 30, 1998. At June 30, 1998, the market value of the
         Option Shares exceeded the Investment Bankers' cost by $275 million.

         In connection with the Exchange and Sale, Dr. John C. Malone, TCI's
         Chairman and Chief Executive Officer, agreed to forgo the exercise of
         certain option rights and in consideration, TCI granted to Dr. Malone
         the right (the "Malone Right") to acquire 30,545,864 shares of TCI
         Group Series B Stock.

         On January 5, 1998, the Company announced that a settlement (the
         "Magness Settlement") had been reached in the litigation brought
         against it and other parties in connection with the administration of
         the Magness Estate.


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         In connection with the Magness Settlement, portions of the Exchange and
         Sale were unwound such that 10,201,041 shares of TCI Group Series A
         Stock and 11,666,506 shares of TCI Ventures Group Series A Stock were
         returned to TCI as authorized but unissued shares, and the Magness
         Estate paid $11 million to TCI representing a reimbursement of the
         Exchange fees incurred by TCI from June 16, 1997 through February 9,
         1998 with respect to such returned shares. TCI then issued to the
         Magness Estate 10,017,145 shares of TCI Group Series B Stock and
         12,034,298 shares of TCI Ventures Group Series B Stock.

         On February 9, 1998, in connection with the Magness Settlement, TCI
         entered into a call agreement (the "Malone Call Agreement") with Dr.
         Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"),
         under which the Malones granted to TCI the right to acquire the
         Malones' high-voting shares (the "High-Voting Shares"), currently
         consisting of an aggregate of approximately 60 million shares of Series
         B Stock upon Dr. Malone's death or upon a contemplated sale of the
         High-Voting Shares (other than a minimal amount) to third persons. In
         either such event, TCI has the right to acquire the shares at a maximum
         price equal to the then relevant market price of shares of "low-voting"
         Series A Stock plus a ten percent premium. The Malones also agreed that
         if TCI were ever to be sold to another entity, then the maximum premium
         that the Malones would receive on their High-Voting Shares would be no
         greater than a ten percent premium over the price paid for the relevant
         shares of Series A Stock. TCI paid $150 million to the Malones for
         agreeing to the terms of the Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually, and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares. The Magness Family was
         paid $124 million by TCI for entering into the Magness Call Agreement.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
         and Magness Call Agreement is reflected as a $274 million reduction of
         additional paid-in capital in the accompanying consolidated financial
         statements.


                                                                     (continued)



                                      I-35
<PAGE>   37

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Additionally, on February 9, 1998, the Magness Family entered into a
         shareholders' agreement (the "Shareholders' Agreement") with the
         Malones and TCI under which (i) the Magness Family and the Malones
         agree to consult with each other in connection with matters to be
         brought to the vote of TCI's shareholders, subject to the proviso that
         if they cannot mutually agree on how to vote the shares, Dr. Malone has
         an irrevocable proxy to vote the High-Voting Shares owned by the
         Magness Family, (ii) the Magness Family may designate a nominee for the
         Board and Dr. Malone has agreed to vote his High Voting Shares for such
         nominee and (iii) certain "tag along rights" have been created in favor
         of the Magness Family and certain "drag along rights" have been created
         in favor of the Malones. In addition, the Malone Right granted by TCI
         to Dr. Malone to acquire 30,545,864 shares of TCI Group Series B Stock
         was reduced to an option to acquire 14,511,570 shares of TCI Group
         Series B Stock. Pursuant to the terms of the Shareholders' Agreement,
         the Magness Family has the right to participate in the reduced Malone
         Right on a proportionate basis with respect to 12,406,238 shares of the
         14,511,570 shares subject to the Malone Right. On June 24, 1998, Dr.
         Malone delivered notice to the Company exercising his right to purchase
         up to 14,511,570 shares of TCI Group Series B Stock at a per share
         price of $35.5875 pursuant to the Malone Right. In addition, a
         representative of the Magness Family has advised Dr. Malone that the
         Magness Family will participate in such purchase up to the Magness
         Family's proportionate share. Subject to final verification and
         agreement of each party's proportionate share, upon the closing of the
         exercise of the Malone Right, Dr. Malone would acquire 8,718,770 and
         the Magness Family would acquire 5,792,800 of the shares of TCI Group
         Series B Stock that are subject to the Malone Right. Such exercises are
         subject to any required regulatory approvals.

         On April 30, 1998, the Company acquired a limited partnership interest
         from an individual who is an executive officer and a director of TCI in
         exchange for 153,183 shares of Liberty Group Series B Stock and a
         limited partnership interest in another limited partnership with a
         capital account of $1 million.

(13)     At Home Corporation

         In April 1997, @Home, a subsidiary of the Company, issued 240,000
         shares of convertible preferred stock, resulting in cash proceeds of
         $48 million, less issuance costs. On July 11, 1997, @Home completed its
         initial public offering (the "@Home IPO"), in which 10,350,000 shares
         of @Home common stock were sold for net cash proceeds of approximately
         $100 million. As a result of the @Home IPO, the Company's economic
         interest in @Home decreased from 43% to 39% which economic interest
         represents an approximate 72% voting interest. In connection with the
         associated dilution of the Company's ownership interest in @Home, the
         Company recognized a gain of $60 million.


                                                                     (continued)



                                      I-36
<PAGE>   38

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         @Home has entered into exclusive distribution agreements with certain
         cable operators. In connection with the distribution agreements, @Home
         has issued warrants to such cable operators to purchase 17,946,956
         shares of @Home's Series A common stock. Of these warrants, warrants to
         purchase 10,581,298 shares were exercisable as of June 30, 1998. During
         the six months ended June 30, 1998, @Home recorded a non-cash,
         non-recurring charge of $83 million to operations based on the fair
         value of 2,705,514 shares which were underlying warrants which became
         exercisable during the period. Such charges are included in cost of
         distribution agreements in the accompanying consolidated statements of
         operations. @Home may issue additional stock, or warrants in connection
         with its efforts to expand its distribution of the @Home service to
         other cable operators. The exercise of warrants or stock issued by
         @Home will reduce the Company's equity interest and voting power in
         @Home.

         Pursuant to a shareholders' agreement among certain shareholders of
         @Home, under certain circumstances, TCI could be required to sell a
         portion of its common stock of @Home to such shareholders.

(14)     Commitments and Contingencies

         On October 5, 1992, the United States Congress enacted the Cable
         Television Consumer Protection and Competition Act of 1992 (the "1992
         Cable Act"). In 1993 and 1994, the FCC adopted certain rate regulations
         required by the 1992 Cable Act and imposed a moratorium on certain rate
         increases. As a result of such actions, the Company's basic and tier
         service rates and its equipment and installation charges (the
         "Regulated Services") are subject to the jurisdiction of local
         franchising authorities and the FCC. Basic and tier service rates are
         evaluated against competitive benchmark rates as published by the FCC,
         and equipment and installation charges are based on actual costs. Any
         rates for Regulated Services that exceeded the benchmarks were reduced
         as required by the 1993 and 1994 rate regulations. The rate regulations
         do not apply to the relatively few systems which are subject to
         "effective competition" or to services offered on an individual service
         basis, such as premium movie and pay-per-view services.

         The Company believes that it has complied in all material respects with
         the provisions of the 1992 Cable Act, including its rate setting
         provisions. However, the Company's rates for Regulated Services are
         subject to review by the FCC, if a complaint has been filed by a
         customer, or the appropriate franchise authority, if such authority has
         been certified by the FCC to regulate rates. If, as a result of the
         review process, a system cannot substantiate its rates, it could be
         required to retroactively reduce its rates to the appropriate benchmark
         and refund the excess portion of rates received. Any refunds of the
         excess portion of tier service rates would be retroactive to the date
         of complaint. Any refunds of the excess portion of all other Regulated
         Service rates would be retroactive to one year prior to the
         implementation of the rate reductions.


                                                                     (continued)



                                      I-37
<PAGE>   39

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company is obligated to pay fees for the rights to exhibit certain
         films that are released by various producers through 2017 (the "Film
         Licensing Obligations"). Based on customer levels at June 30, 1998,
         these agreements require minimum payments aggregating approximately
         $680 million. The aggregate amount of the Film Licensing Obligations
         under other license agreements is not currently estimable because such
         amount is dependent upon the number of qualifying films released
         theatrically by certain motion picture studios as well as the domestic
         theatrical exhibition receipts upon the release of such qualifying
         films. Nevertheless, the Company anticipates that its aggregate
         payments under the Film Licensing Obligations will be significant.

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

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

         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $585 million at June 30, 1998. With respect to the
         Company's guarantees of $166 million of such obligations, TCI has been
         indemnified for any loss, claim or liability that TCI may incur, by
         reason of such guarantees. As described in note 7, the Company also has
         provided certain credit enhancements with respect to obligations of the
         1998 Joint Ventures. The Company also has guaranteed the performance of
         certain affiliates and other parties with respect to such parties'
         contractual and other obligations. Although there can be no assurance,
         management of the Company believes that it will not be required to meet
         its obligations under such guarantees, or if it is required to meet any
         of such obligations, that they will not be material to the Company.

         TINTA has guaranteed the obligation of an affiliate ("The Premium Movie
         Partnership") to pay fees for the license to exhibit certain films
         through 2000. Although the aggregate amount of The Premium Movie
         Partnership's license fee obligations is not currently estimable, TINTA
         believes that the aggregate payments pursuant to such obligations could
         be significant. If TINTA were to fail to fulfill its obligations under
         the guarantee, the beneficiaries have the right to demand an aggregate
         payment from TINTA of approximately $38 million. Although TINTA has not
         had to perform under such guarantee to date, TINTA cannot be certain
         that it will not be required to perform under such guarantee in the
         future.


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
         (the "DMX Merger"). Assuming the conversion of TCI Music convertible
         preferred stock, TCI, at June 30, 1998, owned TCI Music securities
         representing 80.7% of TCI Music's common stock and 97.4% of the voting
         power attributable to such TCI Music common stock. In connection with
         the DMX Merger, the Company assumed a contingent obligation pursuant to
         a Rights Agreement (the "Rights Agreement") to purchase up to
         14,896,648 shares (6,812,393 of which are owned by subsidiaries of the
         Company) of TCI Music common stock at a price of $8.00 per share. TCI
         will settle its obligation under the Rights Agreement during the third
         quarter of 1998 by paying $8.00 per share to all holders who tender TCI
         Music common stock and the associated rights to TCI in accordance with
         the terms of the Rights Agreement. The Company has recorded its
         contingent obligation to purchase such shares as a component of
         minority interest in equity of consolidated subsidiaries in the
         accompanying consolidated financial statements.

         Effective as of December 16, 1997, NDTC, a subsidiary of TCI which is
         attributed to of the TCI Ventures Group, on behalf of TCIC and other
         cable operators that may be designated from time to time by NDTC
         ("Approved Purchasers"), entered into an agreement (the "Digital
         Terminal Purchase Agreement") with General Instrument Corporation
         (formerly NextLevel Systems, Inc., "GI") to purchase advanced digital
         set-top devices. The hardware and software incorporated into these
         devices will be designed and manufactured to be compatible and
         interoperable with the OpenCable(TM) architecture specifications
         adopted by CableLabs, the cable television industry's research and
         development consortium, in November 1997. NDTC has agreed that Approved
         Purchasers will purchase, in the aggregate, a minimum of 6.5 million
         set-top devices during calendar years 1998, 1999 and 2000 at an average
         price of $318 per set-top device. Through June 30, 1998, 525,000
         set-top devices had been purchased pursuant to this commitment. GI
         agreed to provide NDTC and its Approved Purchasers the most favorable
         prices, terms and conditions made available by GI to any customer
         purchasing advanced digital set-top devices. In connection with NDTC's
         purchase commitment, GI agreed to grant warrants to purchase its common
         stock proportional to the number of devices ordered by each
         organization, which as of the effective date of the Digital Terminal
         Purchase Agreement, would have represented at least a 10% equity
         interest in GI (on a fully diluted basis). Such warrants vest as annual
         purchase commitments are met. It is anticipated that the value
         associated with such equity interest would be attributed to TCI Group
         upon purchase and deployment of the digital set-top devices. See note
         2. NDTC has the right to terminate the Digital Terminal Purchase
         Agreement if, among other reasons, GI fails to meet a material
         milestone designated in the Digital Terminal Purchase Agreement with
         respect to the development, testing and delivery of advanced digital
         set-top devices.

         On July 17, 1998, NDTC acquired 21.4 million shares of stock of GI in
         exchange for (i) certain of the assets of NDTC's set-top authorization
         business, (ii) the license of certain related technology to GI, (iii) a
         $50 million promissory note from TCI Ventures Group to GI, and (iv) a
         nine year revenue guarantee from TCI Ventures Group in favor of GI. In
         connection therewith, NDTC also entered into a services agreement
         pursuant to which it will provide certain services to GI's set-top
         authorization business.


                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         The Company has entered into an Operating Lease Agreement (the "Lease")
         with an unaffiliated third party (the "Lessor"). Under the Lease, the
         Company agreed to sell to, and lease back from, the Lessor advanced
         digital set-top devices with an initial aggregate net cost of up to
         $400 million. The initial term of the Lease is two years, and it
         provides for renewal, at the Company's option, for up to five
         additional consecutive one-year terms. Rent under the Lease is payable
         quarterly. At the end of the originally scheduled or renewed lease
         term, the Company is required to either (i) purchase the equipment at
         the Termination Value (as defined in the Lease), or (ii) arrange for
         the sale of the leased equipment to a third party and pay the Lessor
         the difference between the sale price and a predetermined guaranteed
         value, which in all cases is less than the Termination Value. As of
         June 30, 1998, the Company has sold and leased back advanced digital
         set-top devices under the Lease with an aggregate cost of $107 million.
         Current annual lease payments with respect to such leased equipment are
         $16 million. The Company has treated the Lease as an operating lease in
         the accompanying consolidated financial statements.

         A TCI subsidiary attributed to TCI Ventures Group issued preferred
         stock in connection with a previous acquisition. Such preferred stock
         is exchangeable at the option of the holders into 1,084,056 shares of
         TCI Group Series A Stock beginning in April 1999. The TCI Ventures
         Group entered into a forward purchase contract in July 1998 with a
         commercial bank to acquire 1,084,056 shares of TCI Group Series A Stock
         for approximately $45 million on or before April 19, 1999. Such shares
         will be used to satisfy the exchange requirements of the aforementioned
         preferred stock.

         The Company has contingent liabilities related to legal proceedings and
         other matters arising in the ordinary course of business. Although it
         is reasonably possible the Company may incur losses upon conclusion of
         such matters, an estimate of any loss or range of loss cannot be made.
         In the opinion of management, it is expected that amounts, if any,
         which may be required to satisfy such contingencies will not be
         material in relation to the accompanying consolidated financial
         statements.

         Estimates of compensation relating to phantom stock appreciation rights
         granted to employees of a subsidiary of TCI have been recorded in the
         accompanying combined financial statements, but are subject to future
         adjustment based upon a valuation model derived from such subsidiary's
         cash flow, working capital and debt.

         During the six months ended June 30, 1998, the Company continued its
         enterprise-wide comprehensive efforts to review and correct computer
         systems, equipment and related software to ensure they properly
         recognize, process and store business information. The computer
         systems, equipment and software being evaluated include systems which
         are integral to the distribution of the Company's products and
         services, systems that support operations of the Company and protect
         its assets, and all internal use software. The Company is utilizing
         both internal and external resources, including the establishment of a
         year 2000 enterprise program management office accountable to the
         Company's executive management, to identify and remediate or replace
         systems for year 2000 readiness.



                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         During the six months ended June 30, 1998, the Company began the
         process of testing and replacing or remediating critical components of
         its cable systems' headend equipment. Although no assurance can be
         given, the Company expects to conclude such testing by December 1998
         with replacement or remediation completed by the end of the first
         quarter of 1999. Also the Company began the process of remediating
         systems that control the commercial advertising in its cable
         operations. Although no assurance can be given, those remediation
         efforts should be complete by mid-1999. The Company continued to assess
         potential year 2000 issues of its affiliated companies and provided its
         affiliates with remediation information on software products and
         systems. The Company's business and financial systems and software
         which will continue to be utilized by the Company beyond the year 1999
         will be capable of recognizing the year 2000 and therefore should not
         require material remediation or replacement.

         Significant third party vendors whose systems are critical to the
         Company's cable operations have been identified and surveyed and
         confirmations from such parties have been received indicating that they
         are either year 2000 ready or have plans in place to become ready.
         During the six months ended June 30, 1998, the Company completed an
         independent assessment of a key financial application externally
         managed by a third party vendor and determined that such vendor's
         systems and software should be compliant by the end of 1998. Also, the
         Company has developed and initiated a plan with key suppliers who
         provide systems which are integral to the distribution of the Company's
         products and services to upgrade or replace non-year 2000 compliant
         systems on a product-by-product and site-by-site basis by mid-1999.

         Management of the Company intends to have further communication with
         primary vendors identified as having systems that are not year 2000
         compliant to assess those vendors' plans for remediating their own year
         2000 issues and to assess the impact on the Company if such vendors
         fail to remediate their year 2000 issues. The Company continues to
         evaluate the level of validation it will require of third parties to
         ensure their year 2000 readiness.

         Management of the Company has not yet determined the full cost
         associated with its year 2000 readiness efforts and the related
         potential impact on the Company's financial position, results of
         operations or cash flows but has identified certain cost elements that,
         in the aggregate, are not expected to be less than $63 million, which
         includes $3 million of program management expenses incurred during the
         six months ended June 30, 1998. Although there can be no assurance, the
         Company anticipates that the costs ultimately required to be paid to
         ensure the Company's year 2000 readiness will not have a material
         adverse effect on the Company's financial position, results of
         operations or cash flows. However, there can be no assurance that the
         Company's systems or the systems of other companies on which the
         Company relies will be converted in time or that any such failure to
         convert by the Company or other companies will not have a material
         adverse effect on its financial position, results of operations or cash
         flows.



                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



(15)     Information about the Company's Segments

         The Company has two reportable segments: domestic cable and
         communications services and domestic programming services. Domestic
         cable and communications services receive video, audio and data signals
         from various sources, and amplify and distribute the signals by coaxial
         cable and optical fiber to the premises of customers who pay a fee for
         the service. Domestic programming services produces, acquires, and
         distributes, through all available formats and media, branded
         entertainment and informational programming and software, including
         multimedia products, delivered in both analog and digital form. The
         Company's domestic cable and communications services business and
         assets are included in TCI Group, and the Company's domestic
         programming business and assets are included in Liberty Media Group.
         The Company's principal international businesses and assets and the
         Company's remaining non-cable and non-programming domestic businesses
         and assets are included in TCI Ventures Group.

         The accounting policies of the segments are the same as those described
         in the summary of significant accounting policies. The Company
         evaluates performance based on a measure of operating cash flow
         (defined as operating income before depreciation, amortization, other
         non-cash items and stock compensation). The Company generally
         accounts for intersegment sales and transfers as if the sales or
         transfers were to third parties, that is, at current market prices.

         The Company utilizes the following interim financial information for
         purposes of making decisions about allocating resources to a segment
         and assessing a segment's performance:

<TABLE>
<CAPTION>
                                                Domestic cable            Domestic
                                               & communications          programming           All
                                                   services               services            other          Total
                                               ----------------        ---------------     ------------   -----------
                                                                      amounts in millions
         <S>                                    <C>                        <C>              <C>             <C>
         Six months ended June 30, 1998:
         Revenue from external customers
             including intersegment
             revenue                            $        3,081                    322              436         3,839
         Intersegment revenue                               (9)                   141               22           154
         Segment operating cash flow                     1,283                     44               45         1,372
         
         Six months ended June 30, 1997:
         Revenue from external customers
             including intersegment
             revenue                            $        3,161                    119              499         3,779
         Intersegment revenue                                7                     47               22            76
         Segment operating cash flow                     1,327                     38               89         1,454
</TABLE>



                                                                     (continued)



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

                   Notes to Consolidated Financial Statements



         A reconciliation of reportable segment operating cash flow to the
         Company's consolidated earnings (loss) before income tax is as follows:


<TABLE>
<CAPTION>
                                                              Six months ended June 30,
                                                             ---------------------------
                                                                 1998           1997
                                                             ------------   ------------
                                                                  amounts in millions
<S>                                                          <C>                   <C>  
 Total operating cash flow for reportable segments           $      1,327          1,365
 Other operating cash flow                                             45             89
 Other items excluded from operating cash flow:
          Depreciation and amortization                              (843)          (781)
          Stock compensation                                         (412)           (71)
          Cost of distribution agreements                             (83)            --
          Interest expense                                           (536)          (583)
          Interest and dividend income                                 39             39
          Share of losses of affiliates, net                         (589)          (338)
          Loss on early extinguishment of debt                        (38)           (11)
          Minority interest in earnings of consolidated
             subsidiaries, net                                        (29)           (94)
          Gain on issuance of equity interest by subsidiary            38             21
          Gain on issuance of stock by equity investee                201             --
          Gain on disposition of assets                             1,099             62
          Other, net                                                  (29)            (6)
                                                             ------------   ------------
             Earnings (loss) before income taxes             $        190           (308)
                                                             ============   ============
</TABLE>



                                      I-43
<PAGE>   45
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)


                             Combined Balance Sheets
                                   (unaudited)


<TABLE>
<CAPTION>
                                                          June 30,    December 31,
                                                            1998          1997
                                                        ------------  ------------
Assets                                                      amounts in millions
<S>                                                     <C>                     <C>
Cash and cash equivalents                               $         42            21

Restricted cash (note 4)                                         304            35

Trade and other receivables, net                                 439           394

Investment in Cablevision Systems Corporation 
   ("CSC"), accounted for under the
   equity method (note 5)                                      1,082            --

Investments in other affiliates, accounted for
   under the equity method, and
   related receivables (note 6)                                  367           414

Property and equipment, at cost:
   Land                                                           62            77
   Distribution systems                                        9,332         9,933
   Support equipment and buildings                             1,388         1,411
                                                        ------------  ------------
                                                              10,782        11,421
   Less accumulated depreciation                               4,483         4,479
                                                        ------------  ------------
                                                               6,299         6,942
                                                        ------------  ------------

Franchise costs                                               15,974        17,802
   Less accumulated amortization                               2,606         2,725
                                                        ------------  ------------
                                                              13,368        15,077
                                                        ------------  ------------

Other assets, net of amortization                                618           695
                                                        ------------  ------------

                                                        $     22,519        23,578
                                                        ============  ============
</TABLE>


                                                                     (continued)






                                      I-44
<PAGE>   46

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

                       Combined Balance Sheets, continued
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                               June 30,     December 31,
                                                                                 1998           1997
                                                                             ------------   ------------
Liabilities and Combined Deficit                                                 amounts in millions
<S>                                                                          <C>                     <C>
Accounts payable                                                             $         89            137

Accrued interest                                                                      248            250

Accrued programming expenses                                                          264            243

Other accrued expenses                                                                695            726

Debt (note 8)                                                                      12,647         14,106

Deferred income taxes                                                               5,376          5,147

Other liabilities                                                                     934            563
                                                                             ------------   ------------

      Total liabilities                                                            20,253         21,172
                                                                             ------------   ------------

Minority interests in equity of attributed subsidiaries                               914          1,048

Redeemable securities:
   Preferred stock (note 9)                                                           299            655
   Common stock                                                                        18              5

Company-obligated mandatorily redeemable preferred securities of subsidiary
   trusts ("Trust Preferred Securities") holding solely subordinated debt
   securities of TCI Communications, Inc. ("TCIC") (note 10)                        1,500          1,500

Combined deficit (note 11):
   Combined equity (deficit), including preferred stocks of
      Tele-Communications, Inc. ("TCI")                                                16           (276)
   Accumulated other comprehensive earnings, net of taxes (note 1)                     11              4
                                                                             ------------   ------------
                                                                                       27           (272)

   Due from related parties (note 12)                                                (492)          (530)
                                                                             ------------   ------------

      Total combined deficit                                                         (465)          (802)
                                                                             ------------   ------------

Commitments and contingencies (notes 2, 7 and 15)
                                                                             $     22,519         23,578
                                                                             ============   ============
</TABLE>

See accompanying notes to combined financial statements.


                                      I-45
<PAGE>   47

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

                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                   Three months ended             Six months ended
                                                                         June 30,                      June 30,
                                                               ----------------------------   ----------------------------
                                                                   1998            1997*          1998            1997*
                                                               ------------    ------------   ------------    ------------
                                                                                  amounts in millions,
                                                                               except per share amounts
<S>                                                            <C>                    <C>            <C>             <C>  
Revenue (note 12)                                              $      1,504           1,606          3,081           3,161

Operating costs and expenses:
    Operating:
      Related party (note 12)                                            58              23            118              52
      Other                                                             469             581            996           1,127
    Selling, general and administrative (note 12)                       350             339            684             655
    Stock compensation (note 11)                                         77              36            147              38
    Depreciation and amortization                                       373             362            749             694
                                                               ------------    ------------   ------------    ------------
                                                                      1,327           1,341          2,694           2,566
                                                               ------------    ------------   ------------    ------------

        Operating income                                                177             265            387             595

Other income (expense):
    Interest expense                                                   (227)           (282)          (500)           (555)
    Interest income                                                       2               9              7              16
    Intercompany interest, net                                            1               1              6              (1)
    Share of losses of CSC (note 5)                                     (48)             --            (80)             --
    Share of earnings (losses) of other affiliates, net
      (note 6)                                                           (5)            (17)            47             (34)
    Loss on early extinguishment of debt (note 8)                       (22)            (11)           (38)            (11)
    Minority interests in earnings of attributed
      subsidiaries, net (note 10)                                       (49)            (47)           (95)            (81)
    Gain on disposition of assets (note 7)                               30              43            541              33
    Other, net                                                          (14)            (10)           (28)            (14)
                                                               ------------    ------------   ------------    ------------
                                                                       (332)           (314)          (140)           (647)
                                                               ------------    ------------   ------------    ------------

        Earnings (loss) before income taxes                            (155)            (49)           247             (52)

Income tax benefit (expense)                                             13               1           (151)              7
                                                               ------------    ------------   ------------    ------------

        Earnings (loss) before loss of TCI Ventures Group
           (note 1)                                                    (142)            (48)            96             (45)

Loss of TCI Ventures Group through the date of the TCI
    Ventures Exchange (note 1)                                           --            (112)            --            (189)
                                                               ------------    ------------   ------------    ------------

        Net earnings (loss)                                            (142)           (160)            96            (234)

Dividend requirements on preferred stocks                                (2)            (11)           (13)            (21)
                                                               ------------    ------------   ------------    ------------

        Net earnings (loss) attributable to common
           stockholders                                        $       (144)           (171)            83            (255)
                                                               ============    ============   ============    ============

Basic earnings (loss) attributable to common stockholders per
    common share (note 3)                                      $       (.28)           (.25)           .16            (.38)
                                                               ============    ============   ============    ============

Diluted earnings (loss) attributable to common stockholders
    per common share (note 3)                                  $       (.28)           (.25)           .15            (.38)
                                                               ============    ============   ============    ============

Comprehensive earnings (loss) (note 1)                         $       (136)           (157)           103            (227)
                                                               ============    ============   ============    ============
</TABLE>


*Restated - see note 1.

See accompanying notes to combined financial statements.


                                      I-46
<PAGE>   48

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

                          Statement of Combined Deficit

                         Six months ended June 30, 1998
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                     Combined
                                                                      equity
                                                                    (deficit),   Accumulated
                                                                     including      other          Due
                                                                     preferred   comprehensive     from           Total
                                                                     stocks of     earnings,      related        combined
                                                                        TCI       net of taxes    parties        deficit
                                                                   ------------   ------------  ------------   ------------
                                                                                     amounts in millions
<S>                                                                <C>            <C>           <C>            <C>  
Balance at January 1, 1998                                         $       (276)             4          (530)          (802)
   Net earnings                                                              96             --            --             96
   Change in due from related parties                                        --             --            38             38
   Reclassification to redeemable securities of redemption
      amount of TCI Group Stock subject to put obligations                  (13)            --            --            (13)
   Premium received in connection with put obligation                         2             --            --              2
   Transfer of net liabilities from related party                           (50)            --            --            (50)
   Change in unrealized gains for available-for-sale
      securities, net of taxes                                               --              7            --              7
   Accreted dividends on all classes of TCI preferred stock                 (13)            --            --            (13)
   Accreted dividends on all classes of TCI preferred stock
      not subject to mandatory redemption requirements                        5             --            --              5
   Payment of TCI preferred stock dividends                                 (10)            --            --            (10)
   Payment of call premiums (note 13)                                      (134)            --            --           (134)
   Recognition of fees related to Exchange (note 13)                        (20)            --            --            (20)
   Reimbursement of fees related to Exchange (note 13)                       11             --            --             11
   Repurchase of TCI Group Stock                                             (2)            --            --             (2)
   Issuance of TCI Group Stock in connection with settlement
      of litigation                                                          47             --            --             47
   Issuance of TCI Group Stock for acquisitions (note 4)                     24             --            --             24
   Issuance of TCI Group Stock and Liberty Group Stock upon
      conversion of notes and preferred stock                               349             --            --            349
                                                                   ------------   ------------  ------------   ------------
Balance at June 30, 1998                                           $         16             11          (492)          (465)
                                                                   ============   ============  ============   ============
</TABLE>


See accompanying notes to combined financial statements.



                                      I-47
<PAGE>   49

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

                        Combined Statements of Cash Flows
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                         Six months ended
                                                                                            June 30,
                                                                                  ----------------------------
                                                                                      1998            1997*
                                                                                  ------------    ------------
                                                                                      amounts in millions
Cash flows from operating activities:                                                     (see note 4)
<S>                                                                               <C>                      <C> 
   Earnings (loss)  before loss of TCI Ventures Group**                           $         96             (45)
   Adjustments to reconcile earnings (loss) before loss of TCI Ventures
      Group to net cash provided by operating activities:
          Depreciation and amortization                                                    749             694
          Stock compensation                                                               147              38
          Payments of obligation relating to stock compensation                            (66)            (14)
          Share of losses of CSC                                                            80              --
          Share of losses (earnings) of other affiliates, net                              (47)             34
          Loss on early extinguishment of debt                                              38              11
          Minority interests in earnings of attributed subsidiaries, net                    95              81
          Gain on disposition of assets                                                   (541)            (33)
          Intergroup tax allocation                                                         --              82
          Deferred income tax expense (benefit)                                            121            (132)
          Payments of restructuring charges                                                 (4)            (19)
          Other noncash charges                                                              2              --
          Changes in operating assets and liabilities, net of the effect of
              acquisitions:
                Change in receivables                                                      (37)           (123)
                Change in accruals and payables                                           (159)            189
                                                                                  ------------    ------------

                    Net cash provided by operating activities                              474             763
                                                                                  ------------    ------------

Cash flows from investing activities:
   Cash paid for acquisitions                                                              (60)           (194)
   Capital expended for property and equipment                                            (493)           (128)
   Investments in and loans to affiliates                                                 (151)            (20)
   Collections of loans to affiliates                                                      943              --
   Proceeds from dispositions of assets                                                    351             193
   Change in restricted cash                                                              (269)            (13)
   Cash received in exchanges                                                               --              15
   Change in due from Liberty Media Group                                                   --              11
   Change in interest in TCI Ventures Group                                                 --             (78)
   Other investing activities                                                               12             (30)
                                                                                  ------------    ------------

                    Net cash provided by (used in) investing activities                    333            (244)
                                                                                  ------------    ------------

Cash flows from financing activities:
   Borrowings of debt                                                                    1,883           1,041
   Repayments of debt                                                                   (2,625)         (1,822)
   Payment of preferred stock dividends                                                    (23)            (23)
   Payment of dividends on subsidiary preferred stock and Trust Preferred
      Securities                                                                           (95)            (85)
   Payment of call premiums                                                               (134)             --
   Change in amounts due from related parties                                              259            (123)
   Proceeds from issuance of TCI Group Stock                                                --               3
   Proceeds from issuance of Trust Preferred Securities                                     --             490
   Other financing activities                                                              (51)             --
                                                                                  ------------    ------------

                    Net cash used in financing activities                                 (786)           (519)
                                                                                  ------------    ------------

                    Net increase in cash and cash equivalents                               21              --

                    Cash and cash equivalents at beginning of period                        21              --
                                                                                  ------------    ------------

                    Cash and cash equivalents at end of period                    $         42              --
                                                                                  ============    ============
</TABLE>

*    Restated - see note 1.

**   Loss of TCI Ventures Group does not use funds.

See accompanying notes to combined financial statements.



                                      I-48
<PAGE>   50


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

                     Notes to Combined Financial Statements

                                  June 30, 1998
                                   (unaudited)

(1)      Basis of Presentation

         The accompanying combined financial statements include the accounts of
         the subsidiaries and assets of TCI that are attributed to TCI Group, as
         defined below. The combined financial statements of TCI Group are
         presented for purposes of additional analysis of the consolidated
         financial statements of TCI and subsidiaries, and should be read in
         conjunction with such consolidated financial statements.

         All significant intercompany accounts and transactions have been
         eliminated. Preferred stock of TCI, which is owned by subsidiaries of
         TCI, eliminates in combination. Common stock of TCI held by
         subsidiaries is included in combined deficit.

         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 and notes thereto of TCI
         Group for the year ended December 31, 1997.

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

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


                                                                     (continued)



                                      I-49
<PAGE>   51
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



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

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

         Targeted Stock

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue two new series of stock,
         Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series A Stock") and
         Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series B Stock," and together
         with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
         Liberty Group Stock is intended to reflect the separate performance of
         TCI's assets which produce and distribute programming services
         ("Liberty Media Group"). Additionally, the stockholders, of TCI
         approved the redesignation of the previously authorized Class A and
         Class B common stock into Tele-Communications, Inc. Series A TCI Group
         Common Stock, par value $1.00 per share ("TCI Group Series A Stock")
         and Tele-Communications, Inc. Series B TCI Group Common Stock, par
         value $1.00 per share ("TCI Group Series B Stock", and together with
         the TCI Group Series A Stock, the "TCI Group Stock"), respectively. On
         August 10, 1995, TCI distributed, in the form of a dividend, 2.25
         shares of Liberty Group Stock for each four shares of TCI Group Stock
         owned (the "Liberty Distribution").

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
         Stock, par value $1.00 per share ("TCI Ventures Group Series A Stock")
         and Tele-Communications, Inc. Series B TCI Ventures Group Common Stock,
         par value $1.00 per share ("TCI Ventures Group Series B Stock," and
         together with the TCI Ventures Group Series A Stock, the "TCI Ventures
         Group Stock"). The TCI Ventures Group Stock is intended to reflect the
         separate performance of the "TCI Ventures Group," which is comprised of
         TCI's principal international assets and businesses and substantially
         all of TCI's non-cable and non-programming assets.


                                                                     (continued)



                                      I-50
<PAGE>   52
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



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

         The TCI Group Stock is intended to reflect the separate performance of
         TCI and its subsidiaries and assets not attributed to Liberty Media
         Group or TCI Ventures Group. Such subsidiaries and assets are referred
         to as "TCI Group" and are comprised primarily of TCI's domestic cable
         and communications business. Collectively, TCI Group, Liberty Media
         Group and TCI Ventures Group are referred to as the "Groups" and
         individually, may be referred to herein as a "Group." The TCI Group
         Series A Stock, TCI Ventures Group Series A Stock and Liberty Group
         Series A Stock are sometimes collectively referred to herein as "Series
         A Stock," and the TCI Group Series B Stock, TCI Ventures Group Series B
         Stock and Liberty Group Series B Stock are sometimes collectively
         referred to herein as the "Series B Stock."

         As a result of the TCI Ventures Exchange, the combined financial
         statements of TCI Group were restated to exclude those assets and
         related liabilities which, prior to being attributed to TCI Ventures
         Group in connection with the issuance of the TCI Ventures Group Stock,
         had been attributed to TCI Group.

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


                                                                     (continued)



                                      I-51
<PAGE>   53
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         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
         separate Groups and the market prices of shares of TCI Group Stock,
         Liberty Group Stock and TCI Ventures Group Stock. In addition, net
         losses of any portion of TCI, dividends or distributions on, or
         repurchases of, any series of common stock, and dividends on or certain
         repurchases of preferred stock, would reduce funds of TCI legally
         available for dividends on all series of common stock. Accordingly,
         financial information of any one Group should be read in conjunction
         with the financial information of TCI and the other Groups.

         The common stockholders' equity value of TCI Ventures Group or Liberty
         Media Group that, at any relevant time, is attributed to TCI Group, and
         accordingly not represented by outstanding TCI Ventures Group Stock or
         Liberty Group Stock, respectively, is referred to as "Inter-Group
         Interest." Prior to consummation of the Liberty Distribution and TCI
         Ventures Exchange, TCI Group had a 100% Inter-Group Interest in Liberty
         Media Group and TCI Ventures Group, respectively. Following
         consummation of the Liberty Distribution and TCI Ventures Exchange, TCI
         Group no longer has Inter-Group Interests in Liberty Media Group and
         TCI Ventures Group, respectively. For periods in which an Inter-Group
         Interest exists, TCI Group accounts for its Inter-Group Interest in a
         manner similar to the equity method of accounting. Following
         consummation of the Liberty Distribution and the TCI Ventures Exchange,
         an Inter-Group Interest would be created with respect to Liberty Media
         Group or TCI Ventures Group only if a subsequent transfer of cash or
         other property from TCI Group to Liberty Media Group or TCI Ventures
         Group is specifically designated by the Board as being made to create
         an Inter-Group Interest or if outstanding shares of Liberty Group Stock
         or TCI Ventures Stock, respectively, are purchased with funds
         attributable to TCI Group. Management of TCI believes that generally
         accepted accounting principles require that Liberty Media Group or TCI
         Ventures Group be consolidated with TCI Group for all periods in which
         TCI Group held an Inter-Group Interest in Liberty Media Group or TCI
         Ventures Group, respectively.

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

         All debt incurred or preferred stock issued by TCI and its subsidiaries
         is (unless the Board otherwise provides) specifically attributed to and
         reflected in the combined financial statements of the Group that
         includes the entity which incurred the debt or issued the preferred
         stock or, in case the entity incurring the debt or issuing the
         preferred stock is Tele-Communications, Inc., the TCI Group. The Board
         could, however, determine from time to time that debt incurred or
         preferred stock issued by entities included in a Group should be
         specifically attributed to and reflected in the combined financial
         statements of one of the other Groups to the extent that the debt is
         incurred or the preferred stock is issued for the benefit of such other
         Group.

                                                                     (continued)



                                      I-52
<PAGE>   54
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Although it is management's intention that each Group would normally
         arrange for the external financing required to satisfy its respective
         liquidity requirements, the cash needs of one Group may exceed the
         liquidity sources of such Group. In such circumstances, one of the
         other Groups may transfer funds to such Group. Such transfers of funds
         among the Groups will be reflected as borrowings or, if determined by
         the Board, in the case of a transfer from TCI Group to either Liberty
         Media Group or TCI Ventures Group, reflected as the creation of, or
         increase in, TCI Group's Inter-Group Interest in such Group or, in the
         case of a transfer from either Liberty Media Group or TCI Ventures
         Group to TCI Group, reflected as a reduction in TCI Group's Inter-Group
         Interest in such Group. There are no specific criteria for determining
         when a transfer will be reflected as a borrowing or as an increase or
         reduction in an Inter-Group Interest. 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 needs
         of TCI, the financing needs and objectives of the Groups, the
         investment objectives of the Groups, the availability, cost and time
         associated with alternative financing sources, prevailing interest
         rates and general economic conditions.

         Loans from one Group to another Group generally will bear interest at
         such rates and have such repayment schedules and other terms as are
         established from time to time by, or pursuant to procedures 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 needs of TCI, the use of proceeds by
         and creditworthiness of the recipient Group, the capital expenditure
         plans of and investment opportunities available to each Group and the
         availability, cost and time associated with alternative financing
         sources.

         The combined balance sheets of a Group reflect its net loans or
         advances to or borrowings from the other Groups. Similarly, the
         respective combined statements of operations of the Groups reflect
         interest income or expense, as the case may be, associated with such
         loans or advances and the respective combined statements of cash flows
         of the Groups reflect changes in the amounts of loans or advances
         deemed outstanding. In the historical combined financial statements,
         net loans or advances between Groups have been, and will continue to
         be, included as a component of each respective Group's combined equity.

         Although any increase in TCI Group's Inter-Group Interest in Liberty
         Media Group or TCI Ventures Group resulting from an equity contribution
         by TCI Group to Liberty Media Group or TCI Ventures Group or any
         decrease in such Inter-Group Interest resulting from a transfer of
         funds from Liberty Media Group or TCI Ventures Group to TCI Group would
         be determined by reference to the market value of the Liberty Group
         Series A Stock or the TCI Ventures Group Series A Stock, respectively,
         as of the date of such transfer, such an increase could occur at a time
         when such shares could be considered undervalued and such a decrease
         could occur at a time when such shares could be considered overvalued.

                                                                     (continued)



                                      I-53
<PAGE>   55
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         All financial impacts of issuances and purchases of shares of TCI Group
         Stock, TCI Ventures Group Stock or Liberty Group Stock, which are
         attributed to TCI Group, TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group, TCI Ventures Group or Liberty Media
         Group, respectively. All financial impacts of issuances of shares of
         TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
         are attributed to TCI Group in respect of a reduction in TCI Group's
         Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group. Financial impacts of dividends or
         other distributions on TCI Group Stock, TCI Ventures Group Stock or
         Liberty Group Stock, will be attributed entirely to TCI Group, TCI
         Ventures Group or Liberty Media Group, respectively, except that
         dividends or other distributions on TCI Ventures Group Stock or Liberty
         Group Stock will (if at the time there is an Inter-Group Interest in
         TCI Ventures Group or Liberty Media Group, respectively) result in TCI
         Group being credited, and TCI Ventures Group or Liberty Media Group
         being charged (in addition to the charge for the dividend or other
         distribution paid), with an amount equal to the product of the
         aggregate amount of such dividend or other distribution paid or
         distributed in respect of outstanding shares of TCI Ventures Group
         Stock or Liberty Group Stock and a fraction of the numerator of which
         is TCI Ventures Group or Liberty Media Group Inter-Group Interest
         Fraction and the denominator of which is the TCI Ventures Group or the
         Liberty Media Group "Outstanding Interest Fraction" (both as defined).
         Financial impacts of repurchases of TCI Ventures Group Stock or Liberty
         Group Stock, the consideration for which is charged to TCI Group, will
         be to such extent reflected in the combined financial statements of the
         TCI Group and will result in an increase in TCI Group's Inter-Group
         Interest in TCI Ventures Group or Liberty Media Group, respectively.

                                                                     (continued)



                                      I-54
<PAGE>   56

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

                     Notes to Combined Financial Statements


(2)      Proposed Merger

         TCI and AT&T Corp. ("AT&T") have agreed to a merger (the "Merger")
         pursuant to, and subject to the terms and conditions set forth in, the
         Agreement and Plan of Restructuring and Merger, dated as of June 23,
         1998 (the "Merger Agreement"), among TCI, AT&T and Italy Merger Corp.,
         an indirect wholly-owned subsidiary of AT&T. In the Merger, TCI will
         become a wholly-owned subsidiary of AT&T and (i) each share of TCI
         Group Series A Stock will be converted into .7757 of a share of common
         stock, par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii)
         each share of TCI Group Series B Stock will be converted into .8533 of
         a share of AT&T Common Stock, (iii) each share of Liberty Group Series
         A Stock will be converted into one share of a newly authorized class of
         AT&T common stock to be designated as the Class A Liberty Group Common
         Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
         Stock") and (iv) each share of Liberty Group Series B Stock will be
         converted into one share of a newly authorized class of AT&T common
         stock to be designated as the Class B Liberty Group Common Stock, par
         value $1.00 per share (the "AT&T Liberty Class B Tracking Stock" and
         together with the AT&T Liberty Class A Tracking Stock, the "AT&T
         Liberty Tracking Stock"). In addition, TCI has announced its intention,
         subject to stockholder approval, to combine the assets and businesses
         of Liberty Media Group and TCI Ventures Group and reclassify each share
         of TCI Ventures Group Series A Stock as .52 of a share of Liberty Group
         Series A Stock and each share of TCI Ventures Group Series B Stock as
         .52 of a share of Liberty Group Series B Stock. If such combination and
         reclassification does not occur prior to the Merger, then in the Merger
         each share of TCI Ventures Group Series A Stock and TCI Ventures Group
         Series B Stock will be converted into .52 of a share of the
         corresponding series of AT&T Liberty Tracking Stock. In general, the
         holders of shares of AT&T Liberty Class A Tracking Stock and the
         holders of shares of AT&T Liberty Class B Tracking Stock will vote
         together as a single class with the holders of shares of AT&T Common
         Stock on all matters presented to such stockholders, with the holders
         being entitled to one-tenth (1/10th) of a vote for each share of AT&T
         Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
         Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
         held.

         In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
         Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
         Preferred Stock, Series C-TCI Group will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current conversion
         rate of such preferred stock (132.86 shares per preferred share), (iii)
         TCI's Convertible Preferred Stock Series C-Liberty Media Group will be
         converted into a number of shares of AT&T Liberty Class A Tracking
         Stock equal to the current conversion rate of such preferred stock
         (56.25 shares per preferred share), (iv) TCI's Redeemable Convertible
         TCI Group Preferred Stock, Series G will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current conversion
         rate of such preferred stock (1.19 shares per preferred share) and (v)
         TCI's Redeemable Convertible Liberty Media Group Preferred Stock,
         Series H will be converted into a number of shares of AT&T Liberty
         Class A Tracking Stock equal to the current conversion rate of such
         preferred stock (0.590625 of a share per preferred share).


                                                                     (continued)



                                      I-55
<PAGE>   57
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         The shares of AT&T Liberty Tracking Stock to be issued in the Merger
         will be a newly authorized class of common stock of AT&T which will be
         intended to reflect the separate performance of the businesses and
         assets attributed to the "Liberty/Ventures Group." The Liberty/Ventures
         Group following the Merger will be made up of the corporations,
         partnerships and other entities and interests which comprise Liberty
         Media Group and TCI Ventures Group at the time of the Merger. Pursuant
         to the Merger Agreement, immediately prior to the Merger, certain
         assets currently held by TCI Ventures Group (including, among others,
         the shares of AT&T Common Stock received in the merger of AT&T and
         Teleport Communications Group, Inc. ("TCG"), the stock of At Home
         Corporation held by TCI Ventures Group and the assets and business of
         the National Digital Television Center, Inc. ("NDTC")) will be
         transferred to TCI Group in exchange for approximately $5.5 billion in
         cash. Also upon consummation of the Merger, Liberty/Ventures Group will
         become entitled to the benefit of all of the net operating loss
         carryforwards available to the entities included in TCI's consolidated
         income tax return as of the date of the Merger. Additionally, certain
         warrants currently attributed to TCI Group will be transferred to
         Liberty/Ventures Group in exchange for up to $176 million in cash.
         Certain agreements to be entered into at the time of the Merger as
         contemplated by the Merger Agreement will, among other things, provide
         preferred vendor status to Liberty/Ventures Group for digital basic
         distribution on AT&T's systems of new programming services created by
         Liberty/Ventures Group provide for a renewal of existing affiliation
         agreements and provide for the business of the Liberty/Ventures Group
         to continue to be managed following the Merger by certain members of
         TCI's management who currently manage the businesses of Liberty Media
         Group and TCI Ventures Group.

         If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
         stockholders to approve the Merger prior to March 31, 1999, (ii) the
         withdrawal or modification by the AT&T Board of Directors of its
         approval of the transaction, or (iii) the failure to obtain necessary
         governmental and regulatory approvals by September 30, 1999, which
         failure occurs as a result of the announcement by AT&T of a significant
         transaction which delays receipt of such governmental approvals, AT&T
         will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
         the Merger Agreement due to the failure of TCI stockholders to approve
         the transaction prior to March 31, 1999 or the withdrawal or
         modification by the TCI Board of Directors of its approval of the
         Merger, TCI will pay to AT&T the sum of $1.75 billion in cash.

         Consummation of the Merger is subject to the satisfaction or waiver of
         customary conditions to closing, including but not limited to, the
         separate approvals of the stockholders of AT&T and TCI, receipt of all
         necessary governmental consents and approvals, and effectiveness of the
         registration statement registering the AT&T Common Stock and AT&T
         Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
         As a result, there can be no assurance that the Merger will be
         consummated or, if the Merger is consummated, as to the date of such
         consummation.


                                                                     (continued)



                                      I-56
<PAGE>   58
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



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

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

         The basic earnings (loss) attributable to TCI Group common stockholders
         per common share for the three months and six months ended June 30,
         1998 and 1997 was computed by dividing net earnings (loss) attributable
         to TCI Group common stockholders by the weighted average number of
         common shares outstanding of TCI Group Stock during the period.

         The diluted earnings attributable to TCI Group common stockholders per
         common share for the six months ended June 30, 1998 was computed by
         dividing net earnings attributable to TCI Group common stockholders,
         which is adjusted by the addition of preferred dividends and interest
         expense accrued during the six months ended June 30, 1998 to net
         earnings, assuming conversion of TCI Group convertible securities as of
         the beginning of the period, by the weighted average number of common
         shares outstanding of TCI Group Stock during the period. Shares
         issuable upon conversion of the Convertible Preferred Stock, Series
         C-TCI Group ("Series C-TCI Group Preferred Stock"), the Redeemable
         Convertible TCI Group Preferred Stock, Series G ("Series G Preferred
         Stock"), preferred stock of subsidiaries, convertible notes payable,
         stock options and other performance awards have been included in the
         computation of weighted average shares, as illustrated below. Shares of
         TCI Group stock issuable upon exercise of the Malone Right (as defined
         in note 13), and issuable upon conversion of Convertible Preferred
         Stock, Series D ("Series D Preferred Stock"), and associated dividend
         payments for the six months ended June 30, 1998 have been excluded as
         adjustments in computing the diluted earnings attributable to TCI Group
         common stockholders per common share as such potential common shares
         are antidilutive for the six months ended June 30, 1998.

         The diluted loss attributable to TCI Group common stockholders per
         common share for the three months ended June 30, 1998 and the three
         months and six months ended June 30, 1997 was computed by dividing net
         loss attributable to TCI Group common stockholders by the weighted
         average number of common shares outstanding of TCI Group Stock during
         the period. Potential common shares were not included in the
         computation of weighted average shares outstanding because their
         inclusion would be anti-dilutive.

         No material changes in the weighted average outstanding shares or
         potential common shares occurred after June 30, 1998.

                                                                     (continued)



                                      I-57

<PAGE>   59
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



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

<TABLE>
<CAPTION>
                                                     Three months ended            Six months ended
                                                          June 30,                    June 30,
                                               ---------------------------   ---------------------------
                                                    1998           1997           1998           1997
                                               ------------   ------------   ------------   ------------
                                                    amounts in millions, except per share amounts
<S>                                            <C>            <C>            <C>            <C> 
Basic EPS:
   Earnings (loss) attributable to
        common stockholders                    $       (144)          (171)            83           (255)
                                               ============   ============   ============   ============
   Weighted average common shares                       523            683            520            680
                                               ============   ============   ============   ============
   Basic earnings (loss) per share
        attributable to common
        stockholders                           $       (.28)          (.25)           .16           (.38)
                                               ============   ============   ============   ============

Diluted EPS:
   Earnings (loss) attributable to
        common stockholders                    $       (144)          (171)            83           (255)
   Add preferred dividend requirements                   --             --              6             --
   Add interest expense                                  --             --              1             --
                                               ------------   ------------   ------------   ------------
   Adjusted earnings (loss)
        attributable to common
        stockholders assuming
        conversion of preferred shares         $       (144)          (171)            90           (255)
                                               ============   ============   ============   ============

   Weighted average common shares                       523            683            520            680
                                               ------------   ------------   ------------   ------------
   Add dilutive potential common shares:
        Employee and director options
           and other performance awards                  --             --              9             --
        Malone Right                                     --             --             --             --
        Convertible notes payable                        --             --             24             --
        Series C-TCI Group Preferred
           Stock                                         --             --              7             --
        Series D Preferred Stock                         --             --             --             --
        Series G Preferred Stock                         --             --              8             --
        Preferred stock of subsidiaries                  --             --             45             --
                                               ------------   ------------   ------------   ------------
           Dilutive potential common
              shares                                     --             --             93             --
                                               ------------   ------------   ------------   ------------
   Diluted weighted average common
        shares                                          523            683            613            680
                                               ============   ============   ============   ============
   Diluted earnings (loss) per share
        attributable to common
        stockholders                           $       (.28)          (.25)           .15           (.38)
                                               ============   ============   ============   ============
</TABLE>

                                                                     (continued)



                                      I-58
<PAGE>   60
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(4)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $502 million and $565 million for the six
         months ended June 30, 1998 and 1997, respectively. Cash paid for income
         taxes was not material for the six months ended June 30, 1998 and 1997.

         Summary of cash paid for acquisitions and cash received in exchanges is
         as follows:

<TABLE>
<CAPTION>
                                                                                      Six months ended
                                                                                          June 30,
                                                                                ---------------------------
                                                                                    1998           1997
                                                                                ------------   ------------
                                                                                    amounts in millions
          <S>                                                                    <C>            <C>    
          Cash paid for acquisitions:
             Aggregate cost basis of assets acquired                            $       (413)        (1,073)
             Liabilities assumed, net of current assets                                    2            584
             Deferred tax liability recorded in acquisitions                             107             34
             Acquisition of minority interests in equity of consolidated
                subsidiaries                                                            (130)             3
             Elimination of notes receivable from affiliates                             350             --
             Common stock and preferred stock issued in acquisitions                      24            258
                                                                                ------------   ------------
 
                   Cash paid for acquisitions                                   $        (60)          (194)
                                                                                ============   ============

           Cash received in exchanges:
              Aggregate cost basis of assets acquired                           $         --           (395)
              Historical cost of assets disposed of                                       --            399
              Gain recorded on exchange of assets                                         --             11
                                                                                ------------   ------------

                   Cash received in exchanges                                   $         --             15
                                                                                ============   ============
</TABLE>

         For a description of certain non-cash transactions, see notes 6, 7 and
         12.

         TCI Group's restricted cash includes proceeds received in connection
         with certain asset dispositions. Such proceeds, which aggregated $303
         million and $34 million at June 30, 1998 and December 31, 1997,
         respectively, are designated to be reinvested in certain identified
         assets for income tax purposes.


                                                                     (continued)



                                      I-59
<PAGE>   61
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(5)      Investment in Cablevision Systems Corporation

         On March 4, 1998, TCI Group contributed to CSC certain of its cable
         television systems serving approximately 830,000 customers in exchange
         for approximately 24.5 million newly issued CSC Class A common shares
         (as adjusted for a stock dividend) (the "CSC Transaction"). CSC also
         assumed and repaid approximately $574 million of debt owed by TCI Group
         to external parties and $95 million of debt owed to TCI Group. As a
         result of the CSC Transaction, TCI Group recognized a $511 million gain
         in the accompanying combined statement of operations for the six months
         ended June 30, 1998. Such gain represents the excess of the $1,161
         million fair value of the CSC Class A common shares received over the
         historical cost of the net assets transferred by TCI Group to CSC. TCI
         Group has also entered into letters of intent with CSC which provide
         for TCI Group to acquire a cable system in Michigan and an additional
         3% of CSC's Class A common shares and for CSC to (i) acquire cable
         systems serving approximately 250,000 customers in Connecticut and (ii)
         assume $110 million of TCI Group's debt. The ability of TCI Group to
         sell or increase its investment in CSC is subject to certain
         restrictions and limitations set forth in a stockholders agreement with
         CSC.

         At June 30, 1998, TCI Group owned 24,471,086 shares of CSC Class A
         common stock, which had a closing market price of $83.50 per share on
         such date. Such shares represented an approximate 32.5% equity interest
         in CSC's total outstanding shares and an approximate 9% voting interest
         in CSC in all matters except for (i) the election of directors, in
         which case TCI Group effectively has the right to designate two of
         CSC's directors, and (ii) any increase in authorized shares, in which
         case TCI Group has agreed to vote its interest in proportion with the
         public holders of CSC Class A common shares.

         Summarized unaudited results of operations for CSC, accounted for under
         the equity method, are as follows for the period from the date of
         acquisition through June 30, 1998 (amounts in millions):

<TABLE>
          <S>                                                       <C>         
          Revenue                                                   $      1,041
          Operating, selling, general and administrative expense            (816)
          Depreciation and amortization                                     (228)
                                                                    ------------
                   Operating loss                                             (3)

          Interest expense                                                  (149)
          Other, net                                                         (46)
                                                                    ------------
                   Net loss                                         $       (198)
                                                                    ============
</TABLE>


                                                                     (continued)



                                      I-60
<PAGE>   62

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

                     Notes to Combined Financial Statements


(6)      Investments in Other Affiliates

         TCI Group's investments in affiliates other than CSC are comprised of
         limited partnerships and other entities that are primarily engaged in
         the domestic cable business. Summarized unaudited results of operations
         for the periods in which TCI Group used the equity method to account
         for such other affiliates are as follows:

<TABLE>
<CAPTION>
                                                                          Six months ended
          Combined Operations                                                 June 30,
          -------------------                                        ---------------------------
                                                                          1998           1997
                                                                     ------------   ------------
                                                                          amounts in millions
          <S>                                                        <C>                     <C>
          Revenue                                                    $        526            512
          Operating, selling, general and administrative expenses            (277)          (293)
          Depreciation and amortization                                      (182)          (158)
                                                                     ------------   ------------

              Operating income                                                 67             61

          Interest expense                                                   (125)          (112)
          Other, net                                                           20            (28)
                                                                     ------------   ------------

              Net loss                                               $        (38)           (79)
                                                                     ============   ============
</TABLE>

         In January 1998, InterMedia Partners, a California limited partnership
         ("InterMedia Partners") repurchased substantially all of the equity
         interests held by partners other than TCI Group. InterMedia Partners
         has been included in the combined financial statements of TCI Group
         since the date of such repurchases.

         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 applicable partnership
         law for all debts (other than non-recourse debts) of that partnership
         in the event liabilities of that partnership were to exceed its assets.


                                                                     (continued)



                                      I-61
<PAGE>   63
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(7)      Acquisitions and Dispositions

         In addition to the CSC Transaction described in note 5, TCI completed,
         during the first six months of 1998, three transactions whereby TCI
         Group contributed cable television systems serving in the aggregate
         approximately 670,000 customers to three separate joint ventures
         (collectively, the "1998 Joint Ventures") in exchange for
         non-controlling ownership interests in each of the 1998 Joint Ventures,
         and the assumption and repayment by the 1998 Joint Ventures of debt
         owed by TCI Group to external parties aggregating $323 million and
         intercompany debt owed to TCI Group aggregating $833 million. In
         connection with such transactions, TCI Group has agreed to take certain
         steps to support compliance by each of the 1998 Joint Ventures with
         their payment obligations under certain debt instruments, up to an
         aggregate contingent commitment of $784 million. In light of such
         contingent commitments, TCI Group has deferred any gains on the
         formation of the 1998 Joint Ventures. Such deferred gains, which
         aggregated $163 million, will not be recognized until such time as TCI
         Group's contingent commitments with respect to the 1998 Joint Ventures
         are eliminated. TCI Group uses the equity method of accounting to
         account for its investments in the 1998 Joint Ventures. The CSC
         Transaction and the formation of the 1998 Joint Ventures are
         collectively referred to herein as the "1998 Contribution
         Transactions."

         Including the 1998 Contribution Transactions, TCI Group, as of July 31,
         1998, has, since January 1, 1997, contributed, or signed agreements or
         letters of intent to contribute within the next twelve months, certain
         cable television systems (the "Contributed Cable Systems") serving
         approximately 3.9 million basic customers to joint ventures in which
         TCI Group will retain non-controlling ownership interests (the
         "Contribution Transactions"). Following the completion of the
         Contribution Transactions, the Contributed Cable Systems will no longer
         be included in TCI Group's combined financial statements. Accordingly
         it is anticipated that the completion of the Contribution Transactions,
         as currently contemplated, will result in an aggregate estimated
         reduction (based on actual amounts with respect to the 1998
         Contribution Transactions and currently contemplated amounts with
         respect to the pending Contribution Transactions) to TCI Group's debt
         of $4.8 billion and aggregate estimated reductions (based on 1997
         amounts) to TCI Group's annual revenue and annual operating income
         before depreciation, amortization, other non-cash items and stock
         compensation of $1.8 billion and $815 million, respectively. No
         assurance can be given that any of the pending Contribution
         Transactions will be consummated.


                                                                     (continued)



                                      I-62
<PAGE>   64
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(8)      Debt

         Debt is summarized as follows:


<TABLE>
<CAPTION>
                                                                 June 30,              December 31,
                                                                   1998                    1997
                                                              --------------          -------------
                                                                       amounts in millions
         <S>                                                  <C>                             <C>  
         Notes payable (a)                                    $        9,382                  8,672
         Bank credit facilities (b)                                    2,311                  4,842
         Commercial paper                                                717                    533
         Convertible notes (c)                                            40                     40
         Capital lease obligations and other debt                        197                     19
                                                              --------------          -------------
                                                              $       12,647                 14,106
                                                              ==============          =============
</TABLE>


         (a)      During the six months ended June 30, 1998, TCI Group purchased
                  certain notes payable which had an aggregate principal balance
                  of $299 million and fixed interest rates ranging from 8.67% to
                  10.125% (the "1998 Purchases"). In connection with the 1998
                  Purchases, TCI Group recognized a loss on early extinguishment
                  of debt of $38 million. Such loss related to prepayment
                  penalties amounting to $34 million and the retirement of
                  deferred loan costs.

                  During the six months ended June 30, 1997, TCI Group purchased
                  certain notes payable which had an aggregate principal balance
                  of $190 million and fixed interest rates ranging from 8.75% to
                  10.13% (the "1997 Purchases"). In connection with the 1997
                  Purchases, TCI Group recognized a loss on early extinguishment
                  of debt of $11 million. Such loss related to prepayment
                  penalties amounting to $7 million and the retirement of
                  deferred loan costs.

         (b)      At June 30, 1998, subsidiaries of TCI Group had approximately
                  $2.6 billion in unused lines of credit, excluding amounts
                  related to lines of credit which provide availability to
                  support commercial paper.

                  Certain subsidiaries attributed to TCI Group are required to
                  maintain unused availability under bank credit facilities to
                  the extent of outstanding commercial paper. Also, certain
                  subsidiaries attributed to TCI Group pay fees ranging from
                  1/4% to 1/2% per annum on the average unborrowed portion of
                  the total amount available for borrowings under bank credit
                  facilities.


                                                                     (continued)




                                      I-63
<PAGE>   65

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

                     Notes to Combined Financial Statements



         (c)      The convertible notes, which are stated net of unamortized
                  discount of $166 million at June 30, 1998 and December 31,
                  1997, 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 June 30, 1998, the notes were
                  convertible, at the option of the holders, into an aggregate
                  of 24,163,259 shares of Series A TCI Group Stock, 19,416,910
                  shares of Series A Liberty Group Stock, 20,711,373 shares of
                  Series A TCI Ventures Group Stock and 3,451,897 shares of
                  Series A Common Stock, $1.00 par value per share, of TCI
                  Satellite Entertainment, Inc.

         The bank credit facilities and various other debt instruments
         attributable to 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.

         The fair value of the debt attributable to TCI Group is estimated based
         on the quoted market prices for the same or similar issues or on the
         current rates offered to TCI Group for debt of the same remaining
         maturities. At June 30, 1998, the fair value of TCI Group's debt was
         $13,336 million, as compared to a carrying value of $12,647 million on
         such date.

         In order to achieve the desired balance between variable and fixed rate
         indebtedness, TCI Group has entered into variable and fixed interest
         rate exchange agreements ("Interest Rate Swaps") pursuant to which it
         (i) pays a fixed interest rate (the "Fixed Rate Agreement") of 6.2% and
         receives variable interest rates on a notional amount of $10 million at
         June 30, 1998 and (ii) pays variable interest rates (the "Variable Rate
         Agreements") and receives fixed interest rates ranging from 4.8% to
         9.7% on notional amounts of $2,400 million at June 30, 1998. During the
         six months ended June 30, 1998 and 1997, TCI Group's net payments
         pursuant to the Fixed Rate Agreement were less than $1 million and $4
         million, respectively; and TCI Group's net receipts pursuant to the
         Variable Rate Agreements were $4 million and $11 million, respectively.


                                                                     (continued)





                                      I-64
<PAGE>   66

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

                     Notes to Combined Financial Statements



         Information concerning TCI Group's Variable Rate Agreements at June 30,
         1998 is as follows (dollar amounts in millions):

<TABLE>
<CAPTION>
                                                                                             Amount to
                                                                                              be paid
                     Expiration                 Interest rate           Notional          (received) upon
                         date                   to be received           amount           termination (a)
          --------------------------------      --------------        ----------         ------------------
          <S>                                    <C>                  <C>                   <C>       
          September 1998                         4.8%-5.4%            $      450            $        2
          April 1999                                7.4%                      50                    (1)
          September 1999                            6.4%                     350                    (3)
          February 2000                          5.8%-6.6%                   300                    (3)
          March 2000                             5.8%-6.0%                   675                    (1)
          September 2000                            5.1%                      75                     1
          March 2027                                9.7%                     300                   (30)
          December 2036                             9.7%                     200                    (8)
                                                                      ----------            ----------
                                                                      $    2,400            $      (43)
                                                                      ==========            ==========
</TABLE>

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

         (a)      The estimated amount that TCI Group would pay or receive to
                  terminate the agreements at June 30, 1998, taking into
                  consideration current interest rates and the current
                  creditworthiness of the counterparties, represents the fair
                  value of the Interest Rate Swaps.

         The Fixed Rate Agreement expires in August 1998. At June 30, 1998, TCI
         Group would be required to pay less than $1 million to terminate the
         Fixed Rate Agreement.

         In addition to the Fixed Rate and Variable Rate Agreements, TCI Group
         entered into Interest Rate Swaps pursuant to which it pays a variable
         rate based on the London Interbank Offered Rate ("LIBOR") (6.1% at June
         30, 1998) and receives a variable rate based on the Constant Maturity
         Treasury Index ("CMT") (5.9% at June 30, 1998) on a notional amount of
         $400 million through September 2000; and pays a variable rate based on
         LIBOR (6.0% at June 30, 1998) and receives a variable rate based on CMT
         (6.0% at June 30, 1998) on notional amounts of $95 million through
         February 2000. During the six months ended June 30, 1998, TCI Group's
         net payments pursuant to such agreements were less than $1 million. At
         June 30, 1998, TCI Group would be required to pay an estimated $3
         million to terminate such Interest Rate Swaps.

         TCI Group is exposed to credit losses for the periodic settlements of
         amounts due under the Interest Rate Swaps in the event of
         nonperformance by the other parties to the agreements. However, as of
         June 30, 1998, TCI Group does not anticipate that it will incur any
         material credit losses because it does not anticipate nonperformance by
         the counterparties. Further, TCI Group does not anticipate material
         near-term losses in future earnings, fair values or cash flows
         resulting from derivative financial instruments.


                                                                     (continued)





                                      I-65
<PAGE>   67

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

                     Notes to Combined Financial Statements




(9)      Redeemable Preferred Stock

         On February 20, 1998, TCI issued a Notice of Redemption which called
         for the redemption of all of its outstanding Series D Preferred Stock
         for $304.0233 per share. Effective April 1, 1998, all of the
         outstanding shares of Series D Preferred Stock were redeemed to the
         extent not previously converted into shares of TCI Group Series A Stock
         and Liberty Group Series A Stock.

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

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying combined balance sheet captioned
         "Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts holding solely subordinated debt securities of TCI
         Communications, Inc." Dividends accrued on the Trust Preferred
         Securities aggregated $71 million and $61 million for the six months
         ended June 30, 1998 and 1997, respectively, and are included in
         minority interests in earnings of attributed subsidiaries in the
         accompanying combined financial statements.

(11)     Combined Deficit

         General

         During the fourth quarter of 1997, TCI Group entered into a Total
         Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
         the Equity Swap Facility, TCI Group has the right to direct the
         counterparty (the "Counterparty") to use the Equity Swap Facility to
         purchase shares ("Equity Swap Shares") of TCI Group Series A Stock and
         TCI Ventures Group Series A Stock with an aggregate purchase price of
         up to $300 million. TCI Group has the right, but not the obligation, to
         purchase Equity Swap Shares through the September 30, 2000 termination
         date of the Equity Swap Facility. During such period, TCI Group is to
         settle periodically any increase or decrease in the market value of the
         Equity Swap Shares. If the market value of the Equity Swap Shares
         exceeds the Counterparty's cost, Equity Swap Shares with a fair value
         equal to the difference between the market value and cost will be
         segregated from the other Equity Swap Shares. If the market value of
         Equity Swap Shares is less than the Counterparty's cost, TCI Group, at
         its option, will settle such difference with shares of TCI Group Series
         A Stock or TCI Ventures Group Series A Stock or, subject to certain
         conditions, with cash or letters of credit. In addition, TCI Group is
         required to periodically pay the Counterparty a fee equal to a
         LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap
         Shares. Due to TCI Group's ability to issue shares to settle periodic
         price fluctuations and fees under the Equity Swap Facility, TCI Group
         records all amounts received or paid under this arrangement as
         increases or decreases, respectively, to equity. As of June 30, 1998,
         the Equity Swap Facility had acquired 4,935,780 shares of TCI Group
         Series A Stock and 1,151,800 shares of TCI Ventures Group Series A
         Stock at an aggregate cost that was approximately $48 million less than
         the fair value of such Equity Swap Shares at June 30, 1998. The costs
         and benefits associated with the TCI Group Series A Stock held by the
         Equity Swap Facility are attributed to TCI Group.


                                                                     (continued)





                                      I-66
<PAGE>   68

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

                     Notes to Combined Financial Statements




         Stock Repurchases

         During the six months ended June 30, 1998, pursuant to a stock
         repurchase program approved by the Board, TCI Group repurchased 66,041
         shares of TCI Group Series A Stock at an aggregate cost of $2 million.
         Such stock repurchases are reflected as an increase of combined deficit
         in the accompanying combined financial statements.

         Stock Options and Stock Appreciation Rights

         TCI Group records stock compensation expense relating to restricted
         stock awards, options and/or stock appreciation rights granted by TCI
         to certain TCI employees and/or directors who are involved with the TCI
         Group. Estimated compensation relating to stock appreciation rights
         ("SARs") has been recorded through June 30, 1998, and is subject to
         future adjustment based upon vesting and market values, and ultimately,
         on the final determination of market values when such rights are
         exercised. The payable arising from the compensation related to the
         options and/or stock appreciation rights is included in the amount due
         from related parties.

(12)     Transactions with Liberty Media Group, TCI Ventures Group and Other
         Related Parties

         The components of due to (from) related parties are as follows:

<TABLE>
<CAPTION>
                                                                   June 30,   December 31,
                                                                    1998           1997
                                                               ------------   ------------
                                                                    amounts in millions
<S>                                                            <C>                    <C>  
         Notes receivable from Liberty Media Group, 
              including accrued interest (a)                   $        (84)          (378)
         TINTA Note Payable (b)                                           5             89
         Intercompany account (c)                                      (458)          (241)
                                                               ------------   ------------
                                                               $       (537)          (530)
                                                               ============   ============
</TABLE>

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

         (a)      Amounts outstanding under the notes receivable from the
                  Liberty Media Group bear interest at 6.5%. Collections of
                  principal and interest on notes receivable from Liberty Media
                  Group during the six months ended June 30, 1998 aggregated
                  approximately $301 million.

         (b)      Amounts outstanding under TCI's note payable to TINTA (the
                  "TINTA Note Payable") bear interest at variable rates based on
                  TCI's weighted average cost of bank borrowings of similar
                  maturities (6.4% at June 30, 1998). Principal and interest is
                  due and payable as mutually agreed from time to time by TCI
                  and TINTA. During the six months ended June 30, 1998 and 1997,
                  interest expense related to the TINTA Note Payable aggregated
                  $2 million and $4 million, respectively.

                                                                     (continued)





                                      I-67
<PAGE>   69

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

                     Notes to Combined Financial Statements



         (c)    The non-interest bearing intercompany account includes certain
                income tax and stock compensation allocations that are to be
                settled at some future date. All other amounts included in the
                intercompany account are to be settled within thirty days
                following notification. Through September 10, 1997, the date of
                the TCI Ventures Exchange, the effects of all transactions with
                TCI Ventures Group, except for those related to the TINTA Note
                Payable, were reflected as adjustments to TCI Group's combined
                deficit.

         On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
         (the "DMX Merger"). Simultaneously with the DMX Merger, substantially
         all of TCI's controlling ownership interest in TCI Music was
         transferred from TCI Group to Liberty Media Group in exchange for an
         $80 million promissory note (the "Music Note") and an agreement to
         reimburse TCI for any amounts TCI pays pursuant to its contingent
         obligation pursuant to a Rights Agreement (the "Rights Agreement") to
         purchase up to 14,896,648 shares (6,812,393 of which are owned by
         subsidiaries of TCI) of TCI Music common stock at a price of $8.00 per
         share. TCI will settle its obligation under the Rights Agreement during
         the third quarter of 1998 by paying $8.00 per share to all holders who
         tender TCI Music common stock and the associated rights to TCI in
         accordance with the terms of the Rights Agreement. Liberty Media Group
         will reimburse TCI Group for the amount required to satisfy such
         obligation. The Music Note may be reduced by the payment of cash or the
         issuance by TCI of shares of Liberty Group Stock for the benefit of
         entities included within TCI Group. Additionally, Liberty Media Group
         may elect to pay $50 million of the Music Note by delivery of a Stock
         Appreciation Rights Agreement that will give TCI Group the right to
         receive 20% of the appreciation in value of Liberty Media Group's
         investment in TCI Music, to be determined at July 11, 2002.

         TCI Group has provided a revolving loan facility (the "Ventures
         Intergroup Credit Facility") to TCI Ventures Group for a five-year
         period commencing on September 10, 1997. Such facility permits
         aggregate outstanding borrowings at any one time of up to $500 million
         (subject to reduction as provided below), which borrowings bear
         interest at a rate per annum equal to The Bank of New York's prime rate
         (as in effect from time to time) plus 1% per annum, payable quarterly.
         A commitment fee equal to 3/8% per annum of the average unborrowed
         availability under the Ventures Intergroup Credit Facility is payable
         by TCI Ventures Group to TCI Group on a quarterly basis. Such
         commitment fee was $1 million for the six months ended June 30, 1998.
         The maximum amount of borrowings permitted under the Ventures
         Intergroup Credit Facility will be reduced on a dollar-for-dollar basis
         by up to $300 million if and to the extent that the aggregate amount of
         any additional capital that TCI Ventures Group is required to
         contribute to certain specified partnerships subsequent to the
         September 10, 1997 consummation of the Exchange Offers is less than
         $300 million. No borrowings were outstanding pursuant to the Ventures
         Intergroup Credit Facility at June 30, 1998.

                                                                     (continued)





                                      I-68
<PAGE>   70

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

                     Notes to Combined Financial Statements



         Certain TCI corporate general and administrative costs are charged to
         Liberty Media Group and TCI Ventures 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 and
         TCI Ventures Group would incur for comparable services on a stand-alone
         basis. During the six months ended June 30, 1998 and 1997, Liberty
         Media Group was allocated $2 million and $1 million, respectively, and
         TCI Ventures Group was allocated $6 million and $4 million,
         respectively, in corporate general and administrative costs by TCI
         Group. Such amounts are included in selling, general and administrative
         expenses in the accompanying combined financial statements.

         During 1996, TCI Group transferred, subject to regulatory approval,
         certain distribution equipment to a subsidiary of TINTA in exchange for
         a (pound)15 million ($23 million using the applicable exchange rate)
         principal amount promissory note (the "TVG LLC Promissory Note"). The
         TVG LLC Promissory Note was contributed by TCI Group to TCI Ventures
         Group in connection with the September 10, 1997 consummation of the
         Exchange Offers. The distribution equipment was subsequently leased
         back to TCI Group over a five year term with semi-annual payments of $2
         million, plus expenses. Effective October 1, 1997, such distribution
         equipment was transferred back to TCI Group and the related lease and
         the TVG LLC Promissory Note were canceled. During the six months ended
         June 30, 1997, (i) the U.S. dollar equivalent of interest income earned
         with respect to the TVG LLC Promissory Note was $1 million and (ii) the
         U.S. dollar equivalent of the lease expense under the above-described
         lease agreement aggregated $2 million.

         Through June 30, 1997, TCI Group had a 50.1% partnership interest in
         QE+Ltd. ("QE+"), a limited partnership interest which distributes
         "STARZ!," a first-run movie premium programming service. Entities
         attributed to Liberty Media Group held the remaining 49.9% partnership
         interest. Also prior to July 1, 1997, Encore Media Corporation ("EMC")
         (at the time a 90%-owned subsidiary of TCI and a member of Liberty
         Media Group) earned management fees from QE+ equal to 20% of managed
         costs, as defined. In addition, Liberty Media Group earned a fee for
         certain services provided to QE+ equal to 4% of the gross revenue of
         QE+ ("STARZ Content Fees"). Such management fees and STARZ Content Fees
         aggregated $4 million for the six months ended June 30, 1997 and are
         included in operating costs and expenses in the accompanying combined
         financial statements. In addition, during the six months ended June 30,
         1997, QE+ provided $7 million of programming services to an entity
         attributed to TCI Ventures Group. Such amount is included in revenue in
         the accompanying combined financial statements.

         Subsequent to June 30, 1997, TCI Group and Liberty Media Group entered
         into a series of transactions pursuant to which the businesses of
         "Encore," a movie premium programming service, and "STARZ!" were
         contributed to Encore Media Group, a subsidiary of TCI that is
         attributed to the Liberty Media Group. Upon the July 1997 formation of
         Encore Media Group, the operations of QE+ were no longer included in
         the combined financial results of TCI Group. In connection with the
         foregoing transactions, Liberty Media Group issued a note payable to
         TCI Group (which note was paid in full during the first quarter of
         1998) and TCI Group entered into a 25 year affiliation agreement with
         Encore Media Group (the "EMG Affiliation Agreement") pursuant to which
         TCI Group pays monthly fixed amounts in exchange for unlimited access
         to all of the existing Encore and STARZ!
         services.

                                                                     (continued)



                                      I-69
<PAGE>   71
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         TCI Group's fixed annual commitments pursuant to the EMG Affiliation
         Agreement increase annually from $220 million in 1998 to $315 million
         in 2003, and will increase with inflation through 2022.

         A subsidiary of TCI that was attributed to TCI Ventures Group leases
         certain equipment under a capital lease. During 1997, such equipment
         was subleased to TCI Group under an operating lease. In January 1998,
         TCI Group paid $7 million to TCI Ventures Group in exchange for TCI
         Ventures Group's assignment of its ownership interest in such
         subsidiary to TCI Group. Due to the related party nature of the
         transaction, the $50 million total of the cash payment and the
         historical cost of the net liabilities assumed by TCI Group (including
         capital lease obligations aggregating $176 million) has been reflected
         as an increase to TCI Group's combined deficit.

         Pursuant to an agreement between TCI Music and TCI Group, certain
         entities within TCI Group are required to deliver to TCI Music monthly
         revenue payments aggregating $18 million annually (adjusted annually
         for inflation) through 2017. During the six months ended June 30, 1998,
         the aggregate amount paid by TCI Group to TCI Music pursuant to such
         arrangement was $9 million. Such amount is included as a reduction of
         revenue in the accompanying combined statements of operations.

         Encore Media Group and certain other TCI subsidiaries attributed to
         Liberty Media Group produce and/or distribute programming to cable
         television operators (including TCI Group) and others. Charges to TCI
         Group, which are based upon customary rates charged to others,
         aggregated $110 million and $31 million for the six months ended June
         30, 1998 and 1997, respectively. Such amounts are included in operating
         costs and expenses in the accompanying combined statements of
         operations.

         Entities included in TCI Group lease satellite transponder facilities
         and receive video transport services from entities included in TCI
         Ventures Group. Charges by TCI Ventures Group for such arrangements and
         other related operating expenses for the six months ended June 30, 1998
         and 1997, aggregated $6 million and $14 million, respectively. Such
         amounts are included in operating costs and expenses in the
         accompanying combined statements of operations.

         In addition, a subsidiary attributed to TCI Ventures Group distributed
         certain program services to TCI Group. Charges to TCI Group for such
         services aggregated $4 million for each of the six months ended June
         30, 1998 and 1997, and are included in operating costs and expenses in
         the accompanying combined financial statements.

         TCI Group distributed certain program services to a subsidiary
         attributed to TCI Ventures Group. The charges, which approximate TCI
         Group's cost, aggregated $3 million in each of the six month periods
         ended June 30, 1998 and 1997. Amounts received by TCI Group pursuant to
         this agreement are included in operating costs and expenses in the
         accompanying combined financial statements.



                                                                     (continued)



                                      I-70
<PAGE>   72
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



(13)     Transactions with Officers and Directors

         On June 16, 1997, TCI Group exchanged (the "Exchange") 30,545,864
         shares of TCI Group Series A Stock for the same number of shares of TCI
         Group Series B Stock owned by the Estate of Bob Magness (the "Magness
         Estate"), the late founder and former Chairman of the Board of TCI.
         Subsequent to the Exchange, the Magness Estate sold (the "Sale") the
         shares of TCI Group Series A Stock received in the Exchange, together
         with approximately 1.5 million shares of TCI Group Series A Stock that
         the Magness Estate previously owned (collectively, the "Option
         Shares"), to two investment banking firms (the "Investment Bankers")
         for approximately $530 million (the "Sale Price"). Subsequent to the
         Sale, TCI entered into an agreement with the Investment Bankers whereby
         TCI has the option, but not the obligation, to purchase the Option
         Shares at any time within two years (the "Option Period") from the date
         of the Sale. During the Option Period, TCI Group and the Investment
         Bankers are to settle quarterly any increase or decrease in the market
         value of the Option Shares. If the market value of the Option Shares
         exceeds the Investment Bankers' cost, Option Shares with a fair value
         equal to the difference between the market value and cost will be
         segregated from the other Option Shares in an account at the Investment
         Bankers. If the market value of the Option Shares is less than the
         Investment Bankers' cost, TCI Group, at its option, will settle such
         difference with shares of TCI Group Series A Stock or TCI Ventures
         Group Series A Stock or, subject to certain conditions, with cash or
         letters of credit. In addition, TCI Group is required to pay the
         Investment Bankers a quarterly fee equal to LIBOR plus 1% on the Sale
         Price, as adjusted for payments made by TCI Group pursuant to any
         quarterly settlement with the Investment Bankers. Due to TCI Group's
         ability to settle quarterly price fluctuations and fees with shares of
         TCI Group Series A Stock or TCI Ventures Group Series A Stock, TCI
         Group records all amounts received or paid under this arrangement as
         increases or decreases, respectively, to equity. During the fourth
         quarter of 1997, TCI Group repurchased 4,000,000 shares of TCI Group
         Series A Stock from one of the Investment Bankers for an aggregate cash
         purchase price of $66 million. Additionally, as a result of the
         Exchange Offers and certain open market transactions, the Investment
         Bankers disposed of 4,210,308 shares of TCI Group Series A Stock and
         acquired 23,407,118 shares of TCI Ventures Group Series A Stock during
         the last half of 1997. As a result of the foregoing transactions and
         certain transactions related to the January 5, 1998 settlement of
         litigation involving the Magness Estate, as described below, the Option
         Shares were comprised of 6,201,042 shares of TCI Group Series A Stock
         and 11,740,610 shares of TCI Ventures Group Series A Stock at June 30,
         1998. At June 30, 1998, the market value of the Option Shares exceeded
         the Investment Bankers' cost by $275 million. The costs and benefits
         associated with the Option Shares are attributed to TCI Group.

                                                                     (continued)



                                      I-71
<PAGE>   73
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         In connection with the Exchange and Sale, Dr. John C. Malone, TCI's
         Chairman and Chief Executive Officer, agreed to forgo the exercise of
         certain option rights and in consideration, TCI granted to Dr. Malone
         the right (the "Malone Right") to acquire 30,545,864 shares of TCI
         Group Series B Stock.

         On January 5, 1998, TCI Group announced that a settlement (the "Magness
         Settlement") had been reached in the litigation brought against it and
         other parties in connection with the administration of the Magness
         Estate.

         In connection with the Magness Settlement, portions of the Exchange and
         Sale were unwound such that 10,201,041 shares of TCI Group Series A
         Stock and 11,666,506 shares of TCI Ventures Group Series A Stock were
         returned to TCI as authorized but unissued shares, and the Magness
         Estate paid $11 million to TCI representing a reimbursement of the
         Exchange fees incurred by TCI from June 16, 1997 through February 9,
         1998 with respect to such returned shares. TCI then issued to the
         Magness Estate 10,017,145 shares of TCI Group Series B Stock and
         12,034,298 shares of TCI Ventures Series B Stock.

         On February 9, 1998, in connection with the Magness Settlement, TCI
         Group entered into a call agreement (the "Malone Call Agreement") with
         Dr. Malone and Dr. Malone's wife (together with Dr. Malone, the
         "Malones"), under which the Malones granted to TCI Group the right to
         acquire the Malones' high-voting shares (the "High-Voting Shares"),
         currently consisting of an aggregate of approximately 60 million shares
         of Series B Stock upon Dr. Malone's death or upon a contemplated sale
         of the High-Voting Shares (other than a minimal amount) to third
         persons. In either such event, TCI Group has the right to acquire the
         shares at a maximum price equal to the then relevant market price of
         shares of "low-voting" Series A Stock plus a ten percent premium. The
         Malones also agreed that if TCI were ever to be sold to another entity,
         then the maximum premium that the Malones would receive on their
         High-Voting Shares would be no greater than a ten percent premium over
         the price paid for the relevant shares of Series A Stock. TCI paid $150
         million to the Malones for agreeing to the terms of the Malone Call
         Agreement.

                                                                     (continued)



                                      I-72
<PAGE>   74
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Also, on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares (as adjusted for stock
         dividends). The Magness Family was paid $124 million by TCI Group for
         entering into the Magness Call Agreement.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
         and Magness Call Agreement (collectively, the "Call Payments") was
         allocated to each of the Groups based upon the number of shares of each
         Group (before giving effect to stock dividends) that are subject to the
         Malone Call Agreement and the Magness Call Agreement. TCI Group's share
         of the Call Payments of $134 million was paid during the first quarter
         of 1998 and is reflected as an increase of combined deficit in the
         accompanying combined financial statements.

         Additionally, on February 9, 1998, the Magness Family entered into a
         shareholders' agreement (the "Shareholders' Agreement") with the
         Malones and TCI under which (i) the Magness Family and the Malones
         agree to consult with each other in connection with matters to be
         brought to the vote of TCI's shareholders, subject to the proviso that
         if they cannot mutually agree on how to vote the shares, Dr. Malone has
         an irrevocable proxy to vote the High-Voting Shares owned by the
         Magness Family, (ii) the Magness Family may designate a nominee for
         TCI's Board of Directors and Dr. Malone has agreed to vote his High
         Voting Shares for such nominee and (iii) certain "tag along rights"
         have been created in favor of the Magness Family and certain "drag
         along rights" have been created in favor of the Malones. In addition,
         the Malone Right granted by TCI Group to Dr. Malone to acquire
         30,545,864 shares of TCI Group Series B Stock was reduced to an option
         to acquire 14,511,570 shares of TCI Group Series B Stock. Pursuant to
         the terms of the Shareholders' Agreement, the Magness Family has the
         right to participate in the reduced Malone Right on a proportionate
         basis with respect to 12,406,238 shares of the 14,511,570 shares
         subject to the Malone Right. On June 24, 1998, Dr. Malone delivered
         notice to TCI exercising his right to purchase up to 14,511,570 shares
         of TCI Group Series B Stock at a per share price of $35.5875 pursuant
         to the Malone Right. In addition, a representative of the Magness
         Family has advised Dr. Malone that the Magness Family will participate
         in such purchase up to the Magness Family's proportionate share.
         Subject to final verification and agreement of each party's
         proportionate share, upon the closing of the exercise of the Malone
         Right, Dr. Malone would acquire 8,718,770 and the Magness Family would
         acquire 5,792,800 of the shares of TCI Group Series B Stock that are
         subject to the Malone Right. Such exercises are subject to any required
         regulatory approvals.


                                                                     (continued)



                                      I-73
<PAGE>   75
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         On April 30, 1998, TCI acquired a limited partnership interest from an
         individual who is an executive officer and a director of TCI in
         exchange for 153,183 shares of Liberty Group Series B Stock and a
         limited partnership interest in another limited partnership with a
         capital account of $1 million. TCI's issuance of such shares of Liberty
         Group Series B Stock resulted in a $5 million reduction of TCI's notes
         receivable from Liberty Media Group. See note 12.

(14)     Income Taxes

         TCI files a consolidated federal income tax return with all of its 80%
         or more owned subsidiaries. Consolidated subsidiaries in which TCI owns
         less than 80% each file a separate income tax return. TCI and such
         subsidiaries calculate their respective tax liabilities on a separate
         return basis which are combined in the accompanying combined financial
         statements.

         A tax sharing agreement (as amended, the "Old Tax Sharing Agreement")
         among TCI and certain subsidiaries of TCI was implemented effective
         July 1, 1995. The Old Tax Sharing Agreement formalized 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. Under the Old Tax
         Sharing Agreement, TCI Group was responsible to TCI for its share of
         consolidated income tax liabilities (computed as if TCI were not liable
         for the alternative minimum tax) determined in accordance with the Old
         Tax Sharing Agreement, and TCI was responsible to TCI Group to the
         extent that the income tax attributes generated by TCI Group and its
         attributed entities were utilized by TCI to reduce its consolidated
         income tax liabilities (computed as if TCI were not liable for the
         alternative minimum tax). The tax liabilities and benefits of such
         entities so determined were charged or credited to an intercompany
         account between TCI and TCI Group. Such intercompany account is
         required to be settled only upon the date that an entity ceases to be a
         member of TCI's consolidated group for federal income tax purposes.
         Under the Old Tax Sharing Agreement, TCI retains the burden of any
         alternative minimum tax and has the right to receive the tax benefits
         from an alternative minimum tax credit attributable to any tax period
         beginning on or after July 1, 1995 and ending on or before October 1,
         1997.

                                                                     (continued)



                                      I-74
<PAGE>   76
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Effective October 1, 1997 (the "Effective Date"), the Old Tax Sharing
         Agreement was replaced by a new tax sharing agreement, as amended by
         the First Amendment thereto (the "New Tax Sharing Agreement"), which
         governs the allocation and sharing of income taxes by TCI Group,
         Liberty Media Group and TCI Ventures Group. Effective for periods on
         and after the Effective Date, federal income taxes will be computed
         based upon the type of tax paid by TCI (on a regular tax or alternative
         minimum tax basis) on a separate basis for each Group. Based upon these
         separate calculations, an allocation of tax liabilities and benefits
         will be made such that each Group will be required to make cash
         payments to TCI based on its allocable share of TCI's consolidated
         federal income tax liabilities (on a regular tax or alternative minimum
         tax basis, as applicable) attributable to such Group and actually used
         by TCI in reducing its consolidated federal income tax liability. Tax
         attributes and tax basis in assets would be inventoried and tracked for
         ultimate credit to or charge against each Group. Similarly, in each
         taxable period that TCI pays alternative minimum tax, the federal
         income tax benefits of each Group, computed as if such Group were
         subject to regular tax, would be inventoried and tracked for payment to
         or payment by each Group in years that TCI utilizes the alternative
         minimum tax credit associated with such taxable period. The Group
         generating the utilized tax benefits would receive a cash payment only
         if, and when, the unutilized taxable losses of the other Group are
         actually utilized. If the unutilized taxable losses expire without ever
         being utilized, the Group generating the unutilized tax benefits will
         never receive payment for such benefits. Pursuant to the New Tax
         Sharing Agreement, state and local income taxes are calculated on a
         separate return basis for each Group (applying provisions of state and
         local tax law and related regulations as if the Group were a separate
         unitary or combined group for tax purposes), and TCI's combined or
         unitary tax liability is allocated among the Groups based upon such
         separate calculation.

         Notwithstanding the foregoing, items of income, gain, loss, deduction
         or credit resulting from certain specified transactions that are
         consummated after the Effective Date pursuant to a letter of intent or
         agreement that was entered into prior to the Effective Date will be
         shared and allocated pursuant to the terms of the Old Tax Sharing
         Agreement, as amended.

         In connection with the creation of TCI Ventures Group, the net amount
         of the balance of each TCI Group intercompany account under the Old Tax
         Sharing Agreement that is attributable to entities included in TCI
         Ventures Group for the period beginning July 1, 1995 and ending on
         September 10, 1997 (the consummation date of the TCI Ventures Exchange)
         has been included in TCI Group's combined deficit. Tax liabilities and
         benefits, as determined under the Old Tax Sharing Agreement, that were
         generated by the entities comprising TCI Ventures Group for the period
         beginning on September 10, 1997 and ending on September 30, 1997 were
         credited or debited to an intercompany account between TCI Group and
         TCI Ventures Group in accordance with the Old Tax Sharing Agreement.

                                                                     (continued)



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

                     Notes to Combined Financial Statements



         At December 31, 1997, TCI Group had net operating loss carryforwards
         for income tax purposes aggregating approximately $1,425 million of
         which, if not utilized to reduce taxable income in future periods, $134
         million expires in 2003, $117 million in 2004, $344 million in 2005,
         $245 million in 2006, $19 million in 2009, $147 million in 2010, $231
         million in 2011 and $188 million in 2012. Certain subsidiaries of TCI
         Group had additional net operating loss carryforwards for income tax
         purposes aggregating approximately $232 million and these net operating
         losses are subject to certain rules limiting their usage. Pursuant to
         the Old and New Tax Sharing Agreements, TCI Group has been credited
         with approximately $75 million of net operating loss carryforwards that
         are in addition to the amounts disclosed above. TCI is responsible to
         TCI Group to the extent TCI Group's net operating loss carryforwards
         are utilized by TCI in future periods.

(15)     Commitments and Contingencies

         On October 5, 1992, the United States Congress enacted the Cable
         Television Consumer Protection and Competition Act of 1992 (the "1992
         Cable Act"). In 1993 and 1994, the Federal Communications Commission
         (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 is filed by a customer, or
         the appropriate franchise authority, if such authority has been
         certified by the FCC to regulate rates. If, as a result of the review
         process, a system cannot substantiate its rates, it could be required
         to retroactively reduce its rates to the appropriate benchmark and
         refund the excess portion of rates received. Any refunds of the excess
         portion of tier service rates would be retroactive to the date of
         complaint. Any refunds of the excess portion of all other Regulated
         Service rates would be retroactive to one year prior to the
         implementation of the rate reductions.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         TCI Group has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $203 million at June 30, 1998. With respect to TCI
         Group's guarantees of $166 million of such obligations, TCI Group has
         been indemnified for any loss, claim or liability that TCI Group may
         incur, by reason of such guarantees. As described in note 7, TCI Group
         also has provided certain credit enhancements with respect to the 1998
         Joint Ventures. TCI Group also has guaranteed the performance of
         certain affiliates and other parties with respect to such parties'
         contractual and other obligations. Although there can be no assurance,
         management of 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 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 June 30, 1998, the amount of such
         obligations or guarantees was approximately $272 million. The future
         obligations of TCI Group with respect to these agreements is not
         currently determinable because such amount is dependent upon the number
         of qualifying films released theatrically by certain motion picture
         studios as well as the domestic theatrical exhibition receipts upon the
         release of such qualifying films.

         As described in note 12, TCI Group has agreed to make fixed monthly
         payments through 2022 to Liberty Media Group pursuant to the EMG
         Affiliation Agreement.

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

         TCI Group is committed to purchase billing services pursuant to three
         successive five year agreements. Pursuant to such arrangement, TCI
         Group is obligated at June 30, 1998 to make minimum payments
         aggregating approximately $1.6 billion through 2012. Such minimum
         payments are subject to inflation and other adjustments pursuant to the
         terms of the underlying agreements.

         Pursuant to certain agreements between TCI and TCI Music, TCI Group is
         obligated at June 30, 1998 to make minimum revenue payments through
         2017 and minimum license fee payments through 2007 aggregating
         approximately $419 million to TCI Music. Such minimum payments are
         subject to inflation and other adjustments pursuant to the terms of the
         underlying agreements.

         TCI Group has contingent liabilities related to legal proceedings and
         other matters arising in the ordinary course of business. Although it
         is reasonably possible TCI Group may incur losses upon conclusion of
         such matters, an estimate of any loss or range of loss cannot be made.
         In the opinion of management, it is expected that amounts, if any,
         which may be required to satisfy such contingencies will not be
         material in relation to the accompanying combined financial statements.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         Effective as of December 16, 1997, NDTC, on behalf of TCI Group and
         other cable operators that may be designated from time to time by NDTC
         ("Approved Purchasers"), entered into an agreement (the "Digital
         Terminal Purchase Agreement") with General Instrument Corporation
         (formerly NextLevel Systems, Inc., "GI") to purchase advanced digital
         set-top devices. The hardware and software incorporated into these
         devices will be designed and manufactured to be compatible and
         interoperable with the OpenCable(TM) architecture specifications
         adopted by CableLabs, the cable television industry's research and
         development consortium, in November 1997. NDTC has agreed that Approved
         Purchasers will purchase, in the aggregate, a minimum of 6.5 million
         set-top devices during calendar years 1998, 1999 and 2000 at an average
         price of $318 per basic set-top device. Through June 30, 1998,
         approximately 525,000 set-top devices had been purchased pursuant to
         this commitment. GI agreed to provide NDTC and its Approved Purchasers
         the most favorable prices, terms and conditions made available by GI to
         any customer purchasing advanced digital set-top devices. In connection
         with NDTC's purchase commitment, GI agreed to grant warrants to
         purchase its common stock proportional to the number of devices ordered
         by each organization, which as of the effective date of the Digital
         Terminal Purchase Agreement, would have represented at least a 10%
         equity interest in GI (on a fully diluted basis). Such warrants vest as
         annual purchase commitments are met. It is anticipated that the value
         associated with such equity interest would be attributed to TCI Group
         upon purchase and deployment of the digital set-top devices. See note
         2. NDTC has the right to terminate the Digital Terminal Purchase
         Agreement if, among other reasons, GI fails to meet a material
         milestone designated in the Digital Terminal Purchase Agreement with
         respect to the development, testing and delivery of advanced digital
         set-top devices.

         TCI Group has entered into an Operating Lease Agreement (the "Lease")
         with an unaffiliated third party (the "Lessor"). Under the Lease, TCI
         Group agreed to sell to, and lease back from, the Lessor advanced
         digital set-top devices with an initial aggregate net cost of up to
         $400 million. The initial term of the Lease is two years, and it
         provides for renewal, at TCI Group's option, for up to five additional
         consecutive one-year terms. Rent under the lease is payable quarterly.
         At the end of the originally scheduled or renewed lease term, TCI Group
         is required to either (i) purchase the equipment at the Termination
         Value (as defined in the Lease), or (ii) arrange for the sale of the
         leased equipment to a third party and pay the Lessor the difference
         between the sale price and a predetermined guaranteed value, which in
         all cases is less than the Termination Value. As of June 30, 1998, TCI
         Group has sold and leased back advanced digital set-top devices under
         the Lease with an aggregate cost of $107 million. Current annual lease
         payments with respect to such leased equipment are $16 million. TCI
         Group has treated the Lease as an operating lease in the accompanying
         combined financial statements.

         During the six months ended June 30, 1998, TCI continued its
         enterprise-wide comprehensive efforts to review and correct computer
         systems, equipment and related software to ensure they properly
         recognize, process and store business information. The computer
         systems, equipment and software being evaluated include systems which
         are integral to the distribution of TCI Group's products and services,
         systems that support operations of TCI Group and protect its assets,
         and all internal use software. TCI Group is utilizing both internal and
         external resources, including the establishment of a year 2000
         enterprise program management office accountable to TCI's executive
         management, to identify and remediate or replace systems for year 2000
         readiness.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         During the six months ended June 30, 1998, TCI Group began the process
         of testing and replacing or remediating critical components of its
         cable systems' headend equipment. Although no assurance can be given,
         TCI Group expects to conclude such testing by December 1998 with
         replacement or remediation completed by the end of the first quarter of
         1999. Also, TCI Group began the process of remediating systems that
         control the commercial advertising in its cable operations. Although no
         assurance can be given, those remediation efforts should be complete by
         mid-1999. TCI Group continued to assess potential year 2000 issues of
         its affiliated companies and provided its affiliates with remediation
         information on software products and systems. TCI Group's business and
         financial systems and software which will continue to be utilized by
         TCI Group beyond the year 1999 will be capable of recognizing the year
         2000 and therefore should not require material remediation or
         replacement.

         Significant third party vendors whose systems are critical to TCI
         Group's cable operations have been identified and surveyed and
         confirmations from such parties have been received indicating that they
         are either year 2000 ready or have plans in place to become ready.
         During the six months ended June 30, 1998, TCI Group completed an
         independent assessment of a key financial application externally
         managed by a third party vendor and determined that such vendor's
         systems and software should be compliant by the end of 1998. Also, TCI
         Group has developed and initiated a plan with key suppliers who provide
         systems which are integral to the distribution of TCI Group's products
         and services to upgrade or replace non-year 2000 compliant systems on a
         product-by-product and site-by-site basis by mid-1999.

         Management of TCI Group intends to have further communication with
         primary vendors identified as having systems that are not year 2000
         compliant to assess those vendors' plans for remediating their own year
         2000 issues and to assess the impact on TCI Group if such vendors fail
         to remediate their year 2000 issues. TCI Group continues to evaluate
         the level of validation it will require of third parties to ensure
         their year 2000 readiness.

         Management of TCI has not yet determined the full cost associated with
         its year 2000 readiness efforts and the related potential impact on
         TCI's financial position, results of operations or cash flows but has
         identified certain cost elements that, in the aggregate, are not
         expected to be less than $63 million, which includes $3 million of
         program management expenses incurred during the six months ended June
         30, 1998. TCI Group's allocable share of such cost elements is
         estimated to be not less than $47 million. Although there can be no
         assurance, TCI Group anticipates that the costs ultimately required to
         be paid to ensure TCI Group's year 2000 readiness will not have a
         material adverse effect on TCI Group's financial position, results of
         operations or cash flows. However, there can be no assurance that TCI
         Group's systems or the systems of other companies on which TCI Group
         relies will be converted in time or that any such failure to convert by
         TCI Group or other companies will not have a material adverse effect on
         its financial position, results of operations or cash flows.



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

                             Combined Balance Sheets
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                     June 30,    December 31,
                                                                       1998          1997
                                                                   ------------  ------------
Assets                                                                amounts in thousands
<S>                                                                <C>                 <C>   
Cash and cash equivalents                                          $     33,679        40,871

Restricted cash (note 8)                                                  9,466         4,527

Trade and other receivables, net                                         53,074        39,963

Prepaid program rights                                                  119,774       104,219

Committed film inventory                                                132,422       114,658

Investments in affiliates, accounted for
    under the equity method, and related 
    receivables (note 5)                                              1,258,285       538,149

Investment in Time Warner, Inc. ("Time Warner") (note 6)              4,875,230     3,537,841

Other investments, at cost, and related 
    receivables (note 7)                                                400,822       401,810

Property and equipment, at cost:
    Land                                                                     --            39
    Support equipment and buildings                                      44,267        41,478
                                                                   ------------  ------------
                                                                         44,267        41,517
    Less accumulated depreciation                                        14,968        13,954
                                                                   ------------  ------------
                                                                         29,299        27,563
                                                                   ------------  ------------

Excess cost over acquired net assets                                    212,817       203,300
    Less accumulated amortization                                        18,375         9,057
                                                                   ------------  ------------
                                                                        194,442       194,243
                                                                   ------------  ------------

Other assets, at cost, net of amortization                               28,731        24,371
                                                                   ------------  ------------

                                                                   $  7,135,224     5,028,215
                                                                   ============  ============
</TABLE>



                                                                     (continued)



                                      I-80
<PAGE>   82

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

                       Combined Balance Sheets, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       June 30,    December 31,
                                                                         1998          1997
                                                                     ------------  ------------
Liabilities and Combined Equity                                          amounts in thousands
<S>                                                                  <C>                 <C>   
Accounts payable and accrued liabilities                             $     90,252        69,367

Accrued stock compensation (note 10)                                       82,875        68,846

Program rights payable                                                    177,005       156,351

Deferred option premium (note 6)                                               --       305,742

Debt (note 8)                                                             981,395       348,590

Deferred income taxes                                                   1,571,355     1,042,762

Other liabilities                                                           2,064         2,060
                                                                     ------------  ------------

    Total liabilities                                                   2,904,946     1,993,718
                                                                     ------------  ------------

Minority interests in equity of attributed subsidiaries                   103,501       101,000

Obligation to redeem Liberty Group Stock (note 9)                          16,222            --

Combined equity (note 9):
    Combined equity                                                     2,082,249     1,690,256
    Accumulated other comprehensive earnings, net of
      taxes (note 1)                                                    1,543,100       734,649
                                                                     ------------  ------------
                                                                        3,625,349     2,424,905

    Due to related parties                                                485,206       508,592
                                                                     ------------  ------------

        Total combined equity                                           4,110,555     2,933,497
                                                                     ------------  ------------

Commitments and contingencies (notes 2, 9 and 10)                    $  7,135,224     5,028,215
                                                                     ============  ============
</TABLE>


See accompanying notes to combined financial statements.



                                      I-81
<PAGE>   83

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

                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                   Three months ended             Six months ended
                                                                         June 30,                     June 30,
                                                               ---------------------------   ---------------------------
                                                                   1998           1997           1998           1997
                                                               ------------   ------------   ------------   ------------
                                                                                 amounts in thousands,
                                                                               except per share amounts
<S>                                                            <C>                  <C>           <C>             <C>   
Revenue:
   Related parties (note 9)                                    $     69,700         24,127        141,408         46,638
   Others                                                            95,325         35,545        180,287         72,393
                                                               ------------   ------------   ------------   ------------
                                                                    165,025         59,672        321,695        119,031
                                                               ------------   ------------   ------------   ------------

Operating costs and expenses:
   Operating                                                         89,961         19,903        169,700         39,429
   Selling, general and administrative                               52,069         24,768         94,143         37,232
   Charges from related parties (note 9)                              6,536          2,354         13,886          4,433
   Stock compensation (notes 9 and 10)                               62,306         14,466        138,436         20,040
   Depreciation and amortization                                      8,119            776         15,907          1,555
                                                               ------------   ------------   ------------   ------------
                                                                    218,991         62,267        432,072        102,689
                                                               ------------   ------------   ------------   ------------

        Operating income (loss)                                     (53,966)        (2,595)      (110,377)        16,342

Other income (expense):
   Interest expense to related party (note 9)                        (1,143)            --         (6,874)            --
   Other interest expense                                            (9,787)          (306)       (13,329)          (611)
   Dividend and interest income                                      13,393          8,212         26,755         19,247
   Share of earnings (losses) of affiliates, net (note 5)           (49,021)         5,739        (71,020)        12,975
   Minority interests in earnings of attributed subsidiaries         (1,601)        (2,295)          (762)       (11,909)
   Gain on disposition of assets (note 6)                               789            581        515,307            581
   Gain on issuance of equity interests by
      affiliate (note 5)                                                 --             --         23,460             --
   Loss on early extinguishment of debt                                  --           (320)            --           (320)
   Other, net                                                            (8)             6           (115)           115
                                                               ------------   ------------   ------------   ------------
                                                                    (47,378)        11,617        473,422         20,078
                                                               ------------   ------------   ------------   ------------

        Earnings (loss) before income taxes                        (101,344)         9,022        363,045         36,420

Income tax benefit (expense)                                         36,727         (2,481)      (124,521)       (14,267)
                                                               ------------   ------------   ------------   ------------

        Net earnings (loss)                                    $    (64,617)         6,541        238,524         22,153
                                                               ============   ============   ============   ============

Basic earnings (loss) attributable to common 
   stockholders per common share (note 3)                      $       (.18)           .02            .67            .06
                                                               ============   ============   ============   ============

Diluted earnings (loss) attributable to common stockholders
   per common share (note 3)                                   $       (.18)           .02            .61            .05
                                                               ============   ============   ============   ============

Comprehensive earnings (note 1)                                $    405,149          6,593      1,046,975         22,205
                                                               ============   ============   ============   ============
</TABLE>


See accompanying notes to combined financial statements.



                                      I-82
<PAGE>   84


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

                          Combined Statement of Equity

                         Six months ended June 30, 1998
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                Accumulated other
                                                                  comprehensive    Due to           Total
                                                      Combined       earnings,     related         combined
                                                       equity      net of taxes    parties         equity
                                                    ------------   ------------  ------------   ------------
                                                                      amounts in thousands
<S>                                                 <C>                 <C>           <C>          <C>      
Balance at January 1, 1998                          $  1,690,256        734,649       508,592      2,933,497

   Net earnings                                          238,524             --            --        238,524
   Payments for call agreements                          (63,521)            --            --        (63,521)
   Purchase of Liberty Group Stock                        (8,265)            --            --         (8,265)
   Issuance of Liberty Group Stock                       173,164             --        (5,074)       168,090
   Gain, net of taxes, in connection with the
     issuance of common shares by USA Networks,
     Inc. ("USAI"), formerly HSN, Inc. ("HSNI")
     (note 5)                                             64,522             --            --         64,522
   Gain in connection with the issuance of common
     shares by TCI Music, Inc. ("TCI Music")               2,508             --            --          2,508
   Premium received in connection with put
     obligation                                            1,283             --            --          1,283
   Reclassification of redemption amount of
     Liberty Group Stock subject to put obligation       (16,222)            --            --        (16,222)
   Change in due to related parties                           --             --       (18,312)       (18,312)
   Change in unrealized holding gains on
     available-for-sale securities                            --        808,451            --        808,451
                                                    ------------   ------------  ------------   ------------

Balance at June 30, 1998                            $  2,082,249      1,543,100       485,206      4,110,555
                                                    ============   ============  ============   ============
</TABLE>


See accompanying notes to combined financial statements.



                                      I-83
<PAGE>   85
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

                        Combined Statements of Cash Flows
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                    Six months ended
                                                                                        June 30,
                                                                              -----------------------------
                                                                                  1998             1997
                                                                              ------------     ------------
                                                                                   amounts in thousands
                                                                                        (see note 4)
<S>                                                                           <C>                    <C>   
Cash flows from operating activities:
   Net earnings                                                               $    238,524           22,153
   Adjustments to reconcile net earnings to net cash provided by operating
      activities:
        Depreciation and amortization                                               15,907            1,555
        Stock compensation                                                         138,436           20,040
        Payments of stock compensation                                              (2,062)              --
        Share of losses (earnings) of affiliates, net                               71,020          (12,975)
        Deferred income tax benefit                                                (42,172)          (8,638)
        Intergroup tax allocation                                                  166,467           21,992
        Minority interests in earnings of attributed subsidiaries                      762           11,909
        Gain on disposition of assets                                             (515,307)            (581)
        Gain on issuance of equity interests by affiliate                          (23,460)              --
        Loss on early extinguishment of debt                                            --              320
        Noncash interest expense                                                     2,480               --
        Changes in operating assets and liabilities, net of acquisitions:
             Change in receivables                                                 (13,934)           1,882
             Change in inventories                                                    (608)              --
             Change in prepaid expenses                                            (34,439)           1,449
             Change in payables and accruals                                        24,904            9,954
                                                                              ------------     ------------

                  Net cash provided by operating activities                         26,518           69,060
                                                                              ------------     ------------

Cash flows from investing activities:
   Cash proceeds from dispositions                                                 215,265              581
   Cash paid for acquisitions                                                      (10,112)              --
   Capital expended for property and equipment                                      (7,163)            (705)
   Investments in and loans to affiliates and others                              (498,207)         (15,405)
   Return of capital from affiliates                                                 5,326           11,700
   Other investing activities                                                       (3,457)             650
                                                                              ------------     ------------

                  Net cash used by investing activities                           (298,348)          (3,179)
                                                                              ------------     ------------

Cash flows from financing activities:
   Borrowings of debt                                                              878,920            2,020
   Repayments of debt                                                             (247,293)          (3,640)
   Change in restricted cash                                                        (4,939)              --
   Contribution for issuance of Liberty Group Stock                                     --            2,054
   Purchase of Liberty Group Stock                                                  (8,265)         (13,256)
   Premium received on put contracts                                                 1,283               --
   Cash transfers to related parties                                              (291,514)         (10,750)
   Payments for call agreements                                                    (63,521)              --
   Contributions by minority shareholders of attributed subsidiaries                    --                8
   Distributions to minority shareholders of attributed subsidiaries                   (33)             (35)
                                                                              ------------     ------------

                  Net cash provided (used) by financing activities
                                                                                   264,638          (23,599)

                  Net increase  (decrease) in cash and cash equivalents             (7,192)          42,282

                  Cash and cash equivalents at beginning of period                  40,871          317,359

                  Cash and cash equivalents at end of period                  $     33,679          359,641
                                                                              ============     ============
</TABLE>

See accompanying notes to combined financial statements.



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

                     Notes to Combined Financial Statements

                                  June 30, 1998
                                   (unaudited)


(1)      Basis of Presentation

         The accompanying combined financial statements include the accounts of
         the subsidiaries and assets of Tele-Communications, Inc. ("TCI") that
         are attributed to Liberty Media Group, as defined below. All
         significant intercompany accounts and transactions have been
         eliminated. The combined financial statements of Liberty Media Group
         are presented for purposes of additional analysis of the consolidated
         financial statements of TCI and subsidiaries, and should be read in
         conjunction with such consolidated financial statements.

         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 and notes thereto of Liberty
         Media Group for the year ended December 31, 1997.

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

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

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

                                                                     (continued)



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

                     Notes to Combined Financial Statements



         Targeted Stock

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue two new series of stock,
         Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series A Stock") and
         Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series B Stock," and together
         with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
         Liberty Group Stock is intended to reflect the separate performance of
         TCI's assets which produce and distribute programming services
         ("Liberty Media Group"). Additionally, the stockholders, of TCI
         approved the redesignation of the previously authorized Class A and
         Class B common stock into Tele-Communications, Inc. Series A TCI Group
         Common Stock, par value $1.00 per share (the " TCI Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Group Common Stock,
         par value $1.00 per share (the "TCI Group Series B Stock", and together
         with the TCI Group Series A Stock, the "TCI Group Stock"),
         respectively. On August 10, 1995, TCI distributed, in the form of a
         dividend, 2.25 shares of Liberty Group Stock for each four shares of
         TCI Group Stock owned (the "Liberty Distribution").

         Liberty Media Group's assets include businesses which provide
         programming services, including production, acquisition and
         distribution through all available formats and media of branded
         entertainment, educational and informational programming and software,
         including multimedia products. Liberty Media Group's assets also
         include businesses engaged in electronic retailing, direct marketing,
         advertising sales relating to programming services, infomercials and
         transaction processing.

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
         Stock, par value $1.00 per share (the "TCI Ventures Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
         Common Stock, par value $1.00 per share (the "TCI Ventures Group Series
         B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
         Ventures Group Stock"). The TCI Ventures Group Stock is intended to
         reflect the separate performance of the "TCI Ventures Group," which is
         comprised of TCI's principal international assets and businesses and
         substantially all of TCI's non-cable and non-programming assets.

         The TCI Group Stock is intended to reflect the separate performance of
         TCI and its subsidiaries and assets not attributed to Liberty Media
         Group or TCI Ventures Group. Such subsidiaries and assets, which are
         comprised primarily of TCI's domestic cable and communications
         businesses, are collectively referred to as "TCI Group". Collectively,
         Liberty Media Group, TCI Ventures Group and TCI Group are referred to
         as the "Groups" and individually are referred to as a "Group". The TCI
         Group Series A Stock, TCI Ventures Group Series A Stock and the Liberty
         Group Series A Stock are sometimes collectively referred to herein as
         the "Series A Stock," and the TCI Group Series B Stock, TCI Ventures
         Group Series B Stock and Liberty Group Series B Stock are sometimes
         collectively referred to herein as the "Series B Stock."


                                                                     (continued)




                                      I-86
<PAGE>   88

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

                     Notes to Combined Financial Statements



         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense among TCI Group, Liberty Media Group and
         TCI Ventures Group for the purpose of preparing their respective
         combined financial statements, the change in the capital structure of
         TCI resulting from the redesignation of TCI Group Stock and issuance of
         Liberty Group Stock and TCI Ventures Group Stock did 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 Liberty Group Stock are common stockholders of TCI and are
         subject to risks associated with an investment in TCI and all of its
         businesses, assets and liabilities. The redesignation of TCI Group
         Stock and issuance of Liberty Group Stock did not affect the rights of
         creditors of TCI.

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

         After the Liberty 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 TCI Group Series A Stock as were theretofore issuable
         thereunder) the number of shares of Liberty Group Series A Stock that
         would have been issuable in the Liberty 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
         Liberty Distribution. Options to purchase TCI Class A common stock
         outstanding at the time of the Liberty Distribution were adjusted by
         issuing to the holders of such options separate options to purchase
         that number of shares of Liberty Group Series A Stock which the holder
         would have been entitled to receive had the holder exercised such
         option to purchase TCI Class A common stock prior to the record date
         for the Liberty Distribution and reallocating a portion of the
         aggregate exercise price of the previously outstanding options to the
         newly issued options to purchase Liberty Group Series A Stock.

         The issuance of shares of Liberty Group Series A Stock upon such
         conversion, exchange or exercise of such convertible securities will
         not result in any transfer of funds or other assets from TCI Group to
         Liberty Media Group in consideration of such issuance. In the case of
         the exercise of such options to purchase Liberty Group Series A Stock,
         the proceeds received upon the exercise of such options will be
         attributed to Liberty Media Group.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         The common stockholders' equity value of Liberty Media Group that, at
         any relevant time, is attributed to TCI Group, and accordingly not
         represented by outstanding Liberty Group Stock is referred to as
         "Inter-Group Interest." Prior to consummation of the Liberty
         Distribution, TCI Group had a 100% Inter-Group Interest in Liberty
         Media Group. Following consummation of the Liberty Distribution, TCI
         Group no longer has an Inter-Group Interest in Liberty Media Group.
         Following consummation of the Liberty Distribution an Inter-Group
         Interest would be created with respect to Liberty Media Group 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.

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

         All debt incurred or preferred stock issued by TCI and its subsidiaries
         is (unless the Board otherwise provides) specifically attributed to and
         reflected in the combined financial statements of the Group that
         includes the entity which incurred the debt or issued the preferred
         stock or, in case the entity incurring the debt or issuing the
         preferred stock is Tele-Communications, Inc., the TCI Group. The Board
         could, however, determine from time to time that debt incurred or
         preferred stock issued by entities included in a Group should be
         specifically attributed to and reflected in the combined financial
         statements of one of the other Groups to the extent that the debt is
         incurred or the preferred stock is issued for the benefit of such other
         Group.

         Although it is management's intention that each Group would normally
         arrange for the external financing required to satisfy its respective
         liquidity requirements, the cash needs of one Group may exceed the
         liquidity sources of such Group. In such circumstance, one of the other
         Groups may transfer funds to such Group. Such transfers of funds among
         the Groups will be reflected as borrowings or, if determined by the
         Board, in the case of a transfer from TCI Group to Liberty Media Group,
         reflected as the creation of, or increase in, TCI Group's Inter-Group
         Interest in Liberty Media Group or, in the case of a transfer from
         Liberty Media Group to TCI Group, reflected as a reduction in TCI
         Group's Inter-Group Interest in Liberty Media Group. There are no
         specific criteria for determining when a transfer will be reflected as
         a borrowing or as an increase or reduction in an Inter-Group Interest.
         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 needs of TCI, the financing needs
         and objectives of the Groups, the investment objectives of the Groups,
         the availability, cost and time associated with alternative financing
         sources, prevailing interest rates and general economic conditions.


                                                                     (continued)


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

                     Notes to Combined Financial Statements



         Loans from one Group to another Group generally will bear interest at
         such rates and have such repayment schedules and other terms as are
         established from time to time by, or pursuant to procedures 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 needs of TCI, the use of proceeds by
         and creditworthiness of the recipient Group, the capital expenditure
         plans of and investment opportunities available to each Group and the
         availability, cost and time associated with alternative financing
         sources.

         The combined balance sheets of a Group reflect its net loans or
         advances to or borrowings from the other Groups. Similarly, the
         respective combined statements of operations of the Groups reflect
         interest income or expense, as the case may be, associated with such
         loans or advances and the respective combined statements of cash flows
         of the Groups reflect changes in the amounts of loans or advances
         deemed outstanding. In the historical financial statements, net loans
         or advances between Groups have been and will continue to be included
         as a component of each respective Group's equity.

         Although any increase in TCI Group's Inter-Group Interest in Liberty
         Media Group resulting from an equity contribution by TCI Group to
         Liberty Media Group or any decrease in such Inter-Group Interest
         resulting from a transfer of funds from Liberty Media Group to TCI
         Group would be determined by reference to the market value of the
         Liberty Group Series A Stock, as of the date of such transfer, such an
         increase could occur at a time when such shares could be considered
         undervalued and such a decrease could occur at a time when such shares
         could be considered overvalued.

         All financial impacts of issuances and purchases of shares of TCI Group
         Stock, TCI Ventures Group Stock or Liberty Group Stock, which are
         attributed to TCI Group, TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group, TCI Ventures Group or Liberty Media
         Group, respectively. All financial impacts of issuances of shares of
         TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
         are attributed to TCI Group in respect of a reduction in TCI Group's
         Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group. Financial impacts of dividends or
         other distributions on TCI Group Stock, TCI Ventures Group Stock or
         Liberty Group Stock, will be attributed entirely to TCI Group, TCI
         Ventures Group or Liberty Media Group, respectively, except that
         dividends or other distributions on TCI Ventures Group Stock or Liberty
         Group Stock will (if at the time there is an Inter-Group Interest in
         TCI Ventures Group or Liberty Media Group, respectively) result in TCI
         Group being credited, and TCI Ventures Group or Liberty Media Group
         being charged (in addition to the charge for the dividend or other
         distribution paid), with an amount equal to the product of the
         aggregate amount of such dividend or other distribution paid or
         distributed in respect of outstanding shares of TCI Ventures Group
         Stock or Liberty Group Stock and a fraction of the numerator of which
         is the TCI Ventures Group or the Liberty Media Group "Inter-Group
         Interest Fraction" and the denominator of which is TCI Ventures Group
         or the Liberty Media Group "Outstanding Interest Fraction" (both as
         defined). Financial impacts of repurchases of TCI Ventures Group Stock
         or Liberty Group Stock, the consideration for which is charged to TCI
         Group, will be to such extent reflected in the combined financial
         statements of TCI Group and will result in an increase in TCI Group's
         Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
         respectively.


                                                                     (continued)



                                      I-89
<PAGE>   91

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

                     Notes to Combined Financial Statements


(2)      Proposed Merger

         TCI and AT&T Corp. ("AT&T") have agreed to a merger (the "Merger")
         pursuant to, and subject to the terms and conditions set forth in, the
         Agreement and Plan of Restructuring and Merger, dated as of June 23,
         1998 (the "Merger Agreement"), among TCI, AT&T and Italy Merger Corp.,
         an indirect wholly-owned subsidiary of AT&T. In the Merger, TCI will
         become a wholly-owned subsidiary of AT&T and (i) each share of TCI
         Group Series A Stock will be converted into .7757 of a share of common
         stock, par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii)
         each share of TCI Group Series B Stock will be converted into .8533 of
         a share of AT&T Common Stock, (iii) each share of Liberty Group Series
         A Stock will be converted into one share of a newly authorized class of
         AT&T common stock to be designated as the Class A Liberty Group Common
         Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
         Stock") and (iv) each share of Liberty Group Series B Stock will be
         converted into one share of a newly authorized class of AT&T common
         stock to be designated as the Class B Liberty Group Common Stock, par
         value $1.00 per share (the "AT&T Liberty Class B Tracking Stock" and
         together with the AT&T Liberty Class A Tracking Stock, the "AT&T
         Liberty Tracking Stock"). In addition, TCI has announced its intention,
         subject to stockholder approval, to combine the assets and businesses
         of Liberty Media Group and TCI Ventures Group and reclassify each share
         of TCI Ventures Group Series A Stock as .52 of a share of Liberty Group
         Series A Stock and each share of TCI Ventures Group Series B Stock as
         .52 of a share of Liberty Group Series B Stock. If such combination and
         reclassification does not occur prior to the Merger, then in the Merger
         each share of TCI Ventures Group Series A Stock and TCI Ventures Group
         Series B Stock will be converted into .52 of a share of the
         corresponding series of AT&T Liberty Tracking Stock. In general, the
         holders of shares of AT&T Liberty Class A Tracking Stock and the
         holders of shares of AT&T Liberty Class B Tracking Stock will vote
         together as a single class with the holders of shares of AT&T Common
         Stock on all matters presented to such stockholders, with the holders
         being entitled to one-tenth (1/10th) of a vote for each share of AT&T
         Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
         Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
         held.

         In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
         Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
         Preferred Stock, Series C-TCI Group will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current conversion
         rate of such preferred stock (132.86 shares per preferred share), (iii)
         TCI's Convertible Preferred Stock Series C-Liberty Media Group (the
         "Series C-Liberty Media Group Preferred Stock") will be converted into
         a number of shares of AT&T Liberty Class A Tracking Stock equal to the
         current conversion rate of such preferred stock (56.25 shares per
         preferred share), (iv) TCI's Redeemable Convertible TCI Group Preferred
         Stock, Series G will be converted into a number of shares of AT&T
         Common Stock equal to .7757 times the current conversion rate of such
         preferred stock (1.19 shares per preferred share) and (v) TCI's
         Redeemable Convertible Liberty Media Group Preferred Stock, Series H
         (the "Series H Preferred Stock") will be converted into a number of
         shares of AT&T Liberty Class A Tracking Stock equal to the current
         conversion rate of such preferred stock (0.590625 of a share per
         preferred share).



                                                                     (continued)



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

                     Notes to Combined Financial Statements



         The shares of AT&T Liberty Tracking Stock to be issued in the Merger
         will be a newly authorized class of common stock of AT&T which will be
         intended to reflect the separate performance of the businesses and
         assets attributed to the "Liberty/Ventures Group." The Liberty/Ventures
         Group following the Merger will be made up of the corporations,
         partnerships and other entities and interests which comprise Liberty
         Media Group and TCI Ventures Group at the time of the Merger. Pursuant
         to the Merger Agreement, immediately prior to the Merger, certain
         assets currently held by TCI Ventures Group (including, among others,
         the shares of AT&T Common Stock received in the merger of AT&T and
         Teleport Communications Group, Inc., the stock of At Home Corporation
         held by TCI Ventures Group and the assets and business of the National
         Digital Television Center, Inc.) will be transferred to TCI Group in
         exchange for approximately $5.5 billion in cash. Also, upon
         consummation of the Merger, Liberty/Ventures Group will become entitled
         to the benefit of all of the net operating loss carryforwards available
         to the entities included in TCI's consolidated income tax return as of
         the date of the Merger. Additionally, certain warrants currently
         attributed to TCI Group will be transferred to Liberty/Ventures Group
         in exchange for up to $176 million in cash. Certain agreements to be
         entered into at the time of the Merger as contemplated by the Merger
         Agreement will, among other things, provide preferred vendor status to
         Liberty/Ventures Group for digital basic distribution on AT&T's systems
         of new programming services created by Liberty/Ventures Group and its
         affiliates, provide for a renewal of existing affiliation agreements
         and provide for the business of the Liberty/Ventures Group to continue
         to be managed following the Merger by certain members of TCI's
         management who currently manage the businesses of Liberty Media Group
         and TCI Ventures Group.

         If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
         stockholders to approve the Merger prior to March 31, 1999, (ii) the
         withdrawal or modification by the AT&T Board of Directors of its
         approval of the transaction, or (iii) the failure to obtain necessary
         governmental and regulatory approvals by September 30, 1999, which
         failure occurs as a result of the announcement by AT&T of a significant
         transaction which delays receipt of such governmental approvals AT&T
         will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
         the Merger Agreement due to the failure of TCI stockholders to approve
         the transaction prior to March 31, 1999 or the withdrawal or
         modification by the TCI Board of Directors of its approval of the
         Merger, TCI will pay to AT&T the sum of $1.75 billion in cash.

         Consummation of the Merger is subject to the satisfaction or waiver of
         customary conditions to closing, including but not limited to, the
         separate approvals of the stockholders of AT&T and TCI, receipt of all
         necessary governmental consents and approvals, and effectiveness of the
         registration statement registering the AT&T Common Stock and AT&T
         Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
         As a result, there can be no assurance that the Merger will be
         consummated or, if the Merger is consummated, as to the date of such
         consummation.

(3)      Earnings Per Common and Potential Common Share

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



                                                                     (continued)



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

                     Notes to Combined Financial Statements



         The basic earnings (loss) attributable to Liberty Media Group common
         stockholders per common share for the three months and six months ended
         June 30, 1998 and 1997 was computed by dividing earnings (loss)
         attributable to Liberty Media Group common stockholders by the weighted
         average number of common shares outstanding of Liberty Group Stock
         during the period.

         The diluted earnings attributable to Liberty Media Group common
         stockholders per common and potential common share for the six months
         ended June 30, 1998 and the three months and six months ended June 30,
         1997 was computed by dividing earnings attributable to Liberty Media
         Group common stockholders by the weighted average number of common and
         potential common shares outstanding of Liberty Group Stock during the
         period. Shares issuable upon conversion of the Series C-Liberty Media
         Group Preferred Stock, the Convertible Preferred Stock, Series D (the
         "Series D Preferred Stock"), the Series H Preferred Stock, convertible
         notes payable, stock options and other performance awards have been
         included in the computation of weighted average shares, as illustrated
         below. Numerator adjustments for dividends and interest associated with
         the convertible preferred shares and convertible notes payable,
         respectively, were not made to the computation of diluted earnings per
         share as such dividends and interest are paid or payable by TCI Group.

         The diluted loss attributable to Liberty Media Group common
         stockholders per common share for the three months ended June 30, 1998
         was computed by dividing the net loss attributable to Liberty Media
         Group common stockholders by the weighted average number of common
         shares outstanding of Liberty Group Stock during the period. Potential
         common shares were not included in the computation of weighted average
         shares outstanding because their inclusion would be anti-dilutive.

         No material changes in the weighted average outstanding shares or
         potential common shares occurred after June 30, 1998.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



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

<TABLE>
<CAPTION>
                                                     Three months ended June 30,           Six months ended June 30,
                                                  ---------------------------------    --------------------------------
                                                       1998               1997              1998              1997
                                                  --------------     --------------    --------------    --------------
                                                            amounts in thousands, except per share amounts
<S>                                               <C>                         <C>             <C>                <C>   
  Basic EPS:
       Earnings (loss) attributable to
          common stockholders                     $      (64,617)             6,541           238,524            22,153
                                                  ==============     ==============    ==============    ==============

       Weighted average common shares                    357,751            374,504           356,296           374,435
                                                  ==============     ==============    ==============    ==============
       Basic earnings (loss) per share
          attributable to common stockholders     $         (.18)               .02               .67               .06
                                                  ==============     ==============    ==============    ==============

  Diluted EPS:
       Earnings (loss) attributable to
          common stockholders                     $      (64,617)             6,541           238,524            22,153
                                                  ==============     ==============    ==============    ==============

       Weighted average common shares                    357,751            374,504           356,296           374,435
                                                  ==============     ==============    --------------    --------------
       Add dilutive potential common shares:
          Employee and director options and
             other performance awards                         --              3,635             7,719             3,436
          Convertible notes payable                           --             19,605            19,417            19,605
          Series C-Liberty Media Group
             Preferred Stock                                  --              3,970             3,970             3,970
          Series D Preferred Stock                            --              5,599                --             5,599
          Series H Preferred Stock                            --              3,953             3,879             3,953
                                                  --------------     --------------    --------------    --------------
          Dilutive potential common shares                    --             36,762            34,985            36,563
                                                  --------------     --------------    --------------    --------------
       Diluted weighted average common shares            357,751            411,266           391,281           410,998
                                                  ==============     ==============    ==============    ==============
       Diluted earnings (loss) per share
          attributable to common stockholders     $         (.18)               .02               .61               .05
                                                  ==============     ==============    ==============    ==============
</TABLE>

(4)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $17,649,000 and $612,000 for the six months
         ended June 30, 1998 and 1997, respectively. Cash paid for income taxes
         during the six months ended June 30, 1998 and 1997 was not material.

<TABLE>
<CAPTION>
                                                                                     Six months ended
                                                                                         June 30,
                                                                               -----------------------------
                                                                                   1998             1997
                                                                               ------------     ------------
                                                                                     amounts in thousands
               <S>                                                             <C>              <C>
                Cash paid for acquisitions is as follows:
                          Fair value of assets acquired                        $     14,617               --
                          Net liabilities assumed                                    (1,718)              --
                          Minority interests in equity of acquired entities            (279)              --
                          Gain in connection with the issuance of common
                              shares by TCI Music                                    (2,508)              --
                                                                               ------------     ------------

                          Cash paid for acquisitions                           $     10,112               --
                                                                               ============     ============
</TABLE>


                                                                     (continued)



                                      I-93
<PAGE>   95
                              "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>
                                                                                      Six months ended
                                                                                          June 30,
                                                                            -----------------------------------
                                                                                  1998                1997
                                                                            ----------------   ----------------
                                                                                   amounts in thousands
<S>                                                                         <C>                <C>
          Issuance of Liberty Group Stock in exchange for common stock
               of affiliate (note 5)                                        $        168,090                 --
                                                                            ================   ================

          Noncash accretion of contingent obligation to purchase shares
               of attributed subsidiary from minority holders
                                                                            $          2,425                 --
                                                                            ================   ================
</TABLE>


(5)      Investments in Affiliates

         Summarized unaudited results of operations for the periods in which
         Liberty Media Group used the equity method to account for such
         affiliates are as follows:

         Combined Operations

<TABLE>
<CAPTION>
                                                                                 Six Months ended June 30,
                                                                            -----------------------------------
                                                                                 1998                  1997
                                                                            ----------------   ----------------  
                                                                                   amounts in thousands
<S>                                                                         <C>                 <C>
      
             Revenue                                                        $      5,046,869          2,552,690
             Operating selling, general and administrative expenses               (4,156,502)        (2,287,382)
             Depreciation and amortization                                          (554,377)          (121,990)
                                                                            ----------------    ---------------

                Operating income                                                     335,990            143,318

             Interest expense                                                       (387,020)           (66,510)
             Other, net                                                              (51,106)          (108,489)
                                                                            ----------------    ---------------

                Net loss                                                    $       (102,136)           (31,681)
                                                                            ================    ===============
</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>
                                                                   June 30,           December 31,
                                                                     1998                 1997
                                                               ----------------    ----------------
                                                                        amounts in thousands
 <S>                                                           <C>                           <C>   
          Discovery Communications, Inc. ("Discovery")         $         69,851              88,251
          QVC, Inc. ("QVC")                                             154,760             133,920
          BET Holdings, Inc. ("BET")                                     30,257              26,466
          Courtroom Television Network ("Court")                         (3,157)             (3,286)
          Fox/Liberty Networks LLC ("Fox Sports")(a)                    (21,366)            (21,608)
          Liberty/TINTA LLC ("Liberty/TINTA")                           (14,927)            (14,532)
          Superstar/Netlink Group LLC ("Superstar/Netlink")(b)          (12,514)            (40,161)
          Home Shopping Network, Inc. ("HSN")                           146,773             118,653
          USAI(c)                                                       716,874             228,522
          Your Choice TV, LLC ("YCTV")                                    8,609               9,316
          United Video Satellite Group, Inc. ("UVSG")(d)                166,507                  --
          Other                                                          16,618              12,608
                                                               ----------------    ----------------
                                                               $      1,258,285             538,149
                                                               ================    ================
</TABLE>


                                                                     (continued)



                                      I-94
<PAGE>   96
                              "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>
                                                        Six months ended
                                                           June 30,
                                                 -----------------------------
                                                     1998             1997
                                                 ------------     ------------
                                                       amounts in thousands
<S>                                              <C>                    <C>   
Discovery                                        $    (18,400)             188
QVC                                                    20,840           12,382
BET                                                     3,791            2,813
Court                                                     129           (3,151)
Fox Sports (a)                                        (76,610)              --
Liberty/TINTA                                          (4,983)              --
Superstar/Netlink (b)                                   7,492            8,014
HSN                                                     2,036            2,295
USAI (c)                                                6,702            1,319
YCTV                                                   (3,299)              --
UVSG (d)                                               (1,583)              --
Other                                                  (7,135)         (10,885)
                                                 ------------     ------------
                                                 $    (71,020)          12,975
                                                 ============     ============
</TABLE>

         (a)      Prior to the first quarter of 1998, Liberty Media Group had no
                  obligation, nor intention, to fund Fox Sports. During 1998,
                  Liberty Media Group made the determination to provide funding
                  to Fox Sports based on specific transactions consummated by
                  Fox Sports. Consequently, Liberty Media Group's share of
                  losses of Fox Sports for the six months ended June 30, 1998
                  includes previously unrecognized losses of Fox Sports of
                  approximately $64 million. Losses for Fox Sports were not
                  recognized in prior periods due to the fact that Liberty Media
                  Group's investment in Fox Sports was less than zero.

         (b)      Effective February 1, 1998, Turner-Vision, Inc. contributed
                  the assets, obligations and operations of its retail C-band
                  satellite business to Superstar/Netlink in exchange for an
                  approximate 20% interest in Superstar/Netlink. As a result of
                  this transaction, Liberty Media Group's ownership interest in
                  Superstar/Netlink decreased from 50% to approximately 40%. In
                  connection with the dilution of Liberty Media Group's
                  ownership interest in Superstar/Netlink, Liberty Media Group
                  recognized a gain of $23 million (before deducting deferred
                  income tax expense of $9 million).


                                                                     (continued)



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

                     Notes to Combined Financial Statements




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

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

                  At the closing of the Universal Transaction, Liberty Media
                  Group was issued approximately 1.2 million shares of USAI's
                  Class B Common Stock, representing all of the remaining shares
                  of USAI's Class B Common Stock issuable pursuant to Liberty
                  Media Group's contractual right to receive shares of Class B
                  common stock of USAI upon the occurrence of certain events
                  (the "Contingent Right"). Of such shares, 800,000 shares of
                  Class B Common Stock were contributed to BDTV IV Inc.
                  ("BDTV-IV" and collectively with BDTV INC., BDTV-II INC. and
                  BDTV III INC, "BDTV"), a newly-formed entity having
                  substantially the same terms as BDTV INC., BDTV-II INC. and
                  BDTV III INC. (with the exception of certain transfer
                  restrictions) in which Liberty Media Group owns over 99% of
                  the equity and none of the voting power (except for protective
                  rights with respect to certain fundamental corporate actions)
                  and Barry Diller owns less than 1% of the equity and all of
                  the voting power. In addition, Liberty Media Group purchased
                  10 LLC Shares at the closing of the Universal Transaction for
                  an aggregate purchase price of $200.


                                                                     (continued)



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

                     Notes to Combined Financial Statements




                  In connection with the dilution of Liberty Media Group's
                  ownership interest that resulted from the issuance of common
                  stock by USAI in the Universal Transaction, Liberty Media
                  Group recorded a $33 million increase to combined equity
                  (after deducting a deferred tax liability of $21 million) and
                  an increase to investments in affiliates of $54 million. On
                  June 24, 1998, USAI consummated the previously announced
                  agreement to acquire the remaining stock of Ticketmaster
                  Group, Inc. which it did not previously own through a tax-free
                  merger (the "Ticketmaster Transaction"). In connection with
                  the dilution of Liberty Media Group's ownership interest that
                  resulted from the issuance of common stock by USAI in the
                  Ticketmaster Transaction, Liberty Media Group recorded a $32
                  million increase to combined equity (after deducting a
                  deferred tax liability of $20 million) and an increase to
                  investment in affiliates of $52 million. No gain was
                  recognized in the combined statements of operations due
                  primarily to Liberty Media Group's commitment to purchase
                  additional equity interests in USAI.

                  In connection with the Universal Transaction, each of
                  Universal and Liberty Media Group was granted a preemptive
                  right with respect to future issuances of USAI's capital
                  stock, subject to certain limitations, to maintain their
                  respective percentage ownership interests in USAI that they
                  had prior to such issuances. In connection with such right, on
                  June 4, 1998, Liberty Media Group purchased approximately 4.7
                  million shares of USAI's capital stock at $20 per share as a
                  result of the conversion by USAI of certain convertible
                  debentures whereby USAI common stock was issued to retire such
                  debentures. Additionally, on June 30, 1998, Liberty Media
                  Group contributed $300 million in cash to USANi LLC in
                  exchange for an aggregate of 15 million LLC Shares. Liberty
                  Media Group's cash purchase price was increased at an annual
                  interest rate of 7.5% beginning from the date of the closing
                  of the Universal Transaction through the date of Liberty Media
                  Group's purchase of such securities. In addition, on July 27,
                  1998, Liberty Media Group purchased approximately 7.9 million
                  LLC Shares at $20 per share as a result of the issuance of
                  common stock by USAI in the Ticketmaster Transaction. Pursuant
                  to the LLC Exchange Agreement, each LLC Share issued or to be
                  issued to Liberty Media Group is exchangeable for one share of
                  USAI's Common Stock. Including indirect ownership interests in
                  USAI of 8% held through BDTV, Liberty Media Group held direct
                  and indirect ownership interests in USAI as of June 30, 1998
                  of approximately 20%.

         (d)      On January 12, 1998, TCI acquired from a minority stockholder
                  of UVSG 12.4 million shares of UVSG Class A common stock in
                  exchange for 12.7 million shares of TCI Ventures Group Series
                  A Stock and 7.3 million shares of Liberty Group Series A
                  Stock. The aggregate value assigned to the shares issued by
                  TCI was based upon the market value of such shares at the time
                  the transaction was announced. As a result of such
                  transactions, TCI increased its ownership in the equity of
                  UVSG to approximately 73%, of which 17% is attributed to
                  Liberty Media Group.

         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.

                                                                     (continued)



                                      I-97
<PAGE>   99
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




(6)      Investment in Time Warner

         Liberty Media Group holds shares of a separate series of Time Warner
         common stock with limited voting rights (the "TW Exchange Stock").
         Holders of the TW Exchange Stock are entitled to one one-hundredth
         (l/100th) of a vote for each share with respect to the election of
         directors. Holders of the TW Exchange Stock will not have any other
         voting rights, except as required by law or with respect to limited
         matters, including amendments of the terms of the TW Exchange Stock
         adverse to such holders. Subject to the federal communications laws,
         each share of the TW Exchange Stock will be convertible at any time at
         the option of the holder on a one-for-one basis for a share of Time
         Warner common stock. Holders of TW Exchange Stock are entitled to
         receive dividends ratably with the Time Warner common stock and to
         share ratably with the holders of Time Warner common stock in assets
         remaining for common stockholders upon dissolution, liquidation or
         winding up of Time Warner.

         As security for borrowings under one of its credit facilities, Liberty
         Media Group has pledged a portion of its TW Exchange Stock. At June 30,
         1998, such pledged portion had an aggregate fair value of approximately
         $1.9 billion based upon the market value of the marketable common stock
         into which it is convertible. See note 8.

         On June 24, 1997 Liberty Media Group granted Time Warner an option,
         expiring October 10, 2002, to acquire the business of Southern
         Satellite Systems, Inc. ("Southern") and certain of its subsidiaries
         (together with Southern, the "Southern Business") through a purchase of
         assets (the "Southern Option"). Liberty Media Group received 6.4
         million shares of TW Exchange Stock valued at $306 million in
         consideration for the grant. In September 1997, Time Warner exercised
         the Southern Option. Pursuant to the Southern Option, Time Warner
         acquired the Southern Business, effective January 1, 1998, for $213
         million in cash. Liberty Media Group recognized a $515 million pre-tax
         gain in connection with such transactions in the first quarter of 1998.

(7)      Other Investments

         Other investments and related receivables are summarized as follows:

<TABLE>
<CAPTION>
                                                                    June 30,           December 31,
                                                                      1998                 1997
                                                                ----------------    -----------------
                                                                         amounts in thousands
<S>                                                             <C>                  <C>    
Investment in preferred stock, at cost, including premium       $        370,688              370,791

Other investments, at cost, and related receivables                       30,134               31,019
                                                                ----------------    -----------------
                                                                $        400,822              401,810
                                                                ================    =================
</TABLE>


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         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 $469 million and $458 million at
         June 30, 1998 and December 31, 1997, respectively. No independent
         external appraisals were conducted for those assets.

(8)      Debt

         Debt is summarized as follows:


<TABLE>
<CAPTION>
                                                                    June 30,       December 31,
                                                                      1998             1997
                                                                 -------------     ------------
                                                                      amounts in thousands
<S>                                                              <C>                    <C>    
           Bank credit facilities:
             Communications Capital Corp. (a)                    $     298,000          292,000
             LMC Capital LLC (b)                                       305,000               --
             TCI Music (c)                                              77,736           53,200
             Encore Media Group LLC (d)                                300,000               --
             Other                                                         659            3,390
                                                                 -------------     ------------
                                                                 $     981,395          348,590
                                                                 =============     ============
</TABLE>


         (a)      Payable by Communications Capital Corp. ("CCC")

                  This revolving credit agreement, as amended, provides for
                  borrowings up to $500 million through August of 2000. Interest
                  on borrowings under the agreement is tied to, at CCC's option,
                  the bank's prime rate or the London Interbank Offered Rate
                  ("LIBOR") plus an applicable margin. The revolving credit
                  agreement provides as security for this indebtedness a portion
                  of Liberty Media Group's TW Exchange Stock. Additionally, the
                  agreement provides for a three-month interest reserve to be
                  held by an administrative agent. At June 30, 1998, $4.6
                  million was held in the interest reserve and is included in
                  restricted cash in the accompanying combined balance sheets.
                  CCC must pay an annual commitment fee of .2% of the unfunded
                  portion of the commitment.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         (b)      Payable by LMC Capital LLC ("LMC Capital")

                  This revolving credit agreement, dated June 4, 1998, provides
                  for borrowings up to $640 million through June 2003. Interest
                  on borrowings under the agreement is tied to, at LMC Capital's
                  option, the bank's prime rate or the LIBOR plus an applicable
                  margin. Additionally, the credit agreement provides for a
                  three-month interest reserve to be held by an administrative
                  agent. At June 30, 1998, $4.9 million was held in the interest
                  reserve and is included in restricted cash in the accompanying
                  combined balance sheets. LMC Capital must pay an annual
                  commitment fee of .2% of the unfunded portion of the
                  commitment. The banks lend against collateral designated by
                  LMC Capital ("Designated Assets"). The components of the
                  Designated Assets may be changed from time to time. The
                  aggregate market value of the Designated Assets, as determined
                  by certain criteria in the LMC Capital agreement, must at all
                  times exceed an amount equal to three times the total
                  outstandings under the facility. The Designated Assets at June
                  30, 1998 were Liberty Media Group's holdings in Discovery, QVC
                  and a 30 year non-convertible 9% preferred stock of Fox Kids
                  Worldwide, Inc. with a stated value of $345 million. The
                  carrying value of the Designated Assets as of June 30, 1998
                  was $595 million. Recourse to the banks for payment of LMC
                  Capital's obligations is limited solely to the Designated
                  Assets.

         (c)      Payable by TCI Music

                  On December 30, 1997 TCI Music entered into a revolving loan
                  agreement (the "TCI Music Revolving Loan Agreement") which
                  provides for borrowings up to $100 million. Interest on
                  borrowings under the agreement is tied to LIBOR plus an
                  applicable margin or at the banks base rate dependent on TCI
                  Music's leverage ratio, as defined, for the preceding quarter.
                  The TCI Music Revolving Loan Agreement matures on June 30,
                  2005 with principal reductions beginning semi-annually on June
                  30, 2000 based on a scheduled percentage of the total
                  commitment. A commitment fee is charged on the unborrowed
                  portion of the TCI Music Revolving Loan Agreement commitment
                  ranging from .25% to .375% based upon the leverage ratio for
                  the preceding quarter.

         (d)      Payable by Encore Media Group LLC ("Encore Media Group")

                  On July 7, 1997, Encore Media Group obtained a $625 million
                  senior, secured facility (the "EMG Senior Facility") in the
                  form of a $225 million reducing revolving line of credit and a
                  $400 million, 364-day revolving credit facility convertible to
                  a term loan. In June, 1998, Encore Media Group converted the
                  364-day facility to a $300 million term loan. Interest on the
                  EMG Senior Facility is tied to, at Encore Media Group's
                  option, the bank's prime rate plus an applicable margin or the
                  LIBOR rate plus an applicable margin. Encore Media Group is
                  required to pay a commitment fee which varies based on a
                  leverage ratio. The credit agreement for the EMG Senior
                  Facility contains certain provisions which limit Encore Media
                  Group as to additional indebtedness, sale of assets, liens,
                  guarantees, and distributions. Additionally, Encore Media
                  Group must maintain certain specified financial ratios.

         The fair market value of Liberty Media Group's debt approximated its
         carrying value at June 30, 1998.

                                                                     (continued)



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

                     Notes to Combined Financial Statements



(9)      Combined Equity

         In conjunction with a stock repurchase program or similar transaction,
         TCI may elect to sell put options on its own common stock. Proceeds
         from any sales of puts with respect to Liberty Group Stock are
         reflected by Liberty Media Group as an increase to combined equity, and
         an amount equal to the maximum redemption amount under unexpired put
         options with respect to Liberty Group Stock is reflected as an
         obligation to redeem Liberty Group Stock in the accompanying combined
         balance sheets.

         During the six months ended June 30, 1998, pursuant to the stock
         repurchase program, 266,783 shares of Liberty Group Stock were
         repurchased at an aggregate cost of approximately $8 million. Such
         amount is reflected as a decrease to combined equity in the
         accompanying combined financial statements.


         On July 13, 1998, Liberty Media Group announced that it had made a
         proposal to TCI International, Inc. ("TINTA") concerning the
         acquisition by Liberty Media Group of all of the outstanding shares of
         common stock of TINTA not beneficially owned by TCI Ventures Group.
         Under the proposal, Liberty Media Group would exchange, in a merger
         transaction, 0.58 of a share of Liberty Group Series A Stock for each
         share of Tele-Communications International, Inc. Series A Common Stock
         acquired by Liberty Media Group in the merger. Liberty Media Group's
         proposal, and a proposed merger agreement, will be considered by
         TINTA's board of directors. TINTA, on behalf of the board of directors,
         has engaged an investment banking firm to render its opinion concerning
         the fairness to TINTA's public shareholders of the consideration
         offered by Liberty Media Group.


         Stock Options and Stock Appreciation Rights

         Liberty Media Group records stock compensation expense relating to
         restricted stock awards, options and/or stock appreciation rights
         (collectively, "Awards") granted by TCI to certain TCI employees and/or
         directors who are involved with Liberty Media Group. Estimated
         compensation relating to stock appreciation rights ("SARs") has been
         recorded through June 30, 1998, and is subject to future adjustment
         based upon vesting and market value, and ultimately, on the final
         determination of market value when such rights are exercised. The
         estimated compensation adjustment with respect to TCI SARs resulted in
         increases to Liberty Media Group's share of TCI's stock compensation
         liability of $124 million and $15 million for the six months ended June
         30, 1998 and 1997, respectively. In addition, for the six months ended
         June 30, 1998, Liberty Media Group made cash payments relating to its
         share of TCI's stock compensation obligations of $2 million.

         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. During the six months ended June 30,
         1998 and 1997, Liberty Media Group was allocated $2,451,000 and
         $526,000, respectively, in corporate general and administrative costs
         by TCI.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         Entities included in Liberty Media Group lease satellite transponder
         facilities from TCI Ventures Group. Charges by TCI Ventures Group for
         such arrangements and other related operating expenses for the six
         months ended June 30, 1998 and 1997, aggregated $10,990,000 and
         $3,907,000, respectively.

         In connection with the formation of Encore Media Group during 1997, TCI
         Group entered into a 25 year affiliation agreement with Encore Media
         Group (the "EMG Affiliation Agreement") pursuant to which TCI Group
         pays monthly fixed amounts in exchange for unlimited access to all of
         the existing Encore and STARZ! services. Such amounts are included in
         revenue from related parties. Additionally, certain other subsidiaries
         attributed to Liberty Media Group produce and/or distribute programming
         to cable television operators (including TCI Group) and others
         (including TCI Ventures Group). Charges to TCI Group and TCI Ventures
         Group are based upon customary rates charged to others.

         On July 11, 1997, TCI Music merged with DMX, Inc. (the "DMX Merger").
         In connection with the DMX Merger, TCI assumed a contingent obligation
         to purchase from all holders who tender shares and rights in accordance
         with the terms of a Rights Agreement (the "Rights Agreement") up to
         14,896,648 shares (6,812,393 of which are owned by subsidiaries of TCI)
         of TCI Music common stock at a price of $8.00 per share. Simultaneously
         with the DMX Merger, Liberty Media Group acquired the TCI Music Series
         B Common Stock and 2.6 million of the TCI-owned TCI Music Series A
         Common Stock by assuming the obligation of the Rights Agreement and
         issuing an $80 million promissory note (the "Music Note") to TCI.
         Liberty Media Group has recorded its contingent obligation to purchase
         such shares as a component of minority interest in equity of attributed
         subsidiaries in the accompanying combined financial statements.
         Including rights held by subsidiaries of TCI that are not members of
         Liberty Media Group, the obligation under the Rights Agreement could be
         as high as $86 million and will be satisfied by Liberty Media Group in
         the third quarter of 1998.

         During the first quarter of 1998, TCI Music issued approximately
         382,000 shares of its Series A Common Stock in connection with certain
         acquisitions. In connection with the issuance of such shares, Liberty
         Media Group's ownership interest was diluted to 77.6% (TCI's ownership
         interest was diluted to 80.7%) and Liberty Media Group recorded a $2.5
         million increase to combined equity. No gain was recognized in the
         combined statements of operations due primarily to Liberty Media
         Group's contingent obligation under the Rights Agreement.

         Due to Related Parties

<TABLE>
<CAPTION>
                                                             June 30,      December 31,
                                                               1998           1997
                                                          ------------    ------------
                                                               amounts in thousands
<S>                                                       <C>                  <C>    
Notes payable to TCI Group, including accrued interest    $     84,240         378,348
Intercompany account                                           400,966         130,244
                                                          ------------    ------------
                                                          $    485,206         508,592
                                                          ============    ============
</TABLE>



                                                                     (continued)




                                     I-102
<PAGE>   104

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

                     Notes to Combined Financial Statements



         Amounts outstanding under the notes payable to TCI Group bear interest
         at 6.5%. Payments of principal and interest on notes payable to TCI
         Group during the first six months of 1998 aggregated approximately $301
         million. During the second quarter of 1998, TCI issued 153,183 shares
         of Liberty Group Series B Stock valued at $5 million to an individual
         who is an officer and director of TCI for the benefit of entities
         attributed to TCI Group, Accordingly, the Music Note was reduced by
         such amount.

         The non-interest bearing intercompany account includes certain income
         tax and stock compensation allocations that are to be settled at some
         future date. All other amounts included in the intercompany account are
         to be settled within thirty days following notification.

         Transactions with Officers and Directors

         On January 5, 1998, TCI announced that a settlement (the "Magness
         Settlement") had been reached in the litigation brought against it and
         other parties in connection with the administration of the Estate of
         Bob Magness (the "Magness Estate"), the late founder and former
         Chairman of the Board of TCI.

         On February 9, 1998, in connection with the Magness Settlement, TCI
         entered into a call agreement (the "Malone Call Agreement") with Dr.
         John C. Malone, TCI's Chairman and Chief Executive Officer, and Dr.
         Malone's wife (together with Dr. Malone, the "Malones"), under which
         the Malones granted to TCI the right to acquire the Malones'
         high-voting shares (the "High-Voting Shares"), currently consisting of
         an aggregate of approximately 60 million shares of Series B Stock, upon
         Dr. Malone's death or upon a contemplated sale of the High-Voting
         Shares (other than a minimal amount) to third persons. In either such
         event, TCI has the right to acquire the shares at a maximum price equal
         to the then relevant market price of shares of Series A Stock plus a
         ten percent premium. The Malones also agreed that if TCI were ever to
         be sold to another entity, then the maximum premium that the Malones
         would receive on their High-Voting Shares would be no greater than a
         ten percent premium over the price paid for the relevant shares of
         Series A Stock. TCI paid $150 million to the Malones for agreeing to
         the terms of the Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares. The Magness Family was
         paid $124 million by TCI for entering into the Magness Call Agreement.
         Additionally, on February 9, 1998, the Magness Family entered into a
         shareholders' agreement (the "Shareholders' Agreement") with the
         Malones and TCI under which (i) the Magness Family and the Malones
         agreed to consult with each other in connection with matters to be
         brought to the vote of TCI's shareholders, subject to the proviso that
         if they cannot mutually agree on how to vote the shares, Dr. Malone has
         an irrevocable proxy to vote the High-Voting Shares owned by the
         Magness Family, (ii) the Magness Family may designate a nominee for the
         Board and Dr. Malone has agreed to vote his High Voting Shares for such
         nominee and (iii) certain "tag along rights" have been created in favor
         of the Magness Family and certain "drag along rights" have been created
         in favor of the Malones.


                                                                     (continued)





                                     I-103
<PAGE>   105

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

                     Notes to Combined Financial Statements



         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
         and Magness Call Agreement (collectively, the "Call Payments") was
         allocated to each of the Groups based upon the number of shares of each
         Group (before giving effect to stock dividends) that are subject to the
         Malone Call Agreement and the Magness Call Agreement. Liberty Media
         Group's share of the Call Payments of $64 million was paid during the
         first quarter of 1998 and is reflected as a reduction of combined
         equity in the accompanying combined financial statements.

(10)     Commitments and Contingencies

         Encore Media Group is obligated to pay fees for the rights to exhibit
         certain films that are released by various producers through 2017 (the
         "Film Licensing Obligations"). Based on customer levels at June 30,
         1998, these agreements require minimum payments aggregating
         approximately $680 million. The aggregate amount of the Film Licensing
         Obligations under these license agreements is not currently estimable
         because such amount is dependent upon the number of qualifying films
         released theatrically by certain motion picture studios as well as the
         domestic theatrical exhibition receipts upon the release of such
         qualifying films. Nevertheless, it is anticipated that the required
         aggregate payments under the Film Licensing Obligations will be
         significant.
         
         Liberty Media Group leases business offices, has entered into
         transponder lease agreements, and uses certain equipment under lease
         arrangements.

         Estimates of stock compensation granted to employees of an attributed
         subsidiary of Liberty Media Group have been recorded in the
         accompanying combined financial statements, but are subject to future
         adjustment based upon a valuation model derived from such attributed
         subsidiary's cash flow, working capital and debt.

         Liberty Media Group has contingent liabilities related to legal
         proceedings and other matters arising in the ordinary course of
         business. Although it is reasonably possible Liberty Media Group may
         incur losses upon conclusion of such matters, an estimate of any loss
         or range of loss cannot be made. In the opinion of management, it is
         expected that amounts, if any, which may be required to satisfy such
         contingencies will not be material in relation to the accompanying
         combined financial statements.

         During the six months ended June 30, 1998, TCI continued its
         enterprise-wide comprehensive efforts to review and correct computer
         systems, equipment and related software to ensure they properly
         recognize, process and store business information. The computer
         systems, equipment and software being evaluated include systems which
         are integral to the distribution of Liberty Media Group's products and
         services, systems that support operations of Liberty Media Group and
         protect its assets, and all internal use software. Liberty Media Group
         is utilizing both internal and external resources, including the
         establishment of a year 2000 enterprise program management office
         accountable to TCI's executive management, to identify and remediate or
         replace systems for year 2000 readiness.

         During the six months ended June 30, 1998, TCI began the process of
         testing and replacing or remediating critical components of its cable
         systems' headend equipment, which is critical to the ability of Liberty
         Media Group and its affiliates to earn revenue from the distribution of
         programming services. Although no assurance can be given, TCI expects
         to conclude such testing by December 1998 with replacement or
         remediation completed by the end of the first quarter of 1999. Also,
         TCI began the process of remediating systems that control the
         commercial advertising in its cable operations, including the
         advertisement of programming services distributed by Liberty Media
         Group and its affiliates. Although no assurance can be given, those
         remediation efforts should be complete by mid-1999. Liberty Media Group
         continued to assess potential year 2000 issues of its affiliated
         companies and provided its affiliates with remediation information on
         software products and systems. Liberty Media Group's business and
         financial systems and software which will continue to be utilized by
         Liberty Media Group beyond the year 1999 will be capable of recognizing
         the year 2000 and therefore should not require material remediation or
         replacement.

         Significant third party vendors whose systems are critical to the
         Liberty Media Group's operations have been identified and surveyed and
         confirmations from such parties have been received indicating that they
         are either year 2000 ready or have plans in place to become ready.
         Also, Liberty Media Group has developed and initiated a plan with key
         suppliers who provide systems which are integral to the distribution of
         Liberty Media Group's products and services to upgrade or replace
         non-year 2000 compliant systems on a product-by-product and
         site-by-site basis by mid-1999.

         Management of Liberty Media Group intends to have further communication
         with primary vendors identified as having systems that are not year
         2000 compliant to assess those vendors' plans for remediating their own
         year 2000 issues and to assess the impact on Liberty Media Group if
         such vendors fail to remediate their year 2000 issues. Liberty Media
         Group continues to evaluate the level of validation it will require of
         third parties to ensure their year 2000 readiness.


                                                                     (continued)





                                     I-104
<PAGE>   106

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

                     Notes to Combined Financial Statements



         Management of TCI has not yet determined the full cost associated with
         its year 2000 readiness efforts and the related potential impact on
         TCI's financial position, results of operations or cash flows but has
         identified certain cost elements that, in the aggregate, are not
         expected to be less than $63 million, which includes $3 million of
         program management expenses incurred during the six months ended June
         30, 1998. Liberty Media Group's allocable share of such cost elements
         is estimated to be not less than $1 million. Although there can be no
         assurance, Liberty Media Group anticipates that the costs ultimately
         required to be paid to ensure Liberty Media Group's year 2000 readiness
         will not have a material adverse effect on Liberty Media Group's
         financial position, results of operations or cash flows. However, there
         can be no assurance that Liberty Media Group's systems or the systems
         of other companies on which Liberty Media Group relies will be
         converted in time or that any such failure to convert by Liberty Media
         Group or other companies will not have a material adverse effect on its
         financial position, results of operations or cash flows.






                                     I-105
<PAGE>   107

                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                             Combined Balance Sheets
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                 June 30,       December 31,
                                                                                   1998            1997
                                                                               ------------    ------------
                                                                                   amounts in thousands
<S>                                                                            <C>                  <C>    
Assets

Cash and cash equivalents                                                      $    193,567         161,495

Trade and other receivables, net                                                     86,967          86,856

Investment in Teleport Communications Group, Inc. ("TCG"), accounted for
    under the equity method (note 9)                                                464,193         294,851

Investments in Sprint Spectrum Holding Company, L.P., MinorCo, L.P. and
    PhillieCo, L.P. (collectively, the "PCS Ventures"), accounted for
    under the equity method (note 10)                                               351,648         607,333

Investment in Telewest Communications plc ("Telewest"), accounted for
    under the equity method (note 11)                                               263,381         324,417

Investment in Cablevision S.A. ("Cablevision"), accounted for under the
    equity method (note 5)                                                          231,957         239,379

Investments in other affiliates, accounted for under the equity method,
    and related receivables (note 12)                                               616,805         631,918

Deferred tax asset (note 15)                                                         13,882          85,737

Property and equipment, at cost:
      Land                                                                            7,893           7,893
      Distribution systems                                                          713,177         851,145
      Support equipment and buildings                                               118,036         116,088
                                                                               ------------    ------------
                                                                                    839,106         975,126
      Less accumulated depreciation                                                 290,847         265,945
                                                                               ------------    ------------
                                                                                    548,259         709,181
                                                                               ------------    ------------

Franchise costs and other intangible assets                                         552,026         333,516
      Less accumulated amortization                                                  99,607          76,507
                                                                               ------------    ------------
                                                                                    452,419         257,009
                                                                               ------------    ------------

Other assets, net of amortization                                                   433,010         381,726
                                                                               ------------    ------------

                                                                               $  3,656,088       3,779,902
                                                                               ============    ============
</TABLE>


                                                                     (continued)



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

                       Combined Balance Sheets, continued
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                  June 30,     December 31,
                                                                                    1998            1997
                                                                               ------------    ------------
                                                                                    amounts in thousands
<S>                                                                            <C>                   <C>   
Liabilities and Combined Equity

Accounts payable                                                               $     32,021          31,825

Accrued liabilities                                                                  94,548         109,549

Customer prepayments                                                                133,398         133,479

Capital lease obligations                                                           200,458         386,808

Debt (note 13)                                                                      594,000         408,532

Other liabilities                                                                    22,250          18,683
                                                                               ------------    ------------

        Total liabilities                                                         1,076,675       1,088,876
                                                                               ------------    ------------

Minority interests in equity of attributed subsidiaries                             412,501         420,177

Obligation to redeem TCI Ventures Group Stock (note 14)                               2,963              --

Combined equity (notes 6 and 14):
   Combined equity                                                                2,079,918       2,215,683
   Accumulated other comprehensive earnings, net of taxes (note 1)                   75,902          33,661
                                                                               ------------    ------------
                                                                                  2,155,820       2,249,344

   Due to related parties (note 14)                                                   8,129          21,505
                                                                               ------------    ------------

        Total combined equity                                                     2,163,949       2,270,849
                                                                               ------------    ------------

Commitments and contingencies  (notes 2, 8, 10, 11, 12, 14 and 16)             $  3,656,088       3,779,902
                                                                               ============    ============
</TABLE>

See accompanying notes to combined financial statements.



                                     I-107
<PAGE>   109


                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       Three months ended              Six months ended
                                                                             June 30,                      June 30,
                                                                 ---------------------------    ---------------------------
                                                                     1998             1997            1998           1997
                                                                 -----------    ------------    ------------   ------------
                                                                                   amounts in thousands,
                                                                                  except per share amounts
<S>                                                              <C>                   <C>            <C>            <C>   
Revenue:
    Related parties (note 14)                                    $    10,666           9,665          21,449         24,065
    Other                                                            214,465         242,455         414,680        475,075
                                                                 -----------    ------------    ------------   ------------
                                                                     225,131         252,120         436,129        499,140
                                                                 -----------    ------------    ------------   ------------
Operating costs and expenses:
    Operating:
       Related parties (note 14)                                      12,726          14,369          24,970         30,219
       Other                                                         131,709         131,988         257,430        249,222
    General and administrative:
       Related parties (note 14)                                       4,076           2,212           6,270          4,424
       Other                                                          53,502          63,562         102,569        125,995
    Cost of distribution agreements (note 8)                              --              --          83,320             --
    Stock compensation (note 14)                                      44,696           4,663         126,786         12,925
    Depreciation and amortization                                     35,430          44,020          70,975         85,164
                                                                 -----------    ------------    ------------   ------------
                                                                     282,139         260,814         672,320        507,949
                                                                 -----------    ------------    ------------   ------------

          Operating loss                                             (57,008)         (8,694)       (236,191)        (8,809)

Other income (expense):
    Share of losses of the PCS Ventures (note 10)                   (168,588)        (93,849)       (323,790)      (157,385)
    Share of losses of Telewest (note 11)                            (33,498)        (31,750)        (63,717)       (73,458)
    Share of losses of TCG (note 9)                                  (14,337)        (14,049)        (32,043)       (27,817)
    Share of losses of Cablevision (note 5)                           (4,386)             --          (7,591)            --
    Share of losses of other affiliates (note 12)                    (25,072)        (27,301)        (49,712)       (50,409)
    Interest expense                                                 (14,495)        (15,348)        (23,599)       (29,544)
    Interest income:
       Related parties (note 14)                                         595           2,726           1,637          3,752
       Other                                                           2,429           1,893           4,697          3,901
    Gain on disposition of assets, net                                 4,109              --          41,897         28,893
    Gain on issuance of stock by equity investee (note 9)            201,385          21,251         201,385         21,251
    Gain on issuance of equity interest by attributed entity
       (note 7)                                                           --              --          14,700             --
    Minority interests in (earnings) losses of attributed
       subsidiaries, net                                                 520          (9,076)         53,325         (8,460)
    Other, net                                                        (1,947)          3,984             132          6,250
                                                                 -----------    ------------    ------------   ------------
                                                                     (53,285)       (161,519)       (182,679)      (283,026)
                                                                 -----------    ------------    ------------   ------------

          Loss before income taxes                                  (110,293)       (170,213)       (418,870)      (291,835)

Income tax benefit                                                    24,779          58,307         109,973        102,677
                                                                 -----------    ------------    ------------   ------------

          Net loss                                               $   (85,514)       (111,906)       (308,897)      (189,158)
                                                                 ===========    ============    ============   ============

Basic and diluted loss attributable to common stockholders
    per common share subsequent to TCI Ventures Exchange
    (note 3)                                                     $     (0.20)                         (0.73)
                                                                 ===========                    ===========

Comprehensive loss (note 1)                                      $   (53,189)        (87,405)       (266,656)      (194,035)
                                                                 ===========    ============    ============   ============


</TABLE>

See accompanying notes to combined financial statements.



                                     I-108
<PAGE>   110

                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                          Statement of Combined Equity

                         Six months ended June 30, 1998
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                   Accumulated
                                                                      other
                                                                   comprehensive       Due to            Total
                                                    Combined          earnings,        related           combined
                                                     equity         net of taxes       parties           equity
                                                   ------------     ------------     ------------     ------------
                                                                      amounts in thousands
<S>                                                <C>                    <C>              <C>           <C>      
Balance at January 1, 1998                         $  2,215,683           33,661           21,505        2,270,849
   Net loss                                            (308,897)              --               --         (308,897)
   Repurchases of TCI Ventures Group Stock               (3,857)              --               --           (3,857)
   Issuance of TCI Ventures Group Stock for
     acquisition of minority interest (note 6)          177,661               --               --          177,661
   Payment of call premiums (note 14)                   (75,836)              --               --          (75,836)
   Transfer of net liabilities to related party
     (note 14)                                           49,528               --               --           49,528
   Adjustment to minority interest deficit in
     joint venture (note 7)                              24,524               --               --           24,524
   Excess of earnings over distributions to
     minority interest in joint venture                   3,969               --               --            3,969
   Reclassification of redemption amount of TCI
     Ventures Group Stock subject to put
     obligation                                          (2,963)              --               --           (2,963)
   Premium received in connection with put
     obligation                                             348               --               --              348
   Interest on equity swap                                 (242)              --               --             (242)
   Foreign currency translation adjustment                   --           (3,580)              --           (3,580)
   Change in unrealized holding gains for
     available-for-sale securities                           --           45,821               --           45,821
   Change in due to related parties                          --               --          (13,376)         (13,376)
                                                   ------------     ------------     ------------     ------------

Balance at June 30, 1998                           $  2,079,918           75,902            8,129        2,163,949
                                                   ============     ============     ============     ============
</TABLE>




                                     I-109
<PAGE>   111


                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                        Combined Statements of Cash Flows
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                           Six months ended
                                                                                               June 30,
                                                                                    -----------------------------
                                                                                        1998             1997
                                                                                    ------------     ------------
                                                                                         amounts in thousands
                                                                                             (see note 4)
<S>                                                                                 <C>                  <C>      
Cash flows from operating activities:
   Net loss                                                                         $   (308,897)        (189,158)
   Adjustments to reconcile net loss to net cash provided by (used
     in) operating activities:
        Depreciation and amortization                                                     70,975           85,164
        Cost of distribution agreements                                                   83,320               --
        Stock compensation                                                               126,786           12,925
        Payment of obligation relating to stock compensation                             (69,020)             (57)
        Share of losses of affiliates, net                                               476,853          309,069
        Gain on disposition of assets, net                                               (41,897)         (28,893)
        Gain on issuance of stock by equity investee                                    (201,385)         (21,251)
        Gain on issuance of equity interest by attributed entity                         (14,700)              --
        Minority interests' share of losses (earnings), net                              (53,325)           8,460
        Other noncash charges (credits)                                                     (236)           2,304
        Deferred income tax expense (benefit)                                             42,546           (5,690)
        Intergroup tax allocation                                                       (166,467)        (104,621)
        Changes in operating assets and liabilities, net of the effect of
           acquisitions and the deconsolidation of Flextech p.l.c.:
             Change in receivables                                                           804           (4,297)
             Change in payables, accruals, customer prepayments and
                other liabilities                                                         (1,370)         (20,919)
                                                                                    ------------     ------------

                 Net cash provided by (used in) operating activities
                                                                                    $    (56,013)          43,036
                                                                                    ------------     ------------
</TABLE>


                                                                     (continued)


                                     I-110
<PAGE>   112


                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                  Combined Statements of Cash Flows, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                     Six months ended
                                                                                         June 30,
                                                                               -----------------------------
                                                                                   1998             1997
                                                                               ------------     ------------
                                                                                    amounts in thousands
                                                                                        (see note 4)
<S>                                                                            <C>                  <C>      
Cash flows from investing activities:
   Investments in and loans to affiliates                                      $   (160,887)        (145,997)
   Capital expended for property and equipment                                      (59,770)         (87,052)
   Proceeds from dispositions of assets                                              82,951               --
   Maturities (purchases) of marketable securities, net                              32,667          (35,419)
   Collections of loans to affiliates                                                13,012           70,430
   Effect of the deconsolidation of Flextech p.l.c. on cash and cash
      equivalents                                                                        --          (38,142)
   Cash paid for acquisitions, net                                                       --          (11,993)
   Other, net                                                                        (6,527)          (7,574)
                                                                               ------------     ------------

                 Net cash used in investing activities                              (98,554)        (255,747)
                                                                               ------------     ------------

Cash flows from financing activities:
   Borrowings of debt                                                               204,000          195,290
   Repayments of debt and capital lease obligations                                 (22,814)        (214,242)
   Payment of call premiums                                                         (75,836)              --
   Repurchase of common stock by attributed entities                                 (6,947)         (42,014)
   Repurchase of TCI Ventures Group Stock                                            (3,857)              --
   Proceeds from issuance of preferred stock                                             --           48,245
   Repayments received on loan to TCI                                                83,356          122,782
   Change in amounts due to related parties                                          11,969               --
   Change in combined equity                                                             --           78,599
   Distribution to minority interest owners                                          (3,704)          (7,000)
   Other, net                                                                           472             (950)
                                                                               ------------     ------------

                 Net cash provided by financing activities                          186,639          180,710
                                                                               ------------     ------------

                 Net increase (decrease) in cash and cash equivalents                32,072          (32,001)

                 Cash and cash equivalents: Beginning of period                     161,495          105,527
                                                                               ------------     ------------

                     End of period                                             $    193,567           73,526
                                                                               ============     ============
</TABLE>

See accompanying notes to combined financial statements.




                                     I-111
<PAGE>   113

                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

                                  June 30, 1998
                                   (unaudited)

(1)      Basis of Presentation

         The accompanying combined financial statements include the accounts of
         the subsidiaries and assets of Tele-Communications, Inc. ("TCI") that
         are attributed to TCI Ventures Group, as defined below. The combined
         financial statements of TCI Ventures Group are presented for purposes
         of additional analysis of the consolidated financial statements of TCI
         and subsidiaries, and should be read in conjunction with such
         consolidated financial statements.

         All significant intercompany accounts and transactions have been
         eliminated. Preferred stock of TCI, which is owned by subsidiaries of
         TCI, eliminates in combination. Common stock of TCI held by
         subsidiaries is included in combined equity.

         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 of such periods. The results of operations for any interim
         period are not necessarily indicative of results for the full year.
         These unaudited interim combined financial statements should be read in
         conjunction with the TCI Ventures Group's December 31, 1997 audited
         financial statements and notes thereto.

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

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



                                                                     (continued)



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

                     Notes to Combined Financial Statements


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

         As further described in notes 5 and 12, TINTA ceased to consolidate
         Flextech p.l.c. ("Flextech") and Cablevision and began to account for
         Flextech and Cablevision using the equity method of accounting,
         effective January 1, 1997 and October 1, 1997, respectively.

         Unless otherwise indicated, convenience translations of foreign
         currencies into U.S. dollars are calculated using the applicable spot
         rate at June 30, 1998, as published in The Wall Street Journal.

         Targeted Stock

         On August 28, 1997, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue the Tele-Communications, Inc.
         Series A TCI Ventures Group Common Stock, par value $1.00 per share
         (the "TCI Ventures Group Series A Stock") and Tele-Communications, Inc.
         Series B TCI Ventures Group Common Stock, par value $1.00 per share
         (the "TCI Ventures Group Series B Stock," and together with TCI
         Ventures Group Series A Stock, the "TCI Ventures Group Stock") The TCI
         Ventures Group Stock is intended to reflect the separate performance of
         the TCI Ventures Group, as defined below.

                                                                     (continued)



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

                     Notes to Combined Financial Statements



         As of June 30, 1998, the TCI Ventures Group consisted principally of
         the following assets and their related liabilities: (i) TCI's 85%
         equity interest (representing a 92% voting interest) in
         Tele-Communications International, Inc. ("TINTA"), which is TCI's
         primary vehicle for the conduct of its international cable, telephony
         and programming businesses (other than those international programming
         businesses attributed to the Liberty Media Group), (ii) TCI's principal
         interests in the telephony business ("TCI Telephony") consisting
         primarily of TCI's investment in a series of partnerships formed to
         engage in the business of providing wireless communications services,
         using the radio spectrum for broadband personal communications services
         ("PCS"), to residential and business customers nationwide under the
         Sprint(R) brand (a registered trademark of Sprint Communications
         Company, L.P.), TCI's 26% equity interest (representing a 40% voting
         interest) in TCG, a competitive local exchange carrier, and Western
         Tele-Communications, Inc. ("WTCI"), a wholly-owned subsidiary of TCI
         that provides long distance transport of video, voice and data traffic
         and other telecommunications services to interexchange carriers on a
         wholesale basis using primarily a digital broadband microwave network
         located throughout a 12 state region, (iii) a 56% equity interest
         (representing a 89% voting interest) in United Video Satellite Group,
         Inc. ("UVSG"), which provides satellite-delivered video, audio, data
         and program promotion services to cable television systems, satellite
         dish owners, radio stations and private network users, primarily
         throughout North America, (iv) TCI's 39% equity interest (representing
         a 72% voting interest) in At Home Corporation ("@Home"), a provider of
         high speed multimedia Internet services, and TCI's interest in other
         Internet-related assets and (v) other assets, including ETC w/tci, Inc.
         ("ETC"), a wholly-owned subsidiary of TCI which is a developer and
         distributor of for-profit education, training and communications
         services and products, and National Digital Television Center, Inc. and
         related companies ("NDTC"), which provide digital compression and
         authorization services to programming suppliers and to video
         distribution outlets. The foregoing subsidiaries and assets are
         collectively referred to as "TCI Ventures Group." The stocks of TINTA,
         TCG, @Home and UVSG are publicly traded.

         The TCI Ventures Group does not include any business that uses TCI's
         domestic cable network to distribute services to customers (e.g.,
         cable, telephony and Internet services). Such domestic "distribution"
         businesses will continue to be attributed to the TCI Group.

         The TCI Ventures Group may also include such other assets and
         liabilities of the TCI Group as the Board may in the future determine
         to attribute or sell to the TCI Ventures Group and such other
         businesses, assets and liabilities that TCI or any of its subsidiaries
         may in the future acquire for the TCI Ventures Group, as determined by
         the Board. It is currently the intention of TCI that any businesses,
         assets and liabilities so attributed to the TCI Ventures Group in the
         future would not include assets and liabilities of TCI's domestic
         programming businesses and investments or its domestic cable operations
         (including its businesses which utilize its cable network to distribute
         telephony and Internet services).


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         The "TCI Group" is intended to reflect the performance of those
         businesses of TCI and its subsidiaries not attributed to the "Liberty
         Media Group" (which is intended to reflect the performance of TCI's
         business which produces and distributes programming services) and TCI
         Ventures Group. Collectively, TCI Group, Liberty Media Group and TCI
         Ventures Group are referred to as the "Groups" and individually may be
         referred to herein as a "Group". The Tele-Communications, Inc. Series A
         TCI Group Common Stock, par value $1.00 per share (the "TCI Group
         Series A Stock"), TCI Ventures Group Series A Stock and the
         Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series A Stock") are
         sometimes collectively referred to herein as the "Series A Stock," and
         the Tele-Communications, Inc. Series B TCI Group Common Stock, par
         value $1.00 per share (the "TCI Group Series B Stock"), TCI Ventures
         Group Series B Stock and Tele-Communications, Inc. Series B Liberty
         Media Group Common Stock, par value $1.00 per share ("Liberty Group
         Series B Stock") are sometimes collectively referred to herein as the
         "Series B Stock."

         The common stockholders' equity value of TCI attributable to TCI
         Ventures Group that, at any relevant time, is attributed to TCI Group,
         and accordingly, not represented by outstanding TCI Ventures Group
         Stock is referred to as "Inter-Group Interest". Prior to the issuance
         of shares of TCI Ventures Group Stock, the Inter-Group Interest of TCI
         Group in TCI Ventures Group was 100%. Following consummation of the TCI
         Ventures Exchange, TCI Group no longer has an Inter-Group Interest in
         TCI Ventures Group. Following consummation of the TCI Ventures
         Exchange, an Inter-Group Interest would be created with respect to TCI
         Ventures Group only if a subsequent transfer of cash or other property
         from TCI Group to TCI Ventures Group is specifically designated by the
         Board as being made to create an Inter-Group Interest or if outstanding
         shares of TCI Ventures Stock are purchased with funds attributable to
         TCI Group.

         While the TCI Ventures Group Stock constitutes common stock of TCI,
         issuance of the TCI Ventures 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.

         Holders of TCI Group Series A Stock and TCI Group Series B Stock
         (collectively, the "TCI Group Stock"), Liberty Group Series A Stock and
         Liberty Group Series B Stock (collectively, the "Liberty Group Stock")
         and TCI Ventures Group Stock are common stockholders of TCI and are
         subject to risks associated with an investment in TCI and all of its
         businesses, assets and liabilities.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         In August 1997, TCI commenced offers (the "Exchange Offers") to
         exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
         Group Series B Stock for up to 188,661,300 shares of TCI Group Series A
         Stock and up to 16,266,400 shares of TCI Group Series B Stock,
         respectively. The exchange ratio for the exchange offers was two shares
         of the applicable series of TCI Ventures Group Stock for each share of
         the corresponding series of TCI Group Stock properly tendered up to the
         indicated maximum numbers. Upon the September 10, 1997 consummation of
         the Exchange Offers, 188,661,300 shares of TCI Group Series A Stock and
         16,266,400 shares of TCI Group Series B Stock were exchanged for
         377,322,600 shares of TCI Ventures Group Series A Stock and 32,532,800
         shares of TCI Ventures Group Series B Stock (as adjusted for a stock
         dividend - see below), (the "TCI Ventures Exchange"). The aggregate
         number of shares of TCI Ventures Group Stock issued in the Exchange
         Offers represented 100% of the common stockholders' equity value of TCI
         attributable to the TCI Ventures Group. Accordingly, the Inter-Group
         Interest of the TCI Group was reduced to zero upon consummation of the
         Exchange Offers.

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

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

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


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         All financial impacts of issuances and purchases of shares of TCI
         Ventures Group Stock which are attributed to TCI Ventures Group will be
         to such extent reflected in the combined financial statements of TCI
         Ventures Group. All financial impacts of issuances of shares of TCI
         Ventures Group Stock the proceeds of which are attributed to TCI Group
         in respect of a reduction in TCI Group's Inter-Group Interest in TCI
         Ventures Group will be to such extent reflected in the combined
         financial statements of TCI Group. Financial impacts of dividends or
         other distributions on TCI Ventures Group Stock will be attributed
         entirely to TCI Ventures Group, except that dividends or other
         distributions on TCI Ventures Group Stock will (if at the time there is
         an Inter-Group Interest in the TCI Ventures Group) result in TCI Group
         being credited, and TCI Ventures Group being charged (in addition to
         the charge for the dividend or other distribution paid), with an amount
         equal to the product of the aggregate amount of such dividend or other
         distribution paid or distributed in respect of outstanding shares of
         TCI Ventures Group Stock and a fraction the numerator of which is the
         "TCI Ventures Group Inter-Group Interest Fraction" and the denominator
         of which is the "TCI Ventures Group Outstanding Interest Fraction"
         (both as defined). Financial impacts of repurchases of TCI Ventures
         Group Stock, the consideration for which is charged to TCI Group will
         be to such extent reflected in the combined financial statements of TCI
         Group and will result in an increase in TCI Group's Inter-Group
         Interest in TCI Ventures Group.

         All debt incurred or preferred stock issued by TCI and its subsidiaries
         following the issuance of TCI Ventures Group Stock is (unless the Board
         otherwise provides) specifically attributed to and reflected in the
         combined financial statements of the Group that includes the entity
         which incurred the debt or issued the preferred stock or, in case the
         entity incurring the debt or issuing the preferred stock is
         Tele-Communications, Inc., the TCI Group. The Board could, however,
         determine from time to time that debt incurred or preferred stock
         issued by entities included in a Group should be specifically
         attributed to and reflected on the combined financial statements of one
         of the other Groups to the extent that the debt is incurred or the
         preferred stock is issued for the benefit of such other Group.

         Although it is management's intention that each Group would normally
         arrange for the external financing required to satisfy its respective
         liquidity requirements, the cash needs of one Group may exceed the
         liquidity sources of such Group. In such circumstances, one of the
         other Groups may transfer funds to such Group. Such transfers of funds
         among the Groups will be reflected as borrowings or, if determined by
         the Board, in the case of a transfer from the TCI Group to either the
         Liberty Media Group or the TCI Ventures Group, reflected as the
         creation of, or increase in, the TCI Group's Inter-Group Interest in
         such Group or, in the case of a transfer from either the Liberty Media
         Group or the TCI Ventures Group to the TCI Group, reflected as a
         reduction in the TCI Group's Inter-Group Interest in such Group. There
         are no specific criteria for determining when a transfer will be
         reflected as a borrowing or as an increase or reduction in an
         Inter-Group Interest. 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 needs of TCI, the
         financing needs and objectives of the Groups, the investment objectives
         of the Groups, the availability, cost and time associated with
         alternative financing sources, prevailing interest rates and general
         economic conditions.


                                                                     (continued)



                                     I-117
<PAGE>   119

                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Loans from one Group to another Group would bear interest at such rates
         and have such repayment schedules and other terms as are established
         from time to time by, or pursuant to procedures established by, the
         Board. The Board expects to make such determinations, either in
         specific instances or by setting generally applicable polices from time
         to time, after consideration of such factors as it deems relevant,
         including, without limitation, the needs of TCI, 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.

         The combined balance sheets of a Group reflect its net loans or
         advances to or borrowings from the other Groups. Similarly, the
         respective combined statements of operations of the Groups reflect
         interest income or expense, as the case may be, associated with such
         loans or advances and the respective combined statements of cash flows
         of the Groups reflect changes in the amounts of loans or advances
         deemed outstanding. In the historical financial statements, net loans
         or advances between Groups have been and will continue to be included
         as a component of each respective Group's equity.

         Although any increase in the TCI Group's Inter-Group Interest in the
         TCI Ventures Group resulting from an equity contribution by the TCI
         Group to the TCI Ventures Group or any decrease in such Inter-Group
         Interest resulting from a transfer of funds from the TCI Ventures Group
         to the TCI Group would be determined by reference to the market value
         of the Series A TCI Ventures Group Stock as of the date of such
         transfer, such an increase could occur at a time when such shares could
         be considered undervalued and such a decrease could occur at a time
         when such shares could be considered overvalued.

                                                                     (continued)



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

                     Notes to Combined Financial Statements



(2)      Proposed Merger

         TCI and AT&T Corp. ("AT&T") have agreed to a merger (the "Merger")
         pursuant to, and subject to the terms and conditions set forth in, the
         Agreement and Plan of Restructuring and Merger, dated as of June 23,
         1998 (the "Merger Agreement"), among TCI, AT&T and Italy Merger Corp.,
         an indirect wholly-owned subsidiary of AT&T. In the Merger, TCI will
         become a wholly-owned subsidiary of AT&T and (i) each share of TCI
         Group Series A Stock will be converted into .7757 of a share of common
         stock, par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii)
         each share of TCI Group Series B Stock will be converted into .8533 of
         a share of AT&T Common Stock, (iii) each share of Liberty Group Series
         A Stock will be converted into one share of a newly authorized class of
         AT&T common stock to be designated as the Class A Liberty Group Common
         Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
         Stock") and (iv) each share of Liberty Group Series B Stock will be
         converted into one share of a newly authorized class of AT&T common
         stock to be designated as the Class B Liberty Group Common Stock, par
         value $1.00 per share (the "AT&T Liberty Class B Tracking Stock" and
         together with the AT&T Liberty Class A Tracking Stock, the "AT&T
         Liberty Tracking Stock"). In addition, TCI has announced its intention,
         subject to stockholder approval, to combine the assets and businesses
         of Liberty Media Group and TCI Ventures Group and reclassify each share
         of TCI Ventures Group Series A Stock as .52 of a share of Liberty Group
         Series A Stock and each share of TCI Ventures Group Series B Stock as
         .52 of a share of Liberty Group Series B Stock. If such combination and
         reclassification does not occur prior to the Merger, then in the Merger
         each share of TCI Ventures Group Series A Stock and TCI Ventures Group
         Series B Stock will be converted into .52 of a share of the
         corresponding series of AT&T Liberty Tracking Stock. In general, the
         holders of shares of AT&T Liberty Class A Tracking Stock and the
         holders of shares of AT&T Liberty Class B Tracking Stock will vote
         together as a single class with the holders of shares of AT&T Common
         Stock on all matters presented to such stockholders, with the holders
         being entitled to one-tenth (1/10th) of a vote for each share of AT&T
         Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
         Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
         held.

         In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
         Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
         Preferred Stock, Series C-TCI Group will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current conversion
         rate of such preferred stock (132.86 shares per preferred share), (iii)
         TCI's Convertible Preferred Stock Series C-Liberty Media Group will be
         converted into a number of shares of AT&T Liberty Class A Tracking
         Stock equal to the current conversion rate of such preferred stock
         (56.25 shares per preferred share), (iv) TCI's Redeemable Convertible
         TCI Group Preferred Stock, Series G will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current conversion
         rate of such preferred stock (1.19 shares per preferred share) and (v)
         TCI's Redeemable Convertible Liberty Media Group Preferred Stock,
         Series H will be converted into a number of shares of AT&T Liberty
         Class A Tracking Stock equal to the current conversion rate of such
         preferred stock (0.590625 of a share per preferred share).


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         The shares of AT&T Liberty Tracking Stock to be issued in the Merger
         will be a newly authorized class of common stock of AT&T which will be
         intended to reflect the separate performance of the businesses and
         assets attributed to the "Liberty/Ventures Group." The Liberty/Ventures
         Group following the Merger will be made up of the corporations,
         partnerships and other entities and interests which comprise Liberty
         Media Group and TCI Ventures Group at the time of the Merger. Pursuant
         to the Merger Agreement, immediately prior to the Merger, certain
         assets currently held by TCI Ventures Group (including, among others,
         the shares of AT&T Common Stock received in the merger of AT&T and TCG,
         the stock of @Home held by TCI Ventures Group and the assets and
         business of NDTC) will be transferred to TCI Group in exchange for
         approximately $5.5 billion in cash. Also, upon consummation of the
         Merger, Liberty/Ventures Group will become entitled to the benefit of
         all of the net operating loss carryforwards available to the entities
         included in TCI's consolidated income tax return as of the date of the
         Merger. Additionally, certain warrants currently attributed to TCI
         Group will be transferred to Liberty/Ventures Group in exchange for up
         to $176 million in cash. Certain agreements to be entered into at the
         time of the Merger as contemplated by the Merger Agreement will, among
         other things, provide preferred vendor status to Liberty/Ventures Group
         for digital basic distribution on AT&T's systems of new programming
         services created by Liberty/Ventures Group and its affiliates, provide
         for a renewal of existing affiliation agreements and provide for the
         business of the Liberty/Ventures Group to continue to be managed
         following the Merger by certain members of TCI's management who
         currently manage the businesses of Liberty Media Group and TCI Ventures
         Group.

         If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
         stockholders to approve the Merger prior to March 31, 1999, (ii) the
         withdrawal or modification by the AT&T Board of Directors of its
         approval of the transaction, or (iii) the failure to obtain necessary
         governmental and regulatory approvals by September 30, 1999, which
         failure occurs as a result of the announcement by AT&T of a significant
         transaction which delays receipt of such governmental approvals, AT&T
         will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
         the Merger Agreement due to the failure of TCI stockholders to approve
         the transaction prior to March 31, 1999 or the withdrawal or
         modification by the TCI Board of Directors of its approval of the
         Merger, TCI will pay to AT&T the sum of $1.75 billion in cash.

         Consummation of the Merger is subject to the satisfaction or waiver of
         customary conditions to closing, including but not limited to, the
         separate approvals of the stockholders of AT&T and TCI, receipt of all
         necessary governmental consents and approvals, and effectiveness of the
         registration statement registering the AT&T Common Stock and AT&T
         Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
         As a result, there can be no assurance that the Merger will be
         consummated or, if the Merger is consummated, as to the date of such
         consummation.



                                                                     (continued)



                                     I-120

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

                     Notes to Combined Financial Statements



(3)      Loss Per Common Share

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

         The basic and diluted loss attributable to TCI Ventures Group
         stockholders per common share for the three and six month periods ended
         June 30, 1998 was computed by dividing the net loss attributable to TCI
         Ventures Group stockholders by the weighted average number of common
         shares outstanding of TCI Ventures Group Stock for the period (422
         million and 421 million for the three and six month periods ended June
         30, 1998, respectively). Potential common shares were not included in
         the computation of weighted average shares outstanding because their
         inclusion would be anti-dilutive.

         At June 30, 1998, there were 37 million potential common shares
         consisting of stock options and other performance awards and
         convertible securities that could potentially dilute future earnings
         per share calculations in periods of net earnings. Such potential
         common share amount does not take into account the assumed number of
         shares that would be repurchased by the Company upon the exercise of
         the stock options and other performance awards and the conversion of
         the convertible securities. No material changes in the weighted average
         outstanding shares or potential common shares occurred after June 30,
         1998.

(4)      Supplemental Disclosures to Statements of Cash Flows

         Cash paid for interest was $23.1 million and $28.0 million for the six
         months ended June 30, 1998 and 1997, respectively. Cash paid for income
         taxes was $12.8 million and $17.4 million during the six months ended
         June 30, 1998 and 1997, respectively.

         The effects of changing the method of accounting for the TCI Ventures
         Group's ownership interest in Flextech from the consolidation method to
         the equity method (see note 12) are summarized below (amounts in
         thousands):

<TABLE>
<S>                                                                    <C>              
                Assets reclassified to equity investments              $         177,003
                Liabilities reclassified to equity investments                   (72,512)
                Minority interests in equity of subsidiaries
                    reclassified to equity investments                          (142,633)
                                                                       -----------------
                Decrease in cash and cash equivalents                  $         (38,142)
                                                                       -----------------
</TABLE>

         For information concerning additional non-cash transactions see notes
         6, 7 and 14.



                                                                     (continued)


                                     I-121

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

                     Notes to Combined Financial Statements



(5)      Cablevision

         On October 9, 1997, TINTA sold a portion of its 51% interest in
         Cablevision to unaffiliated third parties (the "Buyers") for cash
         proceeds of $120 million. In addition, on October 9, 1997, Cablevision
         issued 3,541,829 shares of stock in the aggregate to the Buyers for
         $320 million. The 1997 transactions, (collectively, the "Cablevision
         Sale") reduced TINTA's interest in Cablevision to 26.2%. TINTA
         recognized a gain of $49 million on the Cablevision Sale (excluding
         related tax expense of $17 million). TINTA continues to manage
         Cablevision pursuant to a renewable five-year management contract that
         was entered into in connection with the Cablevision Sale, and certain
         material corporate transactions of Cablevision will require TINTA's
         approval, so long as TINTA maintains at least a 16% interest in
         Cablevision. As a result of the Cablevision Sale, effective October 1,
         1997, TINTA ceased to consolidate Cablevision and began to account for
         Cablevision using the equity method of accounting.

         Prior to 1997, none of Cablevision's operating results had been
         allocated to Cablevision's 49% minority interest because (i) the
         minority interest had no obligation to provide any funding to
         Cablevision and (ii) Cablevision's liabilities exceeded the minority
         interest's historical cost basis in Cablevision's assets. During the
         second quarter of 1997, Cablevision's net earnings caused the minority
         interest's historical cost basis in Cablevision's net assets to become
         positive. Accordingly, TINTA began allocating 49% of such net earnings
         to the minority interest during the second quarter of 1997. If the
         minority interest's historical cost basis had been positive since
         January 1, 1997, TINTA would have allocated an additional $4.3 million
         during the six months ended June 30, 1997 of Cablevision's net earnings
         to the minority interest.

         Summarized unaudited results of operations for Cablevision are as
         follows:

<TABLE>
<CAPTION>
                                                                    Six months ended
                                                                     June 30, 1998
                                                                   -----------------
Consolidated Operations                                           amounts in thousands
<S>                                                                <C>              
         Revenue                                                   $         127,620
         Operating, selling, general and
            administrative expenses                                          (80,047)
         Depreciation and amortization                                       (29,921)
                                                                   -----------------
            Operating income                                                  17,652

         Interest expense, net                                               (42,879)
         Other, net                                                           11,106
                                                                   -----------------
            Net loss                                               $         (14,121)
                                                                   =================
</TABLE>




                                                                     (continued)



                                     I-122
<PAGE>   124
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




(6)      Acquisitions

         On January 12, 1998, TCI acquired from a minority shareholder of UVSG
         12.4 million shares of UVSG Class A common stock in exchange for 12.7
         million shares of TCI Ventures Group Series A Stock and 7.3 million
         shares of Liberty Group Series A Stock. The aggregate value assigned to
         the shares issued by TCI was based upon the market value of such shares
         at the time the transaction was announced. As a result of such
         transaction TCI increased its ownership in the equity of UVSG to
         approximately 73%, of which 56% is attributed to the TCI Ventures Group
         and 17% is attributed to Liberty Media Group. In addition, TCI's
         collective voting power increased to 93%. In connection with such
         transaction, during the first quarter of 1998, TCI Ventures Group
         recorded a $154.2 million increase to intangible assets, a $23.5
         million decrease to minority interests in equity of attributed
         subsidiaries and a $177.7 million increase to combined equity.

         On June 11, 1998, UVSG and The News Corporation Limited ("News Corp.")
         announced the signing of a definitive agreement whereby News Corp.'s TV
         Guide properties will be combined with UVSG to create a platform for
         offering television guide services to consumers and advertising. As
         part of this combination, a unit of News Corp. will receive
         consideration consisting of $800 million in cash and 30 million shares
         of UVSG's stock, including 11,251,706 shares of its Class A common
         stock and 18,748,294 shares of its Class B common stock. As a result of
         the transaction, and certain other pending transactions, News Corp.,
         TCI and UVSG's public stockholders will own on an economic basis
         approximately 40%, 44% (of which 34% will be attributable to TCI
         Ventures Group and 10% will be attributable to Liberty Media Group) and
         16%, respectively, of UVSG. Following the transaction, News Corp. and
         TCI will each have approximately 48% of the voting power of UVSG's
         outstanding stock.

         On July 23, 1998, TINTA agreed to purchase 100% of the issued and
         outstanding common stock of Pramer S.A., an Argentine programming
         company, for $80 million in cash and the assumption of certain
         liabilities. Consummation of such transaction is expected to occur in
         the third quarter of 1998. No assurance can be given that such
         transaction will be consummated or consummated on the terms
         contemplated by the parties.

(7)      Dispositions

         On January 16, 1998, TINTA sold its interest in TeleCable Nacional, CXA
         for cash proceeds of $10.0 million. TINTA recognized a gain on such
         sale of $9.2 million.

         On February 12, 1998, TCI Ventures Group sold its (i) 79% interest in
         New Jersey Fiber Technologies, L.P., (ii) 40% interest in NHT
         Partnership and (iii) 50% interest in Louisville Lightwave for
         aggregate cash proceeds of $44.1 million. TCI Ventures Group recognized
         a gain of $28.6 million on such transactions.

         TCI Ventures Group sold its interest in Acclaim Entertainment, Inc.
         ("Acclaim") in February 1998 for cash proceeds of $17.0 million. The
         loss on such sale was not significant as the sales price approximated
         TCI Ventures Group's carrying value in Acclaim.



                                                                     (continued)



                                     I-123

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

                     Notes to Combined Financial Statements


         Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision")
         contributed the assets, obligations and operations of its retail C-band
         satellite business to Superstar/Netlink Group LLC ("Superstar/Netlink")
         in exchange for an approximate 20% interest in Superstar/Netlink. As a
         result of such transaction, each of UVSG's and Liberty Media Group's
         ownership interest in Superstar/Netlink decreased from 50% to
         approximately 40%. Turner Vision's contribution to Superstar/Netlink
         was accounted for as a purchase and the $61.2 million excess of the
         purchase price over the fair value of the assets acquired was recorded
         as goodwill and is being amortized over five years.

         In connection with the dilution of UVSG's ownership interest in
         Superstar/Netlink, UVSG recognized a gain of $14.7 million (before
         deducting deferred income tax expense of $5.9 million). The minority
         interest deficit in Superstar/Netlink attributable to Liberty Media
         Group has been included in combined equity in the accompanying combined
         financial statements. Accordingly, the effect of the change in Liberty
         Media Group's ownership in the underlying equity of Superstar/Netlink
         of $24.5 million has been credited to combined equity in the
         accompanying combined financial statements.

         In February 1998, TCI, Liberty Media Group and UVSG announced an
         agreement in principal for UVSG to acquire Liberty Media Group's 40%
         interest in Superstar/Netlink and its 100% interest in certain
         businesses conducted by Netlink USA ("Netlink") (the "Netlink
         Business") in exchange for 6.4 million shares of UVSG's common stock.
         In April 1998, UVSG, Liberty Media Group and Turner Vision entered into
         a memorandum of understanding with PRIMESTAR, Inc. ("PRIMESTAR") for
         the sale of Superstar/Netlink to PRIMESTAR for shares of a new series
         of convertible preferred stock of PRIMESTAR and the assumption of
         liabilities (the "PRIMESTAR Transaction"). Liberty Media Group and UVSG
         have agreed in principal to restructure their transaction to provide
         for UVSG to acquire any shares of PRIMESTAR preferred stock received by
         Liberty Media Group in the PRIMESTAR Transaction and Liberty Media
         Group's Netlink Business for 6.4 million shares of UVSG Class B common
         stock. Consummation of the transaction between Liberty Media Group and
         UVSG is subject to UVSG stockholder approval and certain regulatory
         approvals. Consummation of the PRIMESTAR Transaction is subject to a
         number of conditions, including negotiation of a definitive agreement
         and receipt of applicable regulatory approvals. No definitive agreement
         with respect to the PRIMESTAR Transaction has been reached, however,
         and there can be no assurance that any such agreement will be entered
         into or that the terms of any such agreement would be the same as the
         terms previously disclosed.

         In July 1998, TCI and the other partner of Kansas City Fiber Network,
         L.P. ("KC Fiber") sold the assets of KC Fiber to TCG for cash proceeds
         of approximately $55 million. The TCI Ventures Group held a 50%
         interest in KC Fiber and the remaining 50% was held by Kansas City
         Cable Partners, a partnership in which the TCI Group holds a 50%
         interest. TCI Ventures Group received proceeds of approximately $20
         million in connection with such sale.


                                                                     (continued)



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

                     Notes to Combined Financial Statements




(8)      @Home

         In April 1997, @Home issued 240,000 shares of convertible preferred
         stock resulting in cash proceeds of $48 million, less issuance costs.
         On July 11, 1997 @Home completed its initial public offering (the
         "@Home IPO"), in which 10,350,000 shares of @Home common stock were
         sold for net cash proceeds of approximately $100 million. As a result
         of the @Home IPO, the TCI Ventures Group's economic interest in @Home
         decreased from 43% to 39% which economic interest represents an
         approximate 72% voting interest. In connection with the associated
         dilution of TCI Ventures Group's ownership interest in @Home, TCI
         Ventures Group recognized a gain of $60 million.

         @Home has entered into exclusive distribution agreements with certain
         cable operators. In connection with the distribution agreements, @Home
         has issued warrants to such cable operators to purchase 17,946,956
         shares of @Home's Series A common stock. Of these warrants, warrants to
         purchase 10,581,298 shares were exercisable as of June 30, 1998. During
         the six months ended June 30, 1998, @Home recorded non-cash,
         non-recurring charges of $83.3 million to operations based on the fair
         value of 2,705,514 shares which were underlying warrants which became
         exercisable during the period. Such charges are included in "cost of
         distribution agreements" in the accompanying combined statements of
         operations. @Home may issue additional stock, or warrants in connection
         with its efforts to expand its distribution of the @Home service to
         other cable operators. The exercise of warrants or stock issued by
         @Home will reduce TCI Ventures Group's equity interest and voting power
         in @Home.

         Pursuant to a shareholder's agreement among certain shareholders of
         @Home, under certain circumstances, TCI Ventures Group could be
         required to sell a portion of its common stock of @Home to such
         shareholders.

(9)      Investment in TCG

         On June 30, 1998, TCI Ventures Group owned 1,011,528 shares of TCG's
         Class A common stock and 48,779,000 shares of TCG's Class B common
         stock. TCG's Class A common stock had a closing market value of $54.25
         per share on June 30, 1998.

         On April 22, 1998, TCG completed a merger transaction with ACC Corp.
         ("ACC") in which ACC shares were exchanged with shares of TCG in the
         ratio of .90909 share of TCG stock for each share of ACC stock. The
         transaction was valued at approximately $1.1 billion. As a result of
         such merger transaction, TCI Ventures Group's interest in TCG was
         reduced to approximately 26%. In connection with the dilution of TCI
         Ventures Group's interest in TCG, TCI Ventures Group recorded a
         non-cash gain of $201.4 million (before deducting deferred income tax
         expense of $70.5 million).


                                                                     (continued)



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

                     Notes to Combined Financial Statements


         In January 1998, TCG entered into certain agreements pursuant to which
         it agreed to be acquired by AT&T. Such merger was consummated on July
         23, 1998. As a result of such merger, TCI Ventures Group received in
         exchange for all of its interest in TCG, approximately 46.95 million
         shares of AT&T Common Stock. TCI Ventures Group will account for its
         ownership interest in AT&T Common Stock using the cost method. See 
         note 2.

         Summarized unaudited results of operations for TCG are as follows:

<TABLE>
<CAPTION>
                                                                  Six months ended
                                                                     June 30,
                                                          -----------------------------
         Operations                                           1998             1997
                                                          ------------     ------------
                                                                amounts in thousands
<S>                                              <C>                   <C>    
             Revenue                                      $    455,380          212,508
             Operating, selling, general and
                 administrative expenses                      (404,589)        (197,698)
             Depreciation and amortization                    (115,391)         (67,011)
                                                          ------------     ------------

                 Operating loss                                (64,600)         (52,201)

             Interest expense, net                             (52,824)         (40,210)
             Other, net                                           (636)          (3,949)
                                                          ------------     ------------
                 Net loss                                 $   (118,060)         (96,360)
                                                          ============     ============
</TABLE>


(10)     Investments in the PCS Ventures

         TCI Telephony is a partner in a series of partnerships formed to engage
         in the business of providing wireless communications services, using
         the radio spectrum for broadband personal communications services
         ("PCS"), to residential and business customers nationwide, using the
         "Sprint" brand. The PCS Ventures include Sprint Spectrum Holding
         Company, L. P. ("Sprint Spectrum") and MinorCo, L.P. (collectively,
         "Sprint PCS") and PhillieCo, L.P. ("PhillieCo"). The partners of Sprint
         PCS are subsidiaries of Sprint Corporation ("Sprint"), Comcast, Cox and
         TCI. The partners of PhillieCo are subsidiaries of Sprint, Cox and TCI.
         TCI Ventures Group has a 30% partnership interest in Sprint PCS and a
         35% partnership interest in PhillieCo.

         From inception through June 1998, the four partners have contributed
         $4.2 billion to Sprint PCS (of which TCI Telephony contributed an
         aggregate of $1.3 billion). Sprint PCS's business plan will require
         additional capital financing prior to the end of 1998. Sources of
         funding for Sprint PCS's capital requirements may include vendor
         financing, public offerings or private placements of equity and/or debt
         securities, commercial bank loans and/or capital contributions from the
         Sprint PCS partners. However, there can be no assurance that any
         additional financing can be obtained on a timely basis, on terms
         acceptable to Sprint PCS or the Sprint PCS partners and within the
         limitations contained in the agreements governing Sprint PCS's existing
         debt.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         Additionally, the proposed budget for 1998 has not yet been approved by
         the Sprint PCS partnership board, although the board has authorized
         management to operate Sprint PCS in accordance with such budget. The
         Sprint PCS partners may mutually agree to make additional capital
         contributions. However, the Sprint PCS partners have no such obligation
         in the absence of an approved budget, and there can be no assurance the
         Sprint PCS partners will reach such an agreement or approve the 1998
         proposed budget. In addition, the failure by the Sprint PCS partners to
         approve a business plan may impair the ability of Sprint PCS to obtain
         required financing. Failure to obtain any such additional financing or
         capital contributions from the Sprint PCS partners could result in the
         delay or abandonment of Sprint PCS's development and expansion plans
         and expenditures, the failure to meet regulatory requirements or other
         potential adverse consequences.

         Furthermore, the fact that the proposed budget for Sprint PCS for
         fiscal 1998 has not yet been approved by the Sprint PCS partnership
         board has resulted in the occurrence of a "Deadlock Event" under the
         Sprint PCS partnership agreement as of January 1, 1998. Under the
         Sprint PCS partnership agreement, if one of the Sprint PCS partners
         refers the budget issue to the chief executive officers of the
         corporate parents of the Sprint PCS partners for resolution pursuant to
         specified procedures and the issue remains unresolved, buy/sell
         provisions would be triggered, which may result in the purchase by one
         or more of the Sprint PCS partners of the interests of the other Sprint
         PCS partners, or, in certain circumstances, liquidation of Sprint PCS.

         In May 1998 Sprint PCS partners entered into a series of agreements
         pursuant to which TCI Telephony, Comcast and Cox would exchange their
         respective interests in Sprint PCS and PhillieCo for shares of a new
         class of tracking stock of Sprint which would track the performance of
         Sprint's newly created PCS Group (which would initially consist of
         Sprint PCS, PhillieCo and certain PCS licenses which are separately
         owned by Sprint). The consummation of such transactions is subject to a
         number of conditions, including the approval of such transactions by
         the stockholders of Sprint and the receipt of required FCC approvals.
         If such transactions are consummated, TCI Telephony will initially hold
         shares of Sprint PCS Group stock (as well as certain additional
         securities of Sprint exercisable for or convertible into such
         securities) representing approximately 24% of the equity value of
         Sprint attributable to the PCS Group, subject to further dilution as a
         result of additional expected issuances of shares of Sprint PCS stock
         (including in connection with a proposed initial public offering of
         shares of Sprint PCS stock that may be consummated in connection with
         such transactions). In connection with the execution of such
         agreements, the Sprint PCS partners agreed to make up to $400 million
         in additional capital contributions (of which TCI Telephony's share is
         $120 million) to Sprint PCS pending the closing of such transactions.
         If the above-described transactions are consummated, the Company would
         begin to use the cost method to account for its investment in the
         Sprint PCS stock. No assurance can be given that the above-described
         transactions will be consummated.


                                                                     (continued)



                                     I-127
<PAGE>   129
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Summarized unaudited results of operations for the PCS Ventures,
         accounted for under the equity method, are as follows:

<TABLE>
<CAPTION>
                                                         Six months ended
                                                            June 30,
                                                 -----------------------------
Combined Operations                                  1998             1997
                                                 ------------     ------------
                                                       amounts in thousands
<S>                                              <C>                    <C>   
    Revenue                                      $    350,526           35,300
    Operating, selling, general and
        administrative  expenses                     (854,505)        (410,327)
    Depreciation and amortization                    (275,822)        (102,642)
                                                 ------------     ------------

      Operating loss                                 (779,801)        (477,669)

    Interest expense                                 (182,958)         (13,784)
    Other, net                                       (110,540)         (64,335)
                                                 ------------     ------------

      Net loss                                   $ (1,073,299)        (555,788)
                                                 ============     ============
</TABLE>

(11)     Investment in Telewest

         At June 30, 1998, TINTA indirectly owned through its 50% ownership
         interest in TW Holdings, L.L.C., 132,638,250 or 26.7% of the issued and
         outstanding non-voting Telewest convertible preference shares and
         246,111,750 or 26.5% (assuming no conversion of the Telewest
         convertible preference shares) of the issued and outstanding Telewest
         ordinary shares. The reported closing price on the London Stock
         Exchange of Telewest ordinary shares was (pound)1.41 ($2.35) per share
         at June 30, 1998.

         On April 15, 1998, it was announced that Telewest and General Cable PLC
         ("General Cable") had agreed to the terms of a proposed merger (the
         "Merger Offer") in which holders of General Cable will be offered 1.243
         new Telewest shares and (pound)0.65 ($1.08) in cash for each share of
         General Cable. In addition, holders of American Depository shares of
         General Cable ("General Cable ADSs") (each representing five General
         Cable shares) will be offered 6.215 new Telewest shares and (pound)3.25
         ($5.42) in cash for each share of General Cable ADSs. Based upon
         Telewest's closing share price of (pound)0.89 ($1.48) on April 14,
         1998, the Merger Offer is valued at approximately (pound)649 million
         ($1.1 billion).

         The cash portion of the Merger Offer will be financed through an offer
         to qualifying Telewest shareholders for the purchase of approximately
         261 million new Telewest shares at a price of (pound)0.925 ($1.54) per
         share. Mediaone Group, Inc. ("Mediaone") (formerly a division of U S
         WEST, Inc.), TINTA and Cox Communications, Inc. ("Cox") have agreed to
         subscribe for their full allocation of new Telewest shares
         (approximately 69 million shares in the case of TINTA) and to subscribe
         on a pro rata basis for any new Telewest shares not subscribed for by
         other Telewest shareholders. Together, Mediaone, TINTA and Cox held
         67.9% of the issued and outstanding Telewest ordinary shares at June
         30, 1998. In addition, it is anticipated that Mediaone, TINTA, Cox and
         SBC Communications, Inc. ("SBC") will convert their entire respective
         holdings of Telewest convertible preference shares into new Telewest
         shares. Following the issuance of new Telewest shares with respect to
         the above transactions, and assuming the exercise of all options under
         General Cable's share option schemes, it is anticipated that existing
         Telewest shareholders would hold 79% and existing General Cable
         shareholders would hold 21% of the then issued ordinary share capital
         of the combined group.



                                                                     (continued)



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

                     Notes to Combined Financial Statements




         Consummation of the merger is subject to regulatory approval and other
         conditions. There can be no assurance that such merger will be
         consummated or consummated on the terms contemplated by the parties.

         As a result of Telewest's issuance of U.S. dollar denominated
         debentures (the "Telewest Debentures"), changes in the exchange rate
         used to translate the U.S. dollar into the UK pound sterling will cause
         Telewest to experience realized and unrealized foreign currency
         transaction gains and losses throughout the term of the Telewest
         Debentures, which mature in 2006 and 2007, if not redeemed earlier.
         During the six months ended June 30, 1998 and 1997, Telewest
         experienced unrealized foreign currency transaction losses of $2.4
         million and $40.0 million respectively, with respect to the Telewest
         Debentures.

         The functional currency of Telewest is the UK pound sterling. The
         average exchange rate used to translate the TCI Ventures Group's share
         of Telewest's operating results from UK pounds to U.S. dollars was
         1.6530 to 1 and 1.6447 to 1 during the six months ended June 30, 1998
         and 1997, respectively. The spot rate used to translate the TCI
         Ventures Group's share of Telewest's net assets from UK pounds to U.S.
         dollars was 1.6677 to 1 and 1.6508 to 1 at June 30, 1998 and December
         31, 1997, respectively.

         Summarized unaudited results of operations for Telewest are as follows:

<TABLE>
<CAPTION>
                                                                               Six months ended
                                                                                   June 30,
                                                                     --------------------------------------
                                                                            1998                  1997
                                                                     ---------------       ----------------
Consolidated Operations                                                            in thousands
<S>                                                                  <C>                            <C>    
    Revenue                                                          $       373,912                298,357
    Operating, selling, general and administrative expenses                 (284,078)              (271,437)
    Depreciation and amortization                                           (177,578)              (147,267)
                                                                     ---------------       ----------------

         Operating loss                                                      (87,744)              (120,347)

    Interest expense, net                                                   (132,937)               (97,215)
    Share of losses of affiliates                                            (18,318)               (16,974)
    Foreign currency transaction loss                                         (2,413)               (40,006)
    Other, net                                                                 1,210                    242
                                                                     ---------------       ----------------

         Net loss                                                    $      (240,202)              (274,300)
                                                                     ===============       ================
</TABLE>

(12)     Investments in Other Affiliates

         The TCI Ventures Group's affiliates other than the PCS Ventures,
         Telewest, TCG and Cablevision (the "Other Affiliates") generally are
         engaged in the cable and/or programming businesses in the U.S. and in
         various foreign countries.

         The TCI Ventures Group has guaranteed notes payable and other
         obligations of certain of the Other Affiliates (the "Guaranteed
         Obligations"). At June 30, 1998, the U.S. dollar equivalent of the
         amounts borrowed pursuant to the Guaranteed Obligations aggregated
         approximately $101 million.



                                                                     (continued)



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

                     Notes to Combined Financial Statements



         Certain of the Other Affiliates are general partnerships and any
         subsidiary of the TCI Ventures 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 to
         the extent liabilities of that partnership were to exceed its assets.

         Agreements governing the TCI Ventures Group's investment in certain of
         the Other Affiliates contain (i) buy-sell and other exit arrangements
         whereby the TCI Ventures Group could be required to purchase another
         investor's ownership interest and (ii) performance guarantees whereby
         the TCI Ventures Group has guaranteed the performance of the TCI
         Ventures Group's subsidiary that directly holds the related investment.

         The following table reflects the TCI Ventures Group's carrying value
         (including receivables) of the Other Affiliates:

<TABLE>
<CAPTION>
                                                                            June 30,      December 31,
                                                                              1998            1997
                                                                          ------------    ------------
                                                                              amounts in thousands
<S>                                                                       <C>                  <C>    
          Flextech (a)                                                    $    259,058         261,453
          Liberty/TINTA LLC ("Liberty/TINTA") (b)                              134,407         127,574
          MultiThematiques S.A. ("MultiThematiques")                            70,977          68,335
          Jupiter Telecommunications
               Co., Ltd. ("Jupiter")                                            51,225          49,197
          United International Investments ("UII") (c)                          25,101          26,966
          Bresnan International Partners (Poland), L.P. ("BIP
               Poland")                                                         21,345          26,110
          Jupiter Programming Co., Ltd. ("JPC")                                 17,403          15,582
          Bresnan International Partners (Chile), L.P.                          15,071          22,863
          Other                                                                 22,218          33,838
                                                                          ------------    ------------
                                                                          $    616,805         631,918
                                                                          ============    ============
</TABLE>

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

         (a)      Flextech

                  TINTA owned, at June 30, 1998, 57,889,032 Flextech ordinary
                  shares ("Flextech Ordinary Shares") representing 36.8% of the
                  issued and outstanding Flextech share capital and, when
                  combined with a special voting share owned by TINTA, 50% of
                  the aggregate voting interests attributable to such Flextech
                  share capital. Based upon the (pound)5.53 ($9.22) per share
                  closing price of the Flextech Ordinary Shares on the London
                  Stock Exchange, the Flextech Ordinary Shares owned by TINTA
                  had an aggregate market value of (pound)320 million ($534
                  million) at June 30, 1998.



                                                                     (continued)



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

                     Notes to Combined Financial Statements



                  In January 1997, TINTA reduced its voting interest in Flextech
                  to 50% by issuing to a nominee an irrevocable proxy (the
                  "Proxy") to vote 960,850 Flextech Ordinary Shares at any
                  shareholder meeting to be held through December 31, 1997. In
                  April 1997, Flextech and BBC Worldwide Limited ("BBC
                  Worldwide") formed two separate joint ventures (the "Principal
                  Joint Venture" and the "Second Joint Venture", collectively
                  the "BBC Joint Ventures") and entered into certain related
                  transactions. The consummation of the BBC Joint Ventures and
                  related transactions resulted in, among other things, a
                  reduction of TINTA's ownership interest in Flextech to 35.9%
                  and the issuance to TINTA by Flextech of a special voting
                  share (the "Special Voting Share"). The Special Voting Share
                  when combined with TINTA's other share capital in Flextech,
                  allows TINTA to cast 50% of the votes on most matters brought
                  to the shareholders of Flextech for vote. The Special Voting
                  Share will terminate upon the occurrence of the earlier of (i)
                  the third anniversary of issuance or (ii) any transfer of
                  Flextech shares by TINTA outside a specified affiliated group.
                  In light of TINTA's decreased voting interest in Flextech,
                  TINTA, effective January 1, 1997, ceased to consolidate
                  Flextech and began to account for Flextech using the equity
                  method of accounting.

                  Flextech has undertaken to finance the working capital
                  requirements of the Principal Joint Venture and is obligated
                  to provide the Principal Joint Venture with a primary credit
                  facility of (pound)88 million ($147 million) and subject to
                  certain restrictions, a standby credit facility of (pound)30
                  million ($50 million). As of June 30, 1998, the Principal
                  Joint Venture had borrowed (pound) 6.6 million ($11.0 million)
                  under the primary credit facility. Flextech has also agreed to
                  make available to the Second Joint Venture, if required,
                  funding of up to (pound)10 million ($17 million). As of June
                  30, 1998, Flextech had funded (pound) 7.5 million ($12.5
                  million) to the Second Joint Venture under such obligation. If
                  Flextech defaults in its funding obligation to the Principal
                  Joint Venture and fails to cure within 42 days after receipt
                  of notice from BBC Worldwide, BBC Worldwide is entitled,
                  within the following 90 days, to require that TINTA assume all
                  of Flextech's funding obligations to the Principal Joint
                  Venture (the "Standby Commitment").

                  If BBC Worldwide requires TINTA to perform Flextech's funding
                  obligations pursuant to the Standby Commitment, then TINTA
                  will acquire Flextech's entire equity interest in the
                  Principal Joint Venture for (pound)1.00, and will replace
                  Flextech's directors on the board of the Principal Joint
                  Venture with representatives of TINTA. Flextech will pay
                  commitment and standby fees to TINTA for its undertaking under
                  the Standby Commitment. If Flextech repays to TINTA all loans
                  it makes to the Principal Joint Venture (plus interest at
                  TINTA's marginal cost of funds plus 2% per annum) within 180
                  days after TINTA first becomes obligated to perform Flextech's
                  financial obligations, it may reacquire its interest in the
                  Principal Joint Venture for (pound)1.00. TINTA may also,
                  within the same period, require Flextech to reacquire its
                  interest on the same terms. The Standby Commitment will
                  terminate on the earliest of (i) the date on which Flextech
                  has met all of its required financial obligations to the
                  Principal Joint Venture under the primary and standby credit
                  facilities, or (ii) the date on which Flextech delivers a bank
                  guarantee of all of its funding obligations to the Principal
                  Joint Venture.



                                                                     (continued)



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

                     Notes to Combined Financial Statements



                  So long as TINTA is contingently obligated under the Standby
                  Commitment, it has been agreed that (i) Flextech will not sell
                  any of its direct or indirect interests in the Principal Joint
                  Venture, (ii) Flextech will not conduct its business in such a
                  way as is likely to cause it to be in material breach of any
                  material contracts or to have insufficient working capital to
                  meet its funding obligation to the Principal Joint Venture,
                  and (iii) Flextech will use its available resources to
                  subscribe for any outstanding loan stock of the Principal
                  Joint Venture, if and to the extent required by TINTA at any
                  time after December 31, 2011.

         (b)      Liberty/TINTA LLC

                  Subsidiaries of TINTA and Liberty Media Group own equal parts
                  of Liberty/TINTA. During 1996, Liberty/TINTA and News
                  Corporation Limited ("News Corp.") formed a joint venture
                  including a number of partnerships or other entities under
                  common ownership, ("Fox Sports International"), to operate
                  currently existing sports services in Latin America and
                  Australia and a variety of new sports services throughout the
                  world, excluding the United States, Canada and certain other
                  defined geographic areas.

                  During the third quarter of 1997, Fox Sports International
                  distributed (i) its 35% interest in Torneos y Competencias
                  S.A. ("Torneos") to Liberty/TINTA and (ii) certain Australian
                  sports rights to News Corp. On October 2, 1997, TINTA
                  purchased a 5% direct interest in Torneos from an unaffiliated
                  third party for $12 million. As of June 30, 1998, TINTA had
                  made cash contributions to Torneos on the behalf of
                  Liberty/TINTA of $48 million.

         (c)      UII

                  At June 30, 1998, UII owned approximately 50.0%, 46.6% and
                  45.0% of Melita Cable TV Limited ("Melita"), Tevel Israel
                  International Communications Ltd. ("Tevel") and Princes
                  Holding Limited ("PHL"), respectively. Through UII, TINTA
                  owned 50.0%, 50.0% and 55.6% of the foregoing Melita, Tevel
                  and PHL ownership interests. Melita and Tevel operate cable
                  television systems in Malta and Israel, respectively. PHL is
                  an Irish cable and microwave-multichannel distribution
                  operator.

                  TINTA has signed a memorandum of understanding with United
                  International Holdings, Inc. ("UIH") for the sale of TINTA's
                  ownership interests in Tevel and Melita to UIH. Concurrently,
                  TINTA will purchase an additional 25% interest in PHL from
                  UIH. The parties have agreed that, net of its purchase of
                  UIH's 25% interest in PHL, TINTA will receive $71 million for
                  its interests in Tevel and Melita. Such proceeds are subject
                  to adjustment.

                  Consummation of such transactions is contingent on the consent
                  of certain third parties and regulatory bodies, as well as on
                  the completion of financing by UIH. There can be no assurance
                  that such transactions will be consummated or consummated on
                  the terms contemplated by the parties.



                                                                     (continued)



                                     I-132
<PAGE>   134

                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements




         Asia Business News (Singapore) PTE Ltd.

         On December 31, 1997, TINTA surrendered all of its shares of Asia
         Business News (Singapore) PTE Ltd. ("ABN") in exchange for a $25
         million unsecured note receivable from ABN (the "ABN Note"). The ABN
         Note is due on December 31, 2012. Due to uncertainty regarding
         collection of the ABN Note, TINTA recorded the ABN Note at an amount
         equal to its investment in ABN as of the date of conversion. No gain
         was recognized on the above transaction.

         The following table reflects the TCI Ventures Group's share of losses
         of the Other Affiliates:

<TABLE>
<CAPTION>
                                               Six months ended
                                                  June 30,
                                       -----------------------------
                                            1998               1997
                                       -------------     -----------
                                           amounts in thousands
<S>                                    <C>                    <C>   
 Jupiter                               $      12,007          10,638
 MultiThematiques                             10,481           4,134
 JPC                                           6,670           7,513
 Liberty/TINTA                                 6,664           7,432
 Flextech                                      6,181          10,615
 BIP Poland                                    3,754             750
 ABN                                              --           6,230
 Other                                         3,955           3,097
                                       -------------     -----------
                                       $      49,712          50,409
                                       =============     ===========
</TABLE>

         Summarized unaudited results of operations of the Other Affiliates by
         geographic region for the periods in which the TCI Ventures Group used
         the equity method to account for its investments in the Other
         Affiliates are as follows:

<TABLE>
<CAPTION>
                                                               Six months ended June 30, 1998
                                       --------------------------------------------------------------------------------
                                                                           Latin
                                                                           America
                                                          Asia and          and The          United
                                          Europe        Australia(a)     Caribbean(b)        States           Total
                                       ------------     ------------     ------------     ------------     ------------
      Combined Operations                                             amounts in thousands
<S>                                    <C>                   <C>          <C>                <C>            <C>    
      Revenue                          $    176,241          104,010               --            5,152          285,403
      Operating expenses                   (193,241)        (139,435)              --           (4,003)        (336,679)
      Depreciation and amortization          (6,486)         (11,308)            (170)          (2,724)         (20,688)
                                       ------------     ------------     ------------     ------------     ------------

              Operating loss                (23,486)         (46,733)            (170)          (1,575)         (71,964)

      Interest expense, net                  (5,796)          (1,130)          (3,311)          (1,211)         (11,448)
      Other, net                              4,802            3,212          (12,489)            (175)          (4,650)
                                       ------------     ------------     ------------     ------------     ------------

              Net loss                 $    (24,480)         (44,651)         (15,970)          (2,961)         (88,062)
                                       ============     ============     ============     ============     ============
</TABLE>



                                                                     (continued)


                                     I-133
<PAGE>   135


                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


<TABLE>
<CAPTION>
                                                                      Six months ended June 30, 1997
                                              ------------------------------------------------------------------------------
                                                                                    Latin
                                                                                   America
                                                                 Asia and          and The          United
                                                  Europe       Australia (a)    Caribbean (b)       States         Total
                                              ------------    -------------    -------------      ------------  ------------
      Combined Operations                                                   amounts in thousands
<S>                                            <C>               <C>                <C>             <C>          <C>    
      Revenue                                  $   130,458          111,101            6,559             5,272       253,390
      Operating expenses                          (159,370)        (129,664)          (5,233)           (4,749)     (299,016)
      Depreciation and amortization                (14,422)          (7,205)          (1,191)           (2,855)      (25,673)
                                              ------------    -------------    -------------      ------------  ------------

              Operating income (loss)              (43,334)         (25,768)             135            (2,332)      (71,299)

      Interest expense, net                           (922)          (5,498)          (2,784)             (993)      (10,197)
      Other, net                                    (4,815)         (13,579)         (14,807)           (4,990)      (38,191)
                                              ------------    -------------    -------------      ------------  ------------

              Net loss                         $   (49,071)         (44,845)         (17,456)           (8,315)     (119,687)
                                               ===========    =============    =============      ============  ============
</TABLE>

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

         (a)      The summarized operating results of ABN are included in the
                  combined operations through December 31, 1997, the date TINTA
                  surrendered all of its shares of ABN in exchange for the ABN
                  Note. See related discussion above. The summarized operating
                  results of Sky Network Television New Zealand, Ltd. ("Sky")
                  are included in the combined operations through September 26,
                  1997, the date that TINTA sold its interest in Sky.

         (b)      The summarized operating results of Caguas/Humacao Cable
                  Systems ("Caguas") are included in the combined operations
                  through May 1, 1997, the date TINTA acquired the 50% ownership
                  in Caguas which TINTA did not already own.

(13)     Debt

         The components of debt are as follows:

<TABLE>
<CAPTION>
                                                                               June 30,          December 31,
                                                                                1998                 1997
                                                                           --------------      ----------------
                                                                                     amounts in thousands
<S>                                                                        <C>                 <C>    
           Debentures (a)                                                  $      345,000               345,000
           Ventures Group Bank Facility (b)                                       204,000                    --
           Puerto Rico Bank Facility (c)                                           45,000                45,000
           Other                                                                       --                18,532
                                                                           --------------      ----------------
                                                                           $      594,000               408,532
                                                                           ==============      ================
</TABLE>

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

           (a)    On February 8, 1996, TINTA received net cash proceeds of
                  approximately $336 million from the issuance of 4-1/2%
                  Convertible Subordinated Debentures (the "Debentures") due
                  2006 having an aggregate principal amount of $345 million. The
                  Debentures are convertible into shares of TINTA Series A
                  common stock at a price of $27.30 per share of TINTA Series A
                  common stock, subject to anti-dilution adjustments. Interest
                  on the Debentures is payable on February 15 and August 15 of
                  each year. The Debentures may be redeemed by TINTA in whole or
                  in part, at any time on or after February 15, 1999.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



           (b)    On March 10, 1998, TCI Ventures Group entered into a bank
                  credit facility with a term of one year which provides for
                  aggregate borrowings of up to $400 million (the "Ventures
                  Group Bank Facility"). Borrowings under the Ventures Group
                  Bank Facility bear interest at variable rates (6.05% at June
                  30, 1998). TCI Ventures Group is required to pay a commitment
                  fee equal to 0.15% on the average daily unused portion of the
                  maximum borrowing commitments. The Ventures Group Bank
                  Facility contains restrictive covenants which require, among
                  other things, the maintenance of certain financial ratios, and
                  includes limitations on indebtedness, liens and encumbrances,
                  acquisitions, dispositions and dividends.

         (c)      TINTA's Puerto Rico subsidiary (the "Puerto Rico Subsidiary")
                  has a reducing revolving bank facility which is unsecured and
                  provides for maximum borrowing commitments of $100 million
                  (the "Puerto Rico Bank Facility"). The availability of such
                  commitments for borrowing is subject to the Puerto Rico
                  Subsidiary's compliance with applicable financial covenants
                  and other customary conditions. Commencing March 31, 2000, the
                  maximum commitments will be reduced quarterly through March
                  31, 2006. Borrowings under the Puerto Rico Bank Facility bear
                  interest at variable rates (6.15% at June 30, 1998). In
                  addition, the Puerto Rico Subsidiary is required to pay a
                  commitment fee equal to 0.375% on the average daily unused
                  portion of the maximum borrowing commitments, payable
                  quarterly in arrears and at maturity. The Puerto Rico Bank
                  Facility contains restrictive covenants which require, among
                  other things, the maintenance of certain financial ratios
                  (primarily the ratios of cash flow to total debt and cash flow
                  to debt service, as defined), and includes certain limitations
                  on indebtedness, investments, guarantees, acquisitions,
                  dispositions, dividends, liens and encumbrances, and
                  transactions with affiliates. If TCI's ownership interest in
                  TINTA were to fall below 50.1%, borrowings under the Puerto
                  Rico Bank Facility would be secured by the assets of the
                  Puerto Rico Subsidiary and the variable interest rates on such
                  borrowings would be increased.

         With the exception of the Debentures, which had a fair value of $317
         million at June 30, 1998, the TCI Ventures Group believes that the fair
         value and the carrying value of the TCI Ventures Group's debt were
         approximately equal at June 30, 1998.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



(14)     Combined Equity

         General

         During the fourth quarter of 1997, TCI entered into a Total Return
         Equity Swap Facility (the "Equity Swap Facility"). Pursuant to the
         Equity Swap Facility, TCI has the right to direct the counterparty (the
         "Counterparty") to use the Equity Swap Facility to purchase shares
         ("Equity Swap Shares") of TCI Group Series A Stock and TCI Ventures
         Group Series A Stock with an aggregate purchase price of up to $300
         million. TCI has the right, but not the obligation, to purchase Equity
         Swap Shares through the September 30, 2000 termination date of the
         Equity Swap Facility. During such period, TCI is to settle periodically
         any increase or decrease in the market value of the Equity Swap Shares.
         If the market value of the Equity Swap Shares exceeds the
         Counterparty's cost, Equity Swap Shares with a fair value equal to the
         difference between the market value and cost will be segregated from
         the other Equity Swap Shares. If the market value of Equity Swap Shares
         is less than the Counterparty's cost, TCI, at its option, will settle
         such difference with shares of TCI Group Series A Stock or TCI Ventures
         Group Series A Stock or, subject to certain conditions, with cash or
         letters of credit. In addition, the Company is required to periodically
         pay the Counterparty a fee equal to a LIBOR-based rate on the
         Counterparty's cost to acquire the Equity Swap Shares. Due to TCI's
         ability to issue shares to settle periodic price fluctuation and fees
         under the Equity Swap Facility, TCI records all amounts received or
         paid under this arrangement as increases or decreases, respectively, to
         equity. As of June 30, 1998, the Equity Swap Facility had acquired
         4,935,780 shares of TCI Group Series A Stock and 1,151,800 shares of
         TCI Ventures Group Series A Stock at an aggregate cost that was
         approximately $48 million less than the fair value of such Equity Swap
         Shares at June 30, 1998. The costs and benefits associated with the TCI
         Ventures Group Series A Stock held by the Equity Swap Facility are
         attributed to TCI Ventures Group.



                                                                     (continued)




                                     I-136
<PAGE>   138

                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         On January 5, 1998, TCI announced that a settlement (the "Magness
         Settlement") had been reached in the litigation brought against it and
         other parties in connection with the administration of the Estate of
         Bob Magness (the "Magness Estate"), the late founder and former
         Chairman of the Board of TCI.

         On February 9, 1998, in connection with the Magness Settlement, TCI,
         entered into a call agreement (the "Malone Call Agreement") with Dr.
         Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"),
         under which the Malones granted to TCI the right to acquire the
         Malones' high-voting shares, currently consisting of an aggregate of
         approximately 60 million shares of Series B Stock (the "High-Voting
         Shares"), upon Dr. Malone's death or upon a contemplated sale of the
         High-Voting Shares (other than a minimal amount) to third persons. In
         either such event, TCI has the right to acquire the shares at a maximum
         price equal to the then relevant market price of shares of "low-voting"
         Series A Stock plus a ten percent premium. The Malones also agreed that
         if TCI were ever to be sold to another entity, then the maximum premium
         that the Malones would receive on their High-Voting Shares would be no
         greater than a ten percent premium over the price paid for the relevant
         shares of Series A Stock. TCI paid $150 million to the Malones for
         agreeing to the terms of the Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares. The Magness Family was
         paid $124 million by TCI for entering into the Magness Call Agreement.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
         and Magness Call Agreement (collectively, the "Call Payments") was
         allocated to each of the Groups based upon the number of shares of each
         Group (before giving effect to stock dividends) that are subject to the
         Malone Call Agreement and the Magness Call Agreement. TCI Ventures
         Group's share of the Call Payments of $76 million was paid during the
         first quarter of 1998 and is reflected as a decrease to combined
         equity.

         Stock Repurchases

         In conjunction with a stock repurchase program or similar transaction,
         TCI may elect to sell put options on its own common stock. Proceeds
         from any sales of puts with respect to TCI Ventures Group Stock are
         reflected by TCI Ventures Group as an increase to combined equity, and
         an amount equal to the maximum redemption amount under unexpired put
         options with respect to TCI Ventures Group Stock is reflected as an
         obligation to redeem TCI Ventures Group Stock in the accompanying
         combined balance sheets.

         During the six months ended June 30, 1998, pursuant to the stock
         repurchase program, 145,450 shares of TCI Ventures Group Series A Stock
         and 94,000 shares of TCI Ventures Group Series B Stock were repurchased
         at an aggregate cost of $3.9 million. Such amount is reflected as a
         decrease to combined equity in the accompanying combined financial
         statements. 


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         Stock Based Compensation

         TCI Ventures Group records stock compensation expense relating to
         restricted stock awards, options and/or stock appreciation rights
         (collectively, "Awards") granted (i) by TCI to certain TCI employees
         and/or directors who are involved with the TCI Ventures Group and (ii)
         by TINTA, UVSG, and @Home to employees and/or directors of such
         entities. Stock compensation with respect to Awards granted by TCI
         includes amounts related to TCI common stock and to common stock of
         certain non-public subsidiaries of TCI and is allocated to TCI Ventures
         Group based on the Awards held by TCI employees and/or directors who
         are involved with TCI Ventures Group. Estimated compensation relating
         to the Awards has been recorded in the accompanying combined financial
         statements through June 30, 1998. Such estimate is subject to future
         adjustment based upon vesting and market value, and ultimately, on the
         final determination of market value when such rights are exercised. The
         estimated compensation adjustment with respect to TCI Awards resulted
         in increases to TCI Ventures Group's share of TCI's stock compensation
         liability of $121.7 million and $12.8 million for the six months ended
         June 30, 1998 and 1997, respectively. In addition, for the six months
         ended June 30, 1998, TCI Ventures Group made cash payments relating to
         its share of TCI's stock compensation obligations of $68.9 million. The
         payable arising from the compensation related to the Awards granted by
         TCI is included in the amount due to related parties.

         Transactions with Related Parties

         The components of due to (from) related parties are as follows:

<TABLE>
<CAPTION>
                                                                             June 30,           December 31,
                                                                                1998               1997
                                                                         ----------------   ------------------
                                                                                 amounts in thousands
<S>                                                                      <C>                           <C>     
         TCI Note Receivable (a)                                         $         (5,351)             (88,707)
         Intercompany account (b)                                                  13,480              110,212
                                                                         ----------------   ------------------
                                                                         $          8,129               21,505
                                                                         ================   ==================
</TABLE>

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

         (a)      Amounts outstanding under a note agreement between the TCI
                  Ventures Group and TCI (the "TCI Note Receivable") bear
                  interest at variable rates based on TCI's weighted average
                  cost of bank borrowings of similar maturities (6.4% at June
                  30, 1998). Principal and interest is due and payable as
                  mutually agreed from time to time by TCI and the TCI Ventures
                  Group. During the six months ended June 30, 1998 and 1997,
                  interest income related to the TCI Note Receivable aggregated
                  $1.6 million and $3.8 million, respectively.

         (b)      The non-interest bearing intercompany account includes certain
                  income tax and stock compensation allocations that are to be
                  settled at some future date. All other amounts included in the
                  intercompany account are to be settled within thirty days
                  following notification. Through September 10, 1997, the date
                  of the TCI Ventures Exchange, the effects of all transactions
                  with TCI Group, except those related to the TCI Note
                  Receivable, were reflected as adjustments to TCI Ventures
                  Group's combined equity.


                                                                     (continued)



                                     I-138
<PAGE>   140
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         The TCI Group has provided a revolving loan facility (the "Ventures
         Intergroup Credit Facility") to the TCI Ventures Group for a five-year
         period commencing on September 10, 1997. Such facility permits
         aggregate outstanding borrowings at any one time of up to $500 million
         (subject to reduction as provided below), which borrowings bear
         interest at a rate per annum equal to The Bank of New York's prime rate
         (as in effect from time to time) plus 1% per annum, payable quarterly.
         A commitment fee equal to 3/8% per annum of the average unborrowed
         availability under the Ventures Intergroup Credit Facility is payable
         by the TCI Ventures Group to the TCI Group on a quarterly basis. Such
         commitment fee was $950,000 for the six months ended June 30, 1998. The
         maximum amount of borrowings permitted under the Ventures Intergroup
         Credit Facility will be reduced on a dollar-for-dollar basis by up to
         $300 million if and to the extent that the aggregate amount of any
         additional capital that TCI Telephony is required to contribute to
         Sprint PCS Partnerships subsequent to the TCI Ventures Exchange is less
         than $300 million. No borrowings were outstanding pursuant to the
         Ventures Intergroup Credit Facility at June 30, 1998.

         During 1996, TCI Group transferred, subject to regulatory approval,
         certain distribution equipment to a subsidiary of TINTA in exchange for
         a (pound)15 million ($23 million using the applicable exchange rate)
         principal amount promissory note (the "TVG LLC Promissory Note"). The
         TVG LLC Promissory Note was contributed by TCI Group to TCI Ventures
         Group in connection with the September 10, 1997 consummation of the
         Exchange Offers. The distribution equipment was subsequently leased
         back to TCI Group over a five year term with semi-annual payments of $2
         million, plus expenses. Effective October 1, 1997, such distribution
         equipment was transferred back to TCI Group and the related lease and
         the TVG LLC Promissory Note were canceled. During the six months ended
         June 30, 1997, (i) the U.S. dollar equivalent of interest expense with
         respect to the TVG LLC Promissory Note was $789,000, (ii) the U.S.
         dollar equivalent of the lease revenue under the above-described lease
         agreement aggregated $1.7 million and (iii) TINTA experienced foreign
         currency transaction losses of $589,000, with respect to the TVG LLC
         Promissory Note.

         Certain TCI corporate general and administrative costs are charged to
         TCI Ventures Group at rates set at the beginning of the year based on
         projected utilization for that year. TCI Ventures Group was allocated
         $6.3 million and $4.4 million in corporate general and administrative
         costs by the TCI Group during the six months ended June 30, 1998 and
         1997, respectively.

         During the six months ended June 30, 1998 and 1997, programming revenue
         earned by UVSG from TCI Group was $4.1 million and $4.3 million,
         respectively. UVSG purchases programming from Liberty Media Group and,
         during the six months ended June 30, 1997, also purchased programming
         from TCI Group. These purchases totaled $22.2 million and $18.3 million
         for the six months ended June 30, 1998 and 1997, respectively, and are
         included in operating costs in the accompanying combined statements of
         operations.


                                                                     (continued)



                                     I-139
<PAGE>   141
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         Amounts included in revenue for services provided to the other Groups
         by WTCI and NDTC are $17.3 million and $18.1 million for the six months
         ended June 30, 1998 and 1997, respectively.

         A subsidiary of TCI that was a member of TCI Ventures Group leases
         certain equipment under a capital lease. During 1997, such equipment
         was subleased to TCI Group under an operating lease. In January 1998,
         TCI Group paid $7 million to TCI Ventures Group in exchange for TCI
         Ventures Group's assignment of its ownership interest in such
         subsidiary to TCI Group. Due to the related party nature of the
         transaction, the $49.5 million total of the cash payment and the
         historical cost of the net liabilities assumed by TCI Group (including
         capital lease obligations aggregating $175.8 million) has been
         reflected as an addition to TCI Ventures Group's combined equity.

         The Puerto Rico Subsidiary purchases programming services from the TCI
         Group. The charges, which approximate the TCI Group's cost and are
         based on the aggregate number of subscribers served by the Puerto Rico
         Subsidiary, aggregated $2.8 million and $2.9 million during the six
         months ended June 30, 1998 and 1997, respectively. The above-described
         programming fee charges are included in operating costs in the
         accompanying combined statements of operations.

         As further described in note 5, effective October 1, 1997, TINTA ceased
         to consolidate Cablevision and began to account for Cablevision under
         the equity method of accounting. Cablevision purchases programming
         services from certain affiliates. The related charges generally are
         based upon the number of Cablevision's subscribers that receive the
         respective services. During the six months ended June 30, 1997, such
         charges aggregated $7.4 million. Additionally, certain of Cablevision's
         general and administrative functions are provided by affiliates. The
         related charges, which generally are based upon the respective
         affiliate's cost of providing such functions, aggregated $1.6 million
         during the six months ended June 30, 1997. The above-described
         programming and general and administrative charges are included in
         operating costs in the accompanying combined statements of operations.

(15)     Income Taxes

         The TCI Ventures Group and its 80%-or-more-owned domestic businesses
         which have been attributed to the TCI Ventures Group (the "TCI Ventures
         Tax Group") are included in the consolidated federal and state income
         tax returns of TCI. The TCI Ventures Group's income taxes include those
         items in the consolidated calculation applicable to the TCI Ventures
         Tax Group ("intercompany tax allocation") and any income taxes of
         attributed entities that are excluded from the consolidated federal and
         state income tax returns of TCI. Intercompany tax allocation represents
         an apportionment of tax expense or benefit (other than deferred taxes)
         among subsidiaries of TCI in relation to their respective amounts of
         taxable earnings or losses.



                                                                     (continued)



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

                     Notes to Combined Financial Statements

         A tax sharing agreement (the "Old Tax Sharing Agreement") among TCI,
         TCI Ventures Group and certain subsidiaries of TCI was implemented
         effective July 1, 1995. The Old Tax Sharing Agreement formalized
         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. Under
         the Old Tax Sharing Agreement, the TCI Ventures Group was responsible
         to TCI for its share of consolidated income tax liabilities (computed
         as if TCI were not liable for the alternative minimum tax) determined
         in accordance with the Old Tax Sharing Agreement, and TCI was
         responsible to the TCI Ventures Group to the extent that the income tax
         attributes generated by the TCI Ventures Tax Group were utilized by TCI
         to reduce its consolidated income tax liabilities (computed as if TCI
         were not liable for the alternative minimum tax). The tax liabilities
         and benefits of such entities so determined were charged or credited to
         an intercompany account between TCI and the TCI Ventures Group. Such
         intercompany account is required to be settled only upon the date that
         an entity ceases to be a member of TCI's consolidated group for federal
         income tax purposes. Under the Old Tax Sharing Agreement, TCI retains
         the burden of any alternative minimum tax and has the right to receive
         the tax benefits from any alternative minimum tax credit attributable
         to any tax period beginning on or after July 1, 1995 and ending on or
         before October 1, 1997.

         Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing
         Agreement was replaced by a new tax sharing agreement, as amended by
         the First Amendment thereto (the "New Tax Sharing Agreement"), which
         governs the allocation and sharing of income taxes by the TCI Group,
         the Liberty Media Group and the TCI Ventures Group. Effective for
         periods on and after the Effective Date, federal income taxes will be
         computed based upon the type of tax paid by TCI (on a regular tax or
         alternative minimum tax basis) on a separate basis for each Group.
         Based upon these separate calculations, an allocation of tax
         liabilities and benefits will be made such that each Group will be
         required to make cash payments to TCI based on its allocable share of
         TCI's consolidated federal income tax liabilities (on a regular tax or
         alternative minimum tax basis, as applicable) attributable to such
         Group and actually used by TCI in reducing its consolidated federal
         income tax liability. Tax attributes and tax basis in assets would be
         inventoried and tracked for ultimate credit to or charge against each
         Group. Similarly, in each taxable period that TCI pays alternative
         minimum tax, the federal income tax benefits of each Group, computed as
         if such Group were subject to regular tax, would be inventoried and
         tracked for payment to or payment by each Group in years that TCI
         utilizes the alternative minimum tax credit associated with such
         taxable period. The Group generating the unutilized tax benefits would
         receive a cash payment only if, and when, the unutilized taxable losses
         of the other Group are actually utilized. If the unutilized taxable
         losses expire without ever being utilized, the Group generating the
         utilized tax benefits will never receive payment for such benefits.
         Pursuant to the New Tax Sharing Agreement, state and local income taxes
         are calculated on a separate return basis for each Group (applying
         provisions of state and local tax law and related regulations as if the
         Group were a separate unitary or combined group for tax purposes), and
         TCI's combined or unitary tax liability is allocated among the Groups
         based upon such separate calculation.



                                                                     (continued)


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

                     Notes to Combined Financial Statements

         Notwithstanding the foregoing, items of income, gain, loss, deduction
         or credit resulting from certain specified transactions that were
         consummated after the Effective Date pursuant to a letter of intent or
         agreement that was entered into prior to the Effective Date will be
         shared and allocated pursuant to the terms of the Old Tax Sharing
         Agreement as amended.

         The net amount of the balance of each TCI Group intercompany account
         under the Old Tax Sharing Agreement that is attributable to entities
         included in the TCI Ventures Group for the period beginning July 1,
         1995 and ending on September 10, 1997 (the consummation date of the
         Exchange Offers) has been included in TCI Ventures Group's combined
         equity. Tax liabilities and benefits, as determined under the Old Tax
         Sharing Agreement, that were generated by the entities comprising the
         TCI Ventures Group for the period beginning on September 10, 1997 and
         ending on September 30, 1997 were credited or debited to an
         intercompany account between the TCI Group and the TCI Ventures Group
         in accordance with the Old Tax Sharing Agreement. The intercompany tax
         account existing between TCI and TINTA for the period beginning July 1,
         1995 and ending September 30, 1997 will be required to be settled
         between the TCI Ventures Group and TINTA if and when TINTA ceases to be
         a member of TCI's consolidated group for federal income tax purposes.
         For periods subsequent to September 30, 1997 TINTA and TCI Ventures
         Group have followed a tax sharing arrangement with terms similar to
         those contained in the New Tax Sharing Agreement.

         At December 31, 1997, the TCI Ventures Group had federal net operating
         loss carryforwards for income tax purposes aggregating approximately
         $504 million which, if not utilized to reduce taxable income in future
         periods, will begin to expire at various dates beginning in the year
         2004. Pursuant to the Old and New Tax Sharing Agreements, TCI Ventures
         Group has already received benefit for approximately $37 million of
         such net operating loss carryforwards. TCI Ventures Group is
         responsible to TCI to the extent this amount of net operating loss
         carryforwards is utilized by TCI in future periods.

(16)     Commitments and Contingencies

         In addition to the commitments and contingent obligations described
         below, TCI Ventures Group has significant commitments and contingent
         obligations with respect to certain of its affiliates and other
         matters. See notes 2, 8, 10, 11, 12 and 14.

         TINTA has guaranteed the obligation of an affiliate ("The Premium Movie
         Partnership") to pay fees for the license to exhibit certain films
         through 2000. Although the aggregate amount of The Premium Movie
         Partnership's license fee obligations is not currently estimable, TINTA
         believes that the aggregate payments pursuant to such obligations could
         be significant. If TINTA were to fail to fulfill its obligations under
         the guarantee, the beneficiaries have the right to demand an aggregate
         payment from TINTA of approximately $38 million. Although TINTA has not
         had to perform under such guarantee to date, TINTA cannot be certain
         that it will not be required to perform under such guarantee in the
         future.





                                                                     (continued)


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

                     Notes to Combined Financial Statements



         TINTA has formed strategic partnerships with News Corp., Organizacoes
         Globo and Group Televisa S.A. to develop and operate a direct-to-home
         satellite service for Latin America, Mexico, and various Central and
         South American countries (collectively, the "DTH Ventures"). Through
         June 30, 1998, TINTA had contributed $44.8 million to the DTH Ventures.
         It is anticipated that TINTA could be required to make additional cash
         contributions in connection with the DTH Ventures. In addition, as of
         June 30, 1998, TINTA had guaranteed approximately $93 million of the
         DTH Ventures' financial obligations.

         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
         cable operators that may be designated from time to time by NDTC
         ("Approved Purchasers"), entered into an agreement (the "Digital
         Terminal Purchase Agreement") with General Instrument Corporation
         ("GI") to purchase advanced digital set-top devices. The hardware and
         software incorporated into these devices will be designed and
         manufactured to be compatible and interoperable with the OpenCable(TM)
         architecture specifications adopted by CableLabs, the cable television
         industry's research and development consortium, in November 1997. NDTC
         has agreed that Approved Purchasers will purchase, in the aggregate, a
         minimum of 6.5 million set-top devices during calendar years 1998, 1999
         and 2000 at an average price of $318 per set-top device. Through June
         30, 1998, 525,000 set-top devices had been purchased pursuant to this
         commitment. GI agreed to provide NDTC and its Approved Purchasers the
         most favorable prices, terms and conditions made available by GI to any
         customer purchasing advanced digital set-top devices. In connection
         with NDTC's purchase commitment, GI agreed to grant warrants to
         purchase its common stock proportional to the number of devices ordered
         by each organization, which as of the effective date of the Digital
         Terminal Purchase Agreement, would have represented at least a 10%
         equity interest in GI (on a fully diluted basis). Such warrants vest as
         annual purchase commitments are met. It is anticipated that the value
         associated with such equity interest would be attributed to TCI Group
         upon purchase and deployment of the digital set-top devices. See note
         2. NDTC has the right to terminate the Digital Terminal Purchase
         Agreement if, among other reasons, GI fails to meet a material
         milestone designated in the Digital Terminal Purchase Agreement with
         respect to the development, testing and delivery of advanced digital
         set-top devices.

         On July 17, 1998, NDTC acquired 21.4 million shares of stock of GI in
         exchange for (i) certain of the assets of NDTC's set-top authorization
         business, (ii) the license of certain related technology to GI, (iii) a
         $50 million promissory note from TCI Ventures Group to GI and (iv) a
         nine year revenue guarantee from TCI Ventures Group in favor of GI. In
         connection therewith, NDTC also entered into a service agreement
         pursuant to which it will provide certain services to GI's set-top
         authorization business.


                                                                     (continued)



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

                     Notes to Combined Financial Statements



         A TCI subsidiary attributed to TCI Ventures Group issued preferred
         stock in connection with a previous acquisition. Such preferred stock
         is exchangeable at the option of the holders into 1,084,056 shares of
         TCI Group Series A Stock beginning in April 1999. The TCI Ventures
         Group entered into a forward purchase contract in July 1998 with a
         commercial bank to acquire 1,084,056 shares of TCI Group Series A Stock
         for approximately $45 million on or before April 19, 1999. Such shares
         will be used to satisfy the exchange requirements of the aforementioned
         preferred stock.

         TCI Ventures Group has contingent liabilities related to legal
         proceedings and other matters arising in the ordinary course of
         business. Although it is reasonably possible TCI Ventures Group may
         incur losses upon conclusion of such matters, an estimate of any loss
         or range of loss cannot be made. In the opinion of management, it is
         expected that amounts, if any, which may be required to satisfy such
         contingencies will not be material in relation to the accompanying
         combined financial statements.

         During the six months ended June 30, 1998, TCI continued its
         enterprise-wide comprehensive efforts to review and correct computer
         systems, equipment and related software to ensure they properly
         recognize, process and store business information. The computer
         systems, equipment and software being evaluated include systems which
         are integral to the distribution of TCI Ventures Group's products and
         services, systems that support operations of TCI Ventures Group and
         protect its assets, and all internal use software. TCI Ventures Group
         is utilizing both internal and external resources, including the
         establishment of a year 2000 enterprise program management office
         accountable to TCI's executive management, to identify and remediate or
         replace systems for year 2000 readiness.

         During the six months ended June 30, 1998, TCI began the process of
         testing and replacing or remediating critical components of its cable
         systems' headend equipment, which is critical to both the cable
         operations of the Puerto Rico Subsidiary and to the ability of TCI
         Ventures Group and its affiliates to earn revenue from the distribution
         of programming services. Although no assurance can be given, TCI
         Ventures Group expects to conclude such testing by December 1998 with
         replacement or remediation completed by the end of the first quarter of
         1999. Also, TCI Ventures Group began the process of remediating systems
         that control the commercial advertising in its cable operations,
         including the advertisement of programming services distributed by TCI
         Ventures Group and its affiliates. Although no assurance can be given,
         those remediation efforts should be complete by mid-1999. TCI Ventures
         Group continued to assess potential year 2000 issues of its affiliated
         companies and provided its affiliates with remediation information on
         software products and systems. TCI Ventures Group's business and
         financial systems and software which will continue to be utilized by
         TCI Ventures Group beyond the year 1999 will be capable of recognizing
         the year 2000 and therefore should not require material remediation or
         replacement.


                                                                     (continued)


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

                     Notes to Combined Financial Statements


         Significant third party vendors whose systems are critical to TCI
         Ventures Group's operations have been identified and surveyed and
         confirmations from such parties have been received indicating that they
         are either year 2000 ready or have plans in place to become ready.
         During the six months ended June 30, 1998, TCI Ventures Group completed
         an independent assessment of a key financial application externally
         managed by a third party vendor and determined that such vendor's
         systems and software should be compliant by the end of 1998. Also, TCI
         Ventures Group has developed and initiated a plan with key suppliers
         who provide systems which are integral to the distribution of TCI
         Ventures Group's products and services to upgrade or replace non-year
         2000 compliant systems on a product-by-product and site-by-site basis
         by mid-1999.

         Management of TCI Venture's Group intends to have further communication
         with primary vendors identified as having systems that are not year
         2000 compliant to assess those vendors' plans for remediating their own
         year 2000 issues and to assess the impact on TCI Ventures Group if such
         vendors fail to remediate their year 2000 issues. TCI Ventures Group
         continues to evaluate the level of validation it will require of third
         parties to ensure their year 2000 readiness.

         Management of TCI has not yet determined the full cost associated with
         its year 2000 readiness efforts and the related potential impact on
         TCI's financial position, results of operations or cash flows but has
         identified certain cost elements that, in the aggregate, are not
         expected to be less than $63 million, which includes $3 million of
         program management expenses incurred during the six months ended June
         30, 1998. TCI Ventures Group's allocable share of such cost elements is
         estimated to be not less than $15 million. Although there can be no
         assurance, TCI Ventures Group anticipates that the costs ultimately
         required to be paid to ensure TCI Ventures Group's year 2000 readiness
         will not have a material adverse effect on TCI Ventures Group's
         financial position, results of operations or cash flows. However, there
         can be no assurance that TCI Ventures Group's systems or the systems of
         other companies on which TCI Ventures Group relies will be converted in
         time or that any such failure to convert by TCI Ventures Group or other
         companies will not have a material adverse effect on its financial
         position, results of operations or cash flows.




                                     I-145
<PAGE>   147


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company, TCI Group,
Liberty Media Group and TCI Ventures Group. Such discussion should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto of the Company and the accompanying combined financial statements and
notes thereto of each of the TCI Group, Liberty Media Group and TCI Ventures
Group. Additionally, the following discussion and analysis should be read in
conjunction with the Management's Discussion and Analysis of Financial Condition
and Results of Operations and financial statements included in Part II of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. The
following discussion focuses on material trends, risks and uncertainties
affecting the results of operations and financial condition of the Company, TCI
Group, Liberty Media Group and TCI Ventures Group.

         Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under this caption are forward-looking. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company (or
entities in which the Company has interests), or industry results, to differ
materially from future results, performance or achievements expressed or implied
by such forward-looking statements. Such risks, uncertainties and other factors
include, among others: general economic and business conditions and industry
trends; the regulatory and competitive environment of the industries in which
the Company, and the entities in which the Company has interests, operate;
uncertainties inherent in new business strategies, uncertainties inherent in the
Company's and its major vendors' year 2000 remediation efforts (including
uncertainties with respect to the availability of equipment and skilled
personnel), new product launches and development plans; rapid technological
changes; the acquisition, development and/or financing of telecommunications
networks and services; the development and provision of programming for new
television and telecommunications technologies; future financial performance,
including availability, terms and deployment of capital; the ability of vendors
to deliver required equipment, software and services; availability of qualified
personnel; changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the Federal
Communications Commission, and adverse outcomes from regulatory proceedings;
changes in the nature of key strategic relationships with partners and joint
venturers; competitor responses to the Company's products and services, and the
products and services of the entities in which the Company has interests, and
the overall market acceptance of such products and services; and other factors.
These forward-looking statements (and such risks, uncertainties and other
factors) speak only as of the date of this Report, and the Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein, to reflect any change in the
Company's expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is based.

         Targeted Stock

         TCI targeted common stock is comprised of six series: TCI Group Series
A Stock, TCI Group Series B Stock, Liberty Group Series A Stock, Liberty Group
Series B Stock, TCI Ventures Group Series A Stock and TCI Ventures Group Series
B Stock.




                                     I-146
<PAGE>   148



         The Liberty Group Stock is intended to reflect the separate performance
of the Liberty Media Group, which is comprised of TCI's assets which produce and
distribute programming services. The TCI Ventures Group Stock is intended to
reflect the separate performance of the TCI Ventures Group, which is comprised
of TCI's principal international assets and businesses and substantially all of
TCI's non-cable and non-programming assets. The TCI Group Stock is intended to
reflect the separate performance of TCI and its subsidiaries and assets not
attributed to Liberty Media Group or TCI Ventures Group. TCI Group is comprised
primarily of TCI's domestic cable and communications business. For additional
information concerning targeted stock, see note 1 to the accompanying
consolidated financial statements of TCI.

         Proposed Merger

         TCI and AT&T have agreed to a Merger pursuant to, and subject to the
terms and conditions set forth in, the Merger Agreement dated as of June 23,
1998. In the Merger, TCI will become a wholly-owned subsidiary of AT&T. In
addition, TCI has announced its intention, subject to stockholder approval, to
combine the assets and businesses of Liberty Media Group and TCI Ventures Group.
Consummation of the Merger is subject to the satisfaction or waiver of customary
conditions to closing, including but not limited to, the separate approvals of
the stockholders of AT&T and TCI, receipt of all necessary governmental consents
and approvals, and effectiveness of the registration statement registering the
AT&T Common Stock and AT&T Liberty Tracking Stock to be issued to TCI
stockholders in the Merger. As a result, there can be no assurance that the
Merger will be consummated or, if the Merger is consummated, as to the date of
such consummation. For additional information concerning the Merger, see note 2
to the accompanying consolidated financial statements of TCI.




                                     I-147
<PAGE>   149



         Magness Settlement

         On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
shares of TCI Group Series A Stock for the same number of shares of TCI Group
Series B Stock owned by the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI. Subsequent to the
Exchange, the Magness Estate sold (the "Sale") the shares of TCI Group Series A
Stock received in the Exchange, together with approximately 1.5 million shares
of TCI Group Series A Stock that the Magness Estate previously owned
(collectively, the "Option Shares"), to two investment banking firms (the
"Investment Bankers") for approximately $530 million (the "Sale Price").
Subsequent to the Sale, TCI entered into an agreement with the Investment
Bankers whereby TCI has the option, but not the obligation, to purchase the
Option Shares at any time within two years (the "Option Period") from the date
of the Sale. During the Option Period, the Company and the Investment Bankers
are to settle quarterly any increase or decrease in the market value of the
Option Shares. If the market value of the Option Shares exceeds the Investment
Bankers' cost, Option Shares with a fair value equal to the difference between
the market value and cost will be segregated from the other Option Shares in an
account at the Investment Bankers. If the market value of the Option Shares is
less than the Investment Bankers' cost, the Company, at its option, will settle
such difference with shares of TCI Group Series A Stock or TCI Ventures Group
Series A Stock or, subject to certain conditions, with cash or letters of
credit. In addition, the Company is required to pay the Investment Bankers a
quarterly fee equal to the London Interbank Offered Rate ("LIBOR") plus 1% on
the Sale Price, as adjusted for payments made by the Company pursuant to any
quarterly settlement with the Investment Bankers. Due to the Company's ability
to settle quarterly price fluctuations and fees with shares of TCI Group Series
A Stock or TCI Ventures Group Series A Stock, the Company records all amounts
received or paid under this arrangement as increases or decreases, respectively,
to equity. During the fourth quarter of 1997, the Company repurchased 4,000,000
shares of TCI Group Series A Stock from one of the Investment Bankers for an
aggregate cash purchase price of $66 million. Additionally, as a result of the
Exchange Offers and certain open market transactions, the Investment Bankers
disposed of 4,210,308 shares of TCI Group Series A Stock and acquired 23,407,118
shares of TCI Ventures Group Series A Stock during the last half of 1997. As a
result of the foregoing transactions and certain transactions related to the
January 5, 1998 settlement of litigation involving the Magness Estate, as
described below, the Option Shares were comprised of 6,201,042 shares of TCI
Group Series A Stock and 11,740,610 shares of TCI Ventures Group Series A Stock
at June 30, 1998. At June 30, 1998, the market value of the Option Shares
exceeded the Investment Bankers' cost by $275 million. The costs and benefits
associated with the Option Shares are attributed to TCI Group.

         In connection with the Exchange and Sale, Dr. John C. Malone, TCI's
Chairman and Chief Executive Officer, agreed to forgo the exercise of certain
option rights and in consideration, TCI granted to Dr. Malone the right (the
"Malone Right") to acquire 30,545,864 shares of TCI Group Series B Stock.

         On January 5, 1998, the Company announced that a settlement (the
"Magness Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Magness Estate.

         In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that 10,201,041 shares of TCI Group Series A Stock and
11,666,506 shares of TCI Ventures Group Series A Stock were returned to TCI as
authorized but unissued shares, and the Magness Estate paid $11 million to TCI
representing a reimbursement of the Exchange fees incurred by TCI from June 16,
1997 through February 9, 1998 with respect to such returned shares. TCI then
issued to the Magness Estate 10,017,145 shares of TCI Group Series B Stock and
12,034,298 shares of TCI Ventures Series B Stock.



                                     I-148
<PAGE>   150



         On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr. Malone and
Dr. Malone's wife (together with Dr. Malone, the "Malones"), under which the
Malones granted to TCI the right to acquire the Malones' high-voting shares,
currently consisting of an aggregate of approximately 60 million shares of
Series B Stock (the "High-Voting Shares"), upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal amount) to
third persons. In either such event, TCI has the right to acquire the shares at
a maximum price equal to the then relevant market price of shares of
"low-voting" Series A Stock plus a ten percent premium. The Malones also agreed
that if TCI were ever to be sold to another entity, then the maximum premium
that the Malones would receive on their High-Voting Shares would be no greater
than a ten percent premium over the price paid for the relevant shares of Series
A Stock. TCI paid $150 million to the Malones for agreeing to the terms of the
Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain cases, on
behalf of the Estate of Betsy Magness (the first wife of Bob Magness) and the
Magness Estate (collectively, the "Magness Family") also entered into a call
agreement with TCI (with substantially the same terms as the one entered into by
the Malones, including a call on the shares owned by the Magness Family upon Dr.
Malone's death) (the "Magness Call Agreement") on the Magness Family's aggregate
of approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI for entering into
the Magness Call Agreement.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") was reflected as
a $274 million reduction of additional paid-in capital. The Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement. Accordingly, $134 million, $64 million
and $76 million of the Call Payments were allocated to TCI Group, Liberty Media
Group and TCI Ventures Group, respectively.

         Additionally, on February 9, 1998, the Magness Family entered into a
shareholders' agreement (the "Shareholders' Agreement") with the Malones and TCI
under which (i) the Magness Family and the Malones agree to consult with each
other in connection with matters to be brought to the vote of TCI's
shareholders, subject to the proviso that if they cannot mutually agree on how
to vote the shares, Dr. Malone has an irrevocable proxy to vote the High-Voting
Shares owned by the Magness Family, (ii) the Magness Family may designate a
nominee for the Board and Dr. Malone has agreed to vote his High Voting Shares
for such nominee and (iii) certain "tag along rights" have been created in favor
of the Magness Family and certain "drag along rights" have been created in favor
of the Malones. In addition, the Malone Right granted by TCI to Dr. Malone to
acquire 30,545,864 shares of TCI Group Series B Stock was reduced to an option
to acquire 14,511,570 shares of TCI Group Series B Stock. Pursuant to the terms
of the Shareholders' Agreement, the Magness Family has the right to participate
in the reduced Malone Right on a proportionate basis with respect to 12,406,238
shares of the 14,511,570 shares subject to the Malone Right. On June 24, 1998,
Dr. Malone delivered notice to TCI Group exercising his right to purchase up to
14,511,570 shares of TCI Group Series B Stock at a per share price of $35.5875
pursuant to the Malone Right. In addition, a representative of the Magness
Family has advised Dr. Malone that the Magness Family will participate in such
purchase up to the Magness Family's proportionate share. Subject to final
verification and agreement of each party's proportionate share, upon the closing
of the exercise of the Malone Right, Dr. Malone would acquire 8,718,770 and the
Magness Family would acquire 5,792,800 of the shares of TCI Group Series B Stock
that are subject to the Malone Right. Such exercises are subject to any required
regulatory approvals.



                                     I-149
<PAGE>   151



         Year 2000

         During the six months ended June 30, 1998, the Company continued its
enterprise-wide comprehensive efforts to review and correct computer systems,
equipment and related software to ensure they properly recognize, process and
store business information. The computer systems, equipment and software being
evaluated include systems which are integral to the distribution of the
Company's products and services, systems that support operations of the Company
and protect its assets, and all internal use software. The Company is utilizing
both internal and external resources, including the establishment of a year 2000
enterprise program management office accountable to the Company's executive
management, to identify and remediate or replace systems for year 2000
readiness.

         During the six months ended June 30, 1998, the Company began the
process of testing and replacing or remediating critical components of its cable
systems' headend equipment. Although no assurance can be given, the Company
expects to conclude such testing by December 1998 with replacement or
remediation completed by the end of the first quarter of 1999. Also, the Company
began the process of remediating systems that control the commercial advertising
in its cable operations. Although no assurance can be given, those remediation
efforts should be complete by mid-1999. The Company continued to assess
potential year 2000 issues of its affiliated companies and provided its
affiliates with remediation information on software products and systems. The
Company's business and financial systems and software which will continue to be
utilized by the Company beyond the year 1999 will be capable of recognizing the
year 2000 and therefore should not require material remediation or replacement.

         Significant third party vendors whose systems are critical to the
Company's cable operations have been identified and surveyed and confirmations
from such parties have been received indicating that they are either year 2000
ready or have plans in place to become ready. During the six months ended June
30, 1998, the Company completed an independent assessment of a key financial
application externally managed by a third party vendor and determined that such
vendor's systems and software should be compliant by the end of 1998. Also, the
Company has developed and initiated a plan with key suppliers who provide
systems which are integral to the distribution of the Company's products and
services to upgrade or replace non-year 2000 compliant systems on a
product-by-product and site-by-site basis by mid-1999.

         Management of the Company intends to have further communication with
primary vendors identified as having systems that are not year 2000 compliant to
assess those vendors' plans for remediating their own year 2000 issues and to
assess the impact on the Company if such vendors fail to remediate their year
2000 issues. The Company continues to evaluate the level of validation it will
require of third parties to ensure their year 2000 readiness.

         Management of the Company has not yet determined the full cost
associated with its year 2000 readiness efforts and the related potential impact
on the Company's financial position, results of operations or cash flows but has
identified certain cost elements that, in the aggregate, are not expected to be
less than $63 million, which includes $3 million of program management expenses
incurred during the six months ended June 30, 1998. Although there can be no
assurance, the Company anticipates that the costs ultimately required to be paid
to ensure the Company's year 2000 readiness will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
However, there can be no assurance that the Company's systems or the systems of
other companies on which the Company relies will be converted in time or that
any such failure to convert by the Company or other companies will not have a
material adverse effect on its financial position, results of operations or cash
flows.




                                     I-150
<PAGE>   152



         MATERIAL CHANGES IN RESULTS OF OPERATIONS

         GENERAL

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

<TABLE>
<CAPTION>
                                                         Three months ended                 Six months ended
                                                              June 30,                          June 30,
                                                   ----------------------------    --------------------------------
                                                        1998            1997             1998             1997
                                                    ------------   ------------    -------------    ---------------
                                                                         amounts in millions
<S>                                                 <C>                   <C>              <C>                <C>  
Revenue                                             $      1,813          1,882            3,685              3,703

Operating, selling, general and administrative
    expenses                                               1,147          1,166            2,313              2,249
Stock compensation                                           183             56              412                 71
Cost of distribution agreements                               --             --               83                 --
Depreciation and amortization                                420            407              843                781
                                                    ------------   ------------    -------------    ---------------

     Operating income                                         63            253               34                602

Interest expense                                            (251)          (294)            (536)              (583)
Share of losses of affiliates, net                          (351)          (182)            (589)              (338)
Minority interests in earnings of consolidated
    subsidiaries                                             (43)           (56)             (29)               (94)
Gain on dispositions of assets                               237             64            1,338                 83
Other, net                                                   (23)             3              (28)                22
                                                    ------------   ------------    -------------    ---------------
                                                            (431)          (465)             156               (910)
                                                    ------------   ------------    -------------    ---------------
    Earnings (loss) before income taxes                     (368)          (212)             190               (308)
Income tax benefit (expense)                                  75             58             (165)                96
                                                    ------------   ------------    -------------    ---------------

     Net earnings (loss)                            $       (293)          (154)              25               (212)
                                                    ============   ============    =============    ===============
</TABLE>



         The operating results of each of the TCI Group, Liberty Media Group and
TCI Ventures Group are separately discussed below.




                                     I-151
<PAGE>   153


         TCI GROUP

         TCI Group operates principally in the domestic cable and communications
industry. The table below sets forth, for the periods presented, the percentage
relationship that certain items bear to revenue. This summary provides trend
data relating to the normal recurring operations of TCI Group. Other items of
significance are discussed under separate captions below.

<TABLE>
<CAPTION>
                                            Three months ended June 30,                     Six months ended June 30,
                                ----------------------------------------------    ----------------------------------------------
                                         1998                     1997 (a)                1998                    1997 (a)
                                ---------------------    ---------------------    ---------------------    ---------------------
                                                                dollar amounts in millions
<S>                              <C>         <C>            <C>       <C>            <C>       <C>            <C>       <C>     
Revenue                              100%    $  1,504         100%    $  1,606         100%    $  3,081         100%    $  3,161

Operating expenses                   (35)        (527)        (37)        (604)        (36)      (1,114)        (37)      (1,179)
Selling, general and
    administrative expenses          (23)        (350)        (21)        (339)        (22)        (684)        (21)        (655)
Stock compensation                    (5)         (77)         (2)         (36)         (5)        (147)         (1)         (38)
Depreciation and amortization        (25)        (373)        (23)        (362)        (24)        (749)        (22)        (694)
                                --------     --------    --------     --------    --------     --------    --------     --------

      Operating income                12%    $    177          17%    $    265          13%    $    387          19%    $    595
                                ========     ========    ========     ========    ========     ========    ========     ========
</TABLE>

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

(a)      Restated - see note 1 to the accompanying combined financial statements
         of TCI Group.

         The operation of TCI Group's cable television systems is regulated at
the federal, state and local levels. The Cable Television Consumer Protection
and Competition Act of 1992 and the Telecommunications Act of 1996 (the "Cable
Acts") established rules under which Regulated Services are regulated if a
complaint is filed by a customer or if the appropriate franchise authority is
certified by the Federal Communications Commission to regulate rates. At June
30, 1998, approximately 67% of TCI Group's basic customers were served by cable
television systems that were subject to such rate regulation.

         During the six months ended June 30, 1998, 74% of TCI Group's revenue
was derived from Regulated Services. As noted above, any increases in rates
charged for Regulated Services are regulated by the Cable Acts. Moreover,
competitive factors may limit TCI Group's ability to increase its service rates.

         During the first six months of 1998, TCI Group consummated the 1998
Contribution Transactions. Since January 1, 1997, TCI Group has also consummated
certain other acquisitions and dispositions. Such transactions affect the
comparability of TCI Group's results of operations for the three and six months
ended June 30, 1998 and 1997. For additional information see note 7 to the
accompanying combined financial statements of TCI Group.

         TCI Group's revenue decreased $102 million or 6% for the three months
ended June 30, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the 1998 Contribution Transactions and
other dispositions, revenue increased 5%. Revenue from TCI Group's customers
accounted for 2% of such increase in revenue, primarily as a result of a 6%
increase in basic revenue that was partially offset by a 10% decrease in premium
revenue. TCI Group experienced a 5% increase in its average basic rate, an
increase in the number of average basic customers of 1%, a 5% decrease in its
average premium rate and a 5% decrease in the number of average premium
subscriptions. Additionally, the December 31, 1997 termination of an agreement
pursuant to which TCI Group provided fulfillment services to a third party
resulted in a 1% decrease in revenue. Advertising sales and other revenue
accounted for the remaining 4% increase in revenue.



                                     I-152
<PAGE>   154


         TCI Group's revenue decreased $80 million or 3% for the six months
ended June 30, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the 1998 Contribution Transactions and
other dispositions, revenue increased 3%. Revenue from TCI Group's customers
accounted for 1% of such increase in revenue, primarily as a result of a 5%
increase in basic revenue that was partially offset by a 12% decrease in premium
revenue. TCI Group experienced a 5% increase in its average basic rate, a
decrease in the number of average basic customers of less than 1%, a 3% decrease
in its average premium rate and a 9% decrease in the number of average premium
subscriptions. Additionally, the December 31, 1997 termination of an agreement
pursuant to which TCI Group provided fulfillment services to a third party
resulted in a 1% decrease in revenue. Advertising sales and other revenue
accounted for the remaining 3% increase in revenue.

         Operating expenses decreased $77 million or 13% for the three months
ended June 30, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the 1998 Contribution Transactions and
other dispositions, such expenses decreased 2%, as higher programming and labor
costs were more than offset by reductions attributable to higher capitalized
labor and overhead resulting from increased installation and construction
activities.

         Operating expenses decreased $65 million or 6% for the six months ended
June 30, 1998, as compared to the corresponding prior year period. Exclusive of
the effects of acquisitions, the 1998 Contribution Transactions and other
dispositions, such expenses increased 9%. Such increase relates primarily to
higher programming and labor costs, which were partially offset by reductions
attributable to higher capitalized labor and overhead resulting from increased
installation and construction activities.

         TCI Group cannot determine whether and to what extent increases in the
cost of programming will affect its future operating costs. However, due to TCI
Group's obligations under the EMG Affiliation Agreement with Encore Media Group,
it is anticipated that TCI Group's programming costs with respect to the
"STARZ!" and "Encore" premium services will increase in 1998 and future periods.
See note 12 to the accompanying combined financial statements of TCI Group.

         Selling, general and administrative expenses increased $11 million or
3% for the three months ended June 30, 1998, as compared to the corresponding
prior year period. Exclusive of the effects of acquisitions, the 1998
Contribution Transactions and other dispositions, such expenses increased 20%.
Such increase was due primarily to general increases in expenses relating to the
launch of digital products and other initiatives, increased data processing
costs, lower launch and other incentives from programming suppliers and other
individually insignificant increases in general and administrative expenses in
1998.

         Selling, general and administrative expenses increased $29 million or
4% for the six months ended June 30, 1998, as compared to the corresponding
prior year period. Exclusive of the effects of acquisitions, the 1998
Contribution Transactions and other dispositions, such expenses increased 15%.
Such increase was due primarily to general increases in expenses relating to the
launch of digital products and other initiatives, increased data processing
costs and other individually insignificant increases in general and
administrative expenses in 1998.

         TCI Group records stock compensation relating to restricted stock
awards, options and/or stock appreciation rights granted by TCI to certain TCI
Group employees and directors who are involved with TCI Group. Estimated
compensation relating to stock appreciation rights has been recorded through
June 30, 1998, and is subject to future adjustment based upon vesting and market
values and, ultimately, on the final determination of market values when such
rights are exercised.




                                     I-153
<PAGE>   155



         Depreciation and amortization expense increased $11 million or 3% and
$55 million or 8% for the three and six months ended June 30, 1998,
respectively, as compared to the corresponding prior year periods. Such
increases represent the net effects of decreases due to the 1998 Contribution
Transactions and other dispositions that were more than offset by increases
attributable to acquisitions and capital expenditures.

         Other Income and Expenses

         TCI Group's interest expense decreased $55 million or 20% and $55
million or 10% for the three and six months ended June 30, 1998, respectively,
as compared to the corresponding prior year periods. Such decreases are
primarily the result of debt reductions attributable to the 1998 Contribution
Transactions.

         TCI Group's share of CSC's losses, including amortization of the
difference between the recorded value of TCI Group's investment in CSC and TCI
Group's proportionate share of CSC's net deficiency, aggregated $48 million and
$80 million for the three months ended June 30, 1998 and for the period from
March 4, 1998 through June 30, 1998, respectively. As described in note 5 to the
accompanying combined financial statements of TCI Group, TCI Group acquired an
equity interest in CSC on March 4, 1998.

         TCI Group's investments in affiliates other than CSC are comprised of
limited partnerships and other entities that are primarily engaged in the
domestic cable television business. TCI Group's share of net earnings (losses)
of other affiliates aggregated $(5 million) and $47 million for the three and
six months ended June 30, 1998, respectively, as compared to $(17 million) and
$(34 million) for the corresponding prior year periods. A significant portion of
the change from the six months ended June 30, 1997 to the six months ended June
30, 1998 is attributable to TCI Group's share of a 1998 gain recognized by
InterMedia Partners on the sale of certain cable television systems. Such gain
was recognized by InterMedia Partners prior to the time that TCI Group began to
consolidate InterMedia Partners. See note 6 to the accompanying combined
financial statements of TCI Group.

         During the six months ended June 30, 1998 and 1997, TCI Group purchased
notes payable which had aggregate principle balances of $299 million and $190
million, respectively. In connection with such purchases, TCI Group recognized
losses on early extinguishment of debt of $38 million and $11 million for the
six months ended June 30, 1998 and 1997, respectively. Such losses relate to
prepayment penalties and the retirement of deferred loan costs.

         Minority interests in earnings of attributed subsidiaries aggregated
$49 million and $95 million for the three and six months ended June 30, 1998,
respectively, as compared to $47 million and $81 million for the corresponding
prior year periods. The majority of such amounts represent the accrual of
dividends on the Trust Preferred Securities issued in 1997 and 1996 and the
accrual of dividends on certain preferred securities issued in 1996 by a TCI
subsidiary that is attributed to TCI Group. See note 10 to the accompanying
combined financial statements of TCI Group.

         Gain on disposition of assets of $541 million for the six months ended
June 30, 1998 relates primarily to the March 4, 1998 contribution of cable
television systems by TCI Group to CSC. Such gain represents the excess of the
$1,161 million fair value of CSC Class A common shares received by TCI Group
over the historical cost of the net assets transferred by TCI Group to CSC. See
note 5 to the accompanying combined financial statements of TCI Group.





                                     I-154
<PAGE>   156

         Net Earnings

         As a result of the above-described fluctuations in the Company's
results of operations, (i) TCI Group's net loss (before preferred stock dividend
requirements) of $142 million for the three months ended June 30, 1998 changed
by $94 million, as compared to TCI Group's net loss (before loss of TCI Ventures
Group and preferred stock dividend requirements) of $48 million for the three
months ended June 30, 1997, and (ii) TCI Group's net earnings (before preferred
stock dividend requirements) of $96 million for the six months ended June 30,
1998 changed by $141 million, as compared to TCI Group's net loss (before loss
of TCI Ventures Group and preferred stock dividend requirements) of $45 million
for the six months ended June 30, 1997.

         LIBERTY MEDIA GROUP

         Liberty Media Group's assets include businesses which provide
programming services including production, acquisition and distribution through
all available formats and media of branded entertainment, educational and
informational programming and software, including multimedia products. Liberty
Media Group's assets also include businesses engaged in electronic retailing,
direct marketing, advertising sales relating to programming services,
infomercials and transaction processing. A significant portion of Liberty Media
Group's operations are conducted through corporations and partnerships in which
Liberty Media Group holds a 20%-50% ownership interest. As Liberty Media Group
generally accounts for such ownership interests using the equity method of
accounting, the financial condition and results of operations of such entities
are not reflected on a combined basis within Liberty Media Group's combined
financial statements.

         On June 24, 1997 Liberty Media Group granted Time Warner the Southern
Option. Liberty Media Group received 6.4 million shares of TW Exchange Stock
valued at $306 million in consideration for the grant. In September 1997, Time
Warner exercised the Southern Option. Pursuant to the Southern Option, Time
Warner acquired the Southern Business, effective January 1, 1998, for $213
million, which was paid in cash, together with the assumption of certain
liabilities on January 2, 1998. Effective January 1, 1998, the Southern Business
is no longer included in the combined financial statements of Liberty Media
Group.

         Subsequent to June 30, 1997, Liberty Media Group and TCI Group entered
into a series of transactions pursuant to which the businesses of "Encore," a
movie premium programming service, and "STARZ!," a first-run movie premium
programming service, were contributed to Encore Media Group, a subsidiary of TCI
that is attributed to the Liberty Media Group. Upon the July 1997 formation of
Encore Media Group, the operations of STARZ! were included in the combined
financial statements of Liberty Media Group.

         Simultaneously with the July 1997 DMX Merger, substantially all of
TCI's controlling ownership interest in TCI Music was transferred to Liberty
Media Group in exchange for the Music Note and the assumption of the obligation
under the Rights Agreement. Accordingly, TCI Music has been included in the
combined financial statements of Liberty Media Group since the date of the DMX
Merger.

         Effective November 1, 1997, Liberty Media Group acquired the remaining
50% interest in International Cable Channels Partnership, Ltd. ("ICCP") for
$1.75 million. Upon consummation of such transaction the operations of ICCP were
included in the combined financial statements of Liberty Media Group.





                                     I-155
<PAGE>   157

         Summary of Operations

         Liberty Media Group's programming services include 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"). The
table below sets forth, for the periods indicated, certain financial information
and the percentage relationship that certain items bear to revenue. This summary
provides trend data related to the normal recurring operations of Liberty Media
Group. Corporate expenses have been reflected separately in the following table.
Liberty Media Group holds significant equity investments, the results of which
are not a component of operating income, but are discussed below under "Other
Income and Expense." Other items of significance are discussed separately below.

<TABLE>
<CAPTION>
                                                                          Three months ended June 30,
                                                            ------------------------------------------------------
                                                                       1998                         1997
                                                            ---------------------------  -------------------------
                                                                            dollar amounts in thousands
<S>                                                           <C>        <C>             <C>        <C>          
Entertainment and Information
Programming Services

    Revenue                                                     100%     $      165,025    100%     $      59,672
    Operating, selling, general and administrative               88%           (145,987)    76%           (45,245)
    Stock compensation                                            4%             (6,239)    --                 --
    Depreciation and amortization                                 5%             (8,090)     1%              (747)
                                                             ------      --------------  -----      -------------

       Operating income                                           3%     $        4,709     23%     $      13,680
                                                             ======      ==============  =====      =============

Corporate expenses

    Selling, general and administrative                                  $       (2,579)            $      (1,780)
    Stock compensation                                                          (56,067)                  (14,466)
    Depreciation and amortization                                                   (29)                      (29)
                                                                         --------------             -------------

       Operating loss                                                    $      (58,675)            $     (16,275)
                                                                         ==============             =============
</TABLE>


<TABLE>
<CAPTION>
                                                                             Six months ended June 30,
                                                            ------------------------------------------------------
                                                                       1998                         1997
                                                            ---------------------------  -------------------------
                                                                            dollar amounts in thousands
<S>                                                           <C>        <C>             <C>        <C>          
Entertainment and Information
Programming Services

    Revenue                                                     100%     $      321,695    100%     $     119,031
    Operating, selling, general and administrative               85%           (272,420)    66%           (78,295)
    Stock compensation                                            4%            (14,030)     4%            (4,576)
    Depreciation and amortization                                 5%            (15,847)     1%            (1,498)
                                                             ------      --------------  -----      -------------

       Operating income                                           6%     $       19,398     29%     $      34,662
                                                             ======      ==============  =====      =============

Corporate expenses

    Selling, general and administrative                                  $       (5,309)            $      (2,799)
    Stock compensation                                                         (124,406)                  (15,464)
    Depreciation and amortization                                                   (60)                      (57)
                                                                         --------------             -------------

       Operating loss                                                    $     (129,775)            $     (18,320)
                                                                         ==============             =============
</TABLE>




                                     I-156
<PAGE>   158



         Entertainment and Information Programming Services

         As discussed above, certain acquisitions and dispositions have affected
the comparability of Liberty Media Group's operating results for the six months
and three months ended June 30, 1998 and 1997. The following table presents
adjustments to remove the effects of such acquisitions and dispositions.

<TABLE>
<CAPTION>
                                                               Three months ended June 30, 1998
                                             ---------------------------------------------------------------
                                                                          Effect of
                                                                        acquisitions
                                                  Historical           and dispositions       As adjusted
                                             -------------------   ---------------------    ----------------
                                                                     amounts in thousands
<S>                                          <C>                       <C>                  <C>   
Revenue                                      $           165,025                 (95,933)             69,092

Operating, selling, general and
     administrative expenses                            (145,987)                105,247             (40,740)

Stock compensation                                        (6,239)                    199              (6,040)

Depreciation and amortization                             (8,090)                  6,372              (1,718)
                                             -------------------   ---------------------    ----------------

     Operating income                        $             4,709                  15,885              20,594
                                             ===================   =====================    ================
</TABLE>


<TABLE>
<CAPTION>
                                                               Three months ended June 30, 1997
                                             -----------------------------------------------------------------
                                                                        Effect of
                                                                      acquisitions
                                                  Historical         and dispositions         As adjusted
                                             -------------------   --------------------    -------------------
                                                                     amounts in thousands
<S>                                          <C>                   <C>                     <C>   
Revenue                                      $            59,672                 (7,853)                51,819

Operating, selling, general and
     administrative expenses                             (45,245)                 1,788                (43,457)

Depreciation and amortization                               (747)                   136                   (611)
                                             -------------------   --------------------    -------------------

     Operating income                        $            13,680                 (5,929)                 7,751
                                             ===================   ====================    ===================
</TABLE>




                                     I-157
<PAGE>   159


<TABLE>
<CAPTION>
                                                                Six months ended June 30, 1998
                                             ----------------------------------------------------------------
                                                                           Effect of
                                                                         acquisitions
                                                  Historical           and dispositions        As adjusted
                                             -------------------   ---------------------     ----------------
                                                                     amounts in thousands
<S>                                          <C>                   <C>                       <C>    
Revenue                                      $           321,695                (185,289)             136,406

Operating, selling, general and
     administrative expenses                            (272,420)                195,954              (76,466)

Stock compensation                                       (14,030)                    241              (13,789)

Depreciation and amortization                            (15,847)                 12,453               (3,394)
                                             -------------------   ---------------------     ----------------

     Operating income                        $            19,398                  23,359               42,757
                                             ===================   =====================     ================
</TABLE>


<TABLE>
<CAPTION>
                                                                Six months ended June 30, 1997
                                             ----------------------------------------------------------------
                                                                          Effect of
                                                                        acquisitions
                                                  Historical           and dispositions        As adjusted
                                             -------------------   --------------------      ----------------
                                                                   amounts in thousands
<S>                                          <C>                   <C>                       <C>    
Revenue                                      $           119,031                (15,522)              103,509

Operating, selling, general and
     administrative expenses                             (78,295)                 3,545               (74,750)

Stock compensation                                        (4,576)                    --                (4,576)

Depreciation and amortization                             (1,498)                   271                (1,227)
                                             -------------------   --------------------      ----------------

     Operating income                        $            34,662                (11,706)               22,956
                                             ===================   ====================      ================
</TABLE>

         Excluding the effect of acquisitions and dispositions, revenue from
Entertainment and Information Programming Services increased 33% or $17 million
for the quarter ended June 30, 1998, as compared to the quarter ended June 30,
1997. The increase is primarily attributable to higher revenue from the
distribution of Encore services to cable operators, including TCI Group. In
connection with the formation of Encore Media Group, TCI Group entered into the
EMG Affiliation Agreement pursuant to which TCI Group pays monthly fixed amounts
in exchange for unlimited access to all of the existing Encore and STARZ!
services. During the three months ended June 30, 1998, revenue from Encore
services distributed to TCI Group increased due to the EMG Affiliation
Agreement, when compared to the three months ended June 30, 1997. Additionally,
Netlink had increased revenue during the second quarter of 1998 compared to the
same period in 1997 of approximately $2 million, primarily due to increased
rates as a result of increased copyright fees.

         Operating, selling, general and administrative expenses from
Entertainment and Information Programming Services, as adjusted for the effect
of acquisitions and dispositions, decreased 6% or $3 million for the quarter
ended June 30, 1998 compared to the quarter ended June 30, 1997. Operating,
selling, general and administrative expenses related to Encore services
decreased by $5 million during the second quarter of 1998 compared to the second
quarter of 1997 primarily due to decreased national consumer marketing during
1998. Such decrease was offset by increased operating, selling,
general and administrative expenses at Netlink of approximately $2 million which
is primarily attributable to an increase in the copyright fee rate from
approximately $.06 per subscriber to $.27 per subscriber.



                                     I-158
<PAGE>   160



         Excluding the effect of acquisitions and dispositions, revenue from
Entertainment and Information Programming Services increased 32% or $33 million
during the six months ended June 30, 1998 compared to the six months ended June
30, 1997. The increase is primarily attributable to higher subscription revenue
from the distribution of Encore services to cable operators, including TCI
Group. Additionally, Netlink had increased revenue during the first six months
of 1998 compared to the same period in 1997 of approximately $4 million
primarily due to increased rates as a result of increased copyright fees.

         Operating, selling, general and administrative expenses from
Entertainment and Information Programming Services, as adjusted for the effect
of acquisitions and dispositions, increased 2% or $2 million for the six months
ended June 30, 1998 compared to the same period of 1997. Decreased marketing
support and national consumer marketing related to Encore services of $6 million
was offset by increased programming costs of $2 million for Encore services and
increased copyright fees at Netlink of $5 million for the six months ended June
30, 1998 compared to 1997. Additionally, Liberty Media Group incurred start up
costs of approximately $1 million during the six months ended June 30, 1998 for
a new package of Spanish language channels.

         The increase in stock compensation of Entertainment and Information
Programming Services for the quarter and six months ended June 30, 1998 as
compared to the corresponding periods in 1997 is due to an increase in Encore
Media Group's stock compensation of $6 million and $9 million, respectively. See
note 10 to the accompanying combined financial statements of Liberty Media
Group.

         Revenue from TCI Music contributed $21 million and $40 million to
revenue from Entertainment and Information Programming Services for the quarter
and six months ended June 30, 1998, respectively. Additionally, revenue from
STARZ! contributed $72 million and $140 million and ICCP contributed $3 million
and $5 million to revenue for three months and six months ended June 30, 1998,
respectively. As discussed above, operations for TCI Music, STARZ! and ICCP were
not included in the combined financial results of Liberty Media Group for the
six months ended June 30, 1997. Operating, selling, general and administrative
expenses for Entertainment and Information Programming Services for the quarter
and six months ended June 30, 1998 included $21 million and $38 million,
respectively, from the operations of TCI Music, $81 million and $151 million,
respectively, from the operations of STARZ! and $4 million and $7 million,
respectively, from the operations of ICCP.

         Corporate Expenses

         The amount of expense associated with stock compensation is based on
the vesting of the related stock options and stock appreciation rights and the
market price of the underlying common stock as of the date of the financial
statements. The expense is subject to future adjustment based on vesting and
market price fluctuations and, ultimately, on the final determination of market
value when the rights are exercised. See note 9 to the accompanying combined
financial statements of Liberty Media Group.

         Other Income and Expense

         Interest expense was $20 million and less than $1 million during the
six months ended June 30, 1998 and 1997, respectively. Increased interest
expense is directly related to increased outstanding debt at Encore Media Group,
TCI Music, CCC and LMC Capital as well as an increase in interest-bearing
amounts due to TCI Group during the six months ended June 30, 1998 compared to
the six months ended June 30, 1997.



                                     I-159
<PAGE>   161



         Liberty Media Group's share of losses of affiliates for the quarter
ended June 30, 1998 was $49 million compared to earnings of $6 million for the
second quarter of 1997. Liberty Media Group's share of losses of affiliates was
$71 million for the six months ended June 30, 1998 compared to earnings of $13
million for the corresponding period in 1997.

         Liberty Media Group's share of earnings of affiliates attributable to
its interest in Discovery decreased $9 million and $18 million during the
quarter and six months ended June 30, 1998 compared to the quarter and six
months ended June 30, 1997, respectively. While Discovery's revenue increased by
25% and 24% during the first quarter and six months of 1998, respectively, its
earnings before interest, taxes, depreciation and amortization decreased by 32%
and 23%, principally because of costs associated with launching new digital
services, continuing investments in the retail business as well as new joint
ventures such as YCTV and the joint venture with the British Broadcasting
Corporation. Interest expense for Discovery was 77% and 123% higher in the
second quarter and six months of 1998, respectively, compared to the same
periods in 1997 mainly due to increased debt caused by significant cash payments
made to distributors in support of the launch of "Animal Planet" and its new
digital services.

         Liberty Media Group's share of earnings of affiliates attributable to
its interest in QVC increased approximately $4 million and $8 million during the
quarter and six months ended June 30, 1998, respectively, compared to the same
period in 1997. QVC's revenue increased by 13% for each of the quarter and six
months ended June 30, 1998, contributing to a 23% and 22% increase in earnings
before interest, taxes, depreciation and amortization over the corresponding
periods in 1997. In the aggregate, interest expense, taxes, depreciation and
amortization for QVC increased by 11% for each of the second quarter and first
six months of 1998 resulting in a 75% and 68% increase in net income for QVC for
the quarter and six months ended June 30, 1998, respectively, compared to the
quarter and six months ended June 30, 1997.

         The share of losses of Fox Sports was responsible for approximately $41
million and $77 million of the decrease in share of earnings of affiliates for
the second quarter and first six months of 1997 to 1998, respectively. Prior to
the first quarter of 1998, Liberty Media Group had no obligation, nor intention,
to fund Fox Sports. During 1998, Liberty Media Group made the determination to
provide funding to Fox Sports based on specific transactions consummated by Fox
Sports. Consequently, Liberty Media Group's share of losses of Fox Sports for
the six months ended June 30, 1998 includes previously unrecognized losses of
Fox Sports of approximately $64 million. Losses for Fox Sports were not
recognized in prior periods due to the fact that Liberty Media Group's
investment in Fox Sports was less than zero.

         During 1997, Liberty Media Group granted Time Warner the Southern
Option and received 6.4 million shares of Time Warner Exchange Stock valued at
$306 million in consideration for the grant. Such amount had been reflected as a
deferred option premium in the accompanying combined financial statements of
Liberty Media Group. Pursuant to the Southern Option, Time Warner acquired the
Southern Business, effective January 1, 1998 for $213 million in cash. Liberty
Media Group recognized a $515 million pre-tax gain in connection with these
transactions in the first quarter of 1998. See note 6 to the accompanying
combined financial statements of Liberty Media Group.





                                     I-160
<PAGE>   162

         Effective February 1, 1998, Turner-Vision, Inc. ("Turner-Vision")
contributed the assets, obligations and operations of its retail C-band
Satellite business to Superstar/Netlink in exchange for an approximate 20%
interest in Superstar/Netlink. As a result of this transaction, Liberty Media
Group's ownership interest in Superstar/Netlink decreased from 50% to
approximately 40%. In connection with such dilution, Liberty Media Group
recognized a $23 million gain (before deducting deferred income tax expense of
$9 million). See note 5 to the accompanying combined financial statements of
Liberty Media Group.

         TCI VENTURES GROUP

         The following table sets forth certain financial information for the
TCI Ventures Group and the businesses attributed to it during the six months
ended June 30, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                        Six months ended June 30,
                                                   --------------------------------------------------------------
                                                               1998                                1997
                                                   ------------------------------      --------------------------
                                                                      dollar amounts in thousands
<S>                                                <C>                    <C>          <C>                <C>
         Revenue:
             UVSG                                  $       289,545             66%     $      250,977          50%
             NDTC (1)                                       44,275             10              46,881           9
             ETC                                            41,495             10              45,721           9
             TINTA (2)                                      25,672              6             134,156          27
             WTCI                                           17,390              4              17,468           4
             @Home                                          14,993              3               1,833          --
             Corporate and other                             2,759              1               2,104           1
                                                   ---------------       --------      --------------      ------
                                                   $       436,129            100%     $      499,140         100%
                                                   ===============       ========      ==============      ======

         Operating, selling, general, 
            administrative:
                UVSG                               $       233,093             60%     $      203,588          50%
                NDTC                                        36,237              9              27,090           7
                ETC                                         45,021             11              53,326          13
                TINTA (2)                                   20,296              5              84,368          20
                WTCI                                        11,378              3              11,288           3
                @Home                                       33,830              9              21,628           5
                Corporate and other                         11,384              3               8,572           2
                                                   ---------------       --------      --------------      ------
                                                   $       391,239            100%     $      409,860         100%
                                                   ===============       ========      ==============      ======
         Depreciation, amortization, stock
             compensation and other non-cash
             charges
                UVSG                               $        29,565             11%     $        9,164           9%
                NDTC                                        19,645              7              14,738          15
                ETC                                          2,964              1               3,221           3
                TINTA (2)                                   15,305              5              33,967          35
                WTCI                                         6,442              2               4,360           5
                @Home (3)                                   89,322             32               3,347           3
                Corporate and other (4)                    117,838             42              29,292          30
                                                   ---------------       --------      --------------      ------
                                                   $       281,081            100%     $       98,089         100%
                                                   ===============       ========      ==============      ======
         Operating income (loss):
                UVSG                               $        26,887             (5)     $       38,225         (5)
                NDTC                                       (11,607)                             5,053
                ETC                                         (6,490)                           (10,826)
                TINTA (2)                                   (9,929)                            15,821
                WTCI                                          (430)                             1,820
                @Home (3)                                 (108,159)                           (23,142)
                Corporate and other                       (126,463)                           (35,760)
                                                   ---------------                     --------------
                                                   $      (236,191)                    $       (8,809)
                                                   ===============                     ==============
</TABLE>



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



                                     I-161
<PAGE>   163



         (1)      A significant number of NDTC's major customers are affiliates
                  of TCI, and NDTC derives a substantial portion of its revenue
                  from such affiliated companies. For each of the six months
                  ended June 30, 1998 and 1997 revenue from services provided to
                  TCI and its consolidated subsidiaries accounted for 37% of
                  NDTC's total revenue.

         (2)      As described in note 5 to the accompanying combined financial
                  statements of TCI Ventures Group, effective October 1, 1997,
                  TINTA ceased to consolidate Cablevision and began to account
                  for Cablevision using the equity method of accounting. As a
                  result, effective October 1, 1997, TINTA's results of
                  operations no longer include Cablevision's results of
                  operations on a consolidated basis. The following table sets
                  forth summary information with respect to the operating
                  results of Cablevision that were included in TINTA's results
                  of operations for the six months ended June 30, 1997 (amounts
                  in thousands):



<TABLE>
<S>                                               <C>          
           Revenue                                $     114,208
           Operating costs and expenses                 (67,618)
           Depreciation and amortization                (26,376)
                                                  -------------
           Operating income                       $      20,214
                                                  =============
</TABLE>


         (3)      During the first quarter of 1998, @Home recorded non-cash
                  charges of $83.3 million to operations based on the fair value
                  of 2,705,514 shares of @Home's Series A common stock which
                  were underlying certain warrants which became exercisable
                  during the period. For additional information concerning such
                  warrants, see note 8 to the accompanying combined financial
                  statements of TCI Ventures Group.

         (4)      Amount includes stock compensation expense of $116.3 million
                  and $11.1 million for the six months ended June 30, 1998 and
                  1997, respectively.

         (5)      Not meaningful.

         Revenue

         Revenue decreased by $27.0 million or 11% and $63.0 million or 13%
during the three and six month periods ended June 30, 1998, respectively, as
compared to the corresponding prior year periods. Such decreases are largely
attributable to TINTA's deconsolidation of Cablevision which was partially
offset by increased revenue of UVSG and @Home.

         TINTA revenue decreased by $55.4 million or 81% and $108.5 million or
81% during the three and six month periods ended June 30, 1998, respectively, as
compared to the corresponding prior year period. Such decreases are primarily
attributable to the deconsolidation of Cablevision in 1997.

         Revenue from UVSG increased $21.1 million or 16% and $38.6 million or
15% during the three and six month periods ended June 30, 1998, respectively, as
compared to the corresponding prior year periods. Such increases are due
primarily to Turner Vision's retail C-band operations which were combined with
Superstar/Netlink effective February 1, 1998.





                                     I-162
<PAGE>   164



         Operating Costs and Expenses

         Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges decreased by $10.1 million or 5%
and $18.6 million or 5% during the three and six month periods ended June 30,
1998, respectively, as compared to the corresponding prior year periods. Such
decreases are attributable to the effects of the deconsolidation of Cablevision
which was partially offset by increased costs attributable to UVSG and @Home.

         TINTA operating costs and expenses, excluding depreciation,
amortization, stock compensation and other non-cash charges decreased $33.4
million or 76% and $64.1 million or 76% for the three and six month periods
ended June 30, 1998, respectively, as compared to the corresponding prior year
periods. Such decreases are primarily attributable to the deconsolidation of
Cablevision in 1997.

         Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges from UVSG increased $15.5 million
or 15% and $29.5 million or 14% during the three and six month periods ended
June 30, 1998, respectively, as compared to the corresponding prior year
periods. Such increases are primarily attributable to Turner Vision's retail
C-band operations which were combined with Superstar/Netlink effective February
1, 1998.

         Certain TCI corporate general and administrative costs are charged to
the TCI Ventures Group at rates set at the beginning of the year based on
projected utilization for that year. During the three months ended June 30, 1998
and 1997, TCI Ventures Group was allocated $4.1 million and $2.2 million,
respectively, in corporate general and administrative costs by TCI Group. During
the six months ended June 30, 1998 and 1997, TCI Ventures Group was allocated
$6.3 million and $4.4 million, respectively, in corporate general and
administrative costs by TCI Group.

         During the first quarter of 1998, @Home recorded non-cash charges of
$83.3 million to operations based on the fair value of 2,705,514 shares of
@Home's Series A common stock which were underlying certain warrants which
became exercisable during the period. For additional information concerning such
warrants, see note 8 to the accompanying combined financial statements of TCI
Ventures Group.

         Stock compensation expense increased $40.0 million and $113.9 million
during the three and six month periods ended June 30, 1998, respectively, as
compared to the corresponding prior year periods. Such amounts represent changes
in TCI Ventures Group's stock compensation liability. TCI Ventures Group records
stock compensation expense relating to Awards granted by (i) TCI to certain TCI
employees and/or directors who are involved with the TCI Ventures Group and (ii)
TINTA, UVSG, and @Home to employees and/or directors of such entities. Stock
compensation with respect to Awards granted by TCI includes amounts related to
TCI common stock and to common stock of certain non-public subsidiaries of TCI
and is allocated to TCI Ventures Group based on the Awards held by TCI employees
and/or directors who are involved with TCI Ventures Group. Estimated
compensation relating to stock appreciation rights has been recorded through
June 30, 1998. Such estimate is subject to future adjustment based upon vesting
and market value, and ultimately, on the final determination of market value
when such rights are exercised. See note 14 to the accompanying combined
financial statements of TCI Ventures Group.

         The $8.6 million or 20% and $14.2 million or 17% decreases in
depreciation and amortization expense during the three and six month periods
ended June 30, 1998, respectively, as compared to the corresponding prior year
periods, are primarily the result of the effects of the deconsolidation of
Cablevision, which effects were partially offset by increases in UVSG's and
NDTC's depreciation and amortization.



                                     I-163
<PAGE>   165



         Other Income and Expense

         The TCI Ventures Group's share of losses from its investment in the PCS
Ventures increased $74.7 million and $166.4 million during the three and six
month periods ended June 30, 1998, respectively, as compared to the
corresponding prior year periods. The increases in the share of losses are
attributed primarily to increases in (i) selling, general and administrative
costs associated with Sprint Spectrum's efforts to increase its customer base,
(ii) depreciation expense resulting from capital expenditures made to expand its
PCS network, (iii) interest expense associated with higher amounts of
outstanding debt and (iv) Sprint Spectrum's share of losses of American PCS L.P.
It is expected that Sprint PCS will continue to incur significant operating
losses and significant negative cash flow from operating activities during the
next several years while it continues to expand its PCS network and build its
customer base. Sprint PCS's operating profitability will depend upon many
factors, including, among others, its ability to (i) market its products and
services successfully, (ii) achieve its projected market penetration, (iii)
manage customer turnover rates effectively and (iv) price its products and
services competitively. There can be no assurance that Sprint PCS will achieve
or sustain operating profitability or positive cash flow from operating
activities in the future. If Sprint PCS does not achieve and maintain operating
profitability and positive cash flow from operating activities on a timely
basis, it may not be able to meet its debt service requirements.

         The TCI Ventures Group's share of Telewest's net losses increased
(decreased) $1.7 million and $(9.7 million) during the three and six month
periods ended June 30, 1998, respectively, as compared to the corresponding
prior year periods. Such changes are primarily attributable to the net effects
of (i) changes in foreign currency transaction losses, (ii) an increase in
operating cash flow resulting from revenue growth and (iii) an increase in
interest expense. In connection with a previous merger transaction, Telewest
issued the Telewest Debentures. Changes in the exchange rate used to translate
the Telewest Debentures into U.K. pounds sterling and the adjustment of a
foreign currency option contract to market value caused Telewest to experience
unrealized foreign currency transaction losses of (i) $13.4 million and $282,000
during the three months ended June 30, 1998 and 1997, respectively, and (ii)
$2.4 million and $40.0 million during the six months ended June 30, 1998 and
1997, respectively. It is anticipated that Telewest will continue to experience
realized and unrealized foreign currency transaction gains and losses throughout
the term of the Telewest Debentures, which mature in 2006 and 2007, if not
redeemed earlier.

         The share of losses from the TCI Ventures Group's investment in TCG
increased $288,000 and $4.2 million for the three and six month periods ended
June 30, 1998, respectively, as compared to the corresponding prior year
periods. The increase in the share of losses for the six month period ended June
30, 1998 is primarily attributable to merger costs incurred by TCG during the
first quarter of 1998 related to the pending merger with AT&T. In January 1998,
TCG entered into certain agreements pursuant to which it agreed to be acquired
by AT&T. Such merger was consummated on July 24, 1998. As a result of such
merger, TCI Ventures Group received in exchange for all of its interest in TCG,
approximately 46.95 million shares of AT&T common stock. TCI Ventures Group will
account for its ownership interest in AT&T common stock using the cost method.




                                     I-164
<PAGE>   166



         As described above, effective October 1, 1997, TINTA ceased to
consolidate Cablevision and began to account for Cablevision using the equity
method of accounting. The TCI Ventures Group's share of losses from Cablevision
was $4.4 million and $7.6 million for the three and six month periods ended June
30, 1998, respectively.

         The TCI Ventures Group's share of the losses of affiliates other than
the PCS Ventures, Telewest, TCG and Cablevision (the "Other Affiliates")
remained relatively constant during the three and six month periods ended June
30, 1998, as compared to the corresponding prior year periods. Increased losses
of MultiThematiques, BIP Poland and Jupiter were partially offset by decreases
in share of losses of ABN and Flextech. As of December 31, 1997, TINTA
surrendered all of its shares of ABN in exchange for a $25 million unsecured
note receivable. Accordingly, effective December 31, 1997, TINTA no longer
accounts for ABN under the equity method of accounting. TCI Ventures Group
expects that the Other Affiliates will continue to incur losses as they continue
to expand their operations and/or launch new services. For additional
information, see note 12 to the accompanying combined financial statements of
TCI Ventures Group.

         Interest expense decreased $853,000 and $5.9 million during the three
and six month periods ended June 30, 1998, respectively, as compared to the
corresponding prior year periods. Such changes are primarily the result of the
net effects of the deconsolidation of Cablevision, the assignment of certain
capital lease obligations to TCI Group and increased borrowings under the
Ventures Group Bank Facility during the second quarter of 1998.

         During the six months ended June 30, 1998, TCI Ventures Group
recognized $41.9 million in gains from the disposition of assets. Such gains are
attributable to TCI Ventures Group's sale of its interest in (i) NHT
Partnership, (ii) Louisville Lightwave, (iii) New Jersey Fiber Technologies,
L.P., (iv) TeleCable Nacional, CXA and Sportsline USA, Inc. In addition, UVSG
recognized a gain of $14.7 million from the dilution of its interest in
Superstar/Netlink. For additional information regarding such transactions, see
note 7 to the accompanying combined financial statements of TCI Ventures Group.

         On April 22, 1998, TCG completed a merger transaction with ACC in which
ACC shares were exchanged with shares of TCG. As a result of such merger
transaction, TCI Ventures Group's interest in TCG was reduced to approximately
26%. In connection with the dilution of TCI Ventures Group's interest in TCG,
TCI Ventures Group recorded a non-cash gain of $201.4 million (before deducting
deferred income taxes of $70.5 million). For additional information regarding
such transaction, see note 9 to the accompanying combined financial statements
of TCI Ventures Group.

         In February 1997, TSX Corporation ("TSX"), an equity affiliate of the
TCI Ventures Group, and Antec Corporation ("Antec") entered into a business
combination with Antec being the surviving entity. In connection with this
transaction, the TCI Ventures Group recognized a $29 million gain (before
deducting deferred income taxes of $11 million) representing the difference
between the fair value of the Antec shares received and the carrying value of
its investment in TSX at the date of the transaction. The TCI Ventures Group
accounts for its investment in Antec using the cost method.

         The minority interests' share of net losses increased $9.6 million and
$61.8 million during the three and six month periods ended June 30, 1998,
respectively, as compared to the corresponding prior year periods. Such
increases are primarily attributable to increases in net losses for @Home and
TINTA.




                                     I-165
<PAGE>   167



         Net Losses

         The TCI Ventures Group's net losses of $85.5 million and $308.9 million
during the three and six month periods ended June 30, 1998, respectively,
represent increases (decreases) of $(26.4 million) and $119.7 million, as
compared to the TCI Ventures Group's net losses of $111.9 million and $189.2
million for the three and six month periods ended June 30, 1997, respectively.
Included in such amounts was the recognition of certain non-operating gains
aggregating (i) $201.4 million and $21.3 million during the three months ended
June 30, 1998 and 1997, respectively, and (ii) $216.1 million and $21.3 million
during the six months ended June 30, 1998 and 1997, respectively. With the
exception of UVSG, WTCI and the Puerto Rico Subsidiary, the entities included in
the TCI Ventures Group's combined financial statements generally have sustained
losses since their respective inception dates. Any improvements in such
entities' results of operations are largely dependent upon the ability of such
entities to increase their respective customer bases while maintaining pricing
structures and controlling costs. There can be no assurance that any such
improvements will occur.

         MATERIAL CHANGES IN FINANCIAL CONDITION

         TCI GROUP

         On March 4, 1998, TCI Group contributed to CSC certain of its cable
television systems serving approximately 830,000 customers in exchange for
approximately 24.5 million newly issued CSC Class A common shares (as adjusted
for a stock dividend) (the "CSC Transaction"). CSC also assumed and repaid
approximately $574 million of debt owed by TCI Group to external parties and $95
million of debt owed to TCI Group. TCI Group has also entered into letters of
intent with CSC which provide for TCI Group to acquire a cable system in
Michigan and an additional 3% of CSC's Class A common shares and for CSC to (i)
acquire cable systems serving approximately 250,000 customers in Connecticut and
(ii) assume $110 million of TCI Group's debt. The ability of TCI Group to sell
or increase its investment in CSC is subject to certain restrictions and
limitations set forth in a stockholders agreement with CSC. For additional
information concerning the CSC Transaction, see note 5 to the accompanying
combined financial statements of TCI Group.

         In addition to the CSC Transaction described in note 5 to the
accompanying combined financial statements of TCI Group, TCI also completed,
during the first six months of 1998, three transactions whereby TCI Group
contributed cable television systems serving in the aggregate approximately
670,000 customers to three separate joint ventures (collectively, the "1998
Joint Ventures") in exchange for non-controlling ownership interests in each of
the 1998 Joint Ventures, and the assumption and repayment by the 1998 Joint
Ventures of debt owed by TCI Group to external parties aggregating $323 million
and intercompany debt owed to TCI Group aggregating $833 million. In connection
with such transactions, TCI Group has agreed to take certain steps to support
compliance by each of the 1998 Joint Ventures with their payment obligations
under certain debt instruments, up to an aggregate contingent commitment of $784
million. In light of such contingent commitments, TCI Group has deferred any
gains on the formation of the 1998 Joint Ventures. Such deferred gains, which
aggregated $163 million, will not be recognized until such time as TCI Group's
contingent commitments with respect to the 1998 Joint Ventures are eliminated.
TCI Group uses the equity method of accounting to account for its investments in
the 1998 Joint Ventures. The CSC Transaction and the formation of the 1998 Joint
Ventures are collectively referred to herein as the "1998 Contribution
Transactions."




                                     I-166
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         Including the 1998 Contribution Transactions, TCI Group, as of July 31,
1998, has, since January 1, 1997, contributed, or signed agreements or letters
of intent to contribute within the next twelve months, certain cable television
systems (the "Contributed Cable Systems") serving approximately 3.9 million
basic customers to joint ventures in which TCI Group will retain non-controlling
ownership interests (the "Contribution Transactions"). Following the completion
of the Contribution Transactions, the Contributed Cable Systems will no longer
be included in TCI Group's combined financial statements. Accordingly it is
anticipated that the completion of the Contribution Transactions, as currently
contemplated, will result in an aggregate estimated reduction (based on actual
amounts with respect to the 1998 Contribution Transactions and currently
contemplated amounts with respect to the pending Contribution Transactions) to
TCI Group's debt of $4.8 billion and aggregate estimated reductions (based on
1997 amounts) to TCI Group's annual revenue and annual operating income before
depreciation, amortization, other non-cash items and stock compensation of $1.8
billion and $815 million, respectively. No assurance can be given that any of
the pending Contribution Transactions will be consummated.

         During the six months ended June 30, 1998, pursuant to a stock
repurchase program approved by the Board, TCI Group repurchased 66,041 shares of
TCI Group Series A Stock at an aggregate cost of $2 million.

         In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement. Accordingly, TCI Group paid $134
million during the first quarter of 1998 for its allocated share of the Call
Payments. For additional information see note 13 to the accompanying combined
financial statements of TCI Group.

         During the fourth quarter of 1997, TCI Group entered into an Equity
Swap Facility. Pursuant to the Equity Swap Facility, TCI Group has the right to
direct the Counterparty to use the Equity Swap Facility to purchase Equity Swap
Shares of TCI Group Series A Stock and TCI Ventures Group Series A Stock with an
aggregate purchase price of up to $300 million. TCI Group has the right, but not
the obligation, to purchase Equity Swap Shares through the September 30, 2000
termination date of the Equity Swap Facility. During such period, TCI Group is
to settle periodically any increase or decrease in the market value of the
Equity Swap Shares. If the market value of the Equity Swap Shares exceeds the
Counterparty's cost, Equity Swap Shares with a fair value equal to the
difference between the market value and cost will be segregated from the other
Equity Swap Shares. If the market value of the Equity Swap Shares is less than
the Counterparty's cost, TCI Group, at its option, will settle such difference
with shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock or,
subject to certain conditions, with cash or letters of credit. In addition, TCI
Group is required to periodically pay the Counterparty a fee equal to a
LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap Shares.
Due to TCI Group's ability to issue shares to settle periodic price fluctuations
and fees under the Equity Swap Facility, TCI Group records all amounts received
or paid under this arrangement as increases or decreases, respectively, to
equity. As of June 30, 1998, the Equity Swap Facility had acquired 4,935,780
shares of TCI Group Series A Stock and 1,151,800 shares of TCI Ventures Group
Series A Stock at an aggregate cost that was approximately $48 million less than
the fair value of such Equity Swap Shares at June 30, 1998. The costs and
benefits associated with the TCI Group Series A Stock held by the Equity Swap
Facility are attributed to TCI Group.

         Through June 30, 1997, TCI Group had a 50.1% partnership interest in
QE+, a limited partnership interest which distributed STARZ!. Entities
attributed to Liberty Media Group held the remaining 49.9% partnership interest.




                                     I-167
<PAGE>   169



         Subsequent to June 30, 1997, TCI Group and Liberty Media Group entered
into a series of transactions pursuant to which the businesses of Encore and
STARZ! were contributed to Encore Media Group. Upon the July 1997 formation of
Encore Media Group, the operations of QE+ were no longer included in the
combined financial results of TCI Group. In connection with the foregoing
transactions, Liberty Media Group issued a note payable to TCI Group (which note
was paid in full during the first quarter of 1998) and TCI Group entered into
the EMG Affiliation Agreement pursuant to which TCI Group pays monthly fixed
amounts in exchange for unlimited access to all of the existing Encore and
STARZ! services.

         TCI Group's fixed annual commitments pursuant to the EMG Affiliation
Agreement increase annually from $220 million in 1998 to $315 million in 2003,
and will increase with inflation through 2022.

         On July 11, 1997, TCI Music merged with DMX. Simultaneously with the
DMX Merger, substantially all of TCI's controlling ownership interest in TCI
Music was transferred from TCI Group to Liberty Media Group in exchange for an
$80 million promissory note and an agreement to reimburse TCI for any amounts
TCI pays pursuant to its contingent obligation pursuant to a Rights Agreement
(the "Rights Agreement") to purchase up to 14,896,648 shares (6,812,393 of which
are owned by subsidiaries of TCI) of TCI Music common stock at a price of $8.00
per share. TCI will settle its obligation under the Rights Agreement during the
third quarter of 1998 by paying $8.00 per share to all holders who tender TCI
Music common stock and the associated rights to TCI in accordance with the terms
of the Rights Agreement. Liberty Media Group will reimburse TCI Group for the
amount required to satisfy such obligation. The Music Note may be reduced by the
payment of cash or the issuance by TCI of shares of Liberty Group Stock for the
benefit of entities included within TCI Group. Additionally, Liberty Media Group
may elect to pay $50 million of the Music Note by delivery of a Stock
Appreciation Rights Agreement that will give TCI Group the right to receive 20%
of the appreciation in value of Liberty Media Group's investment in TCI Music,
to be determined at July 11, 2002.

         A subsidiary of TCI that was attributed to TCI Ventures Group leases
certain equipment under a capital lease. During 1997, such equipment was
subleased to TCI Group under an operating lease. In January 1998, TCI Group paid
$7 million to TCI Ventures Group in exchange for TCI Ventures Group's assignment
of its ownership interest in such subsidiary to TCI Group. Due to the related
party nature of the transaction, the $50 million total of the cash payment and
the historical cost of the net liabilities assumed by TCI Group (including
capital lease obligations aggregating $176 million) has been reflected as an
increase to TCI Group's combined deficit.

         At June 30, 1998, TCI Group had approximately $2.6 billion of
availability in unused lines of credit, excluding amounts related to lines of
credit which provide availability to support commercial paper. Although TCI
Group was in compliance with the restrictive covenants contained in its credit
facilities at said date, additional borrowings under the credit facilities are
subject to TCI Group's continuing compliance with the restrictive covenants
after giving effect to such additional borrowings. Such restrictive covenants
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. See note 8 to the accompanying combined financial statements
of TCI Group for additional information regarding TCI Group's debt.




                                     I-168
<PAGE>   170



         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, other non-cash items
and stock compensation) ($1,283 million and $1,327 million during the six months
ended June 30, 1998 and 1997, respectively) to interest expense ($500 million
and $555 million during the six months ended June 30, 1998 and 1997,
respectively), is determined by reference to the combined statements of
operations. TCI Group's interest coverage ratio was 257% and 239% during the six
months ended June 30, 1998 and 1997, respectively. Management of TCI Group
believes that the foregoing interest coverage ratio is adequate in light of the
relative predictability of its cable television operations and interest expense.
However, TCI Group's current intent is to continue to reduce its outstanding
indebtedness such that its interest coverage ratio could be increased. There is
no assurance that TCI Group will be able to achieve such objective. In the event
TCI Group is unable to achieve such objective, 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,
attributable to TCI Group, and proceeds from disposition of assets will provide
adequate sources of short-term and long-term liquidity in the future. See TCI
Group's combined statements of cash flows included in the accompanying combined
financial statements.

         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 ($474 million and $763 million during
the six months ended June 30, 1998 and 1997, respectively) generally reflects
net cash from the operations of TCI Group available for TCI Group's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow.

         The amount of capital expended by TCI Group for property and equipment
was $493 million, $128 million and $538 million during the six months ended June
30, 1998 and 1997, and the year ended December 31, 1997, respectively. In light
of TCI Group's plans to upgrade the capacity of its cable distribution systems,
and its plans to increase the number of customers who subscribe to digital video
services, TCI Group anticipates that its annual capital expenditures during the
next several years will significantly exceed the amount expended during 1997. In
this regard, TCI Group estimates that it will expend approximately $1.7 billion
to $1.9 billion over the next three years to expand the capacity of its cable
distribution systems. TCI Group expects that the actual amount of capital that
will be required in connection with its plans to increase the number of digital
video service customers will be significant. However, TCI Group cannot
reasonably estimate such actual capital requirement since such actual capital
requirement is dependent upon the extent of any customer increases and the
average installed per-unit cost of digital set-top devices. As described below,
TCI is obligated to purchase a significant number of digital set-top devices
over the next three years.

         TCI Group's restricted cash includes proceeds received in connection
with certain asset dispositions. Such proceeds, which aggregated $303 million
and $34 million at June 30, 1998 and December 31, 1997, respectively, are
designated to be reinvested in certain identified assets for income tax
purposes.




                                     I-169
<PAGE>   171



         TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $203
million at June 30, 1998. With respect to TCI Group's guarantees of $166 million
of such obligations, TCI Group has been indemnified for any loss, claim or
liability that TCI Group may incur, by reason of such guarantees. As described
in note 7 to the accompanying combined financial statements of TCI Group, TCI
Group also has provided certain credit enhancements with respect to the 1998
Joint Ventures. TCI Group also has guaranteed the performance of certain
affiliates and other parties with respect to such parties' contractual and other
obligations. Although there can be no assurance, management of 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 has provided a revolving loan facility to TCI Ventures Group
for a five-year period commencing on September 10, 1997. Such facility permits
aggregate outstanding borrowings at any one time of up to $500 million (subject
to reduction as provided below), which borrowings bear interest at a rate per
annum equal to The Bank of New York's prime rate (as in effect from time to
time) plus 1% per annum, payable quarterly. A commitment fee equal to 3/8% per
annum of the average unborrowed availability under the Ventures Intergroup
Credit Facility is payable by TCI Ventures Group to TCI Group on a quarterly
basis. Such commitment fee was $1 million for the six months ended June 30,
1998. The maximum amount of borrowings permitted under the Ventures Intergroup
Credit Facility will be reduced on a dollar-for-dollar basis by up to $300
million if and to the extent that the aggregate amount of any additional capital
that TCI Ventures Group is required to contribute to certain specified
partnerships subsequent to the September 10, 1997 consummation of the Exchange
Offers is less than $300 million. No borrowings were outstanding pursuant to the
Ventures Intergroup Credit Facility at June 30, 1998.

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

         TCI Group is committed to purchase billing services pursuant to three
successive five year agreements. Pursuant to such arrangement, TCI Group is
obligated at June 30, 1998 to make minimum payments aggregating approximately
$1.6 billion through 2012. Such minimum payments are subject to inflation and
other adjustments pursuant to the terms of the underlying agreements.

         Pursuant to certain agreements between TCI and TCI Music, TCI Group is
obligated at June 30, 1998 to make minimum revenue payments through 2017 and
minimum license fee payments through 2007 aggregating approximately $419 million
to TCI Music. Such minimum payments are subject to inflation and other
adjustments pursuant to the terms of the underlying agreements.

         TCI Group is 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 June 30, 1998, the amount of such obligations or
guarantees was approximately $272 million. The future obligations of TCI Group
with respect to these agreements is not currently determinable because such
amount is dependent upon the number of qualifying films released theatrically by
certain motion picture studios as well as the domestic theatrical exhibition
receipts upon the release of such qualifying films.




                                     I-170
<PAGE>   172



         Effective as of December 16, 1997, NDTC, on behalf of TCI Group and
other cable operators that may be designated from time to time by NDTC, entered
into the Digital Terminal Purchase Agreement with GI to purchase advanced
digital set-top devices. The hardware and software incorporated into these
devices will be designed and manufactured to be compatible and interoperable
with the OpenCable(TM) architecture specifications adopted by CableLabs, the
cable television industry's research and development consortium, in November
1997. NDTC has agreed that Approved Purchasers will purchase, in the aggregate,
a minimum of 6.5 million set-top devices during calendar years 1998, 1999 and
2000 at an average price of $318 per basic set-top device. Through June 30,
1998, approximately 525,000 set-top devices had been purchased pursuant to this
commitment. GI agreed to provide NDTC and its Approved Purchasers the most
favorable prices, terms and conditions made available by GI to any customer
purchasing advanced digital set-top devices. In connection with NDTC's purchase
commitment, GI agreed to grant warrants to purchase its common stock
proportional to the number of devices ordered by each organization, which as of
the effective date of the Digital Terminal Purchase Agreement, would have
represented at least a 10% equity interest in GI (on a fully diluted basis).
Such warrants vest as annual purchase commitments are met. It is anticipated
that the value associated with such equity interest would be attributed to TCI
Group upon purchase and deployment of the digital set-top devices. See note 2 to
the accompanying combined financial statements of TCI Group. NDTC has the right
to terminate the Digital Terminal Purchase Agreement if, among other reasons, GI
fails to meet a material milestone designated in the Digital Terminal Purchase
Agreement with respect to the development, testing and delivery of advanced
digital set-top devices.

         TCI Group has entered into an Operating Lease Agreement (the "Lease")
with an unaffiliated third party (the "Lessor"). Under the Lease, TCI Group
agreed to sell to, and lease back from, the Lessor advanced digital set-top
devices with an initial aggregate net cost of up to $400 million. The initial
term of the Lease is two years, and it provides for renewal, at TCI Group's
option, for up to five additional consecutive one-year terms. Rent under the
lease is payable quarterly. At the end of the originally scheduled or renewed
lease term, TCI Group is required to either (i) purchase the equipment at the
Termination Value (as defined in the Lease), or (ii) arrange for the sale of the
leased equipment to a third party and pay the Lessor the difference between the
sale price and a predetermined guaranteed value, which in all cases is less than
the Termination Value. As of June 30, 1998, TCI Group has sold and leased back
advanced digital set-top devices under the Lease with an aggregate cost of $107
million. Current annual lease payments with respect to such leased equipment are
$16 million. TCI Group has treated the Lease as an operating lease in the
accompanying combined financial statements.

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

         In order to achieve the desired balance between variable and fixed rate
indebtedness, TCI Group has entered into Interest Rate Swaps pursuant to which
it (i) pays a fixed interest rate of 6.2% and receives variable interest rates
on a notional amount of $10 million at June 30, 1998 and (ii) pays variable
interest rates and receives fixed interest rates ranging from 4.8% to 9.7% on
notional amounts of $2,400 million at June 30, 1998. During the six months ended
June 30, 1998 and 1997, TCI Group's net payments pursuant to the Fixed Rate
Agreement were less than $1 million and $4 million, respectively; and TCI
Group's net receipts pursuant to the Variable Rate Agreements were $4 million
and $11 million, respectively.

         At June 30, 1998, TCI Group would be required to pay less than $1
million to terminate the Fixed Rate Agreement and would be entitled to receive
$43 million upon termination of the Variable Rate Agreements.



                                     I-171
<PAGE>   173


         In addition to the Fixed Rate and Variable Rate Agreements, TCI Group
entered into Interest Rate Swaps pursuant to which it pays a variable rate based
on LIBOR (6.1% at June 30, 1998) and receives a variable rate based on CMT (5.9%
at June 30, 1998) on a notional amount of $400 million through September 2000;
and pays a variable rate based on LIBOR (6.0% at June 30, 1998) and receives a
variable rate based on CMT (6.0% at June 30, 1998) on notional amounts of $95
million through February 2000. During the six months ended June 30, 1998, TCI
Group's net payments pursuant to such agreements were less than $1 million. At
June 30, 1998, TCI Group would be required to pay an estimated $3 million to
terminate such Interest Rate Swaps.

         TCI Group is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of nonperformance by the
other parties to the agreements. However, TCI Group does not anticipate that it
will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, as of June 30, 1998, TCI Group
does not anticipate material near-term losses in future earnings, fair values or
cash flows resulting from derivative financial instruments. See note 11 to the
accompanying combined financial statements for additional information regarding
Interest Rate Swaps.

         At June 30, 1998, after considering the net effect of the
aforementioned Interest Rate Swaps, TCI Group had $6,895 million (or 55%) of
fixed rate debt and $5,752 million (or 45%) of variable-rate debt. Accordingly,
in an environment of rising interest rates, TCI Group expects that it would
experience an increase in interest expense.

         LIBERTY MEDIA GROUP

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

         On January 12, 1998, TCI acquired from a minority stockholder of UVSG
12.4 million shares of UVSG Class A common stock in exchange for 12.7 million
shares of TCI Ventures Group Series A Stock and 7.3 million shares of Liberty
Group Series A Stock. The aggregate value assigned to the shares issued by TCI
was based upon the market value of such shares at the time the transaction was
announced. As a result of such transaction TCI increased its ownership in the
equity of UVSG to approximately 73%, of which 17% is attributed to Liberty Media
Group.





                                     I-172
<PAGE>   174



         In February 1998, TCI, Liberty Media Group and UVSG announced their
agreement in principal for UVSG to acquire Liberty Media Group's 40% interest in
Superstar/Netlink and its 100% interest in certain businesses conducted by
Netlink USA ("Netlink") (the "Netlink Business") in exchange for 6.4 million
shares of UVSG's common stock. In April 1998, UVSG, Liberty Media Group and
Turner-Vision entered into a memorandum of understanding with PRIMESTAR, Inc.
("PRIMESTAR") for the sale of Superstar/Netlink to PRIMESTAR for shares of a new
series of convertible preferred stock of PRIMESTAR and the assumption of
liabilities (the "Primestar Transaction"). Liberty Media Group and UVSG have
agreed in principal to restructure their transaction to provide for UVSG to
acquire any shares of PRIMESTAR preferred stock received by Liberty Media Group
in the Primestar Transaction and Liberty Media Group's Netlink Business for 6.4
million shares of Class B Common Stock of UVSG. Consummation of the transaction
between Liberty Media Group and UVSG is subject to UVSG stockholder approval and
certain regulatory approvals. Consummation of the Primestar Transaction is
subject to a number of conditions, including negotiation of a definitive
agreement and receipt of applicable regulatory approvals. No definitive
agreement with respect to the Primestar Transaction has been reached, however,
and there can be no assurance that any such agreement will be entered into or
that the terms of any such agreement would be the same as terms previously
disclosed.

         Encore Media Group's loan agreement contains restrictions regarding
transfers of funds to other members of Liberty Media Group in the form of loans,
advances or cash dividends. In addition, subsequent to the exercise of the
Southern Option, cash provided by operating activities of Southern was no longer
available as a source of cash for Liberty Media Group. Additionally, subsequent
to the sale of the Netlink Business to UVSG, cash provided by operating
activities of the Netlink Business will no longer be available as a source of
cash for Liberty Media Group. Cash provided by operating activities of Southern
and the Netlink Business has been a significant source of cash for Liberty Media
Group. Although no assurance can be given, cash generated by Liberty Media
Group's remaining operating activities, distributions from affiliates, dividend
and interest payments, availability under its credit facilities and available
cash balances should provide adequate cash to meet its obligations. For
additional information concerning Liberty Media Group's cash flows see the
combined statements of cash flows included in the accompanying combined
financial statements of Liberty Media Group.

         As of June 30, 1998, Liberty Media Group holds approximately 57 million
shares of the TW Exchange Stock. During the six months ended June 30, 1998, the
unrealized appreciation, net of taxes, of the fair value of such shares of TW
Exchange Stock was $808 million based upon the market value of the common stock
into which the TW Exchange Stock is convertible. Holders of TW Exchange Stock
are entitled to receive dividends ratably with Time Warner common stock. Liberty
Media Group received approximately $10 million in cash dividends for each of the
first six months of 1998 and 1997. It is anticipated that Time Warner will
continue to pay dividends on its common stock and consequently that Liberty
Media Group will receive dividends on the TW Exchange Stock it holds. However,
there can be no assurance that such dividends will continue to be paid.

         Liberty Media Group received approximately $15 million in cash
dividends on a 30 year non-convertible 9% preferred stock, with a stated value
of $345 million, during the six months ended June 30, 1998.





                                     I-173
<PAGE>   175



         Liberty Media Group has a revolving line of credit which provides for
borrowings of up to $500 million and another which provides up to $640 million.
Borrowings of $298 million and $305 million, respectively, were outstanding at
June 30, 1998. Certain assets of Liberty Media Group serve as collateral for
borrowings under these two bank credit facilities. Encore Media Group has a $525
million senior, secured facility. The credit agreement for the EMG Senior
Facility contains certain provisions which limit Encore Media Group as to
additional indebtedness, sale of assets, liens, guarantees, and distributions.
Additionally, Encore Media Group must maintain certain specified financial
ratios. Borrowings of $300 million were outstanding on the EMG Senior Facility
at June 30, 1998. TCI Music has a revolving loan agreement which provides for
borrowings of up to $100 million. Borrowings of $78 million were outstanding at
June 30, 1998. See note 8 to the accompanying combined financial statements of
Liberty Media Group.

         The Music Note may be reduced by the payment of cash or the issuance by
TCI of shares of Liberty Media Group Stock for the benefit of entities included
within the TCI Group. During the second quarter of 1998, TCI issued 153,183
shares of Liberty Group Series B Stock valued at $5 million to an individual who
is an officer and director of TCI for the benefit of entities included within
the TCI Group. Accordingly, the Music Note was reduced by such amount.
Additionally, Liberty Media Group may elect to pay $50 million of the Music Note
by delivery of a Stock Appreciation Rights Agreement that would give TCI Group
the right to receive 20% of the appreciation in value of Liberty Media Group's
investment in TCI Music, to be determined at July 11, 2002.

         Including rights held by subsidiaries of TCI that are not members of
the Liberty Media Group, the obligation under the Rights Agreement could be as
high as $86 million and will be paid by Liberty Media Group in August of 1998.

         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.

         As of June 30, 1998, Liberty Media Group was not exposed to material
near-term losses in future earnings, fair values, or cash flows resulting from
derivative financial instruments.

         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 June 30, 1998, Encore Media
Group's future minimum obligation related to certain film licensing agreements
was $680 million. The amount of the total obligation is not currently estimable
because such amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
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.

         In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement. Accordingly, Liberty Media Group paid
$64 million during the first quarter of 1998 for its allocated share of the Call
Payments. See note 9 to the accompanying combined financial statements of
Liberty Media Group.



                                     I-174
<PAGE>   176



         On June 30, 1998, Liberty Media Group contributed $300 million in cash
to USANi LLC in exchange for an aggregate of 15 million LLC Shares. Liberty
Media Group's cash purchase price was increased at an annual interest rate of
7.5% beginning from the date of the closing of the Universal Transaction through
the date of Liberty Media Group's purchase of such securities. Pursuant to the
LLC Exchange Agreement, each LLC Share issued or to be issued to Liberty Media
Group is exchangeable for one share of USAI's Common Stock.

         In connection with the Universal Transaction, each of Universal and
Liberty Media Group was granted a preemptive right with respect to future
issuances of USAI's capital stock, subject to certain limitations, to maintain
their respective percentage ownership interests in USAI that they had
immediately prior to such issuances. On June 24, 1998, Liberty Media Group
purchased approximately 4.7 million USAI shares of common stock pursuant to a
preemptive right of $20 per share in cash. In addition, on July 27, 1998,
Liberty Media Group purchased 7.9 million LLC Shares at $20 per share as a
result of the issuance of common stock by USAI in the Ticketmaster Transaction.

         During the six months ended June 30, 1998, pursuant to the stock
repurchase program, 266,783 shares of Liberty Group Stock were repurchased at an
aggregate cost of approximately $8 million. Such amount is reflected as a
decrease to combined equity in the accompanying combined financial statements.

         On July 13, 1998, Liberty Media Group announced that it had made a
proposal to TINTA concerning the acquisition by Liberty Media Group of all of
the outstanding shares of common stock of TINTA not beneficially owned by TCI
Ventures Group. Under the proposal, Liberty Media Group would exchange, in a
merger transaction, 0.58 of a share of Liberty Group Series A Stock for each
share of Tele-Communications International, Inc. Series A Common Stock acquired
by Liberty Media Group in the merger. Liberty Media Group's proposal, and a
proposed merger agreement, will be considered by TINTA's board of directors.
TINTA, on behalf of the board of directors, has engaged an investment banking
firm to render its opinion concerning the fairness to TINTA's public
shareholders of the consideration offered by Liberty Media Group.

         TCI VENTURES GROUP

         The following table sets forth total assets and debt and capital lease
obligations for the TCI Ventures Group and each of the businesses attributed to
it:

<TABLE>
<CAPTION>
                                                                                      June 30,
                                                                                        1998
                                                                                --------------------
                                                                                amounts in thousands
          Total assets
<S>                                                                             <C>                
               TINTA                                                            $         1,376,290
               TCI Telephony                                                                821,726
               UVSG                                                                         386,932
               NDTC                                                                         345,276
               @Home                                                                        149,136
               ETC                                                                           82,745
               WTCI                                                                          80,290
               Other                                                                        413,693
                                                                                -------------------
                                                                                $         3,656,088
                                                                                ===================
          Debt and capital lease obligations (1)
               TINTA                                                            $           390,023
               Corporate and other                                                          204,015
               NDTC                                                                         151,539
               UVSG                                                                          22,397
               @Home                                                                         26,484
                                                                                -------------------
                                                                                $           794,458
                                                                                ===================
</TABLE>



                                     I-175
<PAGE>   177



         (1)      For additional information concerning the terms of TCI
                  Ventures Group's debt, see note 13 to the accompanying
                  combined financial statements of the TCI Ventures Group.

         The TCI Ventures Group's combined operating activities provided (used)
cash of $(56.0 million) and $43.0 million during the six months ended June 30,
1998 and 1997, respectively. As discussed above, effective October 1, 1997,
Cablevision's cash flows are no longer included in the TCI Ventures Group's
combined statements of cash flows. Cablevision's operating activities provided
cash of $21.3 million during the six months ended June 30, 1997. At June 30,
1998, UVSG and @Home held cash and cash equivalents of $95.5 million and $91.2
million, respectively. The cash balances of such entities are generally intended
to be applied towards the respective liquidity requirements of such entities. It
is not presently anticipated that any significant portion of such cash balances
will be distributed or otherwise made available to other members of the TCI
Ventures Group.

         During the six months ended June 30, 1998 and 1997, cash used by TCI
Ventures Group's investing activities aggregated $98.6 million and $255.7
million, respectively. The 1998 amount includes cash proceeds of $83.0 million
received upon the disposition of assets. Additionally, the 1998 and 1997 amounts
include $160.9 million and $146.0 million, respectively, that were used by the
TCI Ventures Group to fund investments in, and loans to, affiliates. For
additional information concerning the TCI Ventures Group's cash flows, see the
combined statements of cash flows included in the accompanying combined
financial statements of TCI Ventures Group.

         Substantially all of the entities the ownership of which, or the
investment in which, has been attributed to the TCI Ventures Group will require
significant additional capital in order to develop their respective businesses
and assets, to fund future operating losses and to fund future growth. In
certain cases, the TCI Ventures Group has contractual commitments pursuant to
which (subject to certain conditions) it may be required to make significant
additional capital contributions to the entities in which it has investments.
TINTA and its consolidated subsidiaries also have commitments under various
partnership and other funding agreements to contribute capital or loan money to
fund capital expenditures and other capital requirements of certain affiliates.
There can be no assurance that any of the TCI Ventures Group's entities will be
successful in generating sufficient cash flow from operating activities or
raising debt or equity capital in sufficient amounts or on terms acceptable to
them to be able to meet their respective capital requirements. There is also no
assurance that the anticipated capital requirements of the TCI Ventures Group's
entities and/or affiliates will not significantly increase due to changing
circumstances, such as unanticipated opportunities, technological or marketing
hurdles, unanticipated expenses, and the like. The failure to generate
sufficient cash flow from operating activities or to raise sufficient funds may
require such entity to delay or abandon some or all of its development and
expansion plans or in certain instances, could result in the failure to meet
certain regulatory requirements, any and all of which could have a material
adverse effect on such entity's growth, its ability to compete in its industry
and its ability to service its debt.





                                     I-176
<PAGE>   178



         The ability of one of the TCI Ventures Group entities to fund the cash
flow deficits of other TCI Ventures Group entities is limited not only by the
structural separation of such businesses in separate corporations and
partnerships, but also by the presence of other investors, both debt and equity,
in many of the TCI Ventures Group entities. In addition, TINTA and certain of
the other TCI Ventures Group entities, such as TCG and Sprint PCS, are holding
companies, the assets of which consist solely or primarily of investments in
their subsidiaries and affiliates. As such, the ability of such holding
companies to meet their respective financial obligations and their funding and
other commitments to their respective subsidiaries and affiliates, is dependent
upon external financing and/or of dividends, loans or other payments from their
respective subsidiaries and affiliates, or repayment of loans and advances from
such holding companies. Accordingly, such holding companies' ability to meet
their respective liquidity requirements, including debt service, is limited as a
result of their dependence upon external financing and funds received from their
respective subsidiaries and affiliates. The payment of dividends or the making
of loans or advances to such holding companies by their respective subsidiaries
and affiliates may be subject, among other things, to statutory, regulatory or
contractual restrictions, are contingent upon the earnings of those subsidiaries
and affiliates, and are subject to various business considerations.

         From inception through June 1998, the Sprint PCS partners have
contributed $4.2 billion to Sprint PCS (of which TCI Telephony contributed an
aggregate of $1.3 billion). Sprint PCS's business plan will require additional
capital financing prior to the end of 1998. Sources of funding for Sprint PCS's
capital requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, commercial bank loans and/or
capital contributions from the Sprint PCS Partners. However, there can be no
assurance that any additional financing can be obtained on a timely basis, on
terms acceptable to Sprint PCS or the Sprint PCS Partners and within the
limitations contained in the agreements governing Sprint PCS's existing debt.

         Additionally, the proposed budget for 1998 has not yet been approved by
the Sprint PCS partnership board, although the board has authorized management
to operate Sprint PCS in accordance with such budget. The Sprint PCS partners
may mutually agree to make additional capital contributions. However, the Sprint
PCS partners have no such obligation in the absence of an approved budget, and
there can be no assurance the Sprint PCS partners will reach such an agreement
or approve the 1998 proposed budget. In addition, the failure by the Sprint PCS
partners to approve a business plan may impair the ability of Sprint PCS to
obtain required financing. Failure to obtain any such additional financing or
capital contributions from the Sprint PCS partners could result in the delay or
abandonment of Sprint PCS's development and expansion plans and expenditures,
the failure to meet regulatory requirements or other potential adverse
consequences.

         Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership board has
resulted in the occurrence of a "Deadlock Event" under the Sprint PCS
partnership agreement as of January 1, 1998. Under the Sprint PCS partnership
agreement, if one of the Sprint PCS partners refers the budget issue to the
chief executive officers of the corporate parents of the Sprint PCS partners for
resolution pursuant to specified procedures and the issue remains unresolved,
buy/sell provisions would be triggered, which may result in the purchase by one
or more of the Sprint PCS partners of the interests of the other Sprint PCS
partners, or, in certain circumstances, liquidation of Sprint PCS.





                                     I-177
<PAGE>   179



         In May 1998 the Sprint PCS partners entered into a series of agreements
pursuant to which TCI Telephony, Comcast and Cox would exchange their respective
interests in Sprint PCS and PhillieCo for shares of a new class of tracking
stock of Sprint which would track the performance of Sprint's newly created PCS
Group (which would initially consist of Sprint PCS, PhillieCo and certain PCS
licenses which are separately owned by Sprint). The consummation of such
transactions is subject to a number of conditions, including the approval of
such transactions by the stockholders of Sprint and the receipt of required FCC
approvals. If such transactions are consummated, TCI Telephony will initially
hold shares of Sprint PCS Group stock (as well as certain additional securities
of Sprint exercisable for or convertible into such securities) representing
approximately 24% of the equity value of Sprint attributable to the PCS Group,
subject to further dilution as a result of additional expected issuances of
shares of Sprint PCS stock (including in connection with a proposed initial
public offering of shares of Sprint PCS stock that may be consummated in
connection with such transactions). In connection with the execution of such
agreements, the Sprint PCS partners agreed to make up to $400 million in
additional capital contributions (of which TCI Telephony's share is $120
million) to Sprint PCS pending the closing of such transactions. If the
above-described transactions are consummated, the Company would begin to use the
cost method to account for its investment in the Sprint PCS stock. No assurance
can be given that the above-described transactions will be consummated.




                                     I-178
<PAGE>   180



         Historically, the TCI Ventures Group's combined operating activities
have not provided sufficient funds to meet all of the TCI Ventures Group's
capital requirements. The TCI Ventures Group's ability to obtain sufficient
capital resources to make its expected additional capital contributions to the
Sprint PCS Partnerships and other entities in which it has investments are
limited. WTCI and NDTC are the only wholly-owned subsidiaries attributed to the
TCI Ventures Group that are operating companies and such entities are currently
the TCI Ventures Group's only source of cash provided by operating activities.
As a result, the TCI Ventures Group has limited ability to generate funds
internally to fund capital requirements and limited cash flow from operating
activities to support external financings. The other operating companies
attributed to the TCI Ventures Group have other investors, public or private,
and the payment of dividends, or the making of loans or advances by any one of
such TCI Ventures Group entities to any other of such TCI Ventures Group
entities would be subject to various business considerations, as well as any
legal restrictions, including pursuant to agreements among the investors. At
June 30, 1998, TCI Ventures Group had the Ventures Intergroup Credit Facility
with TCI Group which has a five-year term commencing on September 10, 1997 and
which permits aggregate borrowings at any one time outstanding of up to $500
million (subject to reduction as provided below), which borrowings bear interest
at a rate per annum equal to The Bank of New York's prime rate (as in effect
from time to time) plus 1% per annum, payable quarterly. A commitment fee equal
to 3/8% per annum of the average unborrowed availability under the Ventures
Intergroup Credit Facility is payable by the TCI Ventures Group to the TCI Group
on a quarterly basis. The maximum amount of borrowings permitted under the
Ventures Intergroup Credit Facility will be reduced on a dollar-for-dollar basis
by up to $300 million if and to the extent that the aggregate amount of any
additional capital that TCI Telephony is required to contribute to Sprint PCS
subsequent to the September 10, 1997 consummation of the Exchange Offers is less
than $300 million. No borrowings were outstanding pursuant to the Ventures
Intergroup Credit Facility at June 30, 1998. Additionally, in March 1998, TCI
Ventures Group entered into the Ventures Group Bank Facility with a term of one
year which provides for aggregate borrowings of up to $400 million. At June 30,
1998, borrowings of $204 million were outstanding under the Ventures Group Bank
Facility. If the available borrowings under the Ventures Group Bank Facility and
the Ventures Intergroup Credit Facility are not sufficient to fund the TCI
Ventures Group's capital requirements, no assurance can be given that the TCI
Ventures Group will be able to obtain any required additional financing on terms
acceptable to it, or at all. Additional capital could be raised for the TCI
Ventures Group by, among other things, engaging in public offerings or private
placements of TCI Ventures Group common stock or through issuance of debt
securities or preferred equity securities attributed to the TCI Ventures Group.
If TCI Ventures Group is unable to obtain sufficient financing from outside
sources, the TCI Ventures Group may continue to be dependent upon funding from
the TCI Group. The TCI Ventures Group's failure to meet its contractual and
other capital requirements could have significant adverse consequences to a
particular operating company or affiliate and to the TCI Ventures Group.



                                     I-179
<PAGE>   181



         TINTA's business strategy requires that it have the ability to access
or raise sufficient funds to allow it to take advantage of new acquisition and
joint venture opportunities as they arise, which management of TINTA believes
may require substantial additional funds. Although TINTA has, at June 30, 1998,
(i) $5.4 million due from TCI Ventures Group pursuant to an unsecured promissory
note, (ii) a $200 million credit facility with the TCI Ventures Group and (iii)
the ability to access any excess cash and borrowing availability from the Puerto
Rico Subsidiary, TINTA's ability to otherwise obtain debt financing to assist
its operating companies and to meet its capital obligations at other than the
subsidiary level will be limited because TINTA does not conduct any operations
directly. Furthermore, because TINTA's assets consist primarily of ownership
interests in foreign subsidiaries and affiliates, the repatriation of any cash
provided by such subsidiaries' and affiliates' operating activities in the form
of dividends, loans or other payments is subject to, among other things,
exchange rate fluctuations, tax laws and other economic considerations, as well
as applicable statutory and contractual restrictions. Moreover, the liquidity
sources of TINTA's foreign subsidiaries and affiliates are generally intended to
be applied towards the respective liquidity requirements of such foreign
subsidiaries and affiliates, and accordingly, do not represent a direct source
of liquidity to TINTA. Accordingly, with the exception of any liquidity that may
be provided to TINTA by the Puerto Rico Subsidiary, no assurance can be given
that TINTA will have access to any cash generated by its foreign operating
subsidiaries and affiliates.

         On April 15, 1998, it was announced that Telewest and General Cable had
agreed to the terms of a proposed merger in which holders of General Cable will
be offered 1.243 new Telewest shares and (pound)0.65 ($1.08) in cash for each
share of General Cable. In addition, holders of General Cable ADSs (each
representing five General Cable shares) will be offered 6.215 new Telewest
shares and (pound)3.25 ($5.42) in cash for each share of General Cable ADSs.
Based upon Telewest's closing share price of (pound)0.89 ($1.48) on April 14,
1998, the Merger Offer is valued at approximately (pound)649 million ($1.1
billion).

         The cash portion of the Merger Offer will be financed through an offer
to qualifying Telewest shareholders for the purchase of 261 million new Telewest
shares at a price of (pound)0.925 ($1.54) per share. Mediaone, TINTA and Cox
have agreed to subscribe for their full allocation of new Telewest shares
(approximately 69 million shares in the case of TINTA) and to subscribe on a pro
rata basis for any new Telewest shares not subscribed for by other Telewest
shareholders. Together, Mediaone, TINTA and Cox held 67.9% of the issued and
outstanding Telewest ordinary shares at June 30, 1998. In addition, it is
anticipated that Mediaone, TINTA, Cox and SBC will convert their entire
respective holdings of Telewest convertible preference shares into new Telewest
shares. Following the issuance of new Telewest shares with respect to the above
transactions, and assuming the exercise of all options under General Cable's
share option schemes, it is anticipated that existing Telewest shareholders
would hold 79% and existing General Cable shareholders would hold 21% of the
then issued ordinary share capital of the combined group.

         Consummation of the merger is subject to regulatory approval and other
conditions. There can be no assurance that such merger will be consummated or
consummated on the terms contemplated by the parties.

         On July 23, 1998, TINTA agreed to purchase 100% of the issued and
outstanding common stock of Pramer S.A., an Argentine programming company, for
$80 million in cash and the assumption of certain liabilities. Consummation of
such transaction is expected to occur in the third quarter of 1998. No assurance
can be given that such transaction will be consummated or consummated on the
terms contemplated by the parties.




                                     I-180
<PAGE>   182



         TINTA has signed a memorandum of understanding with UIH for the sale of
TINTA's ownership interests in Tevel and Melita to UIH. Concurrently, TINTA will
purchase an additional 25% interest in PHL from UIH. The parties have agreed
that, net of its purchase of UIH's 25% interest in PHL, TINTA will receive $71
million for its interests in Tevel and Melita. Such proceeds are subject to
adjustment. Consummation of such transactions is contingent on the consent of
certain third parties and regulatory bodies, as well as on the completion of
financing by UIH. There can be no assurance that such transactions will be
consummated or consummated on the terms contemplated by the parties.

         @Home is investing significantly in the development of its network
infrastructure and hiring new personnel rapidly in anticipation of potential
growth in its business, which is in a very early state of development. As of
June 30, 1998 there were minimal subscribers to its @Home services. @Home
believes that the net cash proceeds from a proposed public offering, together
with existing cash, cash equivalents and capital lease financing, will be
sufficient to meet its working capital and capital expenditure requirements for
at least the next 12 months. @Home may, however, require additional funds if its
estimates of working capital and/or capital expenditure and/or lease financing
requirements change or prove inaccurate or in order for @Home to respond to
unforeseen technological or marketing hurdles or to take advantage of
unanticipated opportunities. Over the longer term, it is likely that @Home will
require substantial additional funds to continue to fund its infrastructure
investment, product development, marketing, sales and customer support needs.
There can be no assurance that any such funds will be available at the time or
times needed, or available on terms acceptable to @Home. If adequate funds are
not available, or are not available on acceptable terms, @Home may not be able
to continue its network implementation, to develop new products and services or
otherwise to respond to competitive pressures. Such inability could have a
material adverse effect on @Home's business, operating results and financial
condition.

         @Home has entered into exclusive distribution agreements with certain
cable operators. In connection with the distribution agreements, @Home has
issued warrants to such cable operators to purchase 17,946,956 shares of @Home's
Series A common stock. Of these warrants, warrants to purchase 10,581,298 shares
were exercisable as of June 30, 1998. During the first quarter of 1998, @Home
recorded a non-cash, non-recurring charges of $83.3 million to operations based
on the fair value of 2,705,514 shares which were underlying warrants which
became exercisable during the period. @Home may issue additional stock, or
warrants in connection with its efforts to expand its distribution of the @Home
service to other cable operators. The exercise of warrants or stock issued by
@Home will reduce TCI Ventures Group's equity interest and voting power in
@Home.




                                     I-181
<PAGE>   183



         During the period in which each of TCI, Cox, Comcast Corporation
("Comcast") and Cablevision Systems Corporation ("CSC") have agreed (subject to
certain exceptions and limitations) to use @Home as its exclusive provider of
high speed residential consumer Internet access services, a stockholders
agreement among such parties and @Home provides that in the event the number of
exclusive homes passed attributable to TCI decreases below 80% of the number of
homes passed of TCI and its controlled affiliates as of June 1996, then TCI will
be required to offer to sell a proportionate amount of its equity in @Home to
certain other stockholders of @Home at fair market value. Since June 1996, TCI
has sold or transferred certain cable systems that reduce TCI's number of base
homes passed. In addition, TCI has announced the proposed sale or transfer of
additional cable systems that would further reduce TCI's number of base homes
passed. In the event that such cable systems continue to be exclusive to @Home,
such cable systems and their homes passed would continue to be included in TCI's
homes passed for purposes of determining whether or not TCI is obligated to
offer a portion of its equity interest in @Home to Cox, Comcast and CSC, even
though such cable systems are no longer owned or controlled by TCI. If TCI does
not require that such cable systems remain exclusive to @Home, the TCI Ventures
Group could be required to sell shares to Cox, Comcast, CSC and certain other
stockholders of @Home, at fair market value. There can be no assurance that, if
the TCI Ventures Group is required to sell shares of @Home, the price paid to
the TCI Ventures Group would represent adequate consideration to the TCI
Ventures Group because such fair market value may not adequately reflect the TCI
Ventures Group's expectation of the long term value of such investments in
@Home. In addition to the exceptions to the general exclusivity obligations, Cox
and Comcast have the right to terminate the exclusivity provisions with respect
to TCI, Cox, Comcast and CSC in the event TCI does not attain certain customer
penetration levels for the @Home service relative to the customer penetration
levels of Cox and Comcast, as of June 4, 1999, and each anniversary thereafter
until 2002. Such termination could have a material adverse effect on @Home and
the value of the TCI Ventures Group's interest in @Home.

         In addition, although TCI, Cox, Comcast and CSC are subject to certain
exclusivity obligations to carry @Home's residential consumer Internet service
over their cable systems, such exclusivity obligations are subject to a number
of exceptions which allow them to compete with @Home in certain circumstances.

         Because TINTA generally views its foreign operating subsidiaries and
affiliates as long-term investments, TINTA generally does not attempt to hedge
existing investments in its foreign affiliates and subsidiaries. Although TINTA
monitors foreign currency exchange rates with the objective of mitigating its
exposure to unfavorable fluctuations in such rates, TINTA believes that, given
the nature of its business, it is not possible or practical to eliminate TINTA's
exposure to unfavorable fluctuations in foreign currency exchange rates. As of
June 30, 1998, TINTA was not exposed to material near-term losses in future
earnings, fair values or cash flows resulting from derivative financial
instruments.

         TINTA has significant commitments and contingent obligations with
respect to certain affiliates. For additional information see notes 12 and 16 to
the accompanying combined financial statements of TCI Ventures Group.

         In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
that were subject to the Malone Call Agreement and the Magness Call Agreement.
Accordingly, TCI Ventures Group paid $76 million during the first quarter of
1998 for its allocated share of the Call Payments. For additional information
see note 14 to the accompanying combined financial statements of TCI Ventures
Group.




                                     I-182
<PAGE>   184



         During the fourth quarter of 1997, TCI entered into the Equity Swap
Facility. Pursuant to the Equity Swap Facility, TCI has the right to direct the
Counterparty to use the Equity Swap Facility to purchase Equity Swap Shares of
TCI Group Series A Stock and TCI Ventures Group Series A Stock with an aggregate
purchase price of up to $300 million. TCI has the right, but not the obligation,
to purchase Equity Swap Shares through the September 30, 2000 termination date
of the Equity Swap Facility. During such period, TCI is to settle periodically
any increase or decrease in the market value of the Equity Swap Shares. If the
market value of the Equity Swap Shares exceeds the Counterparty's cost, Equity
Swap Shares with a fair value equal to the difference between the market value
and cost will be segregated from the other Equity Swap Shares. If the market or
value of Equity Swap Shares is less than the Counterparty's cost, TCI, at its
option, will settle such difference with shares of TCI Group Series A Stock or
TCI Ventures Group Series A Stock or, subject to certain conditions, with cash
or letters of credit. In addition, TCI is required to periodically pay the
Counterparty a fee equal to a LIBOR-based rate on the Counterparty's cost to
acquire the Equity Swap Shares. Due to TCI's ability to issue shares to settle
periodic price fluctuation and fees under the Equity Swap Facility, TCI records
all amounts received or paid under this arrangement as increases or decreases to
equity. As of June 30, 1998, the Equity Swap Facility has acquired 4,935,780
shares of TCI Group Series A Stock and 1,150,800 shares of TCI Ventures Group
Series A Stock at an aggregate cost that was approximately $48 million less than
the fair value of such Equity Swap Shares at June 30, 1998. The costs and
benefits associated with the TCI Ventures Group Series A Stock held by the
Equity Swap Facility are attributed to TCI Ventures Group.

         A TCI subsidiary attributed to TCI Ventures Group issued preferred
stock in connection with a previous acquisition. Such preferred stock is
exchangeable at the option of the holders into 1,084,056 shares of TCI Group
Series A Stock beginning in April 1999. TCI Ventures Group entered into a
forward purchase contract in July 1998 with a commercial bank to acquire
1,084,056 shares of TCI Group Series A Stock for approximately $45 million on or
before April 19, 1999. Such shares will be used to satisfy the exchange
requirements of the aforementioned preferred stock.

         During the six months ended June 30, 1998, pursuant to the stock
repurchase program, 145,450 shares of TCI Ventures Group Series A Stock and
94,000 shares of TCI Ventures Group Series B Stock were repurchased at an
aggregate cost of $3.9 million. Such amount is reflected as a decrease to
combined equity in the accompanying combined financial statements.

         The board of directors of UVSG has authorized UVSG to repurchase from
time to time up to an aggregate of 1,000,000 shares of UVSG's Class A common
stock. During the six months ended June 30, 1998, UVSG repurchased 188,000
shares of stock for a total of $6.7 million.

         Effective February 1, 1998, Turner-Vision contributed the assets,
obligations and operations of its retail C-band satellite business to
Superstar/Netlink in exchange for an approximate 20% interest in
Superstar/Netlink. As a result of this transaction, both UVSG's and Liberty
Media Group's ownership interest in Superstar/Netlink decreased from 50% to
approximately 40%. UVSG recognized a gain of $14.7 million (before deducting
deferred income tax expense of $5.9 million) in connection with such dilution.
See note 7 to the accompanying combined financial statements of TCI Ventures
Group.





                                     I-183
<PAGE>   185



         In February 1998, TCI, Liberty Media Group and UVSG announced an
agreement in principal for UVSG to acquire Liberty Media Group's 40% interest in
Superstar/Netlink and its 100% interest in certain businesses conducted by
Netlink in exchange for 6.4 million shares of UVSG's common stock. In April
1998, UVSG, Liberty Media Group and Turner Vision entered into a memorandum of
understanding with PRIMESTAR for the sale of Superstar/Netlink to PRIMESTAR for
shares of a new series of convertible preferred stock of PRIMESTAR and the
assumption of liabilities. Liberty Media Group and UVSG have agreed in principal
to restructure their transaction to provide for UVSG to acquire any shares of
PRIMESTAR preferred stock received by Liberty Media Group in the PRIMESTAR
Transaction and Liberty Media Group's Netlink Business for 6.4 million shares of
UVSG Class B common stock. Consummation of the transaction between Liberty Media
Group and UVSG is subject to UVSG stockholder approval and certain regulatory
approvals. Consummation of the PRIMESTAR Transaction is subject to a number of
conditions including negotiation of a definitive agreement and receipt of
applicable regulatory approvals. No definitive agreement with respect to the
PRIMESTAR Transactions has been reached, however, and there can be no assurance
that any such agreement will be entered into or that the terms of any such
agreement would be the same as the terms previously disclosed.

         On June 11, 1998, UVSG and News Corp. announced the signing of a
definitive agreement whereby News Corp.'s TV Guide properties will be combined
with UVSG to create a platform for offering television guide services to
consumers and advertising. As part of this combination, a unit of News Corp.
will receive consideration consisting of $800 million in cash and 30 million
shares of UVSG's stock, including 11,251,706 shares of its Class A common stock
and 18,748,294 shares of its Class B common stock. As a result of the
transaction, and certain other pending transactions, News Corp., TCI and UVSG's
public stockholders will own on an economic basis approximately 40%, 44% (of
which 34% will be attributable to TCI Ventures Group and 10% will be
attributable to Liberty Media Group) and 16%, respectively, of UVSG. Following
the transaction, News Corp. and TCI will each have approximately 48% of the
voting power of UVSG's outstanding stock.

         A subsidiary of TCI that was a member of TCI Ventures Group leases
certain equipment under a capital lease. During 1997, such equipment was
subleased to TCI Group under an operating lease. In January 1998, TCI Group paid
$7 million to TCI Ventures Group in exchange for TCI Ventures Group's assignment
of its ownership interest in such subsidiary to TCI Group. Due to the related
party nature of the transaction, the $49.5 million total of the cash payment and
the historical cost of the net liabilities assumed by TCI Group (including
capital lease obligations aggregating $175.8 million) has been reflected as an
addition to TCI Ventures Group's combined equity.

         On January 12, 1998, TCI acquired from a minority shareholder of UVSG
12.4 million shares of UVSG Class A common stock in exchange for 12.7 million
shares of TCI Ventures Group Series A Stock and 7.3 million shares of Liberty
Group Series A Stock. The aggregate value assigned to the shares issued by TCI
was based upon the market value of such shares at the time the transaction was
announced. As a result of such transaction TCI increased its ownership in the
equity of UVSG to approximately 73%, of which 56% is attributed to TCI Ventures
Group and 17% is attributed to Liberty Media Group. In addition, TCI's
collective voting power increased to 93%. In connection with such transaction,
during the first quarter of 1998, TCI Ventures Group recorded a $154.2 million
increase to intangible assets, a $23.5 million decrease to minority interest in
equity of attributed subsidiaries and a $177.7 million increase to combined
equity.




                                     I-184
<PAGE>   186



         On January 16, 1998, TINTA sold its interest in TeleCable Nacional, CXA
for cash proceeds of $10 million and TCI Ventures Group sold its interest in
Acclaim Entertainment, Inc. in February 1998 for cash proceeds of approximately
$17 million.

         On February 12, 1998, TCI Ventures Group sold its (i) 40% interest in
NHT Partnership, (ii) 50% interest in Louisville Lightwave and (iii) 79%
interest in New Jersey Fiber Technologies, L.P. for aggregate cash proceeds of
$44.1 million.

         In January 1998, TCG entered into certain agreements pursuant to which
it agreed to be acquired by AT&T. Such merger was consummated on July 23, 1998.
As a result of such merger, TCI Ventures Group received in exchange for all of
its interest in TCG, approximately 46.95 million shares of AT&T Common Stock.
TCI Ventures Group will account for its ownership interest in AT&T Common Stock
using the cost method. As of June 30, 1998, the current annual dividend per
share for AT&T Common Stock was $1.32. No assurance can be given that future
dividends will be paid at such rate or at all. See note 2 to the accompanying
combined financial statements of TCI Ventures Group.

         In July 1998, TCI and the other partners of KC Fiber sold the assets of
KC Fiber to TCG for cash proceeds of $55 million. TCI Ventures Group holds a 50%
interest in KC Fiber and the remaining 50% is held by Kansas City Cable
Partners, a partnership in which the TCI Group holds a 50% interest. TCI
Ventures Group received proceeds of approximately $20 million in connection with
such sale.

         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators that may be designated from time to time by NDTC, entered into
an agreement with GI to purchase advanced digital set-top devices. The hardware
and software incorporated into these devices will be designed and manufactured
to be compatible and interoperable with the OpenCable(TM) architecture
specifications adopted by CableLabs, the cable television industry's research
and development consortium, in November 1997. NDTC has agreed that Approved
Purchasers will purchase, in the aggregate, a minimum of 6.5 million set-top
devices over the next three years at an average price of $318 per set-top
device. Through June 30, 1998, 525,000 set-top devices had been purchased
pursuant to this commitment. GI agreed to provide NDTC and its Approved
Purchasers the most favorable prices, terms and conditions made available by GI
to any customer purchasing advanced digital set-top devices. In connection with
NDTC's purchase commitment, GI agreed to grant warrants to purchase its common
stock proportional to the number of devices ordered by each organization, which
as of the effective date of the Digital Terminal Purchase Agreement, would have
represented at least a 10% equity interest in GI (on a fully diluted basis).
Such warrants vest as annual purchase commitments are met. It is anticipated
that the value associated with such equity interest would be attributed to TCI
Group upon purchase and deployment of the digital set-top devices. See note 2 to
the accompanying combined financial statements of TCI Ventures Group. NDTC has
the right to terminate the Digital Terminal Purchase Agreement if, among other
reasons, GI fails to meet a material milestone designated in the Digital
Terminal Purchase Agreement with respect to the development, testing and
delivery of advanced digital set-top devices.

         On July 17, 1998, NDTC acquired 21.4 million shares of stock of GI in
exchange for (i) certain of the assets of NDTC's set-top authorization business,
(ii) the license of certain related technology to GI, (iii) a $50 million
promissory note from TCI Ventures Group to GI and (iv) a nine year revenue
guarantee from TCI Ventures Group in favor of GI. In connection therewith, NDTC
also entered into a service agreement pursuant to which it will provide certain
services to GI's set-top authorization business.




                                     I-185
<PAGE>   187

                            TELE-COMMUNICATIONS, INC.


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 June
         30, 1998 to which TCI or any of its consolidated subsidiaries is a
         party or of which any of its property is the subject, except as
         follows:

         New Litigation

         AT&T Merger Litigation. Between June 24 and July 1, 1998, thirteen
         substantially similar purported class action complaints were filed by
         stockholders of Tele-Communications, Inc. ("TCI") in the Court of
         Chancery of the State of Delaware (the "Delaware Chancery Court") under
         the captions Nieto v. Fisher, et al., C.A. No. 16470; Martin, et al. v.
         Fisher, et al., C.A. No. 16471; Bove v. Fisher, et al., C.A. No. 16473;
         Freiman v. Fisher, et al., C.A. No. 16474; Great Neck Capital
         Appreciation Investment Partnership, L.P. v. Fisher, et al., C.A. No.
         16477; Cohen v. Fisher, et al., C.A. No. 16478; Silvert v. Fisher, et
         al., C.A. No. 16479; Alex Cooper Profit Sharing Trust v. Fisher, et
         al., C.A. No. 16482; Satz v. Fisher, et al., C.A. No. 16489; Stefansky,
         et al. v. Fisher, et al., C.A. No. 16490; Hushing v. Fisher, et al.,
         C.A. No. 16491; Krim v. Fisher, et al., C.A. No. 16495; and Hirsch v.
         Fisher, et al., C.A. No. 16501. All thirteen complaints name as
         defendants TCI and the following directors of TCI: Donne F. Fisher,
         John W. Gallivan, Paul A. Gould, Leo J. Hindery, Jr., Jerome H. Kern,
         Kim Magness, John C. Malone, Robert A. Naify and J.C. Sparkman. The
         complaints in C.A. Nos. 16470, 16471, 16474, 16478, 16479, 16495, and
         16501 also name AT&T Corporation ("AT&T") as a defendant. The
         complaints were filed in response to the announcement on June 24, 1998
         of a proposed merger between TCI and AT&T and allege substantially
         similar claims.

         The gravamen of the complaints is that the terms of the proposed
         TCI-AT&T merger will unjustly benefit holders of TCI Group Class B
         common stock at the expense of holders of TCI Group Class A common
         stock and that, by approving the proposed merger, the directors of TCI
         have breached their fiduciary duties to the TCI Group Class A
         stockholders. Plaintiffs in all thirteen complaints seek to enjoin the
         proposed merger (or rescind the merger in the event it is consummated)
         and unspecified compensatory damages, fees and costs. In addition to
         the above complaints, the complaint in an existing derivative action
         against TCI and the TCI board of directors in the Delaware Chancery
         Court, In re Tele-Communications, Inc. Shareholder Litigation,
         Consolidated C.A. No. 16128, was amended on June 26, 1998 to include
         claims arising from the proposed TCI-AT&T merger substantially similar
         to those alleged in the thirteen actions above. See related discussion
         below. These actions remain pending and discovery has not commenced.
         Based upon the facts available, management believes that, although no
         assurance can be given as to the outcome of this action, the ultimate
         disposition of this matter should not have a material adverse effect
         upon the financial condition of the Company.





                                      II-1
<PAGE>   188



                            TELE-COMMUNICATIONS, INC.


Item 1. Legal Proceedings (continued).

         On June 25 and July 1, 1998, two other substantially similar purported
         class action complaints alleging claims arising from the proposed
         TCI-AT&T merger were filed in the Delaware Chancery Court under the
         captions Landau v. Fisher, et al., C.A. No. 16492, and Getfinger v.
         Fisher, et al., C.A. No. 16502, respectively. Named as defendants in
         both complaints are TCI, AT&T and the TCI board of directors: Donne F.
         Fisher, John W. Gallivan, Paul A. Gould, Leo J. Hindery, Jr., Jerome H.
         Kern, Kim Magness, John C. Malone, Robert A. Naify and J.C. Sparkman.
         The two actions were brought on behalf of holders of Series A TCI
         Ventures Group Common Stock and allege that the TCI directors breached
         their fiduciary duty to plaintiffs by failing to adequately represent
         the interests of the class in the proposed consolidation of TCI
         Ventures Group ("Ventures") and Liberty Media Group ("Liberty") and the
         sale of Ventures' assets to TCI, both to be undertaken in connection
         with the proposed TCI-AT&T merger. The complaints further allege that
         the consideration to be received by the class in the Ventures-Liberty
         consolidation is inadequate. Plaintiffs in the complaints seek to
         enjoin the transactions complained of (or rescind the transactions in
         the event they are consummated) and unspecified compensatory damages,
         fees and costs. These actions remain pending and discovery has not
         commenced. Based upon the facts available, management believes that,
         although no assurance can be given as to the outcome of this action,
         the ultimate disposition of this matter should not have a material
         adverse effect upon the financial condition of the Company.

         Tele-Communications International, Inc. Stockholder Litigation. On July
         13, 1998, two putative class action complaints were filed by certain
         stockholders of Tele-Communications International, Inc. ("TINTA") in
         the Court of Chancery of the State of Delaware. The actions, which have
         identical claims and allegations, are styled as Berkowitz v. Hindery,
         et al., C.A. No. 16533, and Chetkov v. Hindery, et al., C.A. No. 16534,
         respectively. The complaints were filed following the announcement of a
         proposed business combination in which Liberty Media Group would
         acquire all outstanding public shares of TINTA not already owned by TCI
         Ventures Group. The defendants named in both complaints are
         Tele-Communications, Inc., TINTA, and the Board of Directors of TINTA:
         Leo J. Hindery, John C. Malone, Gary S. Howard, David J. Evans, Pierre
         Lescure, Paul A. Gould, Fred A. Vierra, and Jerome H. Kern. The
         gravamen of both complaints is that the TINTA directors will breach
         their fiduciary duties by approving the merger and undervaluing the
         proposed merger consideration to the detriment of the TINTA public
         stockholders. Plaintiffs in both actions seek to enjoin the
         consummation or closing of the proposed merger, or the rescission of
         the merger in the event it is consummated, and unspecified compensatory
         damages, fees and costs. The actions remain pending and discovery has
         not commenced. Based upon the facts available, management believes
         that, although no assurances can be given as to the outcome of this
         action, the ultimate disposition of this matter should not have a
         material adverse effect upon the financial condition of the Company.





                                      II-2
<PAGE>   189



                            TELE-COMMUNICATIONS, INC.


Item 1.  Legal Proceedings (continued).

         New Developments in Previously Reported Litigation

         As previously reported, following the announcement of the proposed
         merger (the "TBS-Time Warner Merger") between Turner Broadcasting
         Systems, Inc. ("TBS") and Time Warner, Inc. ("Time Warner") several
         purported class action lawsuits were filed by TBS shareholders in
         Fulton County Superior Court, Georgia. On November 1, 1995, plaintiffs
         in thirteen of the cases filed a second amended class action Complaint
         in what became a consolidated action styled Lewis v. TBS, Inc. C.A. No.
         B-41500 (the "Lewis Action"). The defendants include, among others,
         Tele-Communications, Inc., John Malone, Peter Barton and Fred Vierra.
         The TBS-Time Warner merger was consummated on October 10, 1996. On
         December 20, 1996, the Georgia State Court dismissed the plaintiffs
         third amended complaint in the Lewis Action. Plaintiffs stated their
         intention to appeal the dismissal order and filed a fourth amended
         complaint on January 16, 1997. On July 14, 1997, the court granted
         defendants motion for summary judgment on the fourth amended complaint.
         On October 14, 1997, plaintiffs filed an appeal from dismissal of the
         third amended complaint and the order granting summary judgment on
         claims raised in the fourth amended complaint. On appeal, the Georgia
         State Court's dismissal of the third amended complaint was affirmed by
         the Court of Appeals, and on July 9, 1998, the time period during which
         plaintiffs could have applied for certiorari to the Georgia Supreme
         Court expired. Such events represent the final resolution of this
         matter and this case will not be reported on in the future.

         As previously reported, during August 1996, five putative class action
         complaints were filed with the Delaware Court of Chancery in C.A. Nos.
         15179, 15187, 15188, 15189 and 15195 by stockholders of Home Shopping
         Network, Inc. ("HSN"). The complaints were filed following the
         announcement of the proposed merger between HSN and Silver King
         Communications, Inc. ("Silver King"). The defendants in the actions
         include HSN, Silver King, Tele-Communications, Inc. ("TCI"), Liberty
         Media Corporation ("Liberty") and the directors of HSN (Barry Diller,
         James G. Held, Peter R. Barton, Robert R. Bennett, Leo J. Hindery, Jr.,
         H. Norman Schwarzkopf and Mr. Eli Segal). Mr. Bennett is an executive
         officer of Liberty. Mr. Hindery is an executive officer of TCI. The
         foregoing actions have been consolidated for all purposes pursuant to
         an order by the court which specifies that the complaint in C.A. No.
         15188 is the designated complaint in the consolidated action. The
         HSN-Silver King merger was completed on December 20, 1996. This case
         was dismissed in April 1998 and will not be reported on in the future.




                                      II-3
<PAGE>   190



                            TELE-COMMUNICATIONS, INC.


Item 1. Legal Proceedings (continued).

         As previously reported, in January of 1995, two class action complaints
         ("Actions") were filed against Interactive Network, Inc.
         ("Interactive") and certain of its then current and former officers and
         directors (collectively the "Interactive Defendants") in the United
         States District Court for the Northern District of California which
         sought unspecified damages for alleged violations of the disclosure
         requirements of the federal securities laws. The actions were filed on
         behalf of a class of shareholders that purchased the stock of
         Interactive during the period of August 15, 1994 through November 22,
         1994. Pursuant to an order of the Court, the Actions were consolidated
         and in April 1995, a Consolidated Amended Class Action Complaint
         captioned In re Interactive Network Inc. Securities Litigation
         ("Consolidated Case") was filed in the same court which sought damages
         against the Interaction Defendants for violation of the federal
         securities law disclosure requirements during the class period May 2,
         1994 through March 31, 1995. On or about January 13, 1997, Plaintiffs
         filed a Fourth Amended Complaint, seeking damages against the
         Interactive Defendants and Tele-Communications, Inc., TCI
         Communications, Inc., TCI Development Corporation, and Gary Howard
         (collectively, "the TCI Defendants") for violation of federal
         securities law disclosure requirements during the class period May 16,
         1994 through March 31, 1995. In addition, the Fourth Amended Complaint
         sought damages against the TCI Defendants based upon the allegation
         that they were "controlling persons" of Interactive at the time the
         alleged wrongs took place. On January 30, 1997, the TCI Defendants and
         the Interactive Defendants separately moved to dismiss the Fourth
         Amended Complaint on the ground that it failed to state a cause of
         action against them. On April 4, 1997, the Court issued an order
         dismissing, with prejudice, the primary liability claims against the
         TCI Defendants. The Court granted the Plaintiffs leave to amend their
         Complaint as to their claim for violation of federal securities law
         disclosure requirements against the Interactive Defendants. The Court
         further granted Plaintiffs leave to amend their "controlling person"
         claim against the TCI Defendants. On or about April 30, 1997,
         Plaintiffs filed a Fifth Amended Complaint seeking damages for
         violation of federal securities law disclosure requirements against the
         Interactive and TCI Defendants during the class period January 19, 1994
         through March 31, 1995. The Fifth Amended Complaint also seeks damages
         against the TCI Defendants as "controlling persons." On October 9,
         1997, the Court granted the Interactive Defendants' Motion to Dismiss
         with Prejudice substantial portions of the Fifth Amended Complaint. On
         March 30, 1998 the Court entered a stipulated order dismissing all of
         the TCI Defendants from the consolidated case. The stipulated dismissal
         did not have any adverse effect upon the financial condition of the
         Company. Such stipulated dismissal represents the final resolution of
         this matter and this case will not be reported on in the future.




                                      II-4
<PAGE>   191



                            TELE-COMMUNICATIONS, INC.

Item 1.  Legal Proceedings (continued).

         As previously reported, on February 24, 1997, James Dalton, et al.
         filed suit in District Court for Arapahoe County, Colorado, Case No.
         97-CV421, against Tele-Communications, Inc. ("TCI") and certain current
         and former officers of TCI and its subsidiary, TCI Communications, Inc.
         (John C. Malone, Brendan R. Clouston, Barry P. Marshall, Camille K.
         Jayne, Sadie N. Decker, Bruce W. Ravenel, Gerald W. Gaines, Bernard W.
         Schotters, II) and Daniel L. Ritchie and Donne F. Fisher, in their
         capacity as co-personal representatives of the Estate of Bob Magness.
         Plaintiffs filed this action under the Colorado Securities Act and
         Colorado common law on behalf of all persons who purchased TCI
         securities from January 10, 1996 through October 24, 1996 ("the class
         period"). On September 3, 1997, defendants motion to dismiss was
         denied. Defendants answered the Complaint on October 3, 1997. Discovery
         is proceeding and the parties have agreed to attend a mediation which
         will take place at some date in the future. 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.

         As previously reported, in September 1997, five substantially similar
         purported class action complaints were filed by stockholders of BET
         Holdings, Inc. ("BET") in the Court of Chancery of the State of
         Delaware under the captions Herbert Behrens v. Robert L. Johnson, et
         al., C.A. No. 15921; Harbor Finance Partners v. Peter Barton, et al.,
         C.A. No. 15923; Alan Friedman v. Robert L. Johnson, et al., C.A. No.
         15924; Tiger Options, L.L.C. v. Robert L. Johnson, et al., C.A. No.
         15936 and Jerome Ramos v. Robert L. Johnson, et al., C.A. No. 15941.
         Subsequently, on October 14, 1997, an Order of Consolidation was
         entered consolidating these actions under the caption In re BET
         Holdings, Inc. Shareholders Litigation, C.A. No. 15921 (the
         "Consolidated Action"). In the designated complaint in the Consolidated
         Action, the named defendants are: Robert L. Johnson, John C. Malone,
         Peter R. Barton, Delano E. Lewis, Sheila Crump Johnson, Herbert P.
         Wilkins, Denzel Washington, TCI, Liberty Media Corporation, and BET.
         The Consolidated Action focuses on the announcement of an offer by TCI,
         Liberty and Robert L. Johnson, the Chief Executive Officer of BET
         (collectively, the "Acquisition Group") to purchase all outstanding
         shares of BET for $48 per share, alleging that the proposed $48 per
         share price was inadequate and that the transaction contemplated by the
         offer would constitute a breach of fiduciary duty by the directors of
         BET. In March 1998, BET accepted a $63 per share merger proposal from
         the Acquisition Group. At that time, the parties to the contractual
         action agreed to a settlement in principle which is subject to final
         negotiation and execution of settlement documents, confirmatory
         discovery, court approval and other matters. On June 25, 1998, the
         parties to the Consolidated Action filed a Stipulation of Settlement
         with the Delaware Chancery Court. On July 28, 1998, the Delaware
         Chancery Court entered a final order approving the settlement and
         dismissing the litigation. Such final order represents the final
         resolution of this matter and this case will not be reported on in
         future filings.



                                      II-5
<PAGE>   192



                            TELE-COMMUNICATIONS, INC.


Item 1.  Legal Proceedings (continued).

         As previously reported, on October 7, 1997, a purported class lawsuit
         captioned Yvonne Baskerville v. Robert L. Johnson, et al., Civil Action
         No. 97ca00778 was filed in the Superior Court of The District of
         Columbia. The defendants in the Baskerville action are: Robert L.
         Johnson, John C. Malone, Denzel Washington, Delano E. Lewis, Sheila
         Crump Johnson, BET, TCI and Liberty Media Corporation. The Baskerville
         action is substantially similar to the Consolidated Action. The
         Complaint, among other things, alleges Breach of Fiduciary Duty in
         connection with a proposed "freeze-out" transaction, where they allege
         that defendants intended to take full equity ownership of BET through a
         merger into a new entity. The Complaint seeks judgment declaring class
         action; granting injunctive relief against consummation of the
         transaction or order rescinding the proposed merger transaction; and
         ordering defendants to account for all damages including costs and
         disbursements, attorney fees, and expert fees. By consent of the
         parties, proceedings in the Baskerville action have been stayed
         conditionally. On July 30, 1998, the Superior Court of the District of
         Columbia dismissed the Baskerville action. Such dismissal represents
         the final resolution of this matter and this case will not be reported
         on in future filings.

         As previously reported, on January 8, 1998, the following actions were
         filed in the Court of Chancery of the State of Delaware In and For New
         Castle County: Morgan, et al. v. Tele-Communications, Inc., et al.,
         Civil Action No. 16128-NC; Steiner v. Tele-Communications, Inc., et
         al., Civil Action No. 16130-NC; Weisberg v. Tele-Communications, Inc.,
         et al., Civil Action No. 16131-NC; Pan v. Tele-Communications, Inc., et
         al., Civil Action No. 16133; Klein v. Tele-Communications, Inc., et
         al., Civil action No. 16135; Crandon Capital Partners v.
         Tele-Communications, Inc., et al., Civil Action No. 16136; and Deutsch
         v. Tele-Communications, Inc., et al., Civil Action No. 16148. Also
         named as defendants in these cases are John C. Malone, John W.
         Gallivan, Donne F. Fisher, Leo J. Hindery, Jr., J.C. Sparkman, Paul A.
         Gould, Jerome H. Kern, Kim Magness, and Robert A. Naify. On June 26,
         1998, Plaintiffs filed an amended complaint to add claims arising from
         the proposed TCI-AT&T merger substantially similar to those alleged in
         the AT&T Merger litigation described above. Based upon the facts
         available, management believes that, although no assurances can be
         given as to the outcome of this action, the ultimate disposition of
         this matter should not have a material adverse effect upon the
         financial condition of the Company.




                                      II-6
<PAGE>   193



                            TELE-COMMUNICATIONS, INC.


Item 2.  Change in Securities.

TCI issued 1,135,288 shares of TCI Group Series A Stock on June 29, 1998 to the
holder of shares of Convertible Preferred Stock, Series C TCI Group ("Series C -
TCI Group") upon the conversion, and pursuant to the terms, thereof. TCI issued
the equity securities described in this paragraph in reliance on the exemption
from the registration requirements of the Act provided by Section 3(a)(9)
thereof. TCI believes that such exemption from registration is available because
(i) shares of TCI Group Series A Stock were issued by TCI to existing security
holders exclusively in exchange for shares of Series C-TCI Group and (ii) no
commission or other remuneration was paid or given directly or indirectly for
soliciting such exchange.

On April 30, 1998, TCI issued 153,183 shares of Liberty Group Series B Stock
valued at $5 million and conveyed a limited partnership interest in a limited
partnership with a capital account of $1 million to an individual who is an
executive officer and a director of TCI in exchange for such individual's
limited partnership interest in another limited partnership. TCI issued the
equity securities described in this paragraph pursuant to the private placement
exemption from the registration requirements of the Act provided by Section 4(2)
thereof.



                                      II-7
<PAGE>   194



                            TELE-COMMUNICATIONS, INC.


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

         (a)      Exhibits -

                  (3)      The Restated Certificate of Incorporation, dated
                           August 4, 1994, as amended on August 4, 1994, August
                           16, 1994, October 11, 1994, October 21, 1994, January
                           26, 1995, August 3, 1995, August 3, 1995, January 25,
                           1996, January 25, 1996, April 7, 1997, August 28,
                           1997, December 30, 1997, December 30, 1997, January
                           17, 1998 and April 24, 1998.

                  (10.1)   Employment Agreement, dated as of June 23, 1998,
                           between the Company and Leo J. Hindery, Jr.

                  (10.2)   Employment Agreement, dated as of June 1, 1998,
                           between the Company and Stephen M. Brett

                  (10.3)   Employment Agreement, dated as of January 1, 1998,
                           between the Company and Larry E. Romrell

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

         (b) Reports on Form 8-K filed during the quarter ended June 30, 1998:

<TABLE>
<CAPTION>
           Date of                   Items
           Report                  Reported           Financial Statements Filed
           ------                  --------           --------------------------
 <S>                              <C>                <C>
  March 6, 1998, as                 Item 7            Cablevision Systems Corporation
       amended on June 23                               Three and nine months ended September
       and June 30, 1998                                    30, 1997 (unaudited)
                                                        Years ended December 31, 1996, 1995 and
                                                            1994
</TABLE>







                                      II-8
<PAGE>   195



                                   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:      August 13, 1998         By:   /s/ Leo J. Hindery, Jr.
                                        --------------------------------------
                                             Leo J. Hindery, Jr.
                                               President and Chief
                                                 Operating Officer




Date:      August 13, 1998         By:   /s/ Stephen M. Brett
                                        --------------------------------------
                                             Stephen M. Brett
                                                Executive Vice President,
                                                 General Counsel and Secretary



Date:      August 13, 1998         By:   /s/ Bernard W. Schotters
                                        --------------------------------------
                                             Bernard W. Schotters
                                               Senior Vice President
                                                 (Principal Financial Officer)




Date:      August 13, 1998         By:   /s/ Ann M. Koets
                                        --------------------------------------
                                             Ann M. Koets
                                               Executive Vice President
                                                 TCI Communications, Inc.
                                                 (Principal Accounting Officer)







                                      II-9
<PAGE>   196




                                  EXHIBIT INDEX


The following exhibit is filed herewith (according to the number assigned to it
in Item 601 of Regulation S-K) as noted:

         (3)         The Restated Certificate of Incorporation, dated
                     August 4, 1994, as amended on August 4, 1994, August
                     16, 1994, October 11, 1994, October 21, 1994, January
                     26, 1995, August 3, 1995, August 3, 1995, January 25,
                     1996, January 25, 1996, April 7, 1997, August 28,
                     1997, December 30, 1997, December 30, 1997, January
                     17, 1998 and April 24, 1998.

         (10.1)      Employment Agreement, dated as of June 23, 1998,
                     between the Company and Leo J. Hindery, Jr.

         (10.2)      Employment Agreement, dated as of June 1, 1998,
                     between the Company and Stephen M. Brett

         (10.3)      Employment Agreement, dated as of January 1, 1998,
                     between the Company and Larry E. Romrell

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