<PAGE>   1
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                  F O R M 10-Q


[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 
         For the quarterly period ended September 30, 1997

                                      OR

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


Commission File Number 0-20421


                            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 October 31,
1997, was:

 Tele-Communications, Inc. Series A TCI Group common stock - 468,643,708 shares,
 Tele-Communications, Inc. Series B TCI Group common stock - 38,544,680 shares,
 Tele-Communications, Inc. Series A Liberty Media Group common stock - 
 208,812,811 shares,
 Tele-Communications, Inc. Series B Liberty Media Group common stock - 
 21,120,749 shares, 
 Tele-Communications, Inc. Series A TCI Ventures Group common stock - 
 188,661,300 shares,
                                       and
 Tele-Communications, Inc. Series B TCI Ventures Group common stock - 
 16,266,400 shares.




<PAGE>   2



 

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                         September 30,      December 31,
                                                                             1997              1996
                                                                         ------------       ------------   
Assets                                                                           amounts in millions
------
<S>                                                                          <C>                      <C>
Cash and cash equivalents                                                $        555                444      
                                                                                                           
Trade and other receivables, net                                                  473                448      
                                                                                                           
Prepaid expenses                                                                   64                 81      
                                                                                                           
Prepaid program rights                                                            109                 61      
                                                                                                           
Committed film inventory                                                          121                136      
                                                                                                           
Investments in affiliates, accounted for under the equity method,                                          
    and related receivables (note 5)                                            3,042              3,012   
                                                                                                           
Investment in Time Warner, Inc. ("Time Warner") (note 6)                        2,346              2,027           

Property and equipment, at cost:                                                                           
    Land                                                                           85                 77      
    Distribution systems                                                       10,976             10,039   
    Support equipment and buildings                                             1,518              1,541   
                                                                         ------------       ------------   
                                                                               12,579             11,657   
    Less accumulated depreciation                                               4,678              4,129   
                                                                         ------------       ------------   
                                                                                7,901              7,528   
                                                                         ------------       ------------   
                                                                                                           
Franchise costs                                                                18,566             17,875   
    Less accumulated amortization                                               2,731              2,439   
                                                                         ------------       ------------   
                                                                               15,835             15,436   
                                                                         ------------       ------------   
Other assets, net of amortization                                               1,645              1,121   
                                                                         ------------       ------------   
                                                                                                           
                                                                              $32,091             30,294   
                                                                         ============       ============   


                                                                                            

                                                                                                       (continued)
</TABLE>


                                      I-1
<PAGE>   3




                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Balance Sheets, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                           September 30,      December 31,
                                                                               1997               1996
                                                                           -------------      ------------     
Liabilities and Stockholders' Equity                                               amounts in millions
------------------------------------
<S>                                                                             <C>                        <C>
Accounts payable                                                         $            128                 266
Accrued interest                                                                      169                 274
Other accrued expenses                                                              1,420               1,159
Deferred option premium (note 6)                                                      306                  --
Debt (note 8)                                                                      15,153              14,926
Deferred income taxes                                                               6,102               6,012
Other liabilities                                                                     531                 253
                                                                       ------------------     ---------------

    Total liabilities                                                              23,809              22,890
                                                                       ------------------     ---------------

Minority interests in equity of consolidated subsidiaries                           1,467               1,493
                                                                                    

Redeemable preferred stocks                                                           655                 658

Company-obligated mandatorily redeemable preferred securities of subsidiary
    trusts ("Trust Preferred Securities") holding solely subordinated debt
    securities of TCI Communications, Inc.
    ("TCIC")(note 9)                                                                1,500               1,000
                                                                                    

Stockholders' equity (note 10):
    Series Preferred Stock, $.01 par value                                             --                  --
    Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
       Stock, $.01 par value                                                           --                  --
                                                                                       
    Tele-Communications, Inc. Series A TCI Group common stock, $1
       par value. Authorized 1,750,000,000 shares; issued
       605,422,364 shares in 1997 and 696,325,478 shares in 1996                      605                 696

                                                                                      
    Tele-Communications, Inc. Series B TCI Group common stock, $1
       par value. Authorized 150,000,000 shares; issued 78,203,044
       shares in 1997 and 84,647,065 shares in 1996                                   78                  85

                                                                                       
    Tele-Communications, Inc. Series A Liberty Media Group common
       stock, $1 par value.  Authorized 750,000,000 shares; issued
       230,675,781 shares in 1997 and 227,844,437 shares in 1996                     231                 228

                                                                                      
    Tele-Communications, Inc. Series B Liberty Media Group common
       stock, $1 par value.  Authorized 75,000,000 shares; issued
       23,453,590 shares in 1997 and 21,189,369 shares in 1996                        23                  21

                                                                                       
    Tele-Communications, Inc. Series A TCI Ventures Group common
       stock, $1 par value. Authorized 750,000,000 shares; issued
       188,661,300 shares in 1997                                                    189                  --
                                                                                      
    Tele-Communications, Inc. Series B TCI Ventures Group common
       stock, $1 par value. Authorized 75,000,000 shares; issued
       16,266,400 shares in 1997                                                       16                  --
                                                                                       
    Additional paid-in capital                                                      5,360               3,672
    Cumulative foreign currency translation adjustment, net of taxes                   --                  26
                                                                                       
    Unrealized holding gains for available-for-sale securities, net
       of taxes                                                                        27                  15
    Accumulated deficit                                                              (410)               (176)
                                                                       ------------------     ---------------
                                                                                    6,119               4,567
    Treasury stock and common stock held by subsidiaries, at cost
       (note 10)                                                                   (1,459)               (314)
                                                                       ------------------     ---------------

          Total stockholders' equity                                                4,660               4,253
                                                                       ------------------     ---------------
Commitments and contingencies (note 12)
                                                                         $         32,091              30,294
                                                                       ==================     ===============

See accompanying notes to consolidated financial statements.

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

                      Consolidated Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                       Three months ended             Nine months ended
                                                                          September 30,                  September 30,
                                                                     ---------------------            -------------------
                                                                      1997           1996              1997         1996
                                                                     ------         ------            ------       ------       
                                                                                   amounts in millions,
                                                                                  except per share amounts
Revenue:
<S>                                                               <C>                  <C>             <C>             <C>  
   Communications and programming services                      $      1,934           1,824           5,648           5,133
   Net sales from electronic retailing services                           --             234              --             734
                                                                ------------    ------------    ------------   -------------
                                                                       1,934           2,058           5,648           5,867
                                                                ------------    ------------    ------------   -------------

Operating costs and expenses:
   Operating                                                             722             746           2,154           2,115
   Cost of sales from electronic retailing services                       --             137              --             454
   Selling, general and administrative                                   434             572           1,262           1,603
   Stock compensation                                                    160             (11)            231             (16)
   Depreciation and amortization                                         396             394           1,177           1,150
                                                                ------------    ------------    ------------   -------------
                                                                       1,712           1,838           4,824           5,306
                                                                ------------    ------------    ------------   -------------

         Operating income                                                222             220             824             561

Other income (expense):
   Interest expense                                                     (300)           (277)           (883)           (803)
   Interest and dividend income                                           25              18              64              42
   Share of losses of affiliates, net (note 5)                          (253)            (97)           (591)           (308)
   Loss on early extinguishment of debt (note 8)                          --              (7)            (11)            (73)
   Minority interests in earnings of
      consolidated subsidiaries, net (note 9)                            (35)            (28)           (129)            (32)
   Gain on sale of stock by subsidiary and equity investee
      (notes 5 and 7)                                                     60              12              81              12
   Gain (loss) on disposition of assets (notes 5 and 7)                  338             (15)            400              (5)
   Other, net                                                             (1)              2              (7)             (3)
                                                                ------------    ------------    ------------   -------------
                                                                        (166)           (392)         (1,076)         (1,170)
                                                                ------------    ------------    ------------   -------------

      Earnings (loss) before income taxes                                 56            (172)           (252)           (609)

Income tax benefit (expense)                                             (78)             34              18             163
                                                                ------------    ------------    ------------   -------------

      Net loss                                                           (22)           (138)           (234)           (446)

Dividend requirements on preferred stocks                                (10)             (9)            (31)            (27)
                                                                ------------    ------------    ------------   -------------

      Net loss attributable to common stockholders              $        (32)           (147)           (265)           (473)
                                                                ============    ============    ============   =============

Net earnings (loss) attributable to common stockholders:
      TCI Group Series A and Series B common stock              $       (217)           (164)           (472)           (509)
      Liberty Media Group Series A and Series B common
         stock                                                           162              17             184              36
      TCI Ventures Group Series A and Series B common
         stock                                                            23              --              23              --
                                                                ------------    ------------    ------------   -------------

                                                                $        (32)           (147)           (265)           (473)
                                                                ============    ============    ============   =============
Net earnings (loss) attributable to common stockholders per 
  common share (note 2):
      TCI Group Series A and Series B common stock              $       (.33)           (.25)           (.70)           (.77)
                                                                ============    ============    ============   =============
      
       Liberty Media Group Series A and Series B common stock   $        .66             .10             .74             .22
                                                                ============    ============    ============   =============
     
        TCI Ventures Group Series A and Series B common stock   $        .11              --             .11              --
                                                                ============    ============    ============   =============

See accompanying notes to consolidated financial statements.

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

                 Consolidated Statement of Stockholders' Equity

                      Nine months ended September 30, 1997
                                   (unaudited)

<TABLE>
<CAPTION>
                                                     Class B                       Common Stock                        
                                                              -------------------------------------------------------- 
                                                    Preferred    TCI Group     Liberty Media Group TCI Ventures Group              
                                                              ---------------- ------------------- ------------------  
                                                      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, 1997                        $   --      696        85       228       21       --       -- 

    Net loss                                          --       --        --        --       --       --       -- 
    Issuance of TCI Ventures Group common stock
      in exchange for TCI Group common stock
      (note 1)                                        --     (189)      (16)       --       --      189       16
    Costs associated with TCI Ventures Exchange
      (note 1)                                        --       --        --        --       --       --       -- 
    Exchange of common stock with an
      officer/director (note 11)                      --       --         7        --        2       --       -- 
    Issuance of common stock for acquisitions
      and investment (notes 7 and 11)                 --       63         2         2       --       --       -- 
    Issuance of Series A TCI Group common stock
      in exchange for Series B TCI Group common
      stock (note 10)                                 --       31        --        --       --       --       -- 
    Repurchase of common stock                        --       --        --        --       --       --       -- 
    Issuance of common stock by equity investee
      (note 5)                                        --       --        --        --       --       --       -- 
    Issuance of common stock upon exercise of
      stock options                                   --       --        --        --       --       --       -- 
    Issuance of restricted stock granted
      pursuant to stock incentive plan                --        1        --        --       --       --       -- 
    Issuance of common stock upon conversion of
      notes and preferred stock                       --        3        --         1       --       --       -- 
    Issuance of common stock to
      Tele-Communications, Inc. Employee
      Stock Purchase Plan                             --       --        --        --       --       --       -- 
    Recognition of fees related to Exchange
      (note 10)                                       --       --        --        --       --       --       -- 
    Accreted dividends on all classes of
      preferred stock                                 --       --        --        --       --       --       -- 
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                         --       --        --        --       --       --       -- 
    Payment of preferred stock dividends              --       --        --        --       --       --       -- 
    Foreign currency translation adjustment           --       --        --        --       --       --       -- 
    Change in unrealized holding gains for
      available-for-sale securities                   --       --        --        --       --       --       -- 
                                                  ------   ------    ------    ------   ------   ------   ------

Balance at September 30, 1997                     $   --      605        78       231       23      189       16
                                                  ======   ======    ======    ======   ======   ======   ======

<CAPTION>

                                                                                 Unrealized                 Treasury              
                                                                  Cumulative      holding                  stock and              
                                                                   foreign       gains for                  common                 
                                                                   currency      available-                  stock                
                                                     Additional   translation    for-sale                   held by       Total   
                                                      paid-in     adjustment,   securities,  Accumulated subsidiaries, stockholders'
                                                      capital    net of taxes  net of taxes    deficit     at cost        equity   
                                                     ----------  ------------- ------------- ----------- ------------- -----------
  
<S>                                                  <C>              <C>           <C>        <C>           <C>         <C>    
Balance at January 1, 1997                            3,672            26            15         (176)         (314)       4,253
    
    Net loss                                             --            --            --         (234)           --         (234)
    Issuance of TCI Ventures Group common stock
      in exchange for TCI Group common stock
      (note 1)                                           --            --            --           --            --           --
    Costs associated with TCI Ventures Exchange
      (note 1)                                           (5)           --            --           --            --           (5)
    Exchange of common stock with an
      officer/director (note 11)                        161            --            --           --          (170)          --
    Issuance of common stock for acquisitions
      and investment (notes 7 and 11)                   982            --            --           --          (445)         604
    Issuance of Series A TCI Group common stock
      in exchange for Series B TCI Group common
      stock (note 10)                                   481            --            --           --          (512)          --
    Repurchase of common stock                           --            --            --           --           (18)         (18)
    Issuance of common stock by equity investee
      (note 5)                                           99            --            --           --            --           99
    Issuance of common stock upon exercise of
      stock options                                       4            --            --           --            --            4
    Issuance of restricted stock granted
      pursuant to stock incentive plan                    3            --            --           --            --            4
    Issuance of common stock upon conversion of
      notes and preferred stock                          --            --            --           --            --            4
    Issuance of common stock to
      Tele-Communications, Inc. Employee
      Stock Purchase Plan                                 8            --            --           --            --            8
    Recognition of fees related to Exchange
      (note 10)                                         (11)           --            --           --            --          (11)
    Accreted dividends on all classes of
      preferred stock                                   (31)           --            --           --            --          (31)
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                             7            --            --           --            --            7
    Payment of preferred stock dividends                (10)           --            --           --            --          (10)
    Foreign currency translation adjustment              --           (26)           --           --            --          (26)
    Change in unrealized holding gains for
      available-for-sale securities                      --            --            12           --            --           12
                                                   --------      --------      --------     --------      --------     --------

Balance at September 30, 1997                         5,360            --            27         (410)       (1,459)       4,660
                                                   ========      ========      ========     ========      ========     ========
</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>
                                                                                          Nine months ended
                                                                                            September 30,
                                                                                        ---------------------
                                                                                          1997           1996
                                                                                        --------      -------  
                                                                                         amounts in millions
                                                                                            (see note 4)
Cash flows from operating activities:

<S>                                                                                     <C>               <C>  
   Net loss                                                                           $    (234)          (446)
   Adjustments to reconcile net loss to net cash provided by operating
      activities:
        Depreciation and amortization                                                     1,177          1,150
        Stock compensation                                                                  231            (16)
        Payments of obligation relating to stock appreciation rights                        (26)            (3)
        Share of losses of affiliates, net                                                  591            308
        Loss on early extinguishment of debt                                                 11             73
        Minority interests in earnings of consolidated subsidiaries, net                    129             32
        Gain on sale of stock by subsidiary and equity investee                             (81)           (12)
        Loss (gain) on disposition of assets                                               (400)             5
        Deferred income tax benefit                                                        (125)          (178)
        Payments of restructuring charges                                                   (21)            --
        Other noncash charges (credits)                                                      13             (2)
        Changes in operating assets and liabilities, net of the effect of
          acquisitions:
             Change in receivables                                                          (10)           (20)
             Change in inventories                                                           --             11
             Change in prepaids                                                             (79)           (32)
             Change in accrued interest                                                    (112)           (64)
             Change in other accruals and payables                                          150             35
                                                                                    -----------    -----------

                Net cash provided by operating activities                                 1,214            841
                                                                                    -----------    -----------

Cash flows from investing activities:
   Cash paid for acquisitions                                                              (331)          (131)
   Capital expended for property and equipment                                             (419)        (1,526)
   Additional investments in and loans to affiliates                                       (392)          (677)
   Repayments of loans to affiliates                                                         87            300
   Proceeds from disposition of assets                                                      352            255
   Cash received in exchanges                                                                20             69
   Other investing activities                                                               (13)          (116)
                                                                                    -----------    -----------

               Net cash used in investing activities                                       (696)        (1,826)
                                                                                    -----------    -----------

Cash flows from financing activities:
   Borrowings of debt                                                                     3,311          7,449
   Repayments of debt                                                                    (4,125)        (7,476)
   Prepayment penalties                                                                      (7)           (60)
   Costs associated with TCI Ventures Exchange                                               (5)            --
   Proceeds from issuance of common stock                                                     4             --
   Proceeds from issuance of Trust Preferred Securities                                     490            971
   Proceeds from issuance of subsidiary common stock and preferred stock                    148            223
   Contributions by minority shareholders of subsidiaries                                     4            315
   Repurchase of Liberty Media Group common stock                                           (18)            --
   Repurchase of subsidiary common stock                                                    (42)            --
   Payment of preferred stock dividends                                                     (37)           (34)
   Payment of dividends on subsidiary preferred stock and Trust Preferred
      Securities                                                                           (130)           (56)
                                                                                    -----------    -----------

               Net cash provided (used) by financing activities                            (407)         1,332
                                                                                    -----------    -----------

               Net increase in cash and cash equivalents                                    111            347

               Cash and cash equivalents at beginning of period                             444            118
                                                                                    -----------    -----------

               Cash and cash equivalents at end of period                             $     555            465
                                                                                      =========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      I-5
<PAGE>   7





                                                                            
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                               September 30, 1997
                                   (unaudited)


(1)      General

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

         In August 1995, TCI issued Tele-Communications, Inc. Series A and 
         Series B Liberty Media Group common stock ("Liberty Group Stock") 
         which reflects the separate performance of TCI's assets which produces 
         and distributes programming services ("Liberty Media Group").

         Effective January 13, 1997, the Company issued a stock dividend to
         holders of the Liberty Group Stock consisting of one share of Series A
         Liberty Group Stock for every two shares of Series A Liberty Group
         Stock owned and one share of Series A Liberty Group Stock for every two
         shares of Series B Liberty Group Stock owned (the "Liberty Group Stock
         Dividend"). The Liberty Group Stock Dividend has been treated as a
         stock split, and accordingly, all share and per share amounts have been
         retroactively restated to reflect the Liberty Group Stock Dividend.

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A Ventures Group common
         stock (the "Series A TCI Ventures Group Stock") and
         Tele-Communications, Inc. Series B TCI Ventures Group common stock (the
         "Series B TCI Ventures Group Stock," and together with Series A TCI
         Ventures Group Stock, the "TCI Ventures Group Stock"). The TCI Ventures
         Group Stock reflects the separate performance of TCI Ventures Group. On
         August 28, 1997, TCI Ventures Group consisted principally of the
         following assets and their related liabilities, which prior to the
         issuance of the TCI Ventures Group Stock were attributed to TCI Group:
         (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 Liberty Media Group), (ii) TCI's principal
         interests in the telephony business consisting primarily of TCI's
         investment in a series of partnerships formed to engage in the business
         of providing wireless communications services; TCI's 30% equity
         interest (representing a 37% voting interest) in Teleport
         Communications Group Inc. ("TCG"); and Western Tele-Communications,
         Inc. ("WTCI"), a wholly-owned subsidiary of TCI, (iii) TCI's 40% equity
         interest (representing a 85% voting interest) in United Video Satellite
         Group, Inc. ("UVSG"), (iv) TCI's 39% equity interest (representing a
         72% voting interest) in At Home Corporation ("@Home"), and (v) other
         assets, including TCI's National Digital Television Center, Inc.
         ("NDTC"), ETC w/tci, Inc., an 80% owned subsidiary of TCI and TCI
         SUMMITrak of Texas, Inc. and TCI SUMMITrak L.L.C., wholly-owned
         subsidiaries of TCI. Such subsidiaries and assets are referred to as
         "TCI Ventures Group". The stocks of TINTA, TCG, UVSG and @Home are
         traded on the National Market tier of The Nasdaq Stock Market.

                                                                    (continued)

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

                    Notes to Consolidated Financial Statements


         Prior to stockholder approval to issue the TCI Ventures Group Stock,
         TCI commenced offers (the "Exchange Offers") to exchange shares of
         Series A TCI Ventures Group Stock and Series B TCI Ventures Group Stock
         for shares of Tele-Communications, Inc. Series A and Series B TCI Group
         common stock ("TCI Group Stock"), respectively, (representing
         approximately 30% of the outstanding shares of each such series on June
         30, 1997, excluding shares held by majority-owned subsidiaries of the
         Company) in the ratio of one share of the applicable series of TCI
         Ventures Group Stock in exchange for each share of the corresponding
         series of TCI Group Stock properly tendered. Upon the September 10,
         1997 consummation of the Exchange Offers, 188,661,300 shares of Series
         A TCI Group Stock and 16,266,400 shares of Series B TCI Group Stock
         were exchanged for an equivalent number of shares of Series A TCI
         Ventures Group Stock and Series B TCI Ventures Group Stock,
         respectively, (the "TCI Ventures Exchange").

         As of September 30, 1997, the TCI Group Stock reflects the separate
         performance of TCI's 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.

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

         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, 1996.

         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.

         Certain amounts have been reclassified for comparability with the 1997
         presentation.

                                                                  (continued)
                                      I-7

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

                    Notes to Consolidated Financial Statements



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

         The Financial Accounting Standards Board recently issued Statement of
         Financial Accounting Standards No. 128, "Earnings Per Share"
         ("Statement No. 128"). Statement No. 128 requires the presentation of
         basic earnings per share ("EPS") and, for companies with potentially
         dilutive securities, such as convertible debt, options and warrants,
         diluted EPS. Statement No. 128 is effective for annual and interim
         periods ending after December 31, 1997. The Company does not expect
         that Statement No. 128 will have a material impact on the Company's
         earnings (loss) per share as described below.

         TCI Group Series A and Series B Common Stock

         The loss attributable to TCI Group Stock stockholders per common share
         was computed by dividing net loss attributable to TCI Group Stock
         stockholders by the weighted average number of common shares
         outstanding of TCI Group Stock during the period (655.6 million and
         669.1 million for the three months ended September 30, 1997 and 1996,
         respectively; and 670.0 million and 665.0 million for the nine months
         ended September 30, 1997 and 1996, respectively). Common stock
         equivalents were not included in the computation of weighted average
         shares outstanding because their inclusion would be anti-dilutive.

         Liberty Media Group Series A and Series B Common Stock

         Earnings attributable to Liberty Group Stock stockholders per common
         share was computed by dividing net earnings attributable to Liberty
         Group Stock stockholders by the weighted average number of common
         shares outstanding of Liberty Group Stock during the period (245.6
         million and 250.9 million for the three months ended September 30, 1997
         and 1996, respectively; and 248.0 million and 249.3 million for the
         nine months ended September 30, 1997 and 1996, respectively). Common
         stock equivalents were not included in the computation because their
         inclusion would be anti-dilutive to TCI.

         TCI Ventures Group Series A and Series B Common Stock

         The loss attributable to TCI Ventures Group Stock stockholders per
         common share for the period from the TCI Ventures Exchange to September
         30, 1997 was computed by dividing net loss attributable to TCI Ventures
         Group Stock stockholders by the weighted average number of common
         shares outstanding of TCI Ventures Group Stock during the period (204.9
         million). Common stock equivalents were not included in the computation
         of weighted average shares outstanding because their inclusion would be
         anti-dilutive.

(3)      Derivative Financial Instruments

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

                                                                    (continued)

                                      I-8
<PAGE>   10

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements


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

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

(4)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $995 million and $867 million for the nine
         months ended September 30, 1997 and 1996, respectively. Cash paid for
         income taxes was $49 million for the nine months ended September 30,
         1997 and was not material for the nine months ended September 30, 1996.

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

<TABLE>
<CAPTION>
                                                                                            Nine months ended
                                                                                              September 30,
                                                                                           -------------------
                                                                                           1997           1996
                                                                                           ------       ------
                                                                                           amounts in millions
                   Cash paid for acquisitions:              
                    <S>                                                                   <C>            <C>
                      Fair value of assets acquired                                  $   (1,841)        (4,730)
                      Liabilities assumed, net of current assets                            720          2,095
                      Deferred tax liability recorded in acquisitions                       187          1,310
                      Minority interests in equity of acquired entities                      64            733
                      Common stock and preferred stock issued in acquisitions               984            461
                      TCI common stock and preferred stock held by acquired
                         company                                                           (445)            --
                                                                                    -----------    -----------

                           Cash paid for acquisitions                                $     (331)          (131)
                                                                                     ==========    ===========

                   Cash received in exchanges:
                      Aggregate cost basis of assets acquired                        $     (390)          (569)  
                      Historical cost of assets exchanged                                   399            617
                      Gain recorded on exchange of assets                                    11             21
                                                                                    -----------    -----------

                           Cash received in exchanges                                $       20             69
                                                                                     ==========    ===========

</TABLE>

                                                                     (continued)

                                      I-9
<PAGE>   11
                  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 and
         percentage ownership of the more significant investments at September
         30, 1997.

<TABLE>
<CAPTION>
                                                                                September 30, 1997
                                                                         --------------------------------
                                                                         Percentage              Carrying
                                                                          Ownership                Value
                                                                         -----------           ----------
                                                                                          amounts in millions

<S>                                                                        <C>                 <C>
          Sprint Spectrum Holding Company, L.P., MinorCo, L.P.
              and PhillieCo, L.P.                                         30% - 35%         $       674
         Teleport Communications Group, Inc. ("TCG")                            30%                 256
         Home Shopping Network, Inc. ("HSN")                                  19.9%                 118
         BDTV INC., BDTV II INC. and BDTV III INC.                              99%                 228
         Flextech p.l.c. ("Flextech")                                         36.8%                 276
         Telewest Communications plc ("Telewest")                               27%                 352
         Various foreign equity investments (other than Telewest
              and Flextech)                                                  various                296
         Discovery Communications, Inc.                                         49%                 100
         QVC, Inc.                                                              43%                 122

</TABLE>

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

<TABLE>
<CAPTION>
                                                                           Nine months ended
                    Combined Operations                                      September 30,
                    -------------------                                  --------------------
                                                                          1997          1996
                                                                         ------         ------  
                                                                          amounts in millions
                        <S>                                               <C>           <C>
                        Revenue                                        $     5,400        4,047
                        Operating expenses                                  (5,237)      (3,608)
                        Depreciation and amortization                       (1,018)        (502)
                                                                       -----------    ---------
                          Operating loss                                      (855)         (63)

                        Interest expense                                      (596)        (337)
                        Other, net                                            (327)        (220)
                                                                       ------------   ---------

                          Net loss                                     $    (1,778)        (620)
                                                                       ===========    =========

                                                                    (continued)
</TABLE>

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

                    Notes to Consolidated Financial Statements



         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, 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, 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 nine months ended
         September 30, 1997 and 1996, the PCS Ventures contributed $304 million
         and $112 million, respectively, to the Company's share of affiliate
         losses. Such 1996 amount includes $34 million related to prior periods.

         From inception through September 1997, the four partners have
         contributed approximately $3.7 billion to the Sprint PCS Partnerships
         (of which the Company contributed an aggregate of approximately $1.1
         billion). The remaining capital that the Sprint PCS Partnerships will
         require to fund the construction of the PCS systems and to fund
         operating losses and the commitments made to American PCS, L.P. ("APC")
         and Cox California PCS, L.P. will be substantial. The partners had
         agreed in forming the Sprint PCS Partnerships to contribute up to an
         aggregate of approximately $4.2 billion of equity thereto, from
         inception through fiscal 1999, subject to certain requirements. The
         Company expects that the remaining approximately $0.5 billion of such
         amount (of which the Company's share is approximately $0.2 billion)
         will be contributed by the end of the second quarter of 1998 (although
         there can be no assurance that any additional capital will be
         contributed). The Company expects that the Sprint PCS Partnerships will
         require additional equity thereafter.

         Pursuant to an agreement entered into in connection with certain
         financings by Sprint Spectrum, under certain circumstances the partners
         in Sprint Spectrum may be required to make additional contributions to
         Sprint Spectrum to fund projected cash shortfalls to the extent that
         the amount of the partners' aggregate contributions to Sprint Spectrum
         (exclusive of certain amounts, including amounts invested in certain
         affiliates of Sprint Spectrum), following December 31, 1995 are less
         than $1.0 billion; however, based on the currently expected timing and
         use of the partners' contributions to Sprint Spectrum, the Company
         currently believes that such agreement will not result in the Company's
         being required to make any incremental capital contributions in
         addition to its pro rata portion of the aforementioned $4.2 billion
         amount.

                                                                     (continued)
                                      I-11
<PAGE>   13

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements


         During the nine months ended September 30, 1997, TCG, a competitive
         local exchange carrier, issued 4,857,083 shares of Class A common stock
         at an average price per share of $19.25 for certain acquisitions. The
         total consideration paid by TCG through the issuance of common stock
         was approximately $93,000,000. As a result of TCG issuing additional
         shares, the Company's ownership interest in TCG was reduced from
         approximately 31% to approximately 30%. Accordingly, the Company
         recognized a gain amounting to $21 million (before deducting deferred
         income tax expense of approximately $8 million) representing the
         difference between the carrying amount of the Company's investment in
         TCG and the Company's proportionate share of TCG's net assets. During
         the nine months ended September 30, 1997 and 1996, TCG contributed $43
         million and $32 million, respectively, to the Company's share of
         affiliate losses.

         In January 1997, the Company's voting interest in Flextech, a company
         engaged in the distribution and production of programming for
         multichannel video distribution systems in the United Kingdom ("UK"),
         was reduced to approximately 50% and the Company ceased to consolidate
         Flextech and began to account for Flextech using the equity method of
         accounting. In April 1997, Flextech and BBC Worldwide Limited formed
         two separate joint ventures (the "BBC Joint Ventures") and entered into
         certain related transactions. The consummation of the BBC Joint
         Ventures and related transactions resulted in, among other things, a
         reduction of the Company's economic ownership interest in Flextech from
         46.2% to 36.8%. The Company continues to maintain a voting interest in
         Flextech of approximately 50%. As a result of such dilution, the
         Company recorded a $152 million increase to the carrying value of the
         Company's investment in Flextech, a $53 million increase to deferred
         income tax liability and a $99 million increase to equity. No gain was
         recognized in the statement of operations due primarily to certain
         contingent obligations of the Company with respect to one of the BBC
         Joint Ventures.

         Telewest is a company that is currently operating and constructing
         cable television and telephone systems in the UK. Telewest contributed
         $111 million and $99 million of the Company's share of its affiliates'
         losses during the nine months ended September 30, 1997 and 1996,
         respectively. In addition to the Company's investments in Telewest and
         Flextech, the Company has other less significant equity method
         investments in video distribution and programming businesses located in
         the UK, other parts of Europe, Asia, Latin America and certain other
         foreign countries. In the aggregate, Flextech and such other equity
         method investments accounted for $75 million and $55 million of the
         Company's share of its affiliates' losses in 1997 and 1996,
         respectively.

         During the nine months ended September 30, 1997, TSX Corporation
         ("TSX"), an equity affiliate of the Company, and Antec Corporation
         ("Antec") entered into a business combination with Antec being the
         surviving entity. In connection with such transaction, the Company
         recognized a $29 million gain (before deducting deferred income tax
         expense of approximately $12 million) representing the difference
         between the fair value of the Antec shares received ($52 million) and
         the carrying value of the Company's investment in TSX at the date of
         the transaction ($23 million). Upon completion of this transaction, the
         Company's ownership interest decreased from an approximate 45% interest
         in TSX to an approximate 16% ownership interest in Antec. The Company
         accounts for its investment in Antec using the cost method.

                                                                   (continued) 
                                      I-12
<PAGE>   14
                  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 of that partnership in the event liabilities of that
         partnership were to exceed its assets.

(6)      Investment in Time Warner

         Through October 9, 1996, TCI owned shares of Turner Broadcasting
         System, Inc. ("TBS") common stock and shares of TBS preferred stock
         that were convertible into TBS common stock. On October 10, 1996, Time
         Warner and TBS consummated a merger (the "TBS/Time Warner Merger")
         whereby TBS shareholders received 0.75 of a Time Warner common share
         for each TBS Class A and Class B common share held, and each holder of
         TBS Class C preferred stock received 0.80 of a Time Warner common share
         for each of the 6 shares of TBS Class B common stock into which each
         share of Class C preferred stock could have been converted.

         Time Warner, TBS, TCI and Liberty entered into an Agreement Containing
         Consent Order with the Federal Trade Commission ("FTC") dated August
         14, 1996, as amended on September 4, 1996 (the "FTC Consent Decree").
         Pursuant to the FTC Consent Decree, among other things, Liberty agreed
         to exchange the shares of Time Warner common stock to be received in
         the TBS/Time Warner Merger for shares of a separate series of Time
         Warner common stock with limited voting rights (the "TW Exchange
         Stock"). Holders of the TW Exchange Stock are entitled to one
         one-hundredth (l/100th) of a vote for each share with respect to the
         election of directors. Holders of the TW Exchange Stock will not have
         any other voting rights, except as required by law or with respect to
         limited matters, including amendments of the terms of the TW Exchange
         Stock adverse to such holders. Subject to the federal communications
         laws, each share of the TW Exchange Stock will be convertible at any
         time at the option of the holder on a one-for-one basis for a share of
         Time Warner common stock. Holders of TW Exchange Stock are entitled to
         receive dividends ratably with the Time Warner common stock and to
         share ratably with the holders of Time Warner common stock in assets
         remaining for common stockholders upon dissolution, liquidation or
         winding up of Time Warner. In connection with the TBS/Time Warner
         Merger, the Company received approximately 50.6 million shares of the
         TW Exchange Stock in exchange for its TBS holdings.

                                                                    (continued)
                                      I-13
<PAGE>   15

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements


         In connection with the TBS/Time Warner Merger, Liberty and Time Warner
         entered into, among other agreements, an agreement providing for the
         grant to Time Warner of an option (the "Contract Option") to enter into
         a contract with Southern Satellite Systems, Inc. ("Southern"), a wholly
         owned subsidiary of Liberty which distributes the TBS SuperStation
         ("WTBS") signal in the United States and Canada, pursuant to which
         Southern would provide Time Warner with certain uplinking and
         distribution services relating to WTBS and would assist Time Warner in
         converting WTBS from a superstation into a copyright paid cable
         programming service. Subsequent to the TBS/Time Warner Merger, Liberty
         Media Group and Time Warner revised the structure of the Contract
         Option. On June 24, 1997, under the new agreement, Liberty granted Time
         Warner a five year option to acquire the business of Southern through a
         purchase of assets. Liberty received 6.4 million shares of TW Exchange
         Stock valued at $306 million in consideration for the grant. In
         September 1997, Time Warner announced its intention to exercise the
         option. Pursuant to the option, the consideration for the purchase of
         the business of Southern will be approximately $213 million, payable in
         a form which is mutually acceptable of cash or Time Warner common stock
         together with the assumption of certain liabilities. The transaction is
         expected to close on December 31, 1997. At September 30, 1997, the
         Company's investment in Time Warner, carried at cost, had an aggregate
         fair value of approximately $3 billion based upon the market value of
         the marketable common stock into which it is convertible.

(7)      Acquisitions and Dispositions

         In January 1997, the Company acquired the 50% ownership interest in TKR
         Cable Company ("TKR Cable") that the Company did not previously own and
         certain additional assets for aggregate consideration of approximately
         $970 million. The Company issued approximately 16 million shares of TCI
         Group Stock, assumed $584 million of TKR Cable's debt and paid cash of
         $88 million and shares of Time Warner common stock valued at $41
         million upon consummation of such acquisition.

         On July 11, 1997, @Home completed its initial public offering (the
         "IPO"), in which 10,350,000 shares of @Home common stock were sold to
         the public for aggregate cash consideration of approximately $109
         million before commissions and fees. As a result of the 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 the TCI Ventures Group's
         ownership interest of @Home, the TCI Ventures Group recognized a gain
         of $60 million.

         Effective July 31, 1997, TCI merged Kearns-Tribune Corporation into a
         wholly-owned TCI subsidiary. The merger was valued at $731 million. TCI
         exchanged 47.2 million shares of Series A TCI Group Stock for shares of
         Kearns-Tribune Corporation which held 17.9 million shares of TCI Group
         Stock and 6.7 million shares of Liberty Group Stock. Liberty Media
         Group purchased from TCI Group the 6.7 million shares of Liberty Group
         Stock that were acquired in such transaction for $168 million in cash.

                                                                    (continued)
                                      I-14
<PAGE>   16

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements


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

         In June 1997, the Company entered into an agreement with Cablevision
         Systems Corporation ("Cablevision") pursuant to which the Company
         agreed to contribute certain of its cable television systems serving
         approximately 820,000 basic customers to Cablevision in exchange for
         approximately 12.2 million newly issued Cablevision Class A shares.
         Such shares represent approximately 33% of Cablevision's total
         outstanding shares. Cablevision will also assume approximately $669
         million of TCI's debt. The transaction is subject to, among other
         matters, Cablevision shareholder and regulatory approvals. There is no
         assurance that the transaction will be consummated.

         Including the Cablevision transaction described above, the Company
         has signed agreements or letters of intent to contribute, within the
         next twelve months, certain cable systems serving approximately 3
         million basic customers to various joint ventures. Such anticipated
         transactions, if consummated as currently intended, would result in
         estimated reductions in debt and annual revenue of approximately $4
         billion and $1 billion, respectively. Such transactions are subject to,
         among other matters, regulatory approval. Accordingly, there is no
         assurance that any of such transactions will be consummated.

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

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

                                                                    (continued)
                                      I-15
<PAGE>   17

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements


         Prior to the consummation of the Viacom Acquisition, Viacom offered to
         the holders of shares of Viacom Class A Common Stock and Viacom Class B
         Common Stock (collectively, "Viacom Common Stock") the opportunity to
         exchange (the "Viacom Exchange Offer") a portion of their shares of
         Viacom Common Stock for shares of Class A Common Stock, par value $100
         per share, of Cable Sub ("Cable Sub Class A Stock"). Immediately
         following the completion of the Viacom Exchange Offer, TCIC acquired
         from Cable Sub shares of Cable Sub Class B common stock (the "Share
         Issuance") for $350 million (which was used to reduce Cable Sub's
         obligations under the Loan Facility). At the time of the Share
         Issuance, the Cable Sub Class A Stock received by Viacom stockholders
         pursuant to the Viacom Exchange Offer automatically converted into 5%
         Class A Senior Cumulative Exchangeable Preferred Stock of Cable Sub
         with a stated value of $100 per share. Upon completion of the Viacom
         Acquisition, Cable Sub was renamed TCI Pacific Communications, Inc.

(8)      Debt

<TABLE>
<CAPTION>

         Debt is summarized as follows:
                                                                           September 30,       December 31,
                                                                               1997               1996
                                                                           ----------------  --------------
                                                                                  amounts in millions
          <S>                                                                  <C>                    <C>
           Notes payable (a)                                                $     9,407             9,308
           Bank credit facilities (b)                                             4,554             4,813
           Commercial paper                                                         713               638
           Convertible notes (c)                                                     40                43
           Capital lease obligations and other debt                                 439               124
                                                                            -----------     -------------

                                                                            $    15,153            14,926
                                                                            ===========     =============
</TABLE>

         (a)      During the nine months ended September 30, 1997, the Company
                  purchased in the open market 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.

                  During the nine months ended September 30, 1996, the Company
                  purchased in the open market certain notes payable which had
                  an aggregate principle balance of $809 million and fixed
                  interest rates ranging from 8.67% to 10.44% (the "1996
                  Purchases"). In connection with the 1996 Purchases, the
                  Company recognized a loss on early extinguishment of debt of
                  $62 million. Such loss related to prepayment penalties
                  amounting to $60 million and the retirement of deferred loan
                  costs.

         (b)      During the nine months ended September 30, 1996, certain
                  subsidiaries of the Company terminated, at such subsidiaries'
                  option, certain revolving bank credit facilities with
                  aggregate commitments of approximately $2 billion and
                  refinanced certain other bank credit facilities. In connection
                  with such termination and refinancings, the Company recognized
                  a loss on early extinguishment of debt of $11 million related
                  to the retirement of deferred loan costs.

                                                                     (continued)
                                      I-16
<PAGE>   18

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements


                  At September 30, 1997, subsidiaries of the Company had
                  approximately $3 billion in unused lines of credit,
                  excluding amounts related to lines of credit which provide
                  availability to support commercial paper.

         (c)      The convertible notes, which are stated net of unamortized
                  discount of $166 million at September 30, 1997 and $178
                  million at December 31, 1996, mature on December 18, 2021. The
                  notes require, so long as conversion of the notes has not
                  occurred, an annual interest payment through 2003 equal to
                  1.85% of the face amount of the notes. During the nine months
                  ended September 30, 1997, certain of these notes were
                  converted into 2,519,116 shares of Series A TCI Group Stock
                  and 958,061 shares of Series A Liberty Group Stock. At
                  September 30, 1997, the notes were convertible, at the option
                  of the holders, into an aggregate of 24,177,475 shares of
                  Series A TCI Group Stock, 12,952,093 shares of Series A
                  Liberty Group Stock and 10,387,182 shares of Series A TCI
                  Ventures Group Stock.

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

         As security for borrowings under one of the Company's bank credit
         facilities, the Company has pledged 116,853,195 shares of Series A TCI
         Group Stock held by a subsidiary of the Company. Also, as security for
         borrowings under another of the Company's credit facilities, the
         Company has pledged a portion of its Time Warner common stock with an
         estimated market value of $1.2 billion.

         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 September 30, 1997, the fair value of the Company's debt
         was $15,503 million, as compared to a carrying value of $15,153 million
         on such date.

         In order to achieve the desired balance between variable and fixed rate
         indebtedness, the Company has entered into various Interest Rate Swaps
         pursuant to which it (i) pays fixed interest rates (the "Fixed Rate
         Agreements") ranging from 7.1% to 9.3% and receives variable interest
         rates on notional amounts of $410 million at September 30, 1997 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 September 30, 1997. During the nine months
         ended September 30, 1997 and 1996, the Company's net payments pursuant
         to the Fixed Rate Agreements were less than $1 million and $3 million,
         respectively; and the Company's net receipts pursuant to the Variable
         Rate Agreements were $1 million and $11 million, respectively.

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

                    Notes to Consolidated Financial Statements



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

<TABLE>
<CAPTION>
                         Fixed Rate Agreements                              Variable Rate Agreements
                         ---------------------                              ------------------------
                Expiration         Interest rate    Notional    Expiration          Interest rate      Notional
                  date              to be paid       amount        date             to be received      amount
                ----------         -------------   ---------   --------------        --------------    ---------
           <S>                     <C>            <C>           <C>                  <C>                 <C>
           October 1997              7.1%-9.3%     $   180     September 1998            4.8%-5.4%     $     450
           December 1997                8.7%           230     April 1999                   7.4%              50
                                                   -------
                                                               September 1999               6.4%             350
                                                   $   410     February 2000             5.8%-6.6%           300
                                                   =======
                                                               March 2000                5.8%-6.0%           675
                                                               September 2000               5.1%              75
                                                               March 2027                   9.7%             300
                                                               December 2036                9.7%             200
                                                                                                       ---------
                                                                                                       $   2,400
                                                                                                       =========        
</TABLE>

         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.

         The fair value of the Interest Rate Swaps is the estimated amount that
         the Company would pay or receive to terminate the agreements at
         September 30, 1997, taking into consideration current interest rates
         and the current creditworthiness of the counterparties. At September
         30, 1997, the Company would be required to pay an estimated $2 million
         to terminate the Fixed Rate Agreements and an estimated $8 million to
         terminate the Variable Rate Agreements.

         In addition, on September 11, 1997 the Company entered into an Interest
         Rate Swap pursuant to which it pays a variable rate based on the LIBOR
         rate (6.1% at September 30, 1997) and receives a variable rate based on
         the Constant Maturity Treasury Index (6.4% at September 30, 1997) on a
         notional amount of $400 million. As of September 30, 1997, no payments
         or receipts had been made pursuant to such agreement. At September 30,
         1997, the Company would be required to pay an estimated $2 million to
         terminate such agreement.

         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-18
<PAGE>   20


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

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

         In 1996 and 1997, the Company, through certain subsidiary trusts, (the
         "Trusts"), issued preferred securities as follows:

<TABLE>
<CAPTION>

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

                                                                                                  $    1,500
                                                                                                  ==========
</TABLE>


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

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying consolidated balance sheets captioned
         "Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts holding solely subordinated debt securities of TCI
         Communications, Inc." Dividends accrued on the Trust Preferred
         Securities aggregated $96 million and $47 million during the nine
         months ended September 30, 1997 and 1996, respectively, and are
         included in minority interests in earnings of consolidated subsidiaries
         in the accompanying consolidated financial statements.

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

                    Notes to Consolidated Financial Statements



(10)     Stockholders' Equity

         Treasury Stock and Common Stock Held by Subsidiaries, at Cost

<TABLE>
<CAPTION>

                                                          September 30, 1997                 December 31, 1996
                                                  -------------------------------   ------------------------------
                                                      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:
               Series A TCI Group Stock                7,296,324   $          114               --   $           --
               Series B TCI Group Stock               30,545,864              512               --               --
               Series A Liberty Group Stock            3,035,750               74               --               --

         Common stock held by subsidiaries is summarized as follows:
               Series A TCI Group Stock              125,645,656              450      116,853,196              314
               Series B TCI Group Stock                9,112,500              141               --               --
               Series A Liberty Group Stock            4,436,245              111               --               --
               Series B Liberty Group Stock            2,278,125               57               --               --
                                                                   --------------                    --------------
                                                                   $        1,459                    $          314
                                                                   ==============                    ==============
</TABLE>

         In June 1997, the Company exchanged (the "Exchange") 30,545,864 shares
         of Series A TCI Group Stock ("TCOMA") for the same number of shares of
         Series B TCI Group Stock owned by the estate (the "Estate") of the
         former Chairman of the Board of Directors of the Company. Subsequent to
         the Exchange, the Estate sold (the "Sale") the shares of TCOMA received
         in the Exchange, together with approximately 1.5 million shares of
         TCOMA that the Estate previously owned (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 is 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.
         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 TCOMA 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 rate plus 1% on
         the Sale Price. Due to the Company's ability to settle quarterly price
         fluctuations with shares of TCOMA, the Company records all amounts
         received (paid) under this arrangement as increases (decreases) to
         equity. In connection with the Exchange Offers, the Investment Bankers
         exchanged 7,461,019 shares of TCOMA for the same number of shares of
         Series A TCI Ventures Group Stock. At September 30, 1997, the market
         value of the Options Shares exceeded the Investment Bankers' cost by
         $113 million.

                                                                    (continued)

                                      I-20
<PAGE>   22

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements


         Stock Options

         Estimated compensation relating to restricted stock awards, stock
         appreciation rights ("SARs") and options with tandem SARs awarded by
         the Company has been recorded through September 30, 1997, but is
         subject to future adjustment based upon market value, and ultimately,
         on the final determination of market value when the rights are
         exercised or the restricted stock awards are vested.

         Other

         At September 30, 1997, there were 114,611,215 shares of Series A TCI
         Group Stock, 31,584,184 shares of Series A Liberty Group Stock and
         18,547,213 shares of Series A TCI Ventures Group Stock reserved for
         issuance under exercise privileges related to options, convertible debt
         securities and convertible preferred stock. Also, one share of Series A
         TCI Group Stock is reserved for each share of Series B TCI Group Stock,
         one share of Series A Liberty Group Stock is reserved for each share of
         Series B Liberty Group Stock and one share of Series A TCI Ventures
         Group Stock is reserved for each share of Series B TCI Ventures Group
         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 416,528,172 shares of Series A TCI Group
         Stock.

(11)     Transactions with Officers and Directors

         On March 4, 1997, an executive officer who is also a director of the
         Company received an advance from a wholly-owned subsidiary of the
         Company in the amount of $5,787,505. On March 5, 1997, such individual
         received a second advance from a wholly-owned subsidiary of the Company
         in the amount of $5,813,755. The terms of the advances were
         memorialized by a promissory note. The interest rate on such loans is
         1% over the one-month LIBOR rate compounded annually. Principal
         outstanding on the note is due March 31, 1999 and interest is payable
         annually on March 1 of each year. The loan is unsecured.

         On July 24, 1997, an executive officer who is also a director of the
         Company acquired from the Company an aggregate of 7,296,324 shares of
         Series B TCI Group Stock and 2,278,125 shares of Series B Liberty Group
         Stock, in exchange for a like number of shares of Series A TCI Group
         Stock and Series A Liberty Group Stock, respectively, held by such
         executive officer and director.

         On July 24, 1997, the Company repurchased 146,625 shares of Series A
         Liberty Group Stock from the spouse of an executive officer who is 
         also a director of the Company at an aggregate cost of approximately 
         $4 million.

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

                    Notes to Consolidated Financial Statements

         On June 10, 1997 (the "IP Phase I Closing Date"), the Company issued
         139,513 shares of the Company's Series B TCI Group Stock (the "IP I
         Shares") to the IP Series B Trust I ("Trust"). An executive officer who
         is also a director of the Company is the trustee of the Trust. The IP I
         Shares were issued in connection with a partial closing under two
         Partnership Interest Purchase Agreements both dated as of June 10,
         1997, pursuant to which the Company acquired on the IP Phase I Closing
         Date (a) a 1.103% limited partnership interest in InterMedia Partners,
         a California limited partnership, (b) a 75% limited partnership
         interest in InterMedia CM - LP, and (c) a 99.998% limited partnership
         interest in InterMedia Capital Management, L.P. in exchange for total
         consideration of the IP I Shares and cash and assumption of current
         liabilities in an aggregate amount of $5,848,024.

         On August 5, 1997 (the "IP Phase II Closing Date"), the Company issued
         2,405,942 shares of the Company's Series B TCI Group Stock (the "IP II
         Shares") to the IP Series B Trust II ("Trust II"). An executive officer
         who is also a director of the Company is the trustee of the Trust II.
         The IP II Shares were issued in connection with the closing under the
         Partnership Interest Purchase Agreement dated as of August 5, 1997,
         pursuant to which the Company acquired on the IP Phase II Closing Date
         a 99.997% limited partnership interest in InterMedia Capital Management
         IV, L.P. in exchange for total consideration of the IP II Shares and
         cash and assumption of liabilities in an aggregate amount of
         $15,450,976.

         In connection with the two Partnership Interest Purchase Agreements, a
         director of the Company received a consulting fee in the amount of
         $400,000 in cash and 31,030 shares of Series B TCI Group Stock and the
         son of a director of the Company received an advisory fee in the amount
         of 36,364 shares of Series B TCI Group Stock.

(12)     Commitments and Contingencies

         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 September 30,
         1997, these agreements require minimum payments aggregating
         approximately $776 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's aggregate payments under
         the Film Licensing Obligations could prove to be significant.

         During the third quarter of 1997, the Company 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.


                                                                     (continued)

                                      I-22
<PAGE>   24

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements


         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $499 million at September 30, 1997. 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. 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.

         On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
         Following such merger (the "DMX Merger"), the Company owned 89.6% of
         the common equity and 98.7% of the voting power of TCI Music. In
         connection with such merger, the Company assumed a contingent
         obligation to purchase 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. Such obligation may be settled, at the
         Company's option, with shares of Series A TCI Group Stock or with cash.

         Certain key employees of the Company hold restricted stock awards,
         options and options with tandem SARs to acquire shares of certain
         subsidiaries' common stock. Estimates of the compensation related to
         the restricted stock awards and options and/or SARs have been recorded
         in the accompanying consolidated financial statements, but are subject
         to future adjustment based upon the market value of the respective
         common stock and, ultimately, on the final market value when the rights
         are exercised or the restricted stock awards are vested.

         Estimates of compensation relating to phantom stock appreciation rights
         ("PSARs") 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. Effective
         January 1, 1994, these employees have a put right that requires such
         subsidiary to purchase their respective PSARs. The subsidiary may call
         the PSARs on or after January 1, 1996.

         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.


                                      I-23
<PAGE>   25



                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

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

         The following discussion and analysis should be read in conjunction
with the Company's Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. The following discussion focuses on
material changes in the trends, risks and uncertainties affecting the Company's
results of operations and financial condition. Reference should also be made to
the Company's consolidated financial statements included herein.

(1)      Material changes in financial condition:

         Upon the September 10, 1997 consummation of the TCI Ventures Exchange,
188,661,300 shares of Series A TCI Group Stock and 16,266,400 shares of Series B
TCI Group Stock were exchanged for an equivalent number of shares of Series A
TCI Ventures Group Stock and Series B TCI Ventures Group Stock, respectively.
The aggregate number of shares of TCI Ventures Group Stock issued in the TCI
Ventures Exchange was intended to represent 100% of the common stockholders'
equity value of the Company attributable to the TCI Ventures Group. For
additional information concerning the TCI Ventures Exchange and the TCI Ventures
Group Stock, see note 1 to the accompanying consolidated financial statements.

         During March 1997, the Company, through special purpose entities 
formed as Delaware business trusts, issued $300 million in face value of 9.65% 
Capital Securities and $200 million in face value of 9.72% Trust Preferred
Securities. The Company used the net proceeds from such issuances to retire
commercial paper and repay certain other indebtedness.

         Effective July 31, 1997, TCI merged Kearns-Tribune Corporation into a
wholly-owned TCI subsidiary. The merger was valued at $731 million. TCI
exchanged 47.2 million shares of Series A TCI Group Stock for shares of
Kearns-Tribune Corporation which held 17.9 million shares of TCI Group Stock and
6.7 million shares of Liberty Group Stock. Liberty Media Group purchased from
TCI Group the 6.7 million shares of Liberty Group Stock that were acquired in
such transaction for $168 million in cash.

         The TBS/Time Warner Merger was consummated on October 10, 1996
whereupon Liberty Media Group received approximately 50.6 million shares of TW
Exchange Stock in exchange for its TBS holdings. On June 24, 1997 Liberty Media
Group granted Time Warner a five year option to acquire the business of Southern
(the "Southern Option") through a purchase of assets. 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 announced its
intention to exercise the Southern Option. Pursuant to the Southern Option, the
consideration for the purchase of the business of Southern will be $213 million,
payable in a form which is mutually acceptable of cash of Time Warner common
stock, together with the assumption of certain liabilities. See note 6 to the
accompanying consolidated financial statements.

                                                                     (continued)
                                      I-24
<PAGE>   26

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

    

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

         In June 1997, the Company entered into an agreement with Cablevision
pursuant to which the Company agreed to contribute certain of its cable
television systems serving approximately 820,000 basic customers to Cablevision
in exchange for approximately 12.2 million newly issued Cablevision Class A
shares. Such shares represent approximately 33% of Cablevision's total
outstanding shares. Cablevision will also assume approximately $669 million of
TCI's debt. The transaction is subject to, among other matters, Cablevision
shareholder and regulatory approvals. There is no assurance that the transaction
will be consummated.

         Including the Cablevision transaction described above, the Company
has signed agreements or letters of intent to contribute, within the next twelve
months, certain cable systems serving approximately 3 million basic customers to
various joint ventures. Such anticipated transactions, if consummated as
currently intended, would result in estimated reductions in debt and annual
revenue of approximately $4 billion and $1 billion, respectively.
Such transactions are subject to, among other matters, regulatory approval.
Accordingly, there is no assurance that any of such transactions will be
consummated.

         In January 1997, the Company acquired the 50% ownership interest in TKR
Cable that the Company did not previously own and certain additional assets for
aggregate consideration of approximately $970 million. The Company issued
approximately 16 million shares of TCI Group Stock, assumed $584 million of TKR
Cable's debt and paid cash of $88 million and shares of Time Warner common stock
valued at $41 million upon consummation of such acquisition.

         On July 31, 1996, TCIC consummated the Viacom Acquisition whereby TCIC
acquired all of the common stock of Cable Sub which owned Viacom's cable systems
and related assets. The transaction was structured as a tax-free reorganization
in which Cable Sub initially transferred all of its non-cable assets, as well as
all of its liabilities other than current liabilities, to New Viacom Sub. Cable
Sub also transferred to New Viacom Sub the proceeds of the Loan Facility.
Following these transfers, Cable Sub retained cable assets with a value at
closing of approximately $2.326 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility. Neither Viacom nor New Viacom Sub has
any obligation with respect to repayment of the Loan Proceeds. For additional
discussion of the Viacom Acquisition, see note 7 to the accompanying
consolidated financial statements.

         During the nine months ended September 30, 1997 and 1996, in order to
reduce future interest costs, the Company purchased in the open market certain
notes payable which had an aggregate principle balance of $190 million and $809
million, respectively. In connection with such purchases, the Company recognized
losses on early extinguishment of debt of $11 million and $62 million,
respectively. Such losses related to prepayment penalties and the retirement of
deferred loan costs.

         Also, during the nine months ended September 30, 1996, certain
subsidiaries of the Company terminated, at such subsidiaries' option, certain
revolving bank credit facilities with aggregate commitments of approximately $2
billion and refinanced certain other bank credit facilities. In connection with
such termination and refinancings, the Company recognized a loss on early
extinguishment of debt of $11 million related to the retirement of deferred loan
costs.

                                                                    (continued)

                                      I-25
<PAGE>   27

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

    

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

         At September 30, 1997, subsidiaries of the Company had approximately $3
billion of availability in unused lines of credit, excluding amounts related to
lines of credit which provide availability to support commercial paper. Although
such subsidiaries of the Company were in compliance with the restrictive
covenants contained in their credit facilities at said date, additional
borrowings under the credit facilities are subject to the subsidiaries'
continuing compliance with the restrictive covenants 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 consolidated financial statements for additional information
regarding the material terms of the subsidiaries' lines of credit.

         One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization and stock compensation)
($2,232 million and $1,695 million for the nine months ended September 30, 1997
and 1996, respectively) to interest expense ($883 million and $803 million for
the nine months ended September 30, 1997 and 1996, respectively), is determined
by reference to the consolidated statements of operations. The Company's
interest coverage ratio was 253% and 211% for the nine months ended September
30, 1997 and 1996, respectively. Management of the Company believes that the
foregoing interest coverage ratio is adequate in light of the relative
predictability of its cable television operations and interest expense, 50% of
which results from fixed rate indebtedness. However, the Company's current
intent is to reduce its outstanding indebtedness such that its interest coverage
ratio could be increased. There is no assurance that the Company will be able to
achieve such objective. Operating Cash Flow is a measure of value and borrowing
capacity within the cable television industry and is not intended to be a
substitute for cash flows provided by operating activities, a measure of
performance prepared in accordance with generally accepted accounting
principles, and should not be relied upon as such. Operating Cash Flow, as
defined, does not take into consideration substantial costs of doing business,
such as interest expense, and should not be considered in isolation to other
measures of performance.

     Another measure of liquidity is net cash provided by operating activities,
as reflected in the accompanying consolidated statements of cash flows. Net cash
provided by operating activities ($1,214 million and $841 million for the nine
months ended September 30, 1997 and 1996, respectively) generally reflects net
cash from the operations of the Company available for the Company's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow. Prior to 1997,
amounts expended by the Company for its investing activities exceeded net cash
provided by operating activities. The Company has reevaluated its capital
expenditure strategy and currently anticipates that it will expend significantly
less for property and equipment in 1997 than it did in 1996. In this regard, the
amount of capital expended by the Company for property and equipment was $419
million during the nine months ended September 30, 1997, as compared to $1,526
million during the corresponding period in 1996. The Company currently estimates
that it will spend between $550 million and $600 million for capital
expenditures during 1997. To the extent that net cash provided by operating
activities exceeds net cash used in investing activities in 1997, the Company
currently anticipates that such excess cash will initially be used to reduce
outstanding debt.

                                                                    (continued)
                                      I-26
<PAGE>   28



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

         In the event the Company is unable to achieve such objectives,
management believes that net cash provided by operating activities, the ability
of the Company and its subsidiaries to obtain additional financing (including
the subsidiaries available lines of credit and access to public debt markets),
issuances and sales of the Company's equity or equity of its subsidiaries, and
proceeds from disposition of assets will provide adequate sources of short-term
and long-term liquidity in the future. See the Company's consolidated statements
of cash flows included in the accompanying consolidated financial statements.

         The Company is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through 2017. Based on customer
levels at September 30, 1997, these agreements require minimum payments
aggregating approximately $776 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's aggregate payments under the Film Licensing
Obligations could prove to be significant.

         During the third quarter of 1997, the Company 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 $499
million at September 30, 1997. 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. 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.

         In connection with the DMX Merger, the Company assumed a contingent
obligation to repurchase 14,896,648 (6,812,393 of which are owned by
subsidiaries of the Company) shares of TCI Music common stock at a price of
$8.00 per share. Such obligation may be settled, at the Company's option, with
shares of Series A TCI Group Stock or with cash.

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

                                                                    (continued)
                                      I-27
<PAGE>   29

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

    

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

         In order to achieve the desired balance between variable and fixed rate
indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various Interest Rate Swaps.
Pursuant to the Interest Rate Swaps, the Company (i) pays fixed interest rates
ranging from 7.1% to 9.3% and receives variable interest rates on notional
amounts of $410 million at September 30, 1997 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 September 30, 1997. During the nine months ended
September 30, 1997 and 1996, the Company's net payments pursuant to the Fixed
Rate Agreements were less than $1 million and $3 million, respectively; and the
Company's net receipts pursuant to the Variable Rate Agreements were $1 million
and $11 million, respectively. 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. See note 8 to the
accompanying consolidated financial statements for additional information
regarding Interest Rate Swaps.

         In addition, on September 11, 1997 the Company entered into an Interest
Rate Swap pursuant to which it pays a variable rate based on the LIBOR rate
(6.1% at September 30, 1997) and receives a variable rate based on the Constant
Maturity Treasury Index (6.4% at September 30, 1997) on a notional amount of
$400 million. As of September 30, 1997, no payments or receipts had been made
pursuant to such agreement. At September 30, 1997, the Company would be required
to pay an estimated $2 million to terminate such agreement.

         At September 30, 1997, after considering the net effect of the
aforementioned Interest Rate Swaps, the Company had $7,536 million (or 50%) of
fixed-rate debt and $7,617 million (or 50%) of variable-rate debt. Accordingly,
in an environment of rising interest rates, the Company could experience an
increase in its interest expense.

         In June 1997, the Company exchanged 30,545,864 shares of TCOMA for the
same number of shares of Series B TCI Group Stock owned by the Estate of the
former Chairman of the Board of Directors of the Company. Subsequent to the
Exchange, the Estate sold the shares of TCOMA received in the Exchange, together
with approximately 1.5 million shares of TCOMA that the Estate previously owned,
to two investment banking firms for approximately $530 million. 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 from the date of the Sale. During the Option Period, the
Company is 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. 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 TCOMA 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 rate plus 1% on the Sale Price. Due
to the Company's ability to settle quarterly price fluctuations with shares of
TCOMA, the Company records all amounts received (paid) under this arrangement as
increases (decreases) to equity. In connection with the Exchange Officers, the
Investment Bankers exchanged 7,461,019 shares of TCOMA for the same number of
shares of Series A TCI Ventures Group Stock.
        
                                                                    (continued)
                                      I-28
<PAGE>   30

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

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

         Subsequent to September 30, 1997, pursuant to the above agreement, the
Company purchased 4,000,000 shares of TCOMA from one of the Investment Bankers
at an aggregate cost of $66 million in cash.

         During the nine months ended September 30, 1997, Liberty Media Group
repurchased 611,000 shares of Series A Liberty Group Stock in open market
transactions and 146,625 shares of Series A Liberty Group Stock from the spouse
of an officer and director of the Company, at an aggregate cost of $18 million.
Such shares are reflected as treasury stock in the accompanying consolidated
financial statements.

         In September 1997, the Board authorized a stock repurchase program,
under which TCI may repurchase from time to time up to five percent of its TCI
Group Stock and TCI Ventures Group Stock.

         During the third quarter of 1997, TCI commenced a tender offer (the
"Offer") to purchase up to an aggregate of 15 million shares of its Liberty
Group Stock at a price of $30 per share through October 3, 1997. Subsequent to
September 30, 1997, the Company repurchased 14,443,323 shares of Series A
Liberty Group Stock and 54,716 shares of Series B Liberty Group Stock at an
aggregate cost of approximately $435 million pursuant to the Offer.


(2) Material changes in results of operations:

         Communications and Programming Services Revenue

         The operation of the Company'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
(collectively, the "Cable Acts") established rules under which the Company's
basic and tier service rates and its equipment and installation charges (the
"Regulated Services") are regulated if a complaint is filed or if the
appropriate franchise authority is certified. Approximately 78% of the Company's
basic customers were served by cable television systems that were subject to
such rate regulation.

         During the nine months ended September 30, 1997, 65% of the Company's
revenue from Communications and Programming Services 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 the
Company's ability to increase its service rates.

         Through December 4, 1996, the Company had an investment in a direct
broadcast satellite partnership, PRIMESTAR Partners L.P. ("Primestar").
Primestar provides programming and marketing support to each of its cable
partners who provide satellite television service to their customers. On
December 4, 1996, the Company distributed (the "Satellite Spin-off") to the
holders of shares of TCI Group Stock all of the issued and outstanding common
stock of TCI Satellite Entertainment, Inc. ("Satellite"). At the time of the
Satellite Spin-off, Satellite's assets and operations included the Company's
interest in Primestar, the Company's business of distributing Primestar
programming and two communications satellites. As a result of the Satellite
Spin-off, Satellite's operations are no longer consolidated with those of the
Company.
    
                                                                    (continued)
                                      I-29
<PAGE>   31

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES



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

         Revenue from communications and programming services increased 6% for
the three months ended September 30, 1997, as compared to the corresponding
period of 1996. Exclusive of the effects of acquisitions, revenue from the
Company's domestic cable customers accounted for 1% of such increase primarily
as a result of a 4% increase in basic revenue and a 7% decrease in premium
revenue. The Company experienced a 6% increase in its average basic rate, a 2%
decrease in the number of average basic customers, a 10% increase in its average
premium rate and a 16% decrease in the number of average premium customers. In
addition, the Company's revenue from communications and programming services
increased 8% due to acquisitions, decreased 5% due to the Satellite Spin-off and
increased 2% due to the Company's domestic programming revenue (from Encore
Media Corporation and QE+Ltd.), international cable revenue and other revenue.

         Revenue from communications and programming services increased 10% for
the nine months ended September 30, 1997, as compared to the corresponding
period of 1996. Exclusive of the effects of acquisitions, revenue from the
Company's domestic cable customers accounted for 3% of such increase primarily
as a result of a 8% increase in basic revenue and a 4% decrease in premium
revenue. The Company experienced a 10% increase in its average basic rate, a 1%
decrease in the number of average basic customers, a 6% increase in its average
premium rate and a 10% decrease in the number of average premium customers. In
addition, the Company's revenue from communications and programming services
increased 12% due to acquisitions, decreased 5% due to the Satellite Spin-off
and decreased 2% due to the deconsolidation of the Company's sports programming
businesses. Increases in the Company's domestic programming revenue (from Encore
Media Corporation and QE+Ltd.), international cable revenue and other revenue
accounted for the remaining 2% increase.

         Net Sales From Electronic Retailing Services

         As a result of the HSN Merger in December 1996, HSN is no longer a
consolidated subsidiary of the Company. Accordingly, the Company no longer
reports revenue or cost of sales related to electronic retailing services. See
note 5 to the accompanying consolidated financial statements.

         Operating Costs and Expenses

         Operating expenses decreased 3% for the three months ended September 
30, 1997, as compared to the corresponding period of 1996. Exclusive of the 
effects of dispositions, net of acquisitions, such expenses were relatively 
comparable to the prior period.

         Operating expenses increased 2% for the nine months ended September 30,
1997, as compared to the corresponding period of 1996. Exclusive of the effects
of dispositions, net of acquisitions, such expenses increased 7% from the prior
period. Programming expenses accounted for the majority of such increase. The
Company cannot determine whether and to what extent increases in the cost of
programming will affect its future operating costs.

                                                                    (continued)
                                      I-30
<PAGE>   32


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

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

         Selling, general and administrative expenses decreased 24% and 21% for
the three months and nine months ended September 30, 1997, as compared to the
corresponding periods of 1996. Such decreases are primarily due to dispositions,
including Satellite and HSN. Exclusive of the effects of dispositions, net of
acquisitions, such expenses were relatively comparable to the prior periods. The
Company increased the level of its marketing expenditures during the third
quarter of 1997. Depending upon the effectiveness of such increased
expenditures, the Company may determine to maintain or increase the level of
such expenditures in future periods.

         The change in the Company's depreciation and amortization expense in
1997 is the result of the net effect of increases due to acquisitions and
capital expenditures largely offset by a decrease due to the Satellite Spin-off.

         The Company records compensation relating to stock appreciation rights
and restricted stock awards granted to certain employees. Such compensation is
subject to future adjustment based upon market value, and ultimately, on the
final determination of market value when the rights are exercised or the
restricted stock awards are vested.

         Other Income and Expenses

         Interest expense aggregated $300 million and $883 million for the three
months and nine months ended September 30, 1997, respectively, as compared to
$277 million and $803 million for the corresponding periods in 1996. Such
increases are due to the net effect of increased debt balances as a result of
the Viacom Acquisition in August 1996 partially offset by a lower weighted
average interest rate in 1997. See note 8 to the accompanying consolidated
financial statements.

         At September 30, 1997, the Company had an effective ownership interest
of approximately 27% in Telewest, a company that is currently operating and
constructing cable television and telephone systems in the UK. Telewest, which
is accounted for under the equity method, had a carrying value at September 30,
1997 of $352 million and comprised $111 million and $99 million of the Company's
share of its affiliates' losses during the nine months ended September 30, 1997
and 1996, respectively. In addition to the Company's investments in Telewest and
Flextech, the Company has other less significant investments accounted for under
the equity method 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, Flextech and such other equity method investments
had a carrying value of $572 million at September 30, 1997 and accounted for $75
million and $55 million of the Company's share of its affiliates' losses for the
nine months ended September 30, 1997 and 1996, respectively. Additionally,
included in share of losses of affiliates for the nine months ended September
30, 1997 and 1996 is $304 million and $112 million, respectively, attributable
to the PCS Ventures. Such 1996 amount includes $34 million associated with prior
periods. The increase in the share of losses of the PCS Ventures is attributed
primarily to general and administrative costs associated with the start-up of
operations and Sprint Spectrum's share of losses in APC.

                                                                    (continued)
                                      I-31
<PAGE>   33

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

    

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

         Minority interests in earnings of consolidated subsidiaries aggregated
$35 million and $129 million for the three months and nine months ended
September 30, 1997, respectively, as compared to $28 million and $32 million for
the corresponding periods in 1996. The majority of such change is due to the
issuance of additional Trust Preferred Securities in May 1996 and March 1997 and
the accrual of dividends on preferred securities issued in August 1996 by a
subsidiary of the Company. See note 9 to the accompanying consolidated financial
statements.

         During the nine months ended September 30, 1997, as a result of TCG
issuing additional shares of its Class A common stock for certain acquisitions,
the Company's ownership interest in TCG was reduced from approximately 31% to
approximately 30%. Accordingly, the Company recognized a gain amounting to $21
million (before deducting deferred income tax expense of approximately $8
million). See note 5 to the accompanying consolidated financial statements.

         On July 11, 1997, @Home completed its initial public offering (the
"IPO"), in which 10,350,000 shares of @Home common stock were sold to the public
for aggregate cash consideration of approximately $109 million before
commissions and fees. As a result of the 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 the TCI Ventures Group's ownership interest of @Home, the TCI Ventures Group
recognized a gain of $60 million.

         September 26, 1997, the Company sold its interest in TCID of New 
Zealand Inc. for cash proceeds of $53 million. The Company recognized a gain on 
such sale of $58 million.

         During the three months ended September 30, 1997, the Company
recognized a $29 million loss in connection with the disposition of certain
preferred stock.

         Also, during the nine months ended September 30, 1997, TSX, an equity
affiliate of the Company, and Antec entered into a business combination with
Antec being the surviving entity. In connection with such transaction, the
Company recognized a $29 million gain (before deducting deferred income tax
expense of approximately $12 million) representing the difference between the
fair value of the Antec shares received and the carrying value of the Company's
investment in TSX at the date of the transaction. Upon completion of this
transaction, the Company's ownership interest decreased from an approximate 45%
interest in TSX to an approximate 16% ownership interest in Antec. See note 5 to
the accompanying consolidated financial statements.
     

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

    


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

         On August 1, 1997, Liberty IFE, Inc., a wholly owned subsidiary of
Liberty Media Group, which held IFE Class C Stock and $23 million of IFE
Convertible Notes, contributed its Class C Stock and Convertible Notes to FKW in
exchange for the FKW Preferred Stock. As a result of the exchange, the Company
recognized a pre-tax gain of approximately $304 million. See note 7 to the
accompanying consolidated financial statements.

         Net Loss

         As a result of the above-described fluctuations in the Company's
operating results, the Company's net loss (before preferred stock dividend
requirements) of $22 million for the three months ended September 30, 1997
decreased by $116 million, as compared to the Company's net loss (before
preferred stock dividend requirements) of $138 million for the three months
ended September 30, 1996, and the Company's net loss (before preferred stock
dividend requirements) of $234 million for the nine months ended September 30,
1997 decreased by $212 million, as compared to the Company's net loss (before
preferred stock dividend requirements) of $446 million for the nine months ended
September 30, 1996.






                                      I-33
<PAGE>   35

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

                             Combined Balance Sheets
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                           September 30,        December 31,
                                                                               1997                 1996*
                                                                           ---------------  ----------------
Assets                                                                            amounts in millions
------
<S>                                                                        <C>                      <C>
Cash and cash equivalents                                                  $          1                   --

Trade and other receivables, net                                                    347                  308

Prepaid expenses                                                                     60                   77

Committed film inventory                                                             --                   50

Investments in affiliates, accounted for under the equity method,
   and related receivables (note 5)                                                 611                  388

Property and equipment, at cost:
   Land                                                                              77                   69
   Distribution systems                                                           9,925                9,311
   Support equipment and buildings                                                1,347                1,321
                                                                           ------------          -----------
                                                                                 11,349               10,701
   Less accumulated depreciation                                                  4,367                3,920
                                                                           ------------          -----------
                                                                                  6,982                6,781
                                                                           ------------          -----------

Franchise costs                                                                  17,812               17,153
   Less accumulated amortization                                                  2,627                2,360
                                                                           ------------          -----------
                                                                                 15,185               14,793
                                                                           ------------          -----------

Other assets, net of amortization                                                   581                  547
                                                                           ------------          -----------

                                                                           $     23,767               22,944
                                                                           ============          ===========
</TABLE>

*  Restated - see note 1.

                                                                    (continued)

                                      I-34
<PAGE>   36


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

                       Combined Balance Sheets, continued
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                           September 30,        December 31,
                                                                               1997                 1996*
                                                                           -------------        ------------
Liabilities and Combined Deficit                                                  amounts in millions
--------------------------------
<S>                                                                        <C>                  <C>
Accounts payable                                                           $        86                  194

Accrued interest                                                                   165                  266

Accrued expenses                                                                   974                  689

Debt (note 7)                                                                   14,188               14,319

Deferred income taxes                                                            5,268                5,210

Other liabilities                                                                  460                  214
                                                                           -----------          -----------

      Total liabilities                                                         21,141               20,892
                                                                           -----------          -----------

Minority interests in equity of consolidated subsidiaries                        1,082                1,083

Redeemable preferred stock                                                         655                  658

Company-obligated mandatorily redeemable preferred securities of 
   subsidiary trusts ("Trust Preferred Securities") holding 
   solely subordinated debt securities of TCI Communications, 
   Inc. ("TCIC") (note 8)                                                        1,500                1,000

Combined deficit (note 9):
   Combined equity, including preferred stocks of
      Tele-Communications, Inc. ("TCI")                                            (98)               1,864
   Unrealized holding gains for available-for-sale   securities, net
   of taxes                                                                          8                   --
   TCI Ventures Group cumulative foreign currency translation
      adjustment, net of taxes                                                      --                   26
   TCI Ventures Group unrealized holding gains for
      available-for-sale securities, net of taxes                                   --                   15
   Interest in TCI Ventures Group                                                   --               (2,729)
                                                                           -----------          -----------
                                                                                   (90)                (824)

   Due to (from) related parties (note 10)                                        (521)                 135
                                                                           -----------          -----------

      Total combined deficit                                                      (611)                (689)
                                                                           -----------          -----------
Commitments and contingencies (note 12)

                                                                           $    23,767               22,944
                                                                           ===========          ===========
*  Restated - see note 1.

See accompanying notes to combined financial statements.

</TABLE>


                                      I-35
<PAGE>   37





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

                        Combined Statements of Operations
                                   (unaudited)


<TABLE>
<CAPTION>

                                                      Three months ended               Nine months ended
                                                          September 30,                   September 30,
                                               ------------------------------      -------------------------
                                                    1997               1996*             1997          1996*
                                               ------------      -----------       ------------     ----------
                                                          amounts in millions, except per share amounts

<S>                                            <C>                  <C>               <C>              <C>  
Revenue                                        $  1,618             1,554             4,779            4,278
                                                                                                    
Operating costs and expenses:                                                                       
    Operating                                       510               556             1,640            1,514
    Purchases of services from related                                                              
      parties (note 10)                              54                24               103               81
    Selling, general and administrative             349               441             1,009            1,193
    Charges to related parties (note 10)             (3)               (2)               (8)              (8)
    Stock compensation (notes 9 and 12)              61               (15)               99              (24)
    Depreciation and amortization                   338               344             1,032            1,003
                                               --------          --------          --------         --------
                                                  1,309             1,348             3,875            3,759
                                               --------          --------          --------         --------
                                                                                                    
        Operating income                            309               206               904              519
                                                                                                    
Other income (expense):                                                                             
    Interest expense                               (292)             (258)             (843)            (751)
    Interest income                                  13                 8                28               20
    Intercompany interest                             7                (3)                3               (9)
    Share of losses of affiliates, net                                                              
      (note 5)                                      (16)               (8)              (50)             (54)
    Loss on early extinguishment of debt                                                            
      (note 7)                                       --                (7)              (11)             (73)
    Minority interests in earnings of                                                               
      consolidated subsidiaries, net (note 8)       (42)              (34)             (125)             (51)
    Gain (loss) on disposition of assets                                                            
      (note 5)                                      (44)               --                (9)               2
    Other, net                                        3               (14)              (11)             (18)
                                               --------          --------          ---------        --------
                                                   (371)             (316)           (1,018)            (934)
                                               --------          --------          --------         --------
                                                                                                    
        Loss before income taxes                    (62)             (110)             (114)            (415)
                                                                                                    
Income tax benefit                                    4                23                11              118
                                               --------          --------          --------         --------
                                                                                                    
        Loss before loss of TCI Ventures                                                            
           Group (note 1)                           (58)              (87)             (103)            (297)
                                                                                                    
                                                                                                    
 Loss of TCI Ventures Group through the date                                                         
   of the TCI Ventures Exchange (note 1)           (149)              (62)             (338)            (185)
                                               --------          --------          --------         --------
                                                                                                    
        Net loss                                   (207)             (149)             (441)            (482)
                                                                                                    
Dividend requirements on preferred stocks           (10)               (9)              (31)             (27)
                                               --------          --------          ---------        --------
                                                                                                    
        Net loss attributable to common                                                             
           stockholders                        $   (217)             (158)             (472)            (509)
                                               ========          ========          ========         ========
                                                                                                    
Loss attributable to common stockholders                                                            
   per common share (note 2)                   $   (.33)             (.25)             (.70)            (.77)
                                               ========          ========          ========         ========
</TABLE>

*  Restated - see note 1.

See accompanying notes to combined financial statements.

                                      I-36
<PAGE>   38
                                 "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                         Statement of Combined Deficit

                      Nine months ended September 30, 1997
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                                                            TCI
                                                                                                           TCI           Ventures
                                                                                                        Ventures           Group
                                                                                   Unrealized             Group         unrealized
                                                                  Combined        holding gains        cumulative         holding
                                                                   equity,       for available-          foreign         gains for
                                                                  including         for-sale             current        available-
                                                                  preferred        securities          translation       for-sale 
                                                                  stocks of          net of            adjustment,      securities,
                                                                     TCI              taxes           net of taxes     net of taxes
                                                                  ---------      --------------       ------------     ------------
                                                                                                           amounts in millions
<S>                                                               <C>                  <C>                 <C>             <C>
Balance at January 1, 1997 *                                      $ 1,864              --                   26              15 
   Net loss                                                          (441)             --                   --              -- 
   Purchases of services from related parties                          --              --                   --              -- 
   Cost allocations to related parties                                 --              --                   --              -- 
   Allocation of stock compensation                                    --              --                   --              -- 
   Intergroup tax allocation                                           --              --                   --              -- 
   Issuance of notes from related party                                --              --                   --              -- 
   Interest expense from related party                                 --              --                   --              -- 
   Excess consideration received over carryover basis of                                                                 
      net assets transferred to related party                         244              --                   --              -- 
   Sale of Liberty Group Stock to related party (note 6)              168              --                   --              -- 
   Transfers of assets to related party                               (15)             --                   --              --
   Adjustment to reflect deferred gain on sale by related
      party                                                           (47)             --                   --              --
   Other intercompany transfers                                        --              --                   --              -- 
   Change in unrealized gains for available-for-sale                                                                     
      securities                                                       --               8                   --               4 
   Foreign currency translation adjustment                             --              --                  (19)             -- 
   Distribution of TCI Series A and Series B TCI Ventures                                                                
      Group common stock                                           (2,413)             --                   (7)            (19)
   Costs associated with TCI Ventures Exchange                         (5)             --                   --              -- 
   Accreted dividends on TCI preferred stock subject to                                                                  
      mandatory redemption requirements                               (24)             --                   --              -- 
   Payment of TCI preferred stock dividends                           (10)             --                   --              -- 
   Recognition of fees related to Exchange (note 9)                   (11)             --                   --              -- 
   Issuance of common stock for acquisitions                                                                             
      and investment                                                  574              --                   --              -- 
   Issuance of common stock upon conversion                                                                              
      of notes and preferred stock                                      4              --                   --              -- 
   Issuance of restricted stock granted pursuant to stock                                                                
      incentive plan                                                    4              --                   --              -- 
   Issuance of common stock upon exercise of stock options              4              --                   --              -- 
   Issuance of common stock to TCI Employee                                                                              
      Stock Purchase Plan                                               6              --                   --              -- 
                                                                  -------             ---                  ---             --- 
                                                                                                                         
Balance at September 30, 1997                                     $   (98)              8                   --              -- 
                                                                  =======             ===                  ===             === 
                                                                                                                           
<CAPTION>
                                                               Interest       Due to                      
                                                                in TCI        (from)             
                                                               Ventures      related       Combined      
                                                                 Group       parties       deficit     
                                                               ---------    ---------      --------     
<S>                                                             <C>            <C>           <C>  
Balance at January 1, 1997 *                                    (2,729)        135           (689)
   Net loss                                                        338          --           (103)
   Purchases of services from related parties                       18          85            103
   Cost allocations to related parties                              (7)         (1)            (8)
   Allocation of stock compensation                                (56)        (63)          (119)
   Intergroup tax allocation                                       151         (16)           135
   Issuance of notes from related party                             --        (430)          (430)
   Interest expense from related party                              --          (7)            (7)
   Excess consideration received over carryover basis of
      net assets transferred to related party                       --          --            244
   Sale of Liberty Group Stock to related party (note 6)            --          --            168
   Transfers of assets to related party                             --          --            (15)
   Adjustment to reflect deferred gain on sale by related
      party                                                         --          --            (47)
   Other intercompany transfers                                   (169)       (224)          (393)
   Change in unrealized gains for available-for-sale
      securities                                                    (4)         --              8
   Foreign currency translation adjustment                          19          --             --
   Distribution of TCI Series A and Series B TCI Ventures
      Group common stock                                         2,439          --             --
   Costs associated with TCI Ventures Exchange                      --          --             (5)
   Accreted dividends on TCI preferred stock subject to
      mandatory redemption requirements                             --          --            (24)
   Payment of TCI preferred stock dividends                         --          --            (10)
   Recognition of fees related to Exchange (note 9)                 --          --            (11)
   Issuance of common stock for acquisitions
      and investment                                                --          --            574
   Issuance of common stock upon conversion
      of notes and preferred stock                                  --          --              4
   Issuance of restricted stock granted pursuant to stock
      incentive plan                                                --          --              4
   Issuance of common stock upon exercise of stock options          --          --              4
   Issuance of common stock to TCI Employee
      Stock Purchase Plan                                           --          --              6
                                                                ------        ----           ----

Balance at September 30, 1997                                       --        (521)          (611)
                                                                ======        ====           ====

</TABLE>

*  Restated - see note 1.

See accompanying notes to combined financial statements.


                                      I-37
<PAGE>   39


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

                        Combined Statements of Cash Flows
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                           Nine months ended
                                                                                             September 30,
                                                                                      -------------------------
                                                                                         1997           1996*
                                                                                      ---------       ---------
                                                                                        amounts in millions
                                                                                            (see note 4)

<S>                                                                                   <C>            <C>  
Cash flows from operating activities:
   Loss before loss of TCI Ventures Group**                                           $    (103)          (297)
   Adjustments to reconcile loss before loss of TCI Ventures Group to net cash
      provided by operating activities:
        Depreciation and amortization                                                     1,032          1,003
        Stock compensation                                                                   99            (24)
        Payments of obligation relating to stock compensation                               (21)            (2)
        Share of losses of affiliates, net                                                   50             54
        Loss on early extinguishment of debt                                                 11             73
        Minority interests in earnings of consolidated subsidiaries, net                    125             51
        Loss (gain) on disposition of assets                                                  9             (2)
        Intergroup tax allocation                                                           135             87
        Deferred income tax benefit                                                        (239)          (211)
        Payments of restructuring charges                                                   (21)            --
        Other noncash credits                                                                (1)           (12)
        Changes in operating assets and liabilities, net of the effect of
          acquisitions:
             Change in receivables                                                          (44)             9
             Change in prepaids                                                             (83)           (16)
             Change in accruals and payables                                                162            (39)
             Change in accrued interest                                                    (108)           (49)
                                                                                      ---------      ---------
                Net cash provided by operating activities                                 1,003            625
                                                                                      ---------      ---------
Cash flows from investing activities:
   Cash paid for acquisitions                                                              (274)           (88)
   Capital expended for property and equipment                                             (273)        (1,384)
   Additional investments in and loans to affiliates and others                             (56)          (365)
   Repayment of loans to affiliates                                                          16            299
   Proceeds from dispositions of assets                                                     171            139
   Cash received in exchanges                                                                20             69
   Sale of Liberty Group Stock to related party                                             168             --
   Change in interest in TCI Ventures Group                                                (158)          (360)
   Other investing activities                                                                14            (18)
                                                                                      ---------      ---------
                Net cash used in investing activities                                      (372)        (1,708)
                                                                                      ---------      ---------
Cash flows from financing activities:
   Borrowings of debt                                                                     3,059          6,782
   Repayments of debt                                                                    (3,860)        (6,973)
   Net change in due to related parties                                                    (147)           237
   Prepayment penalties                                                                      (7)           (60)
   Proceeds from issuance of common stock                                                     3             --
   Proceeds from issuance of Trust Preferred Securities                                     490            971
   Proceeds from issuance of subsidiary preferred stock                                      --            223
   Costs associated with TCI Ventures Exchange                                               (5)            --
   Payment of preferred stock dividends                                                     (37)           (34)
   Payment of dividends on subsidiary preferred stock and Trust Preferred
      Securities                                                                           (126)           (56)
                                                                                      ---------      ---------
                Net cash provided (used) by financing activities                           (630)         1,090
                                                                                      ---------      ---------
                Net increase in cash and cash equivalents                                     1              7

                Cash and cash equivalents at beginning of period                             --             --
                                                                                      ---------      ---------
                Cash and cash equivalents at end of period                            $       1              7
                                                                                      =========      =========
                                                                                                              
</TABLE>

*    Restated - see note 1.
**   Loss of TCI Ventures Group does not provide or use funds.


See accompanying notes to combined financial statements.

                                      I-38
<PAGE>   40






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

                     Notes to Combined Financial Statements

                               September 30, 1997
                                   (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. 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.

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue two new series of stock
         ("Liberty Group Stock") which reflect the separate performance of TCI's
         assets which produce and distribute cable television 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 (the "Series A TCI Group Stock") and Tele-Communications,
         Inc. Series B TCI Group common stock (the "Series B TCI Group Stock",
         and together with the Series A TCI Group Stock, the "TCI Group Stock").
         On August 10, 1995, TCI distributed, in the form of a dividend, one
         share of Liberty Group Stock for each four shares of TCI Group Stock
         owned. Such distribution (the "Liberty Distribution") represented one
         hundred percent of the equity value attributable to Liberty Media
         Group.

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group common
         stock (the "Series A TCI Ventures Group Stock") and
         Tele-Communications, Inc. Series B TCI Ventures Group common stock (the
         "Series B TCI Ventures Group Stock," and together with the Series A TCI
         Ventures Group Stock, the "TCI Ventures Group Stock"). The TCI Ventures
         Group Stock reflects the separate performance of the TCI Ventures
         Group. On August 28, 1997, TCI Ventures Group consisted principally of
         the following assets and their related liabilities, which prior to the
         issuance of the TCI Ventures Group Stock were attributed to TCI Group:
         (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 Liberty Media Group), (ii) TCI's principal
         interests in the telephony business consisting primarily of TCI's
         investment in a series of partnerships formed to engage in the business
         of providing wireless communications services, TCI's 30% equity
         interest (representing a 37% voting interest) in Teleport
         Communications Group Inc. ("TCG"); and Western Tele-Communications,
         Inc., a wholly-owned subsidiary of TCI, (iii) TCI's 40% equity interest
         (representing a 85% voting interest in United Video Satellite Group,
         Inc. ("UVSG"), (iv) TCI's 39% equity interest (representing a 72%
         voting interest) in At Home Corporation ("@Home") and (v) other assets,
         including TCI's National Digital Television Center, Inc. ("NDTC"); ETC
         w/tci, Inc., an 80% owned subsidiary of TCI; and TCI SUMMITrak of
         Texas, Inc. and TCI SUMMITrak L.L.C., wholly-owned subsidiaries of TCI.
         Such subsidiaries and assets are referred to as "TCI Ventures Group."
         The stocks of TINTA, TCG, UVSG and @Home are traded on the National
         Market tier of The Nasdaq Stock Market.
                                                                   (continued)


                                      I-39
<PAGE>   41

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

                     Notes to Combined Financial Statements


         Prior to stockholder approval to issue the TCI Ventures Group Stock,
         TCI commenced offers (the "Exchange Offers") to exchange shares of
         Series A TCI Ventures Group Stock and Series B TCI Ventures Group Stock
         for shares of Series A TCI Group Stock and shares of Series B TCI Group
         Stock, respectively, (representing approximately 30% of the outstanding
         shares of each such series as of June 30, 1997, excluding shares held
         by majority-owned subsidiaries of TCI) in the ratio of one share of the
         applicable series of TCI Ventures Group Stock in exchange for each
         share of the corresponding series of TCI Group Stock properly tendered.
         Upon the September 10, 1997 consummation of the Exchange Offers,
         188,661,300 shares of Series A TCI Group Stock and 16,266,400 shares of
         Series B TCI Group Stock were exchanged for an equivalent number of
         shares of Series A TCI Ventures Group Stock and Series B TCI Ventures
         Group Stock, respectively, (the "TCI Ventures Exchange").

         Issuance of the Liberty Group Stock and 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.

         As of September 30, 1997, the TCI Group Stock reflects the separate
         performance of TCI's subsidiaries and assets not attributed to Liberty
         Media Group or TCI Ventures Group. Such subsidiaries and assets are
         collectively referred to as "TCI Group" and are comprised primarily of
         TCI's domestic cable and communications business.

         As a result of the TCI Ventures Exchange, TCI Group restated its
         financial statements to exclude those assets and related liabilities
         which were attributed to TCI Ventures Group but were attributed to TCI
         Group prior to the issuance of the TCI Ventures Group Stock.

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense to TCI Group for purposes of preparing its
         combined financial statements, the change in the capital structure of
         TCI 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 are
         holders of common stock of TCI and continue to be subject to risks
         associated with an investment in TCI and all of its businesses, assets
         and liabilities. The issuance of Liberty Group Stock and TCI Ventures
         Group Stock did not affect the rights of creditors of TCI.

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

                                                                     (continued)

                                      I-40
<PAGE>   42

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

                     Notes to Combined Financial Statements



         The common stockholders' equity value of TCI Ventures Group or Liberty
         Media Group that, at any relevant time, is attributed to the TCI Group,
         and accordingly not represented by outstanding TCI Ventures Group Stock
         or Liberty Media Group Stock, respectively, is referred to as
         "Inter-Group Interest." Prior to the consummation of the Exchange
         Offers, TCI Group had a 100% Inter-Group Interest in TCI Ventures
         Group. Following the consummation of the Exchange Offers, TCI Group no
         longer has an Inter-Group Interest in TCI Ventures Group. For periods
         in which an Inter-Group Interest exists, TCI Group would account for
         its Inter-Group Interest in a manner similar to the equity method of
         accounting. For periods after the consummation of the Exchange Offers
         and before the creation of an Inter-Group Interest, TCI Group would not
         reflect any interest in TCI Ventures Group. An Inter-Group Interest
         would be created 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. Management of TCI believes that generally
         accepted accounting principles require that TCI Ventures Group be
         consolidated with TCI Group for all periods in which TCI Group held an
         "Inter-Group Interest" in TCI Ventures Group.

         The accompanying interim combined financial statements are unaudited
         but, in the opinion of management, reflect all adjustments (consisting
         of normal recurring accruals) necessary for a fair presentation of the
         results for such periods. The results of operations for any interim
         period are not necessarily indicative of results for the full year.
         These combined financial statements should be read in conjunction with
         the audited combined financial statements of TCI Group for the year
         ended December 31, 1996.

         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.

(2)      Loss Per Common Share

         The Financial Accounting Standards Board recently issued Statement of
         Financial Accounting Standards No. 128, "Earnings Per Share"
         "Statement No. 128"). Statement No. 128 requires the presentation of
         basic earnings per share ("EPS") and, for companies with potential
         dilutive securities, such as convertible debt, options and warrants,
         diluted EPS. Statement No. 128 is effective for annual and interim
         periods ending after December 31, 1997. TCI Group does not expect that
         Statement No. 128 will have a material impact on TCI Group's loss per
         share.


                                                                     (continued)

                                      I-41
<PAGE>   43

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

                     Notes to Combined Financial Statements


         The loss attributable to TCI Group Stock stockholders per common share
         was computed by dividing net loss attributable to TCI Group Stock
         stockholders by the weighted average number of common shares
         outstanding of TCI Group Stock during the period (655.6 million and
         669.1 million for the three months ended September 30, 1997 and 1996,
         respectively; and 670.0 million and 665.0 million for the nine months
         ended September 30, 1997 and 1996, respectively). Common stock
         equivalents were not included in the computation of weighted average
         shares outstanding because their inclusion would be anti-dilutive.

(3)      Derivative Financial Instruments

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

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

(4)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $951 million and $815 million for the nine
         months ended September 30, 1997 and 1996, respectively. Cash paid for
         income taxes was $48 million in 1997 and was not material in 1996.

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

<TABLE>
<CAPTION>

                                                                                           Nine months ended
                                                                                             September 30,
                                                                                     ------------------------
                                                                                         1997           1996
                                                                                         amounts in millions
                 <S>                                                                 <C>           <C>
                   Cash paid for acquisitions:
                      Fair value of assets acquired                                  $    1,670          4,272
                      Liabilities assumed, net of current assets                           (673)        (1,990)
                      Deferred tax liability recorded in acquisitions                      (183)        (1,310)
                      Minority interests in equity of acquired entities                      (1)          (423)
                      Common stock and preferred stock issued in acquisitions              (984)          (461)
                      TCI common stock and preferred stock held by acquired
                         company                                                            445            --
                                                                                     ----------    -----------
                           Cash paid for acquisitions                                $      274             88
                                                                                     ==========    ===========

                   Cash received in exchanges:
                      Aggregate cost basis of assets acquired                        $     (390)          (569)
                      Historical cost of assets exchanged                                   399            617
                      Gain recorded on exchange of assets                                    11             21
                                                                                     -----------    ----------

                           Cash received in exchanges                                $       20             69
                                                                                     ===========    ==========
</TABLE>


                                      I-42
                                                                     (continued)

<PAGE>   44

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

                     Notes to Combined Financial Statements


(5)      Investments in Affiliates

         TCI Group's investments in affiliates are comprised of limited
         partnerships and other entities that are primarily engaged in the
         domestic cable business. Summarized unaudited results of operations for
         affiliates accounted for under the equity method are as follows:

<TABLE>
<CAPTION>
                                                                                           Nine months ended
                    Combined Operations                                                      September 30,
                    -------------------                                                 ---------------------
                                                                                           1997        1996
                                                                                        -------      --------
                                                                                         amounts in millions
                    <S>                                                              <C>           <C>  
                      Revenue                                                        $      767            898
                      Operating expenses                                                   (382)          (655)
                      Depreciation and amortization                                        (254)          (143)
                                                                                     ----------    -----------

                          Operating income                                                  131            100

                      Interest expense                                                     (177)          (110)
                      Other, net                                                            (51)            96
                                                                                     ----------    -----------

                          Net earnings (loss)                                        $      (97)            86
                                                                                     ==========    ===========

</TABLE>

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

(6)      Acquisitions and Dispositions

         In January 1997, TCI Group acquired the 50% ownership interest in TKR
         Cable Company ("TKR Cable") that TCI Group did not previously own and
         certain additional assets for aggregate consideration of approximately
         $970 million. TCI Group issued approximately 16 million shares of TCI
         Group Stock, assumed $584 million of TKR Cable's debt and paid cash of
         $88 million and shares of Time Warner, Inc. common stock valued at $41
         million upon consummation of such acquisition.

         Effective July 31, 1997, TCI merged Kearns-Tribune Corporation into a
         wholly-owned TCI subsidiary. The merger was valued at approximately
         $731 million. TCI exchanged 47.2 million shares of Series A TCI Group
         Stock for shares of Kearns-Tribune Corporation which held 17.9 million
         shares of TCI Group Stock and 6.7 million shares of Liberty Group
         Stock. Immediately following the merger, Liberty Media Group purchased
         from TCI Group the 6.7 million shares of Liberty Group Stock that were
         acquired in such transaction for $168 million in cash.

                                                                     (continued)

                                      I-43
<PAGE>   45

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

                     Notes to Combined Financial Statements


         In June 1997, TCI Group entered into an agreement with Cablevision
         Systems Corporation ("Cablevision") pursuant to which TCI Group agreed
         to contribute certain of its cable television systems serving
         approximately 820,000 basic customers to Cablevision in exchange for
         approximately 12.2 million newly issued Cablevision Class A shares.
         Such shares represent approximately 33% of Cablevision's total
         outstanding shares. Cablevision will also assume approximately $669
         million of TCI Group's debt. The transaction is subject to, among other
         matters, Cablevision shareholder and regulatory approvals. There is no
         assurance that the transaction will be consummated.

         Including the Cablevision transaction described above, TCI Group
         has signed agreements or letters of intent to contribute, within the
         next twelve months, certain cable systems serving approximately 3
         million basic customers to various joint ventures. Such anticipated
         transactions, if consummated as currently intended, would result in
         estimated reductions in debt and annual revenue of approximately $4
         billion and $1 billion, respectively. Such transactions are subject to,
         among other matters, regulatory approval. Accordingly, there is no
         assurance that any of such transactions will be consummated.

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

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

         Prior to the consummation of the Viacom Acquisition, Viacom offered to
         the holders of shares of Viacom Class A Common Stock and Viacom Class B
         Common Stock (collectively, "Viacom Common Stock") the opportunity to
         exchange (the "Viacom Exchange Offer") a portion of their shares of
         Viacom Common Stock for shares of Class A Common Stock, par value $100
         per share, of Cable Sub ("Cable Sub Class A Stock"). Immediately
         following the completion of the Viacom Exchange Offer, TCI Group
         acquired from Cable Sub shares of Cable Sub Class B common stock (the
         "Share Issuance") for $350 million (which was used to reduce Cable
         Sub's obligations under the Loan Facility). At the time of the Share
         Issuance, the Cable Sub Class A Stock received by Viacom stockholders
         pursuant to the Viacom Exchange Offer automatically converted into 5%
         Class A Senior Cumulative Exchangeable Preferred Stock of Cable Sub
         with a stated value of $100 per share. Upon completion of the Viacom
         Acquisition, Cable Sub was renamed TCI Pacific Communications, Inc.

                                                                     (continued)

                                      I-44
<PAGE>   46

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

                     Notes to Combined Financial Statements


(7)      Debt

         Debt is summarized as follows:
<TABLE>
<CAPTION>
                                                                           September 30,        December 31,
                                                                               1997                 1996
                                                                           -------------        ------------
                                                                                  amounts in millions

       <S>                                                                 <C>                  <C>
           Notes payable (a)                                               $      8,902                8,963
           Bank credit facilities (b)                                             4,509                4,706
           Commercial paper                                                         713                  638
           Convertible notes (c)                                                     40                   43
           Other debt                                                                24                   --
                                                                           ------------         ------------

                                                                           $     14,188               14,350
                                                                           ============         ============
</TABLE>

         (a)      During the nine months ended September 30, 1997, TCI Group
                  purchased in the open market 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.

                  During the nine months ended September 30, 1996, TCI Group
                  purchased in the open market certain notes payable which had
                  an aggregate principle balance of $809 million and fixed
                  interest rates ranging from 8.67% to 10.44% (the "1996
                  Purchases"). In connection with the 1996 Purchases, TCI Group
                  recognized a loss on early extinguishment of debt of $62
                  million. Such loss related to prepayment penalties amounting
                  to $60 million and the retirement of deferred loan costs.

         (b)      During the nine months ended September 30, 1996, certain
                  subsidiaries of TCI Group terminated, at such subsidiaries'
                  option, certain revolving bank credit facilities with
                  aggregate commitments of approximately $2 billion and
                  refinanced certain other bank credit facilities. In connection
                  with such termination and refinancings, TCI Group recognized a
                  loss on early extinguishment of debt of $11 million related to
                  the retirement of deferred loan costs.

                  At September 30, 1997, subsidiaries of TCI Group had
                  approximately $1.8 billion in unused lines of credit,
                  excluding amounts related to lines of credit which provide
                  availability to support commercial paper.

                                                                     (continued)

                                      I-45
<PAGE>   47

                                   "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 and $178 million at September 30,
                  1997 and December 31, 1996, respectively, mature on December
                  18, 2021. The notes require (so long as conversion of the
                  notes has not occurred) an annual interest payment through
                  2003 equal to 1.85% of the face amount of the notes. At
                  September 30, 1997, the notes were convertible, at the option
                  of the holders, into an aggregate of 24,177,475 shares of
                  Series A TCI Group Stock, 12,952,093 shares of Series A
                  Liberty Group Stock and 10,387,182 shares of Series A TCI
                  Ventures Group Stock.

         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.

         As security for borrowings under one of TCI Group's bank credit
         facilities, TCI Group has pledged 116,853,195 shares of Series A TCI
         Group Stock held by a subsidiary of TCI Group.

         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 September 30, 1997, the fair value of TCI Group's debt
         was $14,592 million, as compared to a carrying value of $14,188 million
         on such date.

         In order to achieve the desired balance between variable and fixed rate
         indebtedness, TCI Group has entered into various Interest Rate Swaps
         pursuant to which it (i) pays fixed interest rates (the "Fixed Rate
         Agreements") ranging from 7.1% to 9.3% and receives variable interest
         rates on notional amounts of $410 million at September 30, 1997 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 September 30, 1997. During the nine months
         ended September 30, 1997 and 1996, TCI Group's net payments pursuant to
         the Fixed Rate Agreements were less than $1 million and $3 million,
         respectively; and TCI Group's net receipts pursuant to the Variable
         Rate Agreements were $1 million and $11 million, respectively.

                                                                     (continued)

                                      I-46
<PAGE>   48

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

                     Notes to Combined Financial Statements


TCI Group's Fixed Rate Agreements and Variable Rate Agreements expire as
follows (dollar amounts in millions):

<TABLE>
<CAPTION>

                         Fixed Rate Agreements                              Variable Rate Agreements
                         ---------------------                              ------------------------
                Expiration         Interest rate    Notional       Expiration         Interest rate     Notional
                   date             to be paid       amount             date         to be received      amount
                ----------         -------------    --------       ----------        --------------     --------
            <S>                        <C>        <C>            <C>                 <C>                 <C>   
           October 1997              7.1%-9.3%     $   180     September 1998            4.8%-5.4%     $     450
           December 1997                8.7%           230     April 1999                   7.4%              50
                                                   -------     September 1999               6.4%             350
                                                   $   410     February 2000             5.8%-6.6%           300
                                                   =======     March 2000                5.8%-6.0%           675
                                                               September 2000               5.1%              75
                                                               March 2027                   9.7%             300
                                                               December 2036                9.7%             200
                                                                                                       ---------
                                                                                                       $   2,400
                                                                                                       =========
</TABLE>

         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.

         The fair value of the Interest Rate Swaps is the estimated amount that
         TCI Group would pay or receive to terminate the agreements at September
         30, 1997, taking into consideration current interest rates and the
         current creditworthiness of the counterparties. At September 30, 1997,
         TCI Group would be required to pay an estimated $2 million to terminate
         the Fixed Rate Agreements and an estimated $8 million to terminate the
         Variable Rate Agreements.

         In addition, during the third quarter of 1997, TCI Group entered into
         an Interest Rate Swap pursuant to which it pays a variable rate based
         on the LIBOR rate (6.1% at September 30, 1997) and receives a variable
         rate based on the Constant Maturity Treasury Index (6.4% at September
         30, 1997) on a notional amount of $400 million. As of September 30,
         1997, no payments or receipts had been made pursuant to such agreement.
         At September 30, 1997, TCI Group would be required to pay an estimated
         $2 million to terminate such agreement.

         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 of TCI Group's subsidiaries
         pay fees ranging from 1/4% to 1/2% per annum on the average unborrowed
         portion of the total amount available for borrowings under bank credit
         facilities.
                                                                     (continued)

                                      I-47
<PAGE>   49

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

                     Notes to Combined Financial Statements

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

         In 1996 and 1997, TCI Group, through certain subsidiary trusts, (the
         "Trusts"), issued preferred securities as follows:
<TABLE>
<CAPTION>

                           Subsidiary Trust                             Interest Rate             Face Amount
                           ----------------                             -------------             -----------
                                                                                                  in millions

         <S>                                                               <C>                    <C>       
         TCI Communications Financing I                                     8.72%                 $      500
         TCI Communications Financing II                                   10.00%                        500
         TCI Communications Financing III                                   9.65%                        300
         TCI Communications Financing IV                                    9.72%                        200
                                                                                                  ----------


                                                                                                  $    1,500
                                                                                                  ==========
</TABLE>

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

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying 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 $96 million and $47 million for the nine months
         ended September 30, 1997 and 1996, respectively, and are included in
         minority interests in earnings of consolidated subsidiaries in the
         accompanying combined financial statements.

                                                                     (continued)

                                      I-48
<PAGE>   50

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

                     Notes to Combined Financial Statements


(9)      Combined Deficit

         General

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

         In June 1997, TCI Group exchanged (the "Exchange") 30,545,864 shares of
         Series A TCI Group Stock ("TCOMA") for the same number of shares of
         Series B TCI Group Stock owned by the estate (the "Estate") of the
         former Chairman of the Board of Directors of TCI. Subsequent to the
         Exchange, the Estate sold (the "Sale") the shares of TCOMA received in
         the Exchange, together with approximately 1.5 million shares of TCOMA
         that the Estate previously owned (the "Option Shares"), to two
         investment banking firms (the "Investment Bankers") for approximately
         $530 million (the "Sale Price"). Subsequent to the Sale, TCI Group
         entered into an agreement with the Investment Bankers whereby TCI Group
         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 is 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.
         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 TCOMA 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 rate plus 1% on
         the Sale Price. Due to TCI Group's ability to settle quarterly price
         fluctuations with shares of TCOMA, TCI Group records all amounts
         received (paid) under this arrangement as increases (decreases) to
         equity. In connection with the Exchange Offers, the Investment Bankers
         exchanged 7,461,019 shares of TCOMA for the same number of shares of
         Series A TCI Ventures Group Stock. At September 30, 1997, the market
         value of the Options Shares exceeded the Investment Bankers' cost by
         $113 million.

         Stock Options and Stock Appreciation Rights

         Estimates of compensation relating to restricted stock awards, options
         and/or stock appreciation rights ("SARs") granted to certain key
         employees of TCI Group have been recorded in the accompanying combined
         financial statements, but are subject to future adjustment based upon
         the market value of Series A TCI Group Stock, Series A Liberty Group
         Stock and Series A TCI Ventures Group Stock and, ultimately, on the
         final determination of market value when the rights are exercised or
         the restricted shares are vested.

                                                                     (continued)

                                      I-49
<PAGE>   51

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

                     Notes to Combined Financial Statements


(10)     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>

                                                                           September 30,        December 31,
                                                                               1997                 1996
                                                                           -------------        ------------
                                                                                  amounts in millions
<S>                                                                        <C>                 <C>
         Notes receivable from Liberty Media Group, including
              accrued interest (a)                                         $         (438)                --
         TINTA Note Payable (b)                                                        27               177
         Intercompany account (c)                                                    (110)              (42)
                                                                           --------------       ------------

                                                                           $         (521)               135
                                                                           ==============       ============
</TABLE>

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

         (a)    Amounts outstanding under the notes receivable from the Liberty
                Media Group bear interest at varying rates ranging from 6.5% to
                12.5%. Principal maturities are as follows: 1997 - $308 million,
                1998 - $81 million and 1999 - $41 million. During the nine
                months ended September 30, 1997, interest income related to the
                notes receivable from Liberty Media Group aggregated
                approximately $7.2 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 September 30, 1997). Principal and interest
                is due and payable as mutually agreed from time to time by TCI
                and TINTA. During the nine months ended September 30, 1997 and
                1996, interest expense related to the TINTA Note Payable 
                aggregated $4.3 million and $10.8 million, respectively.

         (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. In connection with the TCI Ventures
                Exchange, the September 10, 1997 balance of the intercompany
                account between the TCI Group and TCI Ventures Group was
                reclassified to "Combined Equity."
                                                                     (continued)

                                      I-50
<PAGE>   52

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

                     Notes to Combined Financial Statements


         TCI Ventures Group is expected to require additional advances from TCI
         Group for some period of time. To satisfy this need, TCI Group has
         provided a revolving loan facility (the "Credit Facility") to TCI
         Ventures Group for a five-year period commencing on September 10, 1997.
         Such facility 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 Revolving Credit Facility is
         payable by TCI Ventures Group to TCI Group on a quarterly basis. The
         maximum amount of borrowings permitted under the 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 Credit Facility at September 30, 1997.

         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 nine months ended September 30, 1997 and 1996,
         Liberty Media Group was allocated $1 million and $2 million,
         respectively, and TCI Ventures Group was allocated $7 million and $6
         million, respectively, in corporate general and administrative costs by
         TCI Group.

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

         Prior to July 1, 1997, TCI Group had a 50.1% partnership interest in
         QE+Ltd. ("QE+"), which distributes STARZ!, a first-run movie premium
         programming service launched in 1994. Entities attributed to Liberty
         Media Group held the remaining 49.9% partnership interest. Also prior
         to July 1, 1997, Encore Media Corporation ("Encore") (90% owned by
         Liberty Media Group) earned management fees from QE+ equal to 20% of
         managed costs, as defined. In addition, Liberty Media Group earned a
         "Content Fee" for certain services provided to QE+ equal to 4% of the
         gross revenue of QE+. Such Content Fees aggregated $4 million and $3
         million for the nine months ended September 30, 1997 and 1996,
         respectively.

                                                                     (continued)

                                      I-51
<PAGE>   53


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

                     Notes to Combined Financial Statements

         In July 1997, Liberty Media Group, TCI and John J. Sie, Chairman and
         Chief Executive Officer of Encore and JJS Communications, Inc. ("JJS"),
         a corporation wholly owned by Mr. Sie, entered into a series of
         transactions pursuant to which the businesses of Encore and STARZ! were
         contributed to a newly formed limited liability company ("Encore Media
         Group"). Prior to the formation of Encore Media Group, JJS owned 10% of
         Encore, which in connection with these transactions was exchanged for
         Liberty Group Stock. Upon consummation of the transactions, Liberty
         Media Group owns 80% of Encore Media Group and TCI Group owns 20%.
         Liberty Media Group received its 80% ownership interest in Encore Media
         Group in exchange for the contribution of its interests in QE+ and
         Encore, the issuance of a $307 million note payable due on or before
         December 29, 1997 (the "Note Payable") to TCI Group, the cancellation
         and forgiveness of amounts due for Content Fees and the termination of
         an option to increase its ownership interest in QE+. TCI Group received
         the remaining 20% interest in Encore Media Group and the aforementioned
         consideration from Liberty Media Group in exchange for TCI Group's
         ownership interest in QE+ and certain special capital contributions
         made by TCI Group to QE+. It is anticipated that Encore Media Group
         will borrow $400 million (the "Encore Loan Proceeds") by December 29,
         1997 and distribute the Encore Loan Proceeds to Liberty Media Group and
         TCI Group in proportion to their ownership interests in Encore Media
         Group. In addition, TCI Group has entered into an affiliation agreement
         (the "Encore Media Affiliation Agreement") with a subsidiary of Encore
         Media Group pursuant to which TCI Group will pay fixed monthly amounts
         through 2021 in exchange for unlimited access to substantially all of
         the existing Encore and STARZ! services. The fixed annual amounts
         increase annually from $270 million in 1998 to $360 million in 2004,
         and will increase with inflation thereafter. Effective as of the July
         1, 1997 consummation date of the aforementioned transactions, TCI Group
         ceased to include QE+ in its combined financial statements, and began
         to account for its investment in Encore Media Group using the equity
         method of accounting.

         On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
         ("DMX"). Following such merger (the "DMX Merger"), TCI owned 89.6% of
         the common equity and 98.7% of the voting power of TCI Music.
         Simultaneously with the DMX Merger, substantially all of TCI's
         ownership interest in TCI Music was transferred from the TCI Group to
         the 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 to purchase 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. The Music Note may 
         be reduced by the payment of cash or the issuance by TCI of shares of
         Liberty Media Group Common Stock for the benefit of entities included
         within the TCI Group. Additionally, Liberty Media Group may elect to 
         pay $50,000,000 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's investment in TCI Music, to be
         determined at July 11, 2002.

                                                                     (continued)

                                      I-52
<PAGE>   54

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

                     Notes to Combined Financial Statements


         Pursuant to an agreement between TCI Music and the TCI Group, certain
         entities within the TCI Group are required to deliver to TCI Music
         monthly revenue payments aggregating $18 million annually (adjusted
         annually for inflation) through 2017. In addition, the TCI Group
         purchases certain audio programming from TCI Music pursuant to a
         ten-year affiliation agreement. During the nine months ended September
         30, 1997, the aggregate amount paid by the TCI Group to TCI Music
         pursuant to such arrangements was $7 million. Such amount is included
         in operating costs and expenses in the accompanying combined statements
         of operations.

         In connection with the TCI Ventures Group's sale of certain assets (the
         "SUMMITrak Assets"), TCI Group entered into a commitment to purchase
         billing services from the buyer of the SUMMITrak Assets. The TCI
         Ventures Group has reflected the $47 million excess of the cash
         received over the book value of the SUMMITrak Assets as an increase to
         "Combined Equity." TCI Group, in turn, has recorded an offsetting
         decrease to "Combined Equity" and a $47 million deferred gain to be
         amortized over the expected 15-year life of the related billing
         services commitment. See note 12.

         Entities included in TCI Group lease satellite transponder facilities
         from NDTC. Charges by TCI Ventures Group for such arrangements and
         other related operating expenses for the nine months ended September
         30, 1997 and 1996, aggregated $18 million. No such expenses were
         incurred by TCI Group in 1996.

         Certain 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 $105 million and $81 million for
         the nine months ended September 30, 1997 and 1996, respectively.

         TCI Group manages certain treasury activities for Liberty Media Group
         and TCI Ventures Group on a centralized basis. Cash receipts of certain
         businesses attributed to Liberty Media Group and TCI Ventures Group are
         remitted to TCI Group and certain cash disbursements of Liberty Media
         Group and TCI Ventures Group are funded by TCI Group on a daily basis.
         Such cash activities are included in borrowings from or loans to TCI
         Group or, if determined by the Board, as an equity contribution to be
         reflected as an Inter-Group Interest to Liberty Media Group or TCI
         Ventures Group.

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

                                                                     (continued)

                                      I-53
<PAGE>   55

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

                     Notes to Combined Financial Statements


         Subsequent to the Liberty Distribution and TCI Ventures Exchange, all
         financial impacts of issuances of additional shares of TCI Group Stock
         are attributed entirely to TCI Group, and all financial impacts of
         issuances of additional shares of Liberty Group Stock or TCI Ventures
         Group Stock, the proceeds of which are attributed to Liberty Media
         Group or TCI Ventures Group, are reflected entirely in the combined
         financial statements of Liberty Media Group or TCI Ventures Group.
         Financial impacts of dividends or other distributions on, and purchases
         of, TCI Group Stock are attributed entirely to TCI Group, and financial
         impacts of dividends or other distributions on Liberty Group Stock or
         TCI Ventures Group Stock are attributed entirely to Liberty Media Group
         or TCI Ventures Group. Financial impacts of repurchases of Liberty
         Group Stock or TCI Ventures Group Stock, the consideration for which is
         charged to Liberty Media Group or TCI Ventures Group, are reflected
         entirely in the combined financial statements of Liberty Media Group or
         TCI Ventures Group, and the financial impacts of repurchases of Liberty
         Group Stock or TCI Ventures Group Stock the consideration for which is
         charged to TCI Group, are attributed entirely to TCI Group.

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


         A tax sharing agreement (the "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
         subsidiaries 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 are 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-54
<PAGE>   56

                                   "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 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.

         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, it was
         determined that 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) will be reflected as an
         adjustment of TCI Group's combined equity. Tax liabilities and
         benefits, as determined under the Old Tax Sharing Agreement, that are
         generated by the entities comprising the TCI Ventures Group for the
         period beginning on September 10, 1997 and ending on September 30, 1997
         will be credited or debited to an intercompany account between the TCI
         Group and the Ventures Group in accordance with the Old Tax Sharing
         Agreement.

                                                                     (continued)

                                      I-55
<PAGE>   57

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

                     Notes to Combined Financial Statements


(11)     Transactions with Officers and Directors

         On March 4, 1997, an executive officer and director of TCI received an
         advance from a wholly-owned subsidiary of TCI Group in the amount of
         $5,787,505. On March 5, 1997, such executive officer and director
         received a second advance from a wholly-owned subsidiary of TCI Group
         in the amount of $5,813,755. The terms of the advances were
         memorialized by a promissory note. The interest rate on such loans is
         1% over the one-month LIBOR rate compounded annually. Principal
         outstanding on the note is due March 31, 1999 and interest is payable
         annually on March 1 of each year. The loan is unsecured.

         On July 24, 1997, an executive officer who is also a director of TCI
         acquired from TCI an aggregate of 7,296,324 shares of Series B TCI
         Group Stock and 2,278,125 shares of Series B Liberty Group Stock, in
         exchange for a like number of shares of Series A TCI Group Stock and
         Series A Liberty Group Stock, respectively, held by such executive
         officer and director.

         On July 24, 1997, the Company repurchased 146,625 shares of Series A
         Liberty Group Stock from the spouse of an executive officer who is also
         a director of the Company at an aggregate cost of approximately $4
         million.

         On June 10, 1997 (the IP Phase I Closing Date"), TCI issued 139,513
         shares of Series B TCI Group Stock (the "IP I Shares") to the IP Series
         B Trust I ("Trust"). An executive officer who is also a director of TCI
         is the trustee of the Trust. The IP I Shares were issued in connection
         with a partial closing under two Partnership Interest Purchase
         Agreements both dated as of June 10, 1997, pursuant to which TCI
         acquired on the IP Phase I Closing Date (a) a 1.103% limited
         partnership interest in InterMedia Partners, a California limited
         partnership, (b) a 75% limited partnership interest in InterMedia CM -
         LP, and (c) a 99.998% limited partnership interest in InterMedia
         Capital Management, L.P. in exchange for total consideration of the IP
         I Shares and cash and assumption of current liabilities in an aggregate
         amount of $5,848,024.

         On August 5, 1997 (the "IP Phase II Closing Date") TCI issued 2,405,942
         shares of Series B TCI Group Stock (the "IP II Shares") to the IP
         Series B Trust II ("Trust II"). An executive officer who is also a
         director of TCI is the trustee of the Trust II. The IP II Shares were
         issued in connection with the closing under the Partnership Interest
         Purchase Agreement dated as of August 5, 1997, pursuant to which TCI
         acquired on the IP Phase II Closing Date a 99.997% limited partnership
         interest in InterMedia Capital Management IV, L.P. in exchange for
         total consideration of the IP II Shares and cash and assumption of
         liabilities in an aggregate of $15,450,976.

         In connection with the two Partnership Interest Purchase Agreements, a
         director of TCI received a consulting fee in the amount of $400,000 in
         cash and 31,030 shares of Series B TCI Group Stock and the son of a
         director of TCI received an advisory fee in the amount of 36,364 shares
         of Series B TCI Group Stock.

                                                                     (continued)

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

                     Notes to Combined Financial Statements



(12)     Commitments and Contingencies

         TCI Group has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $183 million at September 30, 1997. 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. 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.

         As described in note 10, the TCI Group has agreed to make fixed
         monthly payments through 2021 to the Liberty Media Group pursuant to
         the Encore Media Affiliation Agreement.

         During the third quarter of 1997, TCI Group committed to purchase
         billing services from an unaffiliated third party pursuant to three
         successive five year agreements. Pursuant to such arrangement, TCI
         Group 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.

         Pursuant to certain agreements between TCI and TCI Music, the TCI Group
         is obligated to make minimum revenue and license fee payments to TCI
         Music aggregating approximately $445 million through 2017. Such minimum
         payments are subject to inflation and other adjustments pursuant to the
         terms of the underlying agreements.

         Certain key employees of TCI Group hold restricted stock awards,
         options and options with tandem SARs to acquire shares of certain
         subsidiaries' common stock. Estimates of the compensation related to
         the restricted stock awards and options and/or SARs have been recorded
         in the accompanying consolidated financial statement, but are subject
         to future adjustment based upon the market value of the respective
         common stock and, ultimately, on the final market value when the rights
         are exercised.

         TCI Group has contingent liabilities related to legal proceedings and
         other matters arising in the ordinary course of business. 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.



                                      I-57
<PAGE>   59


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

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

         The following discussion and analysis should be read in conjunction
with TCI Group's Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Tele-Communications, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1996. The following discussion focuses
on material changes in trends, risks and uncertainties affecting TCI Group's
results of operations and financial condition. Reference should also be made to
TCI Group's combined financial statements included herein.

(1)      Material changes in financial condition:

         On August 3, 1995, the TCI stockholders authorized the Board to issue
the Liberty Group Stock. Additionally, stockholders of TCI approved the
redesignation of the previously authorized Class A and Class B common stock of
TCI into Series A and Series B TCI Group Stock. On August 10, 1995, TCI
distributed, in the form of a dividend, one share of Liberty Group Stock for
each four shares of TCI Group Stock owned. Such distribution represented one
hundred percent of the equity value attributable to Liberty Media Group.

         Upon the September 10, 1997 consummation of the TCI Ventures Exchange,
188,661,300 shares of Series A TCI Group Stock and 16,266,400 shares of Series B
TCI Group Stock were exchanged for an equivalent number of shares of Series A
TCI Ventures Group Stock and Series B TCI Ventures Group Stock, respectively.
The aggregate number of shares of TCI Ventures Group Stock issued in the TCI
Ventures Exchange was intended to represent 100% of the common stockholders'
equity value of the Company attributable to the TCI Ventures Group. For
additional information concerning the TCI Ventures Exchange and the TCI Ventures
Group Stock, see note 1 to the accompanying combined financial statements.

         As of September 30, 1997, the TCI Group Stock reflects the separate
performance of TCI Group, which is primarily comprised of TCI's domestic cable
and communications business. For additional information concerning the TCI Group
Stock, see note 1 to the accompanying combined financial statements. For
information concerning transactions among TCI Group, Liberty Media Group and TCI
Ventures Group, see note 10 to the accompanying combined financial statements.

         During March 1997, TCI Group, through special purpose entities formed
as Delaware business trusts, issued $300 million in face value of 9.65% Capital
Securities and $200 million in face value of 9.72% Trust Preferred Securities.
The Company used the net proceeds from such issuances to retire commercial paper
and repay certain other indebtedness.

         In January 1997, TCI Group acquired the 50% ownership interest in TKR
Cable that TCI Group did not previously own for aggregate consideration of
approximately $970 million. TCI Group issued approximately 16 million shares of
TCI Group Stock, assumed $584 million of TKR Cable's debt and paid cash of $88
million and shares of Time Warner common stock valued at $41 million upon
consummation of such acquisition.

                                                                     (continued)

                                      I-58
<PAGE>   60

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



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

         Effective July 31, 1997, TCI merged Kearns-Tribune Corporation into a
wholly-owned TCI subsidiary. The merger was valued at approximately $731
million. TCI exchanged 47.2 million shares of Series A TCI Group Stock for
shares of Kearns-Tribune Corporation which held 17.9 million shares of TCI Group
Stock and 6.7 million shares of Liberty Group Stock. Immediately following the
merger, Liberty Media Group purchased from TCI Group the 6.7 million shares of
Liberty Group Stock that were acquired in such transaction for $168 million in
cash.

         In June 1997, TCI Group entered into an agreement with Cablevision
pursuant to which TCI Group agreed to contribute certain of its cable television
systems serving approximately 820,000 basic customers to Cablevision in exchange
for approximately 12.2 million newly issued Cablevision Class A shares. Such
shares represent approximately 33% of Cablevision's total outstanding shares.
Cablevision will also assume approximately $669 million of TCI Group's debt. The
transaction is subject to, among other matters, Cablevision shareholder and
regulatory approvals. There is no assurance that the transaction will be
consummated.

         Including the Cablevision transaction described above, TCI Group has 
signed agreements or letters of intent to contribute, within the next twelve
months, certain cable systems serving approximately 3 million basic customers to
various joint ventures. Such anticipated transactions, if consummated as
currently intended, would result in estimated reductions in debt and annual
revenue of approximately $4 billion and $1 billion, respectively. Such
transactions are subject to, among other matters, regulatory approval.
Accordingly, there is no assurance that any of such transactions will be
consummated.

         On July 31, 1996, TCI Group consummated the Viacom Acquisition whereby
TCI Group acquired all of the common stock of Cable Sub which owned Viacom's
cable systems and related assets. The transaction was structured as a tax-free
reorganization in which Cable Sub initially transferred all of its non-cable
assets, as well as all of its liabilities other than current liabilities, to New
Viacom Sub. Cable Sub also transferred to New Viacom Sub the Loan Proceeds of a
$1.7 billion loan facility. Following these transfers, Cable Sub retained cable
assets with a value at closing of approximately $2.326 billion and the
obligation to repay the Loan Proceeds borrowed under the Loan Facility. Neither
Viacom nor New Viacom Sub has any obligation with respect to repayment of the
Loan Proceeds. For additional discussion of the Viacom Acquisition, see note 6
to the accompanying TCI Group combined financial statements.

         During the nine months ended September 30, 1997 and 1996, TCI Group
purchased in the open market certain notes payable which had an aggregate
principle balance of $190 million and $809 million, respectively. In connection
with such purchases, TCI Group recognized losses on early extinguishment of debt
of $11 million and $62 million, respectively. Such losses related to prepayment
penalties and the retirement of deferred loan costs.

         Also, during the nine months ended September 30, 1996, certain
subsidiaries of TCI Group terminated, at such subsidiaries' option, certain
revolving bank credit facilities with aggregate commitments of approximately $2
billion and refinanced certain other bank credit facilities. In connection with
such termination and refinancings, TCI Group recognized a loss on early
extinguishment of debt of $11 million related to the retirement of deferred loan
costs.

                                                                     (continued)

                                      I-59
<PAGE>   61


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

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

         At September 30, 1997, TCI Group had approximately $1.8 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 the subsidiaries' 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 7 to the accompanying combined
financial statements for additional information regarding the material terms of
the lines of credit.

         One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization and stock compensation)
($2,035 million and $1,498 million for the nine months ended September 30, 1997
and 1996, respectively) to interest expense ($843 million and $751 million for
the nine months ended September 30, 1997 and 1996, respectively), is determined
by reference to the combined statements of operations. TCI Group's interest
coverage ratio was 241% and 199% for the nine months ended September 30, 1997
and 1996, 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, 48% of which results from
fixed rate indebtedness. However, TCI Group's current intent is 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. 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 ($1,003 million and $625 million
for the nine months ended September 30, 1997 and 1996, 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. Prior
to 1997, amounts expended by TCI Group for its investing activities exceeded net
cash provided by operating activities. TCI Group has reevaluated its capital
expenditure strategy and currently anticipates that it will expend significantly
less for property and equipment in 1997 than it did in 1996. In this regard, the
amount of capital expended by TCI Group for property and equipment was $273
million during the nine months ended September 30, 1997, as compared to $1,384
million during the corresponding period in 1996. TCI Group currently estimates
that it will spend between $450 million and $500 million for capital
expenditures during 1997. To the extent that net cash provided by operating
activities exceeds net cash used in investing activities in 1997, TCI Group
currently anticipates that such excess cash will initially be used to reduce
outstanding debt.

                                                                     (continued)

                                      I-60
<PAGE>   62

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

    

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

         In the event TCI Group is unable to achieve such objectives, management
believes that net cash provided by operating activities, the ability of TCI
Group to obtain additional financing (including the available lines of credit
and access to public debt markets), issuances and sales of TCI's equity or
equity of its subsidiaries, and proceeds from disposition of assets will provide
adequate sources of short-term and long-term liquidity in the future. See TCI
Group's combined statements of cash flows included in the accompanying combined
financial statements.

         TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $183
million at September 30, 1997. 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. 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 agreed to make fixed monthly payments through 2021 to
Liberty Media Group pursuant to the Encore Media Affiliation Agreement. The
fixed annual amounts increase annually from $270 million in 1998 to $360 million
in 2004, and will increase with inflation thereafter.

         During the third quarter of 1997, TCI Group committed to purchase
billing services from an unaffiliated third party pursuant to three successive
five year agreements. Pursuant to such arrangement, TCI Group 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.

         Pursuant to certain agreements between TCI and TCI Music, the TCI Group
is obligated to make minimum revenue and license fee payments to TCI Music
aggregating approximately $445 million through 2017. Such minimum payments are
subject to inflation and other adjustments pursuant to the terms of the
underlying agreements.

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

                                                                     (continued)
                                      I-61

<PAGE>   63

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

    

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

         In order to achieve the desired balance between variable and fixed rate
indebtedness and to diminish its exposure to extreme increases in variable
interest rates, TCI Group has entered into various Interest Rate Swaps. Pursuant
to the Interest Rate Swaps, TCI Group (i) pays fixed interest rates ranging from
7.1% to 9.3% and receives variable interest rates on notional amounts of $410
million at September 30, 1997 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 September 30, 1997. During the nine months ended September 30, 1997
and 1996, TCI Group's net payments pursuant to the Fixed Rate Agreements were
less than $1 million and $3 million, respectively; and TCI Group's net receipts
pursuant to the Variable Rate Agreements were $1 million and $11 million,
respectively. 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. See note 7 to the accompanying combined
financial statements for additional information regarding Interest Rate Swaps.

         In addition, on September 11, 1997 TCI Group entered into an Interest
Rate Swap pursuant to which it pays a variable rate based on the LIBOR rate
(6.1% at September 30, 1997) and receives a variable rate based on the Constant
Maturity Treasury Index (6.4% at September 30, 1997) on a notional amount of
$400 million. As of September 30, 1997, no payments or receipt had been made
pursuant to such agreement. At September 30, 1997, TCI Group would be required
to pay an estimated $2 million to terminate such agreement.

         At September 30, 1997, after considering the net effect of the
aforementioned Interest Rate Swaps, TCI Group had $6,747 million (or 48%) of
fixed-rate debt and $7,441 million (or 52%) of variable-rate debt. Accordingly,
in an environment of rising interest rates, TCI Group could experience an
increase in its interest expense.

         In June 1997, TCI Group exchanged 30,545,864 shares of TCOMA for the
same number of shares of Series B TCI Group Stock owned by the Estate of the
former Chairman of the Board of Directors of TCI. Subsequent to the Exchange,
the Estate sold the shares of TCOMA received in the Exchange, together with
approximately 1.5 million shares of TCOMA that the Estate previously owned, to
two investment banking firms for approximately $530 million. Subsequent to the
Sale, TCI Group entered into an agreement with the Investment Bankers whereby
TCI Group has the option, but not the obligation, to purchase the Option Shares
at any time within two years from the date of the Sale. During the Option
Period, TCI Group is 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. 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 TCOMA 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 the LIBOR rate plus 1% on the Sale Price. Due
to TCI Group's ability to settle quarterly price fluctuations with shares of
TCOMA, TCI Group records all amounts received (paid) under this arrangement as
increases (decreases) to equity. In connection with the Exchange Offers, the
Investment Bankers exchanged 7,461,019 shares of TCOMA for the same number of
shares of Series A TCI Ventures Group Stock.
                                                                     (continued)

                                     I-62
<PAGE>   64

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

     

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

         Subsequent to September 30, 1997, pursuant to the above agreement, TCI
Group purchased 4,000,000 shares of TCOMA from one of the Investment Bankers at
an aggregate cost of $66 million in cash.

         In September  1997, the Board  authorized a stock  repurchase  program,
under which TCI may repurchase from time to time up to five percent of its TCI 
Group Stock and TCI Ventures Group Stock.

(2)      Material changes in results of operations:

         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
(collectively, the "Cable Acts") established rules under which TCI Group's basic
and tier service rates and its equipment and installation charges (the
"Regulated Services") are regulated if a complaint is filed or if the
appropriate franchise authority is certified. Approximately 78% of TCI Group's
basic customers were served by cable television systems that were subject to
such rate regulation.

         During the nine months ended September 30, 1997, 76% 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.

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

         Revenue increased 4% for the three months ended September 30, 1997, as
compared to the corresponding period of 1996. Exclusive of the effects of
acquisitions, revenue from TCI Group's domestic cable customers accounted for 1%
of such increase primarily as a result of a 4% increase in basic revenue and a
7% decrease in premium revenue. TCI Group experienced a 6% increase in its
average basic rate, a 2% decrease in the number of average basic customers, a
10% increase in its average premium rate and a 16% decrease in the number of
average premium subscriptions. In addition, TCI Group's revenue increased 7% due
to acquisitions and decreased 6% due to the Satellite Spin-off. Advertising
sales and other revenue accounted for the remaining 2% increase in revenue.

                                                                     (continued)

                                      I-63
<PAGE>   65

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

    

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

         Revenue increased 12% for the nine months ended September 30, 1997, as
compared to the corresponding period of 1996. Exclusive of the effects of
acquisitions, revenue from TCI Group's domestic cable customers accounted for 4%
of such increase primarily as a result of an 8% increase in basic revenue and a
4% decrease in premium revenue. TCI Group experienced a 10% increase in its
average basic rate, a 1% decrease in the number of average basic customers, a 6%
increase in its average premium rate and a 10% decrease in the number of average
premium subscriptions. In addition, TCI Group's revenue increased 11% due to
acquisitions and decreased 6% due to the Satellite Spin-off. Advertising sales
and other revenue accounted for the remaining 3% increase in revenue.

         Operating Costs and Expenses

         Operating expenses decreased 8% and increased 8% for the three months
and nine months ended September 30, 1997, respectively, as compared to the
corresponding periods of 1996. Exclusive of the effects of acquisitions, net of
dispositions, such expenses were relatively comparable during the 1997 and 1996
periods. 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 Encore Media Affiliation Agreement, it is
anticipated that TCI Group's programming costs with respect to STARZ! and Encore
will increase in 1998 and future periods. See note 10 to the accompanying
combined financial statements.

         Selling, general and administrative expenses decreased 21% and 15% for
the three months and nine months ended September 30, 1997, respectively, as
compared to the corresponding periods of 1996. Exclusive of the effects of
acquisitions, net of dispositions, such expenses decreased 5% and 7%. Such
decreases are due primarily to a reduction in salaries and related payroll
expenses due to work force reductions in the fourth quarter of 1996, as well as
reduced marketing and general overhead expenses in 1997.

         The change in TCI Group's depreciation and amortization expense in 
1997 is the result of the net effect of increases due to acquisitions and 
capital expenditures, largely offset by a decrease due to the Satellite 
Spin-off.

         Certain 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 would
approximate the costs Liberty Media Group and TCI Ventures Group would incur for
comparable services on a stand alone basis. During the nine months ended
September 30, 1997 and 1996, Liberty Media Group was allocated $1 million and $2
million, respectively, and TCI Ventures Group was allocated $7 million and $6
million, respectively, in corporate general and administrative costs by TCI
Group.

                                                                     (continued)

                                      I-64
<PAGE>   66

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

    

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

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

         TCI Group records compensation relating to stock appreciation rights
and restricted stock awards granted to certain employees by TCI or TINTA. Such
compensation is subject to future adjustment based upon market value, and
ultimately, on the final determination of market value when the rights are
exercised or the restricted stock awards are vested.

         Other Income and Expenses

         Interest expense aggregated $292 million and $843 million for the three
months and nine months ended September 30, 1997, respectively, as compared to
$258 million and $751 million for the corresponding periods in 1996. Such
increases are due to the net effect of increased debt balances as a result of
the Viacom Acquisition in August 1996 partially offset by a lower weighted
average interest rate in 1997. See note 7 to the accompanying combined financial
statements.

         Minority interests in earnings of consolidated subsidiaries aggregated
$42 million and $125 million for the three months and nine months ended
September 30, 1997, respectively, as compared to $34 million and $51 million for
the corresponding periods in 1996. The majority of such change is due to the
issuance of additional Trust Preferred Securities in May 1996 and March 1997 and
the accrual of dividends on preferred securities issued in August 1996 by a
subsidiary of TCI Group. See note 8 to the accompanying combined financial
statements.

         During the three months ended September 30, 1997, TCI Group recognized
a $29 million loss in connection with the disposition of certain preferred
stock.

         Net Loss

         As a result of the above-described fluctuations in the Company's
results of operations, TCI Group's net loss (before loss of TCI Ventures Group
and preferred stock dividend requirements) of $58 million for the three months
ended September 30, 1997 changed by $29 million, as compared to TCI Group's net
loss (before loss of TCI Ventures Group and preferred stock dividend
requirements) of $87 million for the three months ended September 30, 1996, and
TCI Group's net loss (before loss of TCI Ventures Group and preferred stock
dividend requirements) of $103 million for the nine months ended September 30,
1997 changed by $194 million, as compared to TCI Group's net loss (before loss
of TCI Ventures Group and preferred stock dividend requirements) of $297 million
for the nine months ended September 30, 1996.


                                      I-65

<PAGE>   67
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                             Combined Balance Sheets
                                   (unaudited)

<TABLE>
<CAPTION>
                                                             September 30,    December 31,
                                                                1997              1996
                                                              ----------       ----------
Assets                                                            amounts in thousands

<S>                                                           <C>                 <C>
Cash and cash equivalents                                     $  191,399          317,359

Trade and other receivables, net                                  39,953           24,796

Prepaid program rights                                           108,627           32,063

Committed film inventory                                         120,652           20,092

Investments in affiliates, accounted for under
    the equity method, and related receivables (note 4)          543,035          545,121

Investment in Time Warner, Inc. ("Time Warner")
    (note 5)                                                   2,322,541        2,016,799

Other investments, at cost, and related
     receivables (note 6)                                        402,170           81,537

Property and equipment, at cost:
    Land                                                              39               39
    Support equipment and buildings                               28,133           17,756
                                                              ----------       ----------
                                                                  28,172           17,795
    Less accumulated depreciation                                 12,349            7,846
                                                              ----------       ----------
                                                                  15,823            9,949
                                                              ----------       ----------

Excess cost over acquired net assets                             135,388            8,755
    Less accumulated amortization                                  5,450            2,126
                                                              ----------       ----------
                                                                 129,938            6,629
                                                              ----------       ----------

Other assets, at cost, net of amortization                        19,963            4,607
                                                              ----------       ----------

                                                              $3,894,101        3,058,952
                                                              ==========       ==========
</TABLE>



                                                                     (continued)




                                      I-66
<PAGE>   68
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                       Combined Balance Sheets, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                            September 30,    December 31,
                                                                1997             1996
                                                             ----------       ----------
                                                                 amounts in thousands
<S>                                                          <C>                  <C>
Liabilities and Combined Equity                                  

Accounts payable and accrued liabilities                     $   61,188           25,563

Accrued stock compensation (note 9)                              20,081           17,758

Program rights payable                                          153,463           33,700

Deferred option premium (note 5)                                305,742             --

Debt (note 7)                                                     1,343            1,620

Deferred income taxes                                           571,283          582,089

Other liabilities                                                 2,128             --
                                                             ----------       ----------

    Total liabilities                                         1,115,228          660,730
                                                             ----------       ----------

Minority interests in equity of consolidated
    subsidiaries                                                 78,926            1,052

Combined equity (note 8):
    Combined equity                                           2,141,133        2,355,021
    Unrealized gains on available-for-sale securities,
     net of taxes                                                 1,406             --
                                                             ----------       ----------
                                                              2,142,539        2,355,021

    Due to related parties (note 4)                             557,408           42,149
                                                             ----------       ----------

        Total combined equity                                 2,699,947        2,397,170
                                                             ----------       ----------

Commitments and contingencies (note 9)

                                                             $3,894,101        3,058,952
                                                             ==========       ==========
</TABLE>


See accompanying notes to combined financial statements.



                                      I-67
<PAGE>   69
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                          Three months ended             Nine months ended
                                                            September 30,                   September 30,
                                                     --------------------------      -------------------------
                                                        1997            1996            1997             1996
                                                     ----------      ----------      ----------      ----------
                                                           amounts in thousands, except per share amounts
<S>                                                  <C>                 <C>            <C>              <C>
Revenue:
   Programming services:
      Related parties (note 8)                       $   58,442          24,525         105,080          81,395
      Others                                             66,063          30,963         138,456         216,841
   Net sales from electronic retailing services            --           234,321            --           733,922
                                                     ----------      ----------      ----------      ----------
                                                        124,505         289,809         243,536       1,032,158
                                                     ----------      ----------      ----------      ----------

Cost of sales, operating costs and expenses:
   Cost of sales                                           --           136,992            --           453,483
   Operating                                             67,221          45,418         106,650         225,303
   Selling, general and administrative                   28,836          59,740          66,068         217,090
   Charges from related parties (note 8)                  4,703           5,328           9,136          16,649
   Stock compensation (notes 8 and 9)                    42,898           8,988          62,938          14,699
   Depreciation and amortization                          5,018          10,689           6,573          42,616
                                                     ----------      ----------      ----------      ----------
                                                        148,676         267,155         251,365         969,840
                                                     ----------      ----------      ----------      ----------

        Operating income (loss)                         (24,171)         22,654          (7,829)         62,318

Other income (expense):
   Interest expense to related party (note 8)            (7,192)           --            (7,192)           --
   Interest expense                                        (643)         (2,326)         (1,254)        (14,827)
   Dividend and interest income,
      primarily from affiliates                          14,262           7,743          33,509          12,114
   Share of earnings (losses) of affiliates, net
      (note 4)                                           (7,832)          5,460           5,143          18,215
   Minority interests in losses (earnings) of
      consolidated subsidiaries                           5,734          (3,944)         (6,175)        (10,301)
   Gain (loss) on disposition of assets                 303,659            (886)        304,240          (7,186)
   Loss on early extinguishment of debt                    --              --              (320)           --
   Other, net                                              (225)          1,021            (110)          4,803
                                                     ----------      ----------      ----------      ----------
                                                        307,763           7,068         327,841           2,818
                                                     ----------      ----------      ----------      ----------

        Earnings before income taxes                    283,592          29,722         320,012          65,136

Income tax expense                                     (121,283)        (12,057)       (135,550)        (28,641)
                                                     ----------      ----------      ----------      ----------

        Net earnings                                 $  162,309          17,665         184,462          36,495
                                                     ==========      ==========      ==========      ==========

Earnings per common share (note 2)                   $      .66             .07             .74             .15
                                                     ==========      ==========      ==========      ==========
</TABLE>


See accompanying notes to combined financial statements.


                                      I-68
<PAGE>   70
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                          Combined Statement of Equity

                      Nine months ended September 30, 1997
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       Unrealized holding                      
                                                                       gains on available-        Due to        Total    
                                                        Combined       for-sale securities,       related      combined  
                                                         equity           net of taxes            parties       equity   
                                                       -----------     --------------------       -------    ----------- 
                                                                                 amounts in thousands
                                                                                                                         
<S>                                                    <C>                <C>                      <C>         <C>       
Balance at January 1, 1997                             $ 2,355,021               --                42,149      2,397,170 
                                                                                                                         
   Net earnings                                            184,462               --                  --          184,462 
   Contribution to combined equity for issuance of                                                                       
     Liberty Group Stock to TCI Employee Stock                                                                           
     Purchase Plan                                           2,054               --                  --            2,054 
                                                                                                                         
   Purchase of Liberty Group Stock                        (186,097)              --                  --         (186,097)
   Excess of consideration paid over carryover                                                                           
     basis of net assets acquired from related                                                                           
     party                                                (244,307)              --                  --         (244,307)
   Issuance of Liberty Group Stock                          30,000               --                  --           30,000 
   Sale of programming to related parties                     --                 --              (105,080)      (105,080)
   Cost allocations from related parties                      --                 --                 9,136          9,136 
   Stock compensation                                         --                 --                50,956         50,956 
   Intergroup tax allocation                                  --                 --                29,168         29,168 
   Net cash transfers from related parties                    --                 --                93,749         93,749 
   Issuance of notes payable to related party                 --                 --               430,169        430,169 
   Interest expense to related party                          --                 --                 7,192          7,192 
   Payment of stock compensation                              --                 --                   (31)           (31)
   Change in unrealized holding gains on                                                                                 
     available-for-sale securities                            --                1,406                --            1,406 
                                                       -----------        -----------             -------    ----------- 
Balance at September 30, 1997                          $ 2,141,133              1,406             557,408      2,699,947 
                                                       ===========        ===========             =======    =========== 
</TABLE>


See accompanying notes to combined financial statements.



                                      I-69
<PAGE>   71

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

                        Combined Statements of Cash Flows
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                   Nine months ended
                                                                                     September 30,
                                                                               ------------------------
                                                                                  1997           1996
                                                                               ---------      ---------
                                                                                 amounts in thousands
                                                                                      (see note 3)
<S>                                                                            <C>               <C>
Cash flows from operating activities:
   Net earnings                                                                $ 184,462         36,495
   Adjustments to reconcile net earnings to net cash provided by operating
      activities:
        Depreciation and amortization                                              6,573         42,616
        Stock compensation                                                        62,938         14,699
        Payments of stock compensation                                            (9,690)          --
        Share of earnings of affiliates, net                                      (5,143)       (18,215)
        Deferred income tax expense                                              105,111         15,814
        Intergroup tax allocation                                                 29,168         17,206
        Minority interests in earnings                                             6,175         10,301
        Loss (gain) on disposition of assets                                    (304,240)         7,186
        Loss on early extinguishment of debt                                         320           --
        Payments of litigation settlements                                          --           (5,135)
        Payments for restructuring charges                                          --             (590)
        Noncash interest expense                                                   7,192          4,050
        Changes in operating assets and liabilities, net of acquisitions:
             Change in receivables                                                 4,032        (26,031)
             Change in inventories                                                  --           22,206
             Change in prepaid expenses                                           (4,331)        (2,640)
             Change in payables and accruals                                       2,383            748
                                                                               ---------      ---------

                  Net cash provided by operating activities                       84,950        118,710
                                                                               ---------      ---------

Cash flows from investing activities:
   Cash proceeds from dispositions                                                   583         47,822
   Cash resulting from consolidation of acquired entities                            832           --
   Cash paid for acquisitions                                                       --          (55,000)
   Capital expended for property and equipment                                    (1,541)        (8,221)
   Additional investments in and loans to affiliates and others                  (38,853)       (21,389)
   Return of capital from affiliates                                              18,700          1,500
   Collections on loans to affiliates and others                                   5,897          1,566
   Cash paid for cable distribution fees                                            --          (22,983)
   Other investing activities                                                     (8,469)       (13,144)
                                                                               ---------      ---------

                  Net cash used in investing activities                          (22,851)       (69,849)
                                                                               ---------      ---------

Cash flows from financing activities:
   Borrowings of debt                                                             27,770        238,989
   Repayments of debt                                                            (29,564)      (290,236)
   Contribution for issuance of Liberty Group Stock                                2,054           --
   Purchase of Liberty Group Stock                                              (186,097)          --
   Change in cash transfers to related parties                                    (2,195)        (1,872)
   Contributions by minority shareholders of subsidiaries                              8        314,743
   Distributions to minority shareholders of subsidiaries                            (35)           (65)
                                                                               ---------      ---------

                  Net cash provided (used) by financing activities              (188,059)       261,559
                                                                               ---------      ---------
                  Net increase (decrease) in cash and cash equivalents          (125,960)       310,420

                  Cash and cash equivalents at beginning of period               317,359         41,225
                                                                               ---------      ---------
                  Cash and cash equivalents at end of period                   $ 191,399        351,645
                                                                               =========      =========
</TABLE>


See accompanying notes to combined financial statements.


                                      I-70
<PAGE>   72

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

                     Notes to Combined Financial Statements

                               September 30, 1997
                                   (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.

     On August 3, 1995, the stockholders of TCI authorized the Board of
     Directors of TCI (the "Board") to issue two new series of stock ("Liberty
     Group Stock") which 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 TCI Class A and Class B common stock into
     Tele-Communications, Inc. Series A TCI Group and Series B TCI Group common
     stock ("TCI Group Stock"). 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 10, 1995, TCI distributed, in the form of a dividend, one share
     of Liberty Group Stock for each four shares of TCI Group Stock owned. Such
     distribution (the "Distribution") represented one hundred percent of the
     equity value attributable to Liberty Media Group. The issuance of Liberty
     Group Stock did not result in any transfer of assets or liabilities of TCI
     or any of its subsidiaries or affect the rights of holders of TCI's or any
     of its subsidiaries' debt.

     On August 28, 1997, the stockholders of TCI authorized the Board to issue
     the Tele-Communications, Inc. Series A and Series B TCI Ventures Group
     common stock ("TCI Ventures Group Stock"). The TCI Ventures Group Stock
     reflects the separate performance of the TCI Ventures Group. The TCI
     Ventures Group consists principally of the following assets and their
     related liabilities, which prior to the issuance of the TCI Ventures Group
     Stock were attributed to TCI Group: (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 Liberty Media Group),
     (ii) TCI's principal interests in the telephony business, (iii) TCI's 40%
     equity interest (representing a 85% voting interest) in United Video
     Satellite Group, Inc. ("UVSG"), (iv) TCI's 39% equity interest
     (representing a 72% voting interest) in At Home Corporation ("@Home") and
     (v) other assets.

                                                                     (continued)




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

                     Notes to Combined Financial Statements


     Prior to stockholder approval to issue the TCI Ventures Group Stock, TCI
     commenced offers (the "Exchange Offers") to exchange shares of Series A TCI
     Ventures Group Stock and Series B TCI Ventures Group Stock for shares of
     Series A TCI Group Stock and shares of Series B TCI Group Stock,
     respectively, (representing approximately 30% of the outstanding shares of
     each such series) in the ratio of one share of the applicable series of TCI
     Ventures Group Stock in exchange for each share of the corresponding series
     of TCI Group Stock properly tendered. TCI consummated the Exchange Offers
     on September 10, 1997 (the "TCI Ventures Distribution").

     As of September 30, 1997, the TCI Group Stock reflects the separate
     performance of TCI's 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 unit, 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". Intercompany balances resulting
     from transactions with TCI Group or TCI Ventures Group are reflected as
     borrowings from or loans to the respective Group. See note 8.

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

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

     The accompanying interim combined financial statements are unaudited but,
     in the opinion of management, reflect all adjustments (consisting of normal
     recurring accruals) necessary for a fair presentation of the results for
     such periods. The results of operations for any interim period are not
     necessarily indicative of results for the full year. These combined
     financial statements should be read in conjunction with the audited
     combined financial statements of Liberty Media Group for the year ended
     December 31, 1996. Certain amounts have been reclassified for comparability
     with the 1997 presentation.

                                                                     (continued)




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

                     Notes to Combined Financial Statements

     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.

(2)  Earnings Per Common Share

     Earnings attributable to Liberty Media Group stockholders per common share
     was computed by dividing net earnings attributable to Liberty Media Group
     Series A and Series B common stockholders by the weighted average number of
     common shares of Liberty Media Group Series A and Series B common stock
     outstanding during the period (245.6 million and 250.9 million for the
     three months ended September 30, 1997 and 1996, respectively; and 248.0
     million and 249.3 million for the nine months ended September 30, 1997 and
     1996, respectively). Common stock equivalents were not included in the
     computation because their inclusion would be anti-dilutive to TCI.

     The Financial Accounting Standards Board recently issued Statement of
     Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement
     No. 128"). Statement No. 128 requires the presentation of basic earnings
     per share ("EPS") and, for companies with potentially dilutive securities,
     such as convertible debt, options and warrants, diluted EPS. Statement No.
     128 is effective for annual and interim periods ending after December 31,
     1997. Liberty Media Group does not expect that Statement No. 128 will have
     a material impact on Liberty Media Group's earnings per share.

(3)  Supplemental Disclosures to Combined Statements of Cash Flows

     Cash paid for interest was $1,204,000 and $15,598,000 for the nine months
     ended September 30, 1997 and 1996, respectively. Cash paid for income taxes
     during the nine months ended September 30, 1997 and 1996 was $1,271,000 and
     $641,000, respectively.

                                                                     (continued)




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

                     Notes to Combined Financial Statements


     Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                            Nine months ended
                                                              September 30,
                                                        ------------------------
                                                          1997            1996
                                                        ---------      ---------
                                                          amounts in thousands
<S>                                                    <C>            <C>
Common stock received in exchange for option
     (note 5)                                           $ 305,742           --
                                                        =========      =========

Preferred stock received in exchange
     for common stock and note receivable (note 6)      $ 370,875           --
                                                        =========      =========

Noncash acquisition of minority interest in 
          consolidated subsidiary (note 4):
          Fair value of assets                          $ (29,205)          --
          Minority interest in equity of subsidiary          (795)          --
          Liberty Group Stock issued                       30,000           --
                                                        ---------      ---------
                                                        $    --             --
                                                        =========      =========

Noncash accretion of minority interest in
     consolidated subsidiary (note 8)                   $   2,235           --
                                                        =========      =========

Cash resulting from consolidation of acquired 
          entities (notes 4 and 8):
          Fair value of assets                          $(295,083)          --
          Net liabilities assumed                         156,604           --
          Debt issued to related parties                  430,169           --
          Deferred tax asset recorded in
           acquisition                                   (116,837)          --
          Allocation of excess of consideration
           paid over carryover basis of net
           assets acquired from related party            (244,307)          --
          Minority interests in equity of acquired
           entities                                        70,286           --
                                                        ---------      ---------

          Cash resulting from consolidation of
           acquired entities                            $     832           --
                                                        =========      =========

Exchange of consolidated subsidiaries for note
     receivable and equity investments                  $    --          239,034
                                                        =========      =========
</TABLE>

                                                                     (continued)


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

                     Notes to Combined Financial Statements

(4)  Investments in Affiliates

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

<TABLE>
<CAPTION>
                                       Nine months ended
                                          September 30,
                                  ----------------------------
                                     1997              1996
                                  -----------      -----------
                                     amounts in thousands
Combined Operations


<S>                               <C>                <C>
Revenue                           $ 3,804,597        2,389,221
Operating expenses                 (3,379,639)      (2,144,087)
Depreciation and amortization        (209,979)        (120,824)
                                  -----------      -----------

   Operating income                   214,979          124,310

Interest expense                     (104,630)         (73,710)
Other, net                           (128,759)         (98,993)
                                  -----------      -----------

   Net loss                       $   (18,410)         (48,393)
                                  ===========      ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                            September 30, December 31,
                                               1997           1996
                                             ---------      ---------
                                               amounts in thousands
<S>                                          <C>              <C>
Discovery Communications, Inc.
     ("Discovery")                           $  99,999        117,724
QVC, Inc. ("QVC")                              122,496        103,855
International Cable Channels
     Partnership, Ltd. ("ICCP")                 10,030          9,411
Bet Holdings, Inc. ("BET")                      23,764         20,225
Liberty/Fox U.S. Sports LLC
     ("Fox Sports")                            (21,580)       (21,964)
Superstar/Netlink Group LLC
     ("Superstar/Netlink")                     (39,710)       (37,236)
Home Shopping Network, Inc. ("HSN")            118,443        141,921
BDTV INC., BDTV II INC. and BDTV III INC
    (collectively "BDTV")                      227,629        199,701
Other                                            1,964         11,484
                                             ---------      ---------
                                             $ 543,035        545,121
                                             =========      =========
</TABLE>


                                                                     (continued)


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

                     Notes to Combined Financial Statements

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

<TABLE>
<CAPTION>
                                   Nine months ended
                                     September 30,
                                ----------------------
                                  1997          1996
                                --------      --------
                                 amounts in thousands

<S>                             <C>              <C>
          Discovery             $(17,725)        2,056
          QVC                     18,641        14,216
          ICCP                    (2,452)       (1,837)
          BET                      3,539         3,470
          Superstar/Netlink       12,795         6,560
          HSN                      2,606          --
          BDTV                     1,843          --
          Other (a)              (14,104)       (6,250)
                                --------      --------

                                $  5,143        18,215
                                ========      ========
</TABLE>

     (a)  Prior to July 1997, Liberty Media Group's other investments included a
          49.9% partnership interest in QE+ Ltd. ("QE+"), a limited partnership
          which distributes STARZ!, a first-run movie premium programming
          service launched in 1994. Entities attributed to TCI Group held the
          remaining 50.1% partnership interest.

          Encore Media Corporation ("Encore") (90% owned by Liberty Media Group)
          earned management fees from QE+ equal to 20% of managed costs, as
          defined. In addition, Liberty Media Group earned a "Content Fee" for
          certain services provided to QE+ equal to 4% of the gross revenue of
          QE+. Such Content Fees aggregated $4,266,000 and $2,644,000 for the
          nine months ended September 30, 1997 and 1996, respectively.

                                                                     (continued)


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

                     Notes to Combined Financial Statements

          During July 1997, Liberty Media Group, TCI and John J. Sie, Chairman
          and Chief Executive Officer of Encore and JJS Communications, Inc.
          ("JJS"), a corporation wholly owned by Mr. Sie, entered into a series
          of transactions pursuant to which the businesses of Encore and STARZ!
          were contributed to a newly formed limited liability company ("Encore
          Media Group"). Prior to the formation of Encore Media Group, JJS owned
          10% of Encore, which in connection with these transactions was
          exchanged for Liberty Group Stock. Upon consummation of the
          transactions, Liberty Media Group owns 80% of Encore Media Group and
          TCI Group owns 20%. Liberty Media Group received its 80% ownership
          interest in Encore Media Group in exchange for the contribution of its
          interests in QE+ and Encore, the issuance of a $307 million note
          payable due on or before December 29, 1997 (the "Note Payable") to TCI
          Group, the cancellation and forgiveness of amounts due for Content
          Fees and the termination of an option to increase its ownership
          interest in QE+. TCI Group received the remaining 20% interest in
          Encore Media Group and the aforementioned consideration from Liberty
          Media Group in exchange for TCI Group's ownership interest in QE+ and
          certain special capital contributions made by TCI Group to QE+. It is
          anticipated that Encore Media Group will borrow $400 million (the
          "Encore Loan Proceeds") by December 29, 1997 and distribute the Encore
          Loan Proceeds to Liberty Media Group and TCI Group in proportion to
          their respective ownership interest in Encore Media Group (see note
          7). In addition, TCI Group has entered into a 25 year affiliation
          agreement with Encore Media Group pursuant to which TCI Group will pay
          monthly fixed amounts in exchange for unlimited access to
          substantially all of the existing Encore and STARZ! services. Upon
          consummation of the aforementioned transactions, the operations of
          STARZ! are included in the combined financial results of 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.

(5)  Investment in Time Warner

     On October 10, 1996, Time Warner and Turner Broadcasting System, Inc.
     ("TBS") consummated a merger (the "TBS/Time Warner Merger") whereby TBS
     shareholders received 0.75 of a Time Warner common share for each TBS Class
     A and Class B common share held, and each holder of TBS Class C preferred
     stock received 0.80 of a Time Warner common share for each of the 6 shares
     of TBS Class B common stock into which each share of Class C preferred
     stock could have been converted.

                                                                     (continued)




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

                     Notes to Combined Financial Statements

     Time Warner, TBS, TCI and Liberty Media Corporation ("Liberty") entered
     into an Agreement Containing Consent Order with the Federal Trade
     Commission ("FTC") dated August 14, 1996, as amended on September 4, 1996
     (the "FTC Consent Decree"). Pursuant to the FTC Consent Decree, among other
     things, Liberty agreed to exchange the shares of Time Warner common stock
     to be received in the TBS/Time Warner Merger for shares of a separate
     series of Time Warner common stock with limited voting rights (the "TW
     Exchange Stock"). Holders of the TW Exchange Stock are entitled to one
     one-hundredth (l/100th) of a vote for each share with respect to the
     election of directors. Holders of the TW Exchange Stock will not have any
     other voting rights, except as required by law or with respect to limited
     matters, including amendments of the terms of the TW Exchange Stock adverse
     to such holders. Subject to the federal communications laws, each share of
     the TW Exchange Stock will be convertible at any time at the option of the
     holder on a one-for-one basis for a share of Time Warner common stock.
     Holders of TW Exchange Stock are entitled to receive dividends ratably with
     the Time Warner common stock and to share ratably with the holders of Time
     Warner common stock in assets remaining for common stockholders upon
     dissolution, liquidation or winding up of Time Warner. In connection with
     the TBS/Time Warner Merger, Liberty Media Group received approximately 50.6
     million shares of the TW Exchange Stock in exchange for its TBS holdings.

     As security for borrowings under one of its credit facilities, Liberty
     Media Group has pledged a portion of its TW Exchange Stock. At September
     30, 1997, such pledged portion had an aggregate fair value of approximately
     $1.2 billion based upon the market value of the marketable common stock
     into which it is convertible.

     In connection with the TBS/Time Warner Merger, Liberty and Time Warner
     entered into, among other agreements, an agreement providing for the grant
     to Time Warner of an option (the "Contract Option") to enter into a
     contract with Southern Satellite Systems, Inc. ("Southern"), a wholly owned
     subsidiary of Liberty Media Group which distributes the TBS SuperStation
     ("WTBS") signal in the United States and Canada, pursuant to which Southern
     would provide Time Warner with certain uplinking and distribution services
     relating to WTBS and would assist Time Warner in converting WTBS from a
     superstation into a copyright paid cable programming service. Subsequent to
     the TBS/Time Warner Merger, Liberty Media Group and Time Warner revised the
     structure of the Contract Option. On June 24, 1997, under the new
     agreement, Liberty Media Group granted Time Warner a five year option to
     acquire the business of Southern through a purchase of assets. 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
     announced its intention to exercise the option. Pursuant to the option, the
     consideration for the purchase of the business of Southern will be
     $213,333,333, payable in a form which is mutually acceptable of cash or
     Time Warner common stock together with the assumption of certain
     liabilities. The transaction is expected to close on December 31, 1997. At
     September 30, 1997, Liberty Media Group's investment in Time Warner,
     carried at cost, had an aggregate fair value of approximately $3 billion
     based upon the market value of the marketable common stock into which it is
     convertible.


                                                                     (continued)


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

                     Notes to Combined Financial Statements


(6)  Other Investments

     Other investments and related receivables are summarized as follows:

<TABLE>
<CAPTION>
                                                                September 30,     December 31,
                                                                    1997             1996
                                                                  --------         --------
                                                                     amounts in thousands

<S>                                                               <C>                   <C>
     Marketable equity securities, at fair value                  $ 17,675              790

     Convertible debt, at cost, which approximates fair value         --             23,000
                                                             
     Investment in preferred stock, including premium (a)          370,842             --

     Other investments, at cost, and related receivables            13,653           57,747
                                                                  --------         --------

                                                                  $402,170           81,537
                                                                  ========         ========
</TABLE>

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

     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 $430 million and $162 million at
     September 30, 1997 and December 31, 1996, respectively. No independent
     external appraisals were conducted for those assets.

(7)  Debt

     Debt at December 31, 1996 represents borrowings by Encore pursuant to a
     bank credit facility which provided for borrowings up to $50 million
     through September 30, 1999. On July 7, 1997, Encore Media Group obtained a
     new $625 million senior, secured facility (the "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.
     Interest on the Senior Facility is tied to 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 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 Senior
     Facility serves to replace the Encore bank credit facility which was
     terminated. 
                                        
                                                                     (continued)

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

                     Notes to Combined Financial Statements

     Liberty Media Group has a revolving line of credit which provides for
     borrowings of up to $500 million. No borrowings were outstanding at
     September 30, 1997.

(8)  Combined Equity

     Stock Options and Stock Appreciation Rights

     Estimates of the compensation relating to options and/or stock appreciation
     rights granted to employees of Liberty Media Group and members of the Board
     have been recorded in the accompanying combined financial statements, but
     are subject to future adjustment based upon the market value of Series A
     TCI Group Stock, Series A Liberty Group Stock and Series A TCI Ventures
     Group Stock (see note 1) and, ultimately, on the final determination of
     market value when the rights are exercised. The payable or receivable
     arising from the compensation related to the options and/or stock
     appreciation rights is included in the amount due to related parties.

     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 nine months ended September 30, 1997 and
     1996, Liberty Media Group was allocated $790,000 and $1,924,000,
     respectively, in corporate general and administrative costs by TCI.

     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 nine months ended
     September 30, 1997 and 1996, aggregated $8,347,000 and $9,082,000,
     respectively.

     Certain 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.

     TCI Group manages certain treasury activities for Liberty Media Group on a
     centralized basis. Cash receipts of certain businesses attributed to
     Liberty Media Group are remitted to TCI Group and certain cash
     disbursements of Liberty Media Group are funded by TCI Group on a daily
     basis. Such cash activities are included in borrowings from or loans to TCI
     Group or, if determined by the Board, as an equity contribution to be
     reflected as an Inter-Group Interest to Liberty Media Group.

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

                                                                     (continued)


                                      I-80
<PAGE>   82
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


     Subsequent to the Distribution and the Exchange Offers, all financial
     impacts of issuances of additional shares of TCI Group Stock will be
     attributed entirely to TCI Group, and all financial impacts of issuances of
     additional shares of Liberty Group Stock or TCI Ventures Group Stock, the
     proceeds of which are attributed to Liberty Media Group or TCI Ventures
     Group, will to such extent be reflected entirely in the combined financial
     statements of Liberty Media Group or TCI Ventures Group. Financial impacts
     of dividends or other distributions on, and purchases of, TCI Group Stock
     will be attributed entirely to TCI Group, and financial impacts of
     dividends or other distributions of Liberty Group Stock or TCI Ventures
     Group Stock will be attributed entirely to Liberty Media Group or TCI
     Ventures Group. Financial impacts of repurchases of Liberty Group Stock or
     TCI Ventures Group Stock, the consideration for which is charged to Liberty
     Media Group or TCI Ventures Group will be reflected entirely in the
     combined financial statements of Liberty Media Group or TCI Ventures Group,
     and financial impacts of repurchases of Liberty Group Stock or TCI Ventures
     Group Stock the consideration for which is charged to TCI Group will be
     attributed entirely to TCI Group.

     Effective July 11, 1997, pursuant to an Agreement and Plan of Merger, dated
     as of February 6, 1997, as amended (the "Merger Agreement"), by and among
     TCI, TCI Music, Inc., a wholly-owned subsidiary of TCI ("TCI Music"), TCI
     Merger Sub, a wholly-owned subsidiary of TCI Music ("Merger Sub") and DMX
     Inc. ("DMX"), Merger Sub was merged with and into DMX, with DMX as the
     surviving corporation (the "DMX Merger"). As a result of the DMX Merger,
     stockholders of DMX became stockholders of TCI Music.

                                                                     (continued)


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

                     Notes to Combined Financial Statements


     In connection with the DMX Merger, TCI and TCI Music entered into a
     Contribution Agreement. Pursuant to the Contribution Agreement, effective
     as of the closing of the DMX Merger: (i) TCI Music issued to TCI (as
     designee of certain of its indirect subsidiaries), 62,500,000 shares of TCI
     Music Series B Common Stock and a promissory note in the amount of $40
     million (the "TCI Music Note"), (ii) until December 31, 2006, certain
     subsidiaries of TCI transferred to TCI Music the right to receive all
     revenue from sales of DMX music services to their residential and
     commercial subscribers, net of an amount equal to the 10% of revenue from
     such sales to residential subscribers and net of the revenue otherwise
     payable to DMX as license fees for DMX music services under affiliation
     agreements currently in effect (the "Contributed Net DMX Revenue"), (iii)
     TCI contributed to TCI Music certain commercial digital DMX tuners that are
     not in service as of the effective date of the DMX Merger (the "Contributed
     Tuners"), and (iv) TCI granted to each stockholder who became a stockholder
     of TCI Music pursuant to the DMX Merger, one right (a "Right") with respect
     to each whole share of Series A Common Stock, $.01 par value per share, of
     TCI Music ("TCI Music Series A Common Stock") acquired by such stockholder
     in the DMX Merger pursuant to the terms of a Rights Agreement among TCI,
     TCI Music and the rights agent (the "Rights Agreement"). The foregoing
     transactions are collectively referred to herein as the "Contribution."
     Upon consummation of the DMX Merger, each outstanding share of DMX Common
     Stock was converted into the right to receive (i) one-quarter of a share of
     TCI Music Series A Common Stock, (ii) one Right with respect to each whole
     share of TCI Music Series A Common Stock and (iii) cash in lieu of the
     issuance of fractional shares of TCI Music Series A Common Stock and
     Rights. Each Right entitles the holder to require TCI to purchase from such
     holder one share of TCI Music Series A Common Stock for $8.00 per share,
     subject to reduction by the aggregate amount per share of any dividend and
     certain other distributions, if any, made by TCI Music to its stockholders
     (the "Put Price"), and, payable at the election of TCI, in cash, a number
     of shares of Series A TCI Group Stock, having an equivalent value or a
     combination thereof, if during the one-year period beginning on the
     effective date of the DMX Merger (the "Put Period"), the price of TCI Music
     Series A Common Stock does not equal or exceed $8.00 per share for a period
     of at least 20 consecutive trading days.

     Subsequently, TCI Music and TCI entered into an Amended and Restated
     Contribution Agreement to be effective as of July 11, 1997 (the "Amended
     Contribution Agreement") which provides, among other things, for TCI to
     deliver, or cause certain of its subsidiaries to deliver (in lieu of TCI's
     obligation to cause its affiliates to make contributions to TCI Music under
     the Contribution Agreement, as described above), to TCI Music monthly
     payments (adjusted annually for inflation) through 2017 (the "TCI
     Payments"). Pursuant to the Amended Contribution Agreement, the TCI
     Payments will represent (i) revenue of certain subsidiaries of TCI that is
     attributable to the distribution and sale of the DMX service to cable
     subscribers who receive the DMX service via C-Band satellite transmission
     (rather than digital compression technology) (net of an amount equal to 10%
     of such revenue derived from residential customers and license fees
     otherwise payable to DMX pursuant to an affiliation agreement) and (ii)
     compensation to TCI Music and DMX for various other rights.

                                                                     (continued)


                                      I-82
<PAGE>   84
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

     Effective with the DMX Merger, TCI beneficially owns approximately 45.7% of
     the outstanding shares of the TCI Music Series A Common stock and 100% of
     the outstanding shares of TCI Music Series B Common Stock (together, the
     "TCI Music Common Stock"), which represents 89.6% of the equity and 98.7%
     of the voting power of TCI Music. 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. The Music Note may be reduced by the
     payment of cash or the issuance by TCI of shares of Liberty Media Group
     Common Stock for the benefit of entities included within the TCI Group.
     Additionally, Liberty Media Group may elect to pay $50,000,000 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.
     Following the above-described transaction, Liberty Media Group holds TCI
     Music Common Stock, which when combined with the TCI Music Common Stock
     received by Liberty Media Group in the DMX Merger, represents 86.05% of the
     equity and 98.31% of the voting power of TCI Music. Therefore, TCI Music is
     included in the financial results of Liberty Media Group as of the date of
     the DMX Merger.

     The estimated aggregate fair value of the consideration issued to entities
     not controlled by TCI (the "Unaffiliated Stockholders") in the DMX Merger
     and the carryover basis of the consideration issued to entities controlled
     by TCI has been allocated to excess cost as the net book values of DMX's
     assets and liabilities approximate their respective fair values. The number
     of shares and Rights issued is based upon DMX Common Stock ownership as of
     June 30, 1997. The estimated fair value of the consideration issued to
     Unaffiliated Stockholders in the DMX Merger is being accreted to the value
     of $8.00 per share, subject to reduction by the aggregate amount per share
     of any dividend and certain other distributions, if any, made by TCI Music
     to its stockholders during the one-year period beginning on the effective
     date of the DMX Merger. Such accretion is reflected as an increase in
     excess cost with a corresponding increase to minority interest. Excess cost
     is being amortized over ten years.


                                                                     (continued)


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

                     Notes to Combined Financial Statements

     Due to Related Parties

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

<TABLE>
<CAPTION>
                                                               September 30,  December 31,
                                                                  1997            1996
                                                                --------       --------
                                                                 amounts in thousands
<S>                                                             <C>           <C>
     Notes payable to TCI Group, including
          accrued interest                                      $438,246            --
     Intercompany account                                        119,162         42,149
                                                                --------       --------

                                                                $557,408         42,149
                                                                ========       ========
</TABLE>

     Amounts outstanding under the notes payable to TCI Group bear interest at
     varying rates from 6.5% to 12.5%. Principal maturities are as follows: 1997
     - $308 million, 1998 - $81 million and 1999 - $41 million. During the nine
     months ended September 30, 1997, interest expense related to the notes
     payable to TCI Group aggregated approximately $7.2 million.

     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.

                                                                     (continued)




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

                     Notes to Combined Financial Statements


     Tax Sharing Agreement

     A tax sharing agreement (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, Liberty Media 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 Liberty Media Group to the extent that the income tax
     attributes generated by Liberty Media Group and its subsidiaries 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 are charged or
     credited to an intercompany account between TCI and Liberty Media 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.

     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
     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-85
<PAGE>   87
                              "LIBERTY MEDIA 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 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.

(9)  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 September 30,
     1997, these agreements require minimum payments aggregating approximately
     $776 million. The aggregate amount of the Film Licensing Obligations under
     these license agreements is not currently estimable because such amount is
     dependent upon the number of qualifying films released theatrically by
     certain motion picture studios as well as the domestic theatrical
     exhibition receipts upon the release of such qualifying films.
     Nevertheless, required aggregate payments under the Film Licensing
     Obligations could prove to be significant.

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




                                      I-86
<PAGE>   88

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

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

     The following discussion and analysis should be read in conjunction with
Liberty Media Group's Management's Discussion and Analysis of Financial
Condition and Results of Operations included in Tele-Communications, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1996. The following
discussion focuses on material changes in trends, risks and uncertainties
affecting Liberty Media Group's results of operations and financial condition.
Reference should also be made to the Liberty Media Group combined financial
statements included herein.

(1)  Material changes in financial condition:

     In August 1995, TCI issued two new series of stock which reflect the
separate performance of 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. While the Liberty
Group Stock constitutes common stock of TCI, issuance of Liberty Group Stock did
not result in any transfer of assets or liabilities of TCI or any of its
subsidiaries or affect the rights of holders of TCI's or any of its
subsidiaries' debt. For additional information concerning the Liberty Group
Stock, see note 1 to the accompanying combined financial statements. For
information concerning transactions with TCI Group and TCI Ventures Group, see
note 8 to the accompanying combined financial statements.

     During the nine months ended September 30, 1997, Liberty Media Group
repurchased 611,000 shares of Series A Liberty Group Stock in open market
transactions and 146,625 shares of Series A Liberty Group Stock from the spouse
of an officer and director of TCI at an aggregate cost of $18,239,000. Such
shares are reflected as a reduction of combined equity in the accompanying
combined financial statements.

     Effective July 31, 1997, TCI merged Kearns-Tribune Corporation into a
wholly-owned TCI subsidiary. The merger was valued at approximately $731
million. TCI exchanged 47.2 million shares of Series A TCI Group Stock for
shares of Kearns-Tribune Corporation which held 17.9 million shares of TCI Group
Stock and 6.7 million shares of Liberty Group Stock. Liberty Media Group
purchased from TCI Group the 6.7 million shares of Liberty Group Stock that were
acquired in such transaction for $168 million in cash.

     During the third quarter of 1997, Liberty Media Group commenced a tender
offer (the "Offer") to purchase up to an aggregate of 15 million shares of
Liberty Group Stock at a price of $30 per share through October 3, 1997.
Subsequent to September 30, 1997, Liberty Media Group repurchased 14,443,323
shares of Series A Liberty Group Stock and 54,716 shares of Series B Liberty
Group Stock at an aggregate cost of approximately $435 million pursuant to the
Offer.

                                                                     (continued)




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


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

     The TBS/Time Warner Merger was consummated on October 10, 1996 whereupon
Liberty Media Group received approximately 50.6 million shares of TW Exchange
Stock in exchange for its TBS holdings. On June 24, 1997 Liberty Media Group
granted Time Warner a five year option to acquire the business of Southern (the
"Southern Option") through a purchase of assets. 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 announced its intention to
exercise the Southern Option. Pursuant to the Southern Option, the consideration
for the purchase of the business of Southern will be $213 million, payable in a
form which is mutually acceptable of cash or Time Warner common stock, together
with the assumption of certain liabilities. See note 5 to the accompanying
combined financial statements.

     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 payments, asset sales, availability under certain credit
facilities, and loans and/or equity contributions 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.

     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. However, other subsidiaries, principally Southern
and Netlink USA's ("Netlink") wholesale C-band satellite business are not
restricted from making transfers of funds to other members of the group. The
cash provided by operating activities of Southern is a significant source of
cash available for distribution to Liberty Media Group as well as cash provided
by operating activities of Netlink's wholesale C-band satellite business.
However, Netlink's wholesale C-band satellite business, faces significant
competition from other C-band distributors as well as direct broadcast satellite
("DBS") services, which were launched in 1994. Liberty Media Group believes that
the entry of DBS will serve to decrease the size of the C-Band market in the
short and long term. During 1996, the C-Band industry decreased 4% to 2.3
million subscribers. A significant deterioration of the C-Band market could have
a material effect on Netlink's wholesale C-band satellite business and
consequently, Liberty Media Group's cash provided by operating activities. While
the decrease in the C-Band industry, as well as the exercise of the Southern
Option, could have an adverse effect on Liberty Media Group's cash provided by
operating activities, cash generated by Liberty Media Group's remaining
operating activities, distributions from affiliates, dividend and interest
payments and availability under certain credit facilities should provide
adequate cash to meet its obligations.

     As of September 30, 1997, Liberty Media Group holds approximately 57
million shares of TW Exchange Stock. Holders of TW Exchange Stock are entitled
to receive dividends ratably with Time Warner common stock. It is anticipated
that Time Warner will continue to pay dividends on its common stock and
consequently 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.

                                                                     (continued)


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


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

     On August 1, 1997, Liberty IFE, Inc., a wholly owned subsidiary of Liberty
Media Group which holds the Class C Stock and the Convertible Notes, contributed
its Class C Stock and Convertible Notes to FKW in exchange for the FKW
Preferred Stock. As a result of the exchange, Liberty Media Group recognized a
pre-tax gain of approximately $304 million. See note 6 to the accompanying
combined financial statements.

     During July 1997, Liberty Media Group, TCI, John J. Sie and JJS, entered
into a series of transactions pursuant to which the businesses of Encore and
STARZ! were contributed to Encore Media Group. Upon completion of the
transaction, Liberty Media Group owns 80% of Encore Media Group and TCI Group
owns 20%. JJS exchanged its interest in Encore for Liberty Group Stock. Liberty
Media Group acquired its 80% ownership interest in Encore Media Group in
exchange for the contribution of its interests in QE+ and Encore, the issuance
of a $307 million note payable due on or before December 29, 1997 to TCI Group,
the cancellation and forgiveness of amounts due for Content Fees and the
termination of an option to increase its ownership interest in QE+. TCI Group
acquired the remaining 20% interest in Encore Media Group and the aforementioned
consideration from Liberty Media Group in exchange for TCI Group's ownership
interest in QE+ and certain special capital contributions made by TCI Group to
QE+. In addition, TCI Group has entered into a 25 year affiliation agreement
with Encore Media Group pursuant to which TCI Group will pay monthly fixed
amounts to Encore Media Group in exchange for unlimited access to substantially
all of the existing Encore and STARZ! movies services. Upon formation of Encore
Media Group, the operations of STARZ! are included in the combined financial
results of Liberty Media Group.

     Encore Media Group obtained a new $625 million senior, secured facility
(the "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. Encore Media Group will borrow $400 million by December 29, 1997 and
distribute it to Liberty Media Group and TCI Group in proportion to their
ownership interests in Encore Media Group. The credit agreement for the 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 Senior Facility serves to replace the Encore bank credit facility
which was terminated.

     Liberty Media Group has a revolving line of credit which provides for
borrowings of up to $500 million. No borrowings were outstanding at September
30, 1997.


                                                                     (continued)


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

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

     Effective July 11, 1997, pursuant to the Merger Agreement, Merger Sub was
merged with and into DMX, with DMX as the surviving corporation. As a result of
the DMX Merger, stockholders of DMX became stockholders of TCI Music. Effective
with the DMX Merger, TCI beneficially owns approximately 45.7% of the
outstanding shares of the TCI Music Series A Common stock and 100% of the
outstanding shares of TCI Music Series B Common Stock, which represents 89.6% of
the equity and 98.7% of the voting power of TCI Music. 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 the Music Note. The Music Note
may be reduced by the payment of cash or the issuance by TCI of shares of
Liberty Media Group Common Stock for the benefit of entities included within the
TCI Group. Additionally, Liberty Media Group may elect to pay $50,000,000 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. Following
the above-described transaction, Liberty Media Group holds TCI Music Common
Stock, which when combined with the TCI Music Common Stock received by Liberty
Media Group in the DMX Merger represents 86.05% of the equity and 98.31% of the
voting power of TCI Music. Therefore, TCI Music is included in the financial
results of Liberty Media Group as of the date of the DMX Merger.

     In connection with the DMX Merger, TCI and TCI Music entered into a
Contribution Agreement. Pursuant to the Contribution Agreement, effective as of
the closing of the DMX Merger: (i) TCI Music issued to TCI (as designee of
certain of its indirect subsidiaries), 62,500,000 shares of TCI Music Series B
Common Stock and the TCI Music Note, (ii) until December 31, 2006, certain
subsidiaries of TCI transferred to TCI Music the right to receive the
Contributed Net DMX Revenue, (iii) TCI contributed to TCI Music the Contributed
Tuners, and (iv) TCI granted to each stockholder who became a stockholder of TCI
Music pursuant to the DMX Merger, one Right. The foregoing transactions are
collectively referred to herein as the "Contribution." Upon consummation of the
DMX Merger, each outstanding share of DMX Common Stock was converted into the
right to receive (i) one-quarter of a share of TCI Music Series A Common Stock,
(ii) one Right with respect to each whole share of TCI Music Series A Common
Stock and (iii) cash in lieu of the issuance of fractional shares of TCI Music
Series A Common Stock and Rights.

     The estimated fair value of the consideration issued to Unaffiliated
Stockholders in the DMX Merger is being accreted to the value of $8.00 per
share, subject to reduction by the aggregate amount per share of any dividend
and certain other distributions, if any, made by TCI Music to its stockholders
during the one-year period beginning on the effective date of the DMX Merger.
Such accretion is reflected as an increase in excess cost with a corresponding
increase to minority interest. See note 8 to the accompanying combined financial
statements.

     Pursuant to the Amended Contribution Agreement between TCI Music and TCI,
certain entities within the TCI Group are required to deliver to TCI Music
monthly revenue payments (adjusted annually for inflation) through 2017.


                                                                     (continued)


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

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

     Liberty Media Group intends to continue to develop its entertainment and
information programming services and has made certain financial commitments
related to the acquisition of programming. As of September 30, 1997, Liberty
Media Group's future minimum obligation related to certain film licensing
agreements was $776 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.

     The FCC has initiated a number of rulemakings to implement various
provisions of the Telecommunications Act of 1996 (the "1996 Telecom Act"). Among
other things, the 1996 Telecom Act requires the FCC to establish rules and
implementation schedules to ensure that video programming is fully accessible to
the hearing impaired through closed captioning. On August 22, 1997, the FCC
released new rules which will require substantial closed captioning over an
eight to ten year phase-in period with only limited exemptions. As a result,
Liberty Media Group's programming interests are expected to incur significant
additional costs for closed captioning. On October 16, 1997, a number of parties
petitioned the FCC to reconsider various provisions of these rules, and such
petitions remain pending.

     Netlink has entered into an agreement in principle with representatives of
the National Association of Broadcasters and of its television network affiliate
members. Netlink's wholesale C-band satellite business uplinks the signals of
broadcast television stations to C-Band packagers and marketers in the United
States and Canada. In uplinking and selling the signals of broadcast television
stations in the United States, Netlink's wholesale C-band satellite business is
subject to certain FCC regulations and Copyright Act provisions. Pursuant to
such provisions, Netlink's wholesale C-band satellite business may only
distribute the signals of network broadcast stations to "unserved households"
which are outside the Grade B contours of a primary station affiliated with such
network. The parties to the agreement will identify by zip code those geographic
areas which are "unserved" by network affiliated stations. Depending upon
finalization of the agreement and such identification, Netlink's wholesale
C-band satellite business may be required to disconnect a substantial number of
existing subscribers which would have a material adverse effect upon the
operations of the Netlink wholesale C-band business.

     On August 1, 1997, the United States Copyright Office released a "Review of
the Copyright Licensing Regimes Covering Retransmission of Broadcast Signals" in
response to a request from the Chairman of the United States Senate Committee on
the Judiciary. The Copyright Office recommended a number of significant changes
in the laws regulating the copyright licensing of broadcast retransmissions
which, if adopted, would have a significant impact upon Netlink. Congressional
committees have held and scheduled hearings on such recommendations.

                                                                     (continued)


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

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

     On October 28, 1997, the Librarian of Congress announced final rules
increasing the monthly copyright royalty fee for the secondary transmission of
superstations and broadcast stations by satellite carriers, such as Netlink, to
27 cents per subscriber for distant superstations and network stations. Such
monthly fees had been 17.5 cents for superstations and 6 cents for network
stations. The Librarian adopted the royalty fees which had been recommended by
the Copyright Arbitration Royalty Panel in a report submitted to the Librarian
on August 29, 1997. Although the Panel has recommended that the new fees be
effective as of July 1, 1997, the Librarian determined that the fees will become
effective on January 1, 1998. Consequently, the copyright fees paid by Netlink
for the retransmission of broadcast signals to home satellite dish owners will
increase significantly. The resulting increases in retail prices to subscribers
may cause a substantial decrease in the number of subscribers to Netlink
services. On October 30, 1997, the Satellite Broadcasting & Communications
Association, of which Netlink is a member, filed a Petition for Review of the
Librarian's decision with the United States Court of Appeals for the District of
Columbia Circuit.

                                                                     (continued)


                                      I-92
<PAGE>   94

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

(2)  Material changes in results 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").
Through December 20, 1996, (the date of the merger of Home Shopping Network,
Inc. ("HSN") with a subsidiary of Silver King Communications, Inc. ("Silver
King") (the "HSN Merger") Liberty Media Group was also engaged in electronic
retailing, direct marketing, advertising sales relating to programming services,
infomercials and transaction processing ("Electronic Retailing Services"). To
enhance the reader's understanding, separate financial data have been provided
below for Electronic Retailing Services, which include a retail function, and
other Entertainment and Information Programming Services. The table below sets
forth, for the periods indicated, certain financial information and the
percentage relationship that certain items bear to revenue. This summary
provides trend data related to the normal recurring operations of Liberty Media
Group. Corporate expenses have not been reflected in the following table but are
included in the following discussion. Liberty Media Group holds significant
equity investments the results of which are not a component of operating income,
but are discussed below under "Other Income and Expense". Other items of
significance are discussed separately under their own captions below.

<TABLE>
<CAPTION>
                                          Three months ended September 30,
                                     -------------------------------------------
                                            1997                    1996
                                     ------------------     --------------------
                                              dollar amounts in thousands
Entertainment and Information
Programming Services
<S>                                 <C>     <C>                  <C>       <C>

   Revenue                           100%    $  124,505        100%     $ 55,488
   Operating costs and expenses       80%        99,362         76%       42,280
   Stock compensation                  6%         7,406          --           --
   Depreciation and amortization       4%         4,988          2%        1,128
                                     ---     ----------     ------      --------
                                                              
        Operating income              10%    $   12,749         22%     $ 12,080
                                     ===     ==========     ======      ========
                                                              
Electronic Retailing Services                                 
                                                              
   Revenue                           N/A     N/A               100%     $234,321
   Cost of sales                     N/A     N/A                58%      136,992
   Operating costs and expenses      N/A     N/A                33%       77,093
   Depreciation and amortization     N/A     N/A                 4%        9,536
                                                            ------      --------
                                                              
        Operating income             N/A     N/A                 5%     $ 10,700
                                                            ======      ========
</TABLE>                                                      

                                                                     (continued)


                                      I-93
<PAGE>   95

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


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

<TABLE>
<CAPTION>
                                            Nine months ended September 30,
                                     ------------------------------------------------
                                             1997                       1996
                                     ---------------------     ----------------------
                                             dollar amounts in thousands

Entertainment and Information
Programming Services

<S>                                 <C>     <C>               <C>          <C>
   Revenue                           100%    $  243,536       100%     $298,236
   Operating costs and expenses       73%       177,657        80%      240,563
   Stock compensation                  5%        11,982          %
   Depreciation and amortization       3%         6,486         5%       14,393
                                     ---     ----------     -----      --------
                                                             
        Operating income              19%    $   47,411        15%     $ 43,280
                                     ===     ==========     =====      ========
                                                             
Electronic Retailing Services

   Revenue                           N/A     N/A              100%     $733,922
   Cost of sales                     N/A     N/A               62%      453,483
   Operating costs and expenses      N/A     N/A               31%      231,133
   Depreciation and amortization     N/A     N/A                4%       28,146
                                                             -----      --------
                                                              
        Operating income             N/A     N/A                3%     $ 21,160
                                                             =====      ========
</TABLE>                                                      


Entertainment and Information Programming Services

     As of April 1, 1996, upon formation of Superstar/Netlink, Netlink's retail
operations no longer consolidate with the financial results of Liberty Media
Group. Similarly, effective April 29, 1996, Liberty Media Group's regional
sports programming businesses no longer consolidate with the financial results
of Liberty Media Group. In addition, effective January 1, 1997, the operations
for TV Network Corporation ("Intro") were discontinued and therefore, revenue
from such operations was not realized in 1997. Consequently, revenue from
Entertainment and Information Programming Services decreased 18% or $55 million
for the nine months ended September 30, 1997, as compared to the corresponding
period of 1996. Revenue increased 124% or $69 million for the three months ended
September 30, 1997 compared to third quarter of 1996. The increase in the third
quarter is substantially due to the formation of Encore Media Group. Upon
formation, the results of operations of STARZ! are combined with the financial
results of Liberty Media Group. Additionally, effective July 1997, the results
of operations for TCI Music are included in the financial results of Liberty
Media Group. The impact of these acquisitions to revenue from Entertainment and
Information Programming Services for the third quarter of 1997 is approximately
$60 million. Revenue from the Encore services increased approximately $14
million and $38 million for the three months and nine months ended September 30,
1997, respectively. The increase in revenue from the Encore services is
primarily due to increases in the number of units of their thematic multiplex
services and the launch by TCI Group to 8 million customers of Encore Media
Group's "MOVIEplex" (a cable service which offers theme-by-day movies). Rates
increased by approximately 5% for Encore Media Group. Revenue from Encore Media
Group increased approximately $3 million from increased management fees from
affiliates during the nine months ended September 30, 1997 compared to 1996.

                                                                     (continued)



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

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

     Operating costs and expenses from Entertainment and Information Programming
Services decreased 26% or $63 million for the nine months ended September 30,
1997, and increased 135% or $57 million for the quarter ended September 30,
1997, as compared to the corresponding periods of 1996. Because the operations
of the regional sports programming businesses, the operations of Netlink's
retail business and the operations of Intro were no longer included in Liberty
Media Group's combined financial results during 1997, these businesses were
primarily responsible for the decreases in operating costs and expenses in the
nine months ended September 30, 1997. The operating expenses increase for the
third quarter of 1997 is primarily due to the previously described acquisitions.
Operating expenses from Entertainment and Information Programming Services
includes $67 million from these acquisitions. Operating expenses, excluding
stock compensation, relating to the Encore services increased approximately $5
million and $36 million during the three months and nine months ended September
30, 1997, respectively. Programming costs for the Encore Services and the
thematic multiplex services increased due to more recent programming being
purchased. Encore incurred approximately $2 million for costs associated with
transitioning to digital technology during the nine months ended September 30,
1997. Increased marketing support resulting from higher subscribers and revenue
accounted for $10 million of the increases in operating expenses relating to the
Encore services for the nine months ended September 30, 1997. Increased national
advertising was responsible for approximately $5 million and $17 million of the
increase for the quarter and nine months, respectively. The remainder of the
increases in the operating expenses relating to the Encore services excluding
stock compensation was due to additional personnel and related costs supporting
the overall growth of the company.

Corporate Expenses

     Corporate expenses are not reflected in the preceding table. During 1997,
corporate expense, excluding the impact of the stock appreciation rights,
remained relatively comparable to the same periods of 1996. The amount of
expense associated with stock appreciation rights is based on the market price
of the underlying common stock as of the date of the financial statements. The
expense is subject to future adjustment based on market price fluctuations and,
ultimately, on the final determination of market value when the rights are
exercised.

     Certain TCI Group corporate general and administrative costs are charged to
Liberty Media Group at rates set at the beginning of each year based on
projected utilization for that year. The utilization-based charges are set at
levels that management believes to be reasonable and that approximate the costs
Liberty Media Group would incur for comparable services on a stand alone basis.
During the nine months ended September 30, 1997 and 1996, Liberty Media Group
was allocated $790,000 and $1,924,000, respectively, in corporate general and
administrative costs by TCI Group.

                                                                     (continued)




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

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

Other Income and Expense

     Liberty Media Group's share of earnings from affiliates was a loss of $8
million and earnings of $5 million for the three months and nine months ended
September 30, 1997, compared to earnings of $5 million and $18 million for the
corresponding periods of 1996. Liberty Media Group's share of earnings of
affiliates attributable to its interest in Discovery decreased $11 million and
$22 million during the three and nine months ended September 30, 1997,
respectively, compared to the same periods of 1996. Discovery's revenue
increased 40% during the first nine months of 1997 compared to the same period
in 1996. However, earnings before interest, taxes, depreciation and amortization
for Discovery decreased by 21%, principally because of costs associated with
launching new services (primarily Animal Planet), continuing investments in
international services and the acquisition of The Nature Company. This decrease
in share of earnings was partially offset by an increase in share of earnings of
Superstar/Netlink in 1997 of $1 million and $6 million for the quarter and nine
months of 1997 compared to the same periods in 1996. A decrease in Liberty Media
Group's share of DMX's losses prior to the DMX Merger offset the increase in
share of losses of affiliates attributable to its interest in Discovery.
Additionally, Liberty Media Group's share of earnings of affiliates attributable
to its interest in QVC increased approximately $1 million and $4 million during
the three months and nine months ended September 30, 1997 compared to the same
periods of 1996. QVC's revenue increased by 12% during the first nine months of
1997, resulting in a corresponding 11% increase in earnings before interest,
taxes, depreciation and amortization over the first nine months of 1996.

     Dividend and interest income increased $6 million and $22 million during
the quarter and nine months ended September 30, 1997, respectively, compared to
the corresponding periods of 1996, principally due to the dividends received on
the TW Exchange Stock acquired in October 1996 as well as the FKW Preferred
Stock. Additionally, interest income on excess cash balances increased $7
million during the nine months of 1997 and decreased $2 million for the third
quarter of 1997, compared to 1996.



                                      I-96
<PAGE>   98
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)
                             Combined Balance Sheets

                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                  September 30,     December 31,
                                                                                     1997             1996
                                                                                  -----------        -------
Assets                                                                               amounts in thousands
<S>                                                                               <C>                <C>    
Cash and cash equivalents                                                          $  341,550        105,527

Trade and other receivables, net                                                       85,894        115,491

Film inventory and other prepaid expenses                                              26,276         85,998

Investments in Sprint Spectrum Holding Company, L.P. and MinorCo,
   L.P. (and their respective predecessor) and PhillieCo L.P. 
   (collectively, the "PCS Ventures"), accounted for under the equity
   method (note 6)                                                                    674,151        829,651
                                                                                                            
Investment in Telewest Communications plc ("Telewest"), accounted for under the                             
   equity method (note 7)                                                             352,235        488,495
                                                                                                            
Investment in Teleport Communications Group, Inc. ("Teleport"),
   accounted for under the equity method, and related receivables
   (note 8)                                                                           255,511        276,112

Investment in other affiliates, accounted for under the equity method, and
   related receivables (note 9)                                                       597,212        474,599
                                                                                                            
Property and equipment, at cost:
   Land                                                                                 7,979          7,837
   Distribution systems                                                             1,045,249        761,191
   Support equipment and buildings                                                    148,246        208,294
                                                                                   ----------    -----------
                                                                                    1,201,474        977,322
   Less accumulated depreciation                                                      298,804        240,322
                                                                                   ----------    -----------
                                                                                      902,670        737,000
                                                                                   ----------    -----------

Franchise costs and other intangible assets                                           994,805      1,029,842
   Less accumulated amortization                                                      138,390        103,631
                                                                                   ----------    -----------
                                                                                      856,415        926,211
                                                                                   ----------    -----------

Other assets, net of amortization                                                     326,502        220,619
                                                                                   ----------    -----------

                                                                                   $4,418,416      4,259,703
                                                                                   ==========    ===========
</TABLE>


                                                                     (continued)

                                      I-97

<PAGE>   99

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

                                   (unaudited)


<TABLE>
<CAPTION>
                                                               September 30, December 31,
                                                                   1997          1996
                                                                ----------   ----------
Liabilities and Combined Equity                                  amounts in thousands
<S>                                                             <C>          <C>   
Accounts payable                                                $   42,210       71,776

Accrued liabilities                                                112,586      148,962

Customer prepayments                                               143,519      100,670

MultiThematiques Obligation (note 9)                                27,338       47,902

Capital lease obligations                                          372,440      199,961

Debt (note 10)                                                     564,230      526,254

Deferred income taxes                                              262,572      220,306

Other liabilities                                                   48,342       21,477
                                                                ----------   ----------

         Total liabilities                                       1,573,237    1,337,308
                                                                ----------   ----------

Minority interests in equity of subsidiaries                       275,926      370,879

Combined equity:
   Combined equity                                               2,588,696    2,686,794 
   Cumulative foreign currency translation adjustments                 208       26,146 
                                                                                        
   Unrealized holding gains for available-for-sale securities       17,554       15,077 
                                                                ----------   ---------- 
                                                                 2,606,458    2,728,017 

   Due from related parties (note 11)                              (37,205)    (176,501)
                                                                ----------   ----------

         Total combined equity                                   2,569,253    2,551,516
                                                                ----------   ----------

Commitments and contingencies (notes 6, 9 and 12)
                                                                $4,418,416    4,259,703
                                                                ==========   ==========
</TABLE>


See accompanying notes to combined financial statements.

                                      I-98

<PAGE>   100

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

                        Combined Statements of Operations

                                   (unaudited)

<TABLE>
<CAPTION>
                                                            Three months ended        Nine months ended
                                                               September 30,            September 30,
                                                          ----------------------    ----------------------
                                                            1997         1996         1997         1996
                                                          ---------    ---------    ---------    ---------
                                                                       amounts in thousands,
                                                                     except per share amounts
<S>                                                       <C>          <C>          <C>          <C>    
Revenue (note 11)                                         $ 258,942      238,590      758,082      637,670

Operating costs and expenses:
   Operating (note 11)                                      149,195      142,742      428,635      372,309
   General and administrative (note 11)                      64,050       70,283      194,469      188,855
   Stock compensation (note 12)                              55,774       (4,468)      68,699       (6,930)
   Depreciation and amortization                             52,984       38,405      138,149      103,617
                                                          ---------    ---------    ---------    ---------
                                                            322,003      246,962      829,952      657,851
                                                          ---------    ---------    ---------    ---------

        Operating loss                                      (63,061)      (8,372)     (71,870)     (20,181)

Other income (expense):
   Share of losses of PCS Ventures (note 6)                (147,051)     (30,615)    (304,436)     (78,358)
   Share of losses of Telewest (note 7)                     (37,880)     (29,003)    (111,338)     (99,206)
   Share of losses of Teleport (note 8)                     (15,600)     (11,011)     (43,417)     (31,591)
   Share of losses of other affiliates (note 9)             (26,941)     (19,435)     (77,350)     (56,337)
   Interest expense                                         (14,612)     (10,845)     (41,178)     (36,536)
   Interest income (note 11)                                  4,982        5,180        8,883       18,547
   Minority interests' share of (gains) losses                1,525        5,747       (6,935)      21,992
   Foreign currency transaction gains (losses)                 (823)         609         (425)       4,040
   Gain on disposition of assets (note 9)                    75,905           --      104,774           --
   Gain on issuance of stock by attributed entity (note 4)   60,233           --       60,233           --
   Gain on sale of stock by equity investee (note 8)             --       12,410       21,251       12,410
   Other, net                                                (2,850)         305        3,800        6,162
                                                          ---------    ---------    ---------    ---------
                                                           (103,112)     (76,658)    (386,138)    (238,877)
                                                          ---------    ---------    ---------    ---------

        Loss before income taxes                           (166,173)     (85,030)    (458,008)    (259,058)

Income tax benefit                                           40,440       36,207      143,117       74,293
                                                          ---------    ---------    ---------    ---------

        Net loss                                          $(125,733)     (48,823)    (314,891)    (184,765)
                                                          =========    =========    =========    =========

Pro forma loss  per common share (note 1)                 $    (.61)                    (1.54)
                                                          =========                 =========
</TABLE>


See accompanying notes to combined financial statements.

                                      I-99

<PAGE>   101

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

                          Statement of Combined Equity

                      Nine months ended September 30, 1997
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                       Cumulative  
                                                                                        foreign    
                                                                                       currency    
                                                                                      translation  
                                                                        Combined      adjustment,  
                                                                         equity       net of taxes 
                                                                       -----------    -----------  
                                                                           amounts in thousands
<S>                                                                    <C>                 <C>   
Balance at January 1, 1997                                             $ 2,686,794         26,146

    Net loss                                                              (314,891)            -- 
    Adjustment in connection with the issuance of ordinary shares by
      Flextech p.l.c. (note 9)                                              98,555             -- 
    Foreign currency translation adjustment                                     --        (25,938)
    Unrealized holding gains for available-for-sale securities                  --             -- 
    Adjustment due to gain deferred by related party (note 11)              46,543             -- 
    Repayment of amounts due from related party                                 --             -- 
    Interest income from related party                                      (4,251)            -- 
    Stock compensation                                                      56,305             -- 
    Revenue from related parties                                           (24,508)            -- 
    Operating costs to related parties                                      22,961             -- 
    Corporate general and administrative cost allocations                    5,899             -- 
    Intergroup tax allocation                                             (150,567)            -- 
    Other intercompany transfers                                           165,856             -- 
                                                                       -----------    -----------
Balance at September 30, 1997                                            2,588,696            208
                                                                       ===========    ===========

<CAPTION>
                                                                       Unrealized
                                                                        holdings
                                                                       gains for
                                                                       available-
                                                                        for-sale     Due to(from)
                                                                       securities,     related         Total
                                                                       net of taxes    parties         equity
                                                                       -----------   -----------    -----------
                                                                                   amounts in thousands
<S>                                                                    <C>           <C>            <C>      
Balance at January 1, 1997                                                  15,077      (176,501)     2,551,516

    Net loss                                                                    --            --       (314,891)
    Adjustment in connection with the issuance of ordinary shares by
      Flextech p.l.c. (note 9)                                                  --            --         98,555
    Foreign currency translation adjustment                                     --            --        (25,938)
    Unrealized holding gains for available-for-sale securities               2,477            --          2,477
    Adjustment due to gain deferred by related party (note 11)                  --            --         46,543
    Repayment of amounts due from related party                                 --       149,245        149,245
    Interest income from related party                                          --           (89)        (4,340)
    Stock compensation                                                          --        12,394         68,699
    Revenue from related parties                                                --        (3,064)       (27,572)
    Operating costs to related parties                                          --         2,871         25,832
    Corporate general and administrative cost allocations                       --           737          6,636
    Intergroup tax allocation                                                   --       (13,127)      (163,694) 
    Other intercompany transfers                                                --        (9,671)       156,185  
                                                                       -----------   -----------    ----------- 
Balance at September 30, 1997                                                17,554      (37,205)     2,569,253
                                                                        ===========   ===========    ===========
</TABLE>


See accompanying notes to combined financial statements.

                                     I-100

<PAGE>   102

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

                        Combined Statements of Cash Flows

                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                  Nine months ended
                                                                                    September 30,
                                                                                ----------------------
                                                                                  1997          1996
                                                                                ---------    ---------
                                                                                 amounts in thousands
                                                                                     (see note 2)
<S>                                                                             <C>           <C>      
Cash flows from operating activities:
  Net loss                                                                      $(314,891)    (184,765)
  Adjustments to reconcile net loss to net cash
     provided by operating activities:
        Depreciation and amortization                                             138,149      103,617
        Programming rights provision                                                   --        8,706
        Stock compensation                                                         68,699       (6,930)
        Share of losses of PCS Ventures                                           304,436       78,358
        Share of losses of Telewest                                               111,338       99,206
        Share of losses of Teleport                                                43,417       31,591
        Share of losses of other affiliates                                        77,350       56,337
        Minority interests' share of earnings (losses)                              6,935      (21,992)
        Gain on issuance of stock by attributed entity                            (60,233)          --
        Gain on sale of stock by equity investee                                  (21,251)     (12,410)
        Gain on disposition of assets                                            (104,774)          --
        Unrealized foreign currency transaction gains                                 (22)      (4,110)
        Accretion of discount on MultiThematiques Obligation                        2,357        4,756
        Deferred income tax expense                                                16,750       19,649
        Intergroup tax allocation                                                (163,694)    (103,873)
        Changes in operating assets and liabilities, net of the effect of the
           deconsolidation of Flextech:
             Change in receivables                                                   (284)      (2,447)
             Change in film inventory and other prepaid expenses                   (2,331)     (23,888)
             Change in payables, accruals, customer prepayments and other
                 liabilities                                                       31,073       11,729
                                                                                ---------    ---------

                     Net cash provided by operating activities                  $ 133,024       53,534
                                                                                ---------    ---------
</TABLE>


                                                                     (continued)

                                     I-101

<PAGE>   103

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

                  Combined Statements of Cash Flows, continued


                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                Nine months ended
                                                                                  September 30,
                                                                             ----------------------
                                                                               1997         1996
                                                                             ---------    ---------
                                                                              amounts in thousands
                                                                                   (see note 2)
<S>                                                                          <C>          <C>      
Cash flows from investing activities:
    Effect of the deconsolidation of Flextech on cash and cash equivalents   $ (38,142)          --
    Investments in and loans to affiliates and others                         (364,752)    (381,734)
    Proceeds from dispositions of assets                                       178,929       67,790
    Cash invested in certificates of deposit                                        --      (23,966)
    Cash received (paid) in connection with acquisitions, net                  (39,558)      11,863 
    Capital expended for property and equipment                               (145,186)    (133,900)
    Repayments received on loans to affiliates                                  72,836        1,279
    Deposit received on sale of interest in Cablevision S.A                     21,000           --
    Cash paid to purchase minority interests                                        --       (4,636)
    Other, net                                                                  21,039       12,986
                                                                             ---------    ---------

                 Net cash used in investing activities                        (293,834)    (450,318)
                                                                             ---------    ---------

Cash flows from financing activities:
    Borrowings of debt                                                         225,780       82,769
    Repayments of debt                                                        (230,109)    (202,398)
    Repayments of capital lease obligations                                     (5,019)     (11,190)
    Open market repurchases of common stock                                    (42,014)          --
    Net proceeds from issuance of common stock                                  99,868        9,990
    Proceeds from issuance of preferred stock                                   48,147           --
    Payment of deferred financing costs                                           (950)      (9,811)
    Contributions from minority interest owners                                     --        3,548
    Distribution to minority interest owners                                    (8,488)          --
    Issuance of debentures                                                          --      345,000
    Loan to TCI ("TCI Note Receivable")                                             --     (336,375)
    Repayments received on TCI Note Receivable                                 149,245      101,316
    Amounts contributed to combined equity                                     165,856      358,250
    Change in amounts due from related parties                                  (5,483)          --
                                                                             ---------    ---------

                 Net cash provided by financing activities                     396,833      341,099
                                                                             ---------    ---------

Effect of exchange rate changes on cash and cash equivalents                        --          244
                                                                             ---------    ---------

                 Net increase (decrease) in cash and
                    cash equivalents                                           236,023      (55,441)

                 Cash and cash equivalents:
                    Beginning of period                                        105,527      141,754
                                                                             ---------    ---------

                    End of period                                            $ 341,550       86,313
                                                                             =========    =========
</TABLE>


See accompanying notes to combined financial statements.

                                     I-102

<PAGE>   104


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

                     Notes to Combined Financial Statements

                               September 30, 1997

                                   (unaudited)

(1)      Basis of Presentation

         On August 28, 1997, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue Tele-Communications, Inc.
         Series A and Series B TCI Ventures Group common stock ("TCI Ventures
         Group Stock") which reflects the separate performance of the TCI
         Ventures Group, as defined below. As of September 30, 1997, 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 30% equity interest
         (representing a 37% voting interest) in Teleport, 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)
         TCI's 40% equity interest (representing a 85% 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 w/tci"), an 80%-owned
         subsidiary of TCI which is a developer and distributor of for-profit
         education, training and communications services and products, National
         Digital Television Center, Inc. ("NDTC"), which provides digital
         compression and authorization services to programming suppliers and to
         video distribution outlets and TCI SUMMITrak of Texas, Inc. and TCI
         SUMMITrak L.L.C., ("SUMMITrak"), wholly-owned subsidiaries of TCI,
         which prior to the September 1997 sale of the majority of such
         subsidiaries' assets, owned assets related to an integrated
         network-based information management system. See note 11. The foregoing
         subsidiaries and assets are collectively referred to as "TCI Ventures
         Group." The stocks of TINTA, Teleport, @Home and UVSG are traded on
         the National Market tier of The Nasdaq Stock Market.


                                                                     (continued)

                                     I-103

<PAGE>   105

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

                     Notes to Combined Financial Statements

         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).

         The "TCI Group" is intended to reflect the performance of those
         businesses of TCI not attributed to the "Liberty Media Group" (which is
         intended to reflect the performance of TCI's business which produces
         and distributes programming services) or the TCI Ventures Group.
         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 common stockholders' equity value of TCI attributable to the TCI
         Ventures Group that, at any relevant time, is attributed to the 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 the TCI Group in the TCI Ventures Group was 100%.

         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 Series A TCI Group and Series B TCI Group common stock ("TCI
         Group Stock"), Series A Liberty Media Group and Series B Liberty Media
         Group common 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.

         Prior to stockholder approval to issue the TCI Ventures Group Stock,
         TCI commenced offers (the "Exchange Offers") to exchange shares of
         Series A TCI Ventures Group Stock and Series B TCI Ventures Group Stock
         for shares of Tele-Communications, Inc. Series A and Series B TCI Group
         common stock, respectively, (representing approximately 30% of the
         outstanding shares of each such series as of June 30, 1997, excluding
         shares held by majority-owned subsidiaries of TCI) in the ratio of one
         share of the applicable series of TCI Ventures Group Stock in exchange
         for each share of the corresponding series of TCI Group Stock properly
         tendered.

                                                                     (continued)

                                     I-104

<PAGE>   106

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

                     Notes to Combined Financial Statements

         Upon the September 10, 1997 consummation of the Exchange Offers,
         188,661,300 shares of Series A TCI Group Common Stock and 16,266,400
         shares of Series B TCI Group Common Stock were exchanged for an
         equivalent number of shares of Series A TCI Ventures Group Stock and
         Series B TCI Ventures Group Stock, respectively. 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.

         In addition to the shares of TCI Ventures Group Stock issued in the
         Exchange Offers, at September 30, 1997, 18,547,213 shares of Series A
         TCI Ventures Group Stock were reserved for issuance upon exchange of
         certain outstanding convertible notes issued by a subsidiary of TCI and
         upon exercise of certain stock options.

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense among the TCI Group, the Liberty Media
         Group and the TCI Ventures Group for the purpose of preparing the
         combined financial statements of the TCI Group, the Liberty Media Group
         and the TCI Ventures Group, the change in the capital structure of TCI
         resulting from the issuance of TCI Ventures Group Stock did not affect
         legal title to such assets or responsibility for such liabilities of
         TCI or any of its subsidiaries. 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.

         Financial effects arising from any portion of TCI that affect the
         consolidated results of operations or financial condition of TCI could
         affect the combined results of operations or financial condition of TCI
         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 TCI financial information.

         Dividends on the 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 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 TCI
         Ventures Group and TCI as a whole.


                                                                     (continued)

                                     I-105

<PAGE>   107

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

                     Notes to Combined 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 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, 1996 audited
         financial statements and notes thereto.

         The Financial Accounting Standards Board recently issued Statement of
         Financial Accounting Standards No. 128, "Earnings Per Share"
         ("Statement No. 128"). Statement No. 128 requires the presentation of
         basic earnings per share ("EPS") and, for companies with potentially
         dilutive securities, such as convertible debt, options and warrants,
         diluted EPS. Statement No. 128 is effective for annual and interim
         periods ending after December 31, 1997. TCI Ventures Group does not
         expect that Statement No. 128 will have a material impact on the
         calculation of the TCI Ventures Group's loss per share.

         The loss attributable to TCI Ventures Group's stockholders per common
         share for the three and nine month periods ended September 30, 1997 was
         computed using historical losses and a weighted average share number
         that reflects pro forma common shares outstanding of 204.9 million for
         the 1997 period ended on the September 10 consummation of the Exchange
         Offers and actual weighted average shares outstanding for the remainder
         of the 1997 periods.

         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.

(2)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $45 million and $36 million during the nine
         months ended September 30, 1997 and 1996, respectively. Cash paid for
         income taxes was $28 million and $22 million during the nine months
         ended September 30, 1997 and 1996, respectively.


                                                                     (continued)

                                     I-106

<PAGE>   108

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

                     Notes to Combined Financial Statements

         The net cash paid (received) by the TCI Ventures Group in acquisitions
         is as follows:

<TABLE>
<CAPTION>
                                                           Nine months ended
                                                             September 30,
                                                          -------------------
                                                            1997       1996
                                                          --------    -------
                                                          amounts in thousands
<S>                                                       <C>         <C>    
Fair value of assets acquired                             $ 79,555    403,234  
Issuance of notes payable                                       --     (1,000)
Liabilities assumed, net of current assets                 (38,482)  (103,769) 
Increase in minority interests in equity of                                    
    subsidiaries due to issuance of shares by                                  
    Flextech                                                    --    (43,223) 
Minority interest in equity of acquired entity              (1,515)   (71,101) 
Increase in combined equity resulting from                                     
    preferred stock issued in acquisition                       --   (196,004) 
                                                          --------    -------  
        Cash paid (received) in acquisitions              $ 39,558    (11,863) 
                                                          ========    =======  
                                                                               
Property and equipment purchased under capital                                 
    leases                                                $168,326     63,656  
                                                          ========    =======  
</TABLE>                                                  

The effects of changing the method of accounting for the TCI Ventures Group's
ownership interest in Flextech (see note 9) from the consolidation method to the
equity method 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>


                                                                     (continued)

                                     I-107

<PAGE>   109

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

                     Notes to Combined Financial Statements

(3)      Acquisitions

         (a)      OCC Acquisition

                  On October 1, 1996, Cablevision S.A. ("Cablevision"), a
                  subsidiary ot TINTA, acquired 99.99% of the issued and
                  outstanding capital stock of Oeste Cable Color S.A. ("OCC"), a
                  cable television operation in the west of the greater Buenos
                  Aires metropolitan area, for a purchase price of $112.2
                  million (the "OCC Acquisition"). Cash consideration of $43.7
                  million was paid at closing and an additional cash payment of
                  $22.1 million was paid on December 1, 1996. Cablevision
                  incurred additional bank debt of approximately $45 million in
                  order to fund such cash payments. The remaining purchase price
                  was satisfied by Cablevision's issuance of $46.4 million
                  principal amount of secured negotiable promissory notes (the
                  "OCC Notes"). The OCC Notes were repaid in their entirety
                  during the second quarter of 1997. The OCC Acquisition has
                  been accounted for by the purchase method. Accordingly, the
                  results of operations of OCC have been consolidated with those
                  of TINTA since the date of acquisition and TINTA recorded
                  OCC's assets and liabilities at fair value.

         (b)      UVSG Merger

                  On January 25, 1996, the stockholders of UVSG adopted the
                  Agreement and Plan of Merger dated as of July 10, 1995, as
                  amended, among UVSG, TCI and TCI Merger Sub, Inc. ("Merger
                  Sub"), pursuant to which Merger Sub was merged into UVSG, with
                  UVSG as the surviving corporation (the "UVSG Merger"). TCI
                  acquired 12,373,294 shares of UVSG Class B common stock and
                  2,145,466 shares of UVSG Class A common stock, together
                  representing approximately 40% of the issued and outstanding
                  common stock of UVSG and approximately 86% of the total voting
                  power of UVSG common stock immediately after the UVSG Merger,
                  resulting in UVSG becoming a majority-controlled subsidiary of
                  TCI that is combined with the TCI Ventures Group. The UVSG
                  Merger has been accounted for by the purchase method.
                  Accordingly, the results of operations of UVSG have been
                  combined with those of the TCI Ventures Group since the date
                  of acquisition and the TCI Ventures Group recorded UVSG's
                  assets and liabilities at fair value.

         (c)      Satellite Joint Venture

                  On August 9, 1996, UVSG and Liberty Media Group executed an
                  amended and restated agreement under which UVSG and Liberty
                  Media Group contributed their retail C-band home satellite
                  dish business' assets, obligations and operations, effective
                  April 1, 1996, to Superstar/Netlink Group LLC, a new entity
                  owned 50% each by UVSG and Liberty Media Group (the "Satellite
                  Joint Venture"). The combination was accounted for as a merger
                  of businesses under common control, whereby the assets and
                  obligations of both UVSG and Liberty Media Group which were
                  contributed to the venture were reflected at their historical
                  cost. The operations of the Satellite Joint Venture have been
                  consolidated, effective April 1, 1996, with the operating
                  results of UVSG as UVSG has voting control over the Satellite
                  Joint Venture's operations.

                                                                     (continued)

                                     I-108

<PAGE>   110

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

                     Notes to Combined Financial Statements

(4)      @Home

         On July 11, 1997 @Home completed its initial public offering (the
         "IPO"), in which 10,350,000 shares of @Home common stock were sold to
         the public for aggregate cash consideration of approximately $109
         million before commissions and fees. As a result of the 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 the TCI Ventures Group's
         ownership interest of @Home, the TCI Ventures Group recognized a gain
         of $60 million.

         Effective October 2, 1997, @Home entered into a Letter Agreement and
         Term Sheet with Cablevision Systems Corporation ("CSC"), and it's
         parent, CSC Parent Corporation ("CSC Parent"), Comcast Corporation
         ("Comcast"), Cox Enterprises, Inc. ("Cox"), Kleiner, Perkins, Caufield
         & Byers and TCI (the "CSC Agreement"). The CSC Agreement provides that
         CSC will enter into a Master Distribution Agreement for the
         distribution of @Home's high speed residential consumer Internet access
         services on substantially the same terms and conditions as agreements
         previously entered into with TCI, Comcast and Cox. The CSC Agreement
         provides for the issuance to CSC and CSC Parent of a warrant to
         purchase up to 7,875,784 shares of @Home's Series A common stock at an
         exercise price of $.50 per share (the CSC Warrant"). The CSC Warrant is
         immediately exercisable, subject to the receipt of all necessary
         governmental consents or approvals. The CSC Agreement provides for the
         issuance of an additional warrant to CSC to purchase up to 3,071,152
         shares of @Home's Series A common stock at an exercise price of $.50
         per share under certain conditions (the "CSC Contingent Warrant"). The
         CSC Contingent Warrant is not immediately exercisable and will become
         exercisable as and to the extent certain cable television systems are
         transferred from TCI and its controlled affiliates to CSC, CSC Parent
         or their controlled affiliates.

                                                                     (continued)

                                     I-109

<PAGE>   111

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

                     Notes to Combined Financial Statements

(5)      Cablevision

         At September 30, 1997, TINTA had a 51% ownership interest in
         Cablevision. On October 9, 1997, TINTA sold a portion of its 51%
         interest in Cablevision to CEI Citicorp Holdings Sociedad Anonima
         ("CEI") and T.I. Telefonica Internacional de Espana S.A. ("Telefonica,"
         together with CEI, the "Buyers") for cash proceeds of $120 million ($21
         million of which was received during the third quarter of 1997). In
         addition, on October 9, 1997, Cablevision issued 3,541,829 shares of
         stock in the aggregate to the Buyers for $80 million in cash and notes
         receivable with an aggregate principal amount of $240 million, plus
         accrued interest at LIBOR, due within the earlier of two years or at
         the request of Cablevision's board of directors. The above transactions
         (collectively, the "Cablevision Sale") reduced TINTA's interest in
         Cablevision to 26.24%. Cash proceeds received by TINTA of $120 million
         were based on a negotiated value of $210 million for approximately
         one-half of TINTA's 51% interest in Cablevision. TINTA will continue to
         have the right to manage Cablevision (pursuant to renewable a five-year
         management contract that was entered into in connection with the
         Cablevision Sale), and all material corporate transactions of
         Cablevision will require TINTA's approval, so long as TINTA maintains
         at least a 16% interest in Cablevision. The Buyers also purchased the
         additional 39% interest in Cablevision that TINTA had the right to
         acquire. As a result of the Cablevision Sale, effective October 1,
         1997, TINTA will cease to consolidate Cablevision and will begin 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, 1996, TINTA would have allocated an additional $4.3 million
         and $12.9 million during the nine months ended September 30, 1997 and
         1996, respectively, of Cablevision's net earnings to the minority
         interest.

(6)      Investments in PCS Ventures

         TCI Ventures Group is a partner in a series of partnerships formed to
         engage in the business of providing wireless communications services,
         using PCS systems, 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, 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, Cox and TCI.
         The partners of PhillieCo are subsidiaries of Sprint, Cox and TCI.

                                                                     (continued)

                                     I-110

<PAGE>   112

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

                     Notes to Combined Financial Statements

         From inception through September 1997, the four partners (the "Sprint
         PCS Partners") have contributed approximately $3.7 billion to the
         Sprint PCS Partnerships (of which TCI Telephony contributed an
         aggregate of approximately $1.1 billion). The remaining capital that
         the Sprint PCS Partnerships will require to fund the construction of
         the PCS systems and the commitments made to its affiliates will be
         substantial. The partners had agreed in forming the Sprint PCS
         Partnerships to contribute up to an aggregate of approximately $4.2
         billion of equity thereto, from inception through fiscal 1999, subject
         to certain requirements. The TCI Ventures Group expects that the
         remaining approximately $0.5 billion of such amount (of which TCI
         Telephony's share is approximately $0.2 billion) will be contributed by
         the end of the second quarter of 1998 (although there can be no
         assurance that any additional capital will be contributed). The TCI
         Ventures Group expects that the Sprint PCS Partnerships will require
         additional equity thereafter.

         Pursuant to an agreement entered into in connection with certain
         financings by Sprint Spectrum, under certain circumstances the partners
         in Sprint Spectrum may be required to make additional contributions to
         Sprint Spectrum to fund projected cash shortfalls to the extent that
         the amount of the partners' aggregate contributions to Sprint Spectrum
         (exclusive of certain amounts, including amounts invested in certain
         affiliates of Sprint Spectrum), following December 31, 1995 are less
         than $1.0 billion; however, based on the currently expected timing and
         use of the partners' contributions to Sprint Spectrum, the TCI Ventures
         Group currently believes that such agreement will not result in TCI
         Telephony being required to make any incremental capital contributions
         in addition to its pro rata portion of the aforementioned $4.2 billion
         amount.

         Summarized unaudited results of operations for the PCS Ventures are as
         follows:

<TABLE>
<CAPTION>
                                                     Nine months ended
                                                       September 30,
                                                 --------------------------
                                                    1997           1996
                                                 -----------    -----------
                                                    amounts in thousands
<S>                                              <C>            <C>
           Combined Operations

               Revenue                           $   110,528             71
               Operating, selling, general and
                 administration expenses            (789,583)      (164,028)
               Depreciation and amortization        (189,924)        (1,847)
                                                 -----------    -----------

                 Operating loss                     (868,979)      (165,804)

               Interest expense                      (55,568)          (297)
               Other, net                            (96,911)       (94,644)
                                                 -----------    -----------
                 Net loss                        $(1,021,458)      (260,745)
                                                 ===========    ===========
</TABLE>

                                                                     (continued)

                                     I-111

<PAGE>   113

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

                     Notes to Combined Financial Statements

(7)      Investment in Telewest

         At September 30, 1997, TINTA indirectly owned, through its 50%
         ownership interest in TW Holdings, Inc., 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's ordinary shares was L.0.825 ($1.34) at September
         30, 1997.

         As a result of Telewest's 1995 issuance of U.S. dollar denominated
         debentures (the "Telewest Debentures"), changes in the exchange rate
         used to convert the U.S. dollar into the United Kingdom ("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 nine months ended September 30, 1997 and 1996,
         Telewest experienced foreign currency transaction losses of L.32.8
         million ($54.5 million using the applicable exchange rate) and
         L.55.2 million ($84.6 million using the applicable exchange rate),
         respectively, resulting from the conversion of the Telewest Debentures
         into UK pounds sterling and the adjustment of a foreign currency option
         contract to market value.

         The functional currency of Telewest is the UK pound sterling. The
         average exchange rate used to translate TINTA's share of Telewest's
         operating results from UK pounds to U.S. dollars was 1.6393 to 1 and
         1.5411 to 1 during the nine months ended September 30, 1997 and 1996,
         respectively. The spot rate used to translate TINTA's share of
         Telewest's net assets from UK pounds to U.S. dollars was 1.6185 to 1
         and 1.7125 to 1 at September 30, 1997 and December 31, 1996,
         respectively.

         Summarized unaudited results of operations of Telewest are as follows:


<TABLE>
<CAPTION>
                                         Nine months ended
                                           September 30,
                                      ------------------------
                                        1997            1996
                                      ---------      ---------
                                        amounts in thousands

<S>                                   <C>              <C>    
Revenue                               $ 460,646        318,144
Operating, selling, general and
     administrative expenses           (408,038)      (326,693)
Depreciation and amortization          (239,987)      (159,643)
                                      ---------      ---------

      Operating loss                   (187,379)      (168,192)

Share of losses of affiliates           (26,078)       (17,626)
Interest expense, net                  (154,510)       (98,389)
Foreign currency transaction loss       (54,487)       (84,632)
Other, net                                  339           (197)
                                      ---------      ---------

      Net loss                        $(422,115)      (369,036)
                                      =========      =========
</TABLE>

                                                                     (continued)


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

                     Notes to Combined Financial Statements


(8)       Investment in Teleport

          Teleport is a competitive local exchange carrier which provides
          integrated local telecommunications services in major metropolitan
          markets nationwide. Teleport's customers are principally
          telecommunications intensive businesses, long distance carriers and
          resellers of wireless communications.

          The TCI Ventures Group's investment in Teleport is accounted for under
          the equity method of accounting.

          During 1997, Teleport issued 4,857,083 shares of Class A common stock
          at an average price per share of $19.25 for certain acquisitions. The
          total consideration paid by Teleport through the issuance of common
          stock was approximately $93 million. As a result of Teleport issuing
          additional shares the TCI Ventures Group's ownership interest in
          Teleport was reduced from approximately 31% to approximately 30%.
          Accordingly, the TCI Ventures Group recognized a gain amounting to $21
          million (before deducting deferred income tax expense of approximately
          $8 million).

          Summarized unaudited combined results of operations for Teleport are
          as follows:

<TABLE>
<CAPTION>
                                             Nine months ended
                                              September 30,
                                        ------------------------
                                           1997           1996
                                        ---------      ---------
                                          amounts in thousands
Combined Operations

<S>                                     <C>              <C>    
    Revenue                             $ 343,914        180,271
    Operating, selling, general and
      administrative expenses            (317,309)      (161,403)
    Depreciation and amortization        (107,437)       (51,984)
                                        ---------      ---------

         Operating loss                   (80,832)       (33,116)

    Interest expense                      (88,944)       (44,451)
    Other, net                             19,632          5,428
                                        ---------      ---------
         Net loss                       $(150,144)       (72,139)
                                        =========      =========
</TABLE>


(9)       Investments in Other Affiliates

          The TCI Ventures Group's affiliates other than Telewest, PCS Ventures
          and Teleport that are accounted for using the equity method (the
          "Other Affiliates") generally are engaged in the cable and/or
          programming businesses in various foreign countries.

          Certain of the Other Affiliates are general partnerships and any TCI
          subsidiary attributed to the TCI Ventures Group that is a general
          partner in a general partnership could be liable, depending upon the
          applicable partnership law, for all debts of that partnership to the
          extent liabilities of that partnership were to exceed its assets.

                                                                     (continued)


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

                     Notes to Combined Financial Statements


         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 and/or other subsidiaries of TCI have guaranteed
         the performance of the subsidiary that directly holds the TCI Ventures
         Group's investment.

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

<TABLE>
<CAPTION>
                                                       September 30,     December 31,
                                                           1997             1996     
                                                         --------         --------   
                                                            amounts in thousands 
                                                                                     
<S>                                                      <C>             <C>   
               Flextech (a)                              $275,720             --     
               MultiThematiques S.A                                                  
                   ("MultiThematiques") (b)                71,334           84,007   
               Liberty/TINTA LLC (c)                       65,143           63,227   
               Jupiter Telecommunications Co., Ltd.                                  
                   ("Jupiter")                             59,290           47,251   
               United International Investments            26,251           25,598   
               Bresnan International Partners                                        
                   (Chile), L.P.                           23,987           34,408   
               Bresnan International Partners                                        
                   (Poland), L.P.                          22,709           27,951   
               Jupiter Programming Co., Ltd. ("JPC")       15,665            2,830   
               Flextech Affiliates (d)                       --            129,563   
               Other                                       37,113           59,764   
                                                         --------         --------   
                                                         $597,212          474,599   
                                                         ========         ========   
</TABLE>

     (a)       Flextech

               At September 30, 1997, TINTA owned 57,889,033 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, approximately 50% of
               the aggregate voting interests attributable to such Flextech
               share capital. TINTA's ownership interest in the issued and
               outstanding share capital of Flextech was 48.8% during the three
               months ended March 31, 1996, 46.2% from April 1996 through April
               1997, 35.9% from April 1997 through June 1997, 36.3% from July
               1997 through September 1997, and 36.8% from September 1997 to the
               present. TINTA's voting interest in Flextech was 50.6% throughout
               1996.

                                                                     (continued)


                                     I-114
<PAGE>   116
                              "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 "BBC Joint Ventures") and entered into certain
               related transactions, as described below. 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. So long as the
               Proxy remains outstanding, TINTA's 50% voting interest will be
               reduced by the 960,850 votes represented by the Proxy. 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.

               In connection with the April 1997 formation of the two BBC Joint
               Ventures, Flextech acquired from the other shareholders of UK
               Living Limited ("UKLL") and UK Gold Television Limited ("UKGL")
               all of the share capital in those two companies not already owned
               by Flextech and TINTA through the issuance of 34,954,713 new
               Flextech Ordinary Shares, valued at L.7.20 ($11.65) per share for
               U.S. financial reporting purposes. One joint venture with BBC
               Worldwide (the "Principal Joint Venture") will operate and launch
               a number of new subscription television channels for distribution
               in the UK and Ireland. Flextech and BBC Worldwide each have a 50%
               interest in this venture. The other joint venture (the "Second
               Joint Venture") acquired 65% of the share capital of UKGL from
               Flextech, with put and call arrangements over the remaining 35%
               of such share capital. The Second Joint Venture will operate and
               develop UKGL, and both Flextech and BBC Worldwide have a 50%
               interest in that venture.

               Each of the Principal Joint Venture and the Second Joint Venture
               have entered into programming license agreements with the British
               Broadcasting Corporation (the "BBC License Agreements"), under
               which such joint ventures will have the right to acquire licenses
               to broadcast programming originated by the British Broadcasting
               Corporation on the channels which the joint ventures are to
               operate. The BBC License Agreements, which contain certain
               exclusivity provisions, have initial terms of 15 years, which
               terms will automatically be extended for an additional 15 years
               unless the relevant joint venture elects to give notice to the
               contrary.

               As described below, Flextech has undertaken to finance the
               working capital requirements of the Principal Joint Venture.
               Flextech has also agreed to make available to the Second Joint
               Venture, if required, funding of up to L.10 million ($16.2
               million).

                                                                     (continued)




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

                     Notes to Combined Financial Statements


               In addition to Flextech's April 1997 purchase of L.22 million
               ($35.6 million) of ordinary shares in the Principal Joint
               Venture, Flextech is obligated to provide the Principal Joint
               Venture with a primary credit facility of L.88 million ($142.4
               million) and, subject to certain restrictions, a standby credit
               facility of L.30 million ($48.6 million). 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 L.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 TINTA 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, Flextech may reacquire
               its interest in the Principal Joint Venture for L.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.

               So long as TINTA is contingently obligated under the Standby
               Commitment, it has been agreed that Flextech (i) will not sell
               any of its direct or indirect interests in the Principal Joint
               Venture, (ii) 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) 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.

               As a result of the issuance of shares by Flextech in connection
               with Flextech's acquisition of all of the share capital of UKLL
               and UKGL which Flextech did not already own, and the associated
               dilution of TINTA's ownership interest in Flextech, TINTA
               recorded a $151.6 million increase to the carrying value of its
               investment in Flextech, a $98.5 million increase to "Combined
               equity" and a $53.1 million increase to "Deferred income tax
               liability." No gain was recognized in the statement of operations
               due primarily to TINTA's contingent obligations under the Standby
               Commitment.

                                                                     (continued)


                                     I-116
<PAGE>   118

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

                     Notes to Combined Financial Statements


               On July 7, 1997, TINTA purchased from certain officers of
               Flextech 748,435 Flextech Ordinary Shares for a per share price
               of L.6.225 ($10.29 at the applicable exchange rate). In addition,
               on September 29, 1997, TINTA purchased 800,000 Flextech Ordinary
               Shares for a per share price of L.6.05 ($9.76 at the applicable
               exchange rate). As a result of such purchases, TINTA's ownership
               interest in the issued and outstanding share capital of Flextech
               increased to 36.8%.

          (b)  MultiThematiques

               On December 13, 1995, TINTA invested 123.1 million French francs
               ("FF") ($24.7 million at the applicable exchange rate) in
               MultiThematiques, a European programming company that is
               one-third owned by each of TINTA and two French media companies.
               In addition, TINTA contributed to MultiThematiques FF105.0
               million ($20.4 million at the applicable exchange rate) and
               FF100.0 million ($19.5 million at the applicable exchange rate)
               on December 13, 1996 and February 13, 1997, respectively. TINTA
               has agreed to contribute an additional FF164.0 million ($27.7
               million) by no later than December 13, 1997.

               TINTA's obligation to make the above-described additional FF369.1
               million in contributions was viewed as additional consideration
               to be paid by TINTA to acquire its one-third interest in
               MultiThematiques. Accordingly, the U.S. dollar equivalent of the
               estimated net present value of such contributions (using a
               discount rate of 10%) prior to their payment to MultiThematiques
               has been reflected as a liability (the "MultiThematiques
               Obligation") in the accompanying combined balance sheets. During
               the nine months ended September 30, 1997 and 1996, TINTA
               experienced unrealized foreign currency transaction gains of $1.6
               million and $3.4 million, respectively, with respect to the
               MultiThematiques Obligation.


               TINTA has entered into a forward contract that allows TINTA to
               purchase FF164.0 million at a price of FF5.5367 per U.S. dollar
               ($29.6 million) on December 13, 1997. For accounting purposes,
               TINTA is treating this contract as a hedge of its December 13,
               1997 contribution obligation.

          (c)  Liberty/TINTA LLC

               Liberty/TINTA LLC (the "LLC") is a limited liability company
               owned in equal parts by subsidiaries of TINTA and the Liberty
               Media Group. TINTA may make additional cash contributions
               totaling approximately $16 million to the LLC to fund the
               operations of the joint venture between the LLC and News
               Corporation Limited ("News Corp.") ("Fox Sports International").

                                                                     (continued)


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

                     Notes to Combined Financial Statements


               On April 19, 1996, TINTA, Torneos y Competencias S.A. ("Torneos")
               and the Torneos stockholders from whom TINTA previously acquired
               its 35% interest entered into an agreement (the "TINTA/Torneos
               Sports Agreement") whereby TINTA agreed to make minimum periodic
               payments from 1996 through 2004 aggregating $235.2 million to
               acquire certain rights and considerations, including the
               exploitation rights to all sports rights owned by Torneos with
               the exception of any rights which at that time had been
               contractually committed to any third party. The rights under the
               TINTA/Torneos Sports Agreement have been assigned to Fox Sports
               International.

               During the third quarter of 1997, Fox Sports International
               distributed (i) its 35% interest in Torneos to the LLC and (ii)
               certain Australian sports rights to News Corp.

          (d)  Flextech Affiliates

               Due to the January 1, 1997 deconsolidation of Flextech described
               in (a) above, Flextech's equity method affiliates (the "Flextech
               Affiliates") are no longer included with the Other Affiliates,
               but are included with Flextech.

     Other

     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 $28.9 million gain
     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. As a result of this transaction, the TCI Ventures Group holds
     an approximate 16% ownership interest in Antec.

     On September 26, 1997, TINTA sold its interest in TCID of New Zealand for
     cash proceeds of $53.0 million. TINTA recognized a gain of $58.4 million on
     such sale.

                                                                     (continued)


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

                     Notes to Combined Financial Statements


     The following table reflects the Company's share of losses of the Other
     Affiliates:

<TABLE>
<CAPTION>
                                                          Nine months ended
                                                            September 30,
                                                       ----------------------
                                                         1997          1996
                                                       --------      --------
                                                        amounts in thousands

<S>                                                    <C>             <C>    
     Jupiter                                           $(17,173)       (8,237)
     JPC                                                (12,614)         --
     Liberty/TINTA LLC                                  (11,364)       (3,733)
     MultiThematiques                                    (9,337)       (4,730)
     Asia Business News (Singapore)
         PTE Ltd. ("ABN")                                (9,314)       (7,039)
     Bresnan International Partners (Chile), L.P.        (2,871)       (5,347)
     Bresnan International Partners (Poland), L.P.       (1,504)       (3,210)
     Flextech Affiliates                                   --          (9,689)
     Other                                              (13,173)      (14,352)
                                                       --------      --------
                                                       $(77,350)      (56,337)
                                                       ========      ========
</TABLE>

                                                                     (continued)


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

                     Notes to Combined Financial Statements


     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>
                                                         Nine months ended September 30, 1997
                                         ---------------------------------------------------------------------
                                                                        Latin 
                                                                     America and  
                                                        Asia and          the          United
                                         Europe (a)     Australia      Caribbean      States (b)        Total
                                         ---------      ---------      ---------      ---------       ---------
                                                                  amounts in thousands
     Combined Operations

<S>                                      <C>               <C>             <C>            <C>         <C>
     Revenue                             $  96,322        216,128          6,559          4,667       $ 323,676
     Operating, selling, general and
        administrative expenses           (127,294)      (231,808)        (5,375)        (3,436)       (367,913)
     Depreciation and amortization          (7,607)       (13,851)        (4,723)        (2,155)        (28,336)
                                         ---------      ---------      ---------      ---------       ---------

             Operating income (loss)       (38,579)       (29,531)        (3,539)          (924)        (72,573)

     Interest expense, net                  (1,518)       (13,128)        (4,410)          (734)        (19,790)
     Other, net                             (2,531)       (29,118)       (20,569)          --           (52,218)
                                         ---------      ---------      ---------      ---------       ---------
             Net loss                    $ (42,628)       (71,777)       (28,518)        (1,658)       (144,581)
                                         =========      =========      =========      =========       =========
</TABLE>

<TABLE>
<CAPTION>
                                                         Nine months ended September 30, 1997
                                         ---------------------------------------------------------------------
                                                                        Latin 
                                                                     America and  
                                                        Asia and          the          United
                                         Europe (a)     Australia      Caribbean      States (b)        Total
                                         ---------      ---------      ---------      ---------       ---------
                                                                  amounts in thousands
     Combined Operations

<S>                                      <C>            <C>             <C>            <C>         <C>
     Revenue                             $ 258,681        116,642         28,199         67,927        471,449
     Operating, selling, general and
        administrative expenses           (272,591)      (128,535)       (36,305)       (61,007)      (498,438)
     Depreciation and amortization          (8,040)       (22,978)        (2,796)        (4,421)       (38,235)
                                         ---------      ---------      ---------      ---------      ---------

             Operating income (loss)       (21,950)       (34,871)       (10,902)         2,499        (65,224)

     Interest expense, net                 (11,405)        (8,656)        (9,463)        (1,821)       (31,345)
     Other, net                             (7,673)        (1,832)        (5,354)          (369)       (15,228)
                                         ---------      ---------      ---------      ---------      ---------
             Net earnings (loss)         $ (41,028)       (45,359)       (25,719)           309       (111,797)
                                         =========      =========      =========      =========      =========
</TABLE>



                                                                     (continued)


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

                     Notes to Combined Financial Statements


     (a)  The summarized combined operations for the nine months ended September
          30, 1997 include the results of operations of Flextech but exclude the
          results of operations of the Flextech Affiliates. The summarized
          combined operations for the nine months ended September 30, 1996,
          include the results of the Flextech Affiliates. See related discussion
          above.

     (b)  The summarized operating results of TSX are included in the combined
          operations through its February 1997 combination with Antec. See
          related discussion above.

     (c)  The summarized operating results of Torneos are included in the
          combined operations through April 29, 1996, the date of TINTA's
          contribution of its 35% ownership interest in Torneos to Fox Sports
          International.

(10) Debt

     The components of debt are as follows:

<TABLE>
<CAPTION>
                                                     September 30,     December 31,
                                                        1997              1996  
                                                      --------          --------
                                                          amounts in thousands

<S>                                                   <C>                <C>         
          Convertible Subordinated                                     
             Debentures (a)                           $345,000           345,000     
          Cablevision bank loans (b)                   158,046           104,556     
          Puerto Rico Bank Facility (c)                 45,000              --       
          Other                                         16,184            76,698     
                                                      --------          --------     
                                                      $564,230           526,254     
                                                      ========          ========     
</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 due 2006 having an aggregate principal amount of $345
          million (the "Debentures"). 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, commencing August 15, 1996. The Debentures are redeemable by
          TINTA in whole or in part, at any time on or after February 15, 1999.
          Pending its use by TINTA, the net proceeds from the sale of the
          Debentures were loaned to TCI pursuant to the TCI Note Receivable. See
          note 11.

     (b)  Represents Cablevision's bank debt, which is denominated in U.S.
          dollars, and bears interest at fixed rates. Including value added tax,
          the weighted average rate of Cablevision's bank debt at September 30,
          1997 was 6.98%. 

                                                                     (continued)



                                     I-121
<PAGE>   123
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



     (c)  TINTA's Puerto Rico subsidiary (the "Puerto Rico Subsidiary") entered
          into 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(6.16% at September 30,
          1997). 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 $291
     million at September 30, 1997, the TCI Ventures Group believes that the
     fair value and the carrying value of the TCI Ventures Group's debt were
     approximately equal at September 30, 1997.

(11) Transactions with Related Parties

     The components of due from related parties are as follows:

<TABLE>
<CAPTION>
                                                       September 30,   December 31,
                                                           1997            1996
                                                        ---------        ---------
                                                           amounts in thousands

<S>                                                       <C>             <C>      
     TCI Note Receivable (a)                              (27,256)        (176,501)
     Revolving credit facility with TCI Group (b)            --               --
     Intercompany account (c)                              (9,949)            --
                                                        ---------        ---------
                                                        $ (37,205)        (176,501)
                                                        =========        =========
</TABLE>

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

     (a)  Amounts outstanding under the TCI Note Receivable between TINTA and
          TCI bear interest at variable rates based on TCI's weighted average
          cost of bank borrowings of similar maturities (6.4% at September 30,
          1997). Principal and interest is due and payable as mutually agreed
          from time to time by TCI and TINTA. During the nine months ended
          September 30, 1997 and 1996, interest income related to the TCI Note
          Receivable aggregated $4.3 million and $10.8 million, respectively.


                                                                     (continued)



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

                     Notes to Combined Financial Statements


     (b)  The TCI Ventures Group is expected to require additional advances from
          the TCI Group for some period of time. To satisfy this need, the TCI
          Group has provided a revolving loan facility (the "Revolving Credit
          Facility") to the TCI Ventures Group for a five-year period commencing
          on September 10, 1997. Such facility 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
          Revolving 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 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
          September 10, 1997 consummation of the Exchange Offers is less than
          $300 million.

     (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. In
          connection with the Exchange Offers, the September 10, 1997 balance of
          the intercompany account between the TCI Group and TCI Ventures Group
          was reclassified to "Combined Equity."

     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-123
<PAGE>   125
                              "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, the
     TCI Ventures Group and certain other 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 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 are
     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 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.

     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 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
     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-124
<PAGE>   126
                              "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 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 the TCI Ventures Group, it was
     determined that 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) will be reflected as an adjustment of TCI
     Ventures Group's combined equity. Tax liabilities and benefits, as
     determined under the Old Tax Sharing Agreement, that are generated by the
     entities comprising the TCI Ventures Group for the period beginning on
     September 10, 1997 and ending on September 30, 1997 will be 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.
     A tax sharing arrangement between the TCI Ventures Group and TINTA covering
     periods subsequent to September 30, 1997 is currently being negotiated.

     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. The utilization-based charges are set
     at levels that management believes to be reasonable and that approximate
     the costs the TCI Ventures Group would incur for comparable services on a
     stand alone basis. During the nine months ended September 30, 1997 and
     1996, the TCI Ventures Group was allocated $6.6 million and $6.0 million,
     respectively, in corporate general and administrative costs by the TCI
     Group.

     Certain of the companies with domestic operations that are attributed to
     the TCI Ventures Group provide services to companies attributed to one or
     more of the other Groups, and certain of the companies attributed to the
     other Groups provide services and the use of facilities to companies
     attributed to the TCI Ventures Group. For example, Teleport has the
     indefeasible right to use certain fiber optic and cable transmission
     facilities of TCI for compensation based on the cost of construction of
     such facilities. In general, such arrangements were entered into with
     Teleport by TCI and other multiple cable system operators ("MSOs") that are
     stockholders of Teleport several years ago when Teleport was a privately
     owned company. Similarly, @Home has entered into arrangements for the
     distribution of its @Home service with its stockholders that are MSO's. The
     TCI Group has agreements with UVSG for, among other things, the carriage of
     UVSG's Prevue Networks and superstation programming on certain of the cable
     systems attributed to the TCI Group, and UVSG purchases programming from
     companies attributed to the Liberty Media Group. Many of these contracts
     were entered into prior to the UVSG Merger. Because of the presence in each
     of Teleport, @Home and UVSG of other stockholders not affiliated with TCI
     and the independent management teams at each of these companies, TCI
     anticipates that future contractual arrangements between these companies
     and entities attributed to the other Groups will be negotiated on an
     arm's-length basis. 

                                                                     (continued)


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

                     Notes to Combined Financial Statements


     In addition to the foregoing entities, WTCI and NDTC, each of which is a
     wholly-owned subsidiary of TCI, provide or may provide services to the
     other Groups. WTCI provides video transport services to the TCI Group (in
     addition to service provided to third parties) based on published tariffed
     rates. NDTC provides digital television services which include digital
     compression of programming, satellite uplinking, and transponder management
     primarily to programming suppliers, many of which are affiliated with the
     Liberty Media Group. Such services provided to affiliated companies are
     governed by agreements which have been negotiated on an arm's-length basis
     and the material terms of which are substantially the same as those
     governing relationships with third parties, except as appropriate to take
     into account volume differences. NDTC has also recently begun offering on a
     commercial basis its newly developed service of authorization of
     addressable set-top boxes and transmission of compressed and encrypted
     digital programming signals, and is currently negotiating a long term
     contract with the TCI Group, for such services. Such negotiations are being
     carried out on an arm's-length basis and it is expected that the material
     terms made available to the TCI Group will be substantially the same as
     those provided to unaffiliated third parties, but will include pricing on a
     most favored nations basis due to the importance to NDTC of the TCI Group's
     large customer base.

     Amounts included in revenue for services provided to the other Groups by
     WTCI and NDTC are $27.6 million and $11.8 million for the nine months ended
     September 30, 1997 and 1996, respectively.

     UVSG purchased programming from the Liberty Media Group and certain
     affiliates during 1997 and 1996 amounting to $20.9 million and $10.3
     million, respectively.

     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 $4.9 million and $3.4 million during the nine months ended
     September 30, 1997 and 1996, respectively. Such programming charges are
     included in operating costs and expenses in the accompanying combined
     statements of operations.

     During the third quarter of 1997, TCI Ventures Group sold certain assets
     (the "SUMMITrak Assets") to CSG Systems, Inc. ("CSG") for cash
     consideration of $106 million, plus five-year warrants to purchase up to
     1.5 million shares of CSG common stock at $24 per share (the "CSG
     Warrants") and $12 million in cash, once certain numbers of TCI affiliated
     subscribers are being processed on a CSG billing system. Under certain
     circumstances, TCI may also be eligible to receive certain other contingent
     royalties. In connection with the sale of the SUMMITrak Assets, TCI Group
     committed to purchase billing services from CSG pursuant to three
     successive five-year agreements. In light of such commitment, TCI Ventures
     Group has reflected the $47 million excess of the cash received over the
     book value of the SUMMITrak Assets as an increase to "Combined Equity." TCI
     Group, in turn, recorded an offsetting decrease to "Combined Equity" and a
     $47 million deferred gain to be amortized over the expected 15-year life of
     the CSG billing services commitment. 

                                                                     (continued)


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

                     Notes to Combined Financial Statements


     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 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.

     To the extent cash needs of one Group exceed cash provided by such Group,
     one of the other Groups may transfer funds to such Group. The TCI Group has
     provided and will continue to provide centralized cash management functions
     under which cash receipts of certain entities included in the other Groups
     are remitted to the TCI Group and certain cash disbursements of the other
     Groups will be funded by the TCI Group on a daily basis. Such transfers of
     funds between 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.

     Except as described above with respect to the Revolving Credit Facility,
     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 of and investment opportunities
     available to each Group and the availability, cost and time associated with
     alternative financing sources.

                                                                     (continued)


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

                     Notes to Combined Financial Statements


     The combined balance sheets of a Group reflect its net loans 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 borrowings and the
     respective combined statements of cash flows of the Groups reflect changes
     in the amounts of loans or borrowings deemed outstanding. In the historical
     financial statements, net borrowings of the TCI Ventures Group have been
     included as a component of the TCI Ventures Group's combined equity. Such
     net borrowings will continue to be reflected as a component of the TCI
     Ventures Group's combined equity. Amounts borrowed by the TCI Ventures
     Group from another Group on and subsequent to the September 10, 1997
     consummation of the Exchange Offers (including pursuant to the Revolving
     Credit Facility), are reflected on the TCI Ventures Group's financial
     statements as indebtedness to the applicable lender.

     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.

     All financial impacts of issuances of shares of TCI Ventures Group Stock
     the proceeds of which are attributed to the TCI Ventures Group will be to
     such extent reflected in the combined financial statements of the TCI
     Ventures Group, and all financial impacts of issuances of shares of TCI
     Ventures Group Stock the proceeds of which are attributed to the TCI Group
     in respect of a reduction in the TCI Group's Inter-Group Interest in the
     TCI Ventures Group will be to such extent reflected in the combined
     financial statements of the TCI Group. Financial impacts of dividends or
     other distributions on, and purchases of, TCI Group Stock will be
     attributed entirely to the TCI Group, and financial impacts of dividends or
     other distributions on TCI Ventures Group Stock will be attributed entirely
     to the TCI Ventures Group, except that dividends or other distributions on
     the TCI Ventures Group Stock will (if at the time there is an Inter-Group
     Interest in the TCI Ventures Group) result in the TCI Group being credited,
     and the 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 the TCI Ventures Group will be to such extent reflected in the
     combined financial statements of the TCI Ventures Group, and financial
     impacts of repurchases of TCI Ventures Group Stock the consideration for
     which is charged to the TCI Group will be to such extent reflected in the
     combined financial statements of the TCI Group and will result in an
     increase in the TCI Group's Inter-Group Interest in the TCI Ventures Group.

                                                                     (continued)


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

                     Notes to Combined Financial Statements


(12) Commitments and Contingencies

     As previously described in note 6, TCI Telephony is obligated to make cash
     capital contributions to the Sprint PCS Partnerships.

     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 $47 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.

     TINTA is contingently obligated under the Standby Commitment and TINTA and
     the TCI Ventures Group have other commitments and contingent obligations
     with respect to the Other Affiliates. See note 9.

     TINTA has formed strategic partnerships with News Corp., Organizacoes Globo
     and Grupo 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"). It is anticipated that TINTA
     could be required to make cash contributions totaling $39 million over the
     next three years in connection with the DTH Ventures.

     Certain key employees of TCI involved with TCI Ventures Group matters hold
     options with tandem stock appreciation rights to acquire Series A TCI Group
     Stock, Series A Liberty Media Group Stock, Series A TCI Ventures Group
     Stock and TINTA Series A common stock as well as restricted shares of
     Series A TCI Group Stock and TINTA Series A common stock. Additionally, in
     December of 1996, certain employees of TCI involved with the TCI Ventures
     Group were each granted options representing in the aggregate 2.0% of the
     common equity of TCI Teleport Holdings, Inc., TCI Wireless Holdings, Inc.,
     TCI Wireline Holdings, Inc., TCI Internet Services, Inc., and TCI.NET, Inc.
     The exercise price of each such option will be adjusted for a 6% per annum
     interest factor to the date of exercise. Additionally, in December of 1996,
     certain employees involved with the TCI Ventures Group was granted options
     representing in the aggregate 2.0% of TCI Satellite Entertainment, Inc.

                                                                     (continued)


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

                     Notes to Combined Financial Statements


     Estimates of the compensation relating to the options and/or stock
     appreciation rights as well as restricted stock awards granted to employees
     involved with the TCI Ventures Group have been recorded in the accompanying
     combined financial statements, but are subject to future adjustment based
     upon the market value of the underlying equity and, ultimately, on the
     final determination of market value when the options or rights are
     exercised or the restricted shares are vested.




                                     I-130
<PAGE>   132

                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


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

General

     The following discussion and analysis should be read in conjunction with
the TCI Ventures Group's combined financial statements included elsewhere
herein.

     Upon the September 10, 1997 consummation of the Exchange Offers,
188,661,300 shares of Series A TCI Group Common Stock and 16,266,400 shares of
Series B TCI Group Common Stock were exchanged for an equivalent number of
shares of Series A TCI Ventures Group Stock and Series B TCI Ventures Group
Stock, respectively. 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. For additional
information concerning the Exchange Offers and the characteristics of the TCI
Ventures Group Stock, see note 1 to the accompanying combined financial
statements.

     As of September 30, 1997, the TCI Ventures Group Stock reflects 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 domestic assets and businesses. For additional
information concerning the TCI Ventures Group, see note 1 to the accompanying
combined financial statements. For information concerning transactions among TCI
Ventures Group, TCI Group and TCI Liberty Group, see note 11 to the accompanying
combined financial statements.

     A significant portion of the TCI Ventures Group's operations are conducted
through corporations and partnerships in which the TCI Ventures Group holds a
20%-50% ownership interest. As the TCI Ventures 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 the TCI Ventures Group's combined financial statements.




                                     I-131
<PAGE>   133
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Financial Condition

     The TCI Ventures Group's combined operating activities provided cash of
$133.0 million and $53.5 million during the nine months ended September 30,
1997 and 1996, respectively. Included in such amounts are $40.0 million and
$42.7 million of cash provided by Cablevision's operations during the nine
months ended September 30, 1997 and 1996, respectively. As discussed in note 5
to the accompanying combined financial statements, effective October 1, 1997,
Cablevision's cash flows will no longer be included in the TCI Ventures Group's
combined statements of cash flows. In addition, the 1996 amount includes cash
used in Flextech's operating activities of $33.1 million. As discussed under
note 9 to the accompanying combined financial statements, effective January 1,
1997, Flextech's cash flows are no longer included in the TCI Ventures Group's
combined statements of cash flows.

     During the nine months ended September 30, 1997 and 1996, cash used by the
Company's investing activities aggregated $293.8 million and $450.3 million,
respectively. Such amounts include $364.8 million and $381.7 million,
respectively, that were used by the TCI Ventures Group to fund investments in,
and loans to, affiliates. In addition, the 1997 amount includes a $38.1 million
reduction in TINTA's cash and cash equivalents as a result of the
deconsolidation of Flextech. See notes 6 and 9 to the accompanying combined
financial statements. See also the combined statements of cash flows included in
the accompanying combined financial statements.

     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 described below 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-132
<PAGE>   134
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)



Material Changes in Financial Condition (continued)

     The following table sets forth total assets and debt and capital lease
obligations for the TCI Ventures Group and each of the combined businesses
attributed to it at September 30, 1997 (amounts in thousands):

<TABLE>
<S>                                           <C>             
               Total assets
                    TINTA                     $1,899,304     
                    TCI Telephony                939,672     
                    UVSG                         421,704     
                    NDTC                         358,173     
                    @Home                        166,986     
                    ETC w/tci                    102,327     
                    WTCI                          86,128     
                    Other                        444,122     
                                              ----------     
                                              $4,418,416     
                                              ==========     

               Debt and capital lease 
                    obligations
                      TINTA (1)               $  553,295     
                      NDTC                       161,375     
                      UVSG                        26,138     
                      ETC w/tci                   10,934     
                      @Home                        1,779     
                      Other                      183,149     
                                              ----------     
                                              $  936,670     
                                              ==========     
                                                             
</TABLE>
--------------------------

(1)  At September 30, 1997, TINTA's debt included $163.3 million of debt related
     to Cablevision. As discussed in note 5 to the accompanying combined
     financial statements, effective October 1, 1997, Cablevision's debt will no
     longer be included in TINTA's consolidated financial condition.



                                     I-133
<PAGE>   135
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Financial Condition (continued)

     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. The TCI Ventures
Group's businesses and investments consist of entities which require the
acquisition, ownership, development and operation of broadband cable television
and telephony distribution networks and new programming services, all of which
require substantial capital investment. In certain cases, principally with
respect to the Sprint PCS Partnerships, 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. TINTA believes that its actual future cash requirements
needed to fund the capital expenditures and working capital requirements of its
subsidiaries and affiliates will exceed the sum of the amounts that TINTA and
its consolidated subsidiaries are currently contractually obligated to fund.
TINTA is not able to more precisely predict the timing or amount of the future
funding requirements of its affiliates because such future costs requirements
are dependent upon a variety of factors.

     The failure of the TCI Ventures Group to meet its capital commitments to a
particular operating company or affiliate may have adverse consequences to it
and to the TCI Ventures Group.

     The Sprint PCS Partners, including TCI Telephony, have agreed to contribute
up to an aggregate of approximately $4.2 billion of equity to the Sprint PCS
Partnerships from inception through fiscal 1999 (of which TCI Telephony's share
is approximately $1.3 billion). As of September 30, 1997 approximately $3.7
billion of such $4.2 billion had been contributed to the Sprint PCS
Partnerships, of which amount TCI Telephony had contributed approximately $1.1
million. TCI Telephony currently expects that the remaining approximately $0.5
billion of such amount (of which TCI Telephony's share would be approximately
$0.2 million) will be contributed by the Sprint PCS Partners by the end of the
second quarter of 1998 (although it is not presently known whether any
additional capital will be contributed by any or all of the Sprint PCS
Partners). The TCI Ventures Group expects that the Sprint PCS Partnerships will
require additional equity thereafter.

     Pursuant to an agreement entered into in connection with certain financings
by Sprint Spectrum, under certain circumstances the partners in Sprint Spectrum
may be required to make additional contributions to Sprint Spectrum to fund
projected cash shortfalls to the extent that the amount of the partners'
aggregate contributions to Sprint Spectrum (exclusive of certain amounts,
including amounts invested in certain affiliates of Sprint Spectrum), following
December 31, 1995 are less than $1.0 billion; however, based on the currently
expected timing and use of the partners' contributions to Sprint Spectrum, the
TCI Ventures Group currently believes that such agreement will not result in TCI
Telephony being required to make any incremental capital contributions in
addition to its pro rata portion of the aforementioned $4.2 billion amount.

                                                                     (continued)


                                     I-134
<PAGE>   136
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Financial Condition (continued)

     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. Initially, therefore, the TCI
Ventures Group will rely on borrowings under the Revolving Credit Facility which
has a five-year term commencing on September 10, 1997. Such facility 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 Revolving Revolving
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 Revolving
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 September 10, 1997 consummation of the Exchange Offers is less
than $300 million. If the available borrowings under the Revolving 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. TCI could raise additional capital 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. It is anticipated, however that
for the foreseeable future the TCI Ventures Group will 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 the TCI Ventures Group.

                                                                     (continued)


                                     I-135
<PAGE>   137
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Financial Condition (continued)

     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
will require substantial additional funds. Although TINTA had, at September 30,
1997, (i) $48.5 million of cash and cash equivalents, (ii) $27.3 million
proceeds remaining from the sale of the Debentures (which had been loaned to TCI
pursuant to an unsecured promissory note pending its use by TINTA), (iii) a $200
million credit facility with the TCI Ventures Group and (iv) the ability to
access any excess cash and borrowing availability of the Puerto Rico Subsidiary,
TINTA's ability to otherwise obtain 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.

     TINTA has invested in most of its subsidiaries and affiliates with
strategic and local partners, and financial and operational considerations, as
well as laws that limit foreign equity positions, will likely require TINTA to
continue to invest with partners. Many foreign countries limit foreign
investment to a minority equity position or require the board of directors to be
largely independent, which, can result in TINTA having diminished ability to
implement strategies that TINTA may favor, or cause dividends or distributions
to be paid.





                                     I-136
<PAGE>   138
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Financial Condition (continued)

     @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
September 30, 1997 there were minimal subscribers to its @Home services. @Home
believes that the proceeds of $109 million, before commissions and fees,
from its initial public offering on July 11, 1997, 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.

     Because TCI's investment in @Home is attributed to the TCI Ventures Group
while the entity which will distribute the @Home service to subscribers of TCI's
cable systems is attributed to the TCI Group, certain conflicts of interest
between the TCI Group and the TCI Ventures Group may result in that actions
taken by the TCI Group, such as the speed at which TCI's cable television
systems are upgraded to the level necessary to support distribution of the @Home
service, will have a direct impact upon the value of the TCI Ventures Group's
interest in @Home. Similarly, the extent to which TCI elects to use @Home as the
provider of certain services which are not covered by TCI's exclusivity
obligations to @Home, rather than another third party, may have an effect upon
the business of @Home and therefore upon the value of the TCI Ventures Group.

     Effective October 2, 1997, @Home entered into the CSC Agreement. The CSC
Agreement provides that CSC will enter into a Master Distribution Agreement for
the distribution of @Home's high speed residential consumer Internet access
services on substantially the same terms and conditions as agreements previously
entered into with TCI, Comcast and Cox. The CSC Agreement provides for the
issuance of the CSC Warrant to purchase up to 7,875,784 shares of @Home's Series
A common stock at an exercise price of $.50 per share. The CSC Warrant is
immediately exercisable, subject to the receipt of all necessary governmental
consents or approvals. The CSC Agreement provides for the issuance of the CSC
Contingent Warrant to purchase up to 3,071,152 shares of @Home's Series A common
stock at an exercise price of $.50 per share under certain conditions. The CSC
Contingent Warrant is not immediately exercisable and will become exercisable as
and to the extent certain cable television systems are transferred from TCI and
its controlled affiliates to CSC, CSC Parent or their controlled affiliates.




                                     I-137
<PAGE>   139
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Financial Condition (continued)

     During the period in which each of TCI, Cox, Comcast and 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
("base homes passed") (approximately 24 million subject to downward adjustment
to reflect the number of homes passed in systems transferred to CSC pursuant to
an agreement in which TCI has agreed to contribute certain of its cable
television systems to CSC), 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. TCI has recently announced the proposed sale or
transfer of certain cable systems that would reduce TCI's number of base homes
passed. In addition, TCI has announced that it is considering various plans and
proposals that may result in the disposition of other of its cable systems. 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 Kleiner, Perkins, Caufield
and Byers, 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 and Comcast in the event TCI does not attain certain subscriber
penetration levels for the @Home service relative to the subscriber 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.

     The TCI Group has agreements with UVSG for the carriage of UVSG's Prevue
Networks and superstation programming on certain of the cable systems attributed
to the TCI Group and for UVSG's subscriber management services, and UVSG
purchases programming from companies attributed to the Liberty Media Group.
Because TCI's investment is attributed to the TCI Ventures Group, situations may
arise where the entity attributed to one Group may make a decision which
adversely affects one of the other Groups.



                                     I-138
<PAGE>   140
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)



Material Changes in Financial Condition (continued)

     The ability of a cash flow generating business, if any, of one of the TCI
Ventures Group entities to fund the cash flow deficits of the businesses of one
or more of the 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 Teleport 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 dividends, loans or other payments
from their respective subsidiaries and affiliates. Accordingly, such holding
companies' ability to meet their respective liquidity requirements, including
debt service, is severely 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 to
statutory, regulatory or contractual restrictions, are contingent upon the
earnings of those subsidiaries and affiliates, and are subject to various
business considerations.

     Many of the TCI Ventures Group entities operate in industries, primarily
the telecommunications industry and the Internet services industry, which have
experienced and are expected to continue to experience (i) rapid and significant
changes in technology, (ii) ongoing improvements in the capacity and quality of
such services, (iii) frequent and new product and service introductions, and
(iv) enhancements and changes in end-user requirements and preferences. The
degree to which these changes will affect such entities and the ability of such
entities to compete in their respective businesses cannot be predicted. Also,
alternative technologies may develop for the provision of services similar to
those provided by such entities. Such entities may be required to select in
advance one technology over another, but it will be impossible to predict with
any certainty, at the time such entity is required to make its investment, which
technology will prove to be the most economic, efficient or capable of
attracting customer usage. Neither PCS systems nor the delivery of Internet
services over the cable infrastructure have any significant commercial operating
history in the United States and there can be no assurance that operation of
either of these businesses will become profitable. If markets fail to develop,
develop more slowly than expected, or become highly competitive, the TCI
Ventures Group's operating results and financial condition may be materially
adversely affected.

     Certain of the countries in which TINTA has operating companies or in which
TINTA may operate in the future, may be subject to a substantially greater
degree of social, political and economic instability than is the case in other
countries. Risks associated with social, political and economic instability in a
particular country could materially adversely affect the results of operations
and financial condition of any subsidiary or affiliate of TINTA located within
such country or that has significant operations there (and thereby have a
potentially material adverse effect on the results of operations or financial
condition of TINTA) and could result in the loss of TINTA's investment in such
subsidiary or affiliate or the loss by such subsidiary or affiliate of its
assets in such country.



                                     I-139
<PAGE>   141
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Financial Condition (continued)

     TINTA is exposed to unfavorable and potentially volatile fluctuations of
the U.S. dollar (the functional currency of TINTA) against the UK pound
sterling, the Japanese yen ("Y."), the Argentine peso and various other foreign
currencies that are the functional currencies of certain of TINTA's operating
subsidiaries and affiliates. Since the enactment of a convertibility plan in
April 1991, the Argentine government has maintained an exchange rate of one
Argentine peso to one U.S. dollar. No assurance can be given that such an
exchange rate will be maintained in future periods.

     Because TINTA's functional currency is the U.S. dollar, any increase or
decrease in the value of the U.S. dollar against any foreign currency in which
TINTA has funding commitments effectively reduces or increases the U.S. dollar
equivalent of such funding commitments. At the same time, any increase or
decrease in the value of the U.S. dollar against any foreign currency that is
the functional currency of an operating subsidiary or affiliate of TINTA will
cause TINTA to experience unrealized foreign currency translation losses or
gains with respect to amounts already invested in such foreign currencies.

     TINTA and certain of its operating subsidiaries and affiliates are also
exposed to foreign currency risk to the extent that they enter into transactions
denominated in currencies other than their respective functional currencies. In
this regard, TINTA has experienced realized and unrealized currency gains and
losses with respect to (i) the UK pound sterling denominated loans made by an
indirect subsidiary of TINTA to Flextech and (ii) TINTA's French franc
denominated obligation (the MultiThematiques Obligation) to make capital
contributions to MultiThematiques. In addition, Telewest has experienced
realized and unrealized foreign currency transaction gains and losses with
respect to the Telewest Debentures.

     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. With respect to
funding commitments that are denominated in currencies other than the U.S.
dollar, TINTA historically has sought to reduce its exposure to short-term
(generally no more than 90 days) movements in the applicable exchange rates once
the timing and amount of such funding commitments become fixed. 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.

     TINTA has formed strategic partnerships with News Corp., Organizacoes Globo
and Grupo Televisa S.A. to develop and operate a direct-to-home satellite
service for Latin America, Mexico, and various Central and South American
countries. It is anticipated that TINTA could be required to make cash
contributions totaling approximately $39 million over the next three years in
connection with the DTH Ventures.

     TINTA may make additional cash contributions totaling approximately $16
million to the LLC to fund the operations of Fox Sports International.





                                     I-140
<PAGE>   142
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Financial Condition (continued)

     On April 19, 1996, TINTA, Torneos and the Torneos stockholders entered into
the TINTA/Torneos Sports Agreement whereby TINTA agreed to make minimum periodic
payments from 1996 through 2004 aggregating $235.2 million to acquire certain
rights and considerations, including the exploitation rights to all sports
rights owned by Torneos with the exception of any rights which at that time had
been contractually committed to any third party. The rights under the
TINTA/Torneos Sports Agreement have been assigned to Fox Sports International.

     The TCI Ventures Group has significant contingent obligations with respect
to guarantees, credit enhancements and other contingent obligations arising from
its ownership interests in affiliates and other matters. The TCI Ventures Group
also has consummated certain transactions and entered into certain agreements
which have impacted or may, in the future, impact the TCI Ventures Group's
liquidity and capital resources. For additional information, see notes 6, 9 and
12 to the accompanying combined financial statements.

     The board of directors of TINTA has authorized TINTA to repurchase from
time to time up to 5% (approximately 5.3 million shares) of its outstanding
TINTA Series A Common Stock. Through September 30, 1997, TINTA had repurchased
3,370,000 shares under such program for an aggregate purchase price of $42.0
million.

     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
using existing cash resources. Through September 30, 1997, UVSG had repurchased
124,000 shares of stock for a total of $2.1 million.

     In September 1997, the Board authorized a stock repurchase program, under
which TCI may repurchase from time to time up to five percent of its TCI
Ventures Group Stock.

     On July 11, 1997 @Home completed its IPO, in which 10,350,000 shares of
@Home common stock were sold to the public for aggregate cash consideration of
approximately $109 million, before commissions and fees. As a result of the IPO,
the TCI Ventures Group's economic interest in @Home decreased from 43% to 39%.
In connection with the associated dilution of the TCI Ventures Group's ownership
interest of @Home, the TCI Ventures Group recognized a gain of $60 million.

     As a result of the April 1997 issuance of shares by Flextech in connection
with Flextech's acquisition of all of the share capital of UKLL and UKGL which
Flextech did not already own, and the associated dilution of TINTA's ownership
interest in Flextech, TINTA recorded a $151.6 million increase to the carrying
value of its investment in Flextech, a $98.5 million increase to "Combined
equity" and a $53.1 million increase to "Deferred income tax liability." No gain
was recognized due primarily to TINTA's contingent obligations under the Standby
Commitment.

     On September 26, 1997, TINTA sold its interest in TCID of New Zealand, Inc.
for cash proceeds of $53.0 million. TINTA recognized a gain of $58.4 million on
such sale.





                                     I-141
<PAGE>   143
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Financial Condition (continued)

     During the third quarter of 1997, TCI Ventures Group sold the SUMMITrak
Assets to CSG for cash consideration of $106 million, plus CSG Warrants to
purchase up to 1.5 million shares of CSG common stock and $12 million in cash, 
once certain numbers of TCI affiliated subscribers are being processed on a CSG
billing system. For additional information concerning the sale of the SUMMITrak
Assets see note 11 to the accompanying combined financial statements.
        
     On October 9, 1997, TINTA sold a portion of its 51% interest in Cablevision
to CEI and Telefonica for cash consideration of $120.0 million ($21.0 million of
which was received in the third quarter of 1997). In addition, on October 9,
1997, Cablevision issued 3,541,829 shares of stock in the aggregate to the
Buyers for $80 million in cash and notes receivable with an aggregate principal
amount of $240 million. The Cablevision Sale reduced TINTA's interest in
Cablevision to 26.24%. Cash proceeds received by TINTA of $120 million were
based on a negotiated value of $210 million for approximately one-half of
TINTA's 51% interest in Cablevision. As a result of the Cablevision Sale,
effective October 1, 1997, TINTA will cease to consolidate Cablevision and will
begin to account for Cablevision using the equity method of accounting.

     At September 30, 1997, the TCI Ventures Group had aggregate debt of $564.2
million. For additional information concerning the terms of such debt, see note
10 to the accompanying combined financial statements. At September 30, 1997, the
TCI Ventures Group's debt included $163.3 million of debt related to
Cablevision. As discussed in note 5 to the accompanying combined financial
statements, effective October 1, 1997, Cablevision's debt will no longer be
included in the TCI Ventures Group's combined financial condition.

     The Board expects to determine, either in specific instances or by setting
generally applicable policies from time to time, whether to allocate resources
and financial support to or pursue business opportunities or operational
strategies through one Group or one or more of the other Groups, after
consideration of such factors as it deems relevant.




                                     I-142
<PAGE>   144
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Results of Operations

     The following tables set forth certain financial information for the TCI
Ventures Group and each of the combined businesses attributed to it for the
indicated periods:

<TABLE>
<CAPTION>
                                                         Nine months ended September 30,
                                          --------------------------------------------------------------
                                                     1997                                1996
                                          ---------------------------         ---------------------------
                                           Amount               %              Amount               %
                                          ---------         ---------         ---------         ---------
                                                          dollar amounts in thousands
                                                          ---------------------------
<S>                                     <C>                  <C>            <C>                    <C>
         Revenue:
         UVSG (1) (2)                     $ 376,882                50%          283,187                44%
         TINTA (3) (4) (5)                  206,621                27           219,873                35
         ETC w/tci                           65,245                 9            58,809                 9
         NDTC (6)                            69,750                 9            50,073                 8
         WTCI (7)                            25,984                 3            24,113                 4
         @Home                                3,737                 1               141              --
         Other                                9,863                 1             1,474              --
                                          ---------         ---------         ---------         ---------
                                          $ 758,082               100%          637,670               100%
                                          =========         =========         =========         =========

     Operating, selling, general,
      administrative and stock
      compensation:
            UVSG (1) (2)                  $ 302,237                44%          234,151                42%
            TINTA (3) (4) (5)               139,814                20           190,305                34
            ETC w/tci                        78,852                11            62,164                11
            NDTC                             62,006                 9            31,943                 6
            WTCI                             17,058                 3            14,568                 3
            @Home                            34,804                 5            15,254                 3
            Other                            57,032                 8             5,849                 1
                                          ---------         ---------         ---------         ---------
                                          $ 691,803               100%          554,234               100%
                                          =========         =========         =========         =========


     Depreciation and amortization:
         UVSG (1) (2)                     $  26,839                19%           21,049                20%
         TINTA (3) (4) (5)                   50,658                37            39,014                38
         ETC w/tci                            4,663                 3             4,485                 4
         NDTC                                38,168                27            21,799                21
         WTCI                                 6,416                 5             8,737                 8
         @Home                                5,311                 4               787                 1
         Other                                6,094                 5             7,746                 8
                                          ---------         ---------         ---------         ---------
                                          $ 138,149               100%          103,617               100%
                                          =========         =========         =========         =========
     Operating income (loss):
         UVSG (1) (2)                     $  47,806                (8)           27,987                (8)
         TINTA (3) (4) (5)                   16,149                              (9,446) 
         ETC w/tci                          (18,270)                             (7,840)
         NDTC                                (2,222)                             (3,669)
         WTCI                                 2,510                                 808 
         @Home                              (36,378)                            (15,900)
         Other                              (81,465)                            (12,121)
                                          ---------                           ---------
                                          $ (71,870)                            (20,181)
                                          =========                           =========
</TABLE>




                                     I-143
<PAGE>   145

                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Results of Operations (continued)

----------

     (1)  On January 25, 1996, the stockholders of UVSG adopted an agreement and
          plan of merger dated as of July 10, 1995, as amended. The results of
          operations of UVSG have been combined with those of the TCI Ventures
          Group since the date of acquisition.

     (2)  On August 9, 1996, UVSG and the Liberty Media Group contributed their
          retail C-band home satellite dish business assets, obligations and
          operations, effective April 1, 1996 to the Satellite Joint Venture.
          Accordingly, the operations of the Satellite Joint Venture have been
          combined effective April 1, 1996, with the operating results of UVSG.

     (3)  On October 1, 1996, Cablevision acquired 99.9% of the issued and
          outstanding stock of OCC. In accordance with the purchase method of
          accounting OCC has been included in Cablevision's consolidated
          statements since the October 1, 1996 acquisition date.

     (4)  As described in note 9 to the accompanying combined financial
          statements, TINTA, effective January 1, 1997, ceased to consolidate
          Flextech and began to account for Flextech using the equity method of
          accounting. As a result, TINTA's results of operations for the nine
          months ended September 30, 1997 do not include Flextech's results of
          operations on a consolidated basis. The following table sets forth
          summary information with respect to the operating results of Flextech
          that were included in TINTA's results of operations for the nine
          months ended September 30, 1996 (amounts in thousands):

<TABLE>
<S>                                                     <C>     
                    Revenue                             $ 67,593
                    Operating costs and expenses                
                       before depreciation and
                       amortization                      (88,169)
                    Depreciation and amortization         (5,372)
                                                        --------

                    Operating loss                       (25,948)

                    Other, net                            12,031
                                                        --------
                       Net loss                         $(13,917)
                                                        ========
</TABLE>

     (5)  On October 9, 1997 TINTA sold 14.5% of its 51% interest in
          Cablevision. In addition, on October 9, 1997 Cablevision issued
          3,541,829 shares of stock in the aggregate to CEI and Telefonica which
          further reduced TINTA's interest in Cablevision to 26.24%. 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.


                                     I-144
<PAGE>   146

                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Results of Operations (continued)

     (6)  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 the nine months ended September 30, 1997 and
          1996, revenue from services provided to TCI and its consolidated
          subsidiaries accounted for 38% and 21%, respectively, of NDTC's
          total revenue.

     (7)  For the nine months ended September 30, 1997 and 1996, WTCI's six
          largest customers accounted in the aggregate for approximately 70% of
          WTCI's consolidated gross revenue, respectively. WTCI's six largest
          customers' master service contracts all contain many service orders
          (in some cases, in excess of 100 service orders) with remaining terms
          varying from 1 month to approximately 15 months.

     (8)  Not meaningful

     Revenue

     Revenue increased by $20.4 million and $120.4 million or 9% and 19% during
the three and nine month periods ended September 30, 1997, respectively, as
compared to the same periods in 1996. Such increases principally result from
increases in revenue of UVSG, NDTC and ETC w/tci, net of decreases in TINTA's
revenue.

     Revenue from UVSG increased by $8.2 million and $93.6 million or 7% and 33%
during the three and nine month periods ended September 30, 1997, respectively,
as compared to the same periods in 1996. The increased revenue for the three
months ended September 30, 1997 as compared to the prior year period was
primarily attributable to a $4.3 million increase in the revenue of UVSG's
software development and systems integration services. The increased revenue for
the nine months ended September 30, 1997, as compared to the prior year period,
was primarily due to the inclusion of UVSG for eight months in 1996 versus nine
months in 1997 as well as $39.4 million of additional revenue attributable to
the Satellite Joint Venture.

     TINTA's revenue decreased $10.8 million and $13.3 million or 13% and 6%
during the three and nine month periods ended September 30, 1997, respectively,
as compared to the corresponding prior year periods. Such decreases for the
three and nine month periods ended September 30, 1997, as compared to the
corresponding prior year periods, were the net result of (i) decreases of $31.7
million and $67.6 million, respectively, in programming revenue due to the
January 1, 1997 deconsolidation of Flextech and (ii) increases in cable revenue
of $20.9 million and $54.3 million, respectively. Cable revenue increased
primarily as a result of the OCC Acquisition and 5% and 9% increases in
Cablevision's and the Puerto Rico Subsidiary's average number of basic
subscribers (exclusive of basic subscribers acquired in acquisitions),
respectively.



                                     I-145
<PAGE>   147
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Results of Operations (continued)

     Operating Costs and Expenses

     Operating costs and expenses, excluding depreciation and amortization,
increased $60.5 million and $137.6 million or 29% and 25% during the three and
nine month periods ended September 30, 1997, respectively, as compared to the
same periods in 1996. Such increases were primarily the net result of (i)
increases in stock compensation expense, (ii) increases in the operating costs
and expenses, excluding depreciation and amortization of UVSG, NDTC, and ETC
w/tci and (iii) decreases in TINTA's operating costs and expenses, excluding
depreciation and amortization.

     UVSG's operating costs and expenses, excluding depreciation and
amortization, remained relatively constant during the three months ended
September 30, 1997, as compared to the prior year period. Operating costs and
expenses, excluding depreciation and amortization, from UVSG increased by $68.1
million or 29% during the nine month period ended September 30, 1997, as
compared to the prior year period. Such increase was primarily due to the
inclusion of UVSG for eight months in 1996 versus nine months in 1997 as well as
$35.9 million of additional costs attributable to the inclusion of the Satellite
Joint Venture.

     TINTA costs and expenses, excluding depreciation and amortization,
decreased $19.2 million and $50.5 million or 26% and 27% during the three and
nine month periods ended September 30, 1997, respectively, as compared to the
corresponding prior year periods. Such decreases for the three and nine month
periods ended September 30, 1997 were comprised of (i) decreases of $38.3
million and $88.2 million, respectively, resulting from the deconsolidation of
Flextech and (ii) increases in cable operating costs and expenses of $11.8
million and $30.8 million, respectively. Increases in cable operating costs and
expenses are primarily attributable to higher programming costs which are due to
a higher number of subscribers and higher programming rates.

     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. The utilization-based charges are set at levels that
management believes to be reasonable and that approximate the costs the TCI
Ventures Group would incur for comparable services on a stand alone basis.
During the three months ended September 30, 1997 and 1996, the TCI Ventures
Group was allocated $2.2 million and $1.9 million, respectively, in corporate
general and administrative costs by the TCI Group. During the nine months ended
September 30, 1997 and 1996, the TCI Ventures Group was allocated $6.6 million
and $6.0 million, respectively, in corporate general and administrative costs
by the TCI Group.

     The $3.7 million and $34.5 million or 26% and 33% increases in depreciation
and amortization expense during the three and nine month periods ended September
30, 1997, respectively, as compared to the corresponding prior year periods, are
the result of a net increase in the TCI Ventures Group's assets that are subject
to depreciation and amortization. The increases in such assets that are
attributable to acquisitions and capital expenditures more than offset the
decrease attributable to the January 1, 1997 deconsolidation of Flextech.



                                     I-146
<PAGE>   148

                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Results of Operations (continued)

     Other Income and Expense

     The share of losses from the TCI Ventures Group's investment in the PCS
Ventures increased $116.4 million and $226.1 million during the three and nine
month periods ended September 30, 1997, respectively, as compared to the
corresponding prior year periods. The increases in the share of losses are
attributed primarily to general and administrative costs associated with the
start-up of operations and Sprint Spectrum's share of losses in American PCS
L.P. The PCS Ventures are in the development stage of operations. 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 develops and constructs its PCS network and builds its customer
base. If and when Sprint PCS has successfully completed its network buildout,
Sprint PCS's operating profitability will depend upon many factors, including,
among others, its ability to market its products and services successfully,
achieve its projected market penetration, manage customer turnover rates
effectively and 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.

     Telewest has incurred losses since its inception. TCI Ventures Group's
share of Telewest's net losses increased $8.9 million and $12.1 million or 31%
and 12% during the three and nine month periods ended September 30, 1997,
respectively, as compared to the corresponding prior year periods. Such
increases are primarily attributable to (i) increases in depreciation and
amortization and interest expense and (ii) changes in foreign currency
transaction losses. In connection with a previous merger transaction, Telewest
issued the Telewest Debentures. Changes in the exchange rate used to translate
the Telewest Debentures into UK pounds sterling and the adjustment of a foreign
currency option contract to market value caused Telewest to experience
unrealized foreign currency transaction losses of L.8.5 million ($14.5 million
using the applicable exchange rate) and L.7.6 million ($11.8 million using the
applicable exchange rate) during the three months ended September 30, 1997 and
1996, respectively, and L.32.8 million ($54.5 million using the applicable
exchange rate) and L.55.2 million ($84.6 million using the applicable exchange
rate) during the nine months ended September 30, 1997 and 1996, 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.



                                     I-147
<PAGE>   149
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Results of Operations (continued)

     The share of losses from the TCI Ventures Group's investment in Teleport
increased $4.6 million and $11.8 million or 42% and 37% during the three and
nine month periods ended September 30, 1997, respectively, as compared to the
corresponding prior year periods. The increases in the share of losses are
largely attributed to costs incurred by Teleport in the expansion of their local
telecommunications networks, increased depreciation expense and increased
interest expense partially offset by an increase in telecommunications services
revenue attributed to increased sales of services in existing and new markets.
Teleport has incurred net losses since its inception due to  the acquisition,
installation, development and expansion of its existing and new
telecommunications networks and the associated initial operating expenses of
such networks. These networks generally incur negative cash flow from operating
activities and operating losses until an adequate customer base and revenue
stream for such networks have been established. There can be no assurance that
Teleport will achieve or sustain profitability or generate sufficient positive
cash flow to service its debt.
        
     The TCI Ventures Group's share of the losses of the affiliates other than
Telewest, the PCS Ventures and Teleport increased $7.5 million and $21.0 million
or 39% and 37% during the three and nine month periods ended September 30, 1997,
respectively, as compared to the corresponding prior year periods. Such
increases are primarily attributable to increased losses of JPC, Jupiter, the
LLC, MultiThematiques and ABN. In addition, as previously described, TINTA,
effective January 1, 1997, ceased to consolidate Flextech and began to account
for Flextech using the equity method of accounting. For additional information
concerning the Other Affiliates, see note 9 to the accompanying combined
financial statements.

     The minority interests' share of gains (losses) was $6.9 million and $(22.0
million) during the nine months ended September 30, 1997 and 1996, respectively.
Such changes are primarily the result of the deconsolidation of Flextech.

     On July 11, 1997 @Home completed its IPO, in which 10,350,000 shares of
@Home common stock were sold to the public for aggregate cash consideration of
approximately $109 million, before commissions and fees. As a result of the IPO,
the TCI Ventures Group's economic interest in @Home decreased from 43% to 39%.
In connection with the associated dilution of the TCI Ventures Group's ownership
interest of @Home, the TCI Ventures Group recognized a gain of $60 million.

     On September 26, 1997, TINTA sold its interest in TCID of New Zealand, Inc.
for cash proceeds of $53.0 million. TINTA recognized a gain of $58.4 million on
such sale.

     During 1997, Teleport issued 4,857,083 shares of Class A common stock at an
average price per share of $19.25 for certain acquisitions. The total
consideration paid by Teleport through the issuance of common stock was
approximately $93 million. As a result of Teleport issuing additional shares the
TCI Ventures Group's ownership interest in Teleport was reduced from
approximately 31% to approximately 30%. Accordingly, the TCI Ventures Group
recognized a gain amounting to $21 million (before deducting deferred income tax
expense of approximately $8 million).



                                     I-148
<PAGE>   150
                              "TCI VENTURES GROUP"
                        (a combination of certain assets)


Material Changes in Results of Operations (continued)

     In February 1997, TSX and Antec entered into a business combination with
Antec being the surviving entity. In connection with this transaction, the TCI
Ventures Group recognized a $28.9 million gain 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. As a result of this
transaction, the TCI Ventures Group holds an approximate 16% ownership interest
in Antec.

     Income Taxes

     The TCI Ventures Group's income tax benefit was $143.1 million and $74.3
million during the nine months ended September 30, 1997 and 1996, respectively.
The effective tax rates associated with such benefits were 31% and 29%,
respectively.

     Net Losses

     The TCI Ventures Group's net loss of $125.7 million and $314.9 million for
the three and nine month periods ended September 30, 1997, respectively,
represent increases of $76.9 million and $130.1 million, as compared to the TCI
Ventures Group's net loss of $48.8 million and $184.8 million for the three and
nine month periods ended September 30, 1996, respectively. With the exception of
UVSG, Cablevision, 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 subscriber bases while maintaining
pricing structures and controlling costs. There can be no assurance that any
such improvements will occur.




                                    I-149
<PAGE>   151
                            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 September
     30, 1997 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:

     As previously reported, on September 30, 1994, an action caption The Carter
     Revocable Trust by H. Allen Carter and Sharlynn Carter as Trustees v.
     Tele-Communications, Inc.; IR-Daniels Partners III; Daniels Ventures, Inc.;
     Cablevision Equities IV; Daniels & Associates, Inc.; and John V. Saeman,
     94-N-2253, was filed in the United States District Court for the District
     of Colorado. A tentative Settlement has been reached pending final approval
     and documentation.

     As previously reported, on September 30, 1994, an action caption WEBBCO v.
     Tele-Communications, Inc.; IR-Daniels Partners II; Daniels Ventures, Inc.;
     Cablevision Equities III; Daniels & Associates, Inc.; and John V. Saeman,
     94-N-2254, was filed in the United States District Court for the District
     of Colorado. A tentative Settlement has been reached pending final approval
     and documentation.

                                                                     (continued)

                                      II-1

<PAGE>   152

                            TELE-COMMUNICATIONS, INC.

Item 1. Legal Proceedings (continued).

     Interactive Network, Inc. Shareholder Litigation (No. C95-0026 DLJ,
     Northern District of California.) 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. The remaining claims are limited to a class of just several
     months. The Company's response to the Fifth Amended Complaint, as so
     limited, is due on November 18, 1997. 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.

                                                                     (continued)


                                      II-2
<PAGE>   153

                            TELE-COMMUNICATIONS, INC.


Item 1. Legal Proceedings (continued).

     Interactive Network, Inc. v. Tele-Communications, Inc., et al.(Alameda
     County Superior Court, Case No. 754933-7). On October 20, 1995, Interactive
     Network, Inc. ("Interactive") filed a complaint in the Superior Court of
     California for the County of Alameda naming Tele-Communications, Inc., TCI
     Communications, Inc., TCI Development Corporation, TCI Programming Holding
     Co., TCI Cablevision of California, Inc. ("the TCI defendants") and Gary
     Howard as defendants. The Complaint alleges claims for breach of fiduciary
     duty, abuse of control, intentional interference with prospective business
     advantage, intentional interference with contractual relations, breach of
     contract, constructive fraud, fraud and deceit, negligent
     misrepresentation, misappropriation of corporate assets, unfair competition
     and unjust enrichment arising out of the business relationship between the
     TCI defendants and Interactive. Plaintiffs twice amended the complaint,
     following a series of motions attacking the pleadings by the TCI
     defendants, resulting in the Third Amended Complaint. The Third Amended
     Complaint alleges that the TCI defendants breached various duties owed to
     Interactive as a result of the TCI defendants' purported status as a
     controlling shareholder. The Complaint further alleges that the TCI
     defendants fraudulently promised to provide financing to Interactive and
     fraudulently induced Interactive to enter into various transactions. The
     Third Amended Complaint seeks various unspecified compensatory and punitive
     damages as well as injunctive relief. On June 17, 1996, certain of the TCI
     defendants, on their own behalf and as the agent of various additional
     secured creditors, filed a cross-complaint for breach of contract against
     Interactive seeking in excess of $24 million pursuant to various promissory
     notes entered into by Interactive. On July 22, 1996, Interactive filed a
     "cross-complaint to the cross-complaint" alleging economic duress, breach
     of the implied covenant of good faith and fair dealing, fraud and breach of
     contract in connection with the promissory notes entered into by
     Interactive. The parties have completed discovery and trial is currently
     scheduled for November 21, 1997. During expert discovery, Interactive's
     experts estimated Interactive's purported damages to be in excess of
     $250,000,000. Management believes that the Company has strong defenses to
     Interactive's claims, and that an adverse result on those claims in the
     matter is not likely. Management further believes that a favorable result
     on the cross-complaint is likely. Accordingly, based upon the facts
     available, management believes that, although no assurance can be given as
     to the outcome of this action the ultimate disposition should not have a
     material adverse effect upon the financial condition of the Company.

     Clarence L. Elder, both individually and as a the group Representative vs.
     Tele-Communications, Inc. et al. As previously reported, on December 11,
     1995, plaintiff filed suit in the Circuit Court for Baltimore City, Case
     No. 95345001/CL205580 against UCTC L.P. Company, UCTC of Baltimore, Inc.,
     UTI Purchase Company, Inc. and Tele-Communications, Inc. The allegations
     made in the complaint pertain to plaintiff's interest in United Cable
     Television of Baltimore Limited Partnership. On September 24, 1997, the
     Maryland Court of Special Appeals affirmed in all but one respect the
     Circuit Court's summary judgment in favor of the defendants. The court
     found that the settlement agreement at issue is ambiguous concerning the
     number of Limited Partnership units the plaintiffs were entitled to
     purchase (186.6 or 311), but rule in favor of defendants concerning the
     price at which the units must be sold and all other issues.

                                                                     (continued)


                                      II-3
<PAGE>   154

                            TELE-COMMUNICATIONS, INC.


Item 1. Legal Proceedings (continued).

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

     Les Dunnaville v. United Artists Cable, et al. As previously reported, on
     February 9, 1994, Les Dunnaville and Jay Sharrieff, former employees of
     United Cable Television of Baltimore Limited Partnership, filed an amended
     complaint in the Circuit Court for Baltimore City against United Cable
     Television of Baltimore Limited Partnership, TCI Cablevision of Maryland,
     Tele-Communications, Inc. and three company employees, Roy Harbert, Tony
     Peduto, and Richard Bushey (the suit was initially filed on December 3,
     1993, but the parties agreed on December 30, 1993 that no responsive
     pleading would be due pending filing of an amended complaint). Defendants
     filed Motions for Summary Judgment in December 1995 and January 1996 on all
     remaining counts of plaintiffs' complaint. The Court granted summary
     judgment in defendants' favor on March 18, 1996. The plaintiffs appealed
     the Circuit Court ruling to the Maryland Court of Special Appeals. In a
     decision dated June 5, 1997, the Maryland Court of Special Appeals affirmed
     the trial court's grant of summary judgment in all respects except for one
     portion of the defamation claim involving alleged statements of Roy
     Harbert. The trial court is scheduled to try the one remaining claim on
     April 2, 1998. Based upon the facts available, management believes that,
     although no assurance can be given as to the outcome of this action, the
     ultimate disposition should not have a material adverse effect upon the
     financial condition of the Company.

     Donald E. Watson v. Tele-Communications, Inc., et al. As previously
     reported, on March 10, 1995, Donald Watson, doing business under the name
     of Tri-County Cable, filed suit in Superior Court for the District of
     Columbia against TCI, TCI East, Inc., District Cablevision Limited
     Partnership, District Cablevision, Inc., TCI of D.C., Inc., TCI of
     Maryland, Inc., TCI Development Corporation, United Cable Television of
     Baltimore Limited Partnership, TCI of Pennsylvania, Inc. and two
     individuals, Richard Bushey and Roy Harbert. In an order dated September
     25, 1997, the Court granted summary judgment in favor of defendants on the
     claims of intentional misrepresentations, tortious interference with
     prospective advantage, tortious interference with contract, and
     discrimination on the basis of race. The remaining claims will be tried in
     a trial beginning on December 3, 1997. Based upon the facts available,
     management believes that, although no assurance can be given as to the
     outcome of this action, the ultimate disposition should not have a material
     adverse effect upon the financial condition of the Company.

                                                                     (continued)


                                      II-4
<PAGE>   155

                            TELE-COMMUNICATIONS, INC.


Item 1. Legal Proceedings (continued).

     Louis Beverly v. Tele-Communications, Inc., et al. As previously reported,
     on July 27, 1995, Louis Beverly, a former employee of United Cable
     Television of Baltimore Limited Partnership filed a complaint in United
     States District Court for the District of Maryland against
     Tele-Communications, Inc., United Artists Cable of Baltimore, Inc., United
     Cable Television of Baltimore Limited Partnership, UCTC of Baltimore, Inc.
     and TCI East, Inc. On February 14, 1996, the Court granted defendants'
     Motion dismissing Tele-Communications, Inc., and TCI East, Inc. as parties,
     along with various counts asserted by the plaintiffs. United Artists Cable
     of Baltimore was also dismissed from the Title VII claim for race
     discrimination. The parties have agreed to a settlement. Such settlement
     represents the final resolution of this matter, and accordingly, it will
     not be reported in future filings.

     C. Lamont Smith, et al. v. Mile Hi Cable Partners, et al. As previously
     reported, on December 9, 1996, C. Lamont Smith and The Black Movie Channel,
     LLC filed suit in the District Court for the City and County of Denver
     against subsidiaries of Tele-Communications, Inc. (TCI Communications,
     Inc.; Mile Hi Cable Partners, LP; Liberty Media Corporation and Encore
     Media Corporation); Black Entertainment Television; Steven Santamaria;
     Media Management Group, Inc. and Virginia Butler. On August 5, 1997, the
     trial court entered an Order dismissing all of plaintiffs' claims against
     defendants Liberty and Encore as well as plaintiffs' first, second, fifth,
     and a portion of the twelfth claim for relief against the remaining Company
     defendants. Currently pending before the trial court is a motion filed by
     the remaining Company defendants for judgment on the pleadings with respect
     to plaintiffs' other claims. Based upon the facts available, management
     believes that, although no assurance can be given as to the outcome of this
     action, the ultimate disposition should not have a material adverse effect
     upon the financial condition of the Company.

     Kim Magness, et al. v Tele-Communications, Inc. et al. On October 29, 1997
     this action was filed in the District Court, Arapahoe County, Colorado,
     against Tele-Communications, Inc. and Donne F. Fisher, individually and as
     Personal Representative of the Estate of Bob Magness, deceased; Daniel
     Ritchie, individually and as Personal Representative of the Estate of Bob
     Magness, Deceased; Tele-Communications, Inc., John Malone; and DOES 1-10.
     This action concerns the sale of stock by the Estate of Bob Magness and the
     Petitioner's request to rescind the transaction. Plaintiffs allege, among
     other things, the following Claims for Relief: Statutory Claim - Request to
     Void Transaction; Breach of Fiduciary Duty; and Indemnification. The
     Complaint seeks a judgment voiding, unwinding, and invalidating the
     agreements and transactions; a judgment and order requiring TCI to return
     shares of stock to the Estate; an order prohibiting any action to sell,
     transfer, pledge, hypothecate or dispose of shares purchased from the
     Estate; a judgment awarding damages and surcharge, including lost profits,
     consequential damages, and lost appreciation damages; and reasonable costs
     and attorney fees. Plaintiffs demand a jury trial. Kim Magness is a
     director of the Company. Based upon the facts available management believes
     that, although no assurances can be given as to the outcome of this
     actions, the ultimate disposition of this matter should not have a material
     adverse effect upon the financial condition of the Company. 

                                                                     (continued)


                                      II-5
<PAGE>   156


                            TELE-COMMUNICATIONS, INC.


Item 1. Legal Proceedings (continued).

     The TCI Series D Preferred Stockholders Litigation. In October 1997, an
     individual and putative class action complaint was filed in the Delaware
     Court of Chancery by certain holders of Tele-Communications, Inc. ("TCI")
     Convertible Preferred Stock, Series D (the "Series D Preferred Stock"). TCI
     is the only named defendant in the action styled as Batten v.
     Tele-Communications, Inc., C.A. No. 15972 (the "Series D Preferred
     Stockholders Litigation"). The complaint was filed in connection with an
     offer made by TCI to the holders of TCI Group Common Stock to exchange up
     to 30% of the outstanding shares of TCI Group Common Stock to exchange up
     to 30% of the outstanding shares of TCI Group Common Stock for shares of
     the newly created TCI Ventures Group Common Stock (the "Exchange Offer").
     The gravamen of the complaint in the Series D Preferred Stockholders
     Litigation is that TCI breached its obligations to the holders of the
     Series D Preferred Stock by failing to allow them to exchange their shares
     of Series D Preferred Stock for shares of a newly created "Mirror Preferred
     Stock" which would be convertible into shares of Series A TCI Ventures
     Group Common Stock issued in the Exchange Offer. In the alternative, the
     Series D Stockholders allege that TCI breached an implied covenant of good
     faith and fair dealing in connection with the Series D Preferred Stock or
     that TCI is promissorily estopped from denying the Series D Stockholders
     from exercising their rights under the Mirror Preferred Provision. On
     October 27, 1997, TCI filed a motion to dismiss the complaint in the Series
     D Preferred Stockholders Litigation. No date has been set by the Delaware
     Chancery court to hear TCI's motion to dismiss. On October 3, 1997, in the
     Court of Chancery in New Castle County, Delaware, Case No. 15972.
     Plaintiff, Frank Batten filed this action against Tele-Communications, Inc.
     alleging, among other things, the following Claims for Relief: Breach of
     Contract; Alternative Claim for Breach of Obligation of Good Faith and Fair
     Dealing; and Promissory Estoppel. The Company was served on October 7,
     1997. The Complaint seeks judgment declaring class action, judgment
     declaring Breach of Contract and compelling TCI to issue the Option Notice
     and thereafter to issue shares of Mirror Preferred Stock to all class
     members or monetary damages in lieu thereof; costs and attorney fees and
     expenses. Based upon the facts available management believes that, although
     no assurances can be given as to the outcome of these actions, the ultimate
     disposition of this matter should not have a material adverse effect upon
     the financial condition of the Company.

                                                                     (continued)


                                      II-6
<PAGE>   157


                            TELE-COMMUNICATIONS, INC.


Item 1. Legal Proceedings (continued).

     BET Litigation. In September 1997, five substantially similar purported
     class action complaints were filed by stockholders of BET Holdings, Inc.
     ("BET Holdings") 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 ("Liberty"), and
     BET Holdings. The Consolidated Action focuses on the announcement of an
     offer by TCI, Liberty and Robert L. Johnson, the Chief Executive Officer of
     BET Holdings, to purchase all outstanding shares of BET Holdings 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 Holdings. No discovery has
     been taken in the Consolidated Action.

     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 Holdings, TCI and
     Liberty. 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. No
     prediction can be made at this time as to the outcome of these actions.
     Based upon the facts available management believes that, although no
     assurances can be given as to the outcome of these actions, the ultimate
     disposition of this matter should not have a material adverse effect upon
     the financial condition of the Company.


                                                                     (continued)


                                      II-7
<PAGE>   158

                            TELE-COMMUNICATIONS, INC.


Item 1. Legal Proceedings (continued).

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

Item 2. Change in Securities.

     On July 24, 1997, the Company issued 7,296,324 shares of Series B TCI Group
     Stock and 2,278,125 shares of Series B Liberty Group Stock to an executive
     officer who is also a director of the Company in exchange for the same
     number of shares of Series A TCI Group Stock and Series A Liberty Group
     Stock, respectively, held by such executive officer and director. Such
     shares were valued at approximately $170 million at the time of issuance.
     The Series B TCI Group Stock is convertible into Series A TCI Group Stock
     on a share for share basis at any time at the option of the holder thereof.

     On July 10, 1997, the Company issued 1,614,350 shares of the Company's
     Series A Liberty Media Group Common Stock. The Company issued such shares
     to John J. Sie in exchange for the 10% ownership interest of Mr. Sie,
     through his wholly-owned corporation JJS Communications, Inc., in Encore
     Media Corporation ("Encore"). At the time of issuance, the shares issued
     were valued at $30 million. The Company entered into such transaction in
     connection with certain other transactions pursuant to which the businesses
     of Encore and Liberty Starz, Inc. were contributed to a newly formed
     limited liability company.

     On August 5, 1997 (the "IP Phase II Closing Date"), the Company issued
     2,405,942 shares of the Company's Series B TCI Group Common Stock (the "IP
     II Shares") to the IP Series B Trust II ("Trust II"). An executive officer
     who is also a director of the Company is the trustee of the Trust II. The
     IP II Shares were issued in connection with the closing under the
     Partnership Interest Purchase Agreement dated as of August 5, 1997,
     pursuant to which the Company acquired on the IP Phase II Closing Date a
     99.997% limited partnership interest in InterMedia Capital Management IV,
     L.P. in exchange for total consideration of the IP II Shares and cash and
     assumption of liabilities in an aggregate amount of $15,450,976. In
     connection with the foregoing transaction, a director of the Company
     received a consulting fee in the amount of $400,000 in cash and 31,030
     shares of Series B TCI Group Stock and the son of a director of the Company
     received an advisory fee in the amount of 36,364 shares of Series B TCI
     Group Stock.

                                                                     (continued)


                                      II-8
<PAGE>   159

                            TELE-COMMUNICATIONS, INC.

Item 2. Change in Securities (continued)

     The Company issued the equity securities in each of the above described
     transactions pursuant to the private placement exemption from the
     Securities Act of 1933, as amended (the "Act") afforded by Section 4(2) of
     the Act.

     On September 10, 1997, the offers (collectively, the "Exchange Offers") of
     the Company (i) to issue to holders of the Tele-Communications, Inc. Series
     A TCI Group Common Stock, one share of the Tele-Communications, Inc. Series
     A TCI Ventures Group Common Stock, in exchange for each share of Series A
     TCI Group Common Stock tendered to the Company up to a maximum aggregate of
     188,661,300 shares of Series A TCI Group Common Stock and (ii) to issue to
     holders of the Tele-Communications, Inc. Series B TCI Group Common Stock,
     one share of the Tele-Communications, Inc. Series B TCI Ventures Group
     Common Stock in exchange for each share of Series B TCI Group Common Stock
     tendered to the Company up to a maximum aggregate of 16,266,400 shares of
     Series B TCI Group Common Stock, each expired and were oversubscribed. On
     or around September 19, 1997, the Company distributed 188,661,300 shares of
     Series A TCI Ventures Group Common Stock and 16,266,400 shares of Series B
     TCI Ventures Group Common Stock pursuant to the terms of the Exchange
     Offers. The shares of Series A TCI Group Common Stock and Series B TCI
     Group Common Stock received by the Company pursuant to the Exchange Offers
     were retired and restored to the status of authorized but unissued shares
     of such series of stock. Other than the shares received by the Company as
     described in the preceding sentence, the Company did not receive any
     consideration in connection with the Exchange Offers.

     The Exchange Offers were made by the Company in reliance on the exemption
     from the registration requirements of the Securities Act of 1933, as
     amended, afforded by Section 3(a)(9) thereof. The Company therefore did not
     pay any commission or other remuneration to any broker, dealer, salesman or
     other person for soliciting tenders of Series A TCI Group Common Stock or
     Series B TCI Group Common Stock. The Company believes that such exemption
     from registration is available because (i) shares of the Series A TCI
     Ventures Group Common Stock and Series B TCI Ventures Group Common Stock
     were issued by the Company to existing security holders exclusively in
     exchange for shares of Series A TCI Group Common Stock and Series B TCI
     Group Common Stock and (ii) no commission or other remuneration was paid or
     given directly or indirectly for soliciting such exchange.

     Each share of Series B TCI Ventures Group Common Stock is convertible, at
     the option of the holder, into one share of Series A TCI Ventures Group
     Common Stock. Shares of Series A TCI Ventures Group Common Stock are not
     convertible into shares of Series B TCI Ventures Group Common Stock.

                                                                     (continued)



                                      II-9
<PAGE>   160

                            TELE-COMMUNICATIONS, INC.

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

     At the Annual Meeting of Stockholders held on August 28, 1997 (the
     "Meeting"), the following matters were voted upon by the stockholders of
     Tele-Communications, Inc. ("TCI"):

     1.   The election of three directors of TCI as follows: Donne F. Fisher by
          98.88% of the votes cast at the Meeting (1,370,640,998 For; 15,482,252
          Withheld), Kim Magness by 99.34% of the votes cast at the Meeting
          (1,376,911,402 For; 9,211,848 Withheld), and J.C. Sparkman by 98.85%
          of the votes cast at the Meeting (1,370,188,832 For; 15,934,418
          Withheld). The election of directors required a plurality of the votes
          of the outstanding shares as of the record date of July 25, 1997 (the
          "Record Date") of TCI Series A TCI Group Common Stock (the "Series A
          TCI Group Stock"), TCI Series A Liberty Media Group Common Stock (the
          "Series A Liberty Group Stock"), TCI Series B TCI Group Common Stock
          (the "Series B TCI Group Stock"), TCI Series B Liberty Media Group
          Common Stock (the "Series B Liberty Group stock"), Class B 6%
          Cumulative Redeemable Exchangeable Junior Preferred Stock, Convertible
          Preferred Stock, Series C (the "Series C Preferred Stock"), Redeemable
          Convertible TCI Group Preferred Stock, Series G and Redeemable
          Convertible Liberty Media Group Preferred Stock, Series H, voting as a
          single class. Additionally, subsequent to the Meeting, Messrs. John W.
          Gallivan, Paul A Gould, Jerome H. Kern, John C. Malone, Leo J.
          Hindery, Jr., and Robert A. Naify continue to serve as members of the
          Board of Directors subject to re-election over staggered three year
          terms. Tony Coelho resigned as a director on September 29, 1997, and
          that position remains vacant.

     2.   To consider and vote upon a proposal to amend TCI's Restated
          Certificate of Incorporation, which amendment caused the designation
          of the TCI Ventures Group Common Stock. Such proposal required the
          affirmative vote of at least 66-2/3% of the combined voting power of
          the outstanding shares as of the Record Date of Series A TCI Group
          Stock. Series B Liberty Group Stock, and Series C Preferred Stock
          voting as a single class (1,265,139,485 For; 8,629,589 Against;
          3,315,967 Abstentions; and 85,834,633 Broker Non-Votes).

                                                                     (continued)


                                     II-10
<PAGE>   161

                            TELE-COMMUNICATIONS, INC.

Item 4. Submission of Matters to a Vote of Security Holders (continued)

     3.   To consider and vote upon a proposal to adopt an amendment to TCI's
          Restated Certificate of Incorporation, which amendment would permit
          TCI to redeem the Liberty Media Group Common Stock with stock of a
          less than a wholly owned subsidiary of TCI that holds all of the
          assets and liabilities attributed to the Liberty Media Group if
          certain conditions are met. Such proposal required the affirmative
          vote of a least 66-2/3% of the combined voting power of the
          outstanding shares as of the Record Date of Series A TCI Group Stock,
          Series A Liberty Group Stock, Series B TCI Group Stock, Series B
          Liberty Group Stock and Series C Preferred Stock voting as single
          class (1,274,833,737 For; 6,177,067 Against; 1,771,886 Abstentions;
          and 80,137,004 Broker Non-Votes), and the affirmative vote of a
          majority of the combined voting power of the outstanding shares as of
          the Record Dates of Series A Liberty Group Stock and Series B Liberty
          Group Stock voting as a single class (344,077,845 For; 1,370,120
          Against; 245,412 Abstentions; and 22,842,821 Broker Non-Votes).

     4.   To consider and vote upon a proposal of two stockholders of TCI
          concerning the elimination of election of directors by classes. Such
          proposal required the affirmative vote of a majority of the combined
          voting power of the shares of Series A TCI Group Stock, Series A
          Liberty Group Stock, Series B TCI Group Stock, Series B Liberty Group
          Stock, and Series C Preferred Stock, represented in person or by proxy
          at the Meeting, voting as a single class (337,698,351 For; 934,252,509
          Against; 5,132,699 Abstentions; and 85,836,115 Broker Non-Votes).


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

     (a)  Exhibit -

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

     (b)  Reports on Form 8-K filed during the quarter ended September 30, 1997:

<TABLE>
<CAPTION>
                         Date of            Items
                         Report            Reported    Financial Statements Filed
                         ------            --------    --------------------------

<S>                                       <C>               <C>                 
                    August 28, 1997         Item 5              None.

                    September 9, 1997       Item 5              None.
</TABLE>



                                     II-11
<PAGE>   162

                                   SIGNATURES


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

                                       TELE-COMMUNICATIONS, INC.




Date:   November 13, 1997          By:  /s/ LEO J. HINDERY, JR.
                                       ------------------------
                                            Leo J. Hindery, Jr.
                                              President and Chief
                                                Operating Officer




Date:   November 13, 1997          By:  /s/ STEPHEN M. BRETT
                                       ---------------------
                                            Stephen M. Brett
                                               Executive Vice President




Date:   November 13, 1997          By:  /s/ BERNARD W. SCHOTTERS
                                       -------------------------
                                            Bernard W. Schotters
                                              Senior Vice President
                                                (Principal Financial Officer)




Date:   November 13, 1997          By:  /s/ GARY K. BRACKEN
                                       --------------------
                                            Gary K. Bracken
                                              Senior Vice President of
                                                TCI Communications, Inc.
                                                (Principal Accounting Officer)







                                     II-12
<PAGE>   163


                                  EXHIBIT INDEX


The following exhibit is filed herewith (according to the number assigned to it
in Item 601 of Regulation S-K) as noted:


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