<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 June 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 July 31,
1997, was:

<TABLE>
 <S>                                                                         <C>
 Tele-Communications, Inc. Series A TCI Group common stock               -   660,181,987 shares,
 Tele-Communications, Inc. Series B TCI Group common stock               -    52,405,138 shares,
 Tele-Communications, Inc. Series A Liberty Media Group common stock     -   223,083,080 shares,
 Tele-Communications, Inc. Series B Liberty Media Group common stock     -    21,175,465 shares,
 Tele-Communications, Inc. Series A Telephony Group common stock         -             0 shares,
                                      and
 Tele-Communications, Inc. Series B Telephony Group common stock         -             0 shares.
</TABLE>




<PAGE>   2






                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets
                                  (unaudited)


<TABLE>
<CAPTION>
                                                           June 30,  December 31,
                                                             1997       1996
                                                           --------  -----------
Assets                                                     amounts in millions

<S>                                                        <C>          <C>
Cash and cash equivalents                                  $   406      394

Trade and other receivables, net                               565      448

Prepaid expenses                                                81       81

Prepaid program rights                                          79       49

Committed film inventory                                       129      136

Investments in affiliates, accounted for under the
    equity method, and related receivables (note 5)          3,046    3,012

Investment in Time Warner, Inc. ("Time Warner") (note 6)     2,344    2,027

Property and equipment, at cost:
    Land                                                        75       77
    Distribution systems                                    10,335   10,039
    Support equipment and buildings                          1,539    1,541
                                                           -------   ------
                                                            11,949   11,657
    Less accumulated depreciation                            4,422    4,129
                                                           -------   ------
                                                             7,527    7,528
                                                           -------   ------

Franchise costs                                             18,416   17,875
    Less accumulated amortization                            2,621    2,439
                                                           -------   ------
                                                            15,795   15,436
                                                           -------   ------

Other assets, net of amortization                              988    1,133
                                                           -------   ------

                                                           $30,960   30,244
                                                           =======   ======
</TABLE>


                                                                    (continued)

                                      I-1
<PAGE>   3


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Balance Sheets, continued
                                  (unaudited)

<TABLE>
<CAPTION>
                                                             June 30,  December 31,
                                                               1997       1996
                                                             --------  -----------
Liabilities and Stockholders' Equity                          amounts in millions

<S>                                                          <C>             <C>
Accounts payable                                             $    101        216
Accrued interest                                                  272        274
Accrued programming expense                                       329        347
Other accrued expenses                                          1,053        812
Deferred option premium (note 6)                                  306         --
Debt (note 8)                                                  14,743     14,926
Deferred income taxes                                           5,928      6,012
Other liabilities                                                 319        253
                                                             --------  ---------

    Total liabilities                                          23,051     22,840
                                                             --------  ---------

Minority interests in equity of consolidated subsidiaries       1,376      1,493

Redeemable preferred stocks                                       661        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 745,724,192 shares 
       in 1997 and 696,325,478 shares in 1996                     746        696
    Tele-Communications, Inc. Series B TCI Group
       common stock, $1 par value. Authorized 150,000,000
       shares; issued 84,767,178 shares in 1997 and
       84,647,065 shares in 1996                                   85         85
    Tele-Communications, Inc. Series A Liberty Media
       Group common stock, $1 par value.  Authorized
       750,000,000 shares; issued 228,801,906 shares
       in 1997 and 227,844,437 shares in 1996                     229        228
    Tele-Communications, Inc. Series B Liberty Media
       Group common stock, $1 par value.  Authorized
       75,000,000 shares; issued 21,175,465 shares
       in 1997 and 21,189,369 shares in 1996                       21         21
    Tele-Communications, Inc. Series A Telephony Group
       Stock, $1 par value. Authorized 750,000,000 shares,
       no shares outstanding                                       --         --
    Tele-Communications, Inc. Series B Telephony Group
       Stock, $1 par value. Authorized 75,000,000 shares,
       no shares outstanding                                       --         --
    Additional paid-in capital                                  4,493      3,672
    Cumulative foreign currency translation adjustment,
       net of taxes                                                15         26
    Unrealized holding gains for available-for-sale
       securities, net of taxes                                    28         15
    Accumulated deficit                                          (388)      (176)
                                                             --------  ---------
                                                                5,229      4,567
    Treasury stock and common stock held by subsidiaries,
       at cost (note 10)                                         (857)      (314)
                                                             --------  ---------

          Total stockholders' equity                            4,372      4,253
                                                             --------  ---------

Commitments and contingencies (note 12)                      $ 30,960     30,244
                                                             ========  =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      I-2
<PAGE>   4

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>
                                                               Three months ended   Six months ended
                                                                    June 30,             June 30,
                                                               -----------------    ----------------
                                                                1997       1996      1997      1996
                                                               -------    ------    ------    ------
                                                                          amounts in millions,
                                                                        except per share amounts
<S>                                                            <C>         <C>       <C>       <C>  
Revenue:
   Communications and programming services                     $ 1,887     1,704     3,714     3,309
   Net sales from electronic retailing services (note 5)            --       244        --       500
                                                               -------    ------    ------    ------
                                                                 1,887     1,948     3,714     3,809
                                                               -------    ------    ------    ------

Operating costs and expenses:
   Operating                                                       736       707     1,432     1,369
   Cost of sales from electronic retailing services (note 5)        --       152        --       317
   Selling, general and administrative                             435       530       828     1,031
   Compensation (adjustment to compensation) relating to
      stock appreciation rights                                     56         4        71        (5)
   Depreciation                                                    261       259       502       511
   Amortization                                                    146       127       279       245
                                                               -------    ------    ------    ------
                                                                 1,634     1,779     3,112     3,468
                                                               -------    ------    ------    ------

         Operating income                                          253       169       602       341

Other income (expense):
   Interest expense                                               (294)     (265)     (583)     (526)
   Interest and dividend income                                     18        14        39        24
   Share of losses of affiliates, net (note 5)                    (182)      (96)     (338)     (211)
   Loss on early extinguishment of debt (note 8)                   (11)      (66)      (11)      (66)
   Minority interests in earnings of
      consolidated subsidiaries, net                               (56)       (6)      (94)       (4)
   Gain on sale of stock by equity investee (note 5)                21        --        21        --
   Gain on disposition of assets (note 5)                           43        --        62        10
   Other, net                                                       (4)      (11)       (6)       (5)
                                                               -------    ------    ------    ------
                                                                  (465)     (430)     (910)     (778)
                                                               -------    ------    ------    ------

      Loss before income taxes                                    (212)     (261)     (308)     (437)

Income tax benefit                                                  58        74        96       129
                                                               -------    ------    ------    ------

      Net loss                                                    (154)     (187)     (212)     (308)

Dividend requirements on preferred stocks                          (11)       (9)      (21)      (18)
                                                               -------    ------    ------    ------

      Net loss attributable to common stockholders             $  (165)     (196)     (233)     (326)
                                                               =======    ======    ======    ======

Net earnings (loss) attributable to common stockholders:
      TCI Group Series A and Series B common stock             $  (171)     (200)     (255)     (345)
         Liberty Media Group Series A and Series B common
         stock                                                       6         4        22        19
                                                               -------    ------    ------    ------

                                                               $  (165)     (196)     (233)     (326)
                                                               =======    ======    ======    ======
Net earnings (loss) attributable to common stockholders
   per common share (note 2):
      TCI Group Series A and Series B common stock             $  (.25)     (.30)     (.37)     (.52)
                                                               =======    ======    ======    ======
      Liberty Media Group Series A and Series B common stock
                                                               $   .03       .02       .09       .08
                                                               =======    ======    ======    ======
</TABLE>

See accompanying notes to consolidated financial statements.


                                      I-3
<PAGE>   5


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


                 Consolidated Statement of Stockholders' Equity

                         Six months ended June 30, 1997
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                  Common Stock                                    
                                                          ---------------------------------------------------------      
                                                 Class B      TCI Group       Liberty Media Group  Telephony Group     Additional-
                                               Preferred  ------------------  ------------------- -----------------      paid-in  
                                                 Stock    Series A   Series B  Series A Series B  Series A Series B      capital  
                                               ---------  --------  --------  -------  --------   -------- --------      -------- 
                                                                               amounts in millions                               
<S>                                            <C>         <C>      <C>       <C>      <C>       <C>      <C>             <C>     
Balance at January 1, 1997                      $  --       696       85       228       21       --       --            3,672  
    Net loss                                       --        --       --        --       --       --       --               --  
    Issuance of common stock for                                                                                                
      acquisitions                                 --        16       --        --       --       --       --              242  
    Issuance of Series A TCI Group common                                                                                       
      stock in exchange for Series B TCI                                                                                        
      Group common                                                                                                              
      stock (note 10)                              --        31       --        --       --       --       --              499  
    Repurchase of common stock in public                                                                                        
       market                                      --        --       --        --       --       --       --               --  
    Issuance of common stock by equity                                                                                          
       investee (note 5)                           --        --       --        --       --       --       --               99  
    Issuance of common stock upon                                                                                               
      conversion of notes                          --         3       --         1       --       --       --               (1) 
    Issuance of common stock to                                                                                                 
      Tele-Communications, Inc. Employee                                                                                        
      Stock Purchase Plan                          --        --       --        --       --       --       --                8  
    Accreted dividends on all classes of                                                                                        
      preferred stock                              --        --       --        --       --       --       --              (21) 
    Accreted dividends on all classes of                                                                                        
      preferred stock not subject to                                                                                            
      mandatory redemption requirements            --        --       --        --       --       --       --                5  
    Payment of preferred stock dividends           --        --       --        --       --       --       --              (10) 
    Foreign currency translation                                                                                                
      adjustment                                   --        --       --        --       --       --       --               --  
    Change in unrealized holding gains                                                                                          
      for available-for-sale securities            --        --       --        --       --       --       --               --  
                                                -----       ---       --       ---       --       --       --           ------  
                                                                                                                                
                                                                                                                                
Balance at June 30, 1997                        $  --       746       85       229       21       --       --            4,493  
                                                =====       ===       ==       ===       ==       ==       ==           ======  
</TABLE>

<TABLE>
<CAPTION>
                                                                Unrealized                      Treasury
                                               Cumulative         holding                       stock and
                                                foreign          gains for                       common
                                                currency         available-                      stock
                                               translation        for-sale                       held by         Total
                                               adjustment,       securities,    Accumulated    subsidiaries,  stockholders'
                                               net of taxes      net of taxes     deficit        at cost        equity
                                              --------------   --------------   ------------  -------------  -----------
                                                                             amounts in millions

<S>                                           <C>               <C>              <C>            <C>            <C>  
Balance at January 1, 1997                          26               15             (176)          (314)         4,253

    Net loss                                        --               --             (212)            --           (212)
    Issuance of common stock for
      acquisitions                                  --               --               --             --            258
    Issuance of Series A TCI Group common
      stock in exchange for Series B TCI
      Group common
      stock (note 10)                               --               --               --           (530)            --
    Repurchase of common stock in public
       market                                       --               --               --            (13)           (13)
    Issuance of common stock by equity
       investee (note 5)                            --               --               --             --             99
    Issuance of common stock upon
      conversion of notes                           --               --               --             --              3
    Issuance of common stock to
      Tele-Communications, Inc. Employee
      Stock Purchase Plan                           --               --               --             --              8
    Accreted dividends on all classes of
      preferred stock                               --               --               --             --            (21)
    Accreted dividends on all classes of
      preferred stock not subject to
      mandatory redemption requirements             --               --               --             --              5
    Payment of preferred stock dividends            --               --               --             --            (10)
    Foreign currency translation
      adjustment                                   (11)              --               --             --            (11)
    Change in unrealized holding gains
      for available-for-sale securities             --               13               --             --             13
                                                ------      -----------     ------------      ---------      ---------

Balance at June 30, 1997                            15               28             (388)          (857)         4,372
                                                ======      ===========     ============      =========      =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      I-4
<PAGE>   6


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows
                                  (unaudited)
<TABLE>
<CAPTION>

                                                                                         Six months ended       
                                                                                              June 30,          
                                                                                        --------------------    
                                                                                         1997          1996     
                                                                                        --------  ----------    
                                                                                        amounts in millions     
                                                                                            (see note 4)
<S>                                                                                 <C>                   <C>  
Cash flows from operating activities:
   Net loss                                                                         $      (212)          (308)
   Adjustments to reconcile net loss to net cash provided by operating
      activities:
        Depreciation and amortization                                                       781            756
        Compensation (adjustment to compensation) relating to stock
           appreciation rights                                                               71             (5)
        Payments of obligation relating to stock appreciation rights                        (14)            (3)
        Share of losses of affiliates, net                                                  338            211
        Loss on early extinguishment of debt                                                 11             66
        Minority interests in earnings of consolidated subsidiaries, net                     94              4
        Gain on sale of stock by equity investee                                            (21)            --
        Gain on disposition of assets                                                       (62)           (10)
        Deferred income tax benefit                                                        (147)          (146)
        Payments of restructuring charges                                                   (19)            --
        Other noncash charges                                                                --              9
        Changes in operating assets and liabilities, net of the effect of
          acquisitions:
             Change in receivables                                                         (125)           (15)
             Change in inventories                                                           --             12
             Change in prepaids                                                             (92)           (15)
             Change in accrued interest                                                      (2)            34
             Change in other accruals and payables                                          164            (62)
                                                                                    -----------    -----------

                Net cash provided by operating activities                                   765            528
                                                                                    -----------    -----------

Cash flows from investing activities:
   Cash paid for acquisitions                                                              (206)          (156)
   Capital expended for property and equipment                                             (215)          (955)
   Additional investments in and loans to affiliates and others                            (184)          (576)
   Repayments of loans to affiliates                                                        174             16
   Proceeds from disposition of assets                                                      193            102
   Cash received in exchanges                                                                15             50
   Other investing activities                                                              (116)           (99)
                                                                                    -----------    -----------

               Net cash used in investing activities                                       (339)        (1,618)
                                                                                    -----------    -----------

Cash flows from financing activities:
   Borrowings of debt                                                                     1,238          4,674
   Repayments of debt                                                                    (2,030)        (4,781)
   Prepayment penalties                                                                      (7)           (60)
   Proceeds from issuance of common stock                                                     4             --
   Proceeds from issuance of Trust Preferred Securities                                     490            971
   Proceeds from issuance of subsidiary preferred stock                                      48            223
   Contributions by minority shareholders of subsidiaries                                     6            314
   Repurchase of Liberty Media Group common stock                                           (13)            --
   Payment for repurchase of subsidiary common stock                                        (42)            --
   Payment of preferred stock dividends                                                     (23)           (23)
   Payment of dividends on subsidiary preferred stock and Trust Preferred
      Securities                                                                            (85)           (12)
                                                                                    -----------    -----------

               Net cash provided (used) by financing activities                            (414)         1,306
                                                                                    -----------    -----------

               Net increase in cash and cash equivalents                                     12            216

               Cash and cash equivalents at beginning of period                             394            118
                                                                                    -----------    -----------

               Cash and cash equivalents at end of period                           $       406            334
                                                                                    ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      I-5
<PAGE>   7

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                                 June 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.

         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.

         Effective January 13, 1997, the Company issued a stock dividend to
         holders of Tele-Communications, Inc. Series A and Series B Liberty
         Media Group common Stock ("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.

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

(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.

                                                                    (continued)

                                      I-6
<PAGE>   8

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         TCI Group Series A and Series B Common Stock

         The loss attributable to Tele-Communications, Inc. Series A and Series
         B TCI Group common stock ("TCI Group Stock") stockholders per common
         share was computed by dividing net loss attributable to TCI Group
         Series A and Series B common stockholders by the weighted average
         number of common shares outstanding of TCI Group Stock during the
         period (682.9 million and 668.4 million for the three months ended
         June 30, 1997 and 1996, respectively; and 680.1 million and 663.2
         million for the six months ended June 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 (249.7
         million and 250.6 million for the three months ended June 30, 1997 and
         1996, respectively; and 249.6 million and 248.7 million for the six
         months ended June 30, 1997 and 1996, respectively). Common stock
         equivalents were not included in the computation because their
         inclusion would be anti-dilutive to TCI.

(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.

         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.

                                                                    (continued)

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

                   Notes to Consolidated Financial Statements


         From time to time, the Company uses certain derivative financial
         instruments to manage its foreign currency risks. Because the Company
         generally views its foreign operating subsidiaries and affiliates as
         long-term investments, the Company generally does not attempt to hedge
         existing investments in its foreign affiliates and subsidiaries.
         However, the Company may enter into forward contracts to reduce its
         exposure to short-term (generally no more than one year) movements in
         the exchange rates applicable to firm funding commitments that are
         denominated in currencies other than the U.S. dollar. When high
         correlation of changes in the market value of the forward contract and
         changes in the fair value of the firm commitment is probable, the
         forward contract is accounted for as a hedge. Changes in the market
         value of a forward contract that qualifies as a hedge and any gains or
         losses on early termination of such a forward contract are deferred
         and included in the measurement of the item (generally an investment
         in, or an advance to, a foreign affiliate) that results from the
         funding of such commitment. Market value changes in derivative
         financial instruments that do not qualify as hedges are recognized
         currently in the consolidated statements of operations. 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 $589 million and $492 million for the six
         months ended June 30, 1997 and 1996, respectively. Cash paid for
         income taxes during these periods was not material.

         Summary of cash paid for acquisitions and cash received in exchanges
         is as follows:
<TABLE>
<CAPTION>
                                                                                          Six months ended       
                                                                                               June 30,          
                                                                                         --------------------    
                                                                                          1997          1996     
                                                                                         --------  ----------    
                                                                                         amounts in millions     
<S>                                                                                  <C>           <C>
                   Cash paid for acquisitions:
                      Fair value of assets acquired                                  $   (1,123)        (1,330)
                      Liabilities assumed, net of current assets                            622            377
                      Deferred tax liability recorded in acquisitions                        34            244
                      Minority interests in equity of acquired entities                       3             92
                      Common stock and preferred stock issued in acquisitions               258            461
                                                                                     ----------    -----------

                           Cash paid for acquisitions                                $     (206)          (156)
                                                                                     ==========    ===========

                   Cash received in exchanges:
                      Aggregate cost basis of assets acquired                        $     (395)          (193)
                      Historical cost of assets exchanged                                   399            222
                      Gain recorded on exchange of assets                                    11             21
                                                                                     ----------    -----------

                           Cash received in exchanges                                $       15             50
                                                                                     ==========    ===========
</TABLE>


                                                                    (continued)

                                      I-8
<PAGE>   10

                   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 June 30,
         1997.

<TABLE>
<CAPTION>
                                                                                     June 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%                $       703
         Teleport Communications Group, Inc. ("TCG")                         30%                           271
         Home Shopping Network, Inc. ("HSN")                                19.9%                          144
         BDTV INC. and BDTV II INC.                                          99%                           201
         Flextech p.l.c. ("Flextech")                                       35.9%                          267
         Telewest Communications plc ("Telewest")                            27%                           401
         Various foreign equity investments (other than Telewest
              and Flextech)                                                various                         293
         Discovery Communications, Inc.                                      49%                           118
         QVC, Inc.                                                           43%                           116
</TABLE>

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

<TABLE>
<CAPTION>
                                                                          Six months ended       
                                                                               June 30,          
                                                                         --------------------    
                                                                          1997          1996     
                                                                         --------  ----------    
                                                                         amounts in millions     
<S>                                                                <C>                   <C>  
    Combined Operations   
       Revenue                                                     $     3,608           2,639
       Operating expenses                                               (3,444)         (2,296)
       Depreciation and amortization                                      (598)           (335)
                                                                   -----------    ------------

         Operating income (loss)                                          (434)              8

       Interest expense                                                   (368)           (239)
       Other, net                                                         (248)           (117)
                                                                   -----------    ------------

         Net loss                                                  $    (1,050)           (348)
                                                                   ===========    ============
</TABLE>

         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 six months
         ended June 30, 1997 and 1996, the Sprint PCS Partnerships contributed
         $155 million and $79 million, respectively, to the Company's share of
         affiliate losses. Such 1996 amount includes $34 million related to
         prior periods.
                                                                    (continued)

                                      I-9
<PAGE>   11

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Sprint PCS Partnerships have licenses, and have affiliated (or
         agreed to affiliate) with other entities (including PhillieCo) that
         have licenses, to provide PCS service to MTAs (or major trading areas)
         covering over 190 million "Pops" (or population equivalents) at
         December 31, 1996. Of the Sprint PCS Partnerships' licenses (which
         cover 30 (of 51) MTAs), 29 were acquired in an auction conducted by
         the Federal Communications Commission ("FCC") that ended in March
         1995, for an aggregate license cost of approximately $2.1 billion and
         one PCS license (covering the Omaha MTA) was contributed to the Sprint
         PCS Partnerships by an affiliate of Cox in February 1997. The Sprint
         PCS Partnerships have invested in (acquiring a 49% interest) and
         affiliated with American PCS, L.P. ("APC"), which owns a PCS license
         for and operates a PCS system in the Baltimore/Washington, D.C. MTA,
         and Cox California PCS, L.P. ("Cox-California"), which holds a PCS
         license for the Los Angeles/San Diego MTA and currently operates a PCS
         system in San Diego and Orange County, California. The Sprint PCS
         Partnerships may invest in other entities that hold PCS licenses.
         PhillieCo holds the license for the Philadelphia MTA, which was
         acquired at a license cost of $85 million and currently operates a PCS
         system in Philadelphia, Pennsylvania. During December 1996, the Sprint
         PCS Partnerships initiated the commercial launch of PCS service in
         seven markets. As of July 15, 1997, Sprint PCS had launched service in
         over 50 cities in the U.S.

         From inception through March 1997, the four partners have contributed
         approximately $3.0 billion to the Sprint PCS Partnerships (of which
         the Company contributed an aggregate of approximately $0.9 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 APC and Cox-California 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 $1.2 billion of such amount (of which the Company's
         share is approximately $0.4 billion) will be contributed by the end of
         the first 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-10
<PAGE>   12

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         During the six months ended June 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.

         Pursuant to an agreement among Liberty Media Corporation ("Liberty"),
         a subsidiary of TCI, Barry Diller and certain of their respective
         affiliates entered into in August 1995 and amended in August 1996 (the
         "BDTV Agreement"), Liberty contributed to BDTV INC. ("BDTV-I"), in
         August 1996, an option (the "Option") to purchase 2 million shares of
         Class B common stock of Silver King Communications, Inc. ("Silver
         King") (which shares represented voting control of Silver King at such
         time) and $3,500,000 in cash, representing the exercise price of the
         Option. BDTV-I is a corporation formed by Liberty and Mr. Diller
         pursuant to the BDTV Agreement, in which Liberty owns over 99% of the
         equity and none of the voting power (except for protective rights with
         respect to certain fundamental corporate actions) and Mr. Diller owns
         less than 1% of the equity and all of the voting power. BDTV-I
         exercised the Option shortly after its contribution, thereby becoming
         the controlling stockholder of Silver King. Such change in control of
         Silver King had been approved by the FCC in June 1996, subject,
         however, to the condition that the equity interest of Liberty in
         Silver King not exceed 21.37% without the prior approval of the FCC
         (the "FCC Order").

         Pursuant to an Agreement and Plan of Exchange and Merger entered into
         in August 1996, Silver King acquired HSN by merger of HSN with a
         subsidiary of Silver King in December 1996 (the "HSN Merger"). In
         order to effect the HSN Merger in compliance with the FCC Order,
         Liberty agreed to defer receiving certain shares of Silver King that
         would otherwise have become issuable to it in the HSN Merger until
         such time as it was permitted to own such shares. As a result, the HSN
         Merger was structured so that Liberty received (i) 7,809,111 shares of
         Class B common stock of Silver King, all of which shares Liberty
         contributed to BDTV II INC. ("BDTV-II"), (ii) the contractual right to
         be issued up to an additional 2,591,752 shares of Class B common stock
         of Silver King from time to time upon the occurrence of certain events
         which would allow Liberty to own additional shares in compliance with
         the FCC Order (including events resulting in the dilution of Liberty's
         percentage equity interest), and (iii) 739,141 shares of Class B
         common stock and 17,566,702 shares of common stock of HSN
         (representing approximately 19.9% of the equity of HSN). BDTV-II is a
         corporation formed by Liberty and Barry Diller pursuant to the BDTV
         Agreement, in which the relative equity ownership and voting power of
         Liberty and Mr. Diller are substantially the same as their respective
         equity ownership and voting power in BDTV-I.


                                                                    (continued)

                                     I-11
<PAGE>   13


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         As a result of the HSN Merger, HSN is no longer a subsidiary of
         Liberty and therefore, the financial results of HSN are no longer
         consolidated with the financial results of Liberty. Although Liberty
         no longer possesses voting control over HSN, it continues to have an
         indirect equity interest in HSN through its ownership of the equity
         securities of BDTV-I and BDTV-II as well as a direct interest in HSN
         which would be exchangeable into shares of Silver King. Accordingly,
         HSN, BDTV-I and BDTV-II are accounted for using the equity method.

         At March 31, 1997, the Company held a voting interest of approximately
         50% in Flextech, a company engaged in the distribution and production
         of programming for multichannel video distribution systems in the
         United Kingdom ("UK"). 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 ownership interest in Flextech to
         35.9%. 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 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
         $73 million and $70 million of the Company's share of its affiliates'
         losses during the six months ended June 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 $49 million and $37 million of the
         Company's share of its affiliates' losses in 1997 and 1996,
         respectively.

         During the six months ended June 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.

         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.


                                                                    (continued)

                                     I-12
<PAGE>   14


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(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.

         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 in consideration for the grant. If Time Warner
         exercises the option, the purchase price for Southern's business would
         be approximately $213 million, payable in a form which is mutually
         acceptable of cash or Time Warner stock. At June 30, 1997, the
         Company's investment in Time Warner, carried at cost, had an aggregate
         fair value of approximately $2.8 billion based upon the market value
         of the marketable common stock into which it is convertible.


                                                                    (continued)

                                     I-13
<PAGE>   15


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(7)      Acquisitions

         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 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.

         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 "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 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 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.

         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 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.


                                                                    (continued)

                                     I-14
<PAGE>   16


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(8)      Debt

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

<S>                                                                         <C>                        <C>  
           Notes payable (a)                                                $     9,061                9,308
           Bank credit facilities (b)                                             4,923                4,813
           Commercial paper                                                         570                  638
           Convertible notes (c)                                                     40                   43
           Other debt                                                               149                  124
                                                                            -----------     ----------------

                                                                            $    14,743               14,926
                                                                            ===========     ================
</TABLE>

         (a)      During the six months ended June 30, 1997, in order to reduce
                  future interest costs, the Company redeemed 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 Redemption"). In connection with the 1997
                  Redemption, 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 six months ended June 30, 1996, the Company
                  redeemed 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 Redemption"). In
                  connection with the 1996 Redemption, 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 second quarter of 1996, certain subsidiaries of
                  the Company terminated, at such subsidiaries' option, certain
                  revolving bank credit facilities with aggregate commitments
                  of approximately $2 billion. In connection with such
                  termination, the Company recognized a loss on early
                  extinguishment of debt of $4 million related to the
                  retirement of deferred loan costs.

                  At June 30, 1997, subsidiaries of the Company had
                  approximately $2.4 billion in unused lines of credit,
                  excluding amounts related to lines of credit which provide
                  availability to support commercial paper.

         (c)      These convertible notes, which are stated net of unamortized
                  discount of $167 million at June 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 six months ended June
                  30, 1997, certain of these notes were converted into
                  2,230,628 shares of Series A TCI Group Stock and 840,235
                  shares of Series A Liberty Group Stock. At June 30, 1997, the
                  notes were convertible, at the option of the holders, into an
                  aggregate of 34,853,145 shares of Series A TCI Group Stock
                  and 13,069,918 shares of Series A Liberty Group Stock.


                                                                    (continued)

                                     I-15
<PAGE>   17


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         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 $2.2 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 June 30, 1997, the fair value of the
         Company's debt was $14,796 million, as compared to a carrying value of
         $14,743 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 June 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 $2,050 million at June 30, 1997. During the six
         months ended June 30, 1997 and 1996, the Company's net payments
         pursuant to the Fixed Rate Agreements were $4 million and $8 million,
         respectively; and the Company's net receipts pursuant to the Variable
         Rate Agreements were $11 million and $8 million, respectively.

         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>           <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
                                                   -------     February 2000             5.8%-6.6%           300
                                                   $   410     March 2000                5.8%-6.0%           675
                                                   =======     September 2000               5.1%              75
                                                               March 2027                   9.7%             300
                                                               December 2036                9.7%             200
                                                                                                       ---------
                                                                                                       $   2,050
                                                                                                       =========
</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.


                                                                    (continued)

                                     I-16
<PAGE>   18


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The fair value of the Interest Rate Swaps is the estimated amount that
         the Company would pay or receive to terminate the agreements at June
         30, 1997, taking into consideration current interest rates and the
         current creditworthiness of the counterparties. At June 30, 1997, the
         Company would be required to pay an estimated $4 million to terminate
         the Fixed Rate Agreements and an estimated $25 million to terminate
         the Variable Rate Agreements.

         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.

(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 are included in minority interests in earnings of
         consolidated subsidiaries in the accompanying consolidated financial
         statements.


                                                                    (continued)

                                     I-17
<PAGE>   19



                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(10)     Stockholders' Equity

         In August 1995, TCI issued the Liberty Group Stock which reflects the
         separate performance of TCI's assets which produces and distributes 
         programming services ("Liberty Media Group").

         As of June 30, 1997, the TCI Group Stock reflects the separate
         performance of TCI's subsidiaries and assets not attributed to Liberty
         Media Group, including (i) TCI's Cable and Communications unit, (ii)
         TCI's International Cable and Programming Unit, Tele-Communications
         International, Inc. ("TINTA") and (iii) TCI's Technology/Venture
         Capital unit. Such subsidiaries and assets are referred to as "TCI
         Group".

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

         On March 12, 1997, the TCI stockholders authorized the TCI Board of
         Directors to issue two new series of the Company's common stock, par
         value $1.00 per share, (and a corresponding increase in the total
         number of authorized shares of common stock) to be designated
         Tele-Communications, Inc. Series A Telephony Group common stock and
         Tele-Communications, Inc. Series B Telephony Group common stock
         (collectively, the "Telephony Group Stock"). The Telephony Group
         Stock, if issued, would be intended to reflect the separate
         performance of Telephony Group, which initially consists of the
         Company's investments in certain entities engaged in the domestic
         wireline and wireless telephony businesses. A total of 750 million
         shares of Series A Telephony Group Stock and 75 million shares of
         Series B Telephony Group Stock were authorized. As of June 30, 1997,
         no shares of Telephony Group Stock have been issued.

         On May 14, 1997, the TCI Board of Directors authorized, subject to
         stockholder approval, the redesignation of Series A and Series B
         Telephony Group Stock as Tele-Communications, Inc. Series A and Series
         B TCI Ventures Group common stock ("TCI Ventures Group Stock"). The
         TCI Ventures Group Stock is intended to reflect the separate
         performance of the TCI Ventures Group, which will include
         substantially all of TCI Group's international and non-cable assets.
         TCI will amend the approved Telephony Group Stock to expand that group
         to track such assets, including TCI's investments in At Home
         Corporation, TINTA, United Video Satellite Group, Inc. and others. The
         tracking stock will be issued through an exchange offer whereby the
         Company's stockholders will have the opportunity to exchange their TCI
         Group Stock for TCI Ventures Group Stock in the ratio of one share of
         TCI Ventures Group Stock in exchange for each share of TCI Group Stock
         properly tendered.


                                                                    (continued)

                                     I-18
<PAGE>   20


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Treasury Stock and Common Stock Held by Subsidiaries, at Cost
<TABLE>
<CAPTION>

                                                             June 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 B TCI Group Stock               30,545,864   $          530               --   $           --
               Series A Liberty Group Stock              562,000               13               --               --

         Common stock held by subsidiaries is 
             summarized as follows:
               Series A TCI Group Stock              116,853,196              314      116,853,196              314
                                                                   --------------                    --------------
                                                                   $          857                    $          314
                                                                   ==============                    ==============
</TABLE>

         In June 1996, 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. At TCI's option, such quarterly settlements may be 
         satisfied 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 will treat all 
         amounts paid or received under this arrangement as increases or 
         decreases to equity.

         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 June 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.

                                                                    (continued)

                                     I-19
<PAGE>   21



                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Other

         At June 30, 1997, there were 125,616,994 shares of Series A TCI Group
         Stock and 29,915,040 shares of Series A Liberty 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, and one share of Series A Liberty Group Stock is reserved
         for each share of Series B Liberty 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 1,496.65 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.

(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 June 30, 1997,
         these agreements require minimum payments aggregating approximately
         $815 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.

         The Company has made certain financial commitments related to the
         acquisition of sports program rights through 2004. At June 30, 1997,
         such commitments aggregated $209 million.

                                                                    (continued)

                                     I-20
<PAGE>   22



                   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 $468 million at June 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.

         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 is
         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-21
<PAGE>   23

                   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:

         The Company is currently organized based upon four lines of business:
Domestic Cable and Communications; Programming; TINTA; and Technology/Venture
Capital. Within the Domestic Cable and Communications line of business, the
Company operates three strategic business units: Cable, Telephony and Internet.
The Company's organizational structure provides for financial and operational
independence in the four operating units, each under the direction of its own
chief executive officer, while maintaining the synergies and scale economies
provided by a common corporate parent. While none of TINTA, the
Technology/Venture Capital unit, the Telephony unit or the Internet unit is
currently significant to the Company as a whole, the Company believes each unit
has growth potential and each unit is unique enough in nature to warrant
separate operational focus.

         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.

         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.

                                                                    (continued)

                                     I-22
<PAGE>   24

                   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 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.

         During the second quarter of 1997 and 1996, in order to reduce future
interest costs, the Company redeemed certain notes payable which had an
aggregate principle balance of $190 million and $809 million, respectively. In
connection with such redemptions, 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 second quarter of 1996, certain subsidiaries of the
Company terminated, at such subsidiaries' option, certain revolving bank credit
facilities with aggregate commitments of approximately $2 billion. In
connection with such termination, the Company recognized a loss on early
extinguishment of debt of $4 million related to the retirement of deferred loan
costs.

         At June 30, 1997, subsidiaries of the Company had approximately $2.4
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.


                                                                    (continued)

                                     I-23
<PAGE>   25

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


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

         One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization, compensation relating
to stock appreciation rights and adjustments to compensation relating to stock
appreciation rights) ($1,454 million and $1,092 million for the six months
ended June 30, 1997 and 1996, respectively) to interest expense ($583 million
and $526 million for the six months ended June 30, 1997 and 1996,
respectively), is determined by reference to the consolidated statements of
operations. The Company's interest coverage ratio was 249% and 208% for the six
months ended June 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, 44% 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 ($765 million and $528 million
for the six months ended June 30, 1997 and 1996, respectively) reflects net
cash from the operations of the Company available for the Company's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow. Prior to 1997,
amounts expended by the Company for its investing activities generally have
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 $215 million during the six months ended June 30, 1997, as
compared to $955 million during the corresponding period in 1996. The Company
currently estimates that it will spend approximately $725 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.

         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.

                                                                    (continued)

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


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

         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 June 30, 1997, these agreements require minimum payments aggregating
approximately $815 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.

         The Company has made certain financial commitments related to the
acquisition of sports program rights through 2004. At June 30, 1997, such
commitments aggregated $209 million.

         The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $468
million at June 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.

         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.

         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 June 30, 1997 and (ii) pays variable interest rates
and receives fixed interest rates ranging from 4.8% to 9.7% on notional amounts
of $2,050 million at June 30, 1997. During the six months ended June 30, 1997
and 1996, the Company's net payments pursuant to the Fixed Rate Agreements were
$4 million and $8 million, respectively; and the Company's net receipts
pursuant to the Variable Rate Agreements were $11 million and $8 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.

         At June 30, 1997, after considering the net effect of the
aforementioned Interest Rate Swaps, the Company had $6,448 million (or 44%) of
fixed-rate debt and $8,295 million (or 56%) of variable-rate debt. Accordingly,
in an environment of rising interest rates, the Company could experience an 
increase in its interest expense. 

                                                                    (continued)

                                     I-25
<PAGE>   27

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


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

         In June 1996, 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 (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. 
At TCI's option, such quarterly settlements may be satisfied 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 will treat all amounts paid or received under this arrangement as
increases or decreases to equity.

         On March 12, 1997, the TCI stockholders authorized the TCI Board of
Directors to issue two new series of the Company's common stock, par value
$1.00 per share, (and a corresponding increase in the total number of
authorized shares of common stock) to be designated Tele-Communications, Inc.
Series A Telephony Group common stock and Tele-Communications, Inc. Series B
Telephony Group common stock. The Telephony Group Stock, if issued, would be
intended to reflect the separate performance of Telephony Group, which
initially consists of the Company's investments in certain entities engaged in
the domestic wireline and wireless telephony businesses. A total of 750 million
shares of Series A Telephony Group Stock and 75 million shares of Series B
Telephony Group Stock were authorized. As of June 30, 1997, no shares of
Telephony Group Stock have been issued.

         On May 14, 1997, the TCI Board of Directors authorized, subject to
stockholder approval, the redesignation of Series A and Series B Telephony
Group Stock as Tele-Communications, Inc. Series A and Series B TCI Ventures
Group common stock. The TCI Ventures Group Stock is intended to reflect the
separate performance of the TCI Ventures Group, which will include
substantially all of TCI Group's international and non-cable assets. TCI will
amend the approved Telephony Group Stock to expand that group to track such
assets, including TCI's investments in At Home Corporation, TINTA, United Video
Satellite Group, Inc. and others. The tracking stock will be issued through an
exchange offer whereby the Company's stockholders will have the opportunity to
exchange their TCI Group Stock for TCI Ventures Group Stock in the ratio of one
share of TCI Ventures Group Stock in exchange for each share of TCI Group Stock
properly tendered.

         During the second quarter of 1997, Liberty Media Group repurchased
562,000 shares of Series A Liberty Group Stock in open market transactions at
an aggregate cost of $13 million. Such shares are reflected as treasury stock
in the accompanying consolidated financial statements.

                                                                    (continued)

                                     I-26
<PAGE>   28

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


(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 $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.

(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 six months ended June 30, 1997, 64% 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.

         Revenue from communications and programming services increased 11% for
the three months ended June 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 an 8% increase in basic revenue and an 8% decrease in premium revenue. The
Company experienced a 10% increase in its average basic rate, a 2% decrease in
the number of average basic customers, a 7% increase in its average premium rate
and a 13% decrease in the number of average premium customers. The Company's
revenue from domestic cable operations aggregated $1,605 million and $1,430
million for the three months ended June 30, 1997 and 1996, respectively. In
addition, the Company's revenue from communications and programming services
increased 11% due to acquisitions, decreased 5% due to the Satellite Spin-off
and increased 4% due to the Company's domestic programming revenue (from Encore
Media Corporation and QE+Ltd.), international cable revenue and other revenue.
The remaining 2% decrease is due to the deconsolidation of the Company's sports
programming businesses.

                                                                    (continued)

                                     I-27
<PAGE>   29

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


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

         Revenue from communications and programming services increased 12% for
the six months ended June 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 4% of such increase primarily as a result
of a 10% increase in basic revenue and a 5% decrease in premium revenue. The
Company experienced an 11% increase in its average basic rate, a 1% decrease in
the number of average basic customers, a 4% increase in its average premium rate
and an 8% decrease in the number of average premium customers. The Company's
revenue from domestic cable operations aggregated $3,161 million and $2,763
million for the six months ended June 30, 1997 and 1996, respectively. In
addition, the Company's revenue from communications and programming services
increased 13% due to acquisitions, decreased 5% due to the Satellite Spin-off
and decreased 3% 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 3% 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 increased 4% and 5% for the three months and six
months ended June 30, 1997, respectively, as compared to the corresponding
periods of 1996. Exclusive of the effects of acquisitions, net of dispositions,
such expenses increased 6% and 7%, respectively. 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.

         Selling, general and administrative expenses decreased 18% and 20% for
the three months and six months ended June 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 increased less than 1% and
decreased 1%, respectively. The Company currently anticipates that marketing
expense will increase for the six months ended December 31, 1997, as compared
to the six months ended June 30, 1997.

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

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

                                                                    (continued)

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


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

         Other Income and Expenses

         Interest expense aggregated $294 million and $583 million for the
three months and six months ended June 30, 1997, respectively, as compared to
$265 million and $526 million for the corresponding periods in 1996. The
majority of such increase in interest expense is due to increased debt balances
as a result of the Viacom Acquisition in August 1996. See note 7 to the
accompanying consolidated financial statements.

         At June 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 June 30, 1997
of $401 million and comprised $73 million and $70 million of the Company's share
of its affiliates' losses during the six months ended June 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 $560 million at June 30, 1997 and accounted for $49
million and $37 million of the Company's share of its affiliates' losses for the
six months ended June 30, 1997 and 1996, respectively. Additionally, included in
share of losses of affiliates for the six months ended June 30, 1997 and 1996 is
$155 million and $79 million, respectively, attributable to the Sprint PCS
Partnerships. Such 1996 amount includes $34 million associated with prior
periods. The increase in the share of losses of the Sprint PCS Partnerships is
attributed primarily to general and administrative costs associated with the
start-up of operations and Sprint Spectrum's share of losses in APC.

         Minority interests in earnings of consolidated subsidiaries aggregated
$56 million and $94 million for the three months and six months ended June 30,
1997, respectively, as compared to $6 million and $4 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.

         During the six months ended June 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.

         Also, during the six months ended June 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-29
<PAGE>   31

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


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

         Net Loss

         The Company's net loss (before preferred stock dividend requirements)
of $154 million for the three months ended June 30, 1997 represents a change of
$33 million, as compared to the Company's net loss (before preferred stock
dividend requirements) of $187 million for the three months ended June 30,
1996. The Company's net loss (before preferred stock dividend requirements) of
$212 million for the six months ended June 30, 1997 represents a change of $96
million, as compared to the Company's net loss (before preferred stock dividend
requirements) of $308 million for the six months ended June 30, 1996. Such
changes are primarily the net result of an increase in operating income, a
decrease in loss on early extinguishment of debt and the gains recognized as a
result of the TCG and TSX transactions discussed above partially offset by
increases in share of losses of affiliates, dividends on preferred securities
issued by certain subsidiaries of the Company reflected as minority interests
in earnings of consolidated subsidiaries and interest expense.

                                     I-30
<PAGE>   32
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


                            Combined Balance Sheets
                                  (unaudited)

<TABLE>
<CAPTION>

                                                                             June 30,           December 31,
                                                                               1997                 1996
                                                                           --------------      -------------
Assets                                                                            amounts in millions

<S>                                                                        <C>                  <C>
Cash and cash equivalents                                                  $         25                   56

Trade and other receivables, net                                                    542                  423

Prepaid expenses                                                                     81                   80

Prepaid program rights                                                               47                   17

Committed film inventory                                                            111                  116

Investments in affiliates, accounted for under the equity method,
   and related receivables (note 5)                                               2,468                2,457

Property and equipment, at cost:
   Land                                                                              75                   77
   Distribution systems                                                          10,330               10,033
   Support equipment and buildings                                                1,526                1,529
                                                                           ------------         ------------
                                                                                 11,931               11,639
   Less accumulated depreciation                                                  4,413                4,121
                                                                           ------------         ------------
                                                                                  7,518                7,518
                                                                           ------------         ------------

Franchise costs                                                                  18,416               17,875
   Less accumulated amortization                                                  2,621                2,439
                                                                           ------------         ------------
                                                                                 15,795               15,436
                                                                           ------------         ------------

Other assets, net of amortization                                                   915                1,051
                                                                           ------------         ------------

                                                                           $     27,502               27,154
                                                                           ============         ============
</TABLE>



                                                                    (continued)


                                     I-31
<PAGE>   33

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


                       Combined Balance Sheets, continued
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                             June 30,           December 31,
                                                                               1997                 1996
                                                                         -------------        --------------
Liabilities and Combined Equity                                                   amounts in millions
<S>                                                                      <C>                  <C>
Accounts payable                                                         $          98                  216

Accrued interest                                                                   272                  274

Accrued programming expense                                                        295                  313

Other accrued expenses                                                           1,020                  787

Debt (note 7)                                                                   14,743               14,924

Deferred income taxes                                                            5,355                5,430

Other liabilities                                                                  297                  235
                                                                         -------------        -------------

      Total liabilities                                                         22,080               22,179
                                                                         -------------        -------------

Minority interests in equity of consolidated subsidiaries                        1,324                1,454

Redeemable preferred stock                                                         661                  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 equity (note 9):
   Combined equity, including preferred stocks of
      Tele-Communications, Inc. ("TCI")                                          1,963                1,864
   Cumulative foreign currency translation adjustment, 
      net of taxes                                                                  15                   26
   Unrealized holding gains for available-for-sale securities, net
      of taxes                                                                      28                   15
   Due from Liberty Media Group                                                    (69)                 (42)
                                                                         -------------        -------------

        Combined equity                                                          1,937                1,863
                                                                         -------------        -------------

Commitments and contingencies (note 12)

                                                                         $      27,502               27,154
                                                                         =============        =============
</TABLE>


See accompanying notes to combined financial statements.

                                     I-32
<PAGE>   34

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

                       Combined Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>
                                                        Three months ended                  Six months ended
                                                            June 30,                             June 30,
                                               ------------------------------      ------------------------------
                                                    1997               1996              1997              1996
                                               ------------      ------------      ------------     -------------
                                                          amounts in millions, except per share amounts

<S>                                                <C>                  <C>               <C>               <C>  
Revenue                                            $  1,851             1,654             3,642             3,123

Operating costs and expenses:
   Operating                                            716               649             1,392             1,194
   Programming charges from Liberty Media
      Group (note 10)                                    24                28                47                57
   Selling, general and administrative                  410               462               791               870
   Charges to Liberty Media Group (note 10)              (2)               (6)               (4)              (12)
   Compensation (adjustment to compensation)
      relating to stock appreciation rights
      (notes 9 and 12)                                   41                (3)               51               (11)
   Depreciation                                         261               256               501               502
   Amortization                                         145               117               278               222
                                                   --------          --------          --------         ---------         
                                                      1,595             1,503             3,056             2,822
                                                   --------          --------          --------         ---------         

        Operating income                                256               151               586               301

Other income (expense):
   Interest expense                                    (293)             (258)             (582)             (513)
   Interest and dividend income                          10                12                20                20
   Share of losses of affiliates, net
      (note 5)                                         (183)              (98)             (342)             (221)
   Loss on early extinguishment of debt
      (note 7)                                          (11)              (66)              (11)              (66)
   Minority interests in earnings of
      consolidated subsidiaries, net                    (57)               (6)              (90)               (1)
   Gain on sale of stock by equity investee
      (note 5)                                           21                --                21                --
   Gain on disposition of assets (note 5)                43                --                62                 8
   Other, net                                            (6)               (5)               (8)               (1)
                                                   --------          --------          --------         ---------         
                                                       (476)             (421)             (930)             (774)
                                                   --------          --------          --------         ---------         

         Loss before income taxes                      (220)             (270)             (344)             (473)

Income tax benefit                                       60                79               110               146
                                                   --------          --------          --------         ---------         

         Net loss                                      (160)             (191)             (234)             (327)

Dividend requirements on preferred stocks               (11)               (9)              (21)              (18)
                                                   --------          --------          --------         ---------         

         Net loss attributable to common
             stockholders                          $   (171)             (200)             (255)             (345)
                                                   ========          ========          ========         =========

Loss attributable to common stockholders 
   per common share (note 2)                       $   (.25)             (.30)             (.37)             (.52)
                                                   ========         =========         =========         =========
</TABLE>

See accompanying notes to combined financial statements.

                                     I-33
<PAGE>   35

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




                          Combined Statement of Equity

                         Six months ended June 30, 1997
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                                                    Unrealized 
                                                                     Combined        Cumulative       holding  
                                                                      equity,          foreign       gains for    Due
                                                                     including        currency      available-   from
                                                                     preferred       translation     for-sale   Liberty
                                                                     stocks of       adjustment,    securities,  Media     Combined
                                                                        TCI         net of taxes   net of taxes  Group      equity
                                                                     ---------      ------------   ------------  ------    --------
                                                                                        amounts in millions
<S>                                                                     <C>              <C>         <C>         <C>          <C>  
Balance at January 1, 1997                                              $ 1,864          26          15          (42)         1,863

   Net loss                                                                (234)         --          --           --           (234)
   Purchase of programming from Liberty Media Group                          --          --          --           47             47
   Cost allocations to Liberty Media Group                                   --          --          --           (4)            (4)
   Adjustment to allocation of compensation relating
      to stock appreciation rights                                           --          --          --          (16)           (16)
   Intergroup tax allocation to Liberty Media Group                          --          --          --          (22)           (22)
   Net cash transfers to Liberty Media Group                                 --          --          --          (32)           (32)
   Change in unrealized gains for available-for-sale
      securities                                                             --          --          13           --             13
   Foreign currency translation adjustment                                   --         (11)         --           --            (11)
   Accreted dividends on TCI preferred stock subject
      to mandatory redemption requirements                                  (16)         --          --           --            (16)
   Payment of TCI preferred stock dividends                                 (10)         --          --           --            (10)
   Issuance of TCI Group common stock for acquisition
      and investment                                                        258          --          --           --            258
   Issuance of common stock by equity investee (note 5)                      99          --          --           --             99
   Issuance of TCI common stock upon conversion of
      notes                                                                   2          --          --           --              2
   Issuance of TCI Group common stock to TCI
      Employee Stock Purchase Plan                                            6          --          --           --              6
   Repayment of intercompany amount due to
      Liberty/TINTA LLC                                                      (6)         --          --           --             (6)
                                                                        -------         ---         ---         ----         ------

Balance at June 30, 1997                                                $ 1,963          15          28          (69)         1,937
                                                                        =======         ===         ===         ====         ======
</TABLE>

See accompanying notes to combined financial statements.

                                     I-34

<PAGE>   36







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


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

<S>                                                                                   <C>                 <C>  
Cash flows from operating activities:
   Net loss                                                                           $    (234)          (327)
   Adjustments to reconcile net loss to net cash provided by operating activities:
        Depreciation and amortization                                                       779            724
        Compensation (adjustment to compensation) relating to stock appreciation
           rights                                                                            51            (11)
        Payments of obligation relating to stock appreciation rights                        (14)            (2)
        Share of losses of affiliates, net                                                  342            221
        Loss on early extinguishment of debt                                                 11             66
        Minority interests in earnings of consolidated subsidiaries, net                     90              1
        Gain on sale of stock by equity investee                                            (21)            --
        Gain on disposition of assets                                                       (62)            (8)
        Intergroup tax allocation                                                           (22)            (8)
        Deferred income tax benefit                                                        (138)          (152)
        Payments of restructuring charges                                                   (19)            --
        Other noncash credits                                                                --             (3)
        Changes in operating assets and liabilities, net of the effect of
          acquisitions:
             Change in receivables                                                         (127)            15
             Change in prepaids                                                             (95)           (22)
             Change in accruals and payables                                                157            (56)
             Change in accrued interest                                                      (2)            37
                                                                                      ---------      ---------       

                Net cash provided by operating activities                                   696            475
                                                                                      ---------      ---------       

Cash flows from investing activities:
   Cash paid for acquisitions                                                              (206)          (101)
   Capital expended for property and equipment                                             (215)          (949)
   Additional investments in and loans to affiliates and others                            (162)          (574)
   Repayment of loans to affiliates                                                         173             16
   Proceeds from dispositions of assets                                                     193             55
   Cash received in exchanges                                                                15             50
   Change in due from Liberty Media Group                                                    11              9
   Other investing activities                                                              (120)           (72)
                                                                                      ---------      ---------       

                Net cash used in investing activities                                      (311)        (1,566)
                                                                                      ---------      ---------       

Cash flows from financing activities:
   Borrowings of debt                                                                     1,236          4,472
   Repayments of debt                                                                    (2,027)        (4,547)
   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                                      48            223
   Contributions by minority shareholders of subsidiaries                                     7             --
   Distributions to minority shareholders of subsidiaries                                   (10)            --
   Payment for repurchase of subsidiary common stock                                        (42)            --
   Payment of preferred stock dividends                                                     (23)           (23)
   Payment of dividends on subsidiary preferred stock and Trust Preferred
      Securities                                                                            (85)           (12)
   Repayment of intercompany amount due to Liberty/TINTA LLC                                 (6)            --
                                                                                      ---------      ---------       

                Net cash provided (used) by financing activities                           (416)         1,024
                                                                                      ---------      ---------       

                Net decrease in cash and cash equivalents                                   (31)           (67)

                Cash and cash equivalents at beginning of period                             56             77
                                                                                      ---------      ---------       

                Cash and cash equivalents at end of period                            $      25             10
                                                                                      =========      =========
</TABLE>

See accompanying notes to combined financial statements.

                                     I-35
<PAGE>   37

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

                     Notes to Combined Financial Statements

                                 March 31, 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 Series A TCI Group and Series B TCI
         Group common stock ("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 "Distribution") represented one hundred percent of the equity
         value attributable to Liberty Media Group. Issuance of the Liberty
         Group Stock did not result in any transfer of assets or liabilities of
         TCI or any of its subsidiaries or affect the rights of holders of
         TCI's or any of its subsidiaries' debt.

         As of June 30, 1997, the TCI Group Stock reflects the separate
         performance of TCI's subsidiaries and assets not attributed to Liberty
         Media Group, including (i) TCI's Domestic Cable and Communications
         unit, (ii) TCI's International Cable and Programming unit,
         Tele-Communications International, Inc. ("TINTA") and (iii) TCI's
         Technology/Venture Capital unit. Such subsidiaries and assets are
         collectively referred to as "TCI Group".

         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 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-36
<PAGE>   38

                                  "TCI 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 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.

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

(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.

         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 (682.9 million and
         668.4 million for the three months ended June 30, 1997 and 1996,
         respectively; and 680.1 million and 663.2 million for the six months
         ended June 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.

                                                                    (continued)

                                     I-37
<PAGE>   39
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         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.

         From time to time, TCI Group uses certain derivative financial
         instruments to manage its foreign currency risks. Because TCI Group
         generally views its foreign operating subsidiaries and affiliates as
         long-term investments, TCI Group generally does not attempt to hedge
         existing investments in its foreign affiliates and subsidiaries.
         However, TCI Group 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, TCI
         Group's use of forward contracts, as described above, has not had a
         material impact on TCI Group's financial position or results of
         operations.

(4)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $589 million and $476 million for the six
         months ended June 30, 1997 and 1996, respectively. Cash paid for
         income taxes during these periods was not material.

                                                                    (continued)

                                     I-38
<PAGE>   40

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

                     Notes to Combined Financial Statements

         Summary of cash paid for acquisitions and cash received in exchanges
         is as follows:
<TABLE>
<CAPTION>

                                                                          Six months ended
                                                                              June 30,
                                                                         -------------------
                                                                         1997           1996
                                                                         ---------   -------
                                                                         amounts in millions

<S>                                                                    <C>                <C>    
     Cash paid for acquisitions:
        Fair value of assets acquired                                  $   (1,123)        (1,275)
        Liabilities assumed, net of current assets                            622            377
        Deferred tax liability recorded in acquisitions                        34            244
        Minority interests in equity of acquired entities                       3             92
        Common stock and preferred stock issued in acquisitions               258            461
                                                                       ----------     ----------

             Cash paid for acquisitions                                $     (206)          (101)
                                                                       ==========     ==========

     Cash received in exchanges:
        Aggregate cost basis of assets acquired                        $     (395)          (193)
        Historical cost of assets exchanged                                   399            222
        Gain recorded on exchange of assets                                    11             21
                                                                      -----------     ----------

             Cash received in exchanges                                $       15             50
                                                                       ==========     ==========
</TABLE>


(5)      Investments in Affiliates

         TCI Group has various investments accounted for under the equity
         method. The following table includes TCI Group's carrying value and
         percentage ownership of the more significant investments at June 30,
         1997.

<TABLE>
<CAPTION>
                                                                                        June 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%                 $       703
         Teleport Communications Group, L.P. ("TCG")                         30%                            271
         Flextech p.l.c. ("Flextech")                                       35.9%                           267
         Telewest Communications plc ("Telewest")                            27%                            401
         Various foreign equity investments (other than Telewest
              and Flextech)                                                various                          293
</TABLE>


                                                                    (continued)

                                     I-39
<PAGE>   41

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

                     Notes to Combined Financial Statements


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

<TABLE>
<CAPTION>
                                                Six months ended
  Combined Operations                               June 30,
  -------------------                    ---------------------------
                                              1997         1996
                                         -------------  ------------
                                             amounts in millions

<S>                                       <C>               <C>  
    Revenue                               $    1,334          1,186
    Operating expenses                        (1,444)        (1,090)
    Depreciation and amortization               (479)          (259)
                                          ----------     ----------

        Operating loss                          (589)          (163)

    Interest expense                            (302)          (185)
    Other, net                                  (152)           (50)
                                          ----------     ----------

        Net loss                          $   (1,043)          (398)
                                          ==========     ==========
</TABLE>

         TCI Group 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 TCI Group. The partners of
         PhillieCo are subsidiaries of Sprint, Cox and TCI Group. TCI Group has
         a 30% partnership interest in each of the Sprint PCS Partnerships and
         a 35% interest as a partner in PhillieCo. During the six months ended
         June 30, 1997 and 1996, the Sprint PCS Partnerships contributed $155
         million and $79 million, respectively, to TCI Group's share of
         affiliate losses. Such 1996 amount includes $34 million related to
         prior periods.

                                                                    (continued)


                                      I-40
<PAGE>   42


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

                     Notes to Combined Financial Statements


         The Sprint PCS Partnerships have licenses, and have affiliated (or
         agreed to affiliate) with other entities (including PhillieCo) that
         have licenses, to provide PCS service to MTAs (or major trading areas)
         covering over 190 million "Pops" (or population equivalents) at
         December 31, 1996. Of the Sprint PCS Partnerships' licenses (which
         cover 30 (of 51) MTAs), 29 were acquired in an auction conducted by
         the Federal Communications Commission ("FCC") that ended in March
         1995, for an aggregate license cost of approximately $2.1 billion and
         one PCS license (covering the Omaha MTA) was contributed to the Sprint
         PCS Partnerships by an affiliate of Cox in February 1997. The Sprint
         PCS Partnerships have invested in (acquiring a 49% interest) and
         affiliated with American PCS, L.P. ("APC"), which owns a PCS license
         for and operates a PCS system in the Baltimore/Washington, D.C. MTA,
         and Cox California PCS, L.P. ("Cox-California"), which holds a PCS
         license for the Los Angeles/San Diego MTA and currently operates a PCS
         system in San Diego and Orange County, California. The Sprint PCS
         Partnerships may invest in other entities that hold PCS licenses.
         PhillieCo holds the license for the Philadelphia MTA, which was
         acquired at a license cost of $85 million and currently operates a PCS
         system in Philadelphia, Pennsylvania. During December 1996, the Sprint
         PCS Partnerships initiated the commercial launch of PCS service in
         seven markets. As of July 15, 1997, Sprint PCS had launched service in
         over 50 cities in the U.S.

         From inception through March 1997, the four partners have contributed
         approximately $3.0 billion to the Sprint PCS Partnerships (of which
         TCI Group contributed an aggregate of approximately $0.9 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 APC and Cox-California 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. TCI Group expects that the remaining
         approximately $1.2 billion of such amount (of which TCI Group's share
         is approximately $0.4 billion) will be contributed by the end of the
         first quarter of 1998 (although there can be no assurance that any
         additional capital will be contributed). TCI 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, TCI Group currently believes that such agreement will not
         result in TCI Group'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-41
<PAGE>   43


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

                     Notes to Combined Financial Statements


         During the six months ended June 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, TCI Group's ownership interest in TCG was reduced from
         approximately 31% to approximately 30%. Accordingly, TCI Group
         recognized a gain amounting to $21 million (before deducting deferred
         income tax expense of approximately $8 million).

         At March 31, 1997, TCI Group held a voting interest of approximately
         50% in Flextech, a company engaged in the distribution and production
         of programming for multichannel video distribution systems in the
         United Kingdom ("UK"). 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 TCI Group's ownership interest in Flextech to
         35.9%. As a result of such dilution TCI Group recorded a $152 million
         increase to the carrying value of TCI Group's investment in Flextech,
         a $53 million increase to deferred income tax liability and a $99
         million increase to equity. No gain was recognized due primarily to
         certain contingent obligations of TCI Group 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
         $73 million and $70 million of TCI Group's share of its affiliates'
         losses during the six months ended June 30, 1997 and 1996,
         respectively. In addition to TCI Group's investments in Telewest and
         Flextech, TCI Group has other less significant equity method
         investments in video distribution and programming businesses located in
         the UK, other parts of Europe, Asia, Latin America and certain other
         foreign countries. In the aggregate, Flextech and such other equity
         method investments accounted for $49 million and $37 million of TCI
         Group's share of its affiliates' losses in 1997 and 1996, respectively.

         During the six months ended June 30, 1997, TSX Corporation ("TSX"), an
         equity affiliate of TCI Group, and Antec Corporation ("Antec") entered
         into a business combination with Antec being the surviving entity. In
         connection with this transaction, TCI Group 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 its
         investment in TSX at the date of the transaction ($23 million). Upon
         completion of this transaction, TCI Group's ownership interest
         decreased from an approximate 45% interest in TSX to an approximate
         16% ownership interest in Antec. TCI Group accounts for its investment
         in Antec using the cost method.

         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.

                                                                    (continued)

                                     I-42
<PAGE>   44


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

                     Notes to Combined Financial Statements


(6)      Acquisitions

         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.

         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 "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 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
         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.

         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 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.


                                                                    (continued)

                                     I-43
<PAGE>   45


                                  "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>
                                         June 30,    December 31,
                                          1997           1996
                                         ----------  ------------
                                           amounts in millions

<S>                                     <C>             <C>  
           Notes payable (a)            $  9,061        9,308
           Bank credit facilities (b)      4,923        4,811
           Commercial paper                  570          638
           Convertible notes (c)              40           43
           Other debt                        149          124
                                        --------     --------

                                        $ 14,743       14,924
                                        ========     ========
</TABLE>

         (a)      During the six months ended June 30, 1997, in order to reduce
                  future interest costs, TCI Group redeemed 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 Redemption"). In connection with the 1997
                  Redemption, 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 six months ended June 30, 1996, TCI Group redeemed
                  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 Redemption"). In connection with
                  the 1996 Redemption, 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 second quarter of 1996, certain subsidiaries of
                  TCI Group terminated, at such subsidiaries' option, certain
                  revolving bank credit facilities with aggregate commitments
                  of approximately $2 billion. In connection with such
                  termination, TCI Group recognized a loss on early
                  extinguishment of debt of $4 million related to the
                  retirement of deferred loan costs.

                  At June 30, 1997, subsidiaries of TCI Group had approximately
                  $2 billion in unused lines of credit, excluding amounts
                  related to lines of credit which provide availability to
                  support commercial paper.

         (c)      These convertible notes, which are stated net of unamortized
                  discount of $167 million and $178 million at June 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 June 30,
                  1997, the notes were convertible, at the option of the
                  holders, into an aggregate of 34,853,145 shares of Series A
                  TCI Group Stock and 13,069,918 shares of Series A Liberty
                  Group Stock.

                                                                    (continued)

                                     I-44
<PAGE>   46


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

                     Notes to Combined Financial Statements


         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 June 30, 1997, the fair value of TCI Group's debt was
         $14,796 million, as compared to a carrying value of $14,743 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 June 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 $2,050 million at June 30, 1997. During the six
         months ended June 30, 1997 and 1996, TCI Group's net payments pursuant
         to the Fixed Rate Agreements were $4 million and $8 million,
         respectively; and TCI Group's net receipts pursuant to the Variable
         Rate Agreements were $11 million and $8 million, respectively.

         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
                                                   -------     February 2000             5.8%-6.6%           300
                                                               March 2000                5.8%-6.0%           675
                                                   $   410     September 2000               5.1%              75
                                                   =======     March 2027                   9.7%             300
                                                               December 2036                9.7%             200
                                                                                                       ---------

                                                                                                       $   2,050
                                                                                                       =========
</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.

                                                                    (continued)

                                     I-45
<PAGE>   47


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

                     Notes to Combined Financial Statements


         The fair value of the Interest Rate Swaps is the estimated amount that
         TCI Group would pay or receive to terminate the agreements at June 30,
         1997, taking into consideration current interest rates and the current
         creditworthiness of the counterparties. At June 30, 1997, TCI Group
         would be required to pay an estimated $4 million to terminate the
         Fixed Rate Agreements and an estimated $25 million to terminate the
         Variable Rate Agreements.

         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.

(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 are included in minority interests in earnings of
         consolidated subsidiaries in the accompanying combined financial
         statements.

                                                                    (continued)

                                     I-46
<PAGE>   48


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

                     Notes to Combined Financial Statements


(9)      Combined Equity

         General

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

         In June 1996, 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. At TCI
         Group's option, such quarterly settlements may be satisfied 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 will treat all amounts
         paid or received under this arrangement as increases or decreases to
         equity.

         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 and Series A Liberty
         Group Stock and, ultimately, on the final determination of market
         value when the rights are exercised or the restricted shares are
         vested.

(10)     Transactions with Liberty Media Group and Other Related Parties

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

         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 $2
         million for the six months ended June 30, 1997 and 1996, respectively.

                                                                    (continued)

                                     I-47
<PAGE>   49


                                  "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 a 25 year affiliation
         agreement with a subsidiary of Encore Media Group pursuant to which TCI
         Group will pay fixed monthly amounts 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. Upon
         consummation of the aforementioned transactions, the operations of
         STARZ! will be included in the consolidated financial results of
         Liberty Media Group.

         Entities included in Liberty Media Group lease satellite transponder
         facilities from TCI Group. Charges by TCI Group for such arrangements
         and other related operating expenses for the six months ended June 30,
         1997 and 1996, aggregated $4 million and $7 million, respectively.

         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 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.

                                                                    (continued)

                                     I-48
<PAGE>   50


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

                     Notes to Combined Financial Statements


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

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

         Borrowings from or loans to Liberty Media 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. Because TCI Group and Liberty Media Group are both 100% owned
         by TCI, amounts due from Liberty Media Group have been classified as a
         component of combined equity.

         A tax sharing agreement (the "Tax Sharing Agreement") among TCI Group
         and certain other subsidiaries of TCI was implemented effective July
         1, 1995. The Tax Sharing Agreement formalizes certain elements of a
         pre-existing tax sharing arrangement and contains additional
         provisions regarding the allocation of certain consolidated income tax
         attributes and the settlement procedures with respect to the
         intercompany allocation of current tax attributes. The Tax Sharing
         Agreement encompasses U.S. federal, state, local and foreign tax
         consequences and relies upon the U.S. Internal Revenue Code of 1986 as
         amended, and any applicable state, local and foreign tax law and
         related regulations. Beginning on the July 1, 1995 effective date, TCI
         Group will be responsible to TCI for its share of current consolidated
         income tax liabilities. TCI will be responsible to TCI Group to the
         extent that TCI Group's income tax attributes generated after the
         effective date are utilized by TCI to reduce its consolidated income
         tax liabilities. Accordingly, all tax attributes generated by TCI
         Group's operations after the effective date including, but not limited
         to, net operating losses, tax credits, deferred intercompany gains,
         and the tax basis of assets are inventoried and tracked for the
         entities comprising TCI Group.

                                                                    (continued)

                                     I-49
<PAGE>   51


                                  "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.

(12)     Commitments and Contingencies

         TCI Group has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $468 million at June 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 is obligated to pay fees for the rights to exhibit certain
         films that are released by various producers through December 31, 2005
         (the "Film Licensing Obligations"). Based on customer levels at June
         30, 1997, these agreements require minimum payments aggregating $500
         million. The aggregate amount of the Film Licensing Obligations 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, TCI Group's
         required aggregate payments under the Film Licensing Obligations could
         prove to be significant.

         TCI Group has made certain financial commitments related to the
         acquisition of sports program rights through 2004. At June 30, 1997,
         such commitments aggregated $209 million.

         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.

                                                                    (continued)

                                     I-50
<PAGE>   52


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

                     Notes to Combined Financial Statements


         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-51
<PAGE>   53


                                  "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. The
issuance of the Liberty Group Stock did not result in any transfer of assets or
liabilities of TCI or any of its subsidiaries or affect the rights of holders
of TCI's or any of its subsidiaries' debt.

         As of June 30, 1997, the TCI Group Stock reflects the separate
performance of TCI Group, which is generally comprised of the subsidiaries and
assets not attributed to Liberty Media Group, including (i) TCI's Domestic
Cable and Communications unit, (ii) TCI's International Cable and Programming
unit and (iii) TCI's Technology/Venture Capital unit.

         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 did not affect the rights
of creditors of TCI.

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

                                                                    (continued)

                                     I-52
<PAGE>   54



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


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

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

         Borrowings from or loans to TCI 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.

         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.

         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.


                                                                    (continued)

                                     I-53
<PAGE>   55



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


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

         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 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.

         During the second quarter of 1997 and 1996, in order to reduce future
interest costs, TCI Group redeemed certain notes payable which had an aggregate
principle balance of $190 million and $809 million, respectively. In connection
with such redemptions, 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 second quarter of 1996, certain subsidiaries of TCI
Group terminated, at such subsidiaries' option, certain revolving bank credit
facilities with aggregate commitments of approximately $2 billion. In
connection with such termination, TCI Group recognized a loss on early
extinguishment of debt of $4 million related to the retirement of deferred loan
costs.

         At June 30, 1997, TCI Group had approximately $2 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.

                                                                    (continued)

                                     I-54
<PAGE>   56



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


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

         One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization, compensation relating
to stock appreciation rights and adjustments to compensation relating to stock
appreciation rights ($1,416 million and $1,014 million for the six months ended
June 30, 1997 and 1996, respectively) to interest expense ($582 million and
$513 million for the six months ended June 30, 1997 and 1996, respectively), is
determined by reference to the combined statements of operations. TCI Group's
interest coverage ratio was 243% and 198% for the six months ended June 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, 44% 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 generally ($696 million and $475
million for the six months ended June 30, 1997 and 1996, respectively) reflects
net cash from the operations of TCI Group available for TCI Group's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow. Prior to 1997,
amounts expended by TCI Group for its investing activities have 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 $215 million during the six months ended June 30, 1997, as
compared to $949 million during the corresponding period in 1996. TCI Group
currently estimates that it will spend approximately $725 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.

         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.

                                                                    (continued)

                                     I-55
<PAGE>   57


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


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

         TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $468
million at June 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 is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through December 31, 2005. Based
on customer levels at June 30, 1997, these agreements require minimum payments
aggregating approximately $500 million. The aggregate amount of the Film
Licensing Obligations 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, TCI Group's required
aggregate payments under the Film Licensing Obligations could prove to be
significant.

         TCI Group has made certain financial commitments related to the
acquisition of sports program rights through 2004. At June 30, 1997, such
commitments aggregated $209 million.

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

         In order to achieve the desired balance between variable and fixed
rate indebtedness 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 June 30, 1997 and (ii) pays variable interest rates
and receives fixed interest rates ranging from 4.8% to 9.7% on notional amounts
of $2,050 million at June 30, 1997. During the six months ended June 30, 1997
and 1996, TCI Group's net payments pursuant to the Fixed Rate Agreements were
$4 million and $8 million, respectively; and TCI Group's net receipts pursuant
to the Variable Rate Agreements were $11 million and $8 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.

         At June 30, 1997, after considering the net effect of the
aforementioned Interest Rate Swaps, TCI Group had $6,448 million (or 44%) of
fixed-rate debt and $8,295 million (or 56%) of variable-rate debt. Accordingly,
in an environment of rising interest rates, TCI Group could experience an 
increase in its interest expense.

                                                                    (continued)

                                     I-56
<PAGE>   58



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


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

         In June 1996, 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 (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. At TCI Group's option, such
quarterly settlements may be satisfied 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 will treat all amounts paid or
received under this arrangement as increases or decreases to equity.

         On March 12, 1997, the TCI stockholders authorized the Board to issue
two new series of TCI's common stock, par value $1.00 per share, (and a
corresponding increase in the total number of authorized shares of common
stock) to be designated Tele-Communications, Inc. Series A Telephony Group
common stock and Tele-Communications, Inc. Series B Telephony Group common
stock (collectively, the "Telephony Group Stock"). The Telephony Group Stock,
if issued, would be intended to reflect the separate performance of Telephony
Group, which initially consists of TCI's investments in certain entities
engaged in the domestic wireline and wireless telephony businesses. A total of
750 million shares of Series A Telephony Group Stock and 75 million shares of
Series B Telephony Group Stock were authorized. As of June 30, 1997, no shares
of Telephony Group Stock have been issued.

         Upon authorization of the Telephony Group Stock and until shares of
Telephony Group Stock are issued, the investments attributed to Telephony Group
will be included in TCI Group. The TCI Group Stock will continue to reflect all
of the assets, liabilities and common stockholders' equity value of TCI
attributable to Telephony Group, in addition to the separate performance of
TCI's domestic cable distribution business, telephony distribution and
communications business (other than the investments attributed to Telephony
Group), international cable, telephony and programming businesses,
technology/venture capital business, and any other business of TCI not
attributed to either Liberty Media Group or Telephony Group.

                                                                    (continued)

                                     I-57
<PAGE>   59



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


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

         On May 14, 1997, the Board authorized, subject to shareholder
approval, the redesignation of Series A and Series B Telephony Group Stock as
Tele-Communications, Inc. Series A and Series B TCI Ventures Group common stock
("TCI Ventures Group Stock"). The TCI Ventures Group Stock is intended to
reflect the separate performance of the TCI Ventures Group, which will
substantially be all of TCI Group's international and non-cable assets. TCI
will amend the approved Telephony Group Stock to expand that group to track
such assets, including TCI's investments in At Home Corporation, TINTA, United
Video Satellite Group, Inc. and others. The tracking stock will be issued
through an exchange offer whereby TCI Group's shareholders will have the
opportunity to exchange their TCI Group Stock for TCI Ventures Group Stock in
the ratio of one share of TCI Ventures Group Stock in exchange for each share
of TCI Group Stock properly tendered.

         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.

(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 six months ended June 30, 1997, 66% 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.

                                                                    (continued)

                                     I-58
<PAGE>   60



                                  "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 three months ended June 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 3%
of such increase primarily as a result of an 8% increase in basic revenue and an
8% decrease in premium revenue. TCI Group experienced a 10% increase in its
average basic rate, a 2% decrease in the number of average basic customers, a 7%
increase in its average premium rate and a 13% decrease in the number of average
premium customers. In addition, TCI Group's revenue increased 12% due to
acquisitions and decreased 5% due to the Satellite Spin-off. International cable
revenue and other revenue accounted for the remaining 2% increase in revenue.

         Revenue increased 17% for the six months ended June 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 a 10% increase in basic revenue and a
5% decrease in premium revenue. TCI Group experienced an 11% increase in its
average basic rate, a 1% decrease in the number of average basic customers, a 4%
increase in its average premium rate and a 8% decrease in the number of average
premium subscribers. In addition, TCI Group's revenue increased 15% due to
acquisitions and decreased 5% due to the Satellite Spin-off. International cable
revenue and other revenue accounted for the remaining 3% increase in revenue.

         Operating Costs and Expenses

         Operating expenses increased 10% and 17% for the three months and six
months ended June 30, 1997, respectively, as compared to the corresponding
periods of 1996. Exclusive of the effects of acquisitions, net of dispositions,
such expenses increased 5% and 6%. Programming expenses accounted for the
majority of such increases. TCI Group cannot determine whether and to what
extent increases in the cost of programming will affect its future operating
costs.

         Selling, general and administrative expenses decreased 11% and 9% for
the three months and six months ended June 30, 1997, respectively, as compared
to the corresponding periods of 1996. Exclusive of the effects of acquisitions,
net of dispositions, such expenses decreased 3% for each period. Such decrease
is 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. TCI Group currently anticipates that
marketing expense will increase for the six months ended December 31, 1997, as
compared to the six months ended June 30, 1997.

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

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

                                                                    (continued)

                                     I-59
<PAGE>   61



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


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

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

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

         Other Income and Expenses

         Interest expense aggregated $293 million and $582 million for the
three months and six months ended June 30, 1997, respectively, as compared to
$258 million and $513 million for the corresponding periods in 1996. The
majority of such increase in interest expense is due to increased debt balances
as a result of the Viacom Acquisition in August 1996. See note 6 to the
accompanying combined financial statements.

         At June 30, 1997, TCI Group 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 June 30, 1997
of $401 million and comprised $73 million and $70 million of TCI Group's share
of its affiliates' losses during the six months ended June 30, 1997 and 1996,
respectively. In addition to TCI Group's investments in Telewest and Flextech,
TCI Group 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 $560 million at June 30, 1997 and accounted for $49 million and $37
million of TCI Group's share of its affiliates' losses for the six months ended
June 30, 1997 and 1996, respectively. Additionally, included in share of losses
of affiliates for the six months ended June 30, 1997 and 1996, is $155 million
and $79 million, respectively, attributable to the Sprint PCS Partnerships. Such
1996 amount includes $34 million associated with prior periods. The increase in
the share of losses of the Sprint PCS Partnerships 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-60
<PAGE>   62



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


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

         Minority interests in earnings of consolidated subsidiaries aggregated
$57 million and $90 million for the three months and six months ended June 30,
1997, respectively, as compared to $6 million and $1 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.

         During the six months ended June 30, 1997, as a result of TCG issuing
additional shares of its Class A common stock for certain acquisitions, TCI
Group's ownership interest in TCG was reduced from approximately 31% to
approximately 30%. Accordingly, TCI Group recognized a gain amounting to $21
million (before deducting deferred income tax expense of approximately $8
million).

         Also, during the six months ended June 30, 1997, TSX, an equity
affiliate of TCI Group, and Antec entered into a business combination with
Antec being the surviving entity. In connection with such transaction, TCI
Group 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 TCI Group's
investment in TSX at the date of the transaction. Upon completion of this
transaction, TCI Group's ownership interest decreased from an approximate 45%
interest in TSX to an approximate 16% ownership interest in Antec.

         Net Loss

         TCI Group's net loss (before preferred stock dividend requirements) of
$160 million for the three months ended June 30, 1997 represents a change of
$31 million, as compared to TCI Group's net loss (before preferred stock
dividend requirements) of $191 million for the three months ended June 30,
1996. TCI Group's net loss (before preferred stock dividend requirements) of
$234 million for the six months ended June 30, 1997 represents a change of $93
million, as compared to TCI Group's net loss (before preferred stock dividend
requirements) of $327 million for the six months ended June 30, 1996. Such
changes are the net result of an increase in operating income, a decrease in
loss on early extinguishment of debt and the gains recognized as a result of
the TCG and TSX transactions discussed above partially offset by increases in
share of losses of affiliates, dividends on preferred securities issued by
certain subsidiaries of TCI Group reflected as minority interests in earnings
of consolidated subsidiaries and interest expense.

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

                            Combined Balance Sheets
                                  (unaudited)

<TABLE>
<CAPTION>
                                                         June 30,  December 31,
                                                           1997         1996
                                                         --------  ------------
                                                          amounts in thousands
<S>                                                    <C>             <C>    
Assets

Cash and cash equivalents                              $  359,641      317,359

Trade and other receivables, net                           22,914       24,796

Prepaid program rights                                     32,031       32,063

Committed film inventory                                   18,643       20,092

Investments in affiliates, accounted for under 
    the equity method, and related receivables 
    (note 4)                                              561,332      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)                                              82,092       81,537

Property and equipment, at cost:
    Land                                                       39           39
    Support equipment and buildings                        18,461       17,756
                                                       ----------   ----------
                                                           18,500       17,795
    Less accumulated depreciation                           9,062        7,846
                                                       ----------   ----------
                                                            9,438        9,949
                                                       ----------   ----------

Other assets, at cost, net of amortization                  9,959       11,236
                                                       ----------   ----------

                                                       $3,418,591    3,058,952
                                                       ==========   ==========
</TABLE>



                                                                    (continued)

                                     I-62
<PAGE>   64


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


                       Combined Balance Sheets, continued
                                  (unaudited)

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

Accounts payable and accrued liabilities                               $    27,234          19,397

Accrued compensation relating to phantom rights (note 9)                    22,334          17,758

Program rights payable                                                      34,299          33,700

Deferred revenue                                                             7,684           6,166

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

Debt (note 7)                                                                   --           1,620

Deferred income taxes                                                      573,485         582,089
                                                                       -----------     -----------

    Total liabilities                                                      970,778         660,730
                                                                       -----------     -----------

Minority interests in equity of consolidated subsidiaries                   12,934           1,052

Combined equity (note 8):
    Combined equity                                                      2,365,972       2,355,021
    Due to TCI Group                                                        68,855          42,149
    Unrealized gains on available-for-sale securities, net of taxes             52              --
                                                                       -----------     -----------
                                                                         2,434,879       2,397,170
                                                                       -----------     -----------

Commitments and contingencies (note 9)

                                                                       $ 3,418,591       3,058,952
                                                                       ===========     ===========
</TABLE>


See accompanying notes to combined financial statements.


                                     I-63
<PAGE>   65

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


                       Combined Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>
                                                              Three months ended                   Six months ended
                                                                   June 30,                            June 30,
                                                        ------------------------------      -------------------------------
                                                            1997               1996              1997              1996
                                                        ------------      ------------      ------------      -------------
                                                                               amounts in thousands
<S>                                                       <C>             <C>               <C>               <C>   

Revenue:
   Programming services:
      From TCI Group (note 8)                             $   24,127            28,000            46,638             56,870
      From others                                             35,545            49,732            72,393            185,878
   Net sales from electronic retailing services                   --           243,988                --            499,601
                                                          ----------      ------------      ------------      -------------
                                                              59,672           321,720           119,031            742,349
                                                          ----------      ------------      ------------      -------------

Cost of sales, operating costs and expenses:
   Cost of sales                                                  --           151,679                --            316,491
   Operating                                                  19,903            60,575            39,429            179,885
   Selling, general and administrative                        24,768            66,191            37,232            157,350
   Charges by TCI Group (note 8)                               2,354             5,550             4,433             11,321
   Compensation relating to phantom rights and 
      stock appreciation rights (notes 8 and 9)               14,466             7,119            20,040              5,711
   Depreciation                                                  611             3,962             1,216              9,057
   Amortization                                                  165             9,424               339             22,870
                                                          ----------      ------------      ------------      -------------
                                                              62,267           304,500           102,689            702,685
                                                          ----------      ------------      ------------      -------------

        Operating income (loss)                               (2,595)           17,220            16,342             39,664

Other income (expense):
   Interest expense                                             (306)           (6,022)             (611)           (12,501)
   Dividend and interest income,
      primarily from affiliates                                8,212             2,206            19,247              4,371
   Share of earnings of affiliates, net (note 4)               5,739             4,456            12,975             12,755
   Minority interests in earnings of
      consolidated subsidiaries                               (2,295)           (2,873)          (11,909)            (6,357)
   Gain (loss) on disposition of assets                          581            (8,035)              581             (6,300)
   Loss on early extinguishment of debt                         (320)               --              (320)                --
   Other, net                                                      6             1,610               115              3,782
                                                          ----------      ------------      ------------      -------------
                                                              11,617            (8,658)           20,078             (4,250)
                                                          ----------      ------------      ------------      -------------

        Earnings before income taxes                           9,022             8,562            36,420             35,414

Income tax expense                                            (2,481)           (4,573)          (14,267)           (16,584)
                                                          ----------      ------------      ------------      -------------

        Net earnings                                      $    6,541             3,989            22,153             18,830
                                                          ==========      ============      ============      =============

Earnings per common share (note 2)                        $      .03               .02               .09                .08
                                                          ==========      ============      ============      =============
</TABLE>


See accompanying notes to combined financial statements.

                                     I-64
<PAGE>   66
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                          Combined Statement of Equity

                         Six months ended June 30, 1997
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                     Unrealized holding
                                                                                     gains on available-         Total
                                                         Combined        Due to     for-sale securities,       combined
                                                          equity        TCI Group       net of taxes            equity
                                                         --------       --------    ---------------------   --------------
                                                                                   amounts in thousands
<S>                                                  <C>                   <C>             <C>              <C>      
Balance at January 1, 1997                           $      2,355,021      42,149          --               2,397,170

   Net earnings                                                22,153          --          --                  22,153
   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                            (13,256)         --          --                 (13,256)
   Sale of programming to TCI Group                                --     (47,038)         --                 (47,038)
   Cost allocations from TCI Group                                 --       4,433          --                   4,433
   Compensation relating to stock appreciation
     rights                                                        --      15,464          --                  15,464
   Intergroup tax allocation                                       --      21,992          --                  21,992
   Net cash transfers from TCI Group                               --      31,855          --                  31,855
   Change in unrealized holding gains on
     available-for-sale securities                                 --          --          52                      52
                                                     ----------------   ---------  ----------         ---------------

Balance at June 30, 1997                             $      2,365,972      68,855          52               2,434,879
                                                     ================   =========  ==========         ===============


See accompanying notes to combined financial statements.
</TABLE>


                                     I-65
<PAGE>   67


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

                       Combined Statements of Cash Flows
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                          Six months ended
                                                                                              June 30,
                                                                                      -------------------------
                                                                                        1997           1996
                                                                                      ---------     -----------
                                                                                       amounts in thousands
                                                                                           (see note 3)
<S>                                                                             <C>               <C>   
Cash flows from operating activities:
   Net earnings                                                                 $        22,153          18,830
   Adjustments to reconcile net earnings to net cash provided by operating
      activities:
        Depreciation and amortization                                                     1,555          31,927
        Compensation relating to phantom rights and stock appreciation rights            20,040           5,711
        Share of earnings of affiliates, net                                            (12,975)        (12,755)
        Deferred income tax expense (benefit)                                            (8,638)          5,660
        Intergroup tax allocation                                                        21,992           7,665
        Minority interests in earnings                                                   11,909           6,357
        Loss (gain) on disposition of assets                                               (581)          6,300
        Loss on early extinguishment of debt                                                320              --
        Payments of litigation settlements                                                   --          (3,125)
        Payments for restructuring charges                                                   --            (414)
        Noncash interest expense                                                             --           3,378
        Changes in operating assets and liabilities, net of acquisitions:
             Change in receivables                                                        1,882         (29,672)
             Change in inventories                                                           --          15,606
             Change in prepaid expenses                                                   1,449           4,105
             Change in payables, accruals and deferred revenue                            9,954          (6,687)
                                                                                ---------------   -------------

                  Net cash provided by operating activities                              69,060          52,886
                                                                                ---------------   -------------

Cash flows from investing activities:
   Cash proceeds from dispositions                                                          581          47,045
   Cash paid for acquisitions                                                                --         (55,000)
   Capital expended for property and equipment                                             (705)         (6,244)
   Additional investments in and loans to affiliates and others                         (16,112)         (5,281)
   Return of capital from affiliates                                                     11,700           1,500
   Collections on loans to affiliates and others                                            707             866
   Cash paid for cable distribution fees                                                     --         (17,665)
   Other investing activities                                                               650          (8,983)
                                                                                ---------------   -------------

                  Net cash used in investing activities                                  (3,179)        (43,762)
                                                                                ---------------   -------------

Cash flows from financing activities:
   Borrowings of debt                                                                     2,020         201,889
   Repayments of debt                                                                    (3,640)       (233,615)
   Contribution for issuance of Liberty Group Stock                                       2,054              --
   Purchase of Liberty Group Stock                                                      (13,256)             --
   Change in cash transfers to TCI Group                                                (10,750)         (8,512)
   Contributions by minority shareholders of subsidiaries                                     8         314,391
   Distributions to minority shareholders of subsidiaries                                   (35)            (65)
                                                                                ---------------   -------------

                  Net cash provided (used) by financing activities                      (23,599)        274,088   
                                                                                ---------------   -------------

                  Net increase in cash and cash equivalents                              42,282         283,212

                  Cash and cash equivalents at beginning of period                      317,359          41,225
                                                                                ---------------   -------------

                  Cash and cash equivalents at end of period                    $       359,641         324,437
                                                                                ===============   =============
</TABLE>


See accompanying notes to combined financial statements.

                                     I-66
<PAGE>   68


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

                     Notes to Combined Financial Statements

                                 June 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 cable television 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 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.

         As of June 30, 1997, the TCI Group Stock reflects the separate
         performance of TCI's subsidiaries and assets not attributed to Liberty
         Media Group, including (i) TCI's Domestic Cable and Communications
         unit, (ii) TCI's International Cable and Programming unit and (iii)
         TCI's Technology/Venture Capital unit. Such subsidiaries and assets
         are collectively referred to as "TCI Group". Intercompany balances
         resulting from transactions with such units are reflected as
         borrowings from or loans to TCI 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.


                                                                    (continued)

                                     I-67
<PAGE>   69

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

                     Notes to Combined Financial Statements


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

         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 (249.7 million and
         250.6 million for the three months ended June 30, 1997 and 1996,
         respectively; and 249.6 million and 248.7 million for the six months
         ended June 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 $612,000 and $11,882,000 for the six months
         ended June 30, 1997 and 1996, respectively. Cash paid for income taxes
         during the six months ended June 30, 1997 and 1996 was $903,000 and
         $569,000, respectively.

                                                                    (continued)

                                     I-68
<PAGE>   70


                             "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>
                                                                                      Six months ended
                                                                                          June 30,
                                                                            -----------------------------------
                                                                                  1997                1996
                                                                            ----------------   ----------------
                                                                                     amounts in thousands
<S>                                                                         <C>                       <C>      
          Combined Operations

             Revenue                                                        $      2,552,690          1,577,155
             Operating expenses                                                   (2,287,382)        (1,380,344)
             Depreciation and amortization                                          (121,990)           (76,876)
                                                                            ----------------   ----------------

                Operating income                                                     143,318            119,935

             Interest expense                                                        (66,510)           (53,235)
             Other, net                                                             (108,489)           (71,716)
                                                                            ----------------   ----------------

                Net loss                                                    $        (31,681)            (5,016)
                                                                            ================   ================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                June 30,           December 31,
                                                                                  1997                 1996
                                                                               -----------        ------------
                                                                                    amounts in thousands
<S>                                                                          <C>                        <C>    
                Discovery Communications, Inc. ("Discovery")                 $     117,912              117,724
                QVC, Inc. ("QVC")                                                  116,237              103,855
                International Cable Channels Partnership, Ltd. ("ICCP")              9,649                9,411
                Bet Holdings, Inc. ("BET")                                          23,038               20,225
                Courtroom Television Network ("Court")                                (991)               2,160
                Liberty/Fox U.S. Sports LLC ("Fox Sports") (a)                     (21,530)             (21,964)
                Superstar/Netlink Group LLC ("Superstar/Netlink") (b)              (38,560)             (37,236)
                DMX Inc. ("DMX")                                                     1,620                2,331
                Home Shopping Network, Inc. ("HSN") (c)                            144,216              141,921
                BDTV INC. and BDTV II INC. (c)                                     201,021              199,701
                Other                                                                8,720                6,993
                                                                             -------------     ----------------
                                                                             $     561,332              545,121
                                                                             =============     ================
</TABLE>

         (a)      As of April 29, 1996, Liberty Media Group, The News
                  Corporation Limited ("News Corp.") and Tele-Communications
                  International, Inc. ("TINTA"), a consolidated subsidiary of
                  TCI, formed two sports programming ventures. In the United
                  States, Liberty Media Group and News Corp. formed Fox Sports
                  into which Liberty Media Group contributed interests in its
                  national and regional sports networks and into which News
                  Corp. contributed its fx cable network and certain other
                  assets. Liberty Media Group received a 50% interest in Fox
                  Sports and $350 million in cash.

                                                                    (continued)

                                     I-69
<PAGE>   71


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

                     Notes to Combined Financial Statements


                  Internationally, News Corp. and Liberty/TINTA LLC
                  ("Liberty/TINTA"), a limited liability corporation owned 50%
                  by Liberty Media Group and 50% by TINTA, formed a venture
                  ("Fox Sports International") to operate previously existing
                  sports services in Latin American and Australia and a variety
                  of new sports services in selected areas throughout the
                  world. Liberty/TINTA and News Corp. each own 50% of Fox
                  Sports International. News Corp. contributed various
                  international sports rights and certain trademark rights.
                  Liberty/TINTA contributed its interests in certain
                  international sports programming services, various
                  international sports and satellite transponder rights and
                  cash. As of April 29, 1996, Liberty Media Group's sports
                  programming businesses no longer consolidate with the
                  financial results of Liberty Media Group.

                  As part of the formation of Fox Sports International,
                  Liberty/TINTA is entitled to receive from News Corp. 7.5% of
                  the outstanding stock of Star Television Limited. Upon
                  delivery of such stock to Liberty/TINTA, News Corp. is
                  entitled to receive from Liberty/TINTA $20 million and rights
                  under various Asian sports programming agreements. Star
                  Television Limited operates a satellite-delivered television
                  platform in Asia.

         (b)      On April 1, 1996, United Video Satellite Group, Inc.
                  ("UVSG"), a consolidated subsidiary of TCI, and Liberty Media
                  Group formed Superstar/Netlink, a limited liability company
                  of UVSG's Superstar Satellite Entertainment combined with
                  Netlink USA's ("Netlink") retail business. Liberty Media
                  Group and UVSG each own 50% of Superstar/Netlink. As of April
                  1, 1996, Netlink's retail business no longer consolidates
                  with the financial results of Liberty Media Group.

         (c)      Pursuant to an agreement  among  Liberty  Media Group,  Barry
                  Diller and certain of their respective affiliates entered
                  into in August 1995 and amended in August 1996 (the "BDTV
                  Agreement"), Liberty Media Group contributed to BDTV INC.
                  ("BDTV-I"), in August 1996, an option (the "Option") to
                  purchase 2 million shares of Class B common stock of Silver
                  King Communications, Inc. ("Silver King") (which shares
                  represented voting control of Silver King at such time) and
                  $3,500,000 in cash, representing the exercise price of the
                  Option. BDTV-I is a corporation formed by Liberty Media Group
                  and Mr. Diller pursuant to the BDTV Agreement, in which
                  Liberty Media Group owns over 99% of the equity and none of
                  the voting power (except for protective rights with respect
                  to certain fundamental corporate actions) and Mr. Diller owns
                  less than 1% of the equity and all of the voting power.
                  BDTV-I exercised the option shortly after its contribution,
                  thereby becoming the controlling stockholder of Silver King.
                  Such change in control of Silver King had been approved by
                  the Federal Communications Commission ("FCC") in June 1996,
                  subject, however, to the condition that the equity interest
                  of Liberty Media Group in Silver King not exceed 21.37%
                  without the prior approval of the FCC (the "FCC Order").

                                                                    (continued)

                                     I-70
<PAGE>   72


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

                     Notes to Combined Financial Statements


                  Pursuant to an Agreement and Plan of Exchange and Merger
                  entered into in August 1996, Silver King acquired HSN by
                  merger of HSN with a subsidiary of Silver King in December
                  1996 (the "HSN Merger"). In order to effect the HSN Merger in
                  compliance with the FCC Order, Liberty Media Group agreed to
                  defer receiving certain shares of Silver King that would
                  otherwise have become issuable to it in the HSN Merger until
                  such time as it was permitted to own such shares. As a
                  result, the HSN Merger was structured so that Liberty Media
                  Group received (i) 7,809,111 shares of Class B common stock
                  of Silver King, all of which shares Liberty Media Group
                  contributed to BDTV II INC. ("BDTV-II"), (ii) the contractual
                  right to be issued up to an additional 2,591,752 shares of
                  Class B common stock of Silver King from time to time upon
                  the occurrence of certain events which would allow Liberty
                  Media Group to own additional shares in compliance with the
                  FCC Order (including events resulting in the dilution of
                  Liberty Media Group's percentage equity interest), and (iii)
                  739,141 shares of Class B common stock and 17,566,702 shares
                  of common stock of HSN (representing approximately 19.9% of
                  the equity of HSN). BDTV-II is a corporation formed by
                  Liberty Media Group and Barry Diller pursuant to the BDTV
                  Agreement, in which the relative equity ownership and voting
                  power of Liberty Media Group and Mr. Diller are substantially
                  the same as their respective equity ownership and voting
                  power in BDTV-I.

                  As a result of the HSN Merger, HSN is no longer a subsidiary
                  of Liberty Media Group and therefore, the financial results
                  of HSN are no longer consolidated with the financial results
                  of Liberty Media Group. Although Liberty Media Group no
                  longer possesses voting control over HSN, it continues to
                  have an indirect equity interest in HSN through its ownership
                  of the equity securities of BDTV-I and BDTV-II as well as a
                  direct interest in HSN which would be exchangeable into
                  shares of Silver King. Accordingly, HSN, BDTV-I and BDTV-II
                  are accounted for using the equity method.

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

<TABLE>
<CAPTION>
                                    Six months ended
                                        June 30,
                               --------------------------
                                   1997          1996
                               ------------   -----------
                                  amounts in thousands
<S>                            <C>                  <C>  
 Discovery                     $        188         8,864
 QVC                                 12,382         8,962
 ICCP                                (1,619)       (1,141)
 BET                                  2,813         2,299
 Court                               (3,151)         (993)
 Superstar/Netlink                    8,014         3,034
 DMX                                   (711)      (12,045)
 HSN                                  2,295            --
 BDTV-I and BDTV-II                   1,319            --
 Other (a)                           (8,555)        3,775
                               ------------    ----------

                               $     12,975        12,755
                               ============    ==========
</TABLE>

                                                                    (continued)

                                     I-71
<PAGE>   73


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

                     Notes to Combined Financial Statements


         (a)      Included in other investments is Liberty Media Group's 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 hold the remaining 50.1% partnership
                  interest.

                  Encore Media Corporation ("Encore") (90% owned by Liberty
                  Media Group) earns management fees from QE+ equal to 20% of
                  managed costs, as defined. In addition, Liberty Media Group
                  earns 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 $1,666,000 for the six months ended
                  June 30, 1997 and 1996, respectively.

                  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! will be 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.

                                                                    (continued)

                                     I-72
<PAGE>   74


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

                     Notes to Combined Financial Statements


(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.

         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.

         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 5
         million shares of TW Exchange Stock along with $66,666,700 (1.4 million
         shares) in additional shares of TW Exchange Stock in consideration for
         the grant. If Time Warner exercises the option, the purchase price for
         Southern's business would be $213,333,333, payable in a form which is
         mutually acceptable of cash or Time Warner common stock. At June 30,
         1997, Liberty Media Group's investment in Time Warner, carried at cost,
         had an aggregate fair value of approximately $2.8 billion based upon
         the market value of the marketable common stock into which it is
         convertible.

                                                                    (continued)

                                     I-73
<PAGE>   75


                             "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>
                                                                       June 30,       December 31,
                                                                         1997             1996
                                                                       --------       ------------
                                                                           amounts in thousands

<S>                                                                  <C>                 <C>
         Marketable equity securities, at fair value                 $          1,342         790

         Convertible debt, at cost, which approximates fair value              23,000      23,000

         Other investments, at cost, and related receivables                   57,750      57,747
                                                                     ----------------    --------

                                                                     $         82,092      81,537
                                                                     ================    ========
</TABLE>

         Management of Liberty Media Group estimates that the market value,
         calculated utilizing a variety of approaches including multiple of
         cash flow, per subscriber value, a value of comparable public or
         private businesses or publicly quoted market prices, of all of Liberty
         Media Group's other investments aggregated $308 million and $162
         million at June 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 provides 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.

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

                                                                    (continued)

                                     I-74
<PAGE>   76


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

                     Notes to Combined Financial Statements


         Transactions with TCI and Other Related Parties

         Certain TCI corporate general and administrative costs are charged to
         Liberty Media Group at rates set at the beginning of the year based on
         projected utilization for that year. The utilization-based charges are
         set at levels that management believes to be reasonable and that
         approximate the costs Liberty Media Group would incur for comparable
         services on a stand-alone basis. During the six months ended June 30,
         1997 and 1996, Liberty Media Group was allocated $526,000 and
         $1,193,000, respectively, in corporate general and administrative
         costs by TCI.

         Entities included in Liberty Media Group lease satellite transponder
         facilities from TCI Group. Charges by TCI Group for such arrangements
         and other related operating expenses for the six months ended June 30,
         1997 and 1996, aggregated $3,907,000 and $6,540,000, respectively.

         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 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.

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

                                                                    (continued)

                                     I-75
<PAGE>   77


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

                     Notes to Combined Financial Statements


         Borrowings from or loans to TCI 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. Because TCI Group and Liberty Media Group are both 100% owned
         by TCI, amounts due to TCI Group have been classified as a component of
         combined equity.

         A tax sharing agreement (the "Tax Sharing Agreement") among Liberty
         Media Group, TCI and certain subsidiaries of TCI was implemented
         effective July 1, 1995. The Tax Sharing Agreement formalizes certain
         elements of a pre-existing tax sharing arrangement and contains
         additional provisions regarding the allocation of certain consolidated
         income tax attributes and the settlement procedures with respect to
         the intercompany allocation of current tax attributes. The Tax Sharing
         Agreement encompasses U.S. federal, state, local and foreign tax
         consequences and relies upon the U.S. Internal Revenue Code of 1986 as
         amended, and any applicable state, local and foreign tax law and
         related regulations. Beginning on the July 1, 1995 effective date,
         Liberty Media Group is responsible to TCI for its share of current
         consolidated income tax liabilities. TCI is responsible to Liberty
         Media Group to the extent that Liberty Media Group's income tax
         attributes generated after the effective date are utilized by TCI to
         reduce its consolidated income tax liabilities. Accordingly, all tax
         attributes generated by Liberty Media Group's operations after the
         effective date including, but not limited to, net operating losses,
         tax credits, deferred intercompany gains, and the tax basis of assets
         are inventoried and tracked for the entities comprising Liberty Media
         Group.

(9)      Commitments and Contingencies

         Liberty Media Group is obligated to pay fees for the rights to exhibit
         certain films that are released by various producers through 2017 (the
         "Film Licensing Obligations"). Based on customer levels at June 30,
         1997, these agreements require minimum payments aggregating
         approximately $315 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 compensation relating to phantom rights 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-76
<PAGE>   78


                             "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. 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.

         As of June 30, 1997, the TCI Group Stock reflects the separate
performance of TCI Group, which is generally comprised of the subsidiaries and
assets not attributed to Liberty Media Group, including (i) TCI's Domestic
Cable and Communications unit, (ii) TCI's International Cable and Programming
unit and (iii) TCI's Technology/Venture Capital unit. Intercompany balances
resulting from transactions with such units are reflected as borrowings from or
loans to TCI Group. See note 8 to the accompanying combined financial
statements.

         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
did not affect the ownership or the respective legal title to assets or
responsibility for liabilities of TCI or any of its subsidiaries. TCI and its
subsidiaries each continue to be responsible for their respective liabilities.
Holders of Liberty Group Stock are 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 the Liberty Group Stock
does not affect the rights of creditors of TCI.

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

                                                                    (continued)

                                     I-77
<PAGE>   79


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


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

         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 Liberty Media Group.

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

         Borrowings from or loans to TCI 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.

         During the second quarter of 1997, Liberty Media Group repurchased
562,000 shares of Series A Liberty Group Stock in open market transactions at
an aggregate cost of $13,256,000. 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.

         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 in consideration for the
grant. 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.

                                                                    (continued)

                                     I-78
<PAGE>   80

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


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

         Encore'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's
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 available
cash balances should provide adequate cash to meet its obligations.

         As of June 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.

         On August 1, 1997, Liberty IFE, Inc., a wholly owned subsidiary of
Liberty Media Group, which holds 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 nonconvertible 9% preferred stock of FKW.

         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.
    
                                                                    (continued)

                                     I-79
<PAGE>   81

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


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

         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 $325  million.  No borrowings were outstanding at June 30,
1997.

         Liberty Media Group intends to continue to develop its entertainment
and information programming services and has made certain financial commitments
related to the acquisition of programming. As of June 30, 1997, Liberty Media
Group's future minimum obligation related to certain film licensing agreements
was $315 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 7,
1997, the FCC adopted 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.

                                                                    (continued)

                                     I-80
<PAGE>   82

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


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

         Revisions in the FCC's leased access rules also may affect Liberty
Media Group's programming interests. Section 612 of the Communications Act of
1934, as amended, requires a cable operator, depending upon the number of
activated channels in its cable system, to set aside up to 15 percent of
activated channels for leased access. On February 4, 1997 the FCC released
revised rules for calculating the maximum rate for leased commercial access to
tiered channels, which became effective April 11, 1997. The newly-adopted
formula yields a lower maximum rate than the current rate such that the use of
leased access may be expected to increase, thereby further restricting the
channel capacity available for carriage of Liberty Media Group's programming
services.

         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 regulations,
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.

         Several recent copyright developments could have a significant impact
upon Southern and/or Netlink's wholesale C-band satellite 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 United States 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
Southern and Netlink's wholesale C-band satellite business. A proceeding also
is pending before the Copyright Arbitration Royalty Panel under the United
States Copyright Office to determine the copyright fees to be paid by satellite
carriers under the Satellite Home Viewer Act. If the Copyright Arbitration
Royalty Panel adopted the proposals of copyright owners, the copyright fees
paid by Southern and Netlink for the retransmission of broadcast signals to
home satellite dish owners would increase significantly. The resulting
increases in retail prices may cause a decrease in the number of subscribers to
Southern and Netlink wholesale C-band satellite services.


                                                                    (continued)

                                     I-81
<PAGE>   83

                             "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 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 June 30,
                                                                -------------------------------------
                                                                1997                             1996
                                                                ------------------  -----------------
                                                                    dollar amounts in thousands

Entertainment and Information
Programming Services

<S>                                                    <C>        <C>                 <C>       <C>          
   Revenue                                             100%       $      59,672       100%      $      77,732
   Operating costs and expenses                         76%              45,245        70%             54,136
   Compensation relating to phantom rights               --                  --         9%              6,932
   Depreciation and amortization                         1%                 747         5%              4,007
                                                     -----      ---------------     -----      --------------

        Operating income                                23%       $      13,680        16%      $      12,657
                                                     =====        =============     =====       =============

Electronic Retailing Services

   Revenue                                              N/A             N/A           100%      $     243,988
   Cost of sales                                        N/A             N/A            62%            151,679
   Operating costs and expenses                         N/A             N/A            31%             76,422
   Depreciation and amortization                        N/A             N/A             4%              9,352
                                                                                    -----      --------------

        Operating income                                N/A             N/A             3%      $       6,535
                                                                                    =====       =============
</TABLE>

                                                                    (continued)

                                     I-82
<PAGE>   84

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


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

<TABLE>
<CAPTION>
                                                               Six months ended June 30,
                                                        -------------------------------------
                                                        1997                             1996
                                                        ---------------     -----------------
                                                             dollar amounts in thousands

Entertainment and Information
Programming Services

<S>                                                    <C>     <C>           <C>        <C> 
   Revenue                                             100%    $ 119,031       100%     $ 242,748
   Operating costs and expenses                         66%       78,295        79%       191,350
   Compensation relating to phantom rights               4%        4,576         3%         6,932
   Depreciation and amortization                         1%        1,498         5%        13,265
                                                     -----     ---------     -----      ---------

        Operating income                                29%    $  34,662        13%     $  31,201
                                                     =====     =========     =====      =========

Electronic Retailing Services

   Revenue                                              N/A      N/A           100%     $ 499,601
   Cost of sales                                        N/A      N/A            63%       316,491
   Operating costs and expenses                         N/A      N/A            31%       154,040
   Depreciation and amortization                        N/A      N/A             4%        18,610
                                                                             -----      ---------

        Operating income                                N/A      N/A             2%     $  10,460
                                                                             =====      =========
</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. See note 4 to the accompanying combined
financial statements. 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 23% or $18 million
and 51% or $124 million for the three months and six months ended June 30,
1997, respectively, as compared to the corresponding periods of 1996. Included
in such decreases are increases in revenue from Encore of approximately $11
million and $25 million for the three months and six months ended June 30,
1997, respectively. Encore's thematic multiplex services increased the number
of multiplex units from 8.9 million for the quarter ended June 30, 1996 to
approximately 11.9 million units for the quarter ended June 30, 1997 accounting
for $4 million and $10 million of Encore's increase in revenue for the three
month and six month periods, respectively. Encore and "MOVIEplex" (a cable
service which offers theme-by-day movies) units increased from approximately
9.4 million for the quarter ended June 30, 1996 to 20.1 million for the quarter
ended June 30, 1997 resulting in an increase in revenue for Encore of
approximately $4 million and $10 million for the three months and six months
ended June 30, 1997 compared to the respective periods in 1996. The remaining
increase in revenue from Encore was due to increased management fees from
affiliates.

                                                                    (continued)

                                     I-83
<PAGE>   85

                             "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 16% or $9 million and 59% or $113 million for
the three months and six months ended June 30, 1997, respectively, 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 1997.
Operating expenses, excluding compensation relating to phantom rights, for
Encore increased approximately $19 million and $31 million during the three
months and six months ended June 30, 1997, respectively. Programming costs
increased approximately $2 million and $6 million for Encore and the thematic
multiplex services due to more recent programming being purchased. Encore
incurred approximately $2 million for costs associated with transitioning to
digital technology during the six months ended June 30, 1997. Increased
marketing support resulting from higher subscribers and revenue accounted for
$6 million and $10 million of the increases in operating expenses. Increased
national advertising was responsible for approximately $10 million and $11
million of the increase. The remainder of the increases in Encore's operating
expenses, excluding compensation relating to phantom rights 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 six months ended June 30, 1997 and 1996, Liberty Media Group
was allocated $526,000 and $1,193,000, respectively, in corporate general and
administrative costs by TCI Group.

                                                                    (continued)

                                     I-84
<PAGE>   86

                             "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 $13
million and $6 million for the three months and six months ended June 30, 1997,
compared to $13 million and $4 million for the corresponding periods of 1996.
Liberty Media Group's share of earnings of affiliates attributable to its
interest in Discovery decreased from $3 million and $9 million during the three
and six months ended June 30, 1996 to less than $1 million for each of the same
periods of 1997. Discovery's revenue increased 41% during the first six months
of 1997 compared to the same period in 1996. However, earnings before interest,
taxes, depreciation and amortization for Discovery decreased by 14%,
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 $2 million and $5 million with no corresponding amounts in 1996.
Additionally, Liberty Media Group's share of earnings of affiliates
attributable to its interest in QVC increased approximately $1 million and $3
million during the three months and six months ended June 30, 1997 compared to
the same periods of 1996. QVC's revenue increased by 11% during the first six
months of 1997, resulting in a corresponding 11% increase in earnings before
interest, taxes, depreciation and amortization over the first six months of
1996.

         Dividend and interest income was $8 million and $19 million for the
three months and six months ended June 30, 1997, compared to $2 million and $4
million for the same periods in 1996. Dividend income increased $3 million and
$7 million during the quarter and six months ended June 30, 1997, compared to
the corresponding periods of 1996, principally due to the dividends received on
the TW Exchange Stock acquired in October 1996. Additionally, interest income
on excess cash balances has increased $3 million and $8 million during the
first quarter and six months of 1997, compared to 1996.

                                     I-85
<PAGE>   87
                           TELE-COMMUNICATIONS, INC.


PART II - OTHER INFORMATION

Item 2.  Change in Securities.

         On June 10, 1997 (the "IP Phase I Closing Date"), the Company issued
         139,513 shares of the Company's Series B TCI Group Common 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.

         Effective June 16, 1997, the Company issued 30,545,864 shares of
         Series A TCI Group Stock to the estate of the former Chairman of the
         Board of the Company in exchange for the same number of shares of
         Series B TCI Group Stock. Such shares were valued at $505 million at
         the time of issuance.

         Each of the above described issuances of equity securities was made
         pursuant to the private placement exemption from the Securities Act of
         1933 (the "Act") afforded by Section 4(2) of the Act.

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 June 30, 
                  1997:

                  None.










                                     II-1

<PAGE>   88



                                   SIGNATURES


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

                                    TELE-COMMUNICATIONS, INC.




Date: August 13, 1997          By:   /s/ Leo J. Hindery, Jr.
                                    ------------------------
                                         Leo J. Hindery, Jr.
                                          President and Chief
                                           Operating Officer




Date: August 13, 1997          By:   /s/ Stephen M. Brett
                                    ---------------------
                                         Stephen M. Brett
                                          Executive Vice President




Date: August 13, 1997          By:   /s/ Bernard W. Schotters
                                    -------------------------
                                         Bernard W. Schotters
                                          Senior Vice President of
                                           TCI Communications, Inc.
                                           (Principal Financial Officer)



Date: August 13, 1997          By:   /s/ Gary K. Bracken
                                    --------------------
                                         Gary K. Bracken
                                          Senior Vice President of
                                           TCI Communications, Inc.
                                           (Principal Accounting Officer)






                                     II-2

<PAGE>   89




                                 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