<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 March 31, 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 shares held by subsidiaries) as of April 30, 1997, was:


<TABLE>
<S>                                                             <C>
    Tele-Communications, Inc. Series A TCI Group common stock - 598,205,999 shares,
    Tele-Communications, Inc. Series B TCI Group common stock - 84,647,065 shares,
Tele-Communications, Inc. Series A Liberty Media Group common stock - 228,751,757 shares,
Tele-Communications, Inc. Series B Liberty Media Group common stock - 21,187,969 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>
                                                         March 31,    December 31,
                                                           1997          1996
                                                        ----------    ----------
Assets                                                     amounts in millions
------
<S>                                                     <C>              <C>
Cash and cash equivalents                               $      505           394

Trade and other receivables, net                               455           448

Prepaid expenses                                                84            81

Prepaid program rights                                          58            49

Committed film inventory                                        89           136

Investments in affiliates, accounted for under the
  equity method, and related receivables (note 4)            2,898         3,012

Investment in Time Warner, Inc. ("Time Warner") 
  (note 5)                                                   2,037         2,027

Property and equipment, at cost:
  Land                                                          76            77
  Distribution systems                                      10,373        10,078
  Support equipment and buildings                            1,514         1,541
                                                        ----------    ----------
                                                            11,963        11,696
  Less accumulated depreciation                              4,275         4,168
                                                        ----------    ----------
                                                             7,688         7,528
                                                        ----------    ----------

Franchise costs                                             18,416        17,875
  Less accumulated amortization                              2,505         2,439
                                                        ----------    ----------
                                                            15,911        15,436
                                                        ----------    ----------

Other assets, net of amortization                              951         1,133
                                                        ----------    ----------
                                                        $   30,676        30,244
                                                        ==========    ==========
</TABLE>

                                                                     (continued)

                                      I-1

<PAGE>   3



                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES



                     Consolidated Balance Sheets, continued
                                  (unaudited)


<TABLE>
<CAPTION>
                                                         March 31,   December 31,
                                                          1997          1996
                                                        ---------   -----------
Liabilities and Stockholders' Equity                      amounts in millions
------------------------------------
<S>                                                     <C>         <C>
Accounts payable                                        $     137           216
Accrued interest                                              168           274
Accrued programming expense                                   372           347
Other accrued expenses                                        825           812
Debt (note 7)                                              15,049        14,926
Deferred income taxes                                       5,946         6,012
Other liabilities                                             251           253
                                                        ---------   -----------
 Total liabilities                                         22,748        22,840
                                                        ---------   -----------
Minority interests in equity of consolidated
  subsidiaries                                              1,349         1,493

Redeemable preferred stocks                                   655           658

Company-obligated mandatorily redeemable preferred
  securities of subsidiary trusts ("Trust Preferred
  Securities") holding solely subordinated debt
  securities of TCI Communications, Inc. ("TCIC")
  (note 8)                                                  1,502         1,000

Stockholders' equity (note 9):
 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 715,058,159 shares in 1997 and 696,325,478
   shares in 1996                                             715           696
 Tele-Communications, Inc. Series B TCI Group common
   stock, $1 par value. Authorized 150,000,000 shares;
   issued 84,647,065 shares in 1997 and 1996                   85            85
 Tele-Communications, Inc. Series A Liberty Media
   Group common stock, $1 par value.  Authorized
   750,000,000 shares; issued 228,749,797 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 21,187,969 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                                 3,904         3,672
 Cumulative foreign currency translation adjustment,
   net of taxes                                                 5            26
 Unrealized holding gains for available-for-sale
   securities, net of taxes                                    11            15
 Accumulated deficit                                         (234)         (176)
                                                        ---------   -----------
                                                            4,736         4,567
 Series A TCI Group common stock, at cost, held by
   subsidiaries (116,853,196 shares in 1997 and 1996)        (314)         (314)
                                                        ---------   -----------
     Total stockholders' equity                             4,422         4,253
                                                        ---------   -----------
Commitments and contingencies (note 10)
                                                        $  30,676        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>
                                                          Three months ended
                                                              March 31
                                                      -------------------------
                                                          1997          1996
                                                      -----------   -----------
                                                         amounts in millions,
                                                       except per share amounts
<S>                                                   <C>           <C>
Revenue:
 Communications and programming services                   $1,827         1,605
 Net sales from electronic retailing services 
   (note 4)                                                    --           256
                                                      -----------   -----------
                                                            1,827         1,861
                                                      -----------   -----------
Operating costs and expenses:
 Operating                                                    696           662
 Cost of sales from electronic retailing services
   (note 4)                                                    --           165
 Selling, general and administrative                          393           501
 Compensation (adjustment to compensation) relating
   to stock appreciation rights                                15            (9)
 Depreciation                                                 241           252
 Amortization                                                 133           118
                                                      -----------   -----------
                                                            1,478         1,689
                                                      -----------   -----------
   Operating income                                           349           172

Other income (expense):
 Interest expense                                            (289)         (261)
 Interest and dividend income                                  21            10
 Share of losses of affiliates, net (note 4)                 (156)         (115)
 Minority interests in losses (earnings) of
   consolidated subsidiaries, net                             (38)            2
 Gain on disposition of assets                                 19            10
 Other, net                                                    (2)            6
                                                      -----------   -----------
                                                             (445)         (348)
                                                      -----------   -----------
  Loss before income taxes                                    (96)         (176)

Income tax benefit                                             38            55
                                                      -----------   -----------
  Net loss                                                    (58)         (121)

Dividend requirements on preferred stocks                     (10)           (9)
                                                      -----------   -----------
  Net loss attributable to common stockholders        $       (68)         (130)
                                                      ===========   ===========
Net earnings (loss) attributable to common
 stockholders:
  TCI Group Series A and Series B common stock        $       (84)         (145)
  Liberty Media Group Series A and Series B 
    common stock                                               16            15
                                                      -----------   -----------
                                                      $       (68)         (130)
                                                      ===========   ===========
Net earnings (loss) attributable to common
 stockholders per common share (note 2):
  TCI Group Series A and Series B common stock        $      (.12)         (.22)
  Liberty Media Group Series A and Series B 
    common stock                                      $       .06           .06
</TABLE>

See accompanying notes to consolidated financial statements.

                                      I-3

<PAGE>   5



                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES



                 Consolidated Statement of Stockholders' Equity

                       Three months ended March 31, 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                                                                                                   
   acquisition                                --        16        --        --          --          --        --          242   
 Issuance of common stock upon                                                                                                  
   conversion of notes                        --         3        --         1          --          --        --           --   
 Issuance of common stock to                                                                                                
   Tele-Communications, Inc. Employee                                                                                           
   Stock Purchase Plan                        --        --        --        --          --          --        --            8   
 Accreted dividends on all classes                                                                                              
   of preferred stock                         --        --        --        --          --          --        --          (10)  
 Accreted dividends on all classes                                                                                              
   of preferred stock not subject to                                                                                            
   mandatory redemption requirements          --        --        --        --          --          --        --            2   
 Payment of preferred stock dividends         --        --        --        --          --          --        --          (10)  
 Foreign currency translation                                                                                                   
   adjustment                                 --        --        --        --          --          --        --           --   
 Change in unrealized holding gains                                                                                             
   for available-for-sale securities          --        --        --        --          --          --        --           --   
                                       ---------    --------  -------- --------   --------    --------  --------      -------   
Balance at March 31, 1997              $      --         715        85      229          21         --        --        3,904     
                                       =========    ========  ======== ========   =========   ========  ========      =======
<CAPTION>                              
                                                                   
                                                                   
                                                         Unrealized
                                          Cumulative     holding   
                                           foreign       gains for                            
                                           currency     available- 
                                          translation    for-sale                                 Total
                                          adjustment,   securities,  Accumulated   Treasury   stockholders'
                                         net of taxes  net of taxes    deficit      stock       equity
                                         -----------   ------------  -----------   --------   ------------
                                                                 amount in millions                                      
<S>                                         <C>         <C>             <C>        <C>         <C>
Balance at January 1, 1997                      26            15           (176)       (314)         4,253
 Net loss                                       --            --            (58)         --            (58)
 Issuance of common stock for                                                          
   acquisition                                  --            --             --          --            258
 Issuance of common stock upon        
   conversion of notes                          --            --             --          --              4
 Issuance of common stock to                                           
   Tele-Communications, Inc. Employee 
   Stock Purchase Plan                          --            --             --          --              8
 Accreted dividends on all classes                                         
   of preferred stock                           --            --             --          --            (10)
 Accreted dividends on all classes    
   of preferred stock not subject to  
   mandatory redemption requirements            --            --             --          --              2
 Payment of preferred stock dividends           --            --             --          --            (10)
 Foreign currency translation         
   adjustment                                  (21)           --             --          --            (21)
 Change in unrealized holding gains   
   for available-for-sale securities            --            (4)            --          --             (4)
                                         ---------   -----------     ----------    --------    -----------
Balance at March 31, 1997                        5            11           (234)       (314)         4,422
                                         =========   ===========     ==========    ========    ===========
</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>
                                                          Three months ended
                                                               March 31,
                                                          ------------------
                                                            1997        1996
                                                            ----        ----
                                                           amounts in millions
                                                               (see note 3)
<S>                                                         <C>         <C>
Cash flows from operating activities:                                  
 Net loss                                                   $ (58)       (121)
 Adjustments to reconcile net loss to net cash provided                
  by operating activities:                                               
   Depreciation and amortization                              374         370
   Compensation (adjustment to compensation) relating                  
    to appreciation rights                                     15          (9)
   Payments of stock appreciation rights                       (1)         (3)
   Share of losses of affiliates                              156         115
   Minority interests in earnings (losses)                     38          (2)
   Gain on disposition of assets                              (19)        (10)
   Deferred income tax benefit                                (66)        (57)
   Payments of restructuring charges                          (16)         --
   Other noncash charges (credits)                              3          (1)
   Changes in operating assets and liabilities, net of                 
    the effect of acquisitions:                                            
     Change in receivables                                    (16)         25
     Change in inventories                                     --           9
     Change in prepaids                                       (32)        (10)
     Change in accrued interest                              (112)        (54)
     Change in other accruals and payables                    (27)         65
                                                            -----      ------
      Net cash provided by operating activities               239         317
                                                            -----      ------
Cash flows from investing activities:                                  
 Cash paid for acquisitions                                  (156)         (3)
 Capital expended for property and equipment                  (90)       (423)
 Additional investments in and loans to affiliates and                 
  others                                                      (35)        (88)
 Repayments of loans to affiliates                            120           6
 Proceeds from disposition of assets                          140          41
 Cash received in exchanges                                    22          50
 Other investing activities                                  (104)        (59)
                                                            -----      ------
      Net cash used in investing activities                  (103)       (476)
                                                            -----      ------
Cash flows from financing activities:                                  
 Borrowings of debt                                           363       1,588
 Repayments of debt                                          (820)     (1,954)
 Proceeds from issuance of common stock                         4          --
 Proceeds from issuance of Trust Preferred Securities         490         486
 Proceeds from issuance of subsidiary preferred stock          --         223
 Payment for repurchase of subsidiary common stock             (7)         --
 Payment of preferred stock dividends                         (21)        (21)
 Payment of dividends on subsidiary preferred stock and                
   Trust Preferred Securities                                 (34)         --
                                                            -----      ------
      Net cash provided (used) by financing activities        (25)        322
                                                            -----      ------
      Net increase in cash and cash equivalents               111         163
      Cash and cash equivalents at beginning of period        394         118
                                                            -----      ------
      Cash and cash equivalents at end of period            $ 505         281
                                                            =====      ======
</TABLE>

See accompanying notes to consolidated financial statements.

                                      I-5

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

                   Notes to Consolidated Financial Statements



                                 March 31, 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
      for the three months ended March 31, 1997 and 1996 was computed by
      dividing net loss attributable to TCI Group Series A and Series B common
      stockholders by the weighted average number of common shares outstanding
      of TCI Group Series A and Series B common stock during the period (678.0
      million and 659.3 million, 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 for the three months ended March 31, 1997 and 1996 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 outstanding of Liberty Media Group Series A and Series B common
      stock during the period (249.7 million and 247.2 million, respectively).
      Common stock equivalents were not included in the computation because
      their inclusion would be anti-dilutive to TCI.

(3)   Supplemental Disclosures to Consolidated Statements of Cash Flows

      Cash paid for interest was $401 million and $315 million for the three
      months ended March 31, 1997 and 1996, respectively.  Cash paid for income
      taxes during these periods was not material.

      Significant noncash investing and financing activities are as follows:


<TABLE>
<CAPTION>
                                                          Three months ended
                                                               March 31,
                                                          ------------------
                                                           1997        1996
                                                           ----        ----
                                                          amounts in millions
<S>                                                       <C>         <C>
Cash paid for acquisitions:
 Fair value of assets acquired                            $   1,065       1,130
 Liabilities assumed, net of current assets                    (616)       (374)
 Deferred tax liability recorded in acquisitions                (34)       (240)
 Minority interests in equity of acquired entities               (1)        (52)
 Common stock and preferred stock issued in acquisitions       (258)       (461)
                                                          ---------   ---------
     Cash paid for acquisitions                           $     156           3
                                                          =========   =========
Cash received in exchanges:
 Aggregate cost basis of assets acquired                  $    (294)       (193)
 Historical cost of assets exchanged                            305         222
 Gain recorded on exchange of assets                             11          21
                                                          ---------   ---------
     Cash received in exchanges                           $      22          50
                                                          =========   =========
</TABLE>

                                                                     (continued)

                                      I-7

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

                   Notes to Consolidated Financial Statements



<TABLE>
<CAPTION>
                                                          Three months ended
                                                              March 31,
                                                          ------------------
                                                           1997        1996
                                                           ----        ----
                                                          amounts in millions
<S>                                                       <C>         <C>
Effect of foreign currency translation adjustment on
 book value of foreign equity investments                 $   21           7
                                                          ======        ====
Change in unrealized gains, net of deferred income
 taxes, on available-for-sale securities                  $    4          24
                                                          ======        ====
Accrued preferred stock dividends                         $    8           7
                                                          ======        ====
</TABLE>

(4)   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 March 31,
      1997.


<TABLE>
<CAPTION>
                                                        March 31, 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% - 35.3%        $728
Teleport Communications Group, Inc.                  31.1%            263
Home Shopping Network, Inc. ("HSN")                  19.9%            144
BDTV INC. and BDTV II, INC.                           99%             200
Telewest Communications plc 
   ("Telewest")                                       27%             427
Various foreign equity investments (other
   than Telewest)                                   various           373
Discovery Communications, Inc.                        49%             118
QVC, Inc.                                             43%             110
</TABLE>

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

<TABLE>
<CAPTION>
                                                    Three months ended    
              Combined Operations                        March 31,        
              -------------------                   ------------------      
                                                     1997        1996     
                                                     ----        ----     
                                                    amounts in millions   
              <S>                                   <C>         <C>       
              Revenue                               $  1,751     1,308 
              Operating expenses                      (1,642)   (1,151)
              Depreciation and amortization             (282)     (149)
                                                    --------   ------- 
                 Operating income (loss)                (173)        8 
              Interest expense                          (171)     (108)
              Other, net                                (152)      (31)
                                                    --------   ------- 
                 Net loss                           $   (496)     (131)
                                                    ========   ======= 
</TABLE>                                             

                                                                     (continued)

                                      I-8

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

                   Notes to Consolidated Financial Statements


      The Company is a partner in a series of partnerships formed to engage in
      the business of providing wireless communications services, using the
      radio spectrum for broadband personal communications services ("PCS"), to
      residential and business customers nationwide, using the "Sprint" brand
      (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 35.3% interest as a
      partner in PhillieCo.  During the three months ended March 31, 1997 and
      1996, the Sprint PCS Partnerships contributed $64 million and $53
      million, respectively, to the Company's share of affiliate losses.  Such
      1996 amount includes $34 million related to prior periods.

      The Sprint PCS Partnerships have licenses, and have affiliated with other
      entities (including PhillieCo) that have licenses, to provide PCS service
      to MTAs (or metropolitan trading areas) covering over 190 million "Pops"
      (or population equivalents).  The Sprint PCS Partnerships' licenses,
      which cover 29 markets, 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.  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, 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.
      During December 1996, the Sprint PCS Partnerships initiated the
      commercial launch of PCS service in seven markets.

      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 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 second quarter of 1998 (although there can be no assurance
      that any additional capital will be contributed).  The Company expects
      that the Sprint PCS Partnerships will require additional equity
      thereafter.

                                                                     (continued)

                                      I-9

<PAGE>   11

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      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.

      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 (the "Contingent 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-10

<PAGE>   12
                   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.

      Telewest is a company that is currently operating and constructing cable
      television and telephone systems in the United Kingdom ("UK").  Telewest
      contributed $42 million and $31 million of the Company's share of its
      affiliates' losses during the three months ended March 31, 1997 and 1996,
      respectively.  In addition, the Company has other less significant equity
      method investments in video distribution and programming businesses
      located in the UK, other parts of Europe, Asia, Latin America and certain
      other foreign countries.  In the aggregate, such other equity method
      investments accounted for $22 million and $18 million of the Company's
      share of its affiliates' losses in 1997 and 1996, respectively.

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

(5)   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.  The Company's total holdings
      represented an approximate 7.5% voting interest for those matters which
      preferred and common voted as a single class.  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.


                                                                     (continued)

                                      I-11

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

                   Notes to Consolidated Financial Statements


      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.  At March 31, 1997, the Company's investment in
      Time Warner, carried at cost, had an aggregate fair value of
      approximately $2.2 billion based upon the market value of the marketable
      common stock into which it is convertible.

      Subject to a number of conditions, including receipt of a ruling from the
      Internal Revenue Service ("IRS") that such dividend would be tax free to
      the Liberty Group Stock stockholders, TCI agreed in an Agreement
      Containing Consent Order (the "FTC Consent Decree") with the FTC that it
      would distribute in the form of a stock dividend (the "Spin-Off") to the
      Liberty Group Stock stockholders the stock of a new company ("Spinco")
      which would own, directly or indirectly, the TW Exchange Stock and the
      business of Southern Satellite Systems, Inc. ("Southern"), a wholly owned
      subsidiary of Liberty which distributes the TBS SuperStation ("WTBS")
      signal in the United States and Canada.  The IRS has declined to provide
      the requested ruling and, accordingly, TCI has canceled plans for the
      Spin-Off.  Pursuant to the FTC Consent Decree, the level of TCI's
      ownership in Time Warner is restricted to the lower of 9.2% of the fully
      diluted number of shares of Time Warner's common stock and 12.4% of the
      aggregate number of outstanding shares of Time Warner's common stock.


                                                                     (continued)

                                      I-12

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

                   Notes to Consolidated Financial Statements


      In connection with the TBS/Time Warner Merger, Liberty and Time Warner
      entered into, among other agreements, an agreement providing for the
      grant to Time Warner of an option (the "Contract Option") to enter into a
      contract with Southern (the "Distribution Contract") 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.  The agreement provides for the Contract Option to
      be granted no later than the fifth business day following the earlier of
      May 31, 1997, the receipt of a favorable IRS ruling and the determination
      that the IRS ruling will not be obtained, subject to extension for a
      30-day period, if the IRS ruling were not obtained, during which period
      the parties would seek to negotiate an alternative structure for the
      transaction.  On the date of grant of the Contract Option, the agreement
      provides for Time Warner to issue to Southern, in consideration for the
      Contract Option and certain noncompetition covenants, an aggregate of 5.0
      million shares of TW Exchange Stock and $66,666,700, payable at Time
      Warner's option in cash or TW Exchange Stock.  If Time Warner were to
      exercise the Contract Option and enter into the Distribution Contract,
      Time Warner would be obligated to make quarterly payments to Southern in
      an amount which, when added to Southern's net cash flow, would aggregate
      approximately $213.3 million on a present value basis discounted to the
      effective date of the Distribution Contract.  In light of the
      cancellation of the Spin-Off, Liberty is seeking to renegotiate the
      Contract Option to provide instead for an option for Time Warner to
      acquire Southern's business.

(6)   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.


                                                                     (continued)

                                      I-13

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

                   Notes to Consolidated Financial Statements


      Prior to the consummation of the Viacom Acquisition, Viacom offered to
      the holders of shares of Viacom Class A Common Stock and Viacom Class B
      Common Stock (collectively, "Viacom Common Stock") the opportunity to
      exchange (the "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.

(7)   Debt

      Debt is summarized as follows:

<TABLE>
<CAPTION>
                                     March 31,   December 31, 
                                       1997         1996         
                                    ----------   ------------         
                                      amounts in millions    
      <S>                           <C>          <C>          
      Notes payable                 $    9,254         9,308 
      Bank credit facilities             5,219         4,813 
      Commercial paper                     404           638 
      Convertible notes (a)                 41            43 
      Other debt                           131           124 
                                    ----------   ----------- 
                                    $   15,049        14,926 
                                    ==========   =========== 
</TABLE>

      (a)  These convertible notes, which are stated net of unamortized
           discount of $168 million at March 31, 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 three months ended March 31, 1997, certain of
           these notes were converted into 2,150,000 shares of Series A TCI
           Group Stock and 810,000 shares of Series A Liberty Group Stock.  At
           March 31, 1997, the notes were convertible, at the option of the
           holders, into an aggregate of 34,933,772 shares of Series A TCI
           Group Stock and 13,100,153 shares of Series A Liberty Group Stock.

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

      As security for borrowings under one of the Company's bank credit
      facilities, the Company has pledged 116,853,195 shares of Series A TCI
      Group Stock held by a subsidiary of the Company.  Also, as security for
      borrowings under another of the Company's credit facilities, the Company
      has pledged a portion of its Time Warner common stock with an estimated
      market value of $2.2 billion.


                                                                     (continued)

                                      I-14

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

                   Notes to Consolidated Financial Statements


      The fair value of the debt of the Company's subsidiaries is estimated
      based on the quoted market prices for the same or similar issues or on
      the current rates offered to the Company for debt of the same remaining
      maturities.  The fair value of debt, which has a carrying value of
      $15,049 million, was $15,098 million at March 31, 1997.

      In order to achieve the desired balance between variable and fixed rate
      indebtedness, the Company has entered into various interest rate exchange
      agreements pursuant to which it (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 March 31, 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 $2,250 million at March 31, 1997.  During the three months
      ended March 31, 1997 and 1996, the Company's net receipts pursuant to the
      Fixed Rate Agreements were $3 million and $5 million, respectively; and
      the Company's net receipts pursuant to the Variable Rate Agreements were
      $1 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>
October 1997    7.1%-9.3%      $180     April 1997             7.0%      $  200
December 1997      8.7%         230     September 1998       4.8%-5.4%      450
                               ----     April 1999             7.4%          50
                               $410     February 2000        5.8%-6.6%      300
                               ====     March 2000           5.8%-6.0%      675
                                        September 2000         5.1%          75
                                        March 2027             9.7%         300
                                        December 2036          9.7%         200
                                                                         ------
                                                                         $2,250
                                                                         ======
</TABLE>

      The Company is exposed to credit losses for the periodic settlements of
      amounts due under these interest rate exchange agreements in the event of
      nonperformance by the other parties to the agreements.  However, the
      Company does not anticipate that it will incur any material credit losses
      because it does not anticipate nonperformance by the counterparties.

      The fair value of the interest rate exchange agreements is the estimated
      amount that the Company would pay or receive to terminate the agreements
      at March 31, 1997, taking into consideration current interest rates and
      the current creditworthiness of the counterparties.  At March 31, 1997,
      the Company would be required to pay an estimated $47 million to
      terminate the Fixed Rate Agreements and an estimated $7 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.


                                                                     (continued)

                                      I-15

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

                   Notes to Consolidated Financial Statements


(8)   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
      --------------------------------  -------------  -----------
      <S>                               <C>            <C>        
                                                       in millions
      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 losses (earnings) of
      consolidated subsidiaries in the accompanying consolidated financial
      statements.

(9)   Stockholders' Equity

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

      As of March 31, 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 ("TINTA") and (iii) TCI's
      Technology/Venture Capital unit.  Such subsidiaries and assets are
      referred to as "TCI Group".


                                                                     (continued)

                                      I-16

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

                   Notes to Consolidated Financial Statements


      Notwithstanding the attribution of assets and liabilities, equity and
      items of income and expense to TCI Group or to Liberty Media Group for
      purposes of preparing their combined financial statements, the change in
      the capital structure of TCI 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 March 31, 1997, no shares of Telephony Group Stock
      have been issued.

      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 March 31, 1997, but is subject to
      future adjustment based upon market value, and ultimately, on the final
      determination of market value when the rights are exercised or the
      restricted stock awards are vested.

      Other

      At March 31, 1997, there were 126,384,805 shares of Series A TCI Group
      Stock and 30,616,358 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.


                                                                     (continued)

                                      I-17

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

                   Notes to Consolidated Financial Statements


(10)  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 March 31, 1997,
      these agreements require minimum payments aggregating approximately $651
      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 March 31, 1997,
      such commitments aggregated $215 million.

      The Company has guaranteed notes payable and other obligations of
      affiliated and other companies with outstanding balances of approximately
      $252 million at March 31, 1997.  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-18

<PAGE>   20
                   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 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 6 to
the accompanying consolidated financial statements.


                                                                     (continued)

                                      I-19

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


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

     At March 31, 1997, subsidiaries of the Company had approximately $2.0
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 (which
relate primarily to the maintenance of certain ratios of cash flow to total
debt and cash flow to debt service, as defined in the credit facilities) after
giving effect to such additional borrowings.  See note 7 to the accompanying
consolidated financial statements for additional information regarding the
material terms of the subsidiaries' lines of credit.

     One measure of liquidity is commonly referred to as "interest coverage."
Interest coverage, which is measured by the ratio of Operating Cash Flow
(operating income before depreciation, amortization, compensation relating to
stock appreciation rights and adjustments to compensation relating to stock
appreciation rights) ($738 million and $533 million for the three months ended
March 31, 1997 and 1996, respectively) to interest expense ($289 million and
$261 million for the three months ended March 31, 1997 and 1996, respectively),
is determined by reference to the consolidated statements of operations.  The
Company's interest coverage ratio was 255% and 204% for the three months ended
March 31, 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, almost
half 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 ($239 million and $317 million for the
three months ended March 31, 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.  Historically, amounts
expended by the Company for its investing activities have exceeded net cash
provided by operating activities.  However, management believes that net cash
provided by operating activities, the ability of the Company and its
subsidiaries to obtain additional financing (including the subsidiaries
available lines of credit and access to public debt markets), issuances and
sales of the Company's equity or equity of its subsidiaries, and proceeds from
disposition of assets will provide adequate sources of short-term and long-term
liquidity in the future.  See the Company's consolidated statements of cash
flows included in the accompanying consolidated financial statements.


                                                                     (continued)

                                      I-20

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


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

     The Company's subsidiaries generally finance acquisitions and capital
expenditures through net cash provided by operating and financing activities.
Historically, amounts expended for acquisitions, investments and capital
expenditures 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 $90 million during the three months
ended March 31, 1997, as compared to $423 million during the corresponding
period in 1996.  The Company currently estimates that it will spend
approximately $750 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.

     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 March 31, 1997, these agreements require minimum payments aggregating
approximately $651 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 March 31, 1997, such
commitments aggregated $215 million.

     The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $252
million at March 31, 1997.  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)
and through net cash provided by their own operating activities.

                                                                     (continued)

                                      I-21

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


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

     In order to achieve the desired balance between variable and fixed rate
indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements.  Pursuant to the interest rate exchange agreements, 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 March 31, 1997 and (ii)
pays variable interest rates and receives fixed interest rates ranging from
4.8% to 9.7% on notional amounts of $2,250 million at March 31, 1997.  During
the three months ended March 31, 1997 and 1996, the Company's net receipts
pursuant to the Fixed Rate Agreements were $3 million and $5 million,
respectively; and the Company's net receipts pursuant to the Variable Rate
Agreements were $1 million and $8 million, respectively.  The Company is
exposed to credit losses for the periodic settlements of amounts due under the
interest rate exchange agreements in the event of nonperformance by the other
parties to the agreements.  However, the Company does not anticipate that it
will incur any material credit losses because it does not anticipate
nonperformance by the counterparties.

     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 March 31, 1997, no
shares of Telephony Group Stock have been issued.

     TCI is considering the creation of new series of its common stock which
would be intended to reflect the performance of substantially all of TCI
Group's international and non-cable assets.  To do this, TCI is contemplating
amending the recently approved Telephony Group Stock to expand that group to
track such assets, including TCI's investments in At Home Corporation,
Tele-Communications International, Inc., United Video Satellite Group, Inc. and
others.  The tracking stock may be issued through an exchange offer whereby the
Company's stockholders will have the opportunity to exchange their TCI Group
Stock for tracking stock of the new group.

     On April 21, 1997, TCI announced that it had entered into an agreement to
merge Kearns-Tribune Corporation into a wholly-owned TCI subsidiary.  The
merger is valued at approximately $627 million.  Pursuant to the merger
agreement, TCI would exchange shares of Series A TCI Group Stock for shares of
Kearns-Tribune Corporation which holds 17.9 million shares of TCI Group Stock
and 6.7 million shares of Liberty Group Stock.  Liberty Media Group intends to
purchase from TCI Group the 6.7 million shares that would be acquired in such
transaction at market valuations to be determined at the time of the merger
closing.

                                                                     (continued)

                                      I-22

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




(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.  At March 31, 1997, approximately
79% of the Company's basic customers were served by cable television systems
that were subject to such rate regulation.

     During the three months ended March 31, 1997, 65% of the Company's revenue
from Communications and Programming Services was derived from Regulated
Services.  As noted above, any increases in rates charged for Regulated
Services are regulated by the Cable Acts.  Moreover, competitive factors may
limit the Company's ability to increase its service rates.

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

     Revenue from communications and programming services increased 14% for the
three months ended March 31, 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 5% of such increase as a result of an
11% increase in the Company's average basic rate, a 1% increase in the
Company's average premium rate and a 3% decrease in the number of average
premium subscribers.  The number of average basic customers increased less than
1% from 1996 to 1997.  The Company's revenue from domestic cable operations
aggregated $1,556 million and $1,333 million for the three months ended March
31, 1997 and 1996, respectively.  In addition, the Company's revenue from
communications and programming services increased 15% due to acquisitions and
decreased 5% due to the deconsolidation of the Company's sports programming
businesses (see discussion below) and decreased 5% due to the Satellite
Spin-off.  Increases in the Company's domestic programming revenue (from Encore
Media Corporation and QE+), international cable revenue and other revenue
accounted for the remaining 4% increase.

     As of April 29, 1996, Liberty Media Group, The News Corporation Limited
("News Corp.") and TINTA formed two sports programming ventures.  In the United
States, Liberty Media Group and News Corp. formed Liberty/Fox U.S. Sports LLC
("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-23

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


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

     Internationally, News Corp. and a limited liability company
("Liberty/TINTA") formed Liberty Media Group and TINTA formed a venture ("Fox
Sports International") to operate previously existing sports services in Latin
America 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 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.

     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 4 to the accompanying consolidated financial statements.

     Operating Costs and Expenses

     Operating expenses increased 5% for the three months ended March 31, 1997,
as compared to the corresponding period of 1996.  Exclusive of the effects of
acquisitions, net of dispositions, such expenses increased 8%.  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 22% for the three
months ended March 31, 1997, as compared to the corresponding period of 1996.
Exclusive of the effects of acquisitions, net of dispositions, such expenses
decreased 3%.  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.

     The decrease in the Company's depreciation expense in 1997 is the result
of the net effect of a decrease due to the Satellite Spin-off partially 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-24

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


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

     Other Income and Expenses

     At March 31, 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 March 31,
1997 of $427 million and comprised $42 million and $31 million of the Company's
share of its affiliates' losses during the three months ended March 31, 1997
and 1996, respectively.  In addition, 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, such other
equity method investments had a carrying value of $373 million at March 31,
1997 and accounted for $22 million and $18 million of the Company's share of
its affiliates' losses for the three months ended March 31, 1997 and 1996,
respectively.  Additionally, included in share of losses of affiliates for the
three months ended March 31, 1997 and 1996 is $64 million and $53 million,
respectively, attributable to the Sprint PCS Partnerships.  Such 1996 amount
includes $34 million associated with prior periods.

     Minority interests in earnings of consolidated subsidiaries aggregated $38
million for the three months ended March 31, 1997, as compared to minority
interests in losses of consolidated subsidiaries for the corresponding period
in 1996.  Such change is due primarily to the accrual of dividends on the Trust
Preferred Securities in 1997.  See note 8 to the accompanying consolidated
financial statements.

     Net Loss

     The Company's net loss (before preferred stock dividend requirements) of
$58 million for the three months ended March 31, 1997 represents an improvement
of $63 million, as compared to the Company's net loss (before preferred stock
dividend requirements) of $121 million for the three months ended March 31,
1996.  Such change is primarily the net result of an increase in operating
income partially offset by increases in share of losses of affiliates,
dividends on the Trust Preferred Securities reflected as minority interests in
earnings of consolidated subsidiaries and interest expense.



                                      I-25
<PAGE>   27
                                  "TCI GROUP"
            (a combination of certain assets, as defined in note 1)


                            Combined Balance Sheets
                                  (unaudited)



<TABLE>
<CAPTION>
                                                          March 31,    December 31,
                                                            1997          1996
                                                          --------     -----------
Assets                                                      amounts in millions
------
<S>                                                       <C>            <C>
Cash and cash equivalents                                 $    132            56
Trade and other receivables, net                               429           423
Prepaid expenses                                                82            80
Prepaid program rights                                          24            17
Committed film inventory                                        66           116
Investments in affiliates, accounted for under the                        
 equity method, and related receivables (note 4)             2,333         2,457
Property and equipment, at cost:                                          
 Land                                                           76            77
 Distribution systems                                       10,368        10,072
 Support equipment and buildings                             1,501         1,529
                                                          --------      --------
                                                            11,945        11,678
 Less accumulated depreciation                               4,267         4,160
                                                          --------      --------
                                                             7,678         7,518
                                                          --------      --------

Franchise costs                                             18,416        17,875
 Less accumulated amortization                               2,505         2,439
                                                          --------      --------
                                                            15,911        15,436
                                                          --------      --------

Other assets, net of amortization                              880         1,051
                                                          --------      --------
                                                          $ 27,535        27,154
                                                          ========      ========
</TABLE>

                                                                     (continued)


                                      I-26

<PAGE>   28




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



                       Combined Balance Sheets, continued
                                  (unaudited)



<TABLE>
<CAPTION>
                                                          March 31,    December 31,
                                                            1997          1996
                                                          --------     -----------
Liabilities and Combined Equity                             amounts in millions
-------------------------------
<S>                                                      <C>         <C>
Accounts payable                                          $   137           216

Accrued interest                                              168           274

Accrued programming expense                                   334           313

Other accrued expenses                                        800           787

Debt (note 6)                                              15,049        14,924

Deferred income taxes                                       5,367         5,430

Other liabilities                                             229           235
                                                          -------       -------
  Total liabilities                                        22,084        22,179
                                                          -------       -------
Minority interests in equity of consolidated                            
 subsidiaries                                               1,298         1,454

Redeemable preferred stock                                    655           658
                                                                        
Company-obligated mandatorily redeemable preferred                      
 securities of subsidiary trusts ("Trust Preferred                      
 Securities") holding solely subordinated debt                          
 securities of TCI Communications, Inc. ("TCIC")                        
 (note 7)                                                   1,502         1,000

Combined equity (note 8):                                               
 Combined equity, including preferred stocks of                         
  Tele-Communications, Inc. ("TCI")                         2,039         1,864
 Cumulative foreign currency translation adjustment,                    
  net of taxes                                                  5            26
 Unrealized holding gains for available-for-sale                        
  securities, net of taxes                                     11            15
 Due from Liberty Media Group                                 (59)          (42)
                                                          -------       -------
   Combined equity                                          1,996         1,863
                                                          -------       -------
Commitments and contingencies (note 10)                   
                                                          $27,535        27,154
                                                          =======       =======
</TABLE>

See accompanying notes to combined financial statements.

                                      I-27

<PAGE>   29



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



                       Combined Statements of Operations
                                  (unaudited)


<TABLE>
<CAPTION>
                                                          Three months ended  
                                                              March 31,       
                                                          ------------------  
                                                          1997          1996  
                                                          ----          ----  
                                                         amounts in millions,
                                                       except per share amounts
<S>                                                       <C>           <C>   
Revenue                                                    $1,791         1,469
                                                                         
Operating costs and expenses:                                            
 Operating                                                    676           545
 Programming charges from Liberty Media Group                            
  (note9)                                                      23            29
 Selling, general and administrative                          381           408
 Charges to Liberty Media Group (note 9)                       (2)           (6)
 Compensation (adjustment to compensation) relating                      
  to stock appreciation rights (notes 8 and 10)                10            (8)
 Depreciation                                                 240           246
 Amortization                                                 133           105
                                                           ------        ------
                                                            1,461         1,319
                                                           ------        ------
   Operating income                                           330           150
Other income (expense):                                                  
 Interest expense                                            (289)         (255)
 Interest and dividend income                                  10             8
 Share of losses of affiliates, net (note 4)                 (159)         (123)
 Minority interests in losses (earnings) of                              
  consolidated subsidiaries, net                              (33)            5
 Gain on disposition of assets                                 19             8
 Other, net                                                    (2)            4
                                                           ------        ------
                                                             (454)         (353)
                                                           ------        ------
   Loss before income taxes                                  (124)         (203)
Income tax benefit                                             50            67
                                                           ------        ------
   Net loss                                                   (74)         (136)
Dividend requirements on preferred stocks                     (10)           (9)
                                                           ------        ------
  Net loss attributable to common stockholders             $  (84)         (145)
                                                           ======        ======
Loss attributable to common stockholders per common                      
 share (note 2)                                            $ (.12)         (.22)
                                                           ======        ======
</TABLE>

See accompanying notes to combined financial statements.

                                      I-28

<PAGE>   30



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



                          Combined Statement of Equity

                       Three months ended March 31, 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                                        (74)       --            --         --        (74)  
 Purchase of programming from Liberty                                                                
   Media Group                                    --        --            --         23         23   
 Cost allocations to Liberty Media Group          --        --            --         (2)        (2)  
 Adjustment to allocation of compensation                                                            
   relating to stock appreciation rights          --        --            --         (1)        (1)  
 Intergroup tax allocation to Liberty                                                                 
   Media Group                                    --        --            --        (14)       (14)  
 Net cash transfers to Liberty Media Group        --        --            --        (23)       (23)  
 Change in unrealized gains for                                                                      
   available-for-sale securities                  --        --            (4)        --         (4)  
 Foreign currency translation adjustment          --       (21)           --         --        (21)  
 Accreted dividends on TCI preferred                                                                 
   stock subject to mandatory redemption                                                                
   requirements                                   (8)       --            --         --         (8)  
 Payment of TCI preferred stock dividends        (10)       --            --         --        (10)  
 Issuance of TCI Group common stock for                                                              
   acquisition                                   258        --            --         --        258   
 Issuance of TCI common stock upon                                                                   
   conversion of notes                             3        --            --         --          3   
 Issuance of TCI Group common stock                                                              
   to TCI Employee Stock Purchase Plan             6        --            --         --          6   
                                              ------      ----         -----      -----     ------   
Balance at March 31, 1997                     $2,039         5            11        (59)     1,996   
                                              ======      ====         =====      =====     ======   
</TABLE>

See accompanying notes to combined financial statements.

                                      I-29

<PAGE>   31



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



                       Combined Statements of Cash Flows
                                  (unaudited)

<TABLE>
<CAPTION>
                                                             Three months ended  
                                                                 March 31,       
                                                             ------------------  
                                                             1997          1996  
                                                             ----          ----  
                                                             amounts in millions,
                                                                 (see note 3)
<S>                                                           <C>         <C>
Cash flows from operating activities:
 Net loss                                                     $ (74)       (136)
 Adjustments to reconcile net loss to net cash provided
  by operating activities:
   Depreciation and amortization                                373         352
   Compensation (adjustment to compensation) relating
    to stock appreciation rights                                 10          (8)
   Payments of stock appreciation rights                         (1)         (2)
   Share of losses of affiliates                                159         123
   Minority interests in earnings (losses)                       33          (5)
   Gain on disposition of assets                                (19)         (8)
   Intergroup tax allocation                                    (14)         (5)
   Deferred income tax benefit                                  (63)        (64)
   Payments of restructuring charges                            (16)         --
   Other noncash charges (credits)                                3          (6)
  Changes in operating assets and liabilities, net of
   the effect of acquisitions:
    Change in receivables                                       (15)         52
    Change in prepaids                                          (26)         (4)
    Change in accruals and payables                             (31)         50
    Change in accrued interest                                 (112)        (51)
                                                              -----      ------
     Net cash provided by operating activities                  207         288
                                                              -----      ------
Cash flows from investing activities:                                    
 Cash paid for acquisitions                                    (156)         (3)
 Capital expended for property and equipment                    (90)       (418)
 Additional investments in and loans to affiliates and                   
  others                                                        (29)        (87)
 Repayment of loans to affiliates                               120           6
 Proceeds from dispositions of assets                           140          39
 Cash received in exchanges                                      22          50
 Change in due from Liberty Media Group                          (2)          1
 Other investing activities                                    (104)        (47)
                                                              -----      ------
     Net cash used in investing activities                      (99)       (459)
                                                              -----      ------
Cash flows from financing activities:                                    
 Borrowings of debt                                             361       1,474
 Repayments of debt                                            (817)     (1,819)
 Proceeds from issuance of common stock                           3          --
 Proceeds from issuance of Trust Preferred Securities           490         486
 Proceeds from issuance of subsidiary preferred stock            --         223
 Distribution to minority interest                               (7)         --
 Payment for repurchase of subsidiary common stock               (7)         --
 Payment of preferred stock dividends                           (21)        (21)
 Payment of dividends on subsidiary preferred stock and                  
  Trust Preferred Securities                                    (34)         --
                                                              -----      ------
     Net cash provided (used) by financing activities           (32)        343
                                                              -----      ------
     Net increase in cash and cash equivalents                   76         172
     Cash and cash equivalents at beginning of period            56          77
                                                              -----      ------
     Cash and cash equivalents at end of period               $ 132         249
                                                              =====      ======
</TABLE>

See accompanying notes to combined financial statements.

                                      I-30

<PAGE>   32




                                  "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
      be 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 business
      which produces and distributes 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 March 31, 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 ("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-31

<PAGE>   33




                                  "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 loss attributable to TCI Group Stock stockholders per common share
      for the three months ended March 31, 1997 and 1996 was computed by
      dividing net loss  attributable to TCI Group Series A and Series B common
      stockholders by the weighted average number of common shares outstanding
      of TCI Group Series A and Series B common stock during the period (678.0
      million and 659.3 million, respectively).  Common stock equivalents were
      not included in the computation of weighted average shares outstanding
      because their inclusion would be anti-dilutive.

      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.

(3)   Supplemental Disclosures to Combined Statements of Cash Flows

      Cash paid for interest was $401 million and $308 million for the three
      months ended March 31, 1997 and 1996, respectively.  Cash paid for income
      taxes during these periods was not material.

                                                                     (continued)

                                      I-32

<PAGE>   34




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

                     Notes to Combined Financial Statements



      Significant noncash investing and financing activities are as follows:


<TABLE>
<CAPTION>
                                                             Three months ended  
                                                                 March 31,       
                                                             ------------------  
                                                             1997          1996  
                                                             ----          ----  
                                                             amounts in millions,
<S>                                                       <C>         <C>
Cash paid for acquisitions:
Fair value of assets acquired                                $1,065       1,130
Liabilities assumed, net of current assets                     (616)       (374)
Deferred tax liability recorded in acquisitions                 (34)       (240)
Minority interests in equity of acquired entities                (1)        (52)
Common stock and preferred stock issued in acquisition         (258)       (461)
                                                             ------      ------
  Cash paid for acquisitions                                 $  156           3
                                                             ======      ======
Cash received in exchanges:                                              
Aggregate cost basis of assets acquired                      $ (294)       (193)
Historical cost of assets exchanged                             305         222
Gain recorded on exchange of assets                              11          21
                                                             ------      ------
  Cash received in exchanges                                 $   22          50
                                                             ======      ======
Change in unrealized gains, net of deferred income                       
  taxes, on available-for-sale securities                    $    4          40
                                                             ======      ======
Effect of foreign currency translation adjustment on                     
  book value of foreign equity investments                   $   21           7
                                                             ======      ======
Accrued preferred stock dividends                            $    8           7
                                                             ======      ======
</TABLE>

(4)   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 March 31, 1997.


<TABLE>
<CAPTION>
                                                   March 31, 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% - 35.3%      $728
Teleport Communications Group, L.P.                 31.1%       263
Telewest Communications plc ("Telewest")              27%       427
Various foreign equity investments (other                      
 than Telewest)                                   various       373
</TABLE>                                     

                                                                     (continued)

                                      I-33

<PAGE>   35




                                  "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>
                                 Three months ended
Combined Operations                  March 31,
-------------------            ----------------------
                                  1997         1996
                                  ----         ----
                                amounts in millions
<S>                              <C>         <C>
Revenue                          $ 640          568
Operating expenses                (663)        (538)
Depreciation and amortization     (220)        (113)
                                 -----        -----
Operating loss                    (243)         (83)
Interest expense                  (139)         (81)
Other, net                        (111)           4
                                 -----        -----
Net loss                         $(493)        (160)
                                 =====        =====
</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" brand
      (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 35.3% interest as a partner
      in PhillieCo.  During the three months ended March 31, 1997 and 1996, the
      Sprint PCS Partnerships contributed $64 million and $53 million,
      respectively, to TCI Group's share of affiliate losses.  Such 1996 amount
      includes $34 million related to prior periods.

      The Sprint PCS Partnerships have licenses, and have affiliated with other
      entities (including PhillieCo) that have licenses, to provide PCS service
      to MTAs (or metropolitan trading areas) covering over 190 million "Pops"
      (or population equivalents).  The Sprint PCS Partnerships' licenses,
      which cover 29 markets, 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.  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, 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.
      During December 1996, the Sprint PCS Partnerships initiated the
      commercial launch of PCS service in seven markets.

                                                                     (continued)

                                      I-34

<PAGE>   36




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

                     Notes to Combined Financial Statements



      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 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
      second 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 extend 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.

      Telewest is a company that is currently operating and constructing cable
      television and telephone systems in the United Kingdom ("UK").  Telewest
      contributed $42 million and $31 million of TCI Group's share of its
      affiliates' losses during the three months ended March 31, 1997 and 1996,
      respectively.  In addition, TCI Group has other less significant equity
      method investments in video distribution and programming businesses
      located in the UK, other parts of Europe, Asia, Latin America and certain
      other foreign countries.  In the aggregate, such other equity method
      investments accounted for $22 million and $18 million of TCI Group's
      share of its affiliates' losses in 1997 and 1996, respectively.

      Certain of TCI Group's affiliates are general partnerships and any
      subsidiary of TCI Group that is a general partner in a general
      partnership is, as such, liable as a matter of partnership law for all
      debts of that partnership in the event liabilities of that partnership
      were to exceed its assets.

(5)   Acquisitions

      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.
                                                                     (continued)

                                      I-35

<PAGE>   37




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

                     Notes to Combined Financial Statements



      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.

(6) Debt

     Debt is summarized as follows:

<TABLE>
<CAPTION>
                           March 31,   December 31,
                             1997        1996
                           --------    ------------
                            amounts in millions
<S>                     <C>         <C>
Notes payable              $ 9,254         9,308
Bank credit facilities       5,219         4,811
Commercial paper               404           638
Convertible notes (a)           41            43
Other debt                     131           124
                           -------       -------    
                           $15,049        14,924    
                           =======       =======    
</TABLE>

      (a)  These convertible notes, which are stated net of unamortized
           discount of $168 million and $178 million at March 31, 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 March 31, 1997, the notes were convertible,
           at the option of the holders, into an aggregate of 34,933,772 shares
           of Series A TCI Group Stock and 13,100,153 shares of Series A
           Liberty Group Stock.

                                                                     (continued)


                                      I-36

<PAGE>   38




                                  "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 current market prices for the same or similar issues or on the
      current rates offered to TCI Group for debt of the same remaining
      maturities.  The fair value of debt, which has a carrying value of
      $15,049 million, was $15,098 million at March 31, 1997.

      In order to achieve the desired balance between variable and fixed rate
      indebtedness, TCI Group has entered into various interest rate exchange
      agreements pursuant to which it (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 March 31, 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 $2,250 million at March 31, 1997.  During the three months
      ended December 31, 1997 and 1996, TCI Group's net receipts pursuant to
      the Fixed Rate Agreements were $3 million and $5 million, respectively;
      and TCI Group's net receipts pursuant to the Variable Rate Agreements
      were $1 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     April 1997              7.0%     $  200 
December 1997         8.7%      230     September 1998     4.8%-5.4%        450 
                               ----     April 1999              7.4%         50 
                               $410     February 2000      5.8%-6.6%        300 
                               ====     March 2000         5.8%-6.0%        675 
                                        September 2000          5.1%         75 
                                        March 2027              9.7%        300 
                                        December 2036           9.7%        200 
                                                                         ------ 
                                                                         $2,250 
                                                                         ====== 
</TABLE>

                                                                     (continued)


                                      I-37

<PAGE>   39




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

                     Notes to Combined Financial Statements



      TCI Group is exposed to credit losses for the periodic settlements of
      amounts due under these interest rate exchange agreements in the event of
      nonperformance by the other parties to the agreements.  However, TCI
      Group does not anticipate that it will incur any material credit losses
      because it does not anticipate nonperformance by the counterparties.

      The fair value of the interest rate exchange agreements is the estimated
      amount that TCI Group would pay or receive to terminate the agreements at
      March 31, 1997, taking into consideration current interest rates and the
      current creditworthiness of the counterparties.  At March 31, 1997, TCI
      Group would be required to pay an estimated $47 million to terminate the
      Fixed Rate Agreements and an estimated $7 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.

(7)   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
--------------------------------  -------------  -----------
<S>                               <C>            <C>
                                                 in millions
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.

                                                                     (continued)

                                      I-38

<PAGE>   40



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

                     Notes to Combined Financial Statements



      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 losses (earnings) of
      consolidated subsidiaries in the accompanying combined financial
      statements.

(8)   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.

      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
      (see note 1) and, ultimately, on the final determination of market value
      when the rights are exercised or the restricted shares are vested.

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

      Certain TCI corporate general and administrative costs are charged to
      Liberty Media Group at rates set at the beginning of the year based on
      projected utilization for that year.  The utilization-based charges are
      set at levels that management believes to be reasonable and that
      approximate the costs Liberty Media Group would incur for comparable
      services on a stand-alone basis.  During each of the three month periods
      ended March 31, 1997 and 1996, Liberty Media Group was allocated less
      than $1 million, in corporate general and administrative costs by TCI
      Group.

      TCI Group has 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 hold the
      remaining 49.9% partnership interest.  TCI Group consolidates its
      interest in QE+.

                                                                     (continued)

                                      I-39

<PAGE>   41




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

                     Notes to Combined Financial Statements



      The QE+ limited partnership agreement provides that TCI Group will be
      required to make special capital contributions to QE+ through July 1,
      2005, up to a maximum amount of $350 million, approximately $213 million
      of which was paid through March 31, 1997.  QE+ is obligated to pay TCI
      Group a preferred return of 10% per annum on the first $200 million of
      its special capital contributions beginning five years from the date of
      the contribution or five years from January 1, 1996, whichever is later.
      Any TCI Group special capital contributions in excess of $200 million
      will be entitled to a preferred return of 10% per annum from the date of
      the contribution.  QE+ is required to apply 75% of its available cash
      flow, as defined, to repay the TCI Group special capital contributions
      and any preferred return payable thereon.  To the extent such special
      capital contributions are insufficient to fund the cash requirements of
      QE+, TCI Group and Liberty Media Group will each have the option to fund
      such cash requirements in proportion to their respective ownership
      percentages.

      Liberty Media Group also has the right to acquire an additional 10.1%
      general partnership interest in QE+ based on a formula designed to
      approximate the fair value of such interest.  Such right is exercisable
      for a period of ten years beginning January 1, 1999 after QE+ has had
      positive cash flow for two consecutive calendar quarters.  The right is
      exercisable only after all special capital contributions from TCI Group
      have been repaid, including any preferred return as discussed above.

      Encore Media Corporation (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 $2 million and $1 million for the three months ended
      March 31, 1997 and 1996, respectively.  The Content Fee agreement expires
      on June 30, 2001, subject to renewal on an annual basis thereafter.
      Payment of the Content Fee will be subordinated to the repayment of the
      contributions made by TCI Group and the preferred return thereon.

      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 three months ended March 31,
      1997 and 1996, aggregated $2 million and $3 million, respectively.

      Certain subsidiaries attributed to Liberty Media Group produce and/or
      distribute sports and other programming to cable television operators
      (including TCI Group) and others.  Charges to TCI Group are based upon
      customary rates charged to others.

      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-40

<PAGE>   42




                                  "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.

      For all periods prior to the Distribution, all financial impacts of
      equity offerings were attributed entirely to TCI Group.  After the
      Distribution, all financial impacts of issuances of additional shares of
      TCI Group Stock 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 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.

      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-41

<PAGE>   43




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

                     Notes to Combined Financial Statements



(10)  Commitments and Contingencies

      TCI Group has guaranteed notes payable and other obligations of
      affiliated and other companies with outstanding balances of approximately
      $252 million at March 31, 1997.  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 March
      31, 1997, these agreements require minimum payments aggregating $324
      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 March 31, 1997,
      such commitments aggregated $215 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.

      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-42

<PAGE>   44




                                  "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 March 31, 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.

                                                                     (continued)

                                      I-43

<PAGE>   45




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



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

     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.

     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.


                                                                     (continued)

                                      I-44

<PAGE>   46




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



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

     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.

     Prior to the consummation of the Viacom Acquisition, Viacom offered to the
holders of shares of Viacom Common Stock the opportunity to exchange a portion
of their shares of Viacom Common Stock for shares Cable Sub Class A Stock.
Immediately following the completion of the Exchange Offer, TCI Group acquired
from Cable Sub shares of Cable Sub Class B common stock 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
Exchangeable Preferred Stock.  For additional discussion of the Viacom
Acquisition, see note 5 to the accompanying TCI Group combined financial
statements.

     At March 31, 1997, TCI Group had approximately $1.7 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 (which relate primarily to the maintenance of certain ratios of cash
flow to total debt and cash flow to debt service, as defined in the credit
facilities) after giving effect to such additional borrowings.  See note 6 to
the accompanying combined financial statements for additional information
regarding the material terms of the lines of credit.

                                                                     (continued)

                                      I-45

<PAGE>   47




                                  "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 ($713 million and $493 million for the three months ended
March 31, 1997 and 1996, respectively) to interest expense ($289 million and
$255 million for the three months ended March 31, 1997 and 1996, respectively),
is determined by reference to the combined statements of operations.  TCI
Group's interest coverage ratio was 247% and 193% for the three months ended
March 31, 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, almost
half 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 ($207 million and $288 million for the three
months ended March 31, 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.  Historically, amounts expended
by TCI Group for its investing activities have exceeded net cash provided by
operating activities.  However, management believes that net cash provided by
operating activities, the ability of TCI Group to obtain additional financing
(including the available lines of credit and access to public debt markets),
issuances and sales of TCI's equity or equity of its subsidiaries, and proceeds
from disposition of assets will provide adequate sources of short-term and
long-term liquidity in the future.  See TCI Group's combined statements of cash
flows included in the accompanying combined financial statements.

     TCI Group's subsidiaries generally finance acquisitions and capital
expenditures through net cash provided by operating and financing activities.
Historically, amounts expended for acquisitions, investments and capital
expenditures 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 $90 million during the three months
ended March 31, 1997, as compared to $418 million during the corresponding
period in 1996.  TCI Group currently estimates that it will spend approximately
$750 million for capital expenditures during 1997.  To the extent that net cash
provided by operating activities exceeds net cash used in investing activities
in 1997, TCI Group currently anticipates that such excess cash will initially
be used to reduce outstanding debt.

                                                                     (continued)

                                      I-46

<PAGE>   48




                                  "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 $252 million at
March 31, 1997.  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 March 31, 1997, these agreements require minimum payments
aggregating approximately $324 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 March 31, 1997, such
commitments aggregated $215 million.

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

     In order to achieve the desired balance between variable and fixed rate
indebtedness and to diminish its exposure to extreme increases in variable
interest rates, TCI Group has entered into various interest rate exchange
agreements.  Pursuant to the interest rate exchange agreements, 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 March 31, 1997 and (ii)
pays variable interest rates and receives fixed interest rates ranging from
4.8% to 9.7% on notional amounts of $2,250 million at March 31, 1997.  During
the three months ended March 31, 1997 and 1996, TCI Group's net receipts
pursuant to the Fixed Rate Agreements were $3 million and $5 million,
respectively; and TCI Group's net receipts pursuant to the Variable Rate
Agreements were $1 million and $8 million, respectively.  TCI Group is exposed
to credit losses for the periodic settlements of amounts due under the interest
rate exchange agreements in the event of nonperformance by the other parties to
the agreements.  However, TCI Group does not anticipate that it will incur any
material credit losses because it does not anticipate nonperformance by the
counterparties.

                                                                     (continued)

                                      I-47

<PAGE>   49




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



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

     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 March 31, 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.

     TCI is considering the creation of new series of its common stock which
would be intended to reflect the performance of substantially all of TCI
Group's international and non-cable assets.  To do this, TCI is contemplating
amending the recently approved Telephony Group Stock to expand that group to
track such assets, including TCI's investments in At Home Corporation,
Tele-Communications International, Inc., United Video Satellite Group, Inc. and
others.  The tracking stock may be issued through an exchange offer whereby the
Company's shareholders will have the opportunity to exchange their TCI Group
Stock for tracking stock of the new group.

     On April 21, 1997, TCI announced that it had entered into an agreement to
merge Kearns-Tribune Corporation into a wholly-owned TCI subsidiary.  The
merger is valued at approximately $627 million.  Pursuant to the merger
agreement, TCI would exchange shares of Series A TCI Group Stock for shares of
Kearns-Tribune Corporation which holds 17.9 million shares of TCI Group Stock
and 6.7 million shares of Liberty Group Stock.  Liberty Media Group intends to
purchase from TCI Group the 6.7 million shares that would be acquired in such
transaction at market valuations to be determined at the time of the merger
closing.

(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.  At December 31, 1996, approximately 79% of
TCI Group's basic customers were served by cable television systems that were
subject to such rate regulation.

     During the year ended December 31, 1996, 67% 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.

                                                                     (continued)

                                      I-48

<PAGE>   50




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



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

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

     Revenue increased 22% for the three months ended March 31, 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
6% of such increase as a result of an 11% increase in TCI Group's average basic
rate, a 1% increase in TCI Group's average premium rate and a 3% decrease in
the number of average premium subscribers.  The number of average basic
customers increased less than 1% from 1996 to 1997.  In addition, TCI Group's
revenue increased 19% due to acquisitions and decreased 6% due to the Satellite
Spin-off.  International cable revenue and other revenue accounted for the
remaining 3% increase in revenue.

     Operating expenses increased 24% for the three months ended March 31,
1997, respectively, as compared to the corresponding period of 1996.  Exclusive
of the effects of acquisitions, net of dispositions, such expenses increased
7%.  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 7% for the three
months ended March 31, 1997, as compared to the corresponding period of 1996.
Exclusive of the effects of acquisitions, net of dispositions, such expenses
decreased 4%.  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.

     The decrease in TCI Group's depreciation expense in 1997 is the result of
the net effect of a decrease due to the Satellite Spin-off partially 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 three month periods ended March 31, 1997 and 1996, Liberty
Media Group was allocated less than $1 million in corporate general and
administrative costs by TCI Group.

                                                                     (continued)

                                      I-49

<PAGE>   51




                                  "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.

     At March 31, 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 March 31,
1997 of $427 million and comprised $42 million and $31 million of TCI Group's
share of its affiliates' losses during the three months ended March 31, 1997
and 1996, respectively.  In addition, 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, such other
equity method investments had a carrying value of $373 million at March 31,
1997 and accounted for $22 million and $18 million of TCI Group's share of its
affiliates' losses for the three months ended March 31, 1997 and 1996,
respectively.  Additionally, included in share of losses of affiliates for the
three months ended March 31, 1997 and 1996, is $64 million and $53 million,
respectively, attributable to the Sprint PCS Partnerships.  Such 1996 amount
includes $34 million associated with prior periods.

     Minority interests in earnings of consolidated subsidiaries aggregated $33
million for the three months ended March 31, 1997, as compared to minority
interests in losses of consolidated subsidiaries for the corresponding period
in 1996.  Such change is due primarily to the accrual of dividends on the Trust
Preferred Securities in 1996.  See note 7 to the accompanying combined
financial statements.

     TCI Group's net loss (before preferred stock dividend requirements) of $74
million for the three months ended March 31, 1997 represents an improvement of
$62 million, as compared to TCI Group's net loss (before preferred stock
dividend requirements) of $136 million for the three months ended March 31,
1996.  Such change is the net result of an increase in operating income
partially offset by increases in share of losses of affiliates, dividends on
the Trust Preferred Securities reflected as minority interests in earnings of
consolidated subsidiaries and interest expense.



                                      I-50
<PAGE>   52

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

                            Combined Balance Sheets
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                         March 31,            December 31,
                                                                            1997                 1996         
                                                                       -------------          ------------
Assets                                                                         amounts in thousands
------                                                                                             
<S>                                                                    <C>                       <C>
Cash and cash equivalents                                              $     352,314               317,359

Trade and other receivables, net                                              25,703                24,796

Prepaid program rights                                                        33,827                32,063

Committed film inventory                                                      23,472                20,092

Investments in affiliates, accounted for under the equity method,
   and related receivables (note 4)                                          551,553               545,121

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

Other investments, at cost, and related receivables (note 6)                  81,542                81,537

Property and equipment, at cost:
   Land                                                                           39                    39
   Support equipment and buildings                                            18,190                17,756
                                                                       -------------          ------------
                                                                              18,229                17,795
   Less accumulated depreciation                                               8,451                 7,846
                                                                       -------------          ------------
                                                                               9,778                 9,949
                                                                       -------------          ------------
                                                                                              
Other assets, at cost, net of amortization                                    11,746                11,236
                                                                       -------------          ------------
                                                                                              
                                                                       $   3,106,734             3,058,952
                                                                       =============          ============
</TABLE>

                                                                     (continued)



                                      I-51
<PAGE>   53


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



                       Combined Balance Sheets, continued
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                         March 31,            December 31,
                                                                            1997                 1996         
                                                                       -------------          ------------
Liabilities and Combined Equity                                                 amounts in thousands
-------------------------------                                                                     
<S>                                                                    <C>                       <C>
Accounts payable and accrued liabilities                               $      19,006               19,397

Accrued compensation relating to phantom rights (note 9)                      22,334               17,758
                                                                                             
Program rights payable                                                        37,703               33,700
                                                                                             
Deferred revenue                                                               5,702                6,166
                                                                                             
Debt (note 7)                                                                     --                1,620
                                                                                             
Deferred income taxes                                                        579,345              582,089
                                                                       -------------         ------------
                                                                                             
   Total liabilities                                                         664,090              660,730
                                                                       -------------         ------------
                                                                                             
Minority interests in equity of consolidated subsidiaries                     10,666                1,052
                                                                                             
Combined equity (note 8):                                                                    
   Combined equity                                                         2,372,687            2,355,021
   Due to TCI Group                                                           59,291               42,149
                                                                       -------------         ------------
                                                                           2,431,978            2,397,170
                                                                       -------------         ------------
                                                                                             
Commitments and contingencies (note 9)
                                                                       $   3,106,734            3,058,952
                                                                       =============         ============
</TABLE>


See accompanying notes to combined financial statements.





                                      I-52
<PAGE>   54


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



                       Combined Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>                                                                     Three months ended
                                                                                    March 31, 
                                                                       ----------------------------------
                                                                            1997               1996         
                                                                       -------------       --------------
                                                                               amounts in thousands

<S>                                                                 <C>                         <C>
Revenue:
  Programming services:
     From TCI Group (note 8)                                           $     22,511              28,870
     From others                                                             36,848             136,146
  Net sales from electronic retailing services                                   --             255,613
                                                                       ------------         -----------
                                                                             59,359             420,629
                                                                       ------------         -----------
                                                                                               
Cost of sales, operating costs and expenses:                                                   
  Cost of sales                                                                  --             164,812
  Operating                                                                  19,526             119,310
  Selling, general and administrative                                        12,464              91,159
  Charges by TCI Group (note 8)                                               2,079               5,771
  Compensation relating to phantom rights and stock appreciation                               
     rights (notes 8 and 9)                                                   5,574                  --
  Adjustment to compensation relating to stock appreciation rights                             
     (note 8)                                                                    --              (1,408)
  Depreciation                                                                  605               5,095
  Amortization                                                                  174              13,446
                                                                       ------------         -----------
                                                                             40,422             398,185
                                                                       ------------         -----------
                                                                                               
       Operating income                                                      18,937              22,444
                                                                                               
Other income (expense):                                                                        
  Interest expense                                                             (305)             (6,479)
  Dividend and interest income, primarily from affiliates                    11,035               2,165
  Share of earnings of affiliates, net (note 4)                               7,236               8,299
  Minority interests in earnings of consolidated subsidiaries                (9,614)             (3,484)
  Gain on disposition of assets                                                  --               1,735
  Other, net                                                                    109               2,172
                                                                       ------------         -----------
                                                                              8,461               4,408
                                                                       ------------         -----------

       Earnings before income taxes                                          27,398              26,852
                                                                                               
Income tax expense                                                          (11,786)            (12,011)
                                                                       ------------         ----------- 
                                                                                               
       Net earnings                                                    $     15,612              14,841
                                                                       ============         ===========
                                                                                             
       Earnings per common share (note 2)                              $        .06                 .06
                                                                       ============         ===========
</TABLE>


See accompanying notes to combined financial statements.





                                      I-53
<PAGE>   55


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



                          Combined Statement of Equity

                       Three months ended March 31, 1997
                                  (unaudited)



<TABLE>
<CAPTION>
                                                                                                            Total
                                                             Combined                Due to                combined
                                                              equity                TCI Group               equity   
                                                            ----------        --------------------        ----------
                                                                              amounts in thousands
<S>                                                                                    <C>                 <C>
Balance at January 1, 1997                                  $2,355,021                 42,149              2,397,170

  Net earnings                                                  15,612                     --                 15,612
  Contribution to combined equity for issuance of Liberty                                                  
   Group Stock to TCI Employee Stock Purchase Plan               2,054                     --                  2,054
  Sale of programming to TCI Group                                  --                (22,511)               (22,511)
  Cost allocations from TCI Group                                   --                  2,079                  2,079
  Compensation relating to stock appreciation rights                --                    998                    998
  Intergroup tax allocation                                         --                 14,128                 14,128
  Net cash transfers from TCI Group                                 --                 22,448                 22,448
                                                            ----------              ---------              ---------
Balance at March 31, 1997                                   $2,372,687                 59,291              2,431,978
                                                            ==========              =========              =========
</TABLE>


See accompanying notes to combined financial statements.





                                      I-54
<PAGE>   56


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



                       Combined Statements of Cash Flows
                                 (unaudited)
<TABLE>
<CAPTION>
                                                                                        Three months ended
                                                                                            March 31,                
                                                                                     ------------------------        
                                                                                       1997            1996          
                                                                                     ---------    -----------        
                                                                                     amounts in thousands
                                                                                         (see note 3)
<S>                                                                                  <C>             <C>        
Cash flows from operating activities:                                                                           
 Net earnings                                                                        $  15,612          14,841  
 Adjustments to reconcile net earnings to net cash 
  provided by operating activities:                 
   Depreciation and amortization                                                           779          18,541  
   Compensation relating to phantom rights and                     
    stock appreciation rights                                                            5,574              --  
   Adjustment to compensation relating to stock                    
    appreciation rights                                                                     --          (1,408) 
   Share of earnings of affiliates                                                      (7,236)         (8,299) 
   Deferred income tax expense (benefit)                                                (2,744)          6,977  
   Intergroup tax allocation                                                            14,128           4,791  
   Minority interests in earnings                                                        9,614           3,484  
   Gain on disposition of assets                                                            --          (1,735) 
   Changes in operating assets and liabilities,                                                                 
    net of acquisitions:                                                                                                      
     Change in receivables                                                                (907)        (27,288) 
     Change in inventories                                                                  --           8,968  
     Change in prepaid expenses                                                         (5,749)         (6,357) 
     Change in payables, accruals and deferred revenue                                   3,148          15,973  
                                                                                     ---------       ---------  
      Net cash provided by operating activities                                         32,219          28,488  
                                                                                     ---------       ---------  
Cash flows from investing activities:                                                                           
 Capital expended for property and equipment                                              (434)         (3,967) 
 Additional investments in and loans to affiliates and others                           (6,994)         (2,803) 
 Return of capital from affiliates                                                       7,443           1,000  
 Collections on loans to affiliates and others                                             350             478  
 Cash paid for cable distribution fees                                                      --         (12,341) 
 Other investing activities                                                                (79)          1,178  
                                                                                     ---------       ---------  
      Net cash provided (used) by investing activities                                     286         (16,455) 
                                                                                     ---------       ---------  
Cash flows from financing activities:                                                                           
 Borrowings of debt                                                                      2,020         114,008  
 Repayments of debt                                                                     (3,640)       (134,544) 
 Contribution for issuance of common stock                                               2,054              --  
 Change in cash transfers from (to) TCI Group                                            2,016            (973) 
 Contributions by minority shareholders of subsidiaries                                     --             492  
 Distributions to minority shareholders of subsidiaries                                     --             (65) 
                                                                                     ---------       ---------  
      Net cash provided (used) by financing activities                                   2,450         (21,082) 
                                                                                     ---------       ---------  
      Net increase (decrease) in cash                                                   34,955          (9,049) 
                                                                
      Cash at beginning of period                                                      317,359          41,225  
                                                                                     ---------       ---------  
      Cash at end of period                                                          $ 352,314          32,176  
                                                                                     =========       =========  
</TABLE>


See accompanying notes to combined financial statements.





                                      I-55
<PAGE>   57


                             "LIBERTY MEDIA 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 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 business which produces and distributes 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 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.  Additionally, Liberty
         Media Group is 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 March 31, 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-56
<PAGE>   58


                             "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 for the three months ended March 31, 1997 and 1996 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 247.2 million,
         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 $306,000 and $8,009,000 for the three
         months ended March 31, 1997 and 1996, respectively.  Cash paid for
         income taxes during the three months ended March 31, 1997 and 1996 was
         not material.


                                                                     (continued)





                                      I-57
<PAGE>   59


                             "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>
                                                                     Three months ended
                                                                          March 31,        
                                                             ---------------------------------      
                                                                1997                   1996    
                                                             ----------             ---------- 
                                                                    amounts in thousands
<S>                                                         <C>                   <C>
Combined Operations
-------------------
 Revenue                                                     $1,246,152                759,417
 Operating expenses                                          (1,119,487)              (655,545)
 Depreciation and amortization                                  (62,668)               (35,849)
                                                             ----------             ---------- 
               Operating income                                  63,997                 68,023

 Interest expense                                               (32,770)               (26,973)
 Other, net                                                     (45,856)               (35,233)
                                                             ----------             ---------- 
                                                                                      
               Net earnings (loss)                             $(14,629)                 5,817
                                                             ==========             ==========
</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>
                                                             March 31,           December 31,
                                                               1997                 1996         
                                                             ----------          ----------
                                                                   amounts in thousands
<S>                                                          <C>                    <C>
Discovery Communications, Inc. ("Discovery")                 $  117,728             117,724
QVC, Inc. ("QVC")                                               110,449             103,855
International Cable Channels Partnership, Ltd.                  
   ("ICCP")                                                       8,245               9,411
Bet Holdings, Inc. ("BET")                                       21,724              20,225
Courtroom Television Network ("Court")                              421               2,160
Liberty/Fox U.S. Sports LLC ("Fox Sports") (a)                  (21,634)            (21,964)
Superstar/Netlink Group LLC ("Superstar/Netlink") (b)           (40,762)            (37,236)
DMX Inc. ("DMX")                                                  1,884               2,331
Home Shopping Network, Inc. ("HSN") (c)                         143,378             141,921
BDTV INC. and BDTV II INC. (c)                                  200,502             199,701
Other                                                             9,618               6,993
                                                             ----------          ----------
                                                             $  551,553             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-58
<PAGE>   60


                             "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")
                 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-59
<PAGE>   61


                             "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 (the "Contingent 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>
                                        Three months ended
                                            March 31,       
                                      -----------------------
                                       1997             1996 
                                      -------          ------
                                        amounts in thousands
<S>                                   <C>             <C>
Discovery                             $    4            5,450    
QVC                                    6,594            4,511    
ICCP                                    (827)            (472)   
BET                                    1,499            1,171    
Court                                 (1,740)            (438)   
Superstar/Netlink                      3,464               --    
DMX                                     (448)              --    
HSN                                    1,457               --    
BDTV-I and BDTV-II                       801               --    
Other (a)                             (3,568)          (1,923)   
                                      ------           ------    
                                      $7,236            8,299    
                                      ======           ======    
</TABLE>

                                                                     (continued)





                                      I-60
<PAGE>   62


                             "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.

                 The QE+ limited partnership agreement provides that TCI Group
                 will be required to make special capital contributions to QE+
                 through July 1, 2005, up to a maximum amount of $350 million,
                 approximately $213 million of which was paid through March 31,
                 1997.  QE+ is obligated to pay TCI Group a preferred return of
                 10% per annum on the first $200 million of its special capital
                 contributions beginning five years from the date of the
                 contribution or five years from January 1, 1996, whichever is
                 later.  Any TCI Group special capital contributions in excess
                 of $200 million will be entitled to a preferred return of 10%
                 per annum from the date of the contribution.  QE+ is required
                 to apply 75% of its available cash flow, as defined, to repay
                 the TCI Group special capital contributions and any preferred
                 return payable thereon.  To the extent such special capital
                 contributions are insufficient to fund the cash requirements
                 of QE+, TCI Group and Liberty Media Group will each have the
                 option to fund such cash requirements in proportion to their
                 respective ownership percentages.

                 Liberty Media Group also has the right to acquire an
                 additional 10.1% general partnership interest in QE+ based on
                 a formula designed to approximate the fair value of such
                 interest.  Such right is exercisable for a period of ten years
                 beginning January 1, 1999 after QE+ has had positive cash flow
                 for two consecutive calendar quarters.  The right is
                 exercisable only after all special capital contributions from
                 TCI Group have been repaid, including any preferred return as
                 discussed above.

                 Encore 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 $2,021,000 and $782,000 for the three months ended
                 March 31, 1997 and 1996, respectively.  The Content Fee
                 agreement expires on June 30, 2001, subject to renewal on an
                 annual basis thereafter.  Payment of the Content Fee will be
                 subordinated to the repayment of the contributions made by TCI
                 Group and the preferred return thereon.

         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-61
<PAGE>   63


                             "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.  At March 31, 1997, Liberty Media
         Group's investment in Time Warner, carried at cost, had an aggregate
         fair value of approximately $2.2 billion based upon the market value
         of the marketable common stock into which it is convertible.

         As security for borrowings under one of its credit facilities, Liberty
         Media Group has pledged a portion of its TW Exchange Stock.

         Subject to a number of conditions, including receipt of a ruling from
         the Internal Revenue Service ("IRS") that such dividend would be tax
         free to the Liberty Media Group stockholders, TCI agreed in the FTC
         Consent Decree that it would distribute in the form of a stock
         dividend (the "Spin-Off") to the Liberty Media Group stockholders the
         stock of a new company ("Spinco") which would own, directly or
         indirectly, the TW Exchange Stock and the business of 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.  The IRS has declined to
         provide the requested ruling and, accordingly, TCI has canceled plans
         for the Spin-Off.  Pursuant to the FTC Consent Decree, the level of
         TCI's ownership in Time Warner is restricted to the lower of 9.2% of
         the fully diluted number of shares of Time Warner's common stock and
         12.4% of the aggregate number of outstanding shares of Time Warner's
         common stock.
                                                                     (continued)





                                      I-62
<PAGE>   64


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

                     Notes to Combined Financial Statements



         In connection with the TBS/Time Warner Merger, Liberty and Time Warner
         entered into, among other agreements, an agreement providing for the
         grant to Time Warner of an option (the "Contract Option") to enter
         into a contract with Southern (the "Distribution Contract") 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.  The agreement provides for the Contract Option
         to be granted no later than the fifth business day following the
         earlier of May 31, 1997, the receipt of a favorable IRS ruling and the
         determination that the IRS ruling will not be obtained subject to an
         extension for a 30-day period, if the IRS ruling were not obtained,
         during which period the parties would seek to negotiate an alternative
         structure for the transaction.  On the date of grant of the Contract
         Option, the agreement provides for Time Warner to issue to Southern
         and Liberty, in consideration for the Contract Option and certain
         noncompetition covenants, an aggregate of 5.0 million shares of TW
         Exchange Stock and $66,666,700, payable at Time Warner's option in
         cash or TW Exchange Stock.  If Time Warner were to exercise the
         Contract Option and enter into the Distribution Contract, Time Warner
         would be obligated to make quarterly payments to Southern in an amount
         which, when added to Southern's net cash flow, would aggregate
         approximately $213.3 million on a present value basis discounted to
         the effective date of the Distribution Contract.  In light of the
         cancellation of the Spin-Off, Liberty Media Group is seeking to
         renegotiate the Contract Option to provide instead for an option for
         Time Warner to acquire Southern's business.

(6)      Other Investments

         Other investments and related receivables are summarized as follows:

<TABLE>
<CAPTION>
                                                                             March 31,         December 31,
                                                                               1997                1996         
                                                                            ----------         ------------     
                                                                                 amounts in thousands
          <S>                                                               <C>                     <C>
          Marketable equity securities, at fair value                       $      790                 790
                                                                                 
          Convertible debt, at cost, which approximates fair value              23,000              23,000
                                                                                                 
          Other investments, at cost, and related receivables                   57,752              57,747
                                                                            ----------           ---------
                                                                                                 
                                                                            $   81,542              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 $199 million and $162
         million at March 31, 1997 and December 31, 1996, respectively.  No
         independent external appraisals were conducted for those assets.

                                                                     (continued)





                                      I-63
<PAGE>   65


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

                     Notes to Combined Financial Statements



(7)      Debt

         Debt at March 31, 1997 and 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, at which time
         the commitment is required to be reduced in eight equal, quarterly
         amounts through June 30, 2001. Interest on borrowings under the note
         is tied to, at Encore's option, the bank's prime rate plus an
         applicable margin or the LIBOR rate plus an applicable margin.  Encore
         is required to pay a commitment fee which varies based on Encore's
         leverage ratio.  The note is secured by substantially all of Encore's
         assets.

(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.

         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 three months ended March
         31, 1997 and 1996, Liberty Media Group was allocated $263,000 and
         $596,000, 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 three months ended March
         31, 1997 and 1996, aggregated $1,816,000 and $3,406,000, respectively.

         Certain subsidiaries attributed to Liberty Media Group produce and/or
         distribute sports and other programming to cable television operators
         (including TCI Group) and others.  Charges to TCI Group are based upon
         customary rates charged to others.

         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-64
<PAGE>   66


                             "LIBERTY MEDIA 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 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.

         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.

         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.

                                                                     (continued)





                                      I-65
<PAGE>   67


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

                     Notes to Combined Financial Statements



(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 March 31,
         1997, these agreements require minimum payments aggregating
         approximately $327 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-66
<PAGE>   68


                             "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 March 31, 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-67
<PAGE>   69


                             "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.

         On April 21, 1997, TCI announced that it had entered into an agreement
to merge Kearns-Tribune Corporation into a wholly-owned TCI subsidiary.  The
merger is valued at approximately $627 million.  Pursuant to the merger
agreement, TCI would exchange shares of Series A TCI Group Stock for shares of
Kearns-Tribune Corporation which holds 17.9 million shares of TCI Group Stock
and 6.7 million shares of Liberty Group Stock.  Liberty Media Group intends to
purchase from TCI Group the 6.7 million shares that would be acquired in such
transaction at market valuations to be determined at the time of the merger
closing.

         The TBS/Time Warner Merger was consummated on October 10, 1996
whereupon Liberty Media Group received approximately 50.6 million shares of
Time Warner common stock in exchange for its TBS holdings.  See note 5 to the
accompanying combined financial statements.

         As of April 29, 1996, Liberty Media Group, News Corp. and TINTA 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-68
<PAGE>   70


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



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


         Internationally, News Corp. and Liberty/TINTA formed Fox Sports
International to operate previously existing sports services in Latin America
and Australia and a variety of new sports services throughout the world except
in Asia and in the United Kingdom, Japan and New Zealand where prior
arrangements preclude an immediate collaboration.  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 Prime Deportiva, a Spanish language sports service distributed in
Latin America and in Hispanic markets in the United States; an interest in
Torneos y Competencias S.A., an Argentinean sports programming and production
business; various international sports and satellite transponder rights and
cash.  Liberty/TINTA also contributed their 50% interest in Premier Sports and
All-Star Sports.  Both are Australian 24-hour sports services available via
multi-channel, multi-point distribution systems or cable television.

         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.

         Effective April 29, 1996, Liberty Media Group's domestic and
international sports businesses no longer consolidate with the financial
results of Liberty Media Group.  Both newly formed sports programming ventures
are accounted for using the equity method.

         On April 1, 1996, UVSG and Liberty Media Group formed
Superstar/Netlink, a limited liability company of UVSG's Superstar Satellite
Entertainment combined with Netlink's 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.  Superstar/Netlink is accounted for using the equity method.

         As a result of the consummation of the HSN Merger in December 1996,
HSN is no longer a subsidiary of Liberty Media Group and therefore, the
financial results of HSN are not 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 is exchangeable into shares of Silver King.  
See note 4 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-69
<PAGE>   71


                             "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.  In connection with the TBS/Time Warner Merger, Liberty
Media Group received approximately 50.6 million shares of TW Exchange Stock in
exchange for its holdings in TBS common and preferred 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 common stock
received in connection with the TBS/Time Warner Merger.  However, there can be
no assurance that such dividends will continue to be paid.  Cash provided by
operating activities of Netlink's wholesale C-band satellite business is another
significant source of cash available for distribution to Liberty Media Group.
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 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.

         Liberty Media Group has a revolving line of credit which provides for
borrowings of up to $325 million.  No borrowings were outstanding at March 31,
1997.  Encore has a line of credit which provides for borrowings up to $50
million, $1.6 million of which was outstanding at December 31, 1996.  Such
facility contains certain provisions which limit Encore as to additional
indebtedness, sale of assets, liens, guarantees and distributions and includes
various financial covenants, including maintenance of certain financial ratios.

         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 March 31, 1997, Liberty Media
Group's future minimum obligation related to certain film licensing agreements
was $327 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.
                                                                     (continued)





                                      I-70
<PAGE>   72


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



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

         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 January 17,
1997, the FCC released proposed new rules which would require substantial
closed captioning.  Depending upon the rules  and implementation schedule
ultimately adopted by the FCC, Liberty Media Group's programming interests may
incur significant additional costs for closed captioning.

         Regulatory developments which may affect Liberty Media Group's
programming interests include two additional proceedings.  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 March 21, 1996, the FCC
adopted a Further Notice of Proposed Rulemaking in which it proposed an
alternative maximum rate formula that it believes may better promote the goals
of 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.

         Finally, 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.

                                                                     (continued)





                                      I-71
<PAGE>   73


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



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

         The Copyright Revision Act of 1976 (the "Copyright Act") provides
cable television operators with a compulsory copyright license for
retransmission of broadcast television programming without having to negotiate
program rights with the stations or individual copyright owners. Therefore,
cable systems that carry distant broadcast signals, such as WTBS, must pay
royalty fees to the Register of Copyrights, the amount of which is based upon a
formula utilizing the amount of the system's semi-annual gross receipts and the
number and type of distant signals carried by the system.  Any increases in the
required  fees could adversely affect the competitive position of WTBS and
therefore, Southern.  The Copyright Act empowers the Copyright Office to review
periodically and adjust copyright royalty rates based on inflation and/or
petitions for adjustments due to modifications of FCC rules.  Further, the FCC
has recommended to Congress the abolition of the compulsory license for cable
television carriage of broadcast signals, a proposal that has received
substantial support from members of Congress.  If the compulsory license is
abolished, a cable operator would not be permitted to retransmit WTBS unless
such cable operator reached a licensing agreement with the copyright owners or
licensees of the programming contained on the WTBS signal being retransmitted.

(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.

                                                                     (continued)





                                      I-72
<PAGE>   74


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



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

<TABLE>
<CAPTION>
                                                              Three months ended March 31,                
                                                  -----------------------------------------------------          
                                                            1997                         1996                    
                                                  --------------------------   ------------------------          
                                                                  dollar amounts in thousands                    
Entertainment and Information
Programming Services
<S>                                                 <C>        <C>                <C>      <C>
  Revenue                                            100%      $     59,359        100%    $    165,016
  Operating costs and expenses                        56%            33,050         83%         137,214
  Compensation relating to phantom rights              8%             4,576         --               --
  Depreciation and amortization                        1%               751          6%           9,258
                                                  -------      ------------     -------    ------------

       Operating income                               35%      $     20,982         11%    $     18,544
                                                  =======      ============     =======    ============

Electronic Retailing Services

  Revenue                                             N/A           N/A            100%    $    255,613
  Cost of sales                                       N/A           N/A             64%         164,812
  Operating costs and expenses                        N/A           N/A             30%          77,618
  Depreciation and amortization                       N/A           N/A              4%           9,258
                                                                                -------    ------------

       Operating income                               N/A           N/A              2%    $      3,925
                                                                                =======    ============
</TABLE>


Entertainment and Information Programming Services

         As of April 1, 1996, upon formation of Superstar/Netlink, Netlink's
retail operations no longer consolidate with the financial results of Liberty
Media Group.  Similarly, effective April 29, 1996, Liberty Media Group's
regional sports programming businesses no longer consolidate with the financial
results of Liberty Media Group.  In addition, effective January 1, 1997, the
operations for TV Network Corporation ("Intro") were discontinued and
therefore, revenue from such operations was not realized in the first quarter
of 1997.  Consequently, revenue from Entertainment and Information Programming
Services decreased 64% or $106 million for the three months ended March 31,
1997 compared to the three months ended March 31, 1996.  Included in this
decrease is an increase in revenue from Encore of approximately $14 million for
the three months ended March 31, 1997.  Encore's thematic multiplex services
increased the number of multiplex units from 8.1 million at March 31, 1996 to
approximately 14.5 million units at March 31, 1997 accounting for $6 million of
Encore's increase in revenue.  Encore's subscribers increased 25% to
approximately 10.5 million at March 31, 1997 resulting in an increase in
revenue of approximately $3 million.  In addition, "plex" units (a cable
service which offers theme-by-day movies) increased by 8.9 million bringing the
total plex subscribers to 9.7 million.  This increase in plex subscribers
resulted in an increase in revenue of approximately $3 million.  The remaining
increase in revenue from Encore was due to increased management fees from
affiliates.

                                                                     (continued)





                                      I-73
<PAGE>   75


                             "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 decreased 76% or $104 million for the
three months ended March 31, 1997, as compared to the corresponding period 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 consolidated financial results during
the first quarter of 1997, these businesses were primarily responsible for the
decrease in operating costs and expenses for the three months ended March 31,
1997, compared to the corresponding period in 1996.  Operating expenses,
excluding compensation relating to phantom rights, for Encore increased by
approximately $12 million during the first quarter of 1997 compared to the
first quarter of 1996.  Programming costs increased approximately $4 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 three months ended March
31, 1997.  Increased marketing support resulting from higher subscribers and
revenue accounted for $4 million of the increase in operating expenses.
Increased national advertising during the three months ended March 31, 1997
compared to the three months ended March 31, 1996 was responsible for
approximately $1 million of the increase.  The remainder of the increase 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.  For the
three months ended March 31, 1997, corporate expense, excluding the impact of
the stock appreciation rights, remained relatively comparable to the same
period 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 three months ended March 31, 1997 and 1996, Liberty Media
Group was allocated $263,000 and $596,000, respectively, in corporate general
and administrative costs by TCI Group.

                                                                     (continued)





                                      I-74
<PAGE>   76


                             "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 $7 million
for the three months ended March 31, 1997, compared to $8 million for the
corresponding period of 1996.  Liberty Media Group's share of earnings of
affiliates attributable to its interest in Discovery decreased from $5 million
during the three months ended March 31, 1996 to less than $1 million for the
same period of 1997.  Discovery's revenue increased 39% during the first
quarter of 1997 compared to the same quarter in 1996.  However, earnings before
interest, taxes, depreciation and amortization for Discovery decreased by 29%,
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 $3 million with no corresponding amount in 1996.  Additionally, Liberty
Media Group's share of earnings of affiliates attributable to its interest in
QVC increased approximately $2 million during the three months ended March 31,
1997 compared to the same period of 1996.  QVC's revenue increased by 7% during
the first quarter of 1997, resulting in a corresponding 7% increase in earnings
before interest, taxes, depreciation and amortization over the first quarter of
1996.





                                      I-75
<PAGE>   77
                           TELE-COMMUNICATIONS, INC.


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

      There were no new material legal proceedings or material developments in
      previously reported legal proceedings during the quarter ended March 31,
      1997 to which TCI or any of its consolidated subsidiaries is a party or
      of which any of its property is the subject.

Item 2.  Change in Securities.

      Effective January 10, 1997, the Company issued 16,122,613 shares of
      Series A TCI Group Stock to Knight-Ridder Cablevision, Inc.
      ("Knight-Ridder") as partial consideration for Knight-Ridder's 50%
      ownership interest in TKR Cable Company.  Such shares were valued at $258
      million at the time of issuance.  The issuance of such shares 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 4.  Submission of Matters to a Vote of Security Holders.

      At a Special Meeting of Stockholders held on March 12, 1997, the
      following matter was voted upon by the stockholders of
      Tele-Communications, Inc.:

      1.   To consider and vote upon a proposal which (i) authorized two
           new series of the Company's common stock, par value $1.00 per share
           (the "Common Stock"), to consist of 750 million newly authorized
           shares designated Tele-Communications, Inc. Series A Telephony Group
           Common Stock and 75 million newly authorized shares designated
           Tele-Communications, Inc. Series B Telephony Group Common Stock
           (collectively, the "Telephony Group Stock"), and a corresponding
           increase in the total number of authorized shares of Common Stock,
           (ii) provided for the voting powers and relative, participating,
           optional and other special rights and qualifications, limitations
           and restrictions of the Telephony Group Stock, and (iii) changed
           certain of the rights and powers of the TCI Group Stock and the
           Liberty Group Stock, and the qualifications, limitations or
           restrictions thereof, in order to implement the Telephony Group
           Stock Proposal and to reflect the authorization of the Telephony
           Group Stock.  Such proposal required the affirmative vote of 66 2/3%
           of the combined voting power of the outstanding shares of Series A
           TCI Group Stock, Series A Liberty Group Stock, Series B TCI Group
           Stock, Series B Liberty Group Stock and Series C Preferred Stock,
           voting as a single class (1,578,032,085 votes for; 19,644,622 votes
           against and 3,581,214 abstentions), and a majority of the combined
           voting power of the outstanding shares of each of the TCI Group
           Stock (482,039,910 votes for; 13,937,117 votes against and 2,955,002
           abstentions) and the Liberty Group Stock (178,240,408 shares for;
           2,561,448 shares against and 434,165 abstentions).

                                                                     (continued)

                                      II-1

<PAGE>   78


                           TELE-COMMUNICATIONS, INC.

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

     (a)  Exhibit -

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

     (b)  Reports on Form 8-K filed during the quarter ended March 31, 1997:


<TABLE>
<CAPTION>

                       Date of           Item                Financial    
                        Report         Reported           Statements Filed
                   ----------------    --------           ----------------
                   <S>                 <C>                <C>             
                   January 22, 1997     Item 5                 None.      
                   March 5, 1997        Item 5                 None.      
</TABLE>


                                      II-2

<PAGE>   79


                                   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:  May 14, 1997                       By:  /s/ Leo J. Hindery, Jr.       
                                               -----------------------       
                                               Leo J. Hindery, Jr.           
                                                President and Chief           
                                                 Operating Officer             

Date:  May 14, 1997                       By:  /s/ Stephen M. Brett          
                                               --------------------          
                                               Stephen M. Brett              
                                                Executive Vice President      

Date:  May 14, 1997                       By:  /s/ Bernard W. Schotters      
                                               ------------------------      
                                               Bernard W. Schotters          
                                                Senior Vice President of      
                                                 TCI Communications, Inc.      
                                                 (Principal Financial Officer) 

Date:  May 14, 1997                       By:  /s/ Gary K. Bracken           
                                               -------------------           
                                               Gary K. Bracken               
                                                Senior Vice President of      
                                                 TCI Communications, Inc.      
                                                 (Principal Accounting Officer)


                                      II-3

<PAGE>   80


                                 EXHIBIT INDEX



<TABLE>
<CAPTION>
  EXHIBIT NO.                      DESCRIPTION
  -----------                      -----------
     <S>                     <C>
     27.1                    Financial Data Schedule

</TABLE>