UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                      For the year ended December 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 No. 333-05017

                           UIH Australia/Pacific, Inc.
             (Exact name of registrant as specified in its charter)

                   State of Colorado                  84-1341958
          (State or other jurisdiction of         (I.R.S. Employer
          incorporation or organization)          Identification No.)

          4643 South Ulster Street, #1300
                   Denver, Colorado                     80237
      (Address of principal executive offices)        (Zip code)

       Registrant's telephone number, including area code: (303) 770-4001




     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
                                      ---     ---

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The Company has no  publicly-trading  shares of capital stock.  As of March
27, 1998, the Company had 13,864,941 shares of common stock outstanding.


<PAGE>
<TABLE>
<CAPTION>
                                                   UIH AUSTRALIA/PACIFIC, INC.
                                                1997 ANNUAL REPORT ON FORM 10-K

                                                       Table of Contents


                                                                                                                 Page
                                                                                                                Number
                                                                                                                ------
                                                          PART I
<S>           <C>                                                                                                 <C>
Item 1.       Business....................................................................................         2

Item 2.       Properties..................................................................................        18

Item 3.       Legal Proceedings...........................................................................        19

Item 4.       Submission of Matters to a Vote of Security Holders.........................................        19

                                                          PART II

Item 5.       Market for the Registrant's Common Equity and Related Stockholder Matters...................        20

Item 6.       Selected Financial Data.....................................................................        20

Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations.......        21

Item 8.       Financial Statements and Supplementary Data.................................................        31

Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........        31

                                                          PART III

Item 10.      Directors and Executive Officers of the Registrant..........................................        57

Item 11.      Executive Compensation......................................................................        59

Item 12.      Security Ownership of Certain Beneficial Owners and Management..............................        63

Item 13.      Certain Relationships and Related Transactions..............................................        63

                                                          PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................        64
</TABLE>

<PAGE>

ITEM 1.  BUSINESS
-----------------

(a)  GENERAL DEVELOPMENT OF BUSINESS
     -------------------------------

     UIH  Australia/Pacific,  Inc.  (the  "Company")  is a leading  provider  of
multi-channel  television services in Australia, New Zealand and Tahiti. Through
its Australian  operating  companies CTV Pty Limited ("CTV") and STV Pty Limited
("STV")  (collectively,  "Austar"),  the  Company  is the  largest  provider  of
multi-channel  television  services  in  regional  Australia,  where it operates
wireless  multi-point  microwave  distribution  systems  ("MMDS")  and markets a
satellite-delivered   direct-to-home   ("DTH")   service  in   franchise   areas
encompassing  approximately  1.6 million  television  homes, or 25% of the total
Australian market. In addition,  the Company,  through its 65%-owned New Zealand
operating  company Saturn  Communications  Limited  ("Saturn") is constructing a
wireline  cable  and  telephony  system in  Wellington,  New  Zealand,  a market
representing  approximately 135,000 television homes. The Company's other assets
include a 25% interest in XYZ Entertainment Pty Limited ("XYZ Entertainment"), a
programming company that provides four channels to the Australian  multi-channel
television market as part of the eight-channel  Galaxy programming  package (the
"Galaxy Package"),  the most widely distributed programming package in Australia
and the core component of Austar's  programming  offering;  up to a 90% economic
interest in Telefenua  S.A.  ("Telefenua"),  the only provider of  multi-channel
television services in Tahiti, with MMDS in a market of 31,000 television homes;
and a 100%  interest in United  Wireless  Pty Limited  ("United  Wireless"),  an
Australian  company providing  wireless mobile data services primarily in Sydney
and Melbourne.

     The Company, a wholly-owned subsidiary of UIH Asia/Pacific  Communications,
Inc. ("UAP"),  which is an indirect 98%-owned subsidiary of United International
Holdings, Inc. (together with all of its subsidiaries other than the Company and
the Company's subsidiaries,  "UIH"), was formed on October 14, 1994. Immediately
prior to the May 1996 offering of the Company's  14% senior  discount  notes due
2006 (the "May 1996 Notes"), certain subsidiaries of UIH that held its interests
in Australia,  New Zealand and Tahiti were merged with and into the Company. The
information  in this annual  report on Form 10-K has been prepared as though the
Company  had  performed  all  foreign   development   activities  and  made  all
acquisitions  of  UIH's  ownership   interests  in   multi-channel   television,
programming and mobile data companies in Australia, New Zealand and Tahiti since
inception.  The Company,  as presented in this manner,  commenced  operations in
January  1994  when  UIH  began  its   development-related   activities  in  the
Asia/Pacific  region.  UIH  transferred  the net  assets of the above  mentioned
subsidiaries,   including  capitalized  development  costs  and  investments  in
affiliated  companies,  to the Company.  The Company,  in turn,  reflected these
transfers as capital contributions from the parent company.

HISTORY OF ACQUISITIONS

     In 1994,  the  Company  acquired,  through  directly  and  indirectly  held
interests, an effective 50% economic interest in two newly-formed companies that
constitute   Austar.   In  December  1995,  the  Company   acquired  from  other
shareholders of Austar an additional interest in Austar,  thereby increasing its
total economic interest in Austar to 90%. In May 1996, as a result of additional
equity contributions, the Company's economic interest in Austar was increased to
94%,  which was  subsequently  increased  to 96%. In October  1996,  the Company
acquired the remaining 4% economic interest in Austar.

     In July 1994, the Company  acquired a 50% interest in Saturn,  which at the
time owned only a small cable television system outside of Wellington. Since the
Company's initial  investment,  Saturn has begun  construction on a hybrid fiber
coaxial  ("HFC") cable network  planned to pass 135,000 homes in the  Wellington
area. In July 1996, the Company acquired the remaining 50% interest in Saturn in
exchange  for a 2.6%  interest  in the  Company,  which was  exchanged  for a 2%
interest in UAP in May 1997. In July 1997,  SaskTel  Holdings (New Zealand) Inc.
("SaskTel") purchased a 35% equity interest in Saturn by investing approximately
New Zealand  $("NZ$")29.9  million  ($19.6  million) for its shares (the "Saturn
Transaction").  The Company  believes that SaskTel,  a division of  Saskatchewan
Telecommunications Holdings Corporation of Saskatchewan, Canada, will contribute
telephony  expertise  to  Saturn in  providing  cable/telephony  service  in the
Wellington, New Zealand area.

                                       2
<PAGE>

     In  October  1994,  the  Company  and  Century  Communications  Corporation
("Century")  formed XYZ  Entertainment,  each retaining a 50% interest.  In June
1995,  the Company and Century  formed the 50/50 joint  venture  Century  United
Programming  Ventures  Pty  Limited  ("CUPV") to hold their  investments  in XYZ
Entertainment.  In September 1995, a 50% interest in XYZ  Entertainment was sold
to a third  party,  thereby  diluting  the  Company's  indirect  interest in XYZ
Entertainment to 25%.

     In January 1995,  the Company  acquired an indirect  effective 90% economic
interest in Telefenua.  The Company's economic interest will decrease to 75% and
64% once the Company has received a 20% and 40%  internal  rate of return on its
investment in Telefenua,  respectively.  The Company has funded the construction
and development of Telefenua's multi-channel television system.

     In  September  1995,  the  Company  purchased  a 100%  interest  in  United
Wireless.  The Company has since continued the development and funding of United
Wireless' business.

RELATIONSHIP WITH UIH

     The Company is an indirect, 98%-owned subsidiary of UIH, a leading provider
of multi-channel  television  services and related businesses outside the United
States. In addition to the Company,  UIH's operations  include its 100% interest
in United Pan-Europe  Communications N.V. ("UPC"),  the largest  privately-owned
multi-channel television operator in Europe, as well as its other investments in
Europe,  Asia and Latin America.  As of September 30, 1997, UIH's  multi-channel
television  systems  had  approximately  9.9 million  television  homes in their
respective  service  areas,  passed  approximately  7.4  million  homes  and had
approximately   5.3  million   subscribers  (of  which  3.1  million  are  cable
subscribers and 2.2 million are programming subscribers).

ORGANIZATION OF COMPANY

     The following chart summarizes the organizational structure of the Company.
The  interests  indicated  below are  summaries  of the  approximate  direct and
indirect economic interests of the Company in its principal businesses.  Some of
the Company's  interests in such  operating  companies are held through  various
partnerships and holding  companies and the Company's voting rights with respect
to  certain  of such  operating  companies  differ  from the  economic  interest
indicated in the chart. See Item 1(c) "Corporate Organizational Structure."
<TABLE>
<CAPTION>
                                                    UIH Australia/Pacific, Inc.

         Operating                                                                                         Ownership
           System                                          Principal Business                              Percentage
         ---------               ---------------------------------------------------------------------     ----------
         <S>                     <C>                                                                           <C>
         Austar                  Regional Australia, MMDS and DTH multi-channel systems                        100% (1)
         United Wireless         Australia, wireless mobile data services                                      100%
         Telefenua               Tahiti and Moorea, MMDS                                                        90% (2)
         Saturn                  Greater Wellington, New Zealand area, wireline cable/telephony system          65%
         XYZ Entertainment       Australian programming                                                         25%
</TABLE>

         (1)  The Company holds an effective  100%  economic  interest in Austar
              through a combination of ordinary and convertible debentures.
         (2)  The Company holds an effective 90% economic interest in Telefenua.
              The Company's economic interest will  decrease to 75% and 64% once
              it  has  received  a  20% and  40% internal rate  of return on its
              investment in Tahiti, respectively.

(b)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
     ---------------------------------------------

     The Company operates in the multi-channel television and telecommunications
industry through investing in, acquiring and managing multi-channel  television,
telephony and programming operations.  The Company's reportable segments are the
various countries in which it operates: Australia, New Zealand and Tahiti. These
reportable  segments  are  managed  separately  because  each  country  presents

                                       3
<PAGE>

different  marketing  strategies  and  technology  issues  as well  as  distinct
economic  climates  and  regulatory  constraints.   For  additional  information
applicable to this Item,  see Item 7  "Management's  Discussion  and Analysis of
Financial  Condition and Results of Operations"  and Note 9 to the  consolidated
financial statements contained in Item 8 "Financial Statements and Supplementary
Data."

(c)  NARRATIVE DESCRIPTION OF BUSINESS
     ---------------------------------

OVERVIEW

     The Company is a leading provider of multi-channel  television  services in
Australia,  New Zealand and Tahiti.  Through its  Australian  operating  company
Austar, the Company is the largest provider of multi-channel television services
in  regional  Australia,  where it  operates  MMDS and  markets a DTH service in
franchise areas encompassing  approximately 1.6 million television homes, or 25%
of the total Australian market. In addition, the Company,  through its 65%-owned
New Zealand  operating  company  Saturn,  is  constructing  a wireline cable and
telephony system in Wellington, New Zealand, a market representing approximately
135,000  television  homes. The Company's other assets include a 25% interest in
XYZ  Entertainment,  a  programming  company that  provides five channels to the
Australian   multi-channel   television  market;  a  90%  economic  interest  in
Telefenua,  the only provider of  multi-channel  television  services in Tahiti,
with MMDS in a market  with  31,000  television  homes;  and a 100%  interest in
United Wireless,  an Australian  company providing wireless mobile data services
primarily in Sydney and Melbourne.

     The  Company  believes  that it is  well-positioned  to  capitalize  on the
rapidly increasing demand for multi-channel television and telephony services in
Australia,  New Zealand and Tahiti.  As of December  31,  1997,  the Company had
invested  $405.8  million in its networks and operating  infrastructure  and had
launched service in each of its markets.  As of December 31, 1997, the Company's
multi-channel television operating systems had an aggregate of approximately 1.6
million  television homes  serviceable and  approximately  206,000  subscribers,
compared  to  approximately   1.6  million   television  homes  serviceable  and
approximately  110,000  subscribers  as of December 31, 1996 (with a substantial
majority of such growth  resulting  from Austar's  expansion).  During this same
period,   programming   subscribers   of  XYZ   Entertainment   increased   from
approximately 340,000 to approximately 577,000. While the Company expects that a
substantial  portion  of its  expected  growth  will  come  from  the  continued
development of Austar,  the Company is also anticipating  significant  growth by
its other operating companies, each of which the Company believes has attractive
growth prospects.

     The following table sets forth certain  unaudited  operating  statistics of
the operating companies as of December 31, 1997:
<TABLE>
<CAPTION>
                                                          Television
                                                           Homes in           Homes             Basic           Basic
    Operating System                 Technology          Service Area      Serviceable       Subscribers     Penetration
    ----------------                 ----------          ------------      -----------       -----------     -----------
       <S>                            <C>                  <C>               <C>               <C>              <C>
       Austar                         MMDS/DTH             1,635,000         1,589,000         196,205          12.3%
       Saturn                     Cable/Telephony            141,000            23,518           3,059          13.0%
       Telefenua                        MMDS                  31,000            20,128           6,304          31.3%
       XYZ Entertainment            Programming                  N/A               N/A         577,205            N/A
                                                           ---------         ---------         -------
            Total                                          1,807,000         1,632,646         782,773
                                                           =========         =========         =======
</TABLE>

AUSTAR (AUSTRALIA)

     Austar is the largest  provider  of  multi-channel  television  services in
regional Australia (areas outside Australia's six largest cities). Through 1997,
Austar had launched MMDS in all of its  metropolitan  markets and DTH service in
non-metropolitan   markets.   These  markets  represent  1.6  million  franchise
television homes.

     Austar has entered into franchise  agreements  with Australis Media Limited
("Australis")  that grant it the right to provide the Galaxy  Package within its
franchise areas through 2009 (extendible at Austar's option through 2019).

                                       4
<PAGE>

     OPERATING AND GROWTH  STRATEGY.  Due to the  relatively  small size and low
housing densities which characterize the markets in its franchise areas,  Austar
is  primarily  utilizing  MMDS and DTH  wireless  technologies  to  deliver  its
service.   In  its  metropolitan   markets,   Austar  constructs  and  owns  the
transmission  facilities  and  installs  and  retains  ownership  of the in-home
subscriber equipment. In its non-metropolitan markets, Austar is marketing a DTH
service  (consisting  primarily of the Galaxy  Package) and installs and retains
ownership of the in-home subscriber equipment. As a result, Austar did not incur
the costs  necessary to own the  facilities  required to offer a DTH service and
only incurs capital costs when a DTH subscriber is installed.  Approximately 60%
of the television  homes in Austar's  service area are in  metropolitan  markets
with sufficient  size and density to justify the  construction of MMDS networks.
Austar  owns  virtually  all of the  licenses  in the  MMDS  spectrum  currently
available  in these  markets for the  provision of MMDS  services.  Because MMDS
service is less  expensive to install  than DTH,  Austar  services  customers in
these   metropolitan   markets   with  its  MMDS  service   whenever   possible.
Approximately 35% of homes in these metropolitan  markets,  however,  are out of
the line of sight of Austar's MMDS  networks.  Austar  services these homes with
its  DTH  service.  Austar  markets  its  programming  services  via  DTH in its
non-metropolitan  franchise areas  representing  532,000 television homes. These
are less densely populated areas outside its metropolitan  markets that are more
effectively  serviced by DTH technology.  In addition,  Austar has constructed a
wireline  cable  network in Darwin,  a market  containing  approximately  27,000
serviceable homes, where dense vegetation makes an MMDS service impractical.

     The deployment of MMDS networks in combination  with DTH has allowed Austar
to roll out its  service  quickly  and achieve  rapid  subscriber  growth in its
franchise  areas.  Austar  believes that the ability to be the first provider of
multi-channel  television  services in each of its markets has allowed Austar to
establish a  significant  market  presence and strong brand  awareness,  factors
which  management  believes provide it with a competitive  advantage.  Austar is
currently   the  only   provider  of   multi-channel   television   services  in
substantially all of its franchise areas. See "Austar--Competition."

     As of  December  31,  1997,  Austar  had  launched  service  in  all of its
metropolitan and  non-metropolitan  markets.  The following table sets forth the
summary operating statistics in Austar's markets:
<TABLE>
<CAPTION>
                                                                                              As of
                                                                                           December 31,
                                                                              --------------------------------------
                                                                                 1997          1996           1995
                                                                              ---------     ---------      ---------
     <S>                                                                      <C>           <C>              <C>
     Homes in service area:
       Metropolitan homes..................................................   1,103,000       997,000        241,000
       Non-metropolitan homes..............................................     532,000       532,000             --
                                                                              ---------     ---------        -------
         Total.............................................................   1,635,000     1,529,000        241,000
                                                                              =========     =========        =======

     Net annual gain in basic subscribers..................................      92,758        98,243          5,204
     Total basic subscribers...............................................     196,205       103,447          5,204

     Premium subscribers:
       World Movies (launched March 1996)..................................      21,332        13,857             --
       Nightmoves (launched November 1997).................................      10,980            --             --
</TABLE>

     To facilitate  the rapid  roll-out of its service,  Austar has  established
local offices in the majority of its metropolitan  markets.  These local offices
coordinate marketing, installation and customer service in Austar's metropolitan
markets and surrounding  non-metropolitan areas. The local offices are supported
by four regional offices.  Each regional office typically serves three to twelve
metropolitan  markets.  Austar estimates that approximately 50% of its potential
non-metropolitan  customers are within 50 kilometers of its metropolitan service
areas.  This proximity  enables Austar to reduce  installation and service costs
associated  with  DTH  service  to  non-metropolitan  subscribers  and to  focus
subscription sales through the use of marketing, promotional and sales tactics.

     Austar has entered  into  contracts  with a number of service  companies to
install MMDS receivers,  DTH satellite dishes and set-top  decoders.  Installers
collect the installation  fee, install  subscriber  equipment and test reception
quality.  Austar has trained and established  certain guidelines for third party
service company employees who install Austar reception equipment.  Austar has an
extensive quality  assurance program and expends a significant  amount of effort
to follow-up on installations to ensure customer  satisfaction  and, in the case

                                       5
<PAGE>

of DTH equipment installed within its metropolitan  markets, to verify that MMDS
technology  is not more  economical.  Austar  believes  its  efforts  to resolve
service problems quickly has helped establish customer loyalty.

     For the year ended  December  31,  1997,  Austar  spent  $83.8  million for
construction  of  MMDS  head-end  and  transmission  facilities  for  all of its
operating systems.  Variable  installation and equipment costs for each MMDS and
DTH  subscriber  are  currently  approximately  $338 and  $634  per  subscriber,
respectively.  These  subscriber  costs are  partially  offset by the  Company's
metropolitan and  non-metropolitan  installation charges of $13 to $32 and $130,
respectively.  Austar  retains  ownership of all MMDS and DTH customer  premises
equipment.

     PRICING.  Austar is currently  providing the  eight-channel  Galaxy Package
plus three to five additional  channels of programming as its basic package at a
monthly rate of approximately $29, with a one-time  installation  charge ranging
from  approximately  $13  to $32  for  metropolitan  subscribers  and  $130  for
non-metropolitan  DTH subscribers.  Austar also integrates all available off-air
channels into its basic channel line up at no additional  charge. In March 1996,
Austar began offering its first premium  channel,  World Movies,  which consists
primarily  of  foreign  movies,  art films  and  features.  Austar  is  charging
approximately  $5 per month for World  Movies.  In November  1997,  Austar began
offering Nightmoves,  an adult premium channel, at $13 per month. As of December
31,  1997,  Austar had 21,332 and 10,980  subscribers  for its World  Movies and
Nightmoves premium channels, respectively.

     MARKETING;  CUSTOMER  SUPPORT.  Austar has focused its  marketing and sales
efforts to support  its  strategy of rapid  system  roll-out,  which  management
believes  will provide it with a  competitive  advantage in each of its markets.
Austar has developed a comprehensive marketing and sales organization consisting
of a 180 person  direct sales force and over 200 national  customer  service and
telemarketing  personnel.  The direct sales force,  which  operates out of local
offices in each of Austar's  metropolitan markets, is currently generating sales
of  approximately  2,500  subscriptions  per week.  The sales  force at Austar's
National Customer  Operations  Center ("NCOC") is currently  generating sales of
approximately 2,750 subscriptions per week from inbound and outbound calls. This
sales   organization  is  supported  by  an  integrated   marketing  program  of
television, radio and print advertising.

     The  NCOC  is a  state-of-the-art  fully-integrated  subscriber  management
system  featuring  a  sophisticated  digital  wide-area  network,  Cable  Data's
Intelecable   platform,   an  automated  response  unit  and  predictive  dialer
technology. The NCOC currently services all of Austar's MMDS and DTH subscribers
and has the capacity to service all future  customers  in its existing  markets.
NCOC employees process installation orders, handle customer inquiries, including
programming  and  technical  questions,  and  implement  the customer  retention
program,   which  includes   telephone   contact  with  customers   following  a
cancellation  request,  as well as  making  unprompted  contact  with  customers
immediately following installation in an effort to ensure customer satisfaction.
Incoming  calls from all of  Austar's  markets  are  directed  to the NCOC where
customer  service  representatives  are  available to provide  sales and service
information.  The NCOC currently handles  approximately  3,000 calls per day but
has scaleable capacity to handle at least 5,000 calls per day. The NCOC facility
currently  employs 200 customer service  professionals,  which Austar intends to
increase as its  subscriber  base grows in its  franchise  areas.  In  addition,
Austar is exploring  the  possibility  of using the NCOC to  outsource  customer
service to third parties in similar lines of business where appropriate.

     Austar's monthly "churn"  (calculated as total  disconnects as a percentage
of average  subscribers)  averaged  5.4% during 1996 and declined to 4.2% during
1997.  Austar  believes  that this ratio is likely to continue to decline in the
future due to several factors, although there can be no such assurances.  Austar
plans  to  focus  more  on  rural,  non-metropolitan  growth  in  future  years.
Approximately   33%   of   Austar's   total   serviceable   homes   are  in  its
non-metropolitan franchise area, but only 21% of its total subscribers are rural
customers. Because non-metropolitan customers normally pay a higher installation
rate,  churn is  generally  less than the churn  for  metropolitan  subscribers.
During 1997, Austar's average monthly churn rate in its non-metropolitan markets
was approximately 2%.  Furthermore,  Austar has implemented  several operational
plans to decrease churn, including direct debit banking for customers,  customer
retention and loyalty programs, and complimentary installs on customer transfers
within the same  service  region.  Finally,  the  Company  is in the  process of
improving  the  breadth  and  quality of its  programming  package  through  the
negotiation and launch of additional sports and other programming products.

     PROGRAMMING.   The  Company  believes  that  programming  is  an  important
component in building successful multi-channel television systems.  Accordingly,
Austar has secured  the right to  distribute  the Galaxy  Package in its service

                                       6
<PAGE>

areas pursuant to franchise agreements with Australis with initial terms through
2009 (extendible at the option of Austar through 2019). Austar believes that the
terms of its  franchise  agreements  with  Australis are favorable to Austar and
that these terms provide Austar with a programming cost advantage over potential
competitors. See "Austar--Franchise Agreements."

     The Galaxy Package is the most widely  distributed  programming  package in
Australia and is the core programming  offering of Austar, East Coast Television
Pty Limited  ("ECT"),  Australis and Foxtel  Management Pty Limited  ("Foxtel").
Management   believes  that  approximately  75%  of  Australia's   multi-channel
television  subscribers  subscribe  to the Galaxy  Package.  The channels in the
Galaxy Package were developed  exclusively for the Australian  market by several
of  the  world's  leading  programming  companies,  including  Paramount,  Sony,
Universal,  Fox and Viacom.  The Galaxy Package  consists of the following eight
channels:
<TABLE>
<CAPTION>

     Galaxy Channels                                           Programming Genre
     ---------------                                           -----------------
     <S>                                                       <C>
     Showtime................................................  premium feature movies
     Encore..................................................  library movies
     Fox Sports..............................................  sports
     TV-1....................................................  general entertainment
     Discovery...............................................  documentary, adventure, history and lifestyle
     Nickelodeon/Nick at Nite................................  children's and family entertainment
     Arena...................................................  general entertainment
     Channel [V].............................................  music video
</TABLE>

     Austar has also secured  additional  programming on a non-exclusive  basis,
which it is  distributing  to its  customers  as part of its  basic  programming
package, and Austar integrates all available free-to-air channels into its basic
channel line-up at no additional charge. Austar's other "cable" channels include
the following:
<TABLE>
<CAPTION>

     Other Channels                                            Programming Genre
     --------------                                            -----------------
     <S>                                                       <C>
     CMT....................................................   country music videos
     BBC World..............................................   world news
     CNBC...................................................   business news
     Lifestyle..............................................   personal and home improvement
     The Comedy Channel.....................................   comedy
     TNT(1).................................................   library movies
     Cartoon Network(1).....................................   cartoons
     CNN International(2)...................................   world news
     The Value Channel(3)...................................   shopping
     Preview(3).............................................   programming guide
     Fox Sports II..........................................   sports
</TABLE>

     (1) TNT and Cartoon  Network  share one channel.
     (2) The Gold Coast (MMDS) only.
     (3) DTH only.

     In March 1996,  Austar began offering its first optional  premium  channel,
World  Movies,  which  consists  primarily  of  foreign  movies,  art  films and
features.  Austar is  charging  approximately  $5 per  month  for World  Movies.
Initial  demand for this  service  has been  strong  with  approximately  21,332
customers  as  of  December  31,  1997,  approximately  11%  of  Austar's  basic
subscribers.  In November  1997,  Austar  began  offering  Nightmoves,  an adult
premium  channel.  Austar  charges $13 per month for  Nightmoves  and had 10,980
subscribers as of December 31, 1997.

     Austar  intends  to  expand  further  the  number of  programming  services
available on MMDS and expects that it will be marketing  additional  channels of
programming via DTH.  Austar's MMDS networks have the capacity to transmit up to
19 analog  channels  (of  which  Austar  currently  uses 17 in its  markets)  in
addition to  free-to-air  channels,  which are integrated  into the  programming
line-up at the  rooftop.  The DTH service  marketed by Austar  utilizes  MPEG II
digital  technology,  which  has over 100  channels  of  capacity.  Besides  any
additions  to the Galaxy  Package,  the  Company  has  secured,  for a five-year

                                       7
<PAGE>

period, a 54 MHz transponder  capable of broadcasting  between 10 and 15 digital
channels on the  satellite  ("Optus  Satellite")  that  currently  transmits the
Galaxy   Package,   and  pursuant  to  the   arrangement   with  Australis  (see
"Austar--Franchise  Agreements"),  has the right to deliver such  programming to
its customers through the Galaxy system. The Company is currently evaluating the
revenue  generation  potential for program  carriage on this transponder and may
sublease all or a portion of its transponder capacity during the initial term of
the agreement.  Such  transponder  payments are  approximately  $0.4 million per
month,  beginning in September 1997, under the agreement with Optus Networks Pty
Limited ("Optus Networks"), owner of Optus Satellite.

     FRANCHISE  AGREEMENTS.  Austar has entered into franchise  agreements  with
Australis.  Each  franchise  agreement is for a term of 15 years  commencing  in
October  1994,  and Austar has the option to renew the  franchise  agreements on
identical terms for another ten years. Under the franchise agreements, Australis
granted  Austar the license and right to  distribute  the Galaxy  Package in its
franchise areas. These franchise  agreements  provide  exclusivity over wireless
technologies  and  provide  that  Australis  will not grant  rights to any other
person to use  Australis'  satellite  infrastructure  or system to transmit  the
Galaxy Package in Austar's franchise areas.

     Pursuant to the terms of its franchise agreements, Austar pays a percentage
of net revenue to Australis for the right to distribute the Galaxy Package.  For
purposes of the franchise agreements,  net revenue equals gross revenue received
from the Galaxy  Package  currently  provided  less  certain  agreed upon costs,
including  depreciation  of  subscriber  equipment,  which the Company  believes
results in a favorable programming pricing structure.

     In March 1995,  Australis granted Foxtel a license to distribute the Galaxy
Package over cable television systems throughout  Australia,  including Austar's
franchise  areas. The Company believes that because of such action Australis was
in breach of its franchise agreements.  Foxtel is currently  distributing Galaxy
programming  in only one of Austar's  markets,  the Gold Coast,  which  contains
approximately  116,000  serviceable  homes.  On June 19,  1996,  Austar  and the
Company  agreed to settle  their  dispute  with  Australis  with respect to this
matter (the "Australis Arrangement").  As part of the Australis Arrangement, the
parties  agreed that  Australis  is entitled to grant  Foxtel the  non-exclusive
right to  distribute  Galaxy  programming  by  cable,  but that  Foxtel  may not
sublicense or assign this right without  Austar's  consent.  Australis agreed to
pay to Austar an amount equal to the amount  Australis  received from Foxtel for
programming  service for the period from March 1995 through June 30, 1996,  less
the  amount  Australis  paid to  third  party  programming  suppliers  for  such
programming  with respect to Foxtel  subscribers  located in Austar's  franchise
areas  during such period.  In addition,  from June 30, 1996 through the term of
the franchise agreements, Austar has the right in its sole discretion, either to
(i)  sublicense  to Foxtel the right to transmit the services  provided to it by
Australis (and any other services) by cable  transmission in its franchise areas
or (ii) require Australis to pay Austar an amount each month equal to the sum of
(a) the greater of $3 per subscriber and all revenues (less  programming  costs)
per subscriber during such month received under the agreement between Foxtel and
Australis,  with  respect to Foxtel  subscribers  located in Austar's  franchise
areas and (b) an  additional  amount (if any) to put Austar in the position that
it  would  have  been  in had it  sublicensed  the  services  provided  to it by
Australis  directly to Foxtel (which  currently  would be  approximately  $7 per
Foxtel subscriber per month). The Company believes that, because its programming
costs are less than the revenue to be generated by sublicensing such programming
to  Foxtel,  the  benefits  to be  gained  from  this  aspect  of the  Australis
Arrangement will be substantial over the years.

     As part of the Australis  Arrangement,  Australis also agreed to extend the
term of the franchise  agreements  by five years to an initial  15-year term and
amended  certain  financial  and strategic  terms of the  franchise  agreements.
Australis  also  granted  to  Austar  the  right  to  use  Australis'  satellite
infrastructure  to provide  additional DTH services  within  Austar's  franchise
areas.  In addition,  Australis  agreed to provide all future Galaxy channels to
Austar at a price no less  favorable  than that charged other persons and in any
event at no more than  Australis' cost (as charged by third parties with respect
to programming delivered by such party to Australis or the lowest price at which
Australis agrees to distribute Australis produced or compiled programming), plus
10%. In return,  the Company  agreed (i) to waive and release any claim  arising
out of or in connection with Australis' execution and performance of its license
agreement  with  Foxtel  and  (ii) not to make any  objection  or claim  against
Australis  or  Foxtel in  connection  with such  license  agreement.  Management
believes the Australis  Arrangement  is favorable to Austar.  In November  1997,
Australis  and Austar  entered into an agreement  under which Austar  waived its
right to receive payments with respect to the Foxtel compensation for the period
up to December 31, 1997. In February 1998,  Australis and Austar entered into an
additional  agreement under which Austar purchased  equipment from Australis and
was granted  certain  rights in relation to the use of the  Australis  satellite
platform as an independent operator.

                                       8
<PAGE>

     Australis,  Austar's primary supplier of programming, is engaged in a rapid
roll-out of service  that has required a  significant  amount of capital and has
strained  its  liquidity.  Australis  has  announced  that it is  continuing  to
negotiate with its bondholders, certain of the movie studios that supply it with
programming and other third parties in order to implement  long-term  sources of
funding.  If Australis is unable to make  arrangements  to satisfy its long-term
capital needs,  Australis may have difficulty  meeting  contractual  obligations
with respect to the four Galaxy channels distributed directly by Australis.  The
Company  believes  that if Austar is no longer  able to obtain  the four  Galaxy
channels  provided by Australis on an  exclusive  basis and it were  required to
seek  replacement  programming,  it would  have  access to the same  programming
directly  from the  suppliers  of the four Galaxy  channels  not provided by XYZ
Entertainment or sufficient alternative  programming on competitive terms. There
can be no assurance,  however,  that this would be the case and the inability of
Austar to procure the same or suitable  alternative  programming  at competitive
rates and on an  exclusive  basis in its  service  areas  could  have a material
adverse effect on the Company.

     COMPETITION.  The substantial majority of Austar's metropolitan markets are
either small (i.e.,  approximately  20,000  homes),  and/or have  relatively low
household  densities  (generally 25 to 75 homes per square kilometer as compared
to 100 to 130 homes per square kilometer in Australia's  largest  cities).  As a
result,  Austar  believes that its  metropolitan  markets  generally do not have
sufficient  density to justify the  construction  of competitive  wireline cable
systems.  While the  Company  believes  household  densities  could  potentially
support wireline cable construction in areas  representing  approximately 20% of
Austar's  total  franchise  homes,  the  relatively  small size of these markets
reduces the  attractiveness  of  constructing a competitive  cable  network.  In
addition,  Austar, as a licensed subscription television provider, is authorized
to build  wireline cable systems in its markets and,  where  appropriate,  could
construct  wireline  cable  systems.  With the  exception  of the  Foxtel  cable
television  system  currently  extending into Austar's  116,000-home  Gold Coast
metropolitan market, Austar does not currently have any operational subscription
television  competitors  in its franchise  areas.  In the Gold Coast,  Austar is
currently  providing  17 channels of  programming  as its basic  package,  which
includes the Galaxy Package as well as nine  additional  channels,  at a monthly
rate of approximately $23 with a one-time  installation  charge of approximately
$13.  Foxtel offers the Galaxy Package as well as 17 other  satellite or locally
originated  channels for a monthly fee of $28 and an installation charge of $19.
At  December  31,  1997,  Austar  had 17,000  subscribers  in the Gold Coast and
estimates that Foxtel has 8,000 subscribers in this market.

     Approximately  532,000  of  Austar's  1.6  million  franchise  homes are in
non-metropolitan  markets  which  generally  have  densities  of  fewer  than 25
households per square  kilometer.  As a result,  the Company believes that these
markets  can only be served  economically  with DTH  technology.  Austar has the
exclusive right to market the Galaxy DTH service in its franchise area. Although
regulations  will no longer  prohibit  additional  DTH services after June 1997,
Austar  will  retain its  exclusive  right to market  the Galaxy  Package in its
franchise  areas  through  2009  (extendible  to 2019 at  Austar's  option).  In
addition, Austar believes it has an additional competitive advantage in offering
DTH  service in these  markets  because  over 50% of its  serviceable  homes are
within a 50 kilometer radius of its metropolitan markets, where it has available
sales personnel and installation technicians.  Accordingly,  Austar believes its
cost to market and install  subscribers  in these areas  should be below that of
any potential competitor without similar infrastructure in place.

     Management  believes that Austar has  established a significant  subscriber
base,   strong  brand  awareness  and  substantial   operational  and  marketing
infrastructure,  factors that provide it with a competitive advantage. In August
1996,  Australis  and Optus  Vision Pty Limited  ("Optus  Vision")  announced an
agreement to form a joint  venture  whereby  Australis  will  contribute  to the
venture its  satellite  infrastructure  allowing for DTH  transmission  of Optus
Vision's  programming  services.  In December  1997,  a court  ruling  lifted an
injunction  set in June 1997  which was  preventing  the  implementation  of the
proposed  Australis and Optus Vision  satellite  infrastructure  joint  venture.
Following the lifting of this injunction,  Australis  publicly announced that it
intends to enforce this agreement. To date, Optus Vision has not made any public
announcement  of its position in relation to this matter.  The Company  believes
that using the  infrastructure by any entity other than Austar for the provision
of DTH  services  within  Austar's  franchise  area would be in violation of its
franchise  agreements with Australis and recently commenced  proceedings seeking
injunctive  relief  preventing  the use of  Australis'  infrastructure  by Optus
Vision in Austar's  franchise  area.  There can be no assurance that Austar will
prevail  in its  lawsuit  or that,  even if it is  successful  in  obtaining  an
injunction to prevent the  consummation  of the joint  venture,  Optus Vision or
others  will  not  compete  in  Austar's  franchise  area.  See  Item  3  "Legal
Proceedings."

                                       9
<PAGE>

     MANAGEMENT  AND EMPLOYEES.  Austar's  senior  management  includes nine UIH
employees.  Austar  and  UAP  are  parties  to a  10-year  technical  assistance
agreement,  renewable  for up to an additional  15 one-year  terms,  pursuant to
which  Austar pays UAP a monthly fee equal to 5% of its gross  revenues  through
the term of the agreement, for the provision of various management and technical
services.  In addition,  Austar reimburses UIH for certain direct costs incurred
by UIH,  including the salaries and benefits  relating to the senior  management
team.

     As  of  December  31,  1997,   Austar  had   approximately  700  employees.
Substantially all of Austar's  employees are parties to an "award" governing the
minimum  conditions  of  their  employment  including  probationary  periods  of
employment, rights upon termination, vacation, overtime and dispute resolution.

SATURN (NEW ZEALAND)

     The  Company  owns 65% of Saturn,  which  launched  service on the  initial
portions  of its  HFC  network  that  will  allow  it to  provide  multi-channel
television  services  as well as  business  and  residential  telecommunications
services in the Wellington area,  encompassing 135,000 homes.  Wellington is New
Zealand's  capital and second  largest  city.  The Company  launched  service in
portions  of this  system  in  September  1996 and  expects  construction  to be
completed by  mid-1999.  Saturn  plans to offer a full  complement  of telephone
services to both  residential  and business  markets  commencing  in April 1998.
Saturn's cable system also passes  approximately 6,000 homes on the Kapiti Coast
north of Wellington. As of December 31, 1997, Saturn's activated networks passed
approximately  23,518 homes and serviced  approximately  3,059  subscribers.  In
addition,  Saturn has secured  additional rights to use existing poles to attach
its  network  cable in  markets  representing  500,000  homes,  subject to local
planning  approval,  and is exploring the  possibility of expanding its networks
and services to these markets.

     MARKET  OVERVIEW.  The Company  believes that New Zealand,  a market of 1.2
million television homes, is attractive for multi-channel  television providers.
New Zealand has a demographic  profile similar to Australia,  including high per
capita  income and strong  television,  VCR and cellular  telephone  penetration
rates. In addition, New Zealand imposes virtually no pricing regulation and only
limited  program  content  regulation  and permits  operators to offer  combined
multi-channel  television  and  telephony  services  over one network.  There is
currently only one significant  multi-channel  television provider that offers a
five-channel UHF-delivered subscription service.

     OPERATING AND GROWTH STRATEGY. Saturn is constructing a 750 MHz HFC network
designed to service 500 homes per node with each home drop  overlaid with copper
telephony plant. This architecture will allow the integrated delivery of pay TV,
telephony, internet access, high speed data and future interactive services. The
majority of Saturn's approximately 1,600 kilometers of plant will be constructed
on  aerial   utility   poles  which   generally   allow  for  quicker  and  more
cost-effective  network  construction  than underground  wireline.  In addition,
because   Wellington   zoning  generally   permits  only  a  single   additional
communications  cable on its  aerial  utility  poles,  Saturn's  status as first
operator  on such  poles may limit  use of these  poles by other  communications
providers.  Because the only significant  multi-channel television competitor in
the  Wellington  market offers a  UHF-delivered  service that is limited to only
five  channels,  management  believes  it will be  able to  build a  significant
customer base by offering an  attractive  basic  programming  line-up of over 30
channels at  competitive  prices,  as well as  pay-per-view,  data and telephony
services.  Saturn has an  interconnect  agreement  that will allow it to provide
local residential and business telephone services. By bundling both subscription
television  and  telephony  services,  Saturn  will  be able  to  offer  pricing
discounts  across both  services,  which  management  believes  will  provide an
advantage over competitors  that offer only one service.  Saturn is currently in
the preliminary stages of discussions with several telecommunications  providers
in  the  New  Zealand  market   concerning   potential   strategic   partnership
arrangements.  There can be no assurances,  however, that Saturn will be able to
successfully conclude any such arrangements.

     PROGRAMMING.  Saturn's  programming  strategy is to offer a wide variety of
high-quality  channels at  competitive  prices.  Saturn is currently  offering a
single tier of service  consisting  of 25  channels  and is  negotiating  with a
number of programming services to expand its channel offering.  The following is
a list of the programming currently offered by Saturn in its basic package:

                                       10
<PAGE>
<TABLE>
<CAPTION>

     Channel                                                    Programming Genre
     -------                                                    -----------------
     <S>                                                        <C>
     TV1, TV2, TV3, TV4.......................................  general entertainment (retransmitted)
     MTV......................................................  music video
     ONTV.....................................................  Saturn community channel
     BBC World................................................  world news
     CNBC.....................................................  world financial news
     CNN International .......................................  world news
     MCM......................................................  music video
     Discovery................................................  science and nature
     NBC Superchannel.........................................  general entertainment
     TNT......................................................  classic movies
     Cartoon Network..........................................  children's cartoon programming
     Trackside................................................  TAB racing
     Kidzone..................................................  local children's programming
     Weather Channel..........................................  live weather from NZ MetService
     Program Guide............................................  programming line-up
     TVSN.....................................................  shopping
     CMTV.....................................................  country music video
     Elijah Television........................................  non-denominational religious programming
     Worldnet.................................................  U.S. information service news and science
     Saturn SportsNet(1)......................................  Local/international sports
     The Golf Channel(1)......................................  24 hours of golf events/news
     Saturn Showcase(1).......................................  Saturn programming channels (split screen)
</TABLE>

     (1) Saturn launched this channel during the first quarter of 1998.

     Saturn also offers 19 channels of new release pay-per-view movies,  branded
Saturn Home Cinema, provided by four leading Hollywood studios.

     PRICING.  With its cable television  service,  Saturn offers a single basic
service package with 25 channels in Wellington at a monthly subscription rate of
approximately  $17.  Saturn is  currently  packaging  its  cable  and  telephony
products and  including  promotional  discounts  and bundled  retail  pricing to
achieve significant  penetrations.  Sky TV ("Sky"), Saturn's primary competitor,
charges subscribers a monthly rate of approximately $31 for five channels of UHF
programming  with a one-time  installation  fee of $29 per subscriber.  Saturn's
residential and business  telephony service will usually be priced below Telecom
New Zealand  ("Telecom");  however,  Saturn expects to generally offer "more for
less" due to its superior network and capacity.

     MARKETING;  CUSTOMER SUPPORT.  Saturn's  marketing  strategy uses promotion
techniques proven in existing subscription television markets such as the United
States and Europe,  including  direct sales  campaigns  (door-to-door  selling),
direct mail and telemarketing supported by a mass media brand awareness program.
Direct  sales  has  proven to be the most  effective  technique  in other  cable
television markets,  particularly in areas where multi-channel  television is in
its introductory stage. Each of these techniques aims to communicate the selling
points  of cable  television:  expanded  choice,  high  entertainment  value and
breadth of programming  genre to potential  subscribers.  Homes are released for
marketing on a node by node basis as construction is completed, which allows for
a very targeted marketing program tailored to the unique demographic  profile of
the  territory,  and  enables  Saturn to  capitalize  on the  product  awareness
resulting from its construction efforts.  Saturn's sales strategy is designed to
include an emphasis on  telephony  services  (once these can be offered)  and to
capitalize on the value, quality and customer service advantages associated with
bundled services.  Saturn has established a national customer services center at
its  corporate  headquarters  in  Wellington.  The  call  management  technology
employed  by Saturn is  scaleable  and can be  configured  to support a national
network expansion.  In addition,  Saturn is currently developing a sophisticated
marketing  database  to assist the sales force in a targeted  sales  approach in
future marketing campaigns.

     COMPETITION.  There are currently four broadcast networks in New Zealand as
well as several other  free-to-air  regional  channels.  The largest provider of
subscription  television  services  in New  Zealand  is Sky,  which  operates  a
five-channel encrypted UHF subscription television service.  Although Sky offers

                                       11
<PAGE>

a popular sports channel on an exclusive basis, Sky does not currently offer the
programming  diversity  or  television/telephony  bundling  that Saturn plans to
offer,  services  Saturn believes will drive its  penetration.  Sky has recently
announced,  however,  a launch of a digital direct broadcast  service ("DBS") in
the second  half of 1998,  which will enable Sky to offer  enhanced  packages of
programs on a greater number of channels.  In addition,  Telecom,  New Zealand's
largest  telecommunications  service  provider with nearly a 100% share of local
loop  revenues,  75% of national  and  international  toll  revenues  and 90% of
cellular revenues, has existing networks using HFC technology,  which will allow
it to offer video and data services to a total of approximately  70,000 homes in
various parts of New Zealand.  Telecom has publicly  announced  that it does not
intend to continue with the expansion of its pay television service.  Telecom is
expected to be the primary  competition to Saturn's planned local loop telephony
service.

     MANAGEMENT AND EMPLOYEES.  UIH has appointed two of its employees to senior
management  positions at Saturn,  including Saturn's chief executive officer and
customer  operations  director.  Saturn  reimburses UIH for certain direct costs
incurred by UIH,  including  the salaries and benefits  relating to these senior
management  positions.  In  addition,  Saturn and UAP are parties to a technical
assistance  agreement,  pursuant to which Saturn pays UAP a monthly fee equal to
2.5%  of  its  gross   revenues  for  the   provision   of  various   technical,
administrative and operational services.

     As  of  December  31,  1997,   Saturn  had   approximately  150  employees.
Substantially all of Saturn's  employees are parties to a collective  employment
contract governing certain conditions of their employment including probationary
periods of employment,  termination,  redundancy,  overtime, holidays, leave and
dispute resolution.

XYZ ENTERTAINMENT (AUSTRALIAN PROGRAMMING)

     Through its 25% interest in XYZ  Entertainment,  the Company  provides four
channels (the "XYZ Channels") of the eight channels which are distributed as the
Galaxy Package,  the most widely distributed  programming  package in Australia.
During 1997, XYZ  Entertainment  also launched another channel,  Lifestyle.  XYZ
Entertainment's program channels consist of the following:
<TABLE>
<CAPTION>

     XYZ Channels                                               Programming Genre
     ------------                                               -----------------
     <S>                                                        <C>
     Discovery................................................  documentary, adventure, history and lifestyle programming
     Nickelodeon/Nick at Nite.................................  children's educational, entertainment and cartoons/family-
                                                                   oriented drama and entertainment
     Channel [V]..............................................  music video with local presenters
     Arena....................................................  drama, comedy, general entertainment, programming, library
                                                                movies

     Other Channel                                              Programming Genre
     -------------                                              -----------------
     Lifestyle................................................  personal and home improvement
</TABLE>

     XYZ  Entertainment  provides  the XYZ Channels to  Continental  Century Pay
Television  Pty  Limited  (the "A  Licenseholder"),  which in turn,  pursuant to
long-term  carriage  agreements,  supplies them as part of the Galaxy Package to
Australis and its franchisees and to Foxtel.  The Galaxy Package is available to
the majority of Australia's  approximately  six million  television  households,
including  all  households  marketed  via  MMDS  and  DTH by  Australis  and its
franchisees,  pursuant  to a  carriage  agreement  between  Australis  and the A
Licenseholder  that has been  warranted  to XYZ  Entertainment  as having a term
through at least 2010. The XYZ Channels are also  distributed to Foxtel pursuant
to a carriage  agreement  between Foxtel and the A  Licenseholder  that has been
warranted   to  XYZ   Entertainment   as  having  a  term  through   2020.   XYZ
Entertainment's  agreement  with the A  Licenseholder  provides  for  fixed  per
subscriber prices. The Company  understands the carriage agreement between the A
Licenseholder and Foxtel provides for substantial minimum subscriber guarantees.
XYZ Entertainment  currently  receives monthly revenues of $3.15 per MMDS or DTH
subscriber  and  $4.15  per  Foxtel  subscriber.  ECT,  an  affiliate  of  the A
Licenseholder,  has guaranteed the  performance of all of the A  Licenseholder's
obligations to XYZ Entertainment under this agreement.  As of December 31, 1997,
the  XYZ  Channels  were  distributed  to  approximately  577,000  multi-channel
television subscribers.

                                       12
<PAGE>

     OPERATING  AND  GROWTH  STRATEGY.  XYZ  Entertainment  is an  independently
managed venture which purchases,  edits,  packages and transmits programming for
the XYZ Channels in exchange for a monthly fee per  subscriber.  The Company and
Century  jointly manage Arena;  the Company manages the Lifestyle  channel;  the
Company,  Century and Foxtel  manage  Channel  [V]; and the Company and Century,
together  with   Nickelodeon   Australia,   Inc.   ("Nickelodeon")   manage  the
Nickelodeon/Nick  at Nite  channel.  Each of these  channels  reports to a board
comprised of the Company,  Century and Foxtel executives.  The Discovery Channel
is managed by Discovery Asia and distributed by XYZ Entertainment.

     XYZ Entertainment is focusing its marketing  efforts on creating,  building
and supporting channel  identification and brand awareness.  XYZ Entertainment's
goal is to acquire quality  programming  that will engender  viewer loyalty.  In
addition, XYZ Entertainment offers advertising on each of the XYZ Channels.

     ACQUISITION OF PROGRAMMING.  In July 1995, XYZ  Entertainment and Discovery
Asia executed a twelve-year  exclusive  carriage  agreement  whereby a localized
version of the  Discovery  Channel  replaced  the existing  documentary  channel
developed by XYZ  Entertainment.  The Company  believes that as a result of this
arrangement  XYZ  Entertainment  is able to  offer  subscribers  higher  quality
programming at a lower cost to XYZ Entertainment.

     XYZ  Entertainment  and  Nickelodeon,  a division  of Viacom,  are  jointly
producing and distributing an Australian  version of  Nickelodeon/Nick  at Nite,
which XYZ  Entertainment  began  distributing in October 1995. XYZ Entertainment
pays a monthly per subscriber license distribution fee that is shared equally by
Nickelodeon and XYZ Entertainment.

     XYZ  Entertainment  acquires  programming  and produces  interstitials  for
Arena,  Lifestyle  and Channel [V]. XYZ  Entertainment  has acquired a supply of
programming  for Arena and  Lifestyle at prices its  management  considers to be
favorable.  XYZ  Entertainment is pursuing supply agreements and potential joint
venture arrangements with a number of other international programming suppliers.

     In March 1997, XYZ Entertainment and Channel [V] Music Networks ("CVMN"), a
joint venture  between Star TV and several record  companies  including  B.M.G.,
EMI,  Sony  and  Warner  Music,  entered  into  an  agreement  to  re-brand  XYZ
Entertainment's  music  video  channel  under a  license  arrangement  with  the
international  music video channel,  Channel [V]. The  arrangement,  which has a
10-year  term,  allows XYZ  Entertainment  to use the  Channel  [V]  trademarks,
interstitial  materials  and  management  and gives it access to  Channel  [V]'s
favorable record programming arrangements. XYZ Entertainment has agreed to pay a
management fee of approximately $0.7 million over the first two years as well as
a licensing fee based on gross  subscriber  revenues,  ranging from 2.5% for the
first two years to 5% for the third  through  the tenth  years.  After the third
year, CVMN shall have a one-year option to acquire a 20% interest in Channel [V]
at a price equal to XYZ  Entertainment's  cost plus cost of capital at 11.5% per
annum. Upon such acquisition, CVMN will offset its licensing fee against current
and future profit shares.

     EMPLOYEES.  As of December 31, 1997, XYZ Entertainment had 74 employees and
the Nickelodeon  joint venture had 21 employees.  The programming  joint venture
between the Company and Century had 13 employees who provide management services
to XYZ Entertainment.

TELEFENUA (TAHITI)

     The Company has an up to 90% economic interest in Telefenua, which operates
a 16 channel MMDS in a franchise  area that,  as of December 31, 1997,  included
approximately  20,128  serviceable homes.  Telefenua is currently  expanding its
network by  selectively  adding beam benders and  repeaters  that will allow its
signal  to reach  substantially  all of the  approximately  31,000  homes in its
franchise  areas.  Telefenua  had 6,304  subscribers  as of December  31,  1997,
representing  a 31%  penetration  rate.  The Company and its partners are in the
early  stages  of  negotiations  relating  to the  sale of all or a  portion  of
Telefenua to a local strategic investor, although there can be no assurance that
the Company will conclude such a transaction.

     MARKET  OVERVIEW.  Tahiti and Moorea are the two largest and most  populous
islands of French  Polynesia,  a  self-governing  territory  of the  Republic of
France. The French government  contributes heavily to French Polynesia's economy
and approximately  one-third of Tahiti's  population is employed by the national
government.   Television  viewing  alternatives  are  limited,  but  demand  for
television is strong as  demonstrated  by the country's high  television and VCR

                                       13
<PAGE>

penetration rates, 99% and 66%, respectively,  and average per capita television
viewing of nearly four hours per day. Prior to late 1994,  television choice was
limited to two government broadcast channels.

     OPERATING  AND GROWTH  STRATEGY.  Telefenua is focusing on  increasing  its
penetration  rates  through  continued  direct  marketing  campaigns,  including
door-to-door   sales,  and  expanding  its  serviceable   homes  through  select
deployment  of beam benders and  repeaters.  Management  is actively  seeking to
expand its programming  offering,  including the planned introduction of premium
movie  services.  Telefenua is also  expanding its network by adding  additional
beam benders and  repeaters.  The Company  anticipates  this  expansion  will be
completed over the next 12 to 24 months.

     PRICING.  The subscription fee for Telefenua's  basic tier is approximately
$45 per month,  the  expanded  tier monthly  rate is  approximately  $55 and the
premium  movie service is an additional  approximately  $22 per month.  To date,
nearly 99% of  Telefenua's  customers  are  subscribing  to the expanded tier of
service.  Telefenua also charges a one-time  installation  rate of approximately
$100.

     PROGRAMMING.  Telefenua offers a combination of French and English language
services. Telefenua's current channel line-up consists of 16 channels segregated
into three tiers of service--a basic service with 11 channels,  an expanded tier
with an  additional  three  channels and a premium  service with two  additional
channels. Telefenua's basic tier offers the two local broadcast channels as well
as French language childrens'  entertainment,  sports, general entertainment and
music channels and the English  language CNN  International  channel.  Telefenua
also offers a local public access  channel.  The expanded  tier includes  French
language  movies,  a  documentary  channel and ESPN  International.  The premium
service includes a French movie channel, Cinestar, and HBO International.

     With  the  exception  of  CNN  International,   ESPN   International,   HBO
International and the two local broadcast channels,  all programming consists of
taped French satellite services.  Current French regulations require approval of
the national regulatory  authority for all programming.  The following is a list
of programming currently offered by Telefenua:
<TABLE>
<CAPTION>

     Channel                                                    Programming Genre
     -------                                                    -----------------
     <S>                                                        <C>
     RFO 1....................................................  government broadcast, general entertainment
     RFO 2....................................................  government broadcast, general entertainment
     CNN International........................................  world news
     RTL......................................................  general entertainment
     Eurosport................................................  sports
     Canal J/Canal Jimmy......................................  adult and childrens'
     Serie Club...............................................  general entertainment
     Paris Premiere...........................................  arts, life
     MCM......................................................  music video
     M6.......................................................  general entertainment
     CMT......................................................  country music video
     Planete..................................................  documentary (expanded basic tier)
     Cine Cinemas.............................................  movies (expanded basic tier)
     ESPN International.......................................  sports (expanded basic tier)
     Cinestar.................................................  premium movies
     HBO International........................................  premium movies
</TABLE>

     During 1997,  Telefenua launched its first premium movie service consisting
of Cinestar and HBO International. As of December 31, 1997, over 2,300 customers
subscribed to this service.

     MARKETING;   CUSTOMER   SUPPORT.   Telefenua   utilizes  several  marketing
techniques,  proven in the U.S.  multi-channel  television  industry,  including
door-to-door, direct mail and local media. The Company's customer service center
also conducts  telemarketing  campaigns  and has opened sales  boutiques in high
traffic  areas  throughout  Tahiti and Moorea.  Marketing  campaigns  consist of
selected  promotions  targeting specific  demographic groups throughout the year
and new markets as they are activated.  Telefenua's  customer  service center is
located  at  its  corporate  headquarters.   The  center  handles  all  customer
inquiries, coordinates installations and manages all maintenance activities.

                                       14
<PAGE>

     COMPETITION.  Telefenua's only subscription  television competitor is Canal
Plus,  which  offers a single  channel UHF  service  offering a  combination  of
sports, movies and general entertainment programming. The Company estimated that
Canal Plus had approximately 3,800 subscribers,  of which an estimated 1,000 are
also  customers  of  Telefenua.  The  monthly  subscription  fee for Canal Plus'
service  is  approximately   equal  to  the  subscription  fee  for  Telefenua's
16-channel  expanded tier service.  There is no existing  competition  in Tahiti
from DTH  services due to limited  satellite  coverage in the region and lack of
available satellite-delivered French language programming.

     MANAGEMENT  AND  EMPLOYEES.  UAP and  Telefenua  are parties to a technical
assistance   agreement,   whereby   UAP  has   agreed  to   provide   technical,
administrative  and  operational  assistance to Telefenua for  reimbursement  of
expenses and a fee equal to 5% of Telefenua's  gross revenue  through the end of
1996, 3% of gross revenue during 1997,  and 2% thereafter.  Telefenua also has a
similar   technical   assistance   agreement  with  the  Societe  Francaise  des
Communications et du Cable S.A. ("SFCC"), Telefenua's immediate parent. Although
UAP has assumed all of SFCC's rights and obligations under this agreement,  SFCC
is still entitled to receive from  Telefenua 0.5% of Telefenua's  gross revenues
through the term of the  agreement.  UIH has  appointed  two of its employees to
serve as managing director and technical  director of Telefenua.  UIH pays these
employees' salaries and benefits and charges Telefenua for these amounts.

     As of December 31, 1997, Telefenua had approximately 40 employees.

UNITED WIRELESS (AUSTRALIAN MOBILE DATA)

     The Company owns a 100% economic interest in United Wireless, a provider of
two-way  wireless  mobile data  services in  Australia.  Wireless  data networks
provide  for  the  two-way  transmission  of  packet  switched  data  between  a
customer's  terminal and a host  computer.  The  transmission  of wireless  data
occurs over a network, similar in configuration to a cellular telephone network,
which is constructed and maintained by a local network  carrier,  such as United
Wireless.

     BACKGROUND.  In September  1995,  the Company  acquired a 100%  interest in
BellSouth  Mobile Data Australia Pty Limited which was renamed United  Wireless.
United  Wireless is in the second phase of its network  deployment  in the major
metropolitan  markets of  Australia.  United  Wireless'  network is based on the
"Mobitex" technology,  developed by Ericsson and Swedish Telekom and launched in
1984.  Today,  there are 13 operational  Mobitex wireless data networks deployed
throughout Europe, North America and the Asia/Pacific region.

     MARKET OVERVIEW.  The Australian wireless mobile and fixed data industry is
in an early stage of development.  Wireless data services were first  introduced
in  Australia  in 1992 by United  Wireless'  predecessor.  Today,  there are two
public wireless data carriers in Australia with a total estimated installed base
of 5,500 customer terminals.

     OPERATING AND GROWTH  STRATEGY.  United Wireless is aggressively  expanding
its network  coverage areas to encompass the  metropolitan  markets of Adelaide,
Brisbane,  Canberra,  the Gold Coast,  Melbourne,  Perth and Sydney. The Company
plans on  spending  approximately  $2.8  million for  network  construction  and
working capital needs through 1998.

     MARKETING AND  CUSTOMERS.  United  Wireless'  target market  includes large
companies  with  significant  potential  installed  bases,  such  as  utilities,
security alarm firms,  commercial banks,  transport  companies,  and courier and
delivery companies. Management believes that the most expeditious and economical
approach  to  building  an  installed  customer  terminal  base is to target its
efforts on securing these large corporate accounts.  Specific  applications that
United Wireless plans to target include remote order entry (i.e.,  sales persons
and  couriers),  credit and debit card  validation,  remote  meter  reading  for
utilities, security monitoring and vending machine inventory monitoring.

     REVENUE AND PRICING.  The majority of United Wireless' revenues are derived
from modem sales,  connection  revenues and monthly access fees charged on a per
terminal basis. The average customer pays a monthly rate of $45 per terminal.

     SALES.  United Wireless utilizes a network of systems  integrators that act
as the primary  interface with potential  customers.  These systems  integrators
develop  specific  customer  applications  which  utilize the  Mobitex  wireless
network for  transmission  of data.  United  Wireless  works  closely with these
systems  integrators,  providing  technical,  marketing  and other general sales
support.   United  Wireless  also   anticipates   developing   specific  network
applications direct to customers.

                                       15
<PAGE>

     COMPETITION. United Wireless competes primarily with Telstra Wireless Data,
a subsidiary of Telstra,  whose wireless data network was developed by Motorola.
The  Company   estimates   Telstra  Wireless  Data  has  an  installed  base  of
approximately 5,250 customer terminals.

     In  addition  to  Telstra   Wireless  Data,   United  Wireless  could  face
competition  in the  future  from  certain  companies  that  are  attempting  to
implement  satellite-generated data transmission and paging services on a global
scale. The launch of low earth orbit satellite systems offering wide area public
data  communications in Australia is expected between 1999 and 2002. The Company
believes,   however,  that  the  costs  of  both  terminal  equipment  and  data
transmission  are expected to be  significantly  greater than those  incurred by
United Wireless.

     The Company believes that the Mobitex network provides certain  competitive
advantages over other operating platforms including the following:  (i) superior
transmission  quality, (ii) broader redundancy  capabilities,  (iii) larger base
station coverage areas, (iv) lower maintenance and support  requirements and (v)
a greater array of proven application solutions.

     MANAGEMENT  AND  EMPLOYEES.  UAP  and  United  Wireless  are  parties  to a
technical  assistance  agreement,  pursuant  to which UAP has  agreed to provide
technical, administrative and operational assistance to United Wireless, and UAP
receives a management  fee equal to 5% of the gross  revenue of United  Wireless
through  December 2007. UIH has appointed the chief executive  officer of United
Wireless,  pursuant  to the terms of this  agreement.  All costs  related to the
employment of this individual are reimbursed to UIH by United Wireless.

     As of December 31, 1997, United Wireless had 17 employees.

TECHNOLOGIES EMPLOYED BY THE COMPANY

     The Company currently uses three principal transmission technologies in the
deployment of its multi-channel  television  services in Australia,  New Zealand
and Tahiti.  These technologies are as follows: (i) MMDS or wireless cable, (ii)
DTH  satellite  broadcast  services  and  (iii)  wireline  cable  or  CATV,  the
technology  with which  multi-channel  television  services are most  frequently
delivered  in the  United  States.  The  Company  has  carefully  evaluated  the
characteristics of the markets in which it is currently operating or planning to
operate  multi-channel  television systems and has chosen what it believes to be
the most appropriate  transmission technology for each. While these transmission
technologies are, in general,  similar with respect to picture quality, all such
technologies  offer improved  picture quality  compared to what has historically
been offered by over-the-air broadcasters.

     MMDS is a  microwave  distribution  system  for which  frequency  bands are
utilized for transmission of the programming  services.  MMDS signals  originate
from  a  head-end  facility,  which  receives  satellite-delivered   programming
services and delivers  such  programming  via an encoded  microwave  signal from
transmitters  located  on a tower or on top of a building  to a small  receiving
antenna  located at a  subscriber's  premises,  where the microwave  signals are
decoded.  MMDS  transmission  requires a clear  line-of-sight  because microwave
frequencies will not pass through  obstructions;  however, many signal blockages
can be overcome  through the use of low power signal  repeaters which retransmit
an otherwise blocked signal over a limited area. The initial  construction costs
of MMDS generally are  significantly  lower than a wireline cable or DTH system.
The Company is using MMDS transmission technology in Australia and Tahiti, where
housing density and topography make MMDS the most cost effective technology.

     DTH transmits  encoded signals  directly from a satellite to a subscriber's
premises,  where it is decoded.  Currently in  Australia,  all DTH  subscription
television   services  are  transmitted  via  the  Optus  Satellite  using  High
Performance  Beams ("HP Beams")  covering  certain  geographic  areas  (commonly
referred to as a satellite  "footprint").  All of Austar's  franchise  areas are
within the Optus Satellite footprint. Since this signal will be transmitted at a
high  power  level and  frequency  utilizing  MPEG II  digital  technology,  its
reception can be accomplished  with a relatively small (26-35 inch) dish mounted
on a rooftop or in the yard for the  households  located  within  the  innermost
satellite  transmission  footprint and with a slightly  larger (35-47 inch) dish
for the households located outside the innermost footprint.  Austar is using DTH
transmission  technology for homes in its MMDS markets that are not reachable by
its MMDS  signals as well as for homes in its  franchise  areas where  household
densities  do not support the  construction  of MMDS  systems.  Due to satellite

                                       16
<PAGE>

coverage  limitations,  DTH service is currently not available in New Zealand or
Tahiti although Sky has recently announced plans to start delivering services to
New Zealand via the Optus Satellite in the second half of 1998.

     A wireline cable  television  system is a network of coaxial or fiber-optic
transmission  cables through which  programming is transmitted to a subscriber's
premises  from the system's  head-end  facility,  which  receives  satellite and
tape-delivered  programming.  Wireline cable television  offers a wide bandwidth
that generally allows the transmission of a larger number of channels than MMDS.
When constructed with a HFC network,  as the Company plans to do in New Zealand,
the system's  infrastructure can be used to deliver telephony and data services.
The primary  disadvantages  of a wireline  cable network are the higher costs of
construction, especially in areas of low housing density, and the length of time
required to construct the network.  The Company is  constructing  wireline cable
systems  in New  Zealand  and,  due to  topography  and  housing  densities,  is
constructing a wireline cable system in one market in Australia.

EMPLOYEES

     The   Company   has   no   employees.   Certain   management,    technical,
administrative,  accounting,  tax, legal, financial reporting and other services
for the Company are currently provided by UIH and UAP pursuant to the terms of a
management  agreement.  In addition,  UIH supplies certain  employees to Austar,
Saturn,   Telefenua  and  United  Wireless  pursuant  to  technical   assistance
agreements with such operating companies. See Item 13 "Certain Relationships and
Related Transactions."

CORPORATE ORGANIZATIONAL STRUCTURE

     The Company is a holding company with no operations of its own. The Company
holds majority economic  interests in all of its operating  companies other than
XYZ Entertainment.  Below is a summary of the Company's  ownership  interests in
its operating companies.

AUSTAR

     The Company holds a combined 100% economic  interest in CTV and STV,  which
operate together under the name Austar,  through direct and indirect holdings of
convertible  debentures and ordinary shares. The Company holds approximately 15%
of the ordinary shares of CTV and STV, which accounts for an approximately  0.3%
economic  interest  in  Austar.  The  Company  holds  all  of  CTV's  and  STV's
convertible  debentures,  which  accounts for an  approximately  97.8%  economic
interest  in Austar.  In  addition,  through the  Company's  holdings of certain
debentures  of Salstel  Media  Holdings  Pty Limited  ("SMH") and Salstel  Media
Investments Pty Limited  ("SMI"),  which in turn hold ordinary shares of CTV and
STV, UAP has an additional effective 1.9% economic interest in Austar.  Although
the Company holds  debentures  and one share in each of SMH and SMI, it does not
control  such  entities  or have  controlling  rights as a  shareholder  of such
entities.  Through  contractual  arrangements and pursuant to the terms of CTV's
and STV's respective charter documents, the Company has the right to appoint all
of the six voting directors of each company.

SATURN

     In 1994,  the  Company  acquired a 50%  interest  in Saturn,  a New Zealand
corporation.  In July 1996,  the Company  acquired the remaining 50% interest in
Saturn in exchange for a 2.6% common equity  interest in the Company,  which was
exchanged for a 2% interest in UAP in May 1997. In July 1997,  SaskTel purchased
a 35% equity  interest in Saturn,  reducing the Company's  interest in Saturn to
65%.

TELEFENUA

     UIH-SFCC Holdings, L.P. ("UIH-SFCC"), a limited partnership wholly-owned by
the Company, is the general partner of a limited partnership (the "Partnership")
that owns 100% of the preferred stock of SFCC, representing approximately 40% of
the share capital of SFCC.  SFCC is the parent company of Telefenua,  which owns
and operates the multi-channel television system in Tahiti. As holder of 100% of
the preferred stock of SFCC, the Partnership is entitled to certain preferential
distributions  by  SFCC.   Through  its  general   partner's   interest  in  the
Partnership,  UIH-SFCC will receive 90% of the distributions  made by SFCC until
UIH-SFCC  has  received  the  return  of its  investment  plus a 20%  cumulative

                                       17
<PAGE>

compounded annual return, 75% of distributions  until it has received the return
of its  investment  plus a 40%  cumulative  compounded  annual return and 64% of
distributions thereafter.  Once UIH-SFCC's total equity investment exceeds $10.0
million,  further  equity  investments  would not be entitled to the 90% and 75%
distributions.  Instead,  equity investments above $10.0 million,  to the extent
not matched pro rata by the Company's partners,  would increase the 64% that UIH
receives  after  the  preferential  distributions  are made on the  first  $10.0
million.  As of December 31, 1996,  UIH-SFCC had also advanced $7.0 million as a
bridge loan to SFCC,  approximately  $5.0  million of which was  converted  into
convertible  debentures of SFCC,  which are convertible  into preferred stock of
SFCC.  During  1997,  UIH-SFCC  converted  approximately  $3.2  million  of such
debentures  into preferred  stock with the same terms as the existing  preferred
stock of SFCC, to bring  UIH-SFCC's  total equity  investment to $10.0  million.
UIH-SFCC has also invested  $2.3 million in equipment,  which has been leased to
Telefenua.

UNITED WIRELESS

     United Wireless is a wholly-owned subsidiary of the Company.

XYZ ENTERTAINMENT

     The Company has an indirect 25% interest in XYZ  Entertainment  through its
50% interest in CUPV, an Australian corporation owned equally by the Company and
Century.  CUPV holds a 50%  interest in XYZ  Entertainment.  The  remaining  50%
interest in XYZ Entertainment is held by Foxtel.

     For a discussion of risks  associated with foreign  operations,  see Item 7
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

(d)  FINANCIAL  INFORMATION  ABOUT  FOREIGN  AND DOMESTIC  OPERATIONS AND EXPORT
     SALES
     ---------------------------------------------------------------------------

     For information  applicable to this Item, see the notes to the consolidated
financial statements contained in Item 8 "Financial Statements and Supplementary
Data."

ITEM 2.  PROPERTIES
-------------------

     The Company's executive offices are located in Denver,  Colorado,  in space
leased by UIH and provided to the Company  through the UAP Management  Agreement
as described in Item 13 "Certain  Relationships  and Related  Transactions."  In
management's  opinion,  these  facilities are sufficient to meet the current and
foreseeable future needs of its operating companies.

     Austar leases office space in Sydney for its administrative offices and has
established  four regional offices in leased space in certain areas where it has
launched service. Austar also leases locations for smaller local offices in most
of its markets to handle local customer maintenance, marketing and installation.
In  addition,  Austar  leases  facilities  to house the  head-end  facility  and
transmitter  tower  in each  of its  markets.  The  NCOC is  located  in  leased
facilities in the Gold Coast. Generally, these Austar facilities are leased with
terms of three to six years,  with  renewal  options in many  instances.  Austar
believes that its leased facilities are sufficient for its foreseeable needs and
that it has  access to a  sufficient  supply  of  additional  facilities  in its
various markets, should it require more space.

     Saturn  has   purchased   property   upon  which  it  is   constructing   a
head-end/switching   and  operations  facility  in  Petone,   located  north  of
Wellington.   Saturn  also  leases  office  and  warehouse  facilities  for  its
headquarters  in  Petone.  This lease  expires  in 2001 with a six-year  renewal
option.

     XYZ  Entertainment  currently  uses  a  portion  of  Foxtel's  broadcasting
facilities located in Sydney. XYZ Entertainment pays its proportionate  share of
Foxtel's  leasing  costs (based on space  utilized).  The Company  believes this
arrangement results in operational cost savings. XYZ Entertainment  believes its
facilities are sufficient for the foreseeable future.

     Telefenua  owns  office  space in  Punaania,  Tahiti.  This  facility  also
contains the customer service center and the head-end  equipment for the system,
including equipment for the receipt of satellite delivered programming and local

                                       18
<PAGE>

broadcasts  as well as play-back of taped  programming.  Telefenua  compiles its
16-channel  service at this facility and then  transmits from its MMDS broadcast
tower located on the island of Moorea.

     United  Wireless leases  corporate  office space in Sydney and has a leased
regional sales office in Melbourne.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

     Other than as described  below,  the Company is not a party to any material
legal  proceedings,  nor is it currently aware of any threatened  material legal
proceedings.  From time to time,  the Company may become  involved in litigation
relating to claims  arising out of its  operations  in the normal  course of its
business.

     The  territorial  government  of Tahiti (in French  Polynesia)  has legally
challenged  the decree and authority of the Conseil  Superieur de  l'Audiovisuel
("CSA") to award  Telefenua  the  authorizations  to operate an MMDS  service in
French Polynesia.  The French  Polynesian's  challenge to France's  authority to
award Telefenua an MMDS license in Tahiti was upheld by the Conseil d'Etat,  the
supreme administrative court of France. The territorial government of Tahiti has
brought an action in French  court  seeking  cancellation  of the MMDS  licenses
awarded by the CSA to  Telefenua,  although no such  cancellation  has yet taken
place. There can be no assurance that if the existing authorization is nullified
a new  authorization  will be  obtained.  If  Telefenua  does  not  obtain a new
authorization,   there  is  no  assurance   that   Telefenua  will  receive  any
restitution.  In addition,  any available restitution could be limited and could
take years to obtain.

     On November 6, 1996,  Austar filed a complaint in the Supreme  Court of New
South  Wales,  Commercial  Division,  seeking  injunctive  relief to prevent (i)
Australis  from  transferring  its  satellite  delivery  systems and  associated
infrastructure to its joint venture with Optus Vision and (ii) Optus Vision from
using such  infrastructure  to deliver DTH services in Austar's  franchise area.
Austar  believes  that the use of the  infrastructure  by any entity  other than
Austar  for the  provision  of DTH  services  within  Austar's  franchise  areas
violates the terms of Austar's franchise  agreement with Australis which granted
Austar an exclusive license and franchise to use the  infrastructure  within its
franchise  areas.  Austar is seeking  injunctive  relief or, in the alternative,
damages associated with this violation of its franchise agreements.  On December
6, 1996,  Australis filed counterclaims  against Austar and the Company alleging
generally  that Austar and the Company  breached  implied terms of the Australis
Arrangement by seeking such injunctive relief. In addition,  Optus Vision claims
that the exclusive nature of Austar's franchise  agreements violates Australia's
Trade Practices Act. On May 9, 1997, pursuant to the court's permission,  Austar
amended its complaint to include claims that the agreement between Australis and
Optus  Vision  violates  Australia's  Trade  Practices  Act and that  Austar  is
entitled to damages arising from  interference  with its  contractual  relations
with  Australis  under the  franchise  agreements.  Austar's  complaint was also
amended to add as defendants  two  affiliates of Optus  Vision:  Publishing  and
Broadcasting  Limited  and its  subsidiary,  Pay TV  Options.  In  response,  on
September 10, 1997,  Australis lodged an amended  cross-claim.  On May 30, 1997,
the Supreme Court of New South Wales, in separate proceedings brought by FoxTel,
granted a permanent  injunction  restraining  Australis from  transferring  such
assets to the joint  venture.  Both Optus  Vision  and  Australis  appealed  the
decision.  Optus Vision  indicated,  in the  meantime,  that it was pursuing its
claim  that the  exclusive  nature  of  Austar's  franchise  agreements  violate
Australia's  Trade  Practices  Act.  The New South  Wales  Court of  Appeal,  on
December  23,  1997,  upheld the appeal  brought by Optus  Vision and  Australis
against  the  granting  of the  permanent  injunction.  The  Company  intends to
vigorously defend its position.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

     On November  10,  1997,  the sole  stockholder  of the Company  approved an
amendment to the Company's  articles of  incorporation to increase the Company's
authorized capital.

                                       19
<PAGE>
                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS
--------------------------------------------------------------------------------

     Upon its formation,  the Company issued 100 shares of common stock to UAP's
predecessor.  In July 1996, the Company  issued 387 additional  shares of common
stock to UAP as a stock  dividend  and 13 shares of common  stock to Kiwi  Cable
Company BVI, Inc. ("Kiwi") in exchange for Kiwi's 50% interest in Saturn. In May
1997,  UAP acquired the remaining 13 shares of the Company from Kiwi in exchange
for a 2%  interest  in UAP.  At that  time,  UAP owned all of the 500  shares of
issued and  outstanding  common  stock of the  Company.  In November  1997,  the
Company  effected a stock  split  whereby  the 500  shares of common  stock then
outstanding  were exchanged for 13,864,941  shares of common stock.  On November
17, 1997,  pursuant to the terms of the indentures  governing the May 1996 Notes
and the September 1997 private  placement of $46.3 million  aggregate  principal
amount of senior discount notes (the "September 1997 Notes") (collectively,  the
"Notes"),  the Company issued  warrants to purchase a total of 488,000 shares of
its common  stock to the holders of the Notes.  Neither the common stock nor the
warrants are listed on any exchange.

     The Company has paid no cash  dividends to either UAP or Kiwi.  The Company
is a holding company with no independent operations of its own and, as such, its
ability to pay cash dividends is dependent upon distributions from its operating
companies. Such distributions are limited by contractual or other obligations of
such operating companies. In addition, the ability of the operating companies to
distribute  funds may be limited by the  current  or future  regulations  of the
countries in which they are located.

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

     The following selected consolidated  financial data as of and for the years
ended  December  31,  1997,  1996,  1995 and 1994  have  been  derived  from the
Company's audited consolidated financial statements. The data set forth below is
qualified by reference to and should be read in  conjunction  with the Company's
audited  consolidated  financial  statements  including  the  notes  and  Item 7
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."
<TABLE>
<CAPTION>
                                                                                          For the Years Ended
                                                                                              December 31,
                                                                    ---------------------------------------------------------------
                                                                      1997               1996              1995              1994
                                                                    --------           --------          --------          --------
                                                                          (In thousands, except share and per share data)
STATEMENT OF OPERATIONS DATA:
   <S>                                                             <C>               <C>               <C>               <C>
   Service and other revenue ...............................       $   68,961        $   24,977        $    1,883                --
   System operating expense ................................          (52,703)          (22,865)           (3,230)               --
   System selling, general and administrative expense ......          (50,006)          (32,665)           (2,482)               --
   Corporate general and administrative expense ............           (3,306)           (1,376)             (920)             (659)
   Depreciation and amortization ...........................          (80,802)          (36,269)           (1,003)               --
   Equity in losses of affiliated companies ................           (2,408)           (5,414)          (16,379)           (1,015)
   Interest expense and other, net .........................          (47,792)          (14,374)            4,898                --
                                                                   ----------        ----------        ----------        ----------
   Net loss ................................................       $ (168,056)       $  (87,986)       $  (17,233)       $   (1,674)
                                                                   ==========        ==========        ==========        ==========
   Basic and diluted loss per common share .................       $   (12.12)       $    (6.44)       $    (1.28)       $    (0.12)
                                                                   ==========        ==========        ==========        ==========
   Weighted-average number of shares outstanding ...........       13,864,941        13,670,832        13,504,453        13,504,453
                                                                   ==========        ==========        ==========        ==========
OTHER DATA:
   Capital expenditures ....................................       $  101,135        $  187,100        $    7,648        $        1
</TABLE>
<TABLE>
<CAPTION>
                                                                                                    As of
                                                                                                 December 31,
                                                                          --------------------------------------------------------
                                                                            1997             1996            1995           1994
                                                                          --------         --------        --------       --------
                                                                                                (In thousands)
BALANCE SHEET DATA:
   <S>                                                                    <C>              <C>             <C>            <C>
   Cash, cash equivalents, restricted cash and short-term
     investments ..................................................       $  25,089        $ 37,860        $ 8,730        $    --
   Property, plant and equipment, net .............................       $ 183,101        $193,170        $27,630        $     1
   Total assets ...................................................       $ 279,032        $319,323        $99,295        $24,084
   Senior discount notes and other debt ...........................       $ 387,094        $250,057        $   742        $    --
   Total liabilities ..............................................       $ 433,718        $315,276        $21,714        $    11
   Total stockholder's (deficit) equity ...........................       $(166,102)       $  4,047        $75,066        $24,073
</TABLE>

                                       20
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
--------------------------------------------------------------------------------

     THE FOLLOWING DISCUSSION CONTAINS,  IN ADDITION TO HISTORICAL  INFORMATION,
FORWARD-LOOKING   STATEMENTS  THAT  INVOLVE  RISKS  AND   UNCERTAINTIES   BEYOND
MANAGEMENT'S CONTROL. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS  DISCUSSED  IN THE  FORWARD-LOOKING  STATEMENTS.  FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES  INCLUDE,  BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW AND IN THE COMPANY'S REPORT ON FORM 8-K DATED MAY 15, 1997.

     The following  discussion and analysis of the Company's financial condition
and results of  operations  covers the years ended  December 31, 1997,  1996 and
1995 and should be read in conjunction with the Company's consolidated financial
statements  and  related  notes  thereto   included   elsewhere   herein.   Such
consolidated  financial statements provide additional  information regarding the
Company's financial activities and condition.

     The  Company  conducts  no  operations  other than  through  its  operating
companies in which it holds varying interests.  Because the operating  companies
have, since inception,  been engaged primarily in  organizational,  start-up and
construction  activities  and  have not yet  achieved  the  expected  subscriber
penetration  levels  anticipated  with  mature  operating  systems,  the Company
believes  that its  historical  results of operations  discussed  herein are not
indicative of its future results of operations.

INTRODUCTION

     The Company  currently  holds (i) an effective  100%  economic  interest in
Austar,   (ii)  a  65%  interest  in  Saturn,   (iii)  a  25%  interest  in  XYZ
Entertainment,  (iv) an up to 90% economic  interest in Telefenua and (v) a 100%
interest in United  Wireless.  Because the  Company  accounts  for its less than
majority-owned  operating companies under the equity method,  prior to September
1995 only the  Company's  Tahitian  subsidiary  Telefenua was  consolidated.  In
September 1995, the Company acquired a 100% interest in United Wireless at which
time it began  consolidating  its results of operations.  In late December 1995,
the  Company  increased  its  economic  interest  in Austar from 50% to 90% (the
"Austar  Transaction").  During 1996, the Company further increased its economic
interest  in  Austar  to 100%.  Prior to the  Austar  Transaction,  the  Company
accounted for its  investment  in Austar using the equity method of  accounting.
The Company began  consolidating  the results of operations of Austar  effective
January  1, 1996.  Following  its July 1996  acquisition  of the  remaining  50%
interest in Saturn, the Company began consolidating the results of operations of
Saturn,  which had  previously  been  accounted  for using the equity  method of
accounting.  The  Company's  interest  in Saturn was reduced to 65% in July 1997
with the Saturn  Transaction.  The  Company  accounts  for its  interest  in XYZ
Entertainment using the equity method of accounting.

     In connection with the offering of the May 1996 Notes,  UIH merged into the
Company UIH's  subsidiaries that held interests in certain operating  properties
and early stage projects in Australia,  New Zealand and Tahiti. The accompanying
financial statements have been prepared on a basis of reorganization  accounting
as though the Company had performed all foreign development  activities and made
all  acquisitions  of UIH's foreign  multi-channel  television,  programming and
mobile data interests in Australia,  New Zealand and Tahiti since inception. The
Company   commenced   operations   in   January   1994   when  UIH   began   its
development-related  activities  in the  Australia/Pacific  region.  The Company
reflected all of the transfers from UIH as a capital contribution from parent in
the accompanying  consolidated financial statements.  The Company reports on the
basis of generally  accepted  accounting  principles in the United States ("U.S.
GAAP") and  recognizes  its  proportionate  share of affiliated  company  income
(loss) on the basis of U.S. GAAP results.

                                       21
<PAGE>

     As demonstrated by the following table, each of the operating companies has
experienced rapid growth in subscribers:
<TABLE>
<CAPTION>
                                                                                  As of
                                                                            December 31, 1997
                                                     ----------------------------------------------------------------
                                                                                                           Subscriber
                                                       Company           Service             Basic          Net Gain
   Consolidated Subsidiaries:                        Ownership(1)      Launch Date        Subscribers     During 1997
   --------------------------                        ------------      -----------        -----------     -----------
     <S>                                                 <C>          <C>                   <C>              <C>
     Austar......................................        100%         August 1995           196,205          92,758
     United Wireless.............................        100%         September 1995            N/A             N/A
     Telefenua...................................         90%         March 1995              6,304           1,117
     Saturn......................................         65%         September 1995          3,059           1,362

   Unconsolidated Affiliate:
   -------------------------

     XYZ Entertainment...........................         25%         April 1995            577,205         237,205
</TABLE>

     (1) For an explanation of the Company's  interests in each of the operating
         companies,  see Item 1 "Narrative  Description  of  Business--Corporate
         Organizational Structure."

     UAP,  the  Company's  parent,   provides  various  management,   technical,
administrative,  accounting,  financial reporting, tax, legal and other services
for the Company pursuant to the terms of a management  agreement between UAP and
the  Company.  In  addition,  UAP  provides  similar  services to the  Company's
operating  systems,  pursuant  to the  terms  of  various  technical  assistance
agreements with such operating systems.  See Item 13 "Certain  Relationships and
Related Transactions."

LIQUIDITY AND CAPITAL RESOURCES

     The  Company is  responsible  for its  proportionate  share of the  capital
requirements   of  the   operating   companies.   The  Company  has  funded  its
proportionate share to date with capital contributed by UIH and UAP and proceeds
from private debt offerings and has reduced its proportionate share to date with
subsidiary bank debt and strategic  partner  contributions.  Through the private
placement  of the May 1996 Notes,  the Company  raised  total gross  proceeds of
approximately $225.1 million. These notes will accrete to an aggregate principal
amount of $455.6  million at  maturity.  Through  the private  placement  of the
September 1997 Notes,  the Company raised total gross proceeds of  approximately
$29.9  million.  These notes will  accrete to an aggregate  principal  amount of
$46.3 million at maturity.  The Notes currently  accrete  interest at 14.75% per
annum  and are due in May  2006.  Upon the  sale by the  Company  of  securities
generating  gross  proceeds of at least $70.0  million,  the Notes will  accrete
interest at a rate of 14% compounded semi-annually.

     In July 1997, Austar secured a financing  facility from a bank for a senior
syndicated  term debt facility in the amount of A$200.0  million  (approximately
$155.0  million) (the "Austar Bank  Facility").  The proceeds of the Austar Bank
Facility have been and will be used to fund Austar's subscriber  acquisition and
working   capital   needs.   The  Austar   Bank   Facility   consists  of  three
sub-facilities:  (i) A$50.0 million  revolving  working capital  facility,  (ii)
A$60.0  million  cash  advance  facility  and  (iii)  A$90.0  million  term loan
facility.  This term loan  facility  will be  available  to the extent  that any
drawdown,   if  added  to  the  existing  aggregate  outstanding  balance  under
sub-facilities  (i) and (ii),  would not exceed five times annualized cash flow,
and upon Austar having  achieved and  maintained  total  subscribers of at least
200,000.  The working capital  facility is fully repayable on June 30, 2000. The
cash advance  facility is fully repayable  pursuant to an amortization  schedule
beginning  December 31, 2000 and ending June 30, 2004.  As of December 31, 1997,
Austar had drawn the entire amount of the working capital  facility and the cash
advance  facility  totaling  A$110.0 million ($71.5 million  converted using the
December 31, 1997 exchange  rate).  Austar expects to meet the  requirements  in
(iii) above and have access to the term loan facility by early 1999.

     In July  1997,  SaskTel  purchased  a 35%  equity  interest  in  Saturn  by
investing NZ$29.9 million (approximately $19.6 million) directly into Saturn for
its  newly-issued  shares.  The Company  believes  that  SaskTel,  a division of
Saskatchewan  Telecommunications  Holdings Corporation of Saskatchewan,  Canada,
will  contribute  telephony  expertise  to Saturn in  providing  cable/telephony
service in the Wellington, New Zealand area.

                                       22
<PAGE>

     As of December 31, 1997, the Company had invested a total of  approximately
$405.8 million in its projects as outlined below:
<TABLE>
<CAPTION>
                                                                                                As of
                                                                                             December 31,
                                                                                                1997
                                                                                           ---------------
                                                                                           (In thousands)
         <S>                                                                                 <C>
         Austar.................................................................             $338,990(1)(2)
         Saturn.................................................................               28,376(1)(3)
         Telefenua..............................................................               16,738
         XYZ Entertainment......................................................               14,090
         United Wireless........................................................                7,637
                                                                                             --------
              Total.............................................................             $405,831
                                                                                             ========
</TABLE>
         (1)  Does not  include  amounts  contributed  to Austar  (approximately
              $11,000) and Saturn  (approximately  $2,920) by shareholders other
              than  the  Company,   which  amounts  were   contributed  by  such
              shareholders   prior  to  the  acquisition  of  their   respective
              interests by the Company.
         (2)  Includes  A$110,000  ($83,895 converted using the exchange rate on
              each  funding  date) of amounts  borrowed  under the  Austar  Bank
              Facility  and $28,773 paid by the Company to increase its economic
              interest  in Austar to  approximately  100%.  Does not include the
              $29,840 of non-cash  issuance of preferred stock by the Company to
              increase its economic interest in Austar to approximately 100%.
         (3)  Does not include the $7,800 of common stock  exchanged  for shares
              of the Company to  increase  the  Company's  interest in Saturn to
              100% effective July 1996.

          AUSTAR

               The  Company  anticipates  the need for  additional  funding  for
          Austar in the  future.  The  amount  of  capital  needed is  dependent
          primarily upon three factors: (i) the number of new subscribers added;
          (ii) the level of churn,  that is, the level of  existing  subscribers
          who disconnect from Austar's service;  and (iii) the mix of DTH versus
          MMDS installations.  Substantially all fixed costs required to operate
          Austar's  service  have  already  been  incurred.  The average cost to
          install a subscriber  includes variables such as equipment,  marketing
          and  sales  costs,  and  installation  fees.  The  average  cost  of a
          subscriber  who  disconnects  is  reduced by the  recovery  of certain
          equipment  (principally  converters),  and is further reduced if a new
          subscriber  is installed in a previously  disconnected  home.  For the
          year ended December 31, 1997, Austar experienced average monthly churn
          of 4.2%,  exceeding its budgeted figure for churn of 3.2%, which had a
          negative $5.5 million impact on operating and capital costs.  See Item
          1(c)   "Narrative   Description  of   Business--Austar   (Australia)--
          Marketing; Customer Support."

               Austar plans to continue to expand and add subscribers;  however,
          the timing of such expansion and the funds required for such expansion
          are largely  variable.  Based upon current  plans and budgeted  churn,
          Austar will require  approximately  $50-$75 million to continue on its
          current  expansion  path for the period from April 1, 1998 to December
          31, 1998 and approximately $50-$75 million for similar expansion plans
          for 1999.  The  sources of funds for such  expansion  may  include the
          raising of private or public equity,  continued investment by UIH, the
          drawdown of the remaining  amount ($58.5 million  converted  using the
          December  31,  1997  exchange  rate)  under the Austar  Bank  Facility
          (assuming that certain  financial ratios are met, which ratios are not
          currently being met) or the sale of non-strategic assets. There can be
          no assurance that the Company will be successful in obtaining all or a
          portion of its anticipated  funding needs for the continued  expansion
          of Austar.

          SATURN

               The  Company  anticipates  the need for  additional  funding  for
          Saturn in the future.  Saturn's  capital needs include capital for the
          completion of the network required by Saturn to offer cable television
          and telephony  services and the capital required to install customers.
          Management currently estimates that the Company's portion of the total
          funding required for Saturn is  approximately  $50-$55 million for the
          period from April 1, 1998 until Saturn has sufficient  cash flows from
          operations  to cover such needs,  although  there can be no assurances
          that further additional capital will not be required.  Of this amount,
          approximately  $35 million is required as a fixed cost to complete the
          construction of the network, and the remainder is required as a result

                                       23
<PAGE>

          of the  installation  of  customers.  The  sources  of funds  for such
          expansion  may  include  the  raising  of  private  or public  equity,
          continued  investment  by UIH,  the raising of  equipment  and/or bank
          financing  (where the Company has already  commenced  discussions with
          several potential lenders) or the sale of non-strategic  assets. There
          can be no assurance  that the Company will be  successful in obtaining
          all or a portion of its anticipated funding needs for Saturn.

          OTHER

               The  Company   anticipates  that  the  aggregate  future  funding
          requirements for Telefenua,  XYZ Entertainment and United Wireless are
          less than $5 million.

     The  indentures  associated  with UIH's senior  secured  discount notes due
February 2008 and the Company's Notes  (collectively,  the  "Indentures")  place
restrictions  on the Company and its  restricted  subsidiaries  with  respect to
incurring  additional  debt. The Company and all of the operating  companies are
currently restricted under the UIH indentures. The Company, Austar and Telefenua
are restricted under the Company's  indentures.  The restrictions imposed by the
Indentures  will be  eliminated  upon the  retirement  of  UIH's  notes at their
maturity in February  2008 and upon the  retirement  of the  Company's  Notes at
their  maturity in May 2006. In addition,  pursuant to the Austar Bank Facility,
Austar can not (i) pay any dividends,  (ii) make any payments of interest on the
Company's Notes or (iii) pay any fees under its technical assistance  agreements
prior to December 31,  2000.  Subsequent  to December 31, 2000,  the payments in
(i),  (ii) and (iii)  above may be made,  subject to  certain  debt to cash flow
ratios.

     On November 17, 1997, pursuant to the terms of the indentures governing the
Notes,  the Company issued warrants to purchase a total of 488,000 shares of its
common  stock,  which  represented  3.4% of its common  stock.  The warrants are
exercisable  at a price of $10.45 per share which would result in gross proceeds
of  approximately  $5.1 million  upon  exercise.  The  warrants are  exercisable
through May 15, 2006.

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1997

     The Company  incurred a net loss during the year ended December 31, 1997 of
$168.1  million,   which  includes  non-cash  items  such  as  depreciation  and
amortization  expense  totaling  $80.8  million and accretion of interest on the
Notes and amortization of deferred financing costs totaling $38.7 million.

     Cash and cash  equivalents  decreased $6.9 million from $19.2 million as of
December 31, 1996 to $12.3 million as of December 31, 1997. Principal sources of
cash during the year ended  December 31, 1997 included  borrowings on the Austar
Bank  Facility  of  $85.2  million,  gross  proceeds  from the  issuance  of the
September 1997 Notes of $29.9 million,  the purchase of a 35% interest in Saturn
by SaskTel for $19.6 million,  borrowings from parent of $10.0 million,  capital
contributions from parent of $7.9 million and net proceeds from the net decrease
in short-term investments of $6.3 million.

     During the year ended  December 31,  1997,  cash was used  principally  for
purchases of  property,  plant and  equipment of $101.1  million to continue the
build-out of existing projects,  primarily at Austar, a decrease in construction
payables of $29.6 million,  investments in the Company's affiliated companies of
$3.3 million,  deferred financing costs and other uses totaling $6.9 million and
the funding of operating activities of $24.9 million during the year.

FOR THE YEAR ENDED DECEMBER 31, 1996

     The Company  incurred a net loss during the year ended December 31, 1996 of
$88.0  million,   which  includes   non-cash  items  such  as  depreciation  and
amortization  expense  totaling  $36.3  million and accretion of interest on the
Notes and amortization of deferred financing costs totaling $20.3 million.

     Cash and cash  equivalents  increased $10.5 million from $8.7 million as of
December 31, 1995 to $19.2 million as of December 31, 1996. Principal sources of
cash during this period  included  gross  proceeds  from the issuance of the May
1996 Notes of $225.1  million,  an  increase in  construction  payables of $38.4
million,  borrowings of $17.5 million and capital  contributions  from parent of
$10.7 million.

     During the year ended December 31, 1996, cash was used  principally for the
purchase  of  property,  plant and  equipment  of $187.1  million  to  construct
Austar's and  Telefenua's  systems,  repayments  on related  party debt of $25.0
million,   the  purchase  of  net  short-term   investments  of  $18.6  million,
investments in the Company's  affiliated  companies of $16.2  million,  deferred
financing  costs and other uses  totaling  $9.0  million,  the  purchase  of the
approximately 4% remaining  economic interest in Austar for $7.9 million and the
funding of operating activities of $17.4 million during the year.

                                       24
<PAGE>

FOR THE YEAR ENDED DECEMBER 31, 1995

     The Company  incurred a net loss during the year ended December 31, 1995 of
$17.2 million,  which includes  non-cash  depreciation and amortization  expense
totaling $1.0 million.

     Cash and cash equivalents increased from $0 as of December 31, 1994 to $8.7
million as of December  31, 1995.  Principal  sources of cash during this period
included  capital  contributions  from parent of $38.6  million,  borrowings  on
related party debt of $9.9 million and proceeds of $4.1 million from the sale of
a portion of XYZ Entertainment, which diluted the Company's interest to 25%.

     During the year ended  December 31,  1995,  cash was used  principally  for
investments  in  affiliated  companies  of $22.5  million,  the  purchase  of an
additional 40% economic interest in Austar for a net $8.0 million,  the purchase
of property,  plant and  equipment  of $7.6  million to  construct  Austar's and
Telefenua's  systems and the funding of operating  activities and other totaling
$5.8 million during the year.

RESULTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Service and Other Revenue.  The Company's  service and other revenue  (including
installation  revenues) increased $ 44.0 million and $23.1 million for the years
ended December 31, 1997 and 1996,  respectively,  compared to the  corresponding
amounts  in the prior  years.  Service  and other  revenue  for the years  ended
December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
                                                                                         For the Years Ended
                                                                                             December 31,
                                                                                ---------------------------------------
                                                                                  1997           1996            1995
                                                                                --------       --------        --------
                                                                                           (In thousands)
          <S>                                                                   <C>             <C>             <C>
          Austar............................................................    $63,848         $21,244         $   --
          Saturn............................................................        473             110             --
          Telefenua.........................................................      4,118           3,513          1,882
          United Wireless...................................................        522             110              1
                                                                                -------         -------         ------
               Total service and other revenue..............................    $68,961         $24,977         $1,883
                                                                                =======         =======         ======
</TABLE>

          AUSTAR

               Service and other revenue at Austar  increased $42.6 million,  or
          200.9%,  from $21.2  million for the year ended  December  31, 1996 to
          $63.8 million for the year ended December 31, 1997.  This increase was
          primarily  due to subscriber  growth from an average of  approximately
          54,000 subscribers during 1996 to an average of approximately  150,000
          subscribers during 1997, as Austar continues to roll-out its services.

               The  Company   began   consolidating   the  results  of  Austar's
          operations  effective  January  1,  1996.  Accordingly,   the  Company
          reported no service and other revenue from Austar in 1995. Service and
          other revenue at Austar  increased $20.8 million from $0.4 million for
          the year ended  December 31, 1995 to $21.2  million for the year ended
          December  31, 1996.  This  increase was  primarily  due to  subscriber
          growth (103,447 at December 31, 1996 compared to 5,204 at December 31,
          1995) as Austar  began the rapid  roll-out of its  services  initially
          launched in August 1995.

          SATURN

               The  Company   began   consolidating   the  results  of  Saturn's
          operations effective July 1, 1996.  Accordingly,  the Company reported
          no service  and other  revenue  from  Saturn  during the first half of
          1996.  Service and other revenue at Saturn increased $0.3 million,  or
          150% from $0.2  million for the year ended  December  31, 1996 to $0.5
          million  for the year ended  December  31,  1997.  This  increase  was
          primarily   due  to  growth  in   subscribers   from  an   average  of
          approximately   1,300  subscribers   during  1996  to  an  average  of
          approximately 2,400 subscribers during 1997.

                                       25
<PAGE>

               The  Company   began   consolidating   the  results  of  Saturn's
          operations effective July 1, 1996.  Accordingly,  the Company reported
          no service and other revenue from Saturn during the first half of 1996
          or during 1995.  Service and other  revenue at Saturn  increased  $0.1
          million,  or 100%,  from $0.1 million for the year ended  December 31,
          1995 to $0.2  million  for the year  ended  December  31,  1996.  This
          increase was primarily due to growth in subscribers (1,697 at December
          31, 1996 compared to 959 at December 31, 1995).

          TELEFENUA

               Telefenua's  service and other revenue increased $0.6 million, or
          17.1%,  from $3.5 million for the year ended December 31, 1996 to $4.1
          million  for the year ended  December  31,  1997.  This  increase  was
          primarily  attributable to an increase in basic  subscribers,  from an
          average of approximately  4,700 subscribers  during 1996 to an average
          of approximately 5,700 during 1997, and the launch of premium services
          during 1997 (2,320 subscribers at December 31, 1997).

               Service and other revenue at Telefenua increased $1.6 million, or
          84.2%,  from $1.9 million for the year ended December 31, 1995 to $3.5
          million  for the year ended  December  31,  1996.  This  increase  was
          primarily  due to  subscriber  growth  (5,187  at  December  31,  1996
          compared to 4,126 at December 31, 1995).

SYSTEM  OPERATING  EXPENSE.  The Company's  operating  expenses  increased $29.8
million  and $19.6  million  for the years  ended  December  31,  1997 and 1996,
respectively,  compared to the corresponding  amounts in the prior years. System
operating  expense for the years ended  December 31, 1997,  1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
                                                                                         For the Years Ended
                                                                                             December 31,
                                                                               ---------------------------------------
                                                                                 1997            1996           1995
                                                                               --------        --------       --------
                                                                                            (In thousands)
          <S>                                                                   <C>            <C>             <C>
          Austar...........................................................     $42,792        $17,990          $   --
          Saturn...........................................................       4,015          1,344              --
          Telefenua........................................................       2,040          2,118           2,836
          United Wireless..................................................       1,789          1,413             394
          Other............................................................       2,067             --              --
                                                                                -------        -------          ------
              Total system operating expense..............................      $52,703        $22,865          $3,230
                                                                                =======        =======          ======
</TABLE>

          AUSTAR

               The Company reported an increase in system operating expense from
          Austar of $24.8  million,  or 137.8%,  from $18.0 million for the year
          ended  December 31, 1996 to $42.8 million for the year ended  December
          31, 1997.  This increase was primarily due to an increase in satellite
          programming  fees  and  copyright  costs,  which  corresponds  to  the
          increase in subscribers and additional basic programming  services; an
          increase in salaries and benefits related to the additional  personnel
          necessary to support Austar's launch of local and state offices in its
          markets;  and an increase in customer  subscriber  management expenses
          related to the volume  increases in telephone,  billing and collection
          costs.  The  remainder of the increase  related to increases in system
          travel, maintenance, vehicle costs and management fees.

               Austar has experienced high operating expense relative to service
          revenue  due to  certain  fixed  operating  expenses.  Austar  expects
          operating  expense as a  percentage  of service  revenue to decline in
          future periods because a significant portion of Austar's  distribution
          facilities and network costs,  such as local and state office staffing
          levels,  operating costs and wireless license costs, have already been
          incurred and are fixed in relation to changes in  subscriber  volumes.
          Other system operating  expense,  such as those related to programming
          and subscriber  management expense,  will vary in direct proportion to
          the number of subscribers.

               The  Company   began   consolidating   the  results  of  Austar's
          operations  effective  January  1,  1996.  Accordingly,   the  Company
          reported  no system  operating  expense  from  Austar in 1995.  System
          operating  expense at Austar  increased  $15.0 million,  or 500%, from
          $3.0 million for the year ended December 31, 1995 to $18.0 million for
          the  year  ended  December  31,  1996.  This  increase  was  primarily
          attributable  to the rapid  roll-out  of Austar's  services  initially
          launched in August 1995 and the corresponding increase in subscribers.


                                       26
<PAGE>

          SATURN

               The  Company   began   consolidating   the  results  of  Saturn's
          operations effective July 1, 1996.  Accordingly,  the Company reported
          no system operating expense from Saturn during the first half of 1996.
          System operating  expense at Saturn  increased $1.7 million,  or 73.9%
          from $2.3 million for the year ended December 31, 1996 to $4.0 million
          for the year ended December 31, 1997.  This increase was primarily due
          to an increase  in  personnel  expenses  in order to support  Saturn's
          build-out of its HFC network in the Wellington area.

               The  Company   began   consolidating   the  results  of  Saturn's
          operations effective July 1, 1996.  Accordingly,  the Company reported
          no system operating  expense from Saturn during the first half of 1996
          or during 1995.  System  operating  expense at Saturn  increased  $1.2
          million,  or 109.1%, from $1.1 million for the year ended December 31,
          1995 to $2.3  million  for the year  ended  December  31,  1996.  This
          increase was primarily due to increases in payroll and office expenses
          related  to  start-up   activities,   including   system   design  and
          engineering work, for the expansion of Saturn's Wellington system.

          TELEFENUA

               The Company  reported a decrease in Telefenua's  system operating
          expense of $0.1 million, or 4.8%, from $2.1 million for the year ended
          December  31,  1996 to $2.0  million for the year ended  December  31,
          1997.  This slight  decrease was  primarily  due to a weakening of the
          local currency. Personnel headcount in 1997 was the same as in 1996.

               System operating expense at Telefenua  decreased $0.7 million, or
          25.0%,  from $2.8 million for the year ended December 31, 1995 to $2.1
          million for the year ended December 31, 1996.  This decrease  resulted
          from decreases in technical-related repairs and maintenance as well as
          tape   production   costs,   partially   offset  by  the  increase  in
          subscribers.

          OTHER

               In September 1997, the Company commenced transponder fee payments
          for a satellite  service of  approximately  $0.4  million per month as
          part of its  five-year  agreement  with Optus  Networks.  The  Company
          expects to launch programming services on the satellite during 1998.

SYSTEM  SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSE.  The  Company's  system
selling,  general and  administrative  expense increased $17.3 million and $30.2
million for the years ended December 31, 1997 and 1996,  respectively,  compared
to the  corresponding  amounts in the prior years.  System selling,  general and
administrative  expense for the years ended December 31, 1997, 1996 and 1995 was
as follows:
<TABLE>
<CAPTION>
                                                                                         For the Years Ended
                                                                                             December 31,
                                                                                ---------------------------------------
                                                                                  1997           1996            1995
                                                                                --------       --------        --------
                                                                                            (In thousands)
          <S>                                                                   <C>            <C>              <C>
          Austar............................................................    $42,810        $26,948          $   --
          Saturn............................................................      3,581          2,008              --
          Telefenua.........................................................      2,063          2,586           2,286
          United Wireless...................................................      1,552          1,123             196
                                                                                -------        -------          ------
               Total system selling, general and administrative expense.....    $50,006        $32,665          $2,482
                                                                                =======        =======          ======
</TABLE>

          AUSTAR

               System selling,  general and  administrative  expense from Austar
          increased  $15.9  million,  or 59.1%,  from $26.9 million for the year
          ended  December 31, 1996 to $42.8 million for the year ended  December
          31, 1997.  This  increase was primarily due to an increase in salaries
          associated  with the NCOC and  Austar's  corporate  headquarters  as a
          result of  additional  personnel  necessary to support the increase in
          subscribers,  an increase in marketing  costs related to print,  radio
          and television  advertisements  associated with subscriber acquisition
          and  retention  and an increase  in direct  sales  commissions  due to
          subscriber growth. In addition,  Austar  experienced  certain one-time
          charges for the  restructuring  and  consolidation of various regional
          offices.

                                       27
<PAGE>

               Austar expects system selling, general and administrative expense
          as a  percentage  of service  revenue  to  decline  in future  periods
          because a significant portion of Austar's  infrastructure  costs, such
          as  the  NCOC,  its  corporate   management  staff  and  media-related
          marketing costs,  have already been incurred and are fixed in relation
          to changes in subscriber  volumes.  Other system selling,  general and
          administrative  expense relating to commissions and acquisition  costs
          is expected  to vary in  relation to the number of customer  sales and
          installations.

               The  Company   began   consolidating   the  results  of  Austar's
          operations  effective  January  1,  1996.  Accordingly,   the  Company
          reported no system selling,  general and  administrative  expense from
          Austar in 1995. System selling,  general and administrative expense at
          Austar increased $22.4 million,  or 497.8%,  from $4.5 million for the
          year  ended  December  31,  1995 to $26.9  million  for the year ended
          December 31, 1996.  This  increase was primarily  attributable  to the
          rapid roll-out of Austar's services  initially launched in August 1995
          and the corresponding increase in subscribers.

          SATURN

               The  Company   began   consolidating   the  results  of  Saturn's
          operations effective July 1, 1996.  Accordingly,  the Company reported
          no system  selling,  general and  administrative  expense  from Saturn
          during the first half of 1996.  Saturn's system  selling,  general and
          administrative  expense  increased $1.2 million,  or 50.0%,  from $2.4
          million for the year ended  December  31, 1996 to $3.6 million for the
          year ended  December 31, 1997.  This  increase  was  primarily  due to
          increases in direct sales commissions due to subscriber growth as well
          as marketing and promotion costs for subscriber acquisition.

               The  Company   began   consolidating   the  results  of  Saturn's
          operations effective July 1, 1996.  Accordingly,  the Company reported
          no system  selling,  general and  administrative  expense  from Saturn
          during the first half of 1996 or during 1995. Saturn's system selling,
          general and  administrative  expense increased $1.2 million,  or 100%,
          from $1.2 million for the year ended December 31, 1995 to $2.4 million
          for the year ended  December 31,  1996.  This  increase was  primarily
          attributable to increased  marketing  efforts to expand the subscriber
          base as Saturn's system expands.

          TELEFENUA

               System selling,  general and administrative  expense at Telefenua
          decreased $0.5 million, or 19.2%, from $2.6 million for the year ended
          December  31,  1996 to $2.1  million for the year ended  December  31,
          1997.  This  decrease  was  primarily  due to fewer  marketing-related
          campaigns during 1997, particularly related to general advertising, as
          well as a weakening of the local currency.

               System selling,  general and administrative  expense at Telefenua
          increased $0.3 million, or 13.0%, from $2.3 million for the year ended
          December  31,  1995 to $2.6  million for the year ended  December  31,
          1996. This increase was primarily  attributable to increased marketing
          efforts associated with Telefenua's March 1995 service launch.

CORPORATE GENERAL AND ADMINISTRATIVE  EXPENSE.  The Company's  corporate general
and administrative  expense increased $1.9 million, or 135.7%, from $1.4 million
for the year ended December 31, 1996 to $3.3 million for the year ended December
31, 1997.  This increase was  primarily due to an increase in the  allocation of
UIH  corporate  general and  administrative  expenses to the  Company,  based on
increased activity at the operating system level.

     The Company's  corporate general and administrative  expense increased $0.5
million,  or 55.6%,  from $0.9  million for the year ended  December 31, 1995 to
$1.4 million for the year ended December 31, 1996.  This increase  related to an
increase in corporate staff dedicated to the region.

                                       28
<PAGE>

DEPRECIATION AND AMORTIZATION.  Depreciation and amortization  expense increased
$44.5 million and $35.3 million for the years ended  December 31, 1997 and 1996,
respectively,  compared  to  the  corresponding  amounts  in  the  prior  years.
Depreciation  and  amortization  expense for the years ended  December 31, 1997,
1996 and 1995 was as follows:
<TABLE>
<CAPTION>
                                                                                         For the Years Ended
                                                                                             December 31,
                                                                                ---------------------------------------
                                                                                  1997           1996            1995
                                                                                --------       --------        --------
                                                                                            (In thousands)
          <S>                                                                   <C>            <C>              <C>
          Austar............................................................    $76,913        $33,446          $   --
          Saturn............................................................      2,033            800              --
          Telefenua.........................................................      1,212          1,382             960
          United Wireless...................................................        644            641              43
                                                                                -------        -------          ------
               Total depreciation and amortization..........................    $80,802        $36,269          $1,003
                                                                                =======        =======          ======
</TABLE>
          AUSTAR

               Depreciation and amortization expense from Austar increased $43.5
          million,  or 130.2% from $33.4 million for the year ended December 31,
          1996 to $76.9  million  for the year ended  December  31,  1997.  This
          increase was  primarily  due to the larger fixed asset base due to the
          significant  deployment of operating assets to meet subscriber  growth
          as well as an increase in expense related to subscriber disconnects.

               The  Company   began   consolidating   the  results  of  Austar's
          operations  effective  January  1,  1996.  Accordingly,   the  Company
          reported no depreciation and amortization expense from Austar in 1995.
          Depreciation  and  amortization  expense from Austar  increased  $32.1
          million  from $1.3  million  for the year ended  December  31, 1995 to
          $33.4 million for the year ended December 31, 1996.  This increase was
          primarily  attributable  to the  significant  deployment  of  Austar's
          operating assets beginning in early 1996 and continuing throughout the
          year as Austar launched service and gained  subscribers in a number of
          new markets.

          SATURN

               The  Company   began   consolidating   the  results  of  Saturn's
          operations effective July 1, 1996.  Accordingly,  the Company reported
          no depreciation and amortization  expense from Saturn during the first
          half of  1996.  Depreciation  and  amortization  expense  from  Saturn
          increased $1.6 million,  or 400%, from $0.4 million for the year ended
          December  31,  1996 to $2.0  million for the year ended  December  31,
          1997.  This  increase was primarily due to the larger fixed asset base
          as Saturn  continues  to build-out  its HFC network in the  Wellington
          area.

EQUITY IN LOSSES OF AFFILIATED  COMPANIES.  The Company recognized  decreases in
equity in losses of  affiliated  companies of $3.0 million and $11.0 million for
the years  ended  December  31,  1997 and 1996,  respectively,  compared  to the
corresponding  amounts  in the prior  years.  Equity  in  losses  of  affiliated
companies for the years ended December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
                                                                                        For the Years Ended
                                                                                            December 31,
                                                                               ---------------------------------------
                                                                                 1997           1996            1995
                                                                               --------       --------        --------
                                                                                           (In thousands)
         <S>                                                                    <C>            <C>            <C>
         XYZ Entertainment.................................................     $2,408         $4,484         $11,729
         Saturn............................................................         --            930           1,438
         Austar............................................................         --             --           3,212
                                                                                ------         ------         -------
              Total equity in losses of affiliated companies...............     $2,408         $5,414         $16,379
                                                                                ======         ======         =======
</TABLE>
          XYZ ENTERTAINMENT

               Equity in losses from XYZ  Entertainment  decreased $2.1 million,
          or 46.7%,  from $4.5  million for the year ended  December 31, 1996 to
          $2.4 million for the year ended  December 31, 1997.  This decrease was
          primarily   attributable  to  higher   revenue,   resulting  from  XYZ
          Entertainment's   subscriber  increases,  and  overall  reductions  in
          staffing levels during 1997.

                                       29
<PAGE>

               Equity in losses from XYZ  Entertainment  decreased $7.2 million,
          or 61.5%,  from $11.7 million for the year ended  December 31, 1995 to
          $4.5 million for the year ended  December 31, 1996.  This decrease was
          primarily  attributable  to the decrease in the Company's  interest in
          XYZ Entertainment from 50% to 25% in September 1995. XYZ Entertainment
          also  reported  a  lower  net  loss  in 1996  due to  higher  revenues
          resulting from an increase in programming subscribers in 1996 combined
          with fewer  start-up costs than incurred in 1995  associated  with the
          launch of its first four channels.

          SATURN

               The Company  acquired  an initial 50%  interest in Saturn in July
          1994. The Company  increased its ownership in Saturn to 100% and began
          consolidating  its results  effective July 1, 1996.  Accordingly,  the
          Company  recognized equity in losses for Saturn for only the first six
          months of 1996 as  compared  to the full  twelve  months  for the year
          ended December 31, 1995.

          AUSTAR

               The  Company  acquired an initial  interest in the two  companies
          that  comprise  Austar in the fall of 1994 and  increased its economic
          interest in these  companies to 90% in late December 1995. The Company
          began  consolidating  the  results of  Austar's  operations  effective
          January 1, 1996. Accordingly, the Company reported no equity in losses
          related to Austar in 1996 or 1997.

GAIN ON SALE OF INVESTMENT.  In September 1995, the Company sold one-half of its
investment  in  XYZ  Entertainment  at  cost,   reducing  its  interest  in  XYZ
Entertainment  from 50% to 25%. As the recognition of equity losses through that
date had reduced the Company's  investment  in XYZ  Entertainment  to zero,  the
Company recognized a gain on the entire amount received of $4.1 million.

PROVISION FOR LOSS ON MARKETABLE EQUITY  SECURITIES.  In December 1997, based on
the financial  difficulties and potential  insolvency of Australis,  the Company
determined  that the loss relating to its investment in Australis was other than
temporary. As a result, the Company recorded a provision for this loss of $4,784
for the year ended December 31, 1997.

INTEREST  INCOME.  Interest income decreased $3.0 million,  or 73.2%,  from $4.1
million for the year ended  December 31, 1996 to $1.1 million for the year ended
December  31,  1997.  This  decrease  was  primarily  due to  reduced  cash  and
short-term   investment  balances  related  to  the  funding  of  the  Company's
investments in affiliated companies.

     Interest income increased $3.9 million from $0.2 million for the year ended
December  31, 1995 to $4.1 million for the year ended  December  31,  1996.  The
increase was attributable to higher  short-term  investment  balances  resulting
from the issuance of the May 1996 Notes.

INTEREST EXPENSE. Interest expense,  including related party expense,  increased
$22.8  million,  or 109.6%,  from $20.8 million for the year ended  December 31,
1996 to $43.6  million for the year ended  December 31, 1997.  This increase was
primarily  due to the  accretion  of  interest  on the $46.3  million  aggregate
principal  amount  September  1997 Notes and accretion of interest for an entire
year on the $455.6 million aggregate  principal amount May 1996 Notes. The Notes
currently  accrete interest at a rate of 14.75% compounded  semi-annually.  Upon
the sale by the  Company of  securities  generating  gross  proceeds of at least
$70.0  million,  the Notes will  accrete  interest  at a rate of 14%  compounded
semi-annually.

     Interest  expense was $20.8  million for the year ended  December  31, 1996
primarily due to the  accretion of interest on the May 1996 Notes.  Prior to the
offering  of the May 1996  Notes,  the  Company  had no  significant  amount  of
interest-bearing debt.

FOREIGN CURRENCY EXCHANGE RATE RISKS; HEDGING

     The operating  companies'  monetary  assets and  liabilities are subject to
foreign currency exchange risk as certain  equipment  purchases and payments for
certain operating  expenses,  such as programming  expenses,  are denominated in
currencies other than their own functional currency. In addition, certain of the
operating   companies  have  notes  payable  and  notes   receivable  which  are
denominated  in  a  currency  other  than  their  own  functional   currency  or
intercompany loans payable linked to the U.S. dollar.

                                       30
<PAGE>

     In general,  the Company and the  operating  companies do not execute hedge
transactions to reduce the Company's  exposure to foreign currency exchange rate
risks.  Accordingly,  the Company may  experience  economic  loss and a negative
impact on earnings and equity with respect to its holdings solely as a result of
foreign  currency  exchange rate  fluctuations,  which include foreign  currency
devaluations  against the dollar. The Company may also experience  economic loss
and a  negative  impact  on  earnings  related  to  these  monetary  assets  and
liabilities.  In  general,  exchange  rate risk to the  Company  related  to the
operating companies'  commitments for equipment purchases and operating expenses
is generally limited due to the insignificance of the related monetary asset and
liability  balances;  however,  exchange rate risk to the Company of these notes
payable,  notes  receivable  and debt  linked to the U.S.  dollar  have and will
continue to impact the  Company's  reported  earnings.  Because of the manner in
which the Company currently accounts for its interest in XYZ Entertainment,  any
adverse effects on reported earnings would impact the Company through its equity
in losses of affiliated companies.  During the year ended December 31, 1997, the
Company  recorded  a  change  in  cumulative  translation  adjustments  of $30.8
million,  primarily due to the fluctuation in the Australian  dollar compared to
the U.S.  dollar exchange rates from 1.2574 as of December 31, 1996 to 1.5378 as
of December 31, 1997, a change of 22%.

     The  countries  in which  the  operating  companies  now  conduct  business
generally  do not  restrict  the  removal  or  conversion  of local  or  foreign
currency;  however,  there is no assurance this  situation  will  continue.  The
Company may also acquire  interests in companies that operate in countries where
the removal or conversion of currency is restricted.

YEAR 2000 CONVERSION

     The  Company  has  established  a  central   committee  to  coordinate  the
identification, evaluation and implementation of changes to computer systems and
applications  necessary to achieve a year 2000 date conversion with no effect on
customers or disruption to business  operations.  These actions are necessary to
ensure that the systems and applications will recognize and process  information
for the year 2000 and beyond. Major areas of potential business impact have been
identified  and are  being  dimensioned,  and  initial  conversion  efforts  are
underway. The Company also is communicating with suppliers,  dealers,  financial
institutions  and others  with which it does  business to  coordinate  year 2000
conversion.  The total cost of compliance and its effect on the Company's future
results of  operations is being  determined  as part of the detailed  conversion
planning. In addition, the Company could be materially adversely affected by the
failure of its vendors to achieve year 2000 date conversion.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

     The consolidated  financial  statements of the Company are filed under this
Item as follows:
<TABLE>
<CAPTION>
                                                                                                                    Page
                                                                                                                   Number
                                                                                                                   ------
     <S>                                                                                                             <C>
     UIH AUSTRALIA/PACIFIC, INC.
     Report of Independent Public Accountants.................................................................       32
     Report of Independent Auditors...........................................................................       33
     Independent Auditors' Report.............................................................................       34
     Consolidated Balance Sheets as of December 31, 1997 and 1996.............................................       35
     Consolidated Statements of Operations For the Years Ended December 31, 1997, 1996 and 1995...............       36
     Consolidated Statements of Stockholder's (Deficit) Equity For the Years Ended December 31, 1997,
       1996 and 1995..........................................................................................       37
     Consolidated Statements of Cash Flows For the Years Ended December 31, 1997, 1996 and 1995...............       38
     Notes to Consolidated Financial Statements...............................................................       39
</TABLE>

     The financial  statement  schedules  required by  Regulation  S-X are filed
under Item 14 "Exhibits, Financial Statement Schedules and Reports on Form 8-K."

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

     None.


                                       31
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To UIH Australia/Pacific, Inc.:

     We  have  audited  the  accompanying  consolidated  balance  sheets  of UIH
Australia/Pacific,  Inc. (a Colorado corporation and wholly-owned  subsidiary of
UIH Asia/Pacific Communications,  Inc.) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated  statements of operations,  stockholder's
(deficit)  equity and cash flows for the years ended December 31, 1997, 1996 and
1995.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We did not audit the  financial  statements of
Telefenua  S.A. as of and for the year ended  December  31,  1995,  a subsidiary
which is consolidated in the accompanying consolidated financial statements. UIH
Australia/Pacific,  Inc.'s consolidated  financial statements for the year ended
December 31, 1995 reflect revenues, expenses and a net loss related to Telefenua
S.A. of $1,882,000,  $5,438,000 and $3,556,000,  respectively.  We did not audit
the financial statements of XYZ Entertainment Pty Limited ("XYZ  Entertainment")
as of and for the year ended December 31, 1995, an investment which is reflected
in the accompanying  consolidated  financial  statements on the equity method of
accounting.  UIH Australia/Pacific,  Inc.'s consolidated statement of operations
reflects  equity in losses related to XYZ  Entertainment  of $11,729,000 for the
year  ended  December  31,  1995,  and  Note  4 to  the  consolidated  financial
statements  includes  summarized  financial  data  for  XYZ  Entertainment.  The
financial  statements of Telefenua S.A. and XYZ  Entertainment as of and for the
year ended  December 31, 1995 were audited by other  auditors whose reports have
been  furnished to us and our opinion,  insofar as it relates to the  summarized
financial data for Telefenua S.A. and XYZ Entertainment  included in Notes 3 and
4 to the  consolidated  financial  statements and to the amounts included in the
accompanying  consolidated  financial  statements with respect to Telefenua S.A.
and XYZ Entertainment, is based solely on the reports of other auditors.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We  believe  that our  audits  and the  reports  of  other  auditors  provide  a
reasonable basis for our opinion.

     In our opinion,  based on our audits and the reports of other auditors, the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects, the consolidated financial position of UIH Australia/Pacific,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997,  1996 and
1995 in conformity with generally accepted accounting principles.



                               ARTHUR ANDERSEN LLP

Denver, Colorado
March 27, 1998

                                       32
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the shareholders of TELEFENUA SA:

     We have  audited the balance  sheet of TELEFENUA SA as of December 31, 1995
and the related  statement of income and changes in  financial  position for the
year then  ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards in France,  which do not differ  substantially from generally accepted
auditing  standards in the United States.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of TELEFENUA SA as of December
31, 1995 and the results of its operations and changes in its financial position
for the year then  ended,  in  conformity  with  generally  accepted  accounting
principles in the United States of America.

     The accounting  practices of the Company used in preparing the accompanying
financial  statements conform with generally accepted  accounting  principles in
the  United  States  of  America,  but  do not  fully  conform  with  accounting
principles  generally  accepted in France.  As a  consequence,  those  financial
statements differ from statutory financial statements that will be submitted for
the approval of the Company's  shareholders  in conformity  with local corporate
laws.

     A description of the  significant  differences  between such principles and
those accounting  principles  generally  accepted in the United States,  and the
effect of those differences on net income, total assets and shareholders' equity
are set forth in Note 2(a) of the notes to the financial statements.



                                COOPERS & LYBRAND

Papeete, Tahiti
February 16, 1996



                                       33
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors

     We  have  audited  the  accompanying  consolidated  balance  sheets  of XYZ
Entertainment  Pty  Ltd as of  December  31,  1994  and  1995  and  the  related
consolidated statements of operations,  stockholders'  deficiency and cash flows
for the period from  October 17, 1994 (date of  inception)  to December 31, 1994
and the  financial  year  ended  December  31,  1995,  which  are  expressed  in
Australian  dollars.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards in Australia which do not differ in any material respect from auditing
standards generally accepted in the United States.  Those standards require that
we plan and perform the audit to obtain  reasonable  assurance as to whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
XYZ  Entertainment  Pty Ltd as of December  31, 1994 and 1995 and the results of
its operations and its cash flows for the years then ended,  in conformity  with
accounting principles generally accepted in Australia.

     Generally  accepted  accounting  principles  in  Australia  vary in certain
significant respects from generally accepted accounting principles in the United
States.  Application of generally accepted  accounting  principles in the United
States would have affected amounts reported as stockholders'  deficiency and net
loss as at and for the period  from  October  17,  1994 (date of  inception)  to
December 31, 1994 and the year ended December 31, 1995 to the extent  summarized
in Note 12 to the financial statements.


Deloitte Touche Tohmatsu
Chartered Accountants

Sydney, Australia
March 15, 1996

                                       34
<PAGE>
<TABLE>
<CAPTION>

                                               UIH AUSTRALIA/PACIFIC, INC.
                                               CONSOLIDATED BALANCE SHEETS
                                (Stated in thousands, except share and per share amounts)


                                                                                               December 31,
                                                                                          ----------------------
                                                                                            1997          1996
                                                                                          --------      --------
<S>                                                                                       <C>           <C>
ASSETS
Current assets
   Cash and cash equivalents..........................................................    $ 12,344      $ 19,220
   Restricted cash....................................................................         420            --
   Short-term investments.............................................................      12,325        18,640
   Subscriber receivables.............................................................       2,548         1,625
   Related party receivables..........................................................       1,942         1,958
   Other current assets...............................................................       3,405         1,995
                                                                                          --------      --------
       Total current assets...........................................................      32,984        43,438

Marketable equity securities, including other investments in affiliated companies.....          --         1,372
Property, plant and equipment, net of accumulated depreciation of $78,179 and
   $27,038, respectively..............................................................     183,101       193,170
License fees, net of accumulated amortization of $3,773 and $2,520, respectively .....       5,691        10,387
Goodwill, net of accumulated amortization of $8,044 and $3,911, respectively..........      43,017        58,134
Deferred financing costs, net of accumulated amortization of $1,306 and $203,
   respectively.......................................................................      13,393         9,805
Other non-current assets, net, including related party receivables of $0 and $1,600,
   respectively.......................................................................         846         3,017
                                                                                          --------      --------
       Total assets...................................................................    $279,032      $319,323
                                                                                          ========      ========

LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities
   Accounts payable and accrued liabilities, including related party payables of
      $3,545 and $1,905, respectively.................................................    $ 26,566      $ 20,336
   Construction payables..............................................................       6,008        38,407
   Accrued funding obligation.........................................................         406         1,270
   Related party note payable.........................................................       4,999            --
   Current portion of long-term debt..................................................       1,825         1,108
                                                                                          --------      --------
       Total current liabilities......................................................      39,804        61,121

Due to parent.........................................................................       5,394         2,758
Senior discount notes and other debt..................................................     387,094       250,057
Other long-term liabilities...........................................................       1,426         1,340
                                                                                          --------      --------
       Total liabilities..............................................................     433,718       315,276
                                                                                          --------      --------

Minority interest in subsidiary.......................................................      11,416            --
                                                                                          --------      --------
Commitments and Contingencies (Notes 10 and 11)

Stockholder's (deficit) equity:
   Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and
     outstanding......................................................................          --            --
   Common stock, $0.01 par value, 30,000,000 shares authorized, 13,864,941 and
     13,864,941 shares issued and outstanding, respectively...........................         139           139
   Additional paid-in capital.........................................................     137,672       112,346
   Unrealized loss on investment......................................................          --        (3,412)
   Cumulative translation adjustments.................................................     (28,964)        1,867
   Accumulated deficit................................................................    (274,949)     (106,893)
                                                                                          --------      --------
       Total stockholder's (deficit) equity...........................................    (166,102)        4,047
                                                                                          --------      --------
       Total liabilities and stockholder's (deficit) equity...........................    $279,032      $319,323
                                                                                          ========      ========

           The  accompanying  notes are an integral part of these consolidated financial statements.
</TABLE>
                                                          35
<PAGE>
<TABLE>
<CAPTION>
                                               UIH AUSTRALIA/PACIFIC, INC.
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                (Stated in thousands, except share and per share amounts)

                                                                                                    For the Years Ended
                                                                                                        December 31,
                                                                                        -------------------------------------------
                                                                                          1997             1996              1995
                                                                                        --------         --------          --------
<S>                                                                                    <C>              <C>              <C>
Service and other revenue .......................................................      $   68,961       $   24,977       $    1,883

System operating expense, including related party expense of $3,291,
   $788 and $94, respectively ...................................................         (52,703)         (22,865)          (3,230)
System selling, general and administrative expense ..............................         (50,006)         (32,665)          (2,482)
Corporate general and administrative expense, including management
   fees to related party of $2,739, $750 and $918, respectively .................          (3,306)          (1,376)            (920)
Depreciation and amortization ...................................................         (80,802)         (36,269)          (1,003)
                                                                                       ----------       ----------       ----------
       Net operating loss .......................................................        (117,856)         (68,198)          (5,752)

Equity in losses of affiliated companies ........................................          (2,408)          (5,414)         (16,379)
Gain on sale of investment in affiliated company ................................              --               --            4,132
Provision for loss on marketable equity securities ..............................          (4,784)              --               --
Interest income .................................................................           1,144            4,106              157
Interest expense, including related party expense of $1,305, $458 and $0,
   respectively .................................................................         (43,569)         (20,756)             (30)
Other (expense) income, net .....................................................          (1,601)              90              219
                                                                                       ----------       ----------       ----------
       Net loss before minority interest ........................................        (169,074)         (90,172)         (17,653)

Minority interest in subsidiaries ...............................................           1,018            2,186              420
                                                                                       ----------       ----------       ----------

       Net loss .................................................................      $ (168,056)      $  (87,986)      $  (17,233)
                                                                                       ==========       ==========       ==========

Basic and diluted loss per common share .........................................      $   (12.12)      $    (6.44)      $    (1.28)
                                                                                       ==========       ==========       ==========

Weighted-average number of common shares outstanding ............................      13,864,941       13,670,832       13,504,453
                                                                                       ==========       ==========       ==========







           The  accompanying  notes are an integral part of these consolidated financial statements.
</TABLE>
                                                          36
<PAGE>
<TABLE>
<CAPTION>

                                                    UIH AUSTRALIA/PACIFIC, INC.
                                     CONSOLIDATED STATEMENTS OF STOCKHOLDER'S (DEFICIT) EQUITY
                                            (Stated in thousands, except share amounts)



                                             Common Stock           Additional  Unrealized    Cumulative
                                        -----------------------      Paid-in     Loss on      Translation  Accumulated
                                          Shares        Amount       Capital    Investment    Adjustments    Deficit      Total
                                        ----------     --------    ----------- ------------   ------------ ------------ ---------
<S>                                     <C>              <C>        <C>           <C>         <C>         <C>           <C>
Balances, January 1, 1995 ...........   13,504,453       $135       $ 25,207      $   --      $    405    $  (1,674)    $  24,073

Capital contributions from
   parent ...........................           --         --         68,440          --            --           --        68,440
Change in cumulative
translation adjustments .............           --         --             --          --          (214)          --          (214)

Net loss ............................           --         --             --          --            --      (17,233)      (17,233)
                                        ----------       ----       --------      ------      --------    ----------    ---------

Balances, December 31, 1995 .........   13,504,453        135         93,647          --           191      (18,907)       75,066

Capital contributions from
   parent ...........................           --         --         10,903          --            --           --        10,903
Acquisition of remaining 50%
   interest in Saturn ...............      360,488          4          7,796          --            --           --         7,800
Unrealized loss on investment .......           --         --             --      (3,412)           --           --        (3,412)
Change in cumulative
   translation adjustments ..........           --         --             --          --         1,676           --         1,676
Net loss ............................           --         --             --          --            --      (87,986)      (87,986)
                                        ----------       ----       --------      ------      --------    ----------    ---------

Balances, December 31, 1996 .........   13,864,941        139        112,346      (3,412)        1,867     (106,893)        4,047

Capital contributions from
   parent ...........................           --         --         15,663          --            --           --        15,663
Gain on sale of stock by
subsidiary ..........................           --         --          5,985          --            --           --         5,985
Issuance of warrants to
   purchase common stock ............           --         --          3,678          --            --           --         3,678
Provision for loss on marketable
   equity securities, net ...........           --         --             --       3,412            --           --         3,412
Change in cumulative
   translation adjustments ..........           --         --             --          --       (30,831)          --       (30,831)
Net loss ............................           --         --             --          --            --     (168,056)     (168,056)
                                        ----------       ----       --------      ------      --------    ----------    ---------

Balances, December 31, 1997 .........   13,864,941       $139       $137,672      $   --      $(28,964)   $(274,949)    $(166,102)
                                        ==========       ====       ========      ======      ========    ==========    =========



           The  accompanying  notes are an integral part of these consolidated financial statements.
</TABLE>
                                                          37

<PAGE>
<TABLE>
<CAPTION>
                                               UIH AUSTRALIA/PACIFIC, INC.
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (Stated in thousands)

                                                                                                      For the Years Ended
                                                                                                           December 31,
                                                                                              -------------------------------------
                                                                                                1997           1996          1995
                                                                                              --------       --------      --------
<S>                                                                                           <C>            <C>          <C>
Cash flows from operating activities:
Net loss .................................................................................    $(168,056)     $(87,986)    $ (17,233)
Adjustments to reconcile net loss to net cash flows from operating activities:
   Depreciation and amortization .........................................................       80,802        36,269         1,003
   Equity in losses of affiliated companies ..............................................        2,408         5,414        16,379
   Gain on sale of investment in affiliated company ......................................           --            --        (4,132)
   Provision for loss on marketable equity securities ....................................        4,784            --            --
   Minority interest share of losses .....................................................       (1,018)       (2,186)         (420)
   Loan guarantee fee ....................................................................           --          (784)           --
   Accretion of interest on senior notes and amortization of deferred financing costs ....       38,747        20,270            --
   Increase in subscriber receivables ....................................................       (1,375)       (1,487)           --
   Increase in related party receivables .................................................         (316)          (51)       (1,907)
   Decrease (increase) in other assets ...................................................           68        (1,461)          420
   Increase in technical assistance agreement payables ...................................        7,375         1,677            --
   Increase in accounts payable, accrued liabilities and other ...........................       11,674        12,906           238
                                                                                              ---------      --------     ---------
Net cash flows used in operating activities ..............................................      (24,907)      (17,419)       (5,652)
                                                                                              ---------      --------     ---------
Cash flows from investing activities:
Purchase of short-term investments .......................................................      (15,988)     (199,242)           --
Sale of short-term investments ...........................................................       22,303       180,602            --
Restricted cash deposited ................................................................         (420)           --            --
Investments in and advances to affiliated companies and other investments ................       (3,272)      (16,204)      (22,472)
Purchase of additional interests in Austar, net of cash acquired in 1995 .................           --        (7,920)       (8,017)
Proceeds from sale of investment in affiliated company ...................................           --            --         4,132
Purchase of property, plant and equipment ................................................     (101,135)     (187,100)       (7,648)
(Decrease) increase in construction payables .............................................      (29,621)       38,407            --
                                                                                              ---------      --------      --------
Net cash flows used in investing activities ..............................................     (128,133)     (191,457)      (34,005)
                                                                                              ---------      --------      --------
Cash flows from financing activities:
Capital contributions from parent ........................................................        7,863        10,664        38,600
Cash contributed from minority interest partner ..........................................       19,566            --            --
Proceeds from offering of senior discount notes ..........................................       29,925       225,115            --
Borrowings on related party payable to parent ............................................        9,998        15,073         9,927
Payment of bridge loan payable to parent .................................................           --       (25,000)           --
Deferred financing costs .................................................................       (5,643)      (10,007)           --
Borrowing on other debt ..................................................................       85,210         2,465            --
Payment on capital leases and other debt .................................................         (490)           --            --
                                                                                              ---------      --------     ---------
Net cash flows provided by financing activities ..........................................      146,429       218,310        48,527
                                                                                              ---------      --------     ---------
Effect of exchange rates on cash .........................................................         (265)        1,056          (140)
                                                                                              ---------      --------     ---------
(Decrease) increase in cash and cash equivalents .........................................       (6,876)       10,490         8,730
Cash and cash equivalents, beginning of period ...........................................       19,220         8,730            --
                                                                                              ---------      --------     ---------
Cash and cash equivalents, end of period .................................................    $  12,344      $ 19,220     $   8,730
                                                                                              =========      ========     =========
Non-cash investing and financing activities:
   Gain on issuance of shares by Saturn ..................................................    $   5,985     $      --     $      --
                                                                                              =========     =========     =========
   Non-cash issuance of warrants to purchase common stock ................................    $   3,678     $      --     $      --
                                                                                              =========     =========     =========
   Non-cash capital contributions from parent ............................................    $   7,800     $  25,000     $      --
                                                                                              =========     =========     =========
   Non-cash stock issuance for purchase of 50% interest in Saturn ........................    $      --     $   7,800     $      --
                                                                                              =========     =========     =========
   Non-cash capital contribution of preferred stock from parent utilized in
     purchase of additional 40% interest in Austar .......................................    $      --     $      --     $  29,840
                                                                                              =========     =========     =========
   Increase in unrealized loss on investment .............................................    $    (985)    $  (3,412)    $      --
                                                                                              =========     =========     =========
   Assets acquired with capital leases ...................................................    $     548     $   3,632     $      --
                                                                                              =========     =========     =========
Supplemental cash flow disclosures:
   Cash paid for interest ................................................................    $   1,239     $      --     $      --
                                                                                              =========     =========     =========
   Cash received for interest ............................................................    $     796     $   3,578     $      --
                                                                                              =========     =========     =========

           The  accompanying  notes are an integral part of these consolidated financial statements.
</TABLE>
                                                          38
<PAGE>

                           UIH AUSTRALIA/PACIFIC, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1997 AND 1996
                     (Monetary amounts stated in thousands)

1.   ORGANIZATION AND BACKGROUND

     UIH Australia/Pacific,  Inc. (the "Company"),  a wholly-owned subsidiary of
UIH  Asia/Pacific  Communications,  Inc.  ("UAP"),  which is in turn an indirect
98%-owned subsidiary of United International  Holdings, Inc. ("UIH"), was formed
on October 14,  1994,  for the purpose of  developing,  acquiring  and  managing
foreign multi-channel television, programming and telephony operations.

     The  following  chart  presents  a  summary  of the  Company's  significant
investments in multi-channel television, programming and telephony operations as
of December 31, 1997.

*******************************************************************************
*                                                                             *
*                                     UIH                                     *
*                                                                             *
*******************************************************************************
                                       *
                                 100%  *
                                       *
*******************************************************************************
*                                                                             *
*                United International Properties, Inc. ("UIPI")               *
*                                                                             *
*******************************************************************************
                                       *
                                 98%   *
                                       *
*******************************************************************************
*                                                                             *
*                                     UAP                                     *
*                                                                             *
*******************************************************************************
                                       *
                                 100%  *
                                       *
*******************************************************************************
*                                                                             *
*                                 The Company                                 *
*                                                                             *
*******************************************************************************
                                       *
                                       *
                                       *
*******************************************************************************
* CTV Pty Limited ("CTV") and STV Pty Limited (STV")                          *
*   (collectively, "Austar")(Australia)(1)                               100% *
* Austar Satellite Pty Limited ("Austar Satellite")(Australia)(2)        100% *
* United Wireless Pty Limited ("United Wireless")(Australia)             100% *
* Telefenua S.A. ("Telefenua")(Tahiti)(3)                                 90% *
* Saturn Communications Limited ("Saturn")(New Zealand")                  65% *
* XYZ Entertainment Pty Limited ("XYZ Entertainment")(Australia)          25% *
*******************************************************************************

     (1)  The  Company  holds an  effective  100%  economic  interest  in Austar
          through a combination of ordinary and convertible debentures.
     (2)  The Company  indirectly  owns a 100% interest in Austar  Satellite,  a
          company recently formed to operate the Company's satellite business in
          Australia.

     (3)  The Company owns an effective 90% economic interest in Telefenua.  The
          Company's  economic  interest will decrease to 75% and 64% once it has
          received a 20% and 40% internal  rate of return on its  investment  in
          Tahiti, respectively.

     Immediately  prior to the May 1996  offering  of the  Company's  14% senior
discount  notes due 2006  (the  "May 1996  Notes"),  UIH  Australia,  Inc.,  UIH
Australia   II,  Inc.  and  UIH  Australia   III,   Inc.  (the  "UIH   Australia
Subsidiaries");  UIH New  Zealand,  Inc.  (the  "UIH New  Zealand  Subsidiary");
UIH-SFCC,  Inc. (the "UIH Tahiti Subsidiary");  and UIH Australia Holdings, Inc.
were merged with and into the Company. The UIH Australia Subsidiaries held UIH's
interest in the two companies that form Austar,  the UIH New Zealand  Subsidiary
held UIH's interest in Saturn,  the UIH Tahiti Subsidiary held UIH's interest in
Telefenua,  UIH Australia Holdings,  Inc. held UIH's interest in United Wireless
and the Company  held UIH's  interest  in XYZ  Entertainment.  The  accompanying
financial statements have been prepared on a basis of reorganization  accounting
as though the Company had performed all foreign development  activities and made
all  acquisitions  of UIH's  ownership  interests in  multi-channel  television,
programming and mobile data companies in Australia, New Zealand and Tahiti since

                                       39
<PAGE>
                           UIH AUSTRALIA/PACIFIC, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

inception. The reorganized Company commenced operations in January 1994 when UIH
began  its  development-related  activities  in  the  Asia/Pacific  region.  UIH
transferred  the net  assets  of the  above  mentioned  subsidiaries,  including
capitalized  development costs and investments in affiliated  companies,  to the
Company  at  its  historical  cost,  which  the  Company  reflected  as  capital
contributions from the parent company. The accompanying  consolidated  financial
statements  have been  prepared as though the Company  made  investments  in the
following  entities  on the  original  date UIH or certain  of its  wholly-owned
subsidiaries made the investment:

      *   The Company acquired,  through directly and indirectly held interests,
          an effective  50%  economic  interest in the two  companies  that form
          Austar in 1994. In December 1995, the Company  increased its effective
          economic  interest in Austar  (formerly CEtv) to 90%. In May 1996, the
          Company  increased  its  economic  interest in Austar to 94% which was
          subsequently  increased to 96%. In October 1996, the Company  acquired
          the remaining 4% economic interest in Austar for $7,920. The companies
          that comprise Austar have acquired multi-point microwave  distribution
          systems ("MMDS") licenses to supply  subscription  television services
          to television  households in the northern,  northeastern  and southern
          regions of Australia outside of the country's largest cities. They are
          currently  constructing  multi-channel  television  systems to service
          many of the television homes in their license areas.  Those homes that
          cannot  be  served by MMDS  will be  serviceable  by a  direct-to-home
          ("DTH") satellite service marketed by Austar. The Company's  ownership
          interests are comprised of direct and indirect holdings of convertible
          debentures  and  ordinary  shares  of CTV and  STV.  Ownership  of the
          debentures  entitles  the  Company to vote for  directors  on the same
          basis  as   ordinary   shares.   The   Company  is  party  to  various
          securityholder  agreements which enable it to designate all of the six
          voting directors of both CTV and STV. The Company began  consolidating
          Austar for balance sheet purposes  effective December 31, 1995 and for
          income statement  purposes  effective  January 1, 1996. Prior to these
          dates, the Company  accounted for its investments in CTV and STV under
          the equity method.

      *   In  July  1994,   the  Company   acquired  a  50%   interest  in  Kiwi
          Communications Limited, which subsequently changed its name to Saturn.
          Saturn is constructing a wireline  multi-channel  television system in
          New Zealand,  primarily in the greater  Wellington area. In July 1996,
          the Company  acquired the remaining 50% interest in Saturn in exchange
          for a 2.6% interest in the Company  which was valued at  approximately
          $7,800.  The holder of this 2.6% interest in the Company  subsequently
          exchanged it for a 2% interest in UAP. In July 1997,  SaskTel Holdings
          (New Zealand),  Inc.  ("SaskTel")  purchased a 35% equity  interest in
          Saturn  through a cash  contribution  to Saturn  of  $19,566,  thereby
          reducing the Company's  equity interest in Saturn to 65% (see Note 3).
          The Company has  consolidated  the  operations of Saturn since July 1,
          1996. Prior to that time, the Company  accounted for its investment in
          Saturn under the equity method.

      *   In October 1994,  the Company and Century  Communications  Corporation
          ("Century")  formed  XYZ  Entertainment,   an  Australian  proprietary
          company incorporated in New South Wales. In June 1995, the Company and
          Century  formed the 50/50 joint  venture  Century  United  Programming
          Ventures Pty Limited  ("CUPV"),  an  Australian  corporation,  to hold
          their  investments  in XYZ  Entertainment.  In  September  1995, a 50%
          interest  in XYZ  Entertainment  was  sold to a third  party,  thereby
          diluting the Company's  indirect interest in XYZ Entertainment to 25%.
          The  Company   accounts  for  its  investment   through  CUPV  in  XYZ
          Entertainment under the equity method.

      *   The Company  acquired an effective 90% economic  interest in Telefenua
          in January 1995. The Company's  economic interest will decrease to 75%
          and 64% once the Company has received a 20% and 40%  internal  rate of
          return on its investment in Telefenua, respectively. Since March 1995,
          Telefenua has operated the only multi-channel  subscription television
          system on the  islands  of  Tahiti  and  Moorea  in French  Polynesia.
          Through  its  majority  ownership  of UIH SFCC LP, a Colorado  limited
          partnership  that  holds  100%  of  the  preferred  stock  of  Societe
          Francaise des Communications et du Cable S.A. ("SFCC"),  which in turn
          is the  parent  company of  Telefenua,  the  Company  has the right to
          appoint three of the six board members. Furthermore, by agreement with
          the common shareholders, the Company has the right to appoint a fourth
          director. The Company has consolidated its investment in Telefenua for
          all  periods  presented.  The  Company  is  currently  evaluating  the
          potential sale of its interest in Telefenua.

      *   In  September  1995,  the Company  acquired a 100%  interest in United
          Wireless,  a provider of wireless  mobile data  services in Australia,
          primarily Sydney and Melbourne.  The Company is currently developing a
          distribution network and marketing its services. The Company accounted

                                       40
<PAGE>

          for its  acquisition  using the  purchase  method of  accounting.  The
          Company has consolidated its investment in United Wireless  subsequent
          to August 1995.

      *   In September 1997, the Company commenced  transponder fee payments for
          a  satellite  service  as part of a  five-year  agreement  with  Optus
          Networks Pty Limited ("Optus Networks"). In November 1997, the Company
          formed Austar  Satellite to assume the rights and  obligations of this
          agreement.  The Company  owns an indirect  100%  economic  interest in
          Austar Satellite.  In November 1997, the Company  transferred all such
          costs to Austar  Satellite  and began  consolidating  the entity.  The
          Company expects to launch programming services on the satellite during
          1998.

LIQUIDITY AND CAPITAL RESOURCES

     A substantial  portion of the Company's  investments  to date relate to its
investment  in Austar,  which is comprised  primarily of MMDS and DTH  satellite
operations.   The  Company  has  essentially   completed  the  construction  and
deployment  of Austar's  entire MMDS  network  infrastructure  and has  incurred
certain  other  significant  expenditures,  such as Austar's  National  Customer
Service  Center,  which  contemplates  provision  of MMDS and DTH  services to a
substantially  larger customer base than currently exists. If additional capital
financings are not available to continue to connect new customers at Austar, the
Company's revenues will decline and the current net operating loss will increase
over time due to customer  disconnections,  which are  normally  experienced  in
connection with multi-channel  television  operations.  In order to complete the
anticipated  build-out of Austar and the Company's other  projects,  the Company
will need a  significant  amount of additional  capital,  which is not currently
available.

     As of December 31, 1997, the Company has a net working  capital  deficit of
$3,275,  excluding related party payables of $3,545,  which are primarily due to
UIH. Due to the nature of the operation, the Company is able to slow the rate of
subscriber connections at Austar and network construction at the Company's other
projects  to adjust to the level of  funding  sources  that are  available.  The
Company believes it can, if necessary, substantially reduce the capital required
at Austar as the majority of future capital  expenditures will be for subscriber
installation and premises equipment, which are controllable by the Company based
upon the rate of new  subscriber  connections.  However,  the  Company  needs to
continue the present rate of new subscriber  connections to offset current churn
rates at Austar.  The Company is currently in the process of seeking  additional
sources of funds,  which could include private  equity,  bank and/or public debt
and the sale of certain  non-strategic  assets.  The  Company  may or may not be
successful in completing all or any of such  financings.  The Company  believes,
however,  that committed financial support from UIH combined with, if necessary,
reductions in the Company's  planned  capital  expenditures,  are  sufficient to
sustain its operations through at least early 1999.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF 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 and the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

     In November 1997, the Company effected a stock split whereby the 500 shares
of common stock then outstanding were exchanged for 13,864,941  shares of common
stock.  All share and per share  amounts  have been  retroactively  restated  to
reflect this event.

PRINCIPLES OF CONSOLIDATION

     The accompanying  consolidated financial statements include the accounts of
the Company and all subsidiaries  where it exercises majority control and owns a
majority  economic  interest.  The Company began  consolidating  United Wireless
subsequent to August 31, 1995. Due to the Company's  acquisition of the majority
economic   interest  in  Austar  in  late  December   1995,  the  Company  began
consolidating  Austar's  balance  sheet  effective  December  31,  1995  and its
operations  effective January 1, 1996. The Company recognized equity losses from
its investment in Austar through December 31, 1995. The Company has consolidated
the  operations  of Saturn since July 1, 1996.  Prior to that time,  the Company
accounted for its investment in Saturn under the equity method.  All significant
intercompany accounts and transactions have been eliminated in consolidation.

                                       41
<PAGE>

CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

     Cash and  cash  equivalents  include  cash and  investments  with  original
maturities of less than three months. The portion of short-term  investments and
the Company's  investment in Australis Media Limited  ("Australis") (see Note 5)
which are classified as  available-for-sale in accordance with the provisions of
Statement of Financial  Accounting  Standards No. 115,  "Accounting  for Certain
Investments in Debt and Equity  Securities"  ("SFAS 115"),  are accounted for at
fair market  value.  As of December  31, 1997,  the Company  held  approximately
$12,325 of  short-term  investments,  comprised  primarily  of  certificates  of
deposit and government  securities.  These short-term investments are classified
as   available-for-sale   securities  and  stated  at  amortized   cost,   which
approximates fair value, under the provisions of SFAS 115.

RESTRICTED CASH

     Restricted  cash  includes $420 in Saturn's U.S.  dollar  funding  account,
which is being held as collateral  against certain letters of credit for Saturn.
These  letters of credit and the related  restriction  on the cash  balance will
expire within the next 12 months.

INVESTMENTS  IN AND ADVANCES TO AN AFFILIATED  COMPANY,  ACCOUNTED FOR UNDER THE
EQUITY METHOD

     For those  investments in companies in which the Company's  voting interest
is 20% to 50%, its  investments  are held through a combination of voting common
stock,  preferred  stock,  debentures or convertible debt and the Company exerts
significant influence through board representation and management authority, the
equity  method  of  accounting  is used.  Under  this  method,  the  investment,
originally   recorded  at  cost,   is  adjusted  to  recognize   the   Company's
proportionate share of net earnings or losses of the affiliates,  limited to the
extent of the Company's investment in and advances to the affiliates,  including
any debt guarantees or other funding  commitments.  The Company's  proportionate
share of net earnings or losses of affiliates  includes the  amortization of the
excess of cost over net tangible assets acquired.
Investments in and advances to an affiliated company are as follows:
<TABLE>
<CAPTION>
                                                              As of December 31, 1997
                                     -----------------------------------------------------------------------------
                                       Investments in           Cumulative Equity           Cumulative
                                     and Advances to an            in Losses of an         Translation
                                     Affiliated Company         Affiliated Company         Adjustments      Total
                                     ------------------         ------------------         -----------     -------
     <S>                                  <C>                        <C>                       <C>         <C>
     XYZ Entertainment.........           $18,610(1)                 $(18,720)                 $110        $   --
                                          =======                    ========                  ====        ======
</TABLE>
<TABLE>
<CAPTION>

                                                              As of December 31, 1996
                                     -----------------------------------------------------------------------------
                                       Investments in           Cumulative Equity           Cumulative
                                     and Advances to an            in Losses of an         Translation
                                     Affiliated Company         Affiliated Company         Adjustments      Total
                                     ------------------         ------------------         -----------     -------
     <S>                                  <C>                        <C>                       <C>         <C>
     XYZ Entertainment.........           $16,202(1)                 $(16,312)                 $110        $   --
                                          =======                    ========                  ====        ======
</TABLE>
     (1) Includes an accrued  funding  obligation of $406 and $1,270 at December
         31,  1997  and  1996,  respectively.   The  Company  does  not  have  a
         contractual  funding  obligation  to XYZ  Entertainment;  however,  the
         Company would face significant and punitive dilution if it did not make
         the scheduled fundings.

PROPERTY, PLANT AND EQUIPMENT

     Property,  plant and equipment are stated at cost. Additions,  replacements
and  major  improvements  are  capitalized,  and  costs for  normal  repair  and
maintenance of property, plant and equipment are charged to expense as incurred.
All subscriber equipment and capitalized  installation labor is depreciated over
three years. Upon disconnection of a subscriber, the remaining book value of the
subscriber   equipment,   excluding   converters   which  are   recovered   upon
disconnection,  and the  capitalized  labor are written off and accounted for as
additional  depreciation  expense.  Depreciation  expense is computed  using the
straight-line method over the asset's estimated useful life as shown below:

                                       42
<PAGE>
<TABLE>
<CAPTION>
                                                                             As of
                                                                         December 31,
                                                                ----------------------------         Average
                                                                  1997                1996            Life
                                                                --------            --------         -------
     <S>                                                        <C>                 <C>                <C>
     Subscriber premises equipment and converters.........      $160,413            $125,238              3
     MMDS distribution facilities.........................        55,093              57,073           5-10
     Cable distribution networks..........................        16,770              11,672           5-10
     Office equipment, furniture and fixtures.............        10,813               8,477           3-10
     Buildings and leasehold improvements.................         5,647               6,545           6-10
     Other................................................        12,544              11,203            3-5
                                                                --------            --------
                                                                 261,280             220,208
         Accumulated depreciation.........................       (78,179)            (27,038)
                                                                --------            --------
         Net property, plant and equipment................      $183,101            $193,170
                                                                ========            ========
</TABLE>

     Assets  acquired under capital  leases are included in property,  plant and
equipment.  The  initial  amount of the  leased  asset and  corresponding  lease
liability are recorded at the present value of future minimum lease payments.
Leased assets are amortized over the life of the relevant lease.

LICENSE FEES

     The   acquisition   of  MMDS  licenses  has  been  recorded  at  cost,  and
amortization expense is computed using the straight-line method over the term of
the license.  In Australia,  the cost to acquire these  licenses for a five-year
period is being amortized over the remaining  license  period.  The licenses are
renewable every five years.  In Tahiti,  the license rights are amortized over a
10-year period.

GOODWILL

     The Company's  acquisition of an additional 40% economic interest in Austar
was  recorded as a step  acquisition.  The  majority of the  purchase  price was
recorded  as  goodwill  as the  underlying  net book value of all  tangible  and
intangible  assets  approximated  their  respective  fair  values at that  date.
Accordingly,  goodwill is being  amortized  over 15 years  beginning  January 1,
1996.  The Company's  acquisition in July 1996 of the additional 50% interest in
Saturn resulted in additional goodwill which is being amortized over 15 years.

DEFERRED FINANCING COSTS

     The Company capitalizes the costs associated with obtaining long-term debt.
These costs are  expensed  using the  straight-line  method over the term of the
debt instrument.

RECOVERABLE AMOUNTS OF TANGIBLE AND INTANGIBLE ASSETS

     The  carrying  amount of all  tangible  and  intangible  assets is reviewed
periodically  whenever events and  circumstances  indicate the carrying value of
the assets may exceed their recoverable  amount. The recoverable  amounts of all
tangible and intangible  assets have been determined  using net cash flows which
have not been discounted to their present values.

REVENUE RECOGNITION

     Monthly  service  revenues  are  recognized  as  revenue  in the period the
related  services  are  provided  to  the  subscribers.  Installation  fees  are
recognized  as revenue in the period in which the  installation  occurs,  to the
extent  installation fees are equal to or less than direct selling costs. To the
extent  installation  fees exceed  direct  selling  costs,  the excess  would be
deferred and amortized over the average contract period.

                                       43
<PAGE>

CONCENTRATION OF CREDIT RISK

     Financial   instruments   that   potentially   subject   the   Company   to
concentrations  of credit risk  consist  primarily  of  subscriber  receivables.
Concentrations of credit risk with respect to subscriber receivables are limited
due to the large number of customers comprising the Company's customer base.

INCOME TAXES

     The Company  accounts for income taxes under the provisions of Statement of
Financial  Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS
109"), which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been included
in the  financial  statements  or tax returns.  Under this method,  deferred tax
assets and  liabilities  are  determined  based on the  difference  between  the
financial  statement and tax bases of assets and  liabilities  using enacted tax
rates in effect for the year in which the  differences  are expected to reverse.
Net deferred tax assets are then  reduced by a valuation  allowance  for amounts
which do not satisfy the realization criteria of SFAS 109.

STAFF ACCOUNTING BULLETIN NO. 51 ("SAB 51") ACCOUNTING POLICY

     Under SAB 51, the Company  recognized a gain of $5,985 upon the issuance by
Saturn  of its  newly-issued  shares  in July  1997 for  $19,566,  diluting  the
Company's interest in Saturn to 65% (see Note 3). The gain was credited directly
to  equity.  The  Company  has  adopted a SAB 51 policy to record all gains as a
result of stock sales by its subsidiaries in the statement of operations, except
for any  transactions  which must be credited  directly to equity in  accordance
with the provisions of SAB 51.

BASIC AND DILUTED LOSS PER SHARE

     The Company has adopted  Statement of Financial  Accounting  Standards  No.
128,  "Earnings Per Share" ("SFAS 128"),  as required.  The adoption of SFAS 128
had no effect on the  Company's  previously  reported  primary  loss per  share.
"Basic  earnings  (loss) per share" is  determined by dividing net income (loss)
from   continuing   operations   available   to  common   shareholders   by  the
weighted-average  number  of  common  shares  outstanding  during  each  period.
"Diluted earnings per share" includes the effects of potentially issuable common
stock,  but only if  dilutive  (i.e.,  a loss per share is never  reduced).  The
treasury stock method, using the average price of the Company's common stock for
the period,  is applied to determine  dilution  from options and  warrants.  The
if-converted  method is used for  convertible  securities.  Because of  reported
losses,  there  are no  differences  between  basic and  diluted  loss per share
amounts  for the Company for any of the years  presented.  The only  potentially
dilutive  securities  excluded  as  antidilutive  were the  warrants  issued  in
November 1997 (see Note 6).

FOREIGN OPERATIONS

     The  functional  currency  for  the  Company's  foreign  operations  is the
applicable local currency for each affiliate company.  Assets and liabilities of
foreign  subsidiaries  are  translated  at  the  exchange  rates  in  effect  at
period-end,  and the  statements  of  operations  are  translated at the average
exchange  rates during the period.  Exchange rate  fluctuations  on  translating
foreign  currency  financial   statements  into  U.S.  dollars  that  result  in
unrealized  gains  or  losses  are  referred  to  as  translation   adjustments.
Cumulative  translation  adjustments  are  recorded as a separate  component  of
stockholder's  (deficit)  equity.  During the year ended  December 31, 1997, the
Company  recorded a change in  cumulative  translation  adjustments  of $30,831,
primarily due to the  fluctuation in the Australian  dollar compared to the U.S.
dollar  exchange  rates  from  1.2574 as of  December  31,  1996 to 1.5378 as of
December 31, 1997, a change of 22%.

     Transactions  denominated  in currencies  other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in  exchange  rates  result in  transaction  gains and losses  which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions.

     In  accordance  with  Statement of Financial  Accounting  Standards No. 95,
"Statement of Cash Flows," cash flows from the  Company's  operations in foreign
countries  are  calculated  based on their  reporting  currencies.  As a result,
amounts  related  to  assets  and  liabilities   reported  on  the  consolidated
statements of cash flows will not agree to changes in the corresponding balances
on the consolidated balance sheets. The effects of exchange rate changes on cash
balances held in foreign  currencies  are reported as a separate line below cash
flows from financing activities.

                                       44
<PAGE>

NEW ACCOUNTING PRINCIPLES

     The Financial  Accounting  Standards  Board  recently  issued  Statement of
Financial Accounting Standards No. 130, "Reporting  Comprehensive Income" ("SFAS
130"),  which is required to be adopted by affected  companies  for fiscal years
beginning  after  December 15, 1997.  SFAS 130 requires that an  enterprise  (i)
classify  items of other  comprehensive  income by their  nature in a  financial
statement and (ii) display the accumulated balance of other comprehensive income
separately from retained  earnings and additional  paid-in capital in the equity
section of a statement of financial position.  The Company does not believe that
the provisions of SFAS 130 will have a material effect on the Company's reported
income.

     The Financial  Accounting  Standards  Board  recently  issued  Statement of
Financial  Accounting  Standards  No.  131,  "Disclosures  about  Segments of an
Enterprise and Related  Information"  ("SFAS 131"), which requires that a public
business  enterprise report certain financial and descriptive  information about
its  reportable  segments.  The  Company  elected to adopt SFAS 131 for the year
ended December 31, 1997 (see Note 9).

RECLASSIFICATIONS

     Certain  prior year  amounts  have been  reclassified  to conform  with the
current year presentation.

3.   ACQUISITIONS AND DISPOSITIONS

TELEFENUA

     In January 1995, the Company  acquired an initial 90% economic  interest in
Telefenua  in exchange for a cash  contribution  into  Telefenua of $6,060,  the
contribution of a note and accrued interest due UIH of $817 and equipment leased
to Telefenua  totaling $2,039.  Details of the net assets  acquired,  which were
denominated in French  Pacific  francs and translated to U.S.  dollars using the
exchange rate on the day of the acquisition, are as follows:

     Tangible assets................................................     $4,213
     Intangible assets..............................................      1,835
     Other..........................................................        107
     Cash...........................................................      6,181
     Accounts payable and accrued liabilities.......................       (783)
     Due to affiliate...............................................     (2,110)
     Minority shareholders' interest................................       (527)
                                                                         ------
         Total consideration........................................     $8,916
                                                                         ======

     The  purchase  price was  allocated  to the net  assets  acquired  based on
relative fair market values. The Company's consolidated  revenues,  expenses and
net loss after intercompany eliminations related to Telefenua for the year ended
December 31, 1995 totaled $1,882, $5,438 and $3,556, respectively.

     As of December 31, 1997, the Company's  cumulative  investment in Telefenua
totaled approximately $16,738. The Company is currently evaluating the potential
sale of its interest in Telefenua.

     The  territorial  government  of Tahiti (in French  Polynesia)  has legally
challenged  the decree and authority of the Conseil  Superieur de  l'Audiovisuel
("CSA") to award  Telefenua  the  authorizations  to operate an MMDS  service in
French Polynesia.  The French  Polynesian's  challenge to France's  authority to
award Telefenua an MMDS license in Tahiti was upheld by the Conseil d'Etat,  the
supreme administrative court of France. The territorial government of Tahiti has
brought an action in French  court  seeking  cancellation  of the MMDS  licenses
awarded by the CSA to  Telefenua,  although no such  cancellation  has yet taken
place. There can be no assurance that if the existing authorization is nullified
a new  authorization  will be  obtained.  If  Telefenua  does  not  obtain a new
authorization,   there  is  no  assurance   that   Telefenua  will  receive  any
restitution.  In addition,  any available restitution could be limited and could
take years to obtain.

                                       45
<PAGE>

AUSTAR

     In December 1995, the Company acquired an additional 40% effective economic
interest in Austar from other  shareholders  increasing  its effective  economic
interest to 90%. The Company paid $15,240 in cash and contributed 170,513 shares
of UIH's  convertible  preferred stock having an initial  liquidation  value and
fair  value of $29,840  for the  additional  40%  effective  economic  interest.
Details of the net assets acquired, which were denominated in Australian dollars
and  translated  to  U.S.  dollars  using  the  exchange  rate on the day of the
acquisition, are as follows:

     Tangible assets...............................................     $18,267
     Intangible assets.............................................       8,643
     Receivables, prepaids and other...............................       2,704
     Cash..........................................................       7,222
     Accounts payable and accrued liabilities......................      (6,140)
     Other debt....................................................        (890)
     Minority shareholders' interest...............................      (2,363)
     Net investment prior to acquisition of 40%....................     (27,153)
                                                                        -------
                                                                            290
     Goodwill......................................................      44,790
                                                                        -------
         Total consideration.......................................     $45,080
                                                                        =======

     The Company  invested  approximately  $53,009,  $161,375  and $50,848  into
Austar during 1997,  1996 and 1995,  respectively.  As of December 31, 1997, the
Company's  cumulative  investment  in Austar  including  amounts paid to acquire
interests from other shareholders, totaled approximately $284,935.

SATURN

     In 1994, the Company  acquired a 50% interest in Saturn.  In July 1996, the
Company  acquired the remaining 50% of Saturn by issuing  360,488  shares of its
common stock valued at $7,800.  Details of the net assets  acquired,  which were
determined  in New Zealand  dollars and  translated  to U.S.  dollars  using the
exchange rate on the day of the acquisition, are as follows:

     Tangible assets...............................................      $8,509
     Receivables, prepaids and other...............................         373
     Cash..........................................................         708
     Accounts payable and accrued liabilities......................      (1,430)
     Net investment prior to acquisition of 50%....................      (9,133)
                                                                         ------
                                                                           (973)
     Goodwill......................................................       8,773
                                                                         ------
         Total consideration.......................................      $7,800
                                                                         ======

     In July  1997,  SaskTel  purchased  a 35%  equity  interest  in  Saturn  by
investing  approximately New Zealand $29,900 ($19,566)  directly into Saturn for
its newly-issued  shares (the "Saturn  Transaction").  The Company believes that
SaskTel, a division of Saskatchewan  Telecommunications  Holdings Corporation of
Saskatchewan, Canada, will contribute telephony expertise to Saturn in providing
cable/telephony service in the Wellington,  New Zealand area. As of December 31,
1997,  the  Company's  cumulative  investment  in Saturn  totaled  approximately
$42,161.

4.   INVESTMENTS  IN  AND ADVANCES TO AFFILIATED  COMPANIES, ACCOUNTED FOR UNDER
     THE EQUITY METHOD

     Condensed  financial  information  for  the  Company's  significant  equity
investees is presented below.

CTV

     In September  1994, the Company began to fund its 40% economic  interest in
CTV, an Australian company that currently holds MMDS licenses in Australia.  The
Company then  acquired an additional  10% economic  interest in CTV from another
shareholder  for $5,613.  In December 1995, the Company  purchased an additional
40% economic  interest in CTV, which increased its economic interest to 90% and,

                                       46
<PAGE>

accordingly,  the Company has consolidated CTV since December 31, 1995 (see Note
1).  Condensed  consolidated  income  statement  data  for CTV,  stated  in U.S.
dollars, is as follows:
<TABLE>
<CAPTION>
                                                                                  For the Year Ended
                                                                                   December 31, 1995
                                                                                  ------------------
     <S>                                                                               <C>
     Revenue....................................................................       $   433
     Operating, selling, general and administrative expenses....................        (4,804)
     Depreciation and amortization..............................................        (1,113)
                                                                                       -------
         Net operating loss.....................................................        (5,484)
     Interest, net..............................................................           914
     Other......................................................................           245
                                                                                       -------
         Net loss...............................................................       $(4,325)
                                                                                       =======
</TABLE>

STV

     In October  1994,  the Company  began to fund its 50% economic  interest in
STV, an Australian  company that holds MMDS  licenses in Australia.  In December
1995, the Company  purchased an additional  40% economic  interest in STV, which
increased  its  economic  interest  to 90%,  and,  accordingly,  the Company has
consolidated  STV since December 31, 1995 (see Note 1).  Condensed  consolidated
income statement data for STV, stated in U.S. dollars, is as follows:
<TABLE>
<CAPTION>

                                                                                  For the Year Ended
                                                                                   December 31, 1995
                                                                                  ------------------
     <S>                                                                               <C>
     Revenue....................................................................       $    10
     Operating, selling, general and administrative expenses....................        (2,670)
     Depreciation and amortization..............................................          (158)
                                                                                       -------
         Net operating loss.....................................................        (2,818)
     Interest, net..............................................................           315
                                                                                       -------
         Net loss...............................................................       $(2,503)
                                                                                       =======
</TABLE>

XYZ ENTERTAINMENT

     Condensed  consolidated income statement data for XYZ Entertainment  stated
in U.S. dollars, which was derived from financial statements audited by Deloitte
Touche Tohmatsu, is as follows:
<TABLE>
<CAPTION>
                                                                                  For the Year Ended
                                                                                   December 31, 1995
                                                                                  ------------------
     <S>                                                                               <C>
     Revenue....................................................................       $  1,266
     Operating, selling, general and administrative expenses....................        (27,511)
     Depreciation and amortization..............................................         (2,662)
                                                                                       --------
         Net operating loss.....................................................        (28,907)
     Interest, net..............................................................            145
                                                                                       --------
         Net loss...............................................................       $(28,762)
                                                                                       ========
</TABLE>

                                       47
<PAGE>

SATURN

     Condensed  consolidated  income  statement data for Saturn,  stated in U.S.
dollars, is as follows:
<TABLE>
<CAPTION>
                                                                                  For the Year Ended
                                                                                   December 31, 1995
                                                                                  ------------------
     <S>                                                                              <C>
     Revenue....................................................................      $    148
     Operating, selling, general and administrative expenses....................        (2,365)
     Depreciation and amortization..............................................          (385)
                                                                                      --------
         Net operating loss.....................................................        (2,602)
     Other......................................................................           (55)
                                                                                       -------
         Net loss...............................................................       $(2,657)
                                                                                       =======
</TABLE>

5.   MARKETABLE  EQUITY  SECURITIES,  INCLUDING  OTHER INVESTMENTS IN AFFILIATED
     COMPANIES

     The Company used $10,000 of the proceeds  from its offering of the May 1996
Notes (see Note 6) to acquire a UIH subsidiary which guaranteed  $10,000 of debt
for Australis,  Austar's primary supplier of programming.  As consideration  for
giving the guarantee,  the Company  received  warrants valued at $784 to acquire
4,171,460 ordinary shares or convertible debentures of Australis. On October 31,
1996, the Company's  $10,000  guarantee of Australis' debt expired.  The Company
used $3,339 of the related cash to acquire  7,736,171  debentures  of Australis.
Further,  the Company exercised  warrants to acquire Australis' common stock and
debentures at A$0.20 per share for 3,016,832  shares of Australis'  common stock
and 1,154,628 debentures. Each debenture is convertible into one common share of
Australis.  In December 1997, based on the financial  difficulties and potential
insolvency  of  Australis,  the  Company  determined  that the  unrealized  loss
relating to its investment in Australis was other than  temporary.  As a result,
the Company recorded a provision for this loss of $4,784,  reducing the carrying
value of the investment to $0.

6.   SENIOR DISCOUNT NOTES AND OTHER DEBT

     Senior discount notes and other debt consists of the following:
<TABLE>
<CAPTION>
                                                                                                As of
                                                                                             December 31,
                                                                                     ---------------------------
                                                                                       1997               1996
                                                                                     --------           --------
     <S>                                                                             <C>                <C>
     May 1996 Notes, net of unamortized discount................................     $278,662           $245,182
     September 1997 Notes (as defined below), net of unamortized discount.......       30,461                 --
     Austar Bank Facility (as defined below)....................................       71,531                 --
     Vendor financed equipment at Saturn........................................        3,730                 --
     Capitalized lease obligations..............................................        3,441              4,522
     Mortgage note, interest at 7.548%, 7-year term.............................        1,094              1,461
                                                                                     --------           --------
                                                                                      388,919            251,165
         Less current portion...................................................       (1,825)            (1,108)
                                                                                     --------           --------
                                                                                     $387,094           $250,057
                                                                                     ========           ========
</TABLE>

     On May 14, 1996, the Company received total gross proceeds of $225,115 from
the private placement of $443,000 aggregate principal amount of the 14% May 1996
Notes.  On and after May 15, 2001, cash interest will accrue and will be payable
semi-annually on each May 15 and November 15, commencing  November 15, 2001. The
May 1996 Notes are due May 15, 2006.  Effective May 16, 1997,  the interest rate
on these notes increased by an additional 0.75% per annum to 14.75%,  until such
time as the Company  consummates  an issuance of its capital stock  resulting in
gross  proceeds to the Company of at least  $70,000 (an "Equity  Sale").  Due to
this  increase  in the  interest  rates,  the May 1996 Notes  will  accrete to a
principal  amount of  $455,574  if an Equity  Sale is not  consummated  prior to
maturity.  The quoted fair market value of these notes was $292,380 and $230,360
as of December 31, 1997 and December 31, 1996, respectively.

     On September 23, 1997, the Company received total gross proceeds of $29,925
from the private placement of $45,000  aggregate  principal amount of 14% senior
discount notes, which were issued at a premium (the "September 1997 Notes").  On
and  after  May 15,  2001,  cash  interest  will  accrue  and  will  be  payable
semi-annually on each May 15 and November 15, commencing  November 15, 2001. The

                                       48
<PAGE>

September  1997 Notes are due May 15, 2006.  Effective  September 23, 1997,  the
interest  rate on these  notes  increased  by an  additional  0.75% per annum to
14.75%,  until such time as the Company  consummates an Equity Sale. Due to this
increase in interest rates, the September 1997 Notes will accrete to a principal
amount of $46,277 if an Equity Sale is not  consummated  prior to maturity.  The
quoted fair market value of these notes was $29,700 as of December 31, 1997.

     On November 17, 1997, pursuant to the terms of the indentures governing the
May 1996 Notes and the September  1997 Notes  (collectively,  the "Notes"),  the
Company issued  warrants to purchase  488,000 shares of its common stock,  which
represented 3.4% of its common stock. The warrants are exercisable at a price of
$10.45 per share which would result in gross  proceeds of  approximately  $5,100
upon exercise.  The warrants are exercisable  through May 15, 2006. The warrants
were valued at $3,678 and have been  reflected as an additional  discount to the
Notes on a pro-rata basis and as an increase in additional paid-in capital.

     In July 1997, Austar secured a financing  facility from a bank for a senior
syndicated  term  debt  facility  in the  amount  of  Australian  $("A$")200,000
($155,000)  (the  "Austar  Bank  Facility").  The  proceeds  of the Austar  Bank
Facility have been and will be used to fund Austar's subscriber  acquisition and
working   capital   needs.   The  Austar   Bank   Facility   consists  of  three
sub-facilities:  (i) A$50,000 revolving working capital facility,  (ii) A$60,000
cash advance  facility and (iii)  A$90,000  term loan  facility.  This term loan
facility  will be  available  to the extent that any  drawdown,  if added to the
existing aggregate  outstanding balance under sub-facilities (i) and (ii), would
not exceed five times annualized cash flows, and upon Austar having achieved and
maintained  total  subscribers of at least 200,000.  All of Austar's  assets are
pledged as collateral for the Austar Bank Facility. In addition, pursuant to the
Austar  Bank  Facility,  Austar  can not (a) pay any  dividends,  (b)  make  any
payments  of  interest  on the  Company's  Notes or (c) pay any fees  under  its
technical  assistance  agreements  prior to December  31,  2000.  Subsequent  to
December 31, 2000,  the payments in (a), (b) and (c) above may be made,  subject
to certain  debt to cash flow  ratios.  The  working  capital  facility is fully
repayable  on June  30,  2000.  The cash  advance  facility  is fully  repayable
pursuant to an amortization schedule beginning December 31, 2000 and ending June
30, 2004.  As of December 31,  1997,  Austar had drawn the entire  amount of the
working  capital  facility  and the cash  advance  facility  totaling  A$110,000
($71,531  converted using the December 31, 1997 exchange rate).  Management does
not expect to meet the requirements in (iii) above during 1998.
<TABLE>
<CAPTION>

     The Company's maturities of its debt are as follows:
           <S>                                                                           <C>
           1998.......................................................................   $  2,125
           1999.......................................................................      2,984
           2000.......................................................................     37,560
           2001.......................................................................     12,671
           2002 and thereafter........................................................    334,017
                                                                                         --------
                                                                                          389,357
                Future finance charges for capitalized lease obligations..............       (438)
                                                                                         --------
                                                                                         $388,919
                                                                                         ========
</TABLE>

7.   RELATED PARTY

     Effective  May  1,  1996,  the  Company  and  UIH  Management,  Inc.  ("UIH
Management"),  an indirect  wholly-owned  subsidiary of UIH,  executed a 10-year
management  services agreement (the "Management  Agreement"),  pursuant to which
UIH Management performed certain administrative, accounting, financial reporting
and other services for the Company,  which has no separate employees of its own.
For the first four  months of 1996 and the year ended  December  31,  1995,  UIH
Management  allocated  approximately  $250  and  $918,  respectively,  for  such
services.  Pursuant to the Management Agreement, the management fee was $750 for
the first year  (beginning  May 1, 1996),  and it increases on each  anniversary
date of the Management  Agreement by 8% per year.  Effective March 31, 1997, UIH
Management assigned its rights and obligations under the Management Agreement to
UAP, the  Company's  immediate  parent,  and extended the agreement for 20 years
from that date (the "UAP  Management  Agreement").  For the years ended December
31,  1997,  1996  and  1995,  the  Company  recorded  $2,739,   $750  and  $918,
respectively,  in  related  party  management  fees and  corporate  general  and
administrative expense.

     UIH Management  executed 10-year technical  assistance  agreements with CTV
and STV pursuant to which it provided various management and technical services.
These agreements are renewable for up to an additional 15 one-year terms.  Under
the  agreements,  dated  October  12,  1994,  UIH  Management  was to  receive a
management  fee  equal  to 5% of CTV  and  STV's  total  revenue,  less  certain
deductions,  for the  first two  years,  4% for the next six  years,  3% for the
following two years and 2% thereafter.  Effective March 31, 1997, UIH Management
assigned its rights and obligations  under these agreements to UAP. In addition,
the  management  fee was revised to remain at 5% of CTV and STV's gross  revenue

                                       49
<PAGE>

through the term of the agreements.  For the years ended December 31, 1997, 1996
and 1995, CTV and STV recorded a total of $2,533, $324 and $0, respectively,  in
related party management fees.  Austar's chief operating officer and director of
sales, marketing and programming are employees of UIH that have been seconded to
Austar. In addition,  UIH has appointed seven other management personnel and all
six directors.  Austar  reimburses UIH for certain direct costs incurred by UIH,
including salaries and benefits relating to these senior management positions.

     Telefenua and SFCC,  the parent  company of  Telefenua,  executed a 10-year
technical  services  agreement on January 11, 1995,  whereby SFCC would  provide
technical,  administrative and operational  assistance to Telefenua encompassing
the  following  areas:  (i)  engineering,  design,  construction  and  equipment
purchasing; (ii) marketing, selling and advertising;  (iii) accounting,  billing
and subscriber management systems and (iv) personnel management and training for
a fee equal to 5.5% of  Telefenua's  gross revenue  through 1996,  3.5% of gross
revenue during 1997 and 2.5%  thereafter.  SFCC would also be reimbursed for all
direct and indirect costs  associated  with the services it provided.  Effective
January  11,  1995,  SFCC  assigned  all of its  rights and  obligations  to UIH
Management,  except that SFCC retained the right to receive 0.5% of  Telefenua's
gross revenues through the term of the agreement.  Accordingly,  Telefenua would
pay UIH Management fees of 5%, 3% and 2% of Telefenua's  gross revenues over the
same periods.  Effective March 31, 1997, UIH Management  assigned its rights and
obligations  under this agreement to UAP. For the years ended December 31, 1997,
1996 and 1995,  Telefenua recorded a total of $298, $375 and $94,  respectively,
in related  party  management  fees.  UIH has  appointed two of its employees to
serve  as the  managing  director  and  the  technical  director  of  Telefenua.
Telefenua  reimburses UIH for certain  direct costs  incurred by UIH,  including
salaries and benefits relating to these senior management positions.

     Saturn and UIH executed a technical  services  agreement  pursuant to which
UIH provided  technical,  administrative  and  operational  assistance to Saturn
encompassing  the following areas:  (i)  engineering,  design,  construction and
equipment purchasing;  (ii) marketing,  pricing and packaging of services; (iii)
selection of programming and  negotiations  with suppliers and (iv)  accounting,
billing and subscriber  management systems.  UIH receives a management fee equal
to 5% of Saturn's gross revenue through July 1999. Effective March 31, 1997, UIH
assigned  all its  rights  and  obligations  under  this  agreement  to UAP.  In
connection with SaskTel's  investment in Saturn on July 23, 1997, the management
fee  payable  to UAP was  reduced  to 2.5% of  Saturn's  gross  revenue  and the
management  fee payable to SaskTel became 2.5% of Saturn's gross revenue under a
similar agreement.  For the years ended December 31, 1997, 1996 and 1995, Saturn
recorded $435, $89 and $0,  respectively,  in related party management fees. The
managing  director and customer  operations  director are  employees of UIH that
have been seconded to Saturn.  Saturn  reimburses  UIH for certain  direct costs
incurred by UIH,  including  salaries  and  benefits  relating  to these  senior
management positions.

     United Wireless and UAP executed a technical services agreement, commencing
January  1,  1997,  pursuant  to which  UAP has  agreed  to  provide  technical,
administrative  and operational  assistance to United Wireless  encompassing the
following areas: (i) design,  engineering and construction of the network;  (ii)
marketing  and  sales  of  the  service;  (iii)  network  management,   customer
management and information systems and (iv) personnel and training. UAP receives
a management  fee equal to 5% of the gross  revenue of United  Wireless  through
December 2007. For the year ended December 31, 1997,  United  Wireless  recorded
$25 in related party management fees. The chief executive officer is an employee
of UIH that has been seconded to United Wireless. United Wireless reimburses UIH
for certain  direct  costs  incurred by UIH,  including  salaries  and  benefits
relating to this senior management position.

       Included in the due to parent payable is the following:
<TABLE>
<CAPTION>
                                                                                                As of
                                                                                             December 31,
                                                                                      --------------------------
                                                                                        1997              1996
                                                                                      --------          --------
       <S>                                                                            <C>               <C>
       Payable to UAP and UIH for management fees and invoices paid by UIH
         on the Company's behalf................................................      $2,672            $  317
       Austar technical assistance agreement obligations........................       2,629             1,135
       Telefenua technical assistance agreement obligations.....................       2,659             1,879
       Saturn technical assistance agreement obligations........................         406             1,002
       United Wireless technical assistance agreement obligations...............         487               330
       Other....................................................................          86                --
                                                                                      ------            ------
                                                                                       8,939             4,663
         Less current portion...................................................      (3,545)           (1,905)
                                                                                      ------            ------
                                                                                      $5,394            $2,758
                                                                                      ======            ======
</TABLE>

                                       50
<PAGE>

     As of December 31, 1997,  UIPI had loaned  $4,999 to UIH  Australia/Pacific
Finance,  Inc., a  wholly-owned  subsidiary  of the  Company.  This loan accrues
interest at 15% and is due on demand.

8.   INCOME TAXES

     In general,  a U.S.  corporation may claim a foreign tax credit against its
federal income tax expense for foreign income taxes paid or accrued. Because the
Company must calculate its foreign tax credit separately for dividends  received
from each foreign corporation in which the Company owns 10% to 50% of the voting
stock, and because of certain other limitations,  the Company's ability to claim
a foreign tax credit may be limited, particularly with respect to dividends paid
out of earnings  subject to a high rate of foreign  income tax.  Generally,  the
Company's ability to claim a foreign tax credit is limited to the amount of U.S.
taxes the Company pays with respect to its foreign source income. In calculating
its foreign source income,  the Company is required to allocate interest expense
and overhead  incurred in the U.S. between its domestic and foreign  activities.
Accordingly,   to  the  extent  U.S.  borrowings  are  used  to  finance  equity
contributions  to its foreign  subsidiaries,  the  Company's  ability to claim a
foreign  tax credit may be  significantly  reduced.  These  limitations  and the
inability of the Company to offset  losses in one foreign  jurisdiction  against
income earned in another foreign  jurisdiction  could result in a high effective
tax rate on the  Company's  earnings.  The Company has an ownership  interest in
Telefenua,  which is located in Tahiti,  a  self-governing  territory of France,
with which the United  States does not have an income tax  treaty.  As a result,
the  Company  may  be  subject  to  increased   withholding  taxes  on  dividend
distributions  and other  payments  from  Telefenua  and also may be  subject to
double taxation with respect to income generated by Telefenua.

     The Company is included as a member of UIH's  consolidated  tax return and,
after  the  offering  of the  Notes in May  1996,  remained  a member of the UIH
consolidated  group. UIH and the Company are parties to a tax sharing  agreement
that defines the parties' rights and obligations with respect to tax liabilities
and  benefits  relating  to the  Company  and  its  operations  as  part  of the
consolidated   group  of  UIH.  In  general,   UIH  is  responsible  for  filing
consolidated  tax returns and paying the associated  taxes, and the Company will
reimburse  UIH for the  portion of the tax cost  relating to the Company and its
operations.  For financial reporting  purposes,  the Company accounts for income
taxes in accordance  with SFAS 109 as if it filed separate income tax returns in
accordance with the  fundamental  provisions of the tax sharing  agreement.  Any
differences in income tax expense  (benefit)  allocated to the Company by UIH in
accordance with the tax sharing  agreement and the income tax expense  (benefit)
which is  recognized  under SFAS 109 will be accounted  for as a deemed  capital
distribution or  contribution.  Because the Company holds certain of its foreign
investments  through  affiliates which hold investments  accounted for under the
equity method in foreign corporations,  taxable income (loss) generated does not
flow through to the Company for U.S.  federal and state tax purposes even though
the  Company  records its  allocable  share of  affiliate  income  (losses)  for
financial  reporting  purposes.  Accordingly,  due to the indefinite reversal of
such amounts in future periods, no deferred tax assets have been established for
tax basis in excess of the  Company's  book  basis  (approximately  $10,000  and
$9,000  as of  December  31,  1997 and 1996,  respectively)  in  investments  in
affiliated   companies   who,  in  turn  have  equity   investments  in  foreign
corporations.

     The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
                                                                                              As of
                                                                                           December 31,
                                                                                     ------------------------
                                                                                       1997            1996
                                                                                     --------        --------
       <S>                                                                           <C>             <C>
       Basis differences in property, plant and equipment.........................   $ 1,074         $   625
       Accrued interest expense on the Notes......................................    17,435           6,853
       U.S. tax net operating loss carryforward...................................     1,338              --
       Basis difference in marketable equity securities...........................     1,818              --
       Tax net operating loss carryforward of consolidated
         foreign subsidiaries(1)..................................................    67,412          25,539
                                                                                     -------         -------

       Deferred tax asset.........................................................    89,077          33,017
       Valuation reserve..........................................................   (89,077)        (33,017)
                                                                                     -------         -------
       Deferred tax asset, net....................................................   $    --         $    --
                                                                                     =======         =======
</TABLE>
       (1)For   Australian   income  tax  purposes,   the  net  operating   loss
          carryforward  may be  limited  in the event of a change in  control of
          Austar or a change in the business.

                                       51
<PAGE>

     The  difference  between  income  tax  expense  provided  in the  financial
statements and the expected  income tax expense  (benefit) at statutory rates is
reconciled as follows:
<TABLE>
<CAPTION>
                                                                                             For the Years Ended
                                                                                                 December 31,
                                                                                      ----------------------------------
                                                                                        1997         1996         1995
                                                                                      --------     --------     --------
       <S>                                                                            <C>          <C>          <C>
       Expected income tax benefit at the U.S. statutory rate of 35%.............     $(58,820)    $(30,795)    $(6,032)
       Tax effect of permanent and other differences:
           Change in valuation reserve...........................................       56,060       27,663         (85)
           State tax, net of federal benefit.....................................       (5,042)      (3,520)       (689)
           International rate differences........................................         (615)        (181)         --

           Non-deductible interest accretion on the Notes........................        2,145          973          --
           Amortization of outside basis differences.............................        1,570        1,324          --
           Amortization of licenses..............................................        1,312          625         157
           Book/tax basis differences associated with foreign equity investments.          915        2,111       6,388
           Other.................................................................        2,475        1,800         261
                                                                                      --------      -------      ------
       Total income tax expense (benefit)........................................     $     --      $    --      $   --
                                                                                      ========      =======      ======
</TABLE>

9.   SEGMENT INFORMATION

     SFAS  131  requires  that  a  public  business  enterprise  report  certain
financial and descriptive  information about its reportable  operating segments.
Operating  segments are components of an enterprise for which separate financial
information  is  available  and is evaluated  regularly  by the chief  operating
decision  maker  in  deciding  how  to  allocate   resources  and  in  assessing
performance.  SFAS 131  requires  disclosure  of a measure of segment  profit or
loss,  certain  revenue  and  expense  items and  segment  assets.  It  requires
reconciliations  of total segment revenues,  total segment profit or loss, total
segment assets and other amounts disclosed for segments to corresponding amounts
in the enterprise's financial statements.

     The  Company's  reportable  segments are the various  countries in which it
operates  multi-channel  television,  programming  and/or telephony  operations.
These reportable  segments are managed  separately because each country presents
different  marketing  strategies  and  technology  issues  as well  as  distinct
economic  climates  and  regulatory  constraints.  The Company has  selected the
following   reportable   segments:   (i)  Australia,   including  the  Company's
investments in Austar,  Austar Satellite and United Wireless,  (ii) New Zealand,
including  the  Company's  investment  in Saturn,  (iii)  Tahiti,  including the
Company's investment in Telefenua and (iv) Corporate,  including various holding
companies  and  eliminations.  The  Company's  accounting  policies  for segment
reporting are consistent with those described in Note 2.

     The Company's segment information is as follows:
<TABLE>
<CAPTION>

                                                              As of and For the Year Ended
                                                                    December 31, 1997
                                               -----------------------------------------------------------
                                               Australia   New Zealand   Tahiti     Corporate      Total
                                               ---------   -----------  --------    ---------    ---------
<S>                                            <C>          <C>         <C>         <C>          <C>
Service and other revenue....................  $  64,370    $   473     $ 4,118     $     --     $  68,961
System operating expense.....................  $ (46,648)   $(4,015)    $(2,040)    $     --     $ (52,703)
Selling, general and administrative expense..  $ (44,362)   $(3,581)    $(2,063)    $ (3,306)    $ (53,312)
Depreciation and amortization................  $ (77,557)   $(2,033)    $(1,212)    $     --     $ (80,802)
Equity in losses of affiliated companies.....  $      --    $    --     $    --     $ (2,408)    $  (2,408)
Provision for loss on marketable equity
   securities................................  $      --    $    --     $    --     $ (4,784)    $  (4,784)
Interest income..............................  $      80    $   380     $    41     $    643     $   1,144
Interest expense, including related
   party expense.............................  $  (4,031)   $   (23)    $(1,343)    $(38,172)    $ (43,569)
Net loss.....................................  $(108,133)   $(6,930)    $(4,304)    $(48,689)    $(168,056)
Cash and cash equivalents....................  $   1,262    $ 9,881     $   246     $    955     $  12,344
Property, plant and equipment, net...........  $ 147,871    $26,484     $ 8,746     $     --     $ 183,101
Total assets.................................  $ 202,325    $43,349     $11,359     $ 21,999     $ 279,032
</TABLE>

                                       52
<PAGE>
<TABLE>
<CAPTION>

                                                              As of and For the Year Ended
                                                                    December 31, 1996
                                               ----------------------------------------------------------
                                               Australia   New Zealand   Tahiti     Corporate     Total
                                               ---------   -----------  --------    ---------    --------
<S>                                            <C>          <C>         <C>         <C>          <C>
Service and other revenue....................  $ 21,354     $   110     $ 3,513     $     --     $ 24,977
System operating expense.....................  $(19,403)    $(1,344)    $(2,118)    $     --     $(22,865)
Selling, general and administrative expense..  $(28,071)    $(2,008)    $(2,586)    $ (1,376)    $(34,041)
Depreciation and amortization................  $(34,087)    $  (800)    $(1,382)    $     --     $(36,269)
Equity in losses of affiliated companies.....  $     --     $    --     $    --     $ (5,414)    $ (5,414)
Interest income..............................  $    287     $    32     $    --     $  3,787     $  4,106
Interest expense, including related
   party expense.............................  $   (915)    $    --     $    --     $(19,841)    $(20,756)
Net loss.....................................  $(58,274)    $(4,126)    $(4,230)    $(21,356)    $(87,986)
Cash and cash equivalents....................  $  7,787     $   410     $   213     $ 10,810     $ 19,220
Property, plant and equipment, net...........  $166,012     $16,309     $10,849     $     --     $193,170
Total assets.................................  $236,259     $25,655     $14,386     $ 43,023     $319,323
</TABLE>

<TABLE>
<CAPTION>

                                                                    For the Year Ended
                                                                    December 31, 1995
                                               ------------------------------------------------------------
                                               Australia   New Zealand   Tahiti     Corporate      Total
                                               ---------   -----------  --------    ---------     --------
<S>                                              <C>          <C>       <C>         <C>          <C>
Service and other revenue....................    $   1        $ --      $ 1,882     $     --     $  1,883
System operating expense.....................    $(394)       $ --      $(2,836)    $     --     $ (3,230)
Selling, general and administrative expense..    $(196)       $ --      $(2,286)    $   (920)    $ (3,402)
Depreciation and amortization................    $ (43)       $ --      $  (960)    $     --     $ (1,003)
Equity in losses of affiliated companies.....    $  --        $ --      $    --     $(16,379)    $(16,379)
Gain on sale of investment in affiliated
   company...................................    $  --        $ --      $    --     $  4,132     $  4,132
Interest income..............................    $  --        $ --      $    --     $    157     $    157
Interest expense, including related
   party expense.............................    $   2        $ --      $   (32)    $     --     $    (30)
Net loss.....................................    $(628)       $ --      $(3,556)    $(13,049)    $(17,233)
</TABLE>

10.   COMMITMENTS

     The Company has MMDS  license  fees and  programming  license  fees payable
annually as follows:

              1998...........................................     $2,212
              1999...........................................      1,686
              2000...........................................      1,444
              2001...........................................        153
              2002 and thereafter............................         --
                                                                  ------
                                                                  $5,495
                                                                  ======
     The Company has operating lease obligations as follows:

              1998...........................................     $2,507
              1999...........................................      2,049
              2000...........................................      1,642
              2001...........................................      1,477
              2002 and thereafter............................      1,452
                                                                  ------
                                                                  $9,127
                                                                  ======

     As of December 31, 1997,  Saturn had contractual  arrangements with certain
vendors committing it to make capital expenditures of $2,613, primarily relating
to network  distribution  equipment.  The majority of this amount will be vendor
financed.

                                       53

<PAGE>

     During 1994, CTV and STV entered into franchise  agreements with Australis.
The  agreements  carry  15-year  terms and may be extended for an  additional 10
years.  The agreements  provide for an exclusive  license and franchise for MMDS
and  satellite  services and a  non-exclusive  license and  franchise  for cable
services for all franchisor services including uplink and programming  including
Channel [V] (a 24 hour music video channel), Arena, Showtime,  Nickelodeon, TV1,
Encore,  Discovery and Fox Sports (the "Galaxy Package").  Under the agreements,
minimum   payments  are  due,  which  include  service  fees  based  on  varying
percentages of net revenues as defined in the agreement, and subscription levies
which are dependent on the number of  subscribers.  During 1997, the Company had
exceeded its minimum subscriber requirements in relation to such agreements.

     Although  Austar's  franchise  agreements  were formerly  exclusive for all
multi-channel  television  including MMDS and cable television  operations,  the
Company and Austar have agreed to allow Foxtel Management Pty Limited ("Foxtel")
to carry the Galaxy  Package  on  Foxtel's  wireline  cable  television  systems
throughout Australia. This agreement (the "Australis Arrangement") provides that
Austar will be compensated for any Foxtel subscriber in its franchise area in an
amount  equal  to  the  profit  margin  Austar  would  have  received  if it had
sublicensed such programming to Foxtel.  In November 1997,  Australis and Austar
entered  into an  agreement  under  which  Austar  waived  its rights to receive
payments with respect to the Foxtel  compensation  for the period up to December
31, 1997.

     Austar  Satellite has a five-year  agreement with Optus Networks to lease a
54 MHz  transponder,  including the Galaxy  Package.  Pursuant to the agreement,
which commenced  September 1, 1997, Austar Satellite will pay approximately $393
per month in satellite  service fees to Optus  Networks.  Satellite fees payable
annually are approximately as follows:

            1998............................................... $ 4,716
            1999...............................................   4,716
            2000...............................................   4,716
            2001...............................................   4,716
            2002...............................................   3,144
                                                                -------
                                                                $22,008
                                                                =======

     UIH and many of its employees serving as senior management in the Company's
operating companies are parties to employment  agreements,  typically with terms
of three to five years.  The agreements  generally  provide for a specified base
salary as well as a bonus set at a specified  percentage of the base salary. The
bonus is based on the  performance of the  respective  company and the employee.
The agreements  often provide for the grant of an incentive  interest equal to a
percentage  of the residual  equity value of the  respective  company,  which is
typically  defined as the fair market value of the business less net liabilities
and a reasonable return on shareholders' investment.  The Company has recorded a
liability for the estimated amount of the bonus earned during 1997 and 1996. The
employment  agreements generally also provide for cost of living  differentials,
relocation   and  moving   expenses,   automobile   allowances  and  income  tax
equalization  payments,  if necessary,  to keep the employee's tax liability the
same as it would be in the United States.

11.  CONTINGENCIES

     Other  than as  described  below,  the  Company is not a party to any other
material legal  proceedings,  nor is it currently aware of any other  threatened
material legal  proceedings.  From time to time, the Company may become involved
in  litigation  relating to claims  arising out of its  operations in the normal
course of its business.

     On November 6, 1996,  Austar filed a complaint in the Supreme  Court of New
South  Wales,  Commercial  Division,  seeking  injunctive  relief to prevent (i)
Australis  from  transferring  its  satellite  delivery  systems and  associated
infrastructure  to its joint  venture  with  Optus  Vision Pty  Limited  ("Optus
Vision")  and (ii) Optus  Vision from using such  infrastructure  to deliver DTH
services  in  Austar's  franchise  area.  Austar  believes  that  the use of the
infrastructure by any entity other than Austar for the provision of DTH services
within  Austar's  franchise  areas  violates  the  terms of  Austar's  franchise
agreement with Australis which granted Austar an exclusive license and franchise
to use  the  infrastructure  within  its  franchise  areas.  Austar  is  seeking
injunctive relief or, in the alternative, damages associated with this violation
of its franchise agreements.

     On December 6, 1996,  Australis filed counterclaims  against Austar and the
Company alleging generally that Austar and the Company breached implied terms of
the Australis Arrangement by seeking such injunctive relief. In addition,  Optus
Vision  claims  that the  exclusive  nature  of  Austar's  franchise  agreements
violates  Australia's  Trade  Practices  Act.  On May 9, 1997,  pursuant  to the
court's  permission,  Austar  amended its  complaint to include  claims that the


                                       54
<PAGE>

agreement  between  Australis  and  Optus  Vision  violates   Australia's  Trade
Practices Act and that Austar is entitled to damages  arising from  interference
with its contractual  relations with Australis  under the franchise  agreements.
Austar's complaint was also amended to add as defendants two affiliates of Optus
Vision: Publishing and Broadcasting Limited and its subsidiary,  Pay TV Options.
In response, on September 10, 1997, Australis lodged an amended cross-claim.  On
May 30,  1997,  the Supreme  Court of New South Wales,  in separate  proceedings
brought by FoxTel against Australis,  granted a permanent injunction restraining
Australis from transferring such assets to the proposed  Australis/Optus  Vision
joint  venture.  Both Optus Vision and Australis  appealed the  decision.  Optus
Vision  indicated,  in the  meantime,  that it was  pursuing  its claim that the
exclusive nature of Austar's  franchise  agreements  violate  Australia's  Trade
Practices Act. The New South Wales Court of Appeal, on December 23, 1997, upheld
the appeal  brought by Optus  Vision and  Australis  against the granting of the
permanent injunction. The Company intends to vigorously defend its position.

    Australis,  Austar's primary supplier of programming,  is engaged in a rapid
roll-out of service  that has required a  significant  amount of capital and has
strained  its  liquidity.  Australis  has  announced  that it is  continuing  to
negotiate with its bondholders, certain of the movie studios that supply it with
programming and other third parties in order to implement  long-term  sources of
funding.  If Australis is unable to make  arrangements  to satisfy its long-term
capital needs,  Australis may have difficulty  meeting  contractual  obligations
with respect to the four Galaxy channels distributed directly by Australis.  The
Company  believes  that if Austar is no longer  able to obtain  the four  Galaxy
channels  provided by Australis on an  exclusive  basis and it were  required to
seek  replacement  programming,  it would  have  access to the same  programming
directly  from the  suppliers  of the four Galaxy  channels  not provided by XYZ
Entertainment or sufficient alternative  programming on competitive terms. There
can be no assurance,  however,  that this would be the case and the inability of
Austar to procure the same or suitable  alternative  programming  at competitive
rates and on an  exclusive  basis in its  service  areas  could  have a material
adverse effect on the Company.


                                       55
<PAGE>

12.  PRO FORMA INFORMATION

    The following  unaudited pro forma  information  for the year ended December
31,  1995  gives  effect to the  acquisitions  of the  additional  50%  economic
interests in Austar,  the disposition of the 25% interest in XYZ  Entertainment,
the  acquisition  of the  additional  50%  economic  interest  in Saturn and the
acquisition  of United  Wireless as if each had occurred on January 1, 1995. The
pro forma financial information does not purport to represent what the Company's
results of operations would actually have been if such  transactions had in fact
occurred  on such  date.  The pro forma  adjustments  are based  upon  currently
available  information and upon certain assumptions that management believes are
reasonable under current circumstances.
<TABLE>
<CAPTION>
                                                                                  For the Year Ended
                                                                                  December 31, 1995
                                                ------------------------------------------------------------------------------------
                                                                                                              United
                                                                Austar           XYZ           Saturn        Wireless         Pro
                                                  Actual     Transaction(1)     Sale(2)      Purchase(3)    Purchase(4)      Forma
                                                ---------    --------------     -------      -----------    -----------    ---------
<S>                                             <C>             <C>             <C>          <C>             <C>           <C>
Service and other revenue ................      $  1,883        $   443         $   --       $    148        $    33       $  2,507
System operating expense .................        (3,230)          (793)            --           (863)          (687)        (5,573)
System selling, general and
   administrative expense ................        (2,482)        (6,681)            --         (1,502)          (341)       (11,006)
Corporate general and
   administrative expense ................          (920)            --             --             --             --           (920)
Depreciation and amortization ............        (1,003)        (4,259)            --           (997)           (86)        (6,345)
                                                --------        -------         ------       --------        -------       --------
     Net operating loss ..................        (5,752)       (11,290)            --         (3,214)        (1,081)       (21,337)

Equity in losses of affiliated
   companies .............................       (16,379)         3,212          4,132          1,438             --         (7,597)
Interest, net ............................           127          1,230             --             --             --          1,357
Other, net ...............................         4,771            244         (4,132)           (55)             1            829
                                                --------       --------         ------         ------        -------       --------
     Net loss ............................      $(17,233)       $(6,604)        $   --         $(1,831)      $(1,080)      $(26,748)
                                                ========       ========         ======         =======       =======       ========
</TABLE>

(1)  Amounts  represent  Austar's  actual  operating  results for the year ended
     December  31, 1995 as if Austar had been  consolidated  for the entire year
     except for "Equity in losses of affiliated  companies" which represents the
     elimination of the Company's share of Austar's losses recognized during the
     year, and except for a portion of "Depreciation and amortization"  totaling
     $2,988 which represents  amortization  related to the goodwill  recorded in
     connection  with the  acquisition of the additional 40% effective  economic
     interest, amortized over 15 years on a straight-line basis.
(2)  Amounts represent elimination of the gain on sale of XYZ  Entertainment and
     25% of the equity in losses previously recognized.
(3)  Amounts  represent  Saturn's  actual  operating  results for the year ended
     December  31, 1995 as if Saturn had been  consolidated  for the entire year
     except for "Equity in losses of affiliated  companies" which represents the
     elimination of the Company's share of Saturn's losses recognized during the
     year ended and except for a portion  of  "Depreciation  and  amortization,"
     totaling  $612  which  represents  amortization  of  goodwill  recorded  in
     connection  with the  purchase of the  additional  50%  interest in Saturn,
     which is amortized over 15 years on a straight-line basis.
(4)  Amounts  represent actual  operating  results of United Wireless during the
     eight  months  ended  August  1995,  the  period  prior  to  the  Company's
     acquisition of its 100% interest.

                                       56
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

MANAGEMENT

     The  directors  and  officers of the Company and the key  employees  of the
operating companies and their ages and positions are set forth below.
<TABLE>
<CAPTION>
     Name                            Age        Position
     ----                            ---        --------
     <S>                              <C>       <C>
     The Company:
       Gene W. Schneider              71        Chairman of the Board
       Michael T. Fries               35        President, Chief Executive Officer and Director
       J. Timothy Bryan               37        Chief Financial Officer, Treasurer and Director
       John C. Porter                 40        Chief Operating Officer
       Kevin Ong                      42        Vice President--Finance
       Mark L. Schneider              42        Director
       Ellen P. Spangler              49        Vice President and Secretary
       Valerie L. Cover               41        Controller

     Operating Companies:
       Bruce Mann                     42        Director of Sales, Marketing and Programming, Austar
       Robert J. Birrell              35        Finance Director, Austar
       Jack B. Matthews               46        Chief Executive Officer, Saturn
       Michel Laurent                 45        Managing Director, Telefenua
       Joseph P. Gatto, Jr.           51        Chief Executive Officer, United Wireless
</TABLE>

DIRECTORS AND EXECUTIVE OFFICERS

     GENE W.  SCHNEIDER  has served as Chairman of the Board of Directors of the
Company and UAP since their respective formations.  He has served as Chairman of
the Board of Directors of UIH since May 1989 and UIH's Chief  Executive  Officer
since October 1995. Mr.  Schneider was, until November 1991,  Chairman of United
Artists Entertainment  Company ("United Artists"),  the third-largest U.S. cable
television  company  and the  largest  theater  owner in the  world.  He was the
founder of United Cable  Television  Corporation  ("United  Cable") in the early
1950's and, as its Chairman and Chief Executive Officer, built United Cable into
the eighth-largest multiple system operator prior to merging with United Artists
in 1989.  He has been  active  in cable  television  affairs  and has  served on
numerous National Cable Television  Association  ("NCTA") committees and special
projects since NCTA's  inception in the early 1950's.  He also has served on the
boards of directors of several other companies,  including  Turner  Broadcasting
Corporation.

     MICHAEL T. FRIES has served as Chief Executive Officer of the Company since
November  1996,  as  President  of the Company  and UAP since  their  respective
formations,  and as a Director of the Company and UAP since  November  1996. Mr.
Fries was President of UIH  Asia/Pacific,  Inc., the  predecessor to the Company
previously  responsible  for all  operating  and  development  activities of the
Company in the Asia/Pacific region. Prior to assuming that position in 1995, Mr.
Fries served as Senior Vice President, Development, of UIH, in which capacity he
was  responsible  for managing  UIH's  worldwide  acquisitions  and new business
development  activities  since March 1990,  including  UIH's  expansion into the
Asia/Pacific  market.  From 1985 to 1990,  Mr. Fries was employed by PaineWebber
Incorporated  (New  York)  where he spent  approximately  one year in the firm's
venture  capital  group  and four  years  in the  investment  banking  division,
specializing  in domestic and  international  transactions  for companies in the
media and telecommunications industry.

     J. TIMOTHY BRYAN is the Chief Financial  Officer and a Director of both the
Company and UAP, positions he has held since December 1996. Effective January 1,
1997,  he became the Chief  Financial  Officer of UIH.  Prior to joining  UIH in
December  1996,  Mr. Bryan served as Vice  President of Finance and Treasurer of
Jones Financial Group,  Inc., an affiliate of Jones  International,  Limited and
Jones  Intercable,  Inc.  from 1993 to January  1996,  and as Treasurer of Jones
Intercable,  Inc.  from 1990 to 1993.  From 1988 through  1990, he served in the

                                       57
<PAGE>

Communications  Division of the Corporate  Banking  Department of NationsBank of
North Carolina and from 1983 to 1988,  worked at Mellon Bank  Corporation in the
Corporate and International Banking Departments.

     JOHN C. PORTER has served as Chief  Operating  Officer of the Company since
November 1996 and Chief Operating  Officer of Austar since March 1995,  where he
directly manages the technical, operating and administrative aspects of Austar's
multi-channel  systems and is the principal  executive in the field  responsible
for the launch of MMDS and cable systems,  as well as Austar's DTH business.  As
Chief Operating Officer of the Company,  Mr. Porter will continue to participate
in the  management  and  operations of Austar,  along with the  Company's  other
operating companies.  Prior to joining Austar, Mr. Porter spent 10 years serving
in various  capacities for Time Warner Cable, a subsidiary of Time Warner,  Inc.
Most  recently,  Mr.  Porter acted as the Division  President,  Central  Ohio, a
170,000  subscriber,  400  employee  division.  Mr.  Porter has over 16 years of
management experience in the U.S. multi-channel television industry.

     KEVIN ONG has served as Vice  President--Finance  of the Company  since May
1996.  Prior to joining  UIH,  Mr. Ong  served in various  financial  and senior
management  positions with U.S. and  international  cable television  operators.
From 1988 to 1994,  Mr. Ong served as Director with Jones  Intercable,  Inc. and
Treasurer  of  Jones  International,  Limited,  where  he  was  responsible  for
financial  operations and various accounting  functions.  From 1977 to 1988, Mr.
Ong was  employed  at KPMG  Peat  Marwick,  attaining  an audit  senior  manager
position.

     MARK L.  SCHNEIDER has been a Director of the Company since  November 1996.
Mr. Schneider is also a Director of UIH and UAP. In December 1996, Mr. Schneider
became Executive Vice President of UIH and President and Chief Executive Officer
of UIH Europe/Middle East Communications, Inc. In April 1997, Mr. Schneider also
became  President and Chief Executive  Officer of UPC. From May 1996 to December
1996, Mr. Schneider was Chief of Strategic Planning and Operational Oversight of
UIH.  He served as  President  of UIH from July 1992  until  March  1995 and was
Senior  Vice  President  of UIH from May 1989  until  July  1992.  During  these
periods,   Mr.   Schneider  was  responsible   for  all  of  its   international
multi-channel  television  system and programming  activities.  Prior to joining
UIH, he served as Vice  President of Corporate  Development at United Cable from
March 1987  until May 1989.  In that  position,  he was  responsible  for United
Cable's  acquisition and development of international  cable television  systems
and other businesses.

     Gene W. Schneider and Mark L. Schneider are father and son. No other family
relationships  exist  between any other  executive  officers or directors of the
Company.

OTHER MANAGEMENT

     ELLEN P. SPANGLER was appointed Vice President and Secretary of the Company
in July 1997.  Ms.  Spangler  is  responsible  for the legal  operations  of the
Company.  Prior to that time, she served as Assistant Secretary for the Company.
Prior to joining the Company in January 1991, she served as Director of Business
Affairs,  Programming,  at Tele-Communications,  Inc. ("TCI") from 1987 to 1991,
and as Acquisitions Counsel at TCI from 1984 to 1987.

     VALERIE  L.  COVER  has  served as  Controller  for the  Company  since its
formation in October  1994.  Ms. Cover is  responsible  for the  accounting  and
financial  reporting  functions of the Company.  She has served as Controller of
UIH since  joining  UIH in October  1990 and became a Vice  President  of UIH in
December 1996. Prior to joining UIH, she was Director of Corporate Accounting at
United  Artists  from May 1989  until  October  1990 and  Manager  of  Financial
Reporting at United Cable from June 1986 until May 1989.

     BRUCE MANN has  served as Sales,  Marketing  and  Programming  Director  of
Austar since joining that company in April 1995. Mr. Mann is responsible for the
development  of Austar's  marketing,  sales and  programming  techniques and has
played  a  critical  role  in  the  successful  implementation  of  these  plans
throughout  Austar's  franchise  area.  Mr.  Mann has been  involved  in various
marketing capacities of communications and entertainment  companies for the past
15  years   including   eight  years  at  Time  Warner   Cable  as  Director  of
Marketing-Brooklyn,  Queens.  From 1994 until joining Austar, Mr. Mann served as
President,  National Division, of Cross Country Wireless,  Inc., a U.S. provider
of  wireless  multi-channel  television  services.  From 1991 to 1994,  Mr. Mann
served  as Vice  President-Marketing  of  Washington  Redskins/Jack  Kent  Cooke
Stadium,  Inc.,  specializing  in sports and  entertainment  related  promotion,
advertising and marketing.

                                       58
<PAGE>

     ROBERT J. BIRRELL has served as Finance  Director of Austar  since  January
1996 and has been involved with the  development  aspects of the Austar business
since  April 1994.  Mr.  Birrell is  responsible  for the  accounting,  finance,
inventory  control,  investor  relations and legal aspects of Austar's business.
Prior to joining Austar,  Mr. Birrell has been involved with various  activities
in large scale retailing in the Australian  marketplace.  From 1985 to 1993, Mr.
Birrell served as Treasurer of Industrial  Equity Limited,  an Australian  based
investment  company,  and prior to that as Manager  Arbitrage of Macquarie  Bank
Limited.  Mr.  Birrell has over 14 years  experience in the banking and business
environment in Australia.

     JACK B.  MATTHEWS  has served as Chief  Executive  Officer of Saturn  since
joining  that  company in January  1995.  Mr.  Matthews is  responsible  for the
technical,  operating and marketing  aspects of the business.  Mr.  Matthews has
served in various  general  management  capacities  with several  U.S.  multiple
system operators including Cox Cable Communications and Continental Cablevision.
From August 1993 until joining Saturn, Mr. Matthews was the Vice President-Sales
&  Marketing  of  Arrowsmith  Technologies,  a cable  technology  company  which
develops  and installs  advanced  field  operations  management  and  operations
support  systems  for the cable  television  industry.  From  1990 to 1993,  Mr.
Matthews was the President of COMM/ONE,  an  entrepreneurial  business marketing
sophisticated video and voice processing systems. Mr. Matthews has over 14 years
of U.S. multi-channel television industry experience.

     MICHEL LAURENT has served as Managing Director of Telefenua since May 1995.
Since joining  Telefenua,  Mr.  Laurent has been  responsible  for the launch of
Telefenua's  service and rapid  increase in its customer  base.  From 1991 until
joining  Telefenua,  Mr. Laurent held various positions with Videotron  Limited,
the largest cable television and  telecommunications  company in the province of
Quebec and the second largest  multiple system  operator in Canada.  Mr. Laurent
most recently  served as Vice President of Operations for  Videotron's  Montreal
division and was responsible for technical,  operating and marketing  aspects of
the business. Mr. Laurent is fluent in French and English.

     JOSEPH  P.  GATTO,  JR.  has been the  Chief  Executive  Officer  of United
Wireless   since  May  1996.   Prior  to  May  1996,  Mr.  Gatto  was  the  Vice
President--Development   of  UAP   focusing   on   telecommunications   business
development within the Asia/Pacific  region. Prior to joining UIH, Mr. Gatto was
the Director of Sales of Plexsys  International Corp., a cellular system network
manufacturer,  where he was responsible for worldwide  sales. Mr. Gatto has also
served  in  various   sales  and  marketing   capacities   for  U.S.  and  Asian
telecommunications and technology companies.

ITEM 11.   EXECUTIVE COMPENSATION
---------------------------------

     All of the  officers of the Company are  employed by UIH,  the indirect 98%
stockholder of the Company.  The Company pays no separate  compensation to these
officers;  however, the Company and UIH Management are parties to the Management
Agreement,  pursuant to which the Company pays UIH  Management a management  fee
for certain  services  provided to the Company.  Effective  March 31, 1997,  UIH
Management assigned its rights and obligations under the Management Agreement to
UAP in the UAP Management Agreement.  UIH Management and UAP also became parties
to a similar  management  agreement (the "UIH Management  Agreement")  effective
March 31, 1997.

     Certain  members of senior  management  of Austar,  Saturn,  Telefenua  and
United  Wireless  are U.S. or Canadian  expatriates  who are employed by UIH and
have  been  seconded  to the  respective  operating  companies.  The  respective
operating companies reimburse UIH for compensation paid to these employees. Gene
W. Schneider,  the Company's Chairman,  is also the Chairman and Chief Executive
Officer of UIH and spends  only a portion of his time on matters  pertaining  to
the Company and its  operations.  The Chief  Executive  Officer of the  Company,
Michael  T.  Fries,   is  also  an  officer  and  employee  of  UIH  and  spends
approximately  80% of his time on  matters  pertaining  to the  Company  and its
operations.  J. Timothy Bryan, the Company's Chief Financial Officer, is also an
officer  and  employee  of UIH and spends  only a portion of his time on matters
pertaining to the Company and its operations. The services of Messrs. Schneider,
Fries and Bryan are  provided  to the  Company  pursuant  to the UIH  Management
Agreement.  While the Company and its  operating  companies do not reimburse UIH
directly  for a  specified  portion  of the  compensation  UIH  pays to  Messrs.
Schneider,  Fries  and  Bryan,  UAP pays a  management  fee to UIH under the UIH
Management Agreement for certain services, including those of Messrs. Schneider,
Fries and Bryan,  performed on behalf of the Company.  The following  table sets
forth the  compensation  paid during the years ended December 31, 1997, 1996 and
1995  to the  Company's  Chief  Executive  Officer  and  the  four  most  highly
compensated executive officers of the Company and the operating companies:

                                       59
<PAGE>
<TABLE>
<CAPTION>
                                                        Summary Compensation Table
                                                                                           Long-Term Compensation
                                                                                        ------------------------------
                                                         Annual Compensation               Awards            Payouts
                                            -----------------------------------------   --------------     -----------
                                                                          Other          Securities
                                                                          Annual         Underlying           LTIP        All Other
Name and Principal Position       Year        Salary       Bonus      Compensation(1)   Options (#)(2)     Payouts ($)  Compensation
------------------------------    ----      ----------   ---------    ---------------   --------------     -----------  ------------
<S>                               <C>        <C>         <C>             <C>    <C>        <C>             <C>           <C>
Gene W. Schneider(3)              1997       $369,904    $    --         $    --                --         $     --      $5,398(4)
   CHAIRMAN                       1996       $346,827    $    --         $    --           100,000         $     --      $5,398(4)
                                  1995       $324,577    $    --         $    --            40,000         $     --      $5,340(4)

Michael T. Fries(3)               1997       $245,346    $    --         $    --                --         $     --      $5,398(5)
   CHIEF EXECUTIVE OFFICER        1996       $230,577    $    --         $    --            10,000         $     --      $5,398(5)
                                  1995       $212,769    $    --         $    --            35,000         $     --      $5,340(5)

J. Timothy Bryan(3)               1997       $234,038    $    --         $    --            60,000         $     --      $5,398(7)
   CHIEF FINANCIAL OFFICER        1996(6)    $ 13,269    $    --         $    --           105,000         $     --      $   --

Donald F. Hagans(8)               1997       $230,365    $    --         $    --                --         $     --      $   --
   VICE PRESIDENT--AUSTRALIA      1996       $199,038    $35,000         $    --                --         $     --      $   --
                                  1995       $175,000    $    --         $    --            12,000         $     --      $   --

Robert G. McRann(3)(9)            1997       $225,000    $67,500         $30,015                --         $387,500      $5,398(10)
   MANAGING DIRECTOR, AUSTAR      1996       $221,423    $49,392         $29,985                --         $     --      $5,398(10)
                                  1995       $161,538    $    --         $24,279                --         $     --      $4,376(10)

John C. Porter                    1997       $218,972    $60,000         $47,142                --         $     --      $5,398(12)
   CHIEF OPERATING OFFICER        1996       $195,986    $42,402         $35,509                --         $     --      $5,398(12)
                                  1995(11)   $138,750    $    --         $25,748                --         $     --      $4,008(12)
</TABLE>

(1)  Amounts  represent  additional  cash  compensation   relating  to  overseas
     assignment.
(2)  Amounts  represent  the number of options with respect to shares of Class A
     Common Stock of UIH granted to such executives as officers and employees of
     UIH.
(3)  Amounts represent total  compensation paid by UIH for duties performed with
     respect to the Company and other operations of UIH.
(4)  Amounts consist of matching employer  contributions made by UIH under UIH's
     employee  401(k)  plan of $4,750,  $4,750  and  $4,620 for the years  ended
     December  31,  1997,  1996  and  1995,  respectively,  with  the  remainder
     consisting of term life insurance  premiums paid by UIH for Mr. Schneider's
     benefit.
(5)  Amounts consist of matching employer  contributions made by UIH under UIH's
     employee  401(k)  plan of $4,750,  $4,750  and  $4,620 for the years  ended
     December  31,  1997,  1996  and  1995,  respectively,  with  the  remainder
     consisting  of term  life  insurance  premiums  paid by UIH for Mr.  Fries'
     benefit.
(6)  Mr. Bryan became an employee of UIH on December 2, 1996.
(7)  Amount consists of a matching employer contribution made by UIH under UIH's
     employee  401(k) plan of $4,750 with the remainder  consisting of term life
     insurance  premiums  paid by UIH for Mr.  Bryan's  benefit.
(8)  Mr. Hagans resigned from UIH and the Company on January 1, 1998.
(9)  Mr. McRann  transferred to UIH's European region effective July 6, 1997 and
     resigned from UIH on January 1, 1998.
(10) Amounts consist of matching employer  contributions made by UIH under UIH's
     employee  401(k)  plan of $4,750,  $4,750  and  $3,836 for the years  ended
     December  31,  1997,  1996  and  1995,  respectively,  with  the  remainder
     consisting of term life  insurance  premiums  paid by UIH for Mr.  McRann's
     benefit.
(11) Mr. Porter became an employee of UIH on March 27, 1995.
(12) Amounts consist of matching employer  contributions made by UIH under UIH's
     employee  401(k)  plan of $4,750,  $4,750  and  $3,468 for the years  ended
     December  31,  1997,  1996  and  1995,  respectively,  with  the  remainder
     consisting of term life  insurance  premiums  paid by UIH for Mr.  Porter's
     benefit.

                                       60
<PAGE>

     Messrs.  Schneider,  Fries,  Bryan and Hagans, as employees and officers of
UIH,  have been  granted  options to acquire  stock of UIH.  Messrs.  McRann and
Porter have not been granted any options by UIH. The following  tables set forth
information  concerning  options to purchase  shares of UIH Class A Common Stock
granted  to these  executives  during  1997 as well as the value of  unexercised
options held by such  executives as of December 31, 1997. No such  executive has
exercised any options during the year ended December 31, 1997.

     The following table sets forth  information  concerning  options which were
granted by UIH to the  officers  named in the Summary  Compensation  Table above
during the year ended December 31, 1997.
<TABLE>
<CAPTION>
                                             Option Grants in Last Year(1)

                                               Individual Grants
                           --------------------------------------------------------     Potential Realizable Value
                            Number of       Percentage of                                 at Assumed Annual Rates
                           Securities       Total Options                               of Stock Price Appreciation
                           Underlying        Granted to      Exercise                        for Option Term(2)
                             Options        Employees in      Price      Expiration     -----------------------------
Name                       Granted (#)        Last Year       ($/Sh)        Date          5% ($)              10% ($)
----                       -----------    ----------------  ---------    -----------    --------              -------
<S>                           <C>            <C>            <C>            <C>           <C>                 <C>
Gene W. Schneider.....            --            --              --               --            --                  --
Michael T. Fries......            --            --              --               --            --                  --
J. Timothy Bryan......        60,000         13.8%          $10.25         06/06/07      $386,770            $980,152
Donald F. Hagans......            --            --              --               --            --                  --
Robert G. McRann......            --            --              --               --            --                  --
John C. Porter........            --            --              --               --            --                  --
</TABLE>

(1) Stock options  granted are for UIH Class A Common  Stock.  The stock options
    granted  during 1997 vest in equal  monthly  increments  over the  four-year
    period following the date of grant.  Vesting of the options granted would be
    accelerated upon a change of control of UIH as defined in UIH's stock option
    plan.
(2) The potential  gains shown are net of the option  exercise  price and do not
    include the effect of any taxes associated with exercise.  The amounts shown
    are  for  the  assumed  rates  of  appreciation   only,  do  not  constitute
    projections of future stock price  performance,  and may not  necessarily be
    realized.  Actual  gains,  if any, on stock option  exercises  depend on the
    future performance of the UIH Class A Common Stock,  continued employment of
    the optionee through the term of the options, and other factors.

     The following table sets forth information  concerning  unexercised options
held by officers  named in the Summary  Compensation  Table above as of December
31, 1997.
<TABLE>
<CAPTION>
                                Aggregated Option Exercises in Last Year and Year-End Option Values

                                                        Number of Securities                 Value of Unexercised
                                                       Underlying Unexercised                    In-the-Money
                                                       Options at Year-End (#)              Options at Year-End ($)
Name                                                  Exercisable/Unexercisable             Exercisable/ Unexercisable
----                                                  -------------------------             --------------------------
<S>                                                         <C>                                <C>
Gene W. Schneider..................................         200,000/90,000                         $300,000/$0
Michael T. Fries...................................         144,375/20,625                         $340,000/$0
J. Timothy Bryan...................................         37,500/127,500                     $41,875/$65,625
Donald F. Hagans...................................          87,500/92,000                                  --
Robert G. McRann...................................                     --                                  --
John C. Porter.....................................                     --                                  --
</TABLE>


                                       61
<PAGE>

AGREEMENTS WITH EMPLOYEES

     Many  of the  employees  serving  as  senior  management  in the  Company's
operating companies are parties to employment agreements typically with terms of
three to five years.  The  agreements  generally  provide  for a specified  base
salary  as well as a bonus set at a  specified  percentage  of the base  salary,
which bonus is based on the performance of the respective  company and employee.
The agreements  often provide for the grant of an incentive  interest equal to a
percentage  of the residual  equity  value of the  respective  company  which is
typically  defined as the fair market value of the business less net liabilities
and a reasonable return on shareholders'  investment.  The employment agreements
generally also provide for cost of living  differentials,  relocation and moving
expenses,  automobile  allowances  and  income  tax  equalization  payments,  if
necessary,  to keep the  employee's tax liability the same as it would be in the
United States.

     Of the persons identified in the Summary Compensation Table, Mr. McRann had
and Mr. Porter  continues to have such an employment  agreement  with UIH. These
employment agreements provide for an annual base salary, which is to be reviewed
annually, and eligibility for an annual bonus of up to a fixed percentage of the
base  salary,  based on the  performance  of Austar as well as the  individual's
performance.  Mr. McRann and Mr. Porter were also granted  incentive  interests,
that vest over a four-year period, equal to 0.75% and 0.5%, respectively, of the
residual  equity  value of Austar,  calculated  as (i) ten times EBITDA from the
prior 12 months,  less (ii) the sum of Austar's  net  liabilities  and an amount
equal to the total  shareholder  investment  in  Austar,  plus a 12%  compounded
annual return on such investment. In the event of a change of control of Austar,
the  residual  equity  value would be the  greater of (a) the amount  calculated
above or (b) the net gross  proceeds  to the  shareholders  from the event  that
causes  the change of  control,  less an amount  equal to the total  shareholder
investment in Austar,  plus a 12% compounded  annual return on such  investment.
Austar  reimburses UIH under the technical  assistance  agreement for employment
costs  associated  with Mr. McRann and Mr. Porter.  Mr. McRann received a payout
for  his  incentive  interest  in  July  1997  when  he  transferred  out of the
Asia/Pacific region.

COMPENSATION OF DIRECTORS

     All of the directors of the Company are also  directors or officers of UIH,
UAP and/or officers of the Company.  They receive no separate cash  compensation
for serving as directors of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Company's Board of Directors has no separate Compensation  Committee as
the Company currently does not have any employees. UIH's Compensation Committee,
none of the members of which are employees or executive officers of the Company,
determine the compensation of the Company's executive officers in their capacity
as employees of UIH. Directors or executive officers of the Company may serve on
the Boards of Directors of Austar,  Saturn,  Telefenua,  United Wireless and XYZ
Entertainment  and as part of their duties may  determine  the  compensation  of
those operating  companies'  employees.  However,  none of the employees of such
operating companies are directors of the Company.

LIMITATION OF LIABILITY AND INDEMNIFICATION

     The Company's Articles of Incorporation eliminate the personal liability of
its  directors  to the Company and its  stockholders  for  monetary  damages for
breach  of  the  directors'  fiduciary  duties  in  certain  circumstances.  The
Company's  Articles of  Incorporation  and Bylaws provide that the Company shall
indemnify its officers and directors to the fullest extent permitted by law. The
Company believes that such indemnification  covers at least negligence and gross
negligence on the part of indemnified parties.

     The Company has entered into  agreements  to indemnify  its  directors  and
officers,  in  addition to the  indemnification  provided  for in the  Company's
Articles of  Incorporation  and Bylaws.  These  agreements  require the Company,
among other  things,  to  indemnify  the  Company's  directors  and officers for
certain expenses (including attorney's fees),  judgments,  fines,  penalties and
settlement   amounts   incurred  by  any  such  person  in  certain  actions  or
proceedings, including actions by or in the right of the Company, arising out of
such person's  services as a director or officer of the Company,  any subsidiary
of the Company or any other company or  enterprise to which the person  provides
services  at the  request  of the  Company.  The  Company  believes  that  these
agreements  are necessary to attract and retain  qualified  persons as directors
and officers.

                                       62
<PAGE>

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-------------------------------------------------------------------------

     UAP owns 100% of the  13,864,941  shares of issued and  outstanding  common
stock of the Company.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
---------------------------------------------------------

RELATIONSHIP WITH UAP AND UIH

         The Company is  currently  a direct,  wholly-owned  subsidiary  of UAP,
which is an indirect,  98%-owned  subsidiary of UIH. The Company's operations to
date  have  been  funded by  capital  contributions  from UIH and UAP as well as
proceeds from the Notes, minority shareholder  contributions and subsidiary bank
debt.

     The Company and UAP are parties to the UAP Management Agreement pursuant to
which UAP agreed to  continue  to perform  certain  administrative,  accounting,
financial  reporting and other  services for the Company,  which has no separate
employees of its own. Pursuant to the UAP Management  Agreement,  the management
fee was $750,000 for the first year of such  agreement  (beginning May 1, 1996),
and it increases on each anniversary date of the UAP Management  Agreement by 8%
per year. The management fee for the first year of the UAP Management  Agreement
was  calculated  based on an estimate of staff hours to  accomplish  the various
administrative,  accounting,  financial  reporting  and  other  services  to  be
provided to the Company under the UAP Management Agreement.  Then the percentage
those  hours  constituted  of the  respective  employees'  annual work hours was
multiplied by the employment cost for such employees to UIH.

     Each of Austar,  Saturn,  Telefenua  and  United  Wireless  are  parties to
technical  assistance  agreements  with UAP,  pursuant  to which  the  operating
companies receive certain technical assistance in connection with such operating
companies' design, development,  construction,  marketing and operation of their
respective  multi-channel  television  systems.  Fees paid under these technical
assistance  agreements are a percentage (currently between 2.5% and 5%) of gross
revenues  generated by the operating  companies  plus  reimbursements  for costs
associated with the seconded employees. As of December 31, 1997, Austar, Saturn,
Telefenua  and  United  Wireless  had  accrued  fees due to parent  under  their
technical assistance  agreements of $2.6 million, $0.4 million, $2.7 million and
$0.5 million, respectively.

TAX SHARING AGREEMENT

     The Company is included as a member of UIH's  consolidated  tax return and,
is a member of the UIH consolidated  group (as long as non-UIH  ownership of the
Company does not exceed  20%).  UIH and the Company are parties to a tax sharing
agreement that defines the parties' rights and  obligations  with respect to tax
liabilities  and benefits  relating to the Company and its operations as part of
the  consolidated  group of UIH.  In  general,  UIH is  responsible  for  filing
consolidated  tax returns and paying the  associated  taxes and the Company will
reimburse  UIH for the  portion of the tax cost  relating to the Company and its
operations.


                                       63
<PAGE>
                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------

     (a)(1)  Financial Statements

     INCLUDED IN PART II OF THE REPORT:
<TABLE>
<CAPTION>
                                                                                           Page No.
         UIH AUSTRALIA/PACIFIC, INC.
                  <S>                                                                        <C>
                  Report of Independent Public Accountants................................   32
                  Report of Independent Auditors..........................................   33
                  Independent Auditors' Report............................................   34
                  Consolidated Balance Sheets as of December 31, 1997 and 1996............   35
                  Consolidated Statements of Operations For the Years Ended
                    December 31, 1997, 1996 and 1995......................................   36
                  Consolidated Statements of  Stockholder's (Deficit) Equity For the
                     Years Ended December 31, 1997, 1996 and 1995.........................   37
                  Consolidated Statements of Cash Flows For the Years Ended
                    December 31, 1997, 1996 and 1995......................................   38
                  Notes to Consolidated Financial Statements..............................   39
</TABLE>
     (a)(2)  Financial Statement Schedules

     INCLUDED IN PART IV OF THE REPORT:

         (i)  Financial Statement Schedules required to be filed
<TABLE>
<CAPTION>
         UIH AUSTRALIA/PACIFIC, INC.
                  <S>                                                                        <C>
                  Report of Independent Public Accountants................................   68
                  Schedule I - Condensed Financial Information of the Registrant
                    (Parent only).........................................................   69
</TABLE>
         (ii)  Separate Financial Statements and Related Schedules
<TABLE>
<CAPTION>
         CTV PTY LIMITED
                 <S>                                                                         <C>
                  Independent Audit Report................................................   72
                  Balance Sheets as of December 31, 1994 and 1995.........................   73
                  Profit and Loss Accounts for the Period Ended
                    December 31, 1994 and the Year Ended December 31, 1995................   74
                  Statements of Cash Flows for the Period Ended
                    December 31, 1994 and the Year Ended December 31, 1995................   75
                  Notes to the Financial Statements.......................................   76
</TABLE>

<TABLE>
<CAPTION>
         STV PTY LIMITED
                  <S>                                                                        <C>
                  Independent Audit Report................................................   87
                  Balance Sheets as of December 31, 1994 and 1995.........................   88
                  Profit and Loss Accounts for the Period Ended
                    December 31, 1994 and the Year Ended December 31, 1995................   89
                  Statements of Cash Flows for the Period Ended
                    December 31, 1994 and the Year Ended December 31, 1995................   90
                  Notes to the Financial Statements.......................................   91
</TABLE>


                                       64
<PAGE>
<TABLE>
<CAPTION>
         XYZ ENTERTAINMENT PTY LIMITED
                  <S>                                                                       <C>
                  Independent Auditors' Report............................................  101
                  Consolidated Statements of Operations for the Period from
                    October 17, 1994 (date of inception) to  December 31, 1994 and the
                    Year Ended December 31, 1995..........................................  102
                  Consolidated Balance Sheets as of December 31, 1995 and 1994............  103
                  Consolidated  Statements of  Shareholders'  Deficiency for the
                    Period from October 17, 1994 (date of inception) to December
                    31, 1994 and the Year Ended December 31, 1995.........................  104
                  Consolidated  Statements  of Cash  Flows for the  Period  from
                    October 17, 1994 (date of  inception)  to December  31, 1994
                    and the Year Ended December 31, 1995..................................  105
                  Notes to the Consolidated Financial Statements..........................  106
</TABLE>

<TABLE>
<CAPTION>
          SATURN COMMUNICATIONS LIMITED (FORMERLY KNOWN AS KIWI CABLE COMPANY
          LIMITED)
                  <S>                                                                       <C>
                  Auditors' Report........................................................  119
                  Statement of Financial Performance for the Years Ended
                    December 31, 1994 and 1995............................................  120
                  Statement of Movements in Equity for the Years Ended
                    December 31, 1994 and 1995............................................  121
                  Statement of Financial Position as of December 31, 1994 and 1995........  122
                  Statement of Cash Flows for the Years Ended December 31, 1994
                    and 1995..............................................................  123
                  Notes to and Forming Part of the Financial Statements...................  124
</TABLE>
     (a)(3)  Exhibits

         3.1   Articles of Incorporation of the Registrant, as amended. (1)

         3.2   By-Laws of the Registrant. (1)

         4.1   The  Indenture  dated as of May 14, 1996,  between the Issuer and
               American Bank National Association. (1)

         4.2   The Indenture dated as of September 23, 1997,  between the Issuer
               and Firstar Bank of Minnesota, N.A. (2)

         4.3   Warrant  Agreement  dated as of November  15,  1997,  between the
               Issuer and Firstar Bank of Minnesota, N.A. (1)

         4.4   The  Articles of  Incorporation,  as amended,  and By-Laws of the
               Registrant are included as Exhibits 3.1 and 3.2. (1)

         10.1  Purchase   Agreement  dated  May  8,  1996,   among  the  Issuer,
               Donaldson,  Lufkin & Jenrette Securities  Corporation ("DLJ") and
               Merrill  Lynch  & Co.,  Merrill  Lynch,  Pierce  Fenner  &  Smith
               Incorporated ("Merrill Lynch"). (1)

         10.2  Purchase  Agreement dated September 16, 1997,  between the Issuer
               and DLJ. (2)

         10.3  Memorandum   of  Variation   dated   December  21,  1995  to  the
               Subscription   and   Securityholders   Agreement,   among  United
               International  Holdings,  Inc.,  ("UIH"),  UIH  Australia,   Inc.
               ("UIHA"),  Salstel Media Holdings Pty Limited ("SMH"),  Australis
               Media Limited ("Australis") and CTV Pty Limited ("CTV"). (1)

         10.4  Memorandum   of  Variation   dated   December  21,  1995  to  the
               Subscription  and  Securityholders  Agreement  dated  October 12,
               1994,  among UIH, UIH  Australia  II, Inc.  ("UIHA II"),  Salstel
               Media  Investment  Pty  Limited  ("SMI"),  Australis  and STV Pty
               Limited ("STV"). (1)

         10.5  Memorandum   of  Variation   dated  April  4,  1996  to  the  CTV
               Securityholders  Agreement,  among UIH ,UIHA, Australis,  SMH and
               CTV. (1)

         10.6  Memorandum   of  Variation   dated  April  4,  1996  to  the  STV
               Securityholders Agreement, among UIH, UIHA II, Australis, SMI and
               STV. (1)

                                       65
<PAGE>

         10.7  Agreement dated December 21, 1995, among UIH, UIHA and SMH. (1)

         10.8  Amending  Agreement  dated  April 4, 1996 to CTV  Securityholders
               Agreement, among UIH, UIHA and SMH. (1)

         10.9  Agreement  dated  December 21, 1995,  among UIH, UIHA II and SMI.
               (1)

         10.10 Amending Agreement dated April 4, 1996 to the STV Securityholders
               Agreement, among UIH, UIHA II and SMI. (1)

         10.11 Subscription and Investment  Agreement dated July 21, 1997, among
               SaskTel Holdings (New Zealand),  Inc.  ("SaskTel"),  Saskatchewan
               Telecommunications Holding Corporation, UIH New Zealand Holdings,
               Inc. ("UIHNZ"), UIH Asia/Pacific Communications, Inc. ("UAP") and
               Saturn Communications Limited ("Saturn"), as amended. (2)

         10.12 Shareholders  Agreement dated July 23, 1997, among SaskTel, UIHNZ
               and Saturn. (2)

         10.13 XYZ Shareholders Agreement dated September 6, 1995, among Century
               United   Programming   Ventures  Pty  Limited  ("CUPV"),   Foxtel
               Management Pty Limited ("Foxtel"),  XYZ Entertainment Pty Limited
               ("XYZ"),  Century United  Programming  Ventures  ("CPVC") and the
               Issuer. (1)

         10.14 Shareholders   Deed   dated   June  30,   1995,   among   Century
               Communications Corporation, CPVC, UIH, the Issuer and CUPV. (1)

         10.15 UIH-SFCC   L.P.   Amended  and  Restated   Agreement  of  Limited
               Partnership  dated January 6, 1995,  among  UIH-SFCC Inc. and the
               limited partners named therein. (1)

         10.16 Master  Agreement dated January 11, 1995,  between  UIH-SFCC L.P.
               and the Societe  Francaise  des  Communications  et du Cable S.A.
               ("Societe"). (1)

         10.17 Shareholder's  Agreement  dated January 11, 1995,  among UIH-SFCC
               L.P. and the shareholders named therein. (1)

         10.18 A$200,000,000  Syndicated Senior Secured Debt Facility  Agreement
               dated July 31,  1997,  among  Austar  Entertainment  Pty  Limited
               ("Austar"),  Chase Securities  Australia Limited,  the Guarantors
               named herein and the financial institutions named herein. (3)

         10.19 Franchise Agreement dated October 12, 1994, between Australis and
               CTV. (1)

         10.20 Agreement dated June 19, 1996,  among  Australis,  the Issuer and
               Galaxy  Communications  Pty Limited  ("Galaxy") re: CTV Franchise
               Agreement. (1)

         10.21 Franchise Agreement dated October 12, 1994, between Australis and
               STV. (1)

         10.22 Agreement dated June 19, 1996,  among  Australis,  the Issuer and
               Galaxy re: STV Franchise Agreement. (1)

         10.23 Channel Supply Agreement dated June 30, 1995, among XYZ, CUPV and
               East Coast Pay Television Pty Limited ("ECT"). (1)

         10.24 Technical  Assistance  Agreement dated October 12, 1994,  between
               CTV and United International Management, Inc. ("UIMI"). (1)

         10.25 Technical  Assistance  Agreement dated October 12, 1994,  between
               STV and UIMI. (1)

                                       66
<PAGE>

         10.26 Technical Assistance Agreement dated July 8, 1994, between Saturn
               and UIH. (1)

         10.27 Amendment No. 1 to Technical  Assistance Agreement dated July 23,
               1997, between Saturn and UAP. (2)

         10.28 Technical  Assistance  Agreement  dated  July 23,  1997,  between
               SaskTel and Saturn. (2)

         10.29 Technical  Assistance  Agreement dated January 11, 1995,  between
               Telefenua S.A. and Societe. (1)

         10.30 Assignment  of Rights and  Delegation  of Duties under  Technical
               Assistance  Agreement dated January 11, 1995, between Societe and
               UIMI. (1)

         10.31 Management  Agreement dated May 1, 1996,  between UIH Management,
               Inc. and the Registrant. (1)

         10.32 Tax Allocation  Agreement  dated May 8, 1996,  among UIH, UAP and
               the Issuer. (1)

         12.1  Statement re:  Ratio of Earnings to Fixed Charges.

         21.1  List of Subsidiaries.

         23.1  Consent of Independent Public  Accountants--Arthur  Andersen  LLP
               (UIH Australia/Pacific, Inc.).

         23.2  Consent of Independent Public  Accountants--Arthur  Andersen (CTV
               Pty Limited).

         23.3  Consent of Independent Public  Accountants--Arthur  Andersen (STV
               Pty Limited).

         23.4  Consent  of   Independent  Public  Accountants--Arthur   Andersen
               (Saturn  Communications  Limited  (formerly  Kiwi  Cable  Company
               Limited)).

         23.5  Consent of Independent  Auditors--Deloitte  Touche  Tohmatsu (XYZ
               Entertainment Pty Limited).

         23.6  Consent of  Independent  Auditors--Coopers  & Lybrand  (Telefenua
               S.A.).

         24.1  Power of Attorney.

         27.1  Financial Data Schedule.

-----------------
(1)  Incorporated by reference from the Company's Registration Statement on Form
     S-4 (SEC File No. 333-05017) filed on May 31, 1996.
(2)  Incorporated by reference from the Company's Registration Statement on Form
     S-4 (SEC File No. 333-39707) filed on November 6, 1997.
(3)  Incorporated   by  reference   from   Amendment  No.  1  to  the  Company's
     Registration  Statement  on Form S-4  (SEC  File  No.  333-39707)  filed on
     December 5, 1997.


   (b) Reports on Form 8-K filed during the quarter:

       None.
                                       67
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To UIH Australia/Pacific, Inc.:

       We  have  audited,   in  accordance  with  generally   accepted  auditing
standards, the consolidated financial statements of UIH Australia/Pacific,  Inc.
included  in this Form 10-K and have issued our report  thereon  dated March 27,
1998.  Our audit was made for the  purpose  of  forming  an opinion on the basic
consolidated  financial  statements taken as a whole. The following  schedule is
the responsibility of the Company's  management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements as indicated in our report with respect  thereto and, in our opinion,
based on our audit  and the  reports  of other  auditors,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic consolidated financial statements taken as a whole.



                                        ARTHUR ANDERSEN LLP




Denver, Colorado
March 27, 1998




                                       68
<PAGE>
<TABLE>
<CAPTION>
                                               UIH AUSTRALIA/PACIFIC, INC.
                                                       PARENT ONLY
                                                        SCHEDULE 1
                                    Condensed Financial Information of the Registrant
                                (Stated in thousands, except share and per share amounts)


                                                                                              December 31,
                                                                                          ---------------------
                                                                                            1997         1996
                                                                                          --------     --------
<S>                                                                                       <C>          <C>
ASSETS
Current assets
   Cash and cash equivalents..........................................................    $    955     $ 10,810
   Short-term investments.............................................................      12,325       18,640
   Related party receivables..........................................................         738           --
   Other current assets...............................................................         195          349
                                                                                          --------     --------
       Total current assets...........................................................      14,213       29,799

Investments in and advances to affiliated companies, accounted for under the equity
   method.............................................................................     122,247      209,493
Deferred financing costs, net of accumulated amortization of $624 and $203,
   respectively.......................................................................       9,757        9,805
Other non-current assets..............................................................          77        2,047
                                                                                          --------     --------
       Total assets...................................................................    $146,294     $251,144
                                                                                          ========     ========

LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities
   Related party payables.............................................................    $  2,672     $    645
   Accounts payable and accrued liabilities...........................................         195           --
   Accrued funding obligation.........................................................         406        1,270
                                                                                          --------     --------
       Total current liabilities......................................................       3,273        1,915

Senior discount notes.................................................................     309,123      245,182
                                                                                          --------     --------
       Total liabilities..............................................................     312,396      247,097
                                                                                          --------     --------

Stockholder's (deficit) equity:
   Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and
     outstanding......................................................................          --           --
   Common stock, $0.01 par value, 30,000,000 shares authorized, 13,864,941 and
     13,864,941 shares issued and outstanding, respectively...........................         139          139
   Additional paid-in capital.........................................................     137,672      112,346
   Unrealized loss on investment......................................................          --       (3,412)
   Cumulative translation adjustments.................................................     (28,964)       1,867
   Accumulated deficit................................................................    (274,949)    (106,893)
                                                                                          --------     --------
       Total stockholder's (deficit) equity...........................................    (166,102)       4,047
                                                                                          --------     --------
       Total liabilities and stockholder's (deficit) equity...........................    $146,294     $251,144
                                                                                          ========     ========
</TABLE>
                                                         69
<PAGE>
<TABLE>
<CAPTION>
                                               UIH AUSTRALIA/PACIFIC, INC.
                                                       PARENT ONLY
                                                        SCHEDULE 1
                               Condensed Information as to the Operations of the Registrant
                                                  (Stated in thousands)


                                                                                                     For the Years Ended
                                                                                                         December 31,
                                                                                        -------------------------------------------
                                                                                           1997             1996             1995
                                                                                        ---------         --------         --------
<S>                                                                                     <C>               <C>              <C>
Corporate general and administrative expense, including management
   fees to related party of $2,739, $750 and $918, respectively .................       $  (3,189)        $ (1,173)        $   (918)
                                                                                        ---------         --------         --------
Net operating loss ..............................................................          (3,189)          (1,173)            (918)

Equity in losses of affiliated companies ........................................        (126,836)         (69,989)         (20,447)
Gain on sale of investment in affiliated company ................................              --               --            4,132
Interest income .................................................................             643            3,505               --
Interest expense ................................................................         (38,115)         (20,270)              --
Other expense, net ..............................................................            (559)             (59)              --
                                                                                        ---------         --------         --------
     Net loss ...................................................................       $(168,056)        $(87,986)        $(17,233)
                                                                                        =========         ========         ========

</TABLE>







                                                          70

<PAGE>
<TABLE>
<CAPTION>
                                               UIH AUSTRALIA/PACIFIC, INC.
                                                       PARENT ONLY
                                                        SCHEDULE 1
                               Condensed Information as to the Cash Flows of the Registrant
                                                  (Stated in thousands)
                                                                                           For the Years Ended
                                                                                               December 31,
                                                                                  -----------------------------------
                                                                                     1997         1996         1995
                                                                                  ---------    ---------    ---------
<S>                                                                               <C>          <C>          <C>
Cash flows from operating activities:
Net loss.....................................................................     $(168,056)   $(87,986)    $(17,233)
Adjustments to reconcile net loss to net cash flows from operating activities:
   Equity in losses of affiliated companies..................................       126,836      69,989       20,447
   Gain on sale of investment in affiliated company..........................            --          --       (4,132)
   Accretion of interest on senior notes and amortization of deferred
     financing costs.........................................................        38,115      20,270           --
   Decrease (increase) in related party receivables and other assets.........         1,768      (2,112)        (285)
   Increase in accounts payable, accrued liabilities and other...............         4,159          70        1,834
                                                                                  ---------    --------     --------
Net cash flows provided by operating activities..............................         2,822         231          631
                                                                                  ---------    --------     --------

Cash flows from investing activities:
Purchase of short-term investments...........................................       (15,988)   (199,242)          --
Sale of short-term investments...............................................        22,303     180,602           --
Proceeds from sale of investment in affiliated company.......................            --          --        4,132
Investments in and advances to affiliated companies and other
   investments...............................................................       (61,024)   (171,553)     (43,363)
                                                                                  ---------    --------     --------
Net cash flows used in investing activities..................................       (54,709)   (190,193)     (39,231)
                                                                                  ---------    --------     --------

Cash flows from financing activities:
Capital contributions from parent............................................         7,863      10,664       38,600
Proceeds from offering of senior discount notes..............................        29,925     225,115           --
Borrowings on related party payable to parent................................         4,999          --           --
Payment of bridge loan payable to parent.....................................            --     (25,000)          --
Deferred financing costs.....................................................          (755)    (10,007)          --
                                                                                  ---------    --------     --------
Net cash flows provided by financing activities..............................        42,032     200,772       38,600
                                                                                  ---------    --------     --------
(Decrease) increase in cash and cash equivalents.............................        (9,855)     10,810           --
Cash and cash equivalents, beginning of period...............................        10,810          --           --
                                                                                  ---------    --------     --------
Cash and cash equivalents, end of period.....................................     $     955    $ 10,810     $     --
                                                                                  =========    ========     ========
Non-cash investing and financing activities:
   Gain on issuance of shares by Saturn......................................     $   5,985    $     --     $     --
                                                                                  =========    ========     ========
   Non-cash issuance of warrants to purchase common stock....................     $   3,678    $     --     $     --
                                                                                  =========    ========     ========
   Non-cash capital contribution from parent.................................     $   7,800    $ 25,000     $     --
                                                                                  =========    ========     ========
   Non-cash stock issuance for purchase of 50% interest in Saturn............     $      --    $  7,800     $     --
                                                                                  =========    ========     ========
   Non-cash capital contribution of preferred stock from parent utilized in
     purchase of additional 40% interest in Austar...........................     $      --    $     --     $ 29,840
                                                                                  =========    ========     ========
   Increase in unrealized loss of investment.................................     $    (985)   $ (3,412)    $     --
                                                                                  =========    ========     ========
</TABLE>


                                                       71

<PAGE>

                            INDEPENDENT AUDIT REPORT

To the Board of Directors of
   CTV Pty Limited

     We have audited the accompanying  consolidated  financial statements of CTV
Pty Limited and its  subsidiaries  for the period ended 31 December 1994 and the
year ended 31 December 1995.  These  consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on those consolidated financial statements based on our audits.

     We conducted our audits in accordance  with Australian Auditing  Standards,
which do not differ  substantially from generally accepted auditing standards in
the United States of America.  Those standards  require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free from material  misstatements.  An audit includes  examining,  on a test
basis,  evidence supporting amounts and disclosures in the financial statements.
An audit also includes assessing the accounting  principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits  provide a reasonable basis
for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects the consolidated  financial position of
CTV Pty Limited as of 31 December 1994 and 1995, and the consolidated results of
the group's operations and consolidated cash flows for the periods then ended in
accordance with Australian Accounting Standards.

     There are certain differences between Australian  Accounting  Standards and
those  generally  accepted in the United States of America.  Application  of the
generally accepted  accounting  principles in the United States of America would
not result in material differences to these consolidated financial statements.



Arthur Andersen
Chartered Accountants

Sydney, Australia
29 March 1996


                                       72
<PAGE>

<TABLE>
<CAPTION>
                                   CTV PTY LIMITED AND ITS SUBSIDIARIES
                                              BALANCE SHEETS
                                          AS AT 31 DECEMBER 1995

                                                                                  Economic Entity
                                                                            ------------------------------
                                                                                    December 31,
                                                                            ------------------------------
                                                                  Note        1994                  1995
                                                                            --------              --------
                                                                               $A                    $A
<S>                                                                <C>    <C>                     <C>
Current assets
     Cash......................................................            19,371,145              9,712,936
     Receivables ..............................................    3          718,939              4,538,627
     Inventory.................................................                    --                679,628
     Other.....................................................    4           25,582                830,133
                                                                          -----------            -----------
                                                                           20,115,666             15,761,324
                                                                          -----------            -----------
Non-current assets
     Investments ..............................................    5                2                      2
     Property, plant and equipment ............................    6        2,746,809             17,955,579
     Intangibles...............................................    7        5,021,630              7,906,674
                                                                          -----------            -----------
          Total non-current assets ............................             7,768,441             25,862,255
                                                                          -----------            -----------
               Total assets ...................................            27,884,107             41,623,579
                                                                          -----------            -----------
Current liabilities
     Creditors and borrowings .................................    8        2,747,734             15,477,769
        Provisions ............................................                    --                     --
                                                                          -----------            -----------
          Total current liabilities ...........................             2,747,734             15,477,769
                                                                          -----------            -----------
Non-current liabilities
     Creditors and borrowings .................................     9          36,165                684,945
     Provisions................................................    10              --                156,267
                                                                          -----------            -----------
          Total non-current liabilities .......................                36,165                841,212
                                                                          -----------            -----------
               Total liabilities ..............................             2,783,899             16,318,981
                                                                          -----------            -----------
Net assets.....................................................            25,100,208             25,304,598
                                                                          ===========            ===========
Shareholders' equity
     Share capital ............................................    11          42,729                 42,729
     Reserves .................................................    13       5,116,536              5,116,536
     Retained profits/(accumulated losses) ....................                   206             (5,795,404)
                                                                          -----------            -----------
                                                                            5,159,471               (636,139)
     Convertible debentures ...................................    12      19,940,737             25,940,737
                                                                          -----------            -----------
               Total shareholders' equity .....................            25,100,208             25,304,598
                                                                          ===========            ===========




                       The accompanying notes form an integral part of this balance sheet.
</TABLE>
                                                    73

<PAGE>

                                   CTV PTY LIMITED AND ITS SUBSIDIARIES
                                         PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>

                                                                            Economic Entity
                                                                 ------------------------------------
                                                                 Period Ended            Year Ended
                                                                 December 31,            December 31,
                                                                 ------------            ------------
                                                                     1994                    1995
                                                                 ------------            ------------
                                                                      $A                      $A
<S>                                                               <C>                     <C>
Revenue:
     Service..............................................               --                  579,690
                                                                  ---------               ----------
                                                                         --                  579,690
                                                                  ---------               ----------
Expenses:
     General and administration...........................          321,494                6,406,782
     Depreciation and amortization........................            4,055                1,491,456
     Management fees......................................               --                   29,651
                                                                  ---------               ----------
                                                                    325,549                7,927,889
                                                                  ---------               ----------
Operating loss............................................         (325,549)              (7,348,199)
                                                                  ---------               ----------
Non-operating income (expense)
     Interest income......................................          327,355                1,227,029
     Interest expense and costs of finance................           (1,600)                  (2,180)
     Other, net foreign exchange gains--non-speculative
        trading...........................................               --                  327,740
                                                                  ---------               ----------
                                                                    325,755                1,552,589
                                                                  ---------               ----------
Net profit (loss) before tax..............................              206               (5,795,610)
Income tax attributable to net profit/(loss)..............               --                       --
                                                                  ---------               ----------
Net profit/(loss).........................................              206               (5,795,610)
                                                                  ---------               ----------
Retained profits/(accumulated losses) at beginning of
   period.................................................               --                      206
                                                                  ---------               ----------
Retained profits/(accumulated losses) at end of period....              206               (5,795,404)
                                                                  =========               ==========
</TABLE>




  The accompanying notes form an integral part of this profit and loss account.

                                       74


<PAGE>
<TABLE>
<CAPTION>
                                   CTV PTY LIMITED AND ITS SUBSIDIARIES
                                         STATEMENTS OF CASH FLOWS

                                                                            Economic Entity
                                                              -------------------------------------------
                                                              Period Ended                    Year Ended
                                                              December 31,                   December 31,
                                                              ------------                   ------------
                                                    Note          1994                           1995
                                                              ------------                   ------------
                                                                  $A                              $A
<S>                                                           <C>                             <C>
Cash flows from operating activities
     Receipts from customers....................                       --                        522,211
     Payments to suppliers and employees........                 (297,332)                    (3,973,333)
     Interest received..........................                  327,355                      1,227,029
     Interest and other costs of finance paid...                   (1,600)                        (2,180)
                                                               ----------                     ----------
     Net operating cash flows...................                   28,423                     (2,226,273)
                                                               ----------                     ----------
Cash flows from investing activities
     Purchase of subsidiaries, net of cash
        acquired................................                      (12)                           (10)
     Payments for plant and equipment...........                  (55,871)                   (15,326,279)
     Payments for MDS and broadcast
        licenses................................               (5,021,630)                    (3,437,458)
     Decrease in inventory net of payables......                       --                             --
     Loans granted..............................                 (718,939)                    (3,768,962)
     Payments for investments...................                       --                             (2)
                                                               ----------                    -----------
     Net investing cash flows...................               (5,796,452)                   (22,532,711)
                                                               ----------                    -----------
Cash flows from financing activities
     Proceeds from share issues.................                5,159,265                             --
     Proceeds from issue of convertible
        debentures..............................               19,940,737                      6,000,000
     Proceeds from intercompany loans...........                       --                             --
     Payment on intercompany loans..............                       --                             --
     Proceeds from short term loans.............                   39,781                      8,818,202
     Proceeds from lease financing..............                       --                             --
     Repayment of finance lease principal.......                     (609)                       (45,167)
                                                               ----------                    -----------
     Net financing cash flows...................               25,139,174                     14,773,035
                                                               ----------                    -----------
Net increase/(decrease) in cash held............               19,371,145                     (9,985,949)
Cash at beginning of period.....................                       --                     19,371,145
Effect of different exchange rate...............                       --                        327,740
                                                               ----------                    -----------
Cash at the end of the period................... 8, 16         19,371,145                      9,712,936
                                                               ==========                    ===========



  The accompanying notes form an integral part of this statement of cash flows.
</TABLE>


                                       75
<PAGE>

                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                        NOTES TO THE FINANCIAL STATEMENTS

NOTE 1.   STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF ACCOUNTING

     The  financial  statements  have  been  prepared  in  accordance  with  the
historical cost convention  using the Australian  dollar ("$A") as the reporting
currency and using the accounting  policies  described  below.  They do not take
account of changes in either the  general  purchasing  power of the dollar or in
the prices of specific assets.

     The Company was  incorporated on 21 April 1994. The  comparative  financial
statements  have been  prepared for the period 21 April 1994 to 31 December 1994
and for the year ended 31 December 1995.

PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements include the financial statements of
the parent entity,  CTV Pty Limited,  and its  subsidiaries.  The term "Economic
Entity" used throughout  these financial  statements means the parent entity and
its subsidiaries.

FOREIGN CURRENCY TRANSACTIONS

     Transactions  in foreign  currencies are converted at the exchange rates in
effect at the date of each transaction.

     Amounts  payable to or by the economic  entity in foreign  currencies  have
been translated  into Australian  currency at the exchange rates current at year
end.

     Exchange  differences  relating to monetary items are brought to account in
the profit and loss account in the period when the  exchange  rates  change,  as
exchange gains or losses.

INCOME TAX

     The economic entity follows the policy of tax-effect accounting. The income
tax  expense in the profit and loss  account  represents  the tax on the pre-tax
accounting  profit  adjusted  for income and  expenses  never to be  assessed or
allowed for taxation  purposes.  The provision for deferred income tax liability
and the  future  income tax  benefit  represent  the tax  effect of  differences
between income and expense items recognized in different  accounting periods for
book and tax purposes,  calculated  at the tax rates  expected to apply when the
differences reverse.

     The benefit  arising from  estimated  carry forward tax losses has not been
recorded in the future income tax benefit account as realization of such benefit
is considered not to be virtually certain.

LEASED ASSETS

     Assets  of  the  economic   entity   acquired   under  finance  leases  are
capitalized.  The initial  amount of the leased  asset and  corresponding  lease
liability are recorded at the present value of minimum  lease  payments.  Leased
assets are amortized over the life of the relevant lease.  Lease liabilities are
reduced by the principal component of lease payments.  The interest component is
charged against operating profit.

     Operating  leases are not  capitalized  and  rental  payments  are  charged
against operating profit in the period in which they are incurred.

INVENTORY

     Inventory consists of home subscriber  equipment including cable,  antennae
and decoders and is valued at cost.

                                       76

<PAGE>

                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)

PROPERTY, PLANT AND EQUIPMENT

     Land and  buildings  are valued at cost.  The carrying  amount of property,
plant and  equipment is reviewed  annually by directors to ensure that it is not
in excess of the recoverable amount from the assets.

     Property, plant and equipment,  excluding freehold land, are depreciated or
amortized  at rates based upon their  expected  useful  lives using the straight
line method.

            Leasehold improvements.................................    6 years
            Computer equipment.....................................    3 years
            Motor vehicles.........................................    5 years
            Furniture and fittings.................................   10 years

INTANGIBLES

     The  acquisition  of MDS licenses has been brought to account at cost.  The
cost to acquire these licenses,  acquired for a 5 year period, will be amortized
over the remaining license period upon commencement of broadcasting  operations.
They are renewable every 5 years.

     The  licenses  have been issued for a term of five years,  with the license
fee  payable  annually  in  advance.  The  license  fee is payable  to  Spectrum
Management Agency, an agent of the Australian Federal Government.

RECOVERABLE AMOUNTS OF NON-CURRENT ASSETS

     The  carrying  amount  of all  non-current  assets  are  reviewed  at least
periodically  whenever events and  circumstances  indicate the carrying value of
the assets may exceed their recoverable  amount. The recoverable  amounts of all
non-current assets have been determined using net cash flows which have not been
discounted to their present values.

PROVISION FOR ANNUAL LEAVE

     Provision has been made in the financial  statements for benefits  accruing
to employees in relation to such matters as annual leave.

REVENUE RECOGNITION

     Monthly  service  revenues  are  recognized  as  revenue  in the period the
related  services  are  provided  to the  subscribers.  The  Company  recognizes
installation  revenues to the extent of direct  selling  costs in the period the
installation  occurs.  To the extent  installation  fees exceed  direct  selling
costs,  the excess would be deferred  and  amortized  over the average  contract
period.   Financial   instruments  that  potentially   subject  the  Company  to
concentrations   of  credit  risk  consist   primarily  of  trade   receivables.
Concentrations of credit risk with respect to trade  receivables are limited due
to the large number of customers comprising the Company's customer base.

                                       77

<PAGE>
                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


NOTE 2.   INCOME TAX

     (a) Non-current deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>

                                                                                     Economic Entity
                                                                         ---------------------------------------
                                                                         Period Ended               Year Ended
                                                                         December 31,               December 31,
                                                                         -------------              ------------
                                                                             1994                       1995
                                                                         -------------              ------------
                                                                              $A                         $A

<S>                                                                        <C>                        <C>
Interest receivable and prepaids....................................       (14,367)                    (339,527)
                                                                           -------                   ----------
   Total non-current deferred tax liability.........................       (14,367)                    (339,527)
Net operating loss carryforward.....................................            --                    2,061,456
                                                                           -------                   ----------
   Total non-current deferred tax asset.............................            --                    2,061,456
                                                                           -------                   ----------
Net non-current deferred tax asset before valuation allowance.......       (14,367)                   1,721,929
Valuation allowance.................................................            --                   (1,721,929)
                                                                           -------                   ----------
Net non-current deferred tax asset (liability)......................       (14,367)                          --
                                                                           =======                   ==========
</TABLE>
     Net operating loss carryforwards have an unlimited  carryforward period for
Australian tax purposes.

     (b) The  difference  between  income tax expense  provided in the financial
         statements  and the  prima facie  income  tax  expense is reconciled as
         follows:
<TABLE>
<CAPTION>
                                                                                     Economic Entity
                                                                         ---------------------------------------
                                                                         Period Ended               Year Ended
                                                                         December 31,               December 31,
                                                                         ------------               ------------
                                                                             1994                       1995
                                                                         ------------               ------------
                                                                              $A                         $A

<S>                                                                         <C>                <C>
Net profit/(loss)..................................................            206                   (5,795,610)

Prima facie tax thereon @ 36%......................................             74                   (2,086,420)
Tax effect of permanent and other differences:
    --Timing differences...........................................        (14,367)                    (339,527)
    --Amortization of licenses.....................................             --                      198,873
    --Entertainment non-deductible.................................         14,293                      165,618
    --Effect of tax losses not brought to account..................             --                    2,061,456
                                                                           -------                   ----------
Total income tax attributable to net profit/(loss).................             --                           --
                                                                           =======                   ==========
</TABLE>
     (c) Benefit of income tax losses not brought to account

     As at 31 December 1995, the parent entity has unconfirmed unrecouped income
tax losses of  $5,795,404  available to offset  against  future  years'  taxable
income.  The  benefit  of these  losses of  $2,061,456  has not been  brought to
account as  realization  is not  virtually  certain.  The  benefit  will only be
obtained if:

          (i) the company derives future assessable income of a nature and of an
              amount  sufficient to  enable the benefits from the deductions for
              the losses to be realized;

         (ii) the  company   continues  to  comply  with   the   conditions  for
              deductibility imposed by the law;

        (iii) no changes in tax  legislation  adversely  affect  the  company in
              realizing the benefit from the deductions for the losses; and

         (iv) any  change in the  business  or control of the  company  does not
              affect the ability to utilize the available losses.

                                       78

<PAGE>

                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


NOTE 3.   RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>
                                                                                   Economic Entity
                                                                              -------------------------
                                                                                1994            1995
                                                                              --------        --------
                                                                                 $A              $A
<S>                                                                           <C>            <C>
Trade debtors..........................................................              --          57,479
Less: provision for doubtful debts.....................................              --          (5,792)
                                                                              ---------      ----------
                                                                                     --          51,687
Related parties:
    United International Holdings Inc..................................          95,865         140,217
    Other..............................................................             --          712,554
  Related body corporate--STV Pty Ltd..................................         623,074       3,627,044
Other persons..........................................................              --           7,125
                                                                              ---------      ----------
                                                                                718,939       4,538,627
                                                                              =========      ==========
NOTE 4.   OTHER ASSETS (CURRENT):

Prepaid expenses.......................................................          10,465         787,916
Security deposits......................................................          15,117          42,217
                                                                              ---------      ----------
Total other assets (current)...........................................          25,582         830,133
                                                                              =========      ==========

NOTE 5.   INVESTMENTS (NON-CURRENT):

Investments in associated companies (Note 18)..........................               2               2
                                                                              =========      ==========
NOTE 6.   PROPERTY, PLANT AND EQUIPMENT:

Leasehold improvements:
    At cost............................................................              --         151,200
    Accumulated depreciation...........................................              --          (8,705)
                                                                              ---------      ----------
Total leasehold improvements, net......................................              --         142,495
                                                                              ---------      ----------
Plant and equipment:
    At cost............................................................          55,881      15,737,143
    Accumulated depreciation...........................................          (4,055)       (872,818)
                                                                              ---------      ----------
Total plant and equipment, net.........................................          51,826      14,864,325
                                                                              ---------      ----------
Plant and equipment under lease:
    At capitalized cost................................................          44,506         912,820
    Accumulated depreciation...........................................              --         (61,563)
                                                                              ---------      ----------
Total leased plant and equipment, net..................................          44,506         851,257
                                                                              ---------      ----------
Capitalized network construction expenditures:
    At cost............................................................       2,650,477       2,097,502
    Accumulated amortization...........................................              --              --
                                                                              ---------      ----------
Total capitalized development expenditures, net:.......................       2,650,477       2,097,502
                                                                              ---------      ----------
Total property, plant and equipment, net:..............................       2,746,809      17,955,579
                                                                              =========      ==========
</TABLE>
                                       79
<PAGE>

                                   CTV PTY LIMITED AND ITS SUBSIDIARIES
                              NOTES TO THE FINANCIAL STATEMENTS--(Continued)

NOTE 7.   INTANGIBLE ASSETS (NON-CURRENT):
<TABLE>
<CAPTION>
                                                                                 Economic Entity
                                                                           ----------------------------
                                                                             1994                1995
                                                                           --------            --------
                                                                               $A               $A
<S>                                                                       <C>               <C>
MDS licenses:
    At cost.............................................................     5,018,215        8,196,618
    Accumulated amortization............................................            --         (544,093)
                                                                          ------------      -----------
Total MDS licenses net:.................................................     5,018,215        7,652,525
                                                                          ------------      -----------
Program Rights fees at cost:                                                        --          250,000
    Accumulated amortization............................................            --           (8,333)
Other at cost...........................................................            --               --
Organization costs at cost:.............................................         3,415           12,482
                                                                          ------------      -----------
Total intangible assets, net............................................     5,021,630        7,906,674
                                                                          ============      ===========

NOTE 8.   CREDITORS AND BORROWINGS (CURRENT):

Unsecured:
     Overdraft..........................................................            --               --
     Trade creditors....................................................         1,684        5,727,304
     Unearned Income....................................................            --           29,062
     Accrued Expenses...................................................     2,698,537          728,113
     Due to related body corporate--United International
        Holdings Inc....................................................        39,781        8,857,983
Secured:
     Finance lease liability (Note 15)..................................         7,732          135,307
                                                                           -----------      -----------
Total current creditors and borrowings..................................     2,747,734       15,477,769
                                                                           ===========      ===========

NOTE 9.   CREDITORS AND BORROWINGS (NON-CURRENT):

Secured
     Finance lease liability (Note 15)..................................        36,165          684,945
                                                                           -----------      -----------
Total non-current creditors and borrowings..............................        36,165          684,945
                                                                           ===========      ===========

NOTE 10.   PROVISIONS (NON-CURRENT):

Annual leave............................................................
                                                                                    --          156,267
                                                                            ==========      ===========
NOTE 11.   SHARE CAPITAL:

Authorized capital:
    100,000,000 ordinary shares of $1 each..............................    100,000,000     100,000,000
                                                                            -----------     -----------
Total authorized capital as at 31 December 1995.........................    100,000,000     100,000,000
Issued and paid up capital:
    42,729 ordinary shares of $1 each...................................         42,729          42,729
                                                                            -----------     -----------
Total issued and paid up capital........................................         42,729          42,729
                                                                            ===========     ===========

</TABLE>

                                       80

<PAGE>

                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


Movement in issued shares for the year:
<TABLE>
<CAPTION>
                                                                          Number of                        Number of
                                                         Number of        Redeemable       Number of       Redeemable
                                                         Ordinary         Preference        Ordinary       Preference
                                                          Shares            Shares           Shares          Shares
                                                            1994             1994             1995            1995
                                                         --------         ----------       ----------      ----------
<S>                                                        <C>                 <C>           <C>               <C>
Opening number of shares...........................             3              --            42,729            --
Issued during the year.............................        42,726              13                --            --
Redeemed...........................................            --              13                --            --
                                                           ------             ---            ------          ----
Closing number of shares...........................        42,729              --            42,729            --
                                                           ======             ===            ======          ====
</TABLE>


NOTE 12.   CONVERTIBLE DEBENTURES:

     During  the  year  ended 31  December  1995,  the  company  issued  162,643
convertible debentures for $A6,000,000.  These debentures confer rights upon the
holders as creditors  of the company.  They do not confer any right to attend or
vote at general meetings. Interest is payable to the holders equal to the amount
of the  distribution  that the holder would have received if, as at the date the
entitlement to the  distribution  was determined,  all of the debentures of that
holder and all other holders had been converted into shares.

     The convertible  debentures have been included in  shareholders'  equity in
the balance sheet as debenture  holders are entitled to an equivalent  return to
the ordinary shareholders.

     Conversion of debentures is permitted at anytime provided  conversion would
not result in the breach of any  Statute  by the  debenture  holder or any other
person.

     Debentures  may be converted  into fully paid ordinary  shares on a one for
one basis unless the normal value of the issued  shares is  reconstructed  which
would  result in a  different conversion factor.  Debentures may not be redeemed
for cash.

     In the event of a winding up of the  company,  the rights of the  debenture
holders against the company in respect of the debentures are postponed until the
claims of all holders of senior indebtedness have been satisfied in full. Senior
indebtedness means secured obligations, unsecured and unsubordinated obligations
of the company, other than debentures and shares.

NOTE 13.   RESERVES:

                                                        Economic Entity
                                                   -------------------------
                                                          December 31,
                                                   -------------------------
                                                     1994            1995
                                                   ----------      ---------
                                                      $A              $A
Share premium opening balance....................         --       5,116,536
Premium on issues of shares......................  5,116,536              --
Redemption of preference shares..................         --              --
                                                   ---------       ---------
Total reserves...................................  5,116,536       5,116,536
                                                   =========       =========


                                       81

<PAGE>

                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


NOTE 14.   EMPLOYEE ENTITLEMENTS:

SUPERANNUATION COMMITMENTS

     The economic entity  contributes to a defined  contribution  superannuation
plan for substantially all of its employees.  Each  participating  entity in the
economic entity has a legal  obligation to contribute to the schemes,  which are
as follows:

     (a)  Hourly employees and commission employees--Employee Retirement Fund, a
          fund administered by MLC. This is a defined contribution fund; and

     (b)  Salaried  employees--CETV  Superannuation Fund, a fund administered by
          MLC (contributions 6%). This is a defined contribution fund.

NOTE 15.   COMMITMENTS:
<TABLE>
<CAPTION>
                                                                                              Economic Entity
                                                                                           ----------------------
                                                                                              1994         1995
                                                                                           ---------    ---------
                                                                                               $A           $A
<S>                                                                                        <C>         <C>
(a)  Annual license fees are payable as follows:
     Not later than one year.........................................................      1,212,627    3,068,099
     Later than one year but not later than two years................................      1,212,627    3,068,099
     Later than two years but not later than five years..............................      3,637,881    5,121,828
     Later than five years...........................................................             --           --
                                                                                           ---------   ----------
                                                                                           6,063,135   11,258,026
                                                                                           =========   ==========
(b)  Finance lease expenditure contracted for is payable as follows:
     Not later than one year.........................................................         12,429      215,798
     Later than one year but not later than two years................................         12,429      233,412
     Later than two years but not later than five years..............................         30,044      553,335
     Later than five years...........................................................             --           --
                                                                                           ---------   ----------
                                                                                              54,902    1,002,545
     Future finance charges..........................................................         11,005      182,293
                                                                                           ---------   ----------
     Net finance lease liability.....................................................         43,897      820,252
                                                                                           =========   ==========
Reconciled to:
     Current liability (Note 8)......................................................          7,732      135,307
     Non-current liability (Note 9)..................................................         36,165      684,945
                                                                                           ---------   ----------
                                                                                              43,897      820,252
                                                                                           =========   ==========
(c)  Operating lease expenditure contracted for is payable as follows:
     Not later than one year.........................................................        137,500      467,767
     Later than one year but not later than two years................................        137,500      467,767
     Later than two years but not later than five years..............................        412,500    1,405,357
     Later than five years...........................................................             --      529,372
                                                                                           ---------   ----------
                                                                                             687,500    2,870,263
                                                                                           =========   ==========
</TABLE>
(d)  On 24 July 1994,  the  Company  entered  into a  franchise  agreement  with
     Australis Media Limited.  The agreement carries a 15 year term beginning on
     24 July 1994 and may be extended for an additional 10 years.  The agreement
     provides for an exclusive license and franchise for MDS and Satellite and a
     non-exclusive  license and franchise for cable for all franchisor  services
     including  uplink and  programming  including  Channel [V] (a 24 hour music
     video channel),  Arena, Showtime,  Nickelodeon,  TV1, Encore, Discovery and
     Fox Sports.

     Under the agreement,  minimum  payments are due, which include service fees
     based on varying  percentages  of net revenues as defined in the agreement,
     and subscription levies which are dependent on the number of subscribers.

                                       82

<PAGE>

                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


NOTE 16.   NOTES TO THE STATEMENT OF CASH FLOWS:

(a)  RECONCILIATION OF CASH

     For the purposes of the statement of cash flows, cash includes cash on hand
     and in banks and deposits at call, net of outstanding bank overdrafts. Cash
     at the end of the financial year as shown in the Statement of Cash Flows is
     reconciled to the related items in the balance sheet as follows:
<TABLE>
<CAPTION>

                                                                                   Economic Entity
                                                                             -----------------------------
                                                                                1994               1995
                                                                             ----------        -----------
                                                                                 $A                $A
<S>                                                                          <C>                <C>

Cash..........................................................                   73,377          (261,963)
Short term money market deposits..............................               19,297,768         9,974,899
                                                                             ----------         ---------
                                                                             19,371,145         9,712,936
                                                                             ==========         =========
</TABLE>
(b)  Reconciliation  of net cash  provided by operating
     activities to operating loss after income tax.
<TABLE>
<CAPTION>

                                                                                   Economic Entity
                                                                             ------------------------------
                                                                             Period Ended       Year Ended
                                                                             December 31,      December 31,
                                                                             ------------      ------------
                                                                                 1994              1995
                                                                             ------------      ------------
                                                                                  $A                $A
<S>                                                                            <C>             <C>
Operating profit (loss) after income tax:.....................                     206         (5,795,610)
     Adjustments for non-cash income and expense items:
     Depreciation and amortization expense....................                   4,055          1,491,456
     Bad debts expense and provision for doubtful debts.......                      --              5,792
Transfers to provisions:
     Annual leave.............................................                      --            156,267
Unrealized foreign exchange gain..............................                      --           (327,740)
     Increase in other receivables............................                      --            (57,479)
     Increase in trade creditors..............................                  49,744          3,785,221
     Increase in inventory....................................                      --           (679,628)
     Increase in other assets.................................                 (25,582)          (804,552)
                                                                               -------         ----------
Net cash from operating activities............................                  28,423         (2,226,273)
                                                                               =======         ==========
</TABLE>


                                       83

<PAGE>

                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


(c)  Subsidiaries Acquired

     The following  subsidiaries  were acquired by the economic  entity for cash
     consideration.  The  fair  value of net  tangible  assets  acquired  was as
     follows:
                                                            Fair Value of
                                                         Net Tangible Assets
                                                        --------------------
                                                          1994        1995
                                                        --------    --------
               Entity                                      $A          $A
               ------
Jacolyn Pty Limited...............................          2          --
Yanover Pty Limited...............................          2          --
Keansburg Pty Limited.............................          2          --
Orloff Pty Limited................................          2          --
Maxi-Vu Pty Limited...............................          2          --
Vinatech Pty Limited..............................          2          --
Palara Vale Pty Limited...........................         --           2
Auldana Pty Limited...............................         --           2
Grovern Pty Limited...............................         --           2
Lystervale Pty Limited............................         --           2
Minorite Pty Limited..............................         --           2
                                                          ---         ---

Fair value of net identifiable assets.............         12          10
Goodwill on acquisition...........................         --          --
                                                          ---         ---
Total consideration...............................         12          10
                                                          ===         ===

(d)  Non-cash financing and investing activities

     During the year the economic  entity  acquired  plant and equipment with an
     aggregate  fair value of  $A821,522  (1994:  $A44,506)  by means of finance
     leases.  These  transactions  are not  reflected  in the  Statement of Cash
     Flows.

NOTE 17.   SUBSIDIARIES:

     The following were subsidiaries at 31 December 1995, and have been included
in  the  consolidated   financial   statements.   The  financial  years  of  all
subsidiaries are the same as that of the parent entity.
<TABLE>
<CAPTION>

                                                                         Book value of                   Contribution to
                                                                            Parent                         Consolidated
                                                                           Entity's         % of           Result for the
                                                                           Investment     Shares Held         Period
                                                                        -------------     -----------     --------------
                             Place of                                   1994     1995     1994    1995     1994    1995
                           Incorporation     Date of       Type of      ----     ----     ----    ----     ----    ----
Name of Controlled Entity  Formation (a)   Acquisition     Shares        $A       $A        %       %       $A      $A
-------------------------  -------------   -----------     -------      ----     ----     ----    ----     ----    ----
<S>                          <C>             <C>          <C>            <C>      <C>      <C>     <C>      <C>    <C>
Jacolyn Pty Limited........  Australia       14/6/94      Ordinary                 2               100              --
Yanover Pty Limited........  Australia       21/7/94      Ordinary                 2               100              --
Keansburg Pty Limited......  Australia       14/6/94      Ordinary                 2               100              --
Orloff Pty Limited.........  Australia       14/6/94      Ordinary                 2               100              --
Maxi-Vu Pty Limited........  Australia       4/8/94       Ordinary                 2               100              --
Palara Vale Pty Limited....  Australia       24/4/95      Ordinary                 2               100              --
Auldana Beach Pty Limited..  Australia       24/4/95      Ordinary                 2               100              --
Grovern Pty Limited........  Australia       24/4/95      Ordinary                 2               100              --
Lystervale Pty Limited.....  Australia       24/4/95      Ordinary                 2               100              --
Vinatech Pty Limited.......  Australia       29/7/94      Ordinary                 2               100              --
Minorite Pty Limited.......  Australia       24/4/95      Ordinary                 2               100              --
                                                                                  --                               ---
                                                                                  22                                --
                                                                                  ==                               ===
</TABLE>
(a) All entities operate solely in their place of incorporation/formation.


                                       84
<PAGE>

                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)



NOTE 18.   ASSOCIATED COMPANIES:

     Details of material interests in associated companies are as follows:
<TABLE>
<CAPTION>

                                               Ownership                            Dividends
    Name of                                    Interest                             Received
   Associated      Principal Activity of     -------------      Balance         ----------------
    Company         Associated Company       1994     1995       Date           1994        1995
   ----------      ---------------------     ----     ----      -------         ----        ----
<S>                <C>                        <C>      <C>      <C>             <C>          <C>
Communication &    Delivery of subscription
   Entertainment   television services to                          31
   Australia Pty   regional Australia.        50%      50%      December         --           --
   Limited
Ilona Investments  Delivery of subscription
   Pty Limited     television services to                          30
                   regional Australia         50%      50%        June           --           --
</TABLE>


                                                              Economic Entity
                                                             -----------------
                                                             1994         1995
                                                             ----         ----
                                                              $A           $A

Aggregate carrying amount of investments in associated         2            2
companies..............................................      ---          ---

Aggregate amount of investments in associated
 companies, as determined under the equity
 method of accounting..................................        2            2
                                                             ===          ===

NOTE 19.   RELATED PARTY DISCLOSURES:

(a)  OTHER DIRECTOR TRANSACTIONS

     Crase Partners,  a director-related  firm of J. K. Crase,  provided general
accounting services to the company during the year. These services were provided
at an arms length basis.

     J. K. Crase,  a director,  purchased  equipment from the company during the
year. The purchase was made on an arms length basis.

(b)  TRANSACTIONS WITH RELATED PARTIES IN THE WHOLLY OWNED GROUP

     The parent entity entered into the following  transactions  during the year
with related parties in the wholly owned group:

      loans  were  advanced  to  subsidiaries  to fund  the  acquisition  of MDS
      licenses.  Loans totaled $A5,021,618 and  $A8,309,384 at December 31, 1994
      and 1995, respectively.

     These transactions were undertaken on commercial terms and conditions.

(c)  TRANSACTIONS WITH ASSOCIATED COMPANIES

     The  parent  entity  entered  into  certain  transactions  with  associated
companies,  being loans  advanced and received on an arms length basis.  CTV has
amounts  receivable  from STV of $A623,074 and  $A3,627,044 at December 31, 1994
and 1995, respectively.

                                       85

<PAGE>

                      CTV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


NOTE 20.   US GAAP INFORMATION:

     The  accounting  policies  followed  in  preparation  for the  consolidated
financial  statements  differ in one respect to those generally  accepted in the
United  States of  America  (US GAAP).  For US GAAP  purposes,  the  convertible
debentures would be classified as a non-current liability and not equity.

     The  calculation of  shareholder's  equity in accordance with US GAAP is as
follows:


                                                           December 31,
                                                     ------------------------
                                                       1994            1995
                                                     ---------       --------
                                                         $A              $A
     Shareholder's equity as per balance sheet....    25,100,208     25,304,598
     Adjustments to reported equity:
          Convertible debentures..................   (19,940,737)   (25,940,737)
                                                     -----------    -----------
     Shareholder's equity in accordance with
        US GAAP...................................     5,159,471       (636,139)
                                                     ===========    ===========


                                       86


<PAGE>

                            INDEPENDENT AUDIT REPORT

To the Board of Directors of
 STV Pty Limited

     We have audited the accompanying  consolidated  financial statements of STV
Pty Limited and its  subsidiaries  for the period ended 31 December 1994 and the
year ended 31 December 1995.  These  consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on those consolidated financial statements based on our audits.

     We conducted our audits in accordance with Australian  Auditing  Standards,
which do not differ  substantially from generally accepted auditing standards in
the United States of America.  Those standards  require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free from material  misstatements.  An audit includes  examining,  on a test
basis,  evidence supporting amounts and disclosures in the financial statements.
An audit also includes assessing the accounting  principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provides a reasonable basis
for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects the consolidated  financial position of
STV Pty Limited as of 31 December 1994 and 1995, and the consolidated results of
the group's operations and consolidated cash flows for the periods then ended in
accordance with Australian Accounting Standards.

     There are certain differences between Australian  Accounting  Standards and
those  generally  accepted in the United States of America.  Application  of the
generally accepted  accounting  principles in the United States of America would
not result in material differences to these consolidated financial statements.



Arthur Andersen
Chartered Accountants

Sydney, Australia
29 March 1996


                                       87
<PAGE>



                      STV PTY LIMITED AND ITS SUBSIDIARIES
                                 BALANCE SHEET
                             AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>

                                                                      Economic Entity
                                                                --------------------------
                                                                       December 31,
                                                                --------------------------
                                                     Note          1994            1995
                                                                ----------      ----------
                                                                    $A              $A
<S>                                                    <C>      <C>             <C>
Current assets
     Cash..............................                         10,078,250           2,236
     Receivables.......................                3            63,934       1,325,563
     Prepayments and other.............                                 --         382,866
                                                                ----------      ----------

Total current assets...................                         10,142,184       1,710,665
                                                                ----------      ----------
Non-current assets
     Investments.......................                4                 2               2
     Property, plant and equipment.....                5           527,373       6,085,042
     Intangibles.......................                6             3,562       3,727,654
                                                                ----------      ----------
Total non-current assets...............                            530,937       9,812,698
                                                                ----------      ----------

Total assets...........................                         10,673,121      11,523,363
                                                                ----------      ----------

Current liabilities
     Creditors and borrowings..........                7           759,411       4,673,587
                                                                ----------      ----------

Total current liabilities..............                            759,411       4,673,587
                                                                ----------      ----------

Non-current liabilities
     Creditors and borrowings..........                8            36,165         313,981
     Provisions........................                9                --          11,495
                                                                ----------      ----------
Total non-current liabilities..........                             36,165         325,476
                                                                ----------      ----------

Total liabilities......................                            795,576       4,999,063
                                                                ----------      ----------

Net assets.............................                          9,877,545       6,524,300
                                                                ==========      ==========
Shareholders' equity
     Share capital.....................               10           133,296         133,296
     Reserves..........................               12         1,426,959       1,426,959
     Accumulated losses................                           (122,457)     (3,475,702)
                                                                ----------      ----------
                                                                 1,437,798      (1,915,447)
Convertible debentures.................               11         8,439,747       8,439,747
                                                                ----------      ----------
Total shareholders' equity.............                          9,877,545       6,524,300
                                                                ==========      ==========
</TABLE>

       The accompanying notes form an integral part of this balance sheet.

                                       88
<PAGE>

                      STV PTY LIMITED AND ITS SUBSIDIARIES
                             PROFIT AND LOSS ACCOUNT

                                                       Economic Entity
                                                -------------------------------
                                                Period Ended        Year Ended
                                        Note    December 31,       December 31,
                                                ------------       ------------
                                                    1994               1995
                                                ------------       ------------
                                                     $A                 $A
Revenue:
     Service...........................                --               13,819
                                                 --------           ----------
                                                       --               13,819
                                                 --------           ----------
Expenses:
     General and administration........           258,991            3,576,688
     Depreciation and amortization.....             4,055              212,635
                                                 --------           ----------
                                                  263,046            3,789,323
                                                 --------           ----------
Operating loss.........................          (263,046)          (3,775,504)
                                                 --------           -----------
Non-operating income (expense)
     Interest income...................           142,189              422,563
     Interest expense and costs of
        finance........................            (1,600)                (304)
                                                 --------           ----------
                                                  140,589              422,259
                                                 --------           ----------

Net loss before tax....................          (122,457)          (3,353,245)
Income tax attributable to net loss....                --                   --
                                                 --------           ----------
Net loss...............................          (122,457)          (3,353,245)
                                                 --------           ----------
Accumulated losses at beginning of
   period..............................                --             (122,457)
                                                 --------           ----------
Accumulated losses at end of
   period..............................          (122,457)          (3,475,702)
                                                 ========           ==========






  The accompanying notes form an integral part of this profit and loss account.



                                       89
<PAGE>

                                   STV PTY LIMITED AND ITS SUBSIDIARIES
                                         STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                              Economic Entity
                                                                    ----------------------------------
                                                                    Period Ended          Year Ended
                                                                     December 31,         December 31,
                                                                    -------------         -----------
                                                        Notes            1994                 1995
                                                                    -------------         -----------
                                                                          $A                   $A
<S>                                                     <C>        <C>                  <C>
Cash flows from operating activities:
     Receipts from customers...............                                --                 74,749
     Payments to suppliers and
        employees..........................                           (210,202)           (3,876,242)
     Interest received.....................                             78,255               422,563
     Interest and other costs of finance
        paid...............................                             (1,600)                 (304)
                                                                    ----------          ------------

Net operating cash flows...................                           (133,547)           (3,379,234)
                                                                    ----------          ------------

Cash flows from investing activities:
     Purchase of subsidiaries, net of
        cash acquired......................                                 (2)                  (12)
     Payments for plant, equipment and
        construction in process............                           (486,922)           (5,381,613)
     Payments for MDS licenses.............                             (3,562)           (3,757,962)
     Payments for investments..............                                 --                    (2)
     Loans granted.........................                                 --            (1,322,587)
                                                                    ----------           -----------

Net investing cash flows...................                           (490,486)          (10,462,176)
                                                                    ----------           -----------

Cash flows from financing activities:
     Proceeds from issues of shares........                          1,560,255                    --
     Proceeds from short-term loans........                            702,890             3,787,493
     Proceeds from debenture issues........                          8,439,747                    --
     Repayment of finance lease
        principal..........................                               (609)              (22,097)
                                                                    ----------           -----------

Net financing cash flows...................                         10,702,283             3,765,396
                                                                    ----------           -----------

Net increase (decrease) in cash held.......                         10,078,250           (10,076,014)
Cash at the beginning of the period........                                 --            10,078,250
                                                                    ----------           -----------


Cash at the end of the period..............              15         10,078,250                 2,236
                                                                    ==========           ===========

</TABLE>

  The accompanying  notes form an integral part of this statement of cash flows.


                                       90


<PAGE>

                      STV PTY LIMITED AND ITS SUBSIDIARIES
                        NOTES TO THE FINANCIAL STATEMENTS

NOTE 1.   STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF ACCOUNTING

     The  financial  statements  have  been  prepared  in  accordance  with  the
historical cost convention  using the Australian  dollar ("$A") as the reporting
currency and using the accounting policies described below. Further, they do not
take account of changes in either the general  purchasing power of the dollar or
in the prices of specific assets.

     The Company was  incorporated  on 28 June 1994. The  comparative  financial
statements  have  been prepared  for the period 28 June 1994 to 31 December 1994
and for the year ended 31 December 1995.

PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements include the financial statements of
the parent entity,  STV Pty Limited,  and its  subsidiaries.  The term "Economic
Entity" used throughout  these financial  statements means the parent entity and
its subsidiaries.

FOREIGN CURRENCY TRANSACTIONS

     Transactions  in foreign  currencies are converted at the exchange rates in
effect at the date of each transaction.

     Amounts  payable to or by the economic  entity in foreign  currencies  have
been translated  into Australian  currency at the exchange rates current at year
end.

     Exchange  differences  relating to monetary items are brought to account in
the profit and loss account in the period when the  exchange  rates  change,  as
exchange gains or losses.

INCOME TAX

     The economic entity follows the policy of tax-effect accounting. The income
tax  expense in the profit and loss  account  represents  the tax on the pre-tax
accounting  profit  adjusted  for income and  expenses  never to be  assessed or
allowed for taxation  purposes.  The provision for deferred income tax liability
and the  future  income tax  benefit  represent  the tax  effect of  differences
between income and expense items recognized in different  accounting periods for
book and tax purposes,  calculated  at the tax rates  expected to apply when the
differences reverse.

     The benefit  arising from  estimated  carry forward tax losses has not been
recorded in the future income tax benefit account as realization of such benefit
is considered not to be virtually certain.

LEASED ASSETS

     Assets  of  the  economic   entity   acquired   under  finance  leases  are
capitalized.  The initial  amount of the leased  asset and  corresponding  lease
liability are recorded at the present value of minimum  lease  payments.  Leased
assets are amortized over the life of the relevant lease.  Lease liabilities are
reduced by the principal component of lease payments.  The interest component is
charged against operating profit.

     Operating  leases are not  capitalized  and  rental  payments  are  charged
against operating profit in the period in which they are incurred.


                                       91


<PAGE>

                      STV PTY LIMITED AND ITS SUBSIDIARIES
                  NOTES TO THE FINANCIAL STATEMENTS-(Continued)

PROPERTY, PLANT AND EQUIPMENT

     Land and  buildings  are valued at cost.  The carrying  amount of property,
plant and  equipment is reviewed  annually by directors to ensure that it is not
in excess of the recoverable amount from the assets.

            Leasehold improvements..................................   6 years
            Computer equipment......................................   3 years
            Motor vehicles..........................................   5 years
            Furniture and fixtures..................................  10 years

     Property, plant and equipment,  excluding freehold land, are depreciated or
amortized  at rates based upon their  expected  useful  lives using the straight
line method.

INTANGIBLES

     The  acquisition  of MDS licenses has been brought to account at cost.  The
cost to acquire these licenses,  acquired for a 5 year period, will be amortized
over the remaining license period upon commencement of broadcasting  operations.
They are renewable every 5 years.

     The  licenses  have been issued for a term of five years,  with the license
fee  payable  annually  in  advance.  The  license  fee is payable  to  Spectrum
Management Agency, an agent of the Australian Federal Government.

RECOVERABLE AMOUNTS OF NON-CURRENT ASSETS

     The  carrying  amounts  of all  non-current  assets are  reviewed  at least
periodically  whenever events and  circumstances  indicate the carrying value of
the assets may exceed their recoverable  amount. The recoverable  amounts of all
non-current assets have been determined using net cash flows which have not been
discounted to their present values.

ANNUAL LEAVE

     Provision has been made in the financial  statements for benefits  accruing
to employees in relation to such matters as annual leave.

REVENUE RECOGNITION

     Monthly  service  revenues  are  recognized  as  revenue  in the period the
related  services  are  provided  to the  subscribers.  The  Company  recognizes
installation  revenues to the extent of direct  selling  costs in the period the
installation  occurs.  To the extent  installation  fees exceed  direct  selling
costs,  the excess would be deferred  and  amortized  over the average  contract
period.   Financial   instruments  that  potentially   subject  the  Company  to
concentrations   of  credit  risk  consist   primarily  of  trade   receivables.
Concentrations  of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base.


                                       92

<PAGE>
                      STV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)

NOTE 2.   INCOME TAX

     (a) Non-current deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
                                                                                 Economic Entity
                                                                          -----------------------------
                                                                          Period Ended      Year Ended
                                                                          December 31,     December 31,
                                                                          ------------     ------------
                                                                              1994             1995
                                                                          ------------     ------------
                                                                               $A               $A
<S>                                                                       <C>                <C>
  Interest receivable and prepaids.................................               --          (133,683)
                                                                          ----------         ---------
  Total non-current deferred tax liability.........................               --          (133,683)
    Net operating loss carryforward................................           42,500         1,195,261
                                                                          ----------         ---------
  Total non-current deferred tax asset.............................           42,500         1,195,261
                                                                          ----------         ----------
    Net non-current deferred tax asset before valuation allowance..           42,500         1,061,578
          Valuation allowance......................................          (42,500)       (1,061,578)
                                                                          ----------        ----------
  Net non-current deferred tax asset (liability)...................               --                --
                                                                          ==========        ==========
</TABLE>

Net  operating  loss  carryforwards  have an unlimited  carryforward  period for
Australian tax purposes.

     (b) The  difference  between  income tax expense  provided in the financial
statements and the prima facie income tax expense is reconciled as follows:
<TABLE>
<CAPTION>
                                                                                Economic Entity
                                                                          ----------------------------
                                                                          Period Ended     Year Ended
                                                                          December 31,    December 31,
                                                                          ------------    ------------
                                                                              1994            1995
                                                                          ------------    ------------
                                                                               $A              $A

<S>                                                                       <C>              <C>
     Net loss......................................................       (122,457)        (3,353,245)
     Prima facie tax thereon @ 36%.................................        (44,085)        (1,207,168)
     Tax effect of permanent and other differences
       Timing differences..........................................             --           (133,683)
       Entertainment non deductible................................          1,585            133,397
       Amortization of licenses....................................             --             12,193
       Effect of losses not brought to account.....................         42,500          1,195,261
                                                                          --------         ----------
     Total income tax attributable to net loss.....................             --                 --
                                                                          ========         ==========
</TABLE>

     (c) Benefit of income tax losses not brought to account

     As at 31 December 1995, the parent entity has unconfirmed unrecouped income
tax losses of  $A3,475,702  available to offset  against  future years'  taxable
income.  The  benefit of these  losses of  $A1,237,761  has not been  brought to
account as  realization  is not  virtually  certain.  The  benefit  will only be
obtained if:

     (a)  the company  derives  future  assessable  income of a nature and of an
          amount  sufficient to enable the benefits from the  deductions for the
          losses to be realized;

     (b)  the company  continues to comply with the conditions for deductibility
          imposed by the law;

     (c)  no  changes  in  tax  legislation  adversely  affect  the  company  in
          realizing the benefit from the deductions for the losses; and

     (d)  any change in the  business or control of the company  does not affect
          the ability to utilize the available losses.


                                       93


<PAGE>

                      STV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


NOTE 3.   RECEIVABLES (CURRENT):
<TABLE>
<CAPTION>

                                                                                  Economic Entity
                                                                         --------------------------------
                                                                            1994                   1995
                                                                         ---------              ---------
                                                                             $A                    $A
<S>                                                                      <C>                    <C>
     Accounts Receivable Trade..........................                        --                  3,004
       Allowance for Bad Debts..........................                        --                    (28)
     Non-trade amounts owing by:
        Related parties
         Wholly owned group.............................                        --                     --
         Associated companies...........................                        --              1,322,587
        Other persons...................................                    63,934                     --
                                                                         ---------              ---------

     Total current receivables..........................                    63,934              1,325,563
                                                                         =========              =========

NOTE 4.   INVESTMENTS (NON-CURRENT):

     Investments in associated companies (Note 17)......                         2                      2
                                                                         =========              =========

NOTE 5.   PROPERTY, PLANT AND EQUIPMENT:

     Leasehold improvements:
       At cost..........................................                        --                128,274
       Accumulated amortization.........................                        --                 (7,801)
                                                                         ---------              ---------

     Total leasehold improvements, net..................                        --                120,473
                                                                         ---------              ---------
     Plant and equipment:
       At cost..........................................                    55,881              4,093,944
       Accumulated depreciation.........................                    (4,055)              (149,677)
                                                                         ---------              ---------
     Total plant and equipment, net.....................                    51,826              3,944,267
                                                                         ---------              ---------

     Plant and equipment under lease:
       At capitalized cost..............................                    44,506                408,832
       Accumulated depreciation.........................                        --                (25,343)
                                                                       -----------             ----------
     Total lease plant and equipment, net...............                    44,506                383,489
                                                                       -----------             ----------

     Capitalized network construction expenditures:
       At cost..........................................                   431,041              1,636,813
       Accumulated amortization.........................                        --                     --
                                                                       -----------            -----------

     Total capitalized development expenditures, net....                   431,041              1,636,813
                                                                       -----------            -----------

     Total property, plant and equipment, net...........                   527,373              6,085,042
                                                                       ===========            ===========
</TABLE>

                                       94

<PAGE>

                                   STV PTY LIMITED AND ITS SUBSIDIARIES
                              NOTES TO THE FINANCIAL STATEMENTS--(Continued)

NOTE 6.   INTANGIBLE ASSETS (NON-CURRENT):
<TABLE>
<CAPTION>

                                                                                  Economic Entity
                                                                        ----------------------------------
                                                                            1994                  1995
                                                                        -----------           ------------
                                                                             $A                    $A
<S>                                                                     <C>                   <C>

     MDS licenses.......................................                      1,570             3,501,285
       Accumulated Amortization.........................                         --               (25,536)
     Other licenses.....................................                         --               251,570
       Accumulated Amortization.........................                         --                (8,333)
     Other..............................................                      1,992                 8,668
                                                                        -----------           -----------
     Total intangible assets, net.......................                      3,562             3,727,654
                                                                        ===========           ===========

NOTE 7.   CREDITORS AND BORROWINGS (CURRENT):

     Unsecured:
        Trade creditors.................................                      1,689               120,561
        Accrued expenses................................                     47,100                    --
        Due to associated company--CTV Pty Limited......                    623,021             3,627,044
        Due to related body corporate--United
          International Holdings Inc....................                     79,816               863,341
     Secured:
        Secured: Finance lease liability (Note 14)......                      7,732                62,641
                                                                        -----------           -----------
                                                                            759,358             4,673,587
                                                                        ===========           ===========

NOTE 8.   CREDITORS AND BORROWINGS (NON-CURRENT):

     Secured:
        Finance lease liability (Note 14)..............                      36,165               313,981
                                                                        -----------           -----------
     Total non-current creditors and borrowings........                      36,165               313,981
                                                                        ===========           ===========

NOTE 9.   PROVISIONS (NON-CURRENT):

     Annual leave......................................                          --                11,495
                                                                        ===========           ===========

NOTE 10.   SHARE CAPITAL:

     Authorized capital:
        100,000,000 ordinary shares of $1
          each.........................................                 100,000,000           100,000,000
                                                                        -----------           -----------
     Total authorized capital..........................                 100,000,000           100,000,000
                                                                        ===========           ===========
     Issued and paid up capital:
       133,296 ordinary shares of $1.00 each...........                     133,296               133,296
                                                                        -----------           -----------
     Total issued and paid up capital..................                     133,296               133,296
                                                                        ===========           ===========
</TABLE>



                                       95
<PAGE>


                                   STV PTY LIMITED AND ITS SUBSIDIARIES
                              NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Movement in issued shares for the year:
<TABLE>
<CAPTION>
                                                                        Number of                   Number of
                                                         Number of     Redeemable     Number of    Redeemable
                                                          Ordinary     Preference     Ordinary     Preference
                                                           Shares        Shares        Shares        Shares
                                                         ---------     ----------     ---------    -----------
                                                            1994          1994          1995          1995
                                                           ------         ----          ----          ----
<S>                                                       <C>              <C>        <C>             <C>

     Opening number of shares.......................           --           --        133,296           --
     Issued during the year (a).....................      133,296            2             --           --
     Redeemed.......................................           --            2             --           --
                                                          -------         ----        -------         ----
     Closing number of shares.......................      133,296           --        133,296           --
                                                          =======         ====        =======         ====

</TABLE>

NOTE 11.   CONVERTIBLE DEBENTURES:

     During the year ended 31 December 1995, the company had outstanding 986,707
convertible debentures for $A8,439,747.  These debentures confer rights upon the
holders as creditors  of the company.  They do not confer any right to attend or
vote at general meetings. Interest is payable to the holders equal to the amount
of the  distribution  that the holder would have received if, as at the date the
entitlement to the  distribution  was determined,  all of the debentures of that
holder and all other holders had been converted into shares.

     The convertible  debentures have been included in  shareholders'  equity in
the balance sheet as debenture  holders are entitled to an equivalent  return to
the ordinary shareholders.

     Conversion of debentures is permitted at any time provided conversion would
not result in the breach of any  Statute  by the  debenture  holder or any other
person.

     Debentures  may be converted  into fully paid ordinary  shares on a one for
one basis unless the normal value of the issued  shares is  reconstructed  which
would result in a  different  conversion factor.  Debentures may not be redeemed
for cash.

     In the event of a winding up of the  company,  the rights of the  debenture
holders against the company in respect of the debentures are postponed until the
claims of all holders of senior indebtedness have been satisfied in full. Senior
indebtedness means secured obligations, unsecured and unsubordinated obligations
of the company, other than debentures and shares.


NOTE 12.   RESERVES:
                                                       Economic Entity
                                                  ---------------------------
                                                  Period Ended    Year Ended
                                                  December 31,   December 31,
                                                  ------------   ------------
                                                      1994           1995
                                                  ------------   ------------
                                                       $A             $A

     Share premium opening balance.............           --       1,426,959
     Premium on issue of shares................    1,426,959              --
                                                   ---------       ---------
     Total reserves............................    1,426,959       1,426,959
                                                   =========       =========


                                       96

<PAGE>


                      STV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)

NOTE 13.   EMPLOYEE ENTITLEMENTS:

     Superannuation commitments
     The economic entity  contributes to a defined  contribution  superannuation
plan for substantially all of its employees.  Each  participating  entity in the
economic entity has a legal  obligation to contribute to the schemes,  which are
as follows:

         (a) Hourly employees and commission employees--Employee Retirement
     Fund, a fund administered by MLC. This is a defined contribution fund.

        (b) Salaried employees--CETV Superannuation Fund, a fund administered by
     MLC (contributions 6%). This is a defined contribution fund.


NOTE 14.   COMMITMENTS:
<TABLE>
<CAPTION>

                                                                                                 Economic Entity
                                                                                               --------------------
                                                                                                 1994        1995
                                                                                               --------    --------
                                                                                                  $A          $A
<S>                                                                                           <C>         <C>
(a)  Annual license fees are payable as follows:
     Not later than one year........................................................               --     1,227,291
     Later than one year but not later than two years...............................               --     1,227,291
     Later than two years but not later than five years.............................               --     1,686,787
     Later than five years..........................................................               --            --
                                                                                               ------     ---------
                                                                                                   --     4,141,369
                                                                                               ======     =========
(b)  Finance lease expenditure contracted for is payable as follows:
     Not later than one year........................................................           12,429        99,657
     Later than one year but not later than two years...............................           12,429       117,272
     Later than two years but not later than five years.............................           30,043       243,506
     Later than five years..........................................................               --            --
                                                                                               ------     ---------
                                                                                               54,901       460,435
Future finance charges..............................................................           11,004        83,813
                                                                                               ------     ---------

Net finance lease liability.........................................................           43,897       376,622
                                                                                               ======     =========

Reconciled to:
     Current liability (Note 7).....................................................            7,732        62,641
     Non-current liability (Note 8).................................................           36,165       313,981
                                                                                               ------     ---------
                                                                                               43,897       376,622
                                                                                               ======     =========
(c)  Operating lease expenditure contracted for is payable as follows:
     Not later than one year........................................................               --       169,642
     Later than one year but not later than two years...............................               --       169,642
     Later than two years but not later than five years.............................               --       510,984
     Later than five years..........................................................               --       148,112
                                                                                               ------     ---------
                                                                                                   --       998,380
                                                                                               ======     =========
</TABLE>

(d)  On 12 October 1994,  the Company  entered into a franchise  agreement  with
     Australis Media Limited.  The agreement carries a 15 year term beginning on
     12  October  1994 and may be  extended  for an  additional  10  years.  The
     agreement  provides  for an  exclusive  license and  franchise  for MDS and
     Satellite  and a  non-exclusive  license  and  franchise  for cable for all
     franchisor services including uplink and programming  including Channel [V]
     (a 24 hour music video channel), Arena, Showtime, Nickelodeon, TV1, Encore,
     Discovery and Fox Sports.

     Under the agreement,  minimum  payments are due, which include service fees
     based on varying  percentages  of net revenues as defined in the agreement,
     and subscription levies which are dependent on the number of subscribers.

                                       97

<PAGE>
                      STV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


NOTE 15.   NOTES TO THE STATEMENT OF CASH FLOWS:

(a)  Reconciliation of Cash

     For the purposes of the statement of cash flows, cash includes cash on hand
and in banks and deposits at call, net of outstanding bank  overdrafts.  Cash at
the end of the  financial  year as  shown  in the  Statement  of Cash  Flows  is
reconciled to the related items in the Balance Sheet as follows:

                                                          Economic Entity
                                                      -----------------------
                                                        1994           1995
                                                      --------       --------
                                                         $A             $A

Cash.............................................         5,994       2,236
Short-term money market deposits.................    10,072,256          --
                                                     ----------       -----
                                                     10,078,250       2,236
                                                     ==========       =====

(b)  Reconciliation  of net cash  provided by operating  activities to operating
     loss after income tax.
<TABLE>
<CAPTION>
                                                                   Economic Entity
                                                           -------------------------------
                                                           Period Ended         Year Ended
                                                           December 31,        December 31,
                                                           ------------        ------------
                                                               1994                1995
                                                           ------------        ------------
                                                                $A                  $A
<S>                                                         <C>                <C>
Operating loss after income tax..........................   (122,457)          (3,353,245)
Adjustments for non-cash income and expense items:
     Depreciation and amortization expense...............      4,055              212,635
     Bad debts expense and provision for doubtful
        debts............................................         --                   28
     Unrealized foreign exchange gain....................         --                   --
     Transfers to provisions:
     Annual leave........................................         --               11,495
     Increase in other receivables.......................    (63,934)              60,930
     Increase (decrease) in trade creditors..............     48,789               71,789
     Increase in other assets............................         --             (382,866)
                                                            --------           ----------
     Net cash from operating activities..................   (133,547)          (3,379,234)
                                                            ========           ==========
</TABLE>

(c)  Subsidiaries acquired

     The following  subsidiaries  were acquired by the economic  entity for cash
consideration. The fair value of net tangible assets acquired was as follows:

                                                          Fair Value
                                                        of Net Tangible
                                                        Assets Acquired
                                                    ------------------------
                                                      1994            1995
                                                    --------        --------
                 Entity                                $A              $A
                 ------
     Selectra Pty Limited.......................        2               --
     Vermint Grove Pty Limited--cash............       --                2
     Kidilla Pty Limited--cash..................       --                2
     Dovevale Pty Limited--cash.................       --                2
     Carryton Pty Limited--cash.................       --                2
     Xtek Bay Pty Limited--cash.................       --                2
     Windytide Pty Limited--cash................       --                2
                                                      ---              ---
     Fair value of net identifiable assets......        2               12
     Goodwill on acquisition....................      ---              ---
     Total consideration........................        2               12
                                                      ===              ===

                                       98
<PAGE>
                      STV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)

(d)  Non-cash financing and investing activities.

     During the year the economic  entity  acquired  plant and equipment with an
aggregate fair  value of $A354,822  (1994: $A44,506) by means of finance leases.
These transactions are not reflected in the Statement of Cash Flows.

NOTE 16.   SUBSIDIARIES:

     The following were subsidiaries at 31 December 1995, and have been included
in  the  consolidated   financial   statements.   The  financial  years  of  all
subsidiaries are the same as that of the parent entity.
<TABLE>
<CAPTION>
                                                                                                Contribution to
                           Place of                              Book Value of                   Consolidated
        Name of         Incorporation/   Date of      Type of   Parent Entity's    % of         Result for the
   Controlled Entity     Formation(a)  Acquisition     Shares     Investment    Shares Held          Year
   -----------------    -------------  -----------    -------   --------------- ------------    --------------
                                                                  1994   1995     1994  1995     1994    1995
                                                                  ----   ----     ----  ----     ----    ----
                                                                   $A     $A       %     %
<S>                       <C>          <C>            <C>          <C>     <C>     <C>   <C>      <C>     <C>
Vermint Grove Pty         Australia    26/4/95        Ordinary     --       2      100   --       --      --
   Limited

Kidilla Pty Limited       Australia    26/4/95        Ordinary     --       2      100   --       --      --

Dovevale Pty Limited      Australia    26/4/95        Ordinary     --       2      100   --       --      --

Carryton Pty Limited      Australia    26/4/95        Ordinary     --       2      100   --       --      --

Xtek Bay Pty Limited      Australia    26/4/95        Ordinary     --       2      100   --       --      --

Selectra Pty Limited      Australia    29/7/94        Ordinary      2       2      100  100       --      --

Windytide Pty Limited     Australia    26/4/95        Ordinary     --       2      100   --       --      --
                                                                 ----    ----                    ---     ---
                                                                    2      14                     --      --
                                                                 ====    ====                    ===     ===
</TABLE>

(a)  All entities operate solely in their place of incorporation/formation.

NOTE 17.   ASSOCIATED COMPANIES:

     Details of material interests in associated companies are as follows:
<TABLE>
<CAPTION>

    Name of Associated         Principal Activity of        Ownership        Balance             Dividends
          Company                Associated Company         Interest          Date               Received
    ------------------         ---------------------      -------------    -----------        --------------
                                                          1994     1995                       1994      1995
                                                          ----     ----                       ----      ----
<S>                         <C>                            <C>     <C>     <C>                <C>        <C>
Communication &             Delivery of subscription
  Entertainment               television services to
  Australia Pty Limited       regional Australia           50%     50%     31 December          --        --

Chippawa Pty Limited        Delivery of subscription
                              television services to
                              regional Australia           50%     50%       30 June            --        --
                                                                                               ---       ---
                                                                                                --        --
                                                                                               ===       ===
</TABLE>

<TABLE>
<CAPTION>
                                                                                           Economic Entity
                                                                                         -------------------
                                                                                           1994       1995
                                                                                         --------   --------
                                                                                            $A         $A

<S>                                                                                        <C>         <C>

     Aggregate carrying amount of investments in associated companies........                  2          2
                                                                                           -----       ----
     Aggregate amount of investment in associated companies, as determined
       under the equity method of accounting................................                   2          2
                                                                                           =====       ====
</TABLE>
                                       99
<PAGE>

                      STV PTY LIMITED AND ITS SUBSIDIARIES
                 NOTES TO THE FINANCIAL STATEMENTS--(Continued)


NOTE 18.   RELATED PARTY DISCLOSURES:

   A. OTHER DIRECTOR TRANSACTIONS

     Crase  Partners,  a  director-related  firm of J.  K.  Crase,  a  director,
provided  general  accounting  services to the company during the period.  These
services were provided at an arms length basis.

   B. TRANSACTIONS WITH RELATED PARTIES IN THE WHOLLY OWNED GROUP

     The parent entity entered into the following  transactions  during the year
with related parties in the wholly owned group:

     Loans  were  advanced  to  subsidiaries  to fund  the  acquisition  of MDS
licenses and total $A0 and  $A3,863,022.  STV also has amounts payable to United
International  Holdings, Inc. of $A79,816 and $A863,341 at December 31, 1994 and
1995, respectively.

     These transactions were undertaken on commercial terms and conditions.


   C. TRANSACTIONS WITH ASSOCIATED COMPANIES

     The  parent  entity  entered  into  certain  transactions  with  associated
companies,  being loans  advanced and received on an arms length basis.  STV has
receivables from associated  companies  totaling $A0 and $A1,322,587 at December
31, 1994 and 1995, respectively. STV has amounts payable to CTV of $A623,074 and
$A3,627,044 as of the same dates.

NOTE 19.   US GAAP INFORMATION

     The  accounting  policies  followed  in  preparation  for the  consolidated
financial  statements  differ in one respect to those generally  accepted in the
United  States of  America  (US GAAP).  For US GAAP  purposes,  the  convertible
debentures would be classified as a non-current liability and not equity.

     The  calculation of  shareholders'  equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>

                                                                                   December 31,
                                                                           ----------------------------
                                                                             1994                1995
                                                                           --------            --------
                                                                              $A                  $A
<S>                                                                       <C>                <C>
     Shareholders' equity as per balance sheet..............               9,877,545          6,524,300
     Adjustments to reported equity:
          Convertible debentures............................              (8,439,747)        (8,439,747)
                                                                          ----------         ----------
     Shareholders' equity in accordance with US GAAP........               1,437,798         (1,915,447)
                                                                          ==========         ==========
</TABLE>
                                      100
<PAGE>

                            XYZ ENTERTAINMENT PTY LTD

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors

     We  have  audited  the  accompanying  consolidated  balance  sheets  of XYZ
Entertainment  Pty  Limited as of  December  31,  1994 and 1995 and the  related
consolidated statements of operations,  shareholders'  deficiency and cash flows
for the period from  October 17, 1994 (date of  inception)  to December 31, 1994
and the  financial  year  ended  December  31,  1995,  which  are  expressed  in
Australian  dollars.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards in Australia which do not differ in any material respect from auditing
standards generally accepted in the United States.  Those standards require that
we plan and perform the audit to obtain  reasonable  assurance as to whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

     In our  opinion the  consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
XYZ  Entertainment  Pty Limited as of December 31, 1994 and 1995 and the results
of its  operations  and its cash flows for the years then ended,  in  conformity
with accounting principles generally accepted in Australia.

     Generally  accepted  accounting  principles  in  Australia  vary in certain
significant respects from generally accepted accounting principles in the United
States.  Application of generally accepted  accounting  principles in the United
States would have affected amounts reported as shareholders'  deficiency and net
loss as at and for the period  from  October  17,  1994 (date of  inception)  to
December 31, 1994 and the year ended December 31, 1995 to the extent  summarized
in Note 12 to the financial statements.


Deloitte Touche Tohmatsu
Chartered Accountants

Sydney, Australia
March 15, 1996

                                      101
<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
                      CONSOLIDATED STATEMENT OF OPERATIONS
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                                                         1994              1995
                                                                       --------          --------
                                                            Note          $A                $A
<S>                                                         <C>       <C>              <C>

Revenue
     Channel supply.................................                       Nil          1,117,091
     Other..........................................                       Nil            592,149
     Interest.......................................                     2,829            196,291
                                                                       -------         ----------
                                                                         2,829          1,905,531
                                                                       -------         ----------
Operating expenses
     Cost of services...............................                       Nil         24,677,575
     Selling, general and administrative............                   236,703         12,475,597
     Depreciation and amortization..................          2            Nil          3,594,737
                                                                       -------         ----------

Cost of operations..................................                   236,703         40,747,909
                                                                       -------         ----------

Net loss before income taxes........................                   233,874         38,842,378
                                                                       -------         ----------

Income taxes........................................          3            Nil                Nil
                                                                       -------         ----------

Net loss............................................          2        233,874         38,842,378
                                                                       -------         ----------

Net loss per share..................................                   116,937         19,421,189
                                                                       =======         ==========

Weighted average number of ordinary shares out-
   standing during the period.......................                         2                  2
                                                                       =======         ==========

</TABLE>



         The accompanying notes form part of these financial statements.


                                      102
<PAGE>

                                        XYZ ENTERTAINMENT PTY LTD
                                        CONSOLIDATED BALANCE SHEET
                                     AS OF DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>

                                                                         1994             1995
                                                                       --------         --------
                                                            Note          $A               $A

<S>                                                          <C>      <C>             <C>
ASSETS
Current assets
     Cash and cash equivalents..........................               670,754          3,105,803
     Receivables........................................                33,000          1,006,241
     Amounts due from stockholder.......................                   Nil             21,219
     Program material rights (net of accumulated
        amortization of $Anil and $A1,430,000)..........                   Nil          2,298,935
                                                                       -------         ----------
           Total current assets.........................               703,754          6,432,198
                                                                       -------         ----------
Non-current assets
     Property, plant and equipment......................      4         57,448          3,361,070
     Investment in associated company...................      6            Nil            245,518
     Amounts due from related party.....................      8            Nil          1,326,578
     Program material rights (net of accumulated
        amortization of $Anil and $A180,000)............                   Nil            217,916
                                                                       -------         ----------
           Total non-current assets.....................                57,448          5,151,082
                                                                       -------         ----------
               Total assets.............................               761,202         11,583,280
                                                                       =======         ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
     Creditors, trade...................................                   Nil         20,792,868
     Other creditors and accruals.......................                   Nil             75,656
     Amounts due to related party.......................                   Nil                Nil
                                                                       -------         ----------
          Total current liabilities.....................                   Nil         20,868,524
                                                                       -------         ----------
Non-current liabilities
     Creditors, trade...................................                   Nil            743,086
     Amounts due to stockholders........................      8        995,074         29,047,920
                                                                       -------         ----------
          Total non-current liabilities.................               995,074         29,791,006
                                                                       -------         ----------
               Total liabilities........................               995,074         50,659,530
                                                                       -------         ----------
Commitments and Contingencies (See Notes)
Stockholders' deficiency
     Redeemable preferences shares, par value $A1.00 per
         share: Authorized 100,000 shares, none issued
           and outstanding  ............................                   Nil                Nil

     Ordinary shares, par value $A1.00 per share:
        Authorized 900,000 shares, 2 issued and               9              2                  2
           outstanding  ................................                   Nil                Nil
     Accumulated deficit................................              (233,874)       (39,076,252)
                                                                     ---------        -----------
               Total stockholders' deficiency...........              (233,872)       (39,076,250)
                                                                      --------        -----------
               Total liabilities and stockholders'
                  deficiency............................               761,202         11,583,280
                                                                      ========        ===========
</TABLE>
         The accompanying notes form part of these financial statements.

                                      103


<PAGE>
                            XYZ ENTERTAINMENT PTY LTD
               CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                                     Ordinary         Accumulated       Total
                                                     --------         -----------    -----------
                                                        $A                $A             $A
<S>                                                     <C>          <C>            <C>
Balance at October 17, 1994....................                                             Nil
Issue of ordinary shares.......................          2                                    2
Net loss.......................................                         (233,874)      (233,874)
                                                                     -----------    -----------

Balance at December 31, 1994...................          2              (233,874)      (233,872)
                                                       ---           -----------    -----------
Net loss.......................................                      (38,842,378)   (38,842,378)
                                                                     -----------    -----------

Balance at December 31, 1995...................          2           (39,076,252)   (39,076,250)
                                                       ===           ===========    ===========

</TABLE>








         The accompanying notes form part of these financial statements.


                                      104
<PAGE>
                            XYZ ENTERTAINMENT PTY LTD
                      CONSOLIDATED STATEMENT OF CASH FLOWS
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                                                  1994                1995
                                                                --------            --------
                                                                   $A                  $A
<S>                                                             <C>               <C>
Cash flows from operating activities
     Cash receipts in the course of operations.............          Nil              370,348
     Cash payments in the course of operations.............     (269,703)         (17,351,047)
     Interest received.....................................        2,829              196,291
                                                                --------          -----------
     Net cash used in operating activities.................     (266,874)         (16,784,408)
                                                                --------          -----------
Cash flows from investing activities
     Payments for property, plant and equipment............      (57,448)          (4,999,012)
     Proceeds from sale of program material rights.........          Nil            2,304,795
     Payment for investment................................          Nil                   (1)
     Payments for program material rights..................          Nil           (7,164,583)
                                                                 -------          -----------
     Net cash used in investing activities.................      (57,448)          (9,858,801)
                                                                 -------          -----------
Cash flows from financing activities
     Proceeds from issues of shares........................            2                  Nil
     Proceeds from stockholder loans.......................      995,074           29,078,258
                                                                 -------          -----------
     Net cash provided by financing activities.............      995,076           29,078,258
                                                                 -------          -----------
Net increase in cash and cash equivalents held.............      670,754            2,435,049
Cash and cash equivalents at the beginning of the
   period .................................................          Nil              670,754
                                                                 -------          -----------
Cash and cash equivalents at the end of the period.........      670,754            3,105,803
                                                                 =======          ===========
Reconciliation of Net Loss to Net Cash Used in
   Operating Activities
     Net loss .............................................     (233,874)         (38,842,378)
     Add non-cash items:
          Amounts set aside to provisions..................          Nil            1,771,817
          Depreciation and amortization....................          Nil            3,594,737
          Gain on disposal of program material rights......          Nil             (189,213)
          Loss on disposal of program material rights......          Nil            1,511,315
          Gain on disposal of fixed assets.................          Nil             (168,358)
          Loss on disposal of fixed assets.................          Nil                9,690
                                                                --------          -----------
     Net cash used in operating activities before change
          in assets and liabilities........................    (233,874)          (32,312,390)
     Change in assets and liabilities:
          Increase in trade receivables....................     (33,000)             (994,460)
          (Increase) decrease in other receivables.........         Nil            (1,518,255)
          Increase in creditors............................         Nil            18,040,697
                                                               --------           -----------
               Net cash used in operating activities.......    (266,874)          (16,784,408)
                                                               ========           ===========
</TABLE>
         The accompanying notes form part of these financial statements.

                                      105
<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995

NOTE 1--STATEMENT OF ACCOUNTING POLICIES

     The  significant  policies  which have been adopted in the  preparation  of
these consolidated financial statements are:

   (a) BASIS OF PREPARATION

     This statement of significant accounting policies is given to assist in the
understanding  of the  consolidated  financial  statements.  For the purposes of
these  consolidated  financial  statements,   XYZ  Entertainment  Pty  Ltd  (the
"Company") and its controlled entities (subsidiaries) (collectively,  "XYZ") are
defined  under  Australian  law  as the  Economic  Entity.  This  term  is  used
throughout  these  Notes  to  the   consolidated   financial   statements.   The
consolidated   financial  statements  have  been  prepared  in  accordance  with
accounting principles generally accepted in Australia (Australian GAAP), include
disclosures required by the United States Securities and Exchange Commission and
are presented in Australian  dollars ($A). The accounting  principles  differ in
certain  respects from accounting  principles  generally  accepted in the United
States (US GAAP). The significant differences and the approximate related effect
on the  consolidated  financial  statements are set out in Note 12. Although the
company is  financially  dependent on related  bodies  corporate for its ongoing
viability, the financial statements have been prepared on a going concern basis,
after  considering  undertakings by related bodies  corporate to provide ongoing
financial support.  The financial  statements have been prepared on the basis of
historical costs and do not take into account changing money values.  Consistent
accounting  policies have been employed in the preparation  and  presentation of
the consolidated financial statements.

     The company was incorporated on October 17, 1994 and commenced trading from
that date. Through its controlled entities, the company provides programming for
four of eight  channels  of the  multi-channel  base  programming  package  (the
"Galaxy  Package")  offered  and  distributed  by the  Satellite A and B license
holders in Australia. The Galaxy Package is distributed via satellite, microwave
Multipoint  distribution  system  and  other  transmission  technologies  by the
Satellite B license  holder through  distribution  facilities in the six largest
capital cities in Australia and regional Western  Australia,  and by franchisees
to substantially all of the population in Australia.

     The  Company's  programming  for the four channels was first aired on April
23,  1995  by the  Satellite  A and B  license  holders.  Regional  distribution
commenced in New South Wales in August 1995 and in other states in October 1995.

     Programming  provided by the Company as at the date of this report includes
Red, a music video channel; ARENA, a general entertainment channel; NICKELODEON,
a children's/family/classic channel; and DISCOVERY, a documentary channel.

   (b) PRINCIPLES OF CONSOLIDATION

     The accounts have been prepared by consolidating  the financial  statements
of all the entities  that comprise the Economic  Entity,  being the Company (the
chief entity) and its controlled entities. A list of controlled entities appears
in Note 7.

     The purchase method of accounting has been used to account for subsidiaries
acquired during the period. The Company undertakes a valuation of the net assets
acquired  in  purchase   transactions  in  accordance  with  generally  accepted
accounting  principles.  Accordingly, the  Company  has  stated  the net assets
acquired  from  purchased  companies  at  their  estimated  fair  values  at the
date of  acquisition.  The  consolidated  accounts  include the  information and
results of each  controlled  entity from the date on which the  Company  obtains
control and until such time as the Company ceases to control such entity.

     In preparing  the  consolidated  accounts,  the  intercompany  balances and
transactions, and any unrealized profits arising within the Economic Entity have
been eliminated in full.

                                      106

<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


   (c) REVENUE AND REVENUE RECOGNITION

     Sales  revenue  comprises  license  fees earned  from a related  entity for
development  and  production  of  channels  of  programming   for   subscription
television broadcasting services. Revenue is recognized at the time subscription
services are provided to customers.

   (d) RECOVERABLE AMOUNT OF NON-CURRENT ASSETS

     The carrying  amounts of all  non-current  assets are reviewed to determine
whether they are in excess of their  recoverable  amount as of the balance sheet
date.  If the carrying  amount of a non-current  asset  exceeds the  recoverable
amount, the asset is written down to the lower amount. In assessing  recoverable
amounts,  the  relevant  net cash inflows  arising  from the  continued  use and
subsequent  disposal of  non-current  assets have not been  discounted  to their
present value unless otherwise indicated.

   (e) FOREIGN CURRENCY TRANSACTIONS

     Foreign currency  transactions are translated to Australian currency at the
rates of exchange existing at the dates of the transactions.  Amounts receivable
and payable in foreign  currencies at the balance  sheet date are  translated at
the rates of exchange existing on that date.

     Exchange  differences relating to amounts payable and receivable in foreign
currencies  are  recorded in the profit and loss  account as  exchange  gains or
losses in the financial year in which the exchange rates change.

   (f) TAXATION

     XYZ adopts the liability method of tax effect accounting. The tax effect of
temporary  differences  which arise from items recorded in different periods for
income tax and accounting purposes,  are carried forward on the balance sheet as
deferred tax assets and deferred tax  liabilities,  as applicable.  Deferred tax
assets arising from temporary differences are not recorded unless realization of
the asset is assured  beyond a  reasonable  doubt.  Deferred  tax  assets  which
include  tax  losses  are only  recorded  when their  realization  is  virtually
certain.

     The recovery of deferred tax assets (both  recognized and  unrecognized) is
contingent  upon  sufficient  taxable  income  being  earned in future  periods,
continuation  of the relevant tax laws and each relevant  company  continuing to
comply with the appropriate legislation.

   (g) PLANT AND EQUIPMENT

     ACQUISITION

     Items  of  plant  and  equipment  are  recorded  at  historical   cost  and
depreciated as outlined below.

     DEPRECIATION

     Items of plant and equipment are depreciated  over their  estimated  useful
lives on a straight-line  basis.  The estimated useful lives of such items range
from four to ten years.  Items of plant and equipment are  depreciated  from the
date the asset commences earning revenue.

     LEASES

     Payments made under  operating  leases are charged against profits in equal
installments over the accounting periods covered by the lease term, except where
an  alternative  basis is more  representative  of the pattern of benefits to be
derived from the leased property.

                                      107
<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


   (h) SUPERANNUATION

     XYZ contributes to one defined  contribution  fund for all employee groups.
Contributions of $A135,675 were made to the fund during the year as a percentage
of salaries based on statutory requirements.

   (i) PROGRAM MATERIAL RIGHTS

     Program  material rights are recognized as an asset and stated at the lower
of unamortized  cost and net realizable  value. The rights represent the ability
to use  television  programs over a specified  period of time, as set out in the
license  agreements.  Program material rights acquired under license  agreements
are  recognized  when  the  license  period  begins  and  all of  the  following
conditions are met:

          (i) The cost of each license fee for each program is known or is
     reasonably determinable;

          (ii) The  program  material has  been  accepted  by  the  licensee in
     accordance  with the terms of the license agreement; and,

          (iii) The licensor can deliver the program  material  rights,  and the
     licensee can exercise the rights.

     Amortization  of the cost of  program  material  rights is  charged  to the
statement  of  operations  based on the  regular  assessment  of the  benefit of
individual license agreements,  over the term of the agreement.  If the benefits
are reasonably  determinable through the number of times a particular program is
aired,  then costs are charged to the  statement of operations  accordingly.  An
accelerated method of amortization is used when the first broadcast of a program
is  estimated  to be more  valuable  than its reruns.  Costs are  allocated on a
straight-line  basis  over the  period of the  agreement  if each  broadcast  is
expected to produce approximately the same amount of revenue.

     Program  material  rights  are  classified  as  current  assets if they are
expected to be used within one year.

   (j) STATEMENT OF CASH FLOWS

     For the purposes of the statement of cash flows,  cash and cash equivalents
includes bank  overdrafts  and all highly liquid  investments  which are readily
convertible to cash at the Company's option.

   (k) LOSS PER SHARE

     Loss per share is calculated  by dividing net loss by the weighted  average
number of issued ordinary shares outstanding during the period.

   (l) PROVISIONS

     EMPLOYEE ENTITLEMENTS

     Provision  is made for  benefits  accruing to employees in respect of wages
and  salaries,  annual  leave,  long  service  leave,  and sick leave when it is
probable  that  settlement  will be required  and are capable of being  measured
reliably.

     Provisions made in respect of wages and salaries, annual leave, sick leave,
and other employee entitlements expected to be settled within twelve months, are
measured at their nominal values.

     Provisions  made in respect of other  employee  entitlements  which are not
expected to be settled within twelve months are measured as the present value of
the estimated  future cash outflows to be made by the economic entity in respect
of services provided by employees up to the reporting date.

                                      108

<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


   (m) DATE OF INCORPORATION

     The  company  was   incorporated   on  October  17,  1994  and  accordingly
comparative figures cover the period from inception.

   (n) INVESTMENTS

     ASSOCIATED COMPANIES

     The Company equity accounts for its investments in associated  companies in
equity supplementary financial statements.  Investments in which the Company has
a material interest and over which it exercises significant influence,  but does
not control, are considered to be associated companies.  The ability to exercise
significant  influence  over the  strategic  operating,  investing and financing
policies of a company may be indicated  by, for example,  representation  on the
board  of  directors,   participation  in  policy-making   processes,   material
intercompany  transactions,  interchange of management personnel or provision of
technical information.

     Investments  in  associated  companies are carried at the lower of cost and
recoverable amount.  Dividends are recorded in the profit and loss account after
they have been declared by the associated company in a general meeting.

     During the year,  the Company  entered into an agreement  with  Nickelodeon
Australia,  Inc to produce  NICKELODEON  AUSTRALIA,  a children's  channel.  The
Company  jointly  controls  Nickelodeon  Australia  Management  Pty Limited with
Nickelodeon  Australia,  Inc,  and as such  has the  capacity  to  significantly
influence  decision-making in these companies.  The term of the joint venture is
15 years.

     Selected  disclosures under the equity method of accounting relating to the
entity  in which the  Company  is able to  exercise  significant  influence  are
provided in Note 6.

     None of the shares in  associated  companies  are listed on the  Australian
Stock Exchange.

NOTE 2--EXPENDITURES

<TABLE>
<CAPTION>
                                                               1994               1995
                                                             --------           --------
                                                                $A                 $A
<S>                                                             <C>            <C>
Expenses included in the net loss were:
Depreciation and amortization:
    --plant and equipment.........................              Nil              828,647
    --program material rights.....................              Nil            2,766,090
                                                                ---            ---------
          Total depreciation and amortization.....              Nil            3,594,737
                                                                ===            =========
Amounts set Aside to Provision:
    --employee entitlements--annual leave.........              Nil               75,656
    --provision for doubtful debts................              Nil            1,696,160
                                                                ---            ---------
                                                                Nil            1,771,816
                                                                ===            =========
Exchange (gain) loss, net, on foreign currency
  transactions:
     Exchange gain on foreign currency
        transactions..............................              Nil             (368,670)
                                                                ---             --------
     Exchange (gain) loss, net....................              Nil             (368,670)
                                                                ===             ========
</TABLE>

NOTE 3--INCOME TAXES

     At December  31, 1995 XYZ had  accumulated  tax losses  carried  forward of
approximately  $A7,997,055 (1994:  $A71,840).  The losses may be carried forward
indefinitely under Australian income tax legislation.

                                      109

<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


     The tax effects of temporary differences,  at the Australian statutory rate
of 36%,  which  give rise to  significant  portions  of  deferred  tax assets or
liabilities and the corresponding  valuation  allowance at December 31, 1995 are
as follows:

                                                 1994                1995
                                               --------            --------
                                                  $A                  $A
Deferred tax assets
     Tax loss carryforward.............         77,978            9,816,188
     Accrued expenses and other........            Nil              266,479
                                                ------           ----------
                                                77,978           10,082,667
Deferred tax liabilities
     Depreciation and amortization.....            Nil            1,897,111
                                                ------           ----------
     Net deferred tax assets...........         77,978            8,185,556
     Less valuation allowance..........         77,978            8,185,556
                                                ------           ----------
                                                   Nil                  Nil
                                                ======           ==========

     Tax losses of  $A1,897,111  (1994:  $Anil) have been brought to account and
fully applied against deferred tax liabilities.

     XYZ has provided a valuation allowance for the total amount of net deferred
tax assets since realization of these assets is not assured,  principally due to
the  Economic  Entity  being in the start-up  phase of  operations.  For US GAAP
purposes as described in Note 12, a valuation  allowance for the total amount of
the net deferred tax assets has also been provided.


NOTE 4--PROPERTY, PLANT AND EQUIPMENT

                                                   1994              1995
                                                 --------          --------
                                                    $A                $A

Plant and equipment--at cost..................    57,448           4,026,837
Less: accumulated depreciation...............        Nil            (665,767)
                                                  ------           ---------
     Total property, plant and equipment.....     57,448           3,361,070
                                                  ======           =========

     There have been no current valuations included in the above amounts.


                                      110

<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


NOTE 5--COMMITMENTS AND CONTINGENCIES

                                                            1994       1995
                                                          --------   --------
                                                             $A         $A
Contracts for Expenditure for Program Material Rights
    Not later than one year................................  Nil     174,082
    Later than one year but not later than two years.......  Nil         Nil
    Later than two years but not later than three years....  Nil         Nil
    Later than three years but not later than four years...  Nil         Nil
    Later than four years but not later than five years....  Nil         Nil
    Later than five years..................................  Nil         Nil
                                                             ---     -------
                                                             Nil     174,082
                                                             ===     =======
Commitments Under Non-cancelable Operating Leases
    Not later than one year................................  Nil      11,794
    Later than one year but not later than two years.......  Nil      12,362
    Later than two years but not later than three years....  Nil      10,976
    Later than three years but not later than four years...  Nil         568
    Later than four years but not later than five years....  Nil         Nil
    Later than five years..................................  Nil         Nil
                                                             ---      ------
                                                             Nil      35,700
                                                             ===      ======

   CONTINGENCIES

     The  Company and its  controlled  entities  are party to matters  involving
certain claims which arise in the normal course of business,  none of which,  in
the opinion of  management,  is expected to have a materially  adverse effect on
the Company's consolidated financial position or results of operation.

   REGULATION

     Management asserts that no communication of any kind has been received from
the Australian  Broadcasting  Authority ("ABA"), the Australian  Competition and
Consumer  Commission of Australia  ("ACCC"),  or the Foreign  Investment  Review
Board of Australia  ("FIRB"),  or any other agency  indicating  that the Company
and/or  its  controlled  entities  is or  may  be in  violation  of  any  law or
regulation  of the  Commonwealth  of  Australia  or any  subdivision  or  agency
thereof.


NOTE 6--INFORMATION ABOUT INVESTMENTS IN ASSOCIATED COMPANIES
<TABLE>
<CAPTION>
                                                                                                            Equity-
                                                                    Ownership           Carrying           Accounted
        Name of Company              Principal Activity             Interest             Amount              Amount
        ---------------              ------------------          ---------------     -------------         -----------
                                                                 1994       1995     1994     1995         1994   1995
                                                                 ----       ----     ----     ----         ----   ----
                                                                    Percent           $A       $A           $A     $A
<S>                            <C>                               <C>         <C>     <C>    <C>            <C>
Nickelodeon Australia          Production and Development
   Management Pty Limited      of the Nickelodeon Channel        N/A         50       Nil   245,518         Nil  245,518
</TABLE>

     The balance date of the associate is June 30.

     The  carrying  amount of the  investment  in the  associated  company is as
follows:
                                                                         $A
Carrying amount of investment in shares in associate company.......           1
Amounts due from associated company at the balance date ...........   1,941,677
Provision for non-recoverability...................................  (1,696,160)
                                                                     ----------
                                                                        245,518
                                                                     ==========

     The  carrying  amount of the  investment  equates  to the  equity-accounted
amount at December 31, 1995 as follows:

                                      111
<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


                                                                        $A
Carrying amount of investment in shares in
   associated company...........................................              1
XYZ's maximum obligation to contribute to the
   operating losses of the associated company. .................     (1,696,160)
                                                                     ----------
                                                                     (1,696,159)
Amounts due from associated company at the balance date.........      1,941,677
                                                                     ----------
                                                                        245,518
                                                                     ==========

NOTE 7--PARTICULARS IN RELATION TO CONTROLLED ENTITIES
<TABLE>
<CAPTION>

                                                                Book Value of         Contribution to
                                                                  Investment          Consolidated Loss
                                         Class    Interest     ----------------       ------------------
                                           of       Held       1994         1995       1994         1995
                                         Share    Percent      ----         ----       ----         ----
                                                                $A           $A         $A           $A
<S>                                       <C>       <C>         <C>           <C>    <C>        <C>
Chief Entity
     XYZ Entertainment Pty
        Limited.....................                                                  233,874    38,842,378
Corporate Bodies Corporate
     XYZ Programming Pty
        Limited.....................      Ord       100         Nil            2          Nil           Nil
     Arena Television Pty Limited...
                                          Ord       100         Nil            2          Nil           Nil
     Quest Television Pty Limited...
                                          Ord       100         Nil            2          Nil           Nil
     Max Television Pty Limited.....
                                          Ord       100         Nil            2          Nil           Nil
     Red Television Pty
        Limited.....................      Ord       100         Nil            2          Nil           Nil
                                                                                      -------    ----------
     Consolidated net loss..........                                                  233,874    38,842,378
                                                                                      =======    ==========
</TABLE>

     Each of the controlled  entities are incorporated in, and carry on business
in, Australia.


NOTE 8--RELATED PARTY DISCLOSURES

   OWNERSHIP INTERESTS IN RELATED PARTIES

Information  in  relation  to  ownership  interests  in  controlled  entities is
provided in Note 7.

   REMUNERATION OF DIRECTORS

The directors of the Company during the period were:

     D F Hagans (appointed  12/12/94)
     A Tow (appointed 11/5/95)
     R J Freudenstein(appointed 6/9/95)
     R J Birrel(appointed 17/10/94, resigned 11/5/95)
     M W Booth (appointed 17/10/94, resigned 12/12/94, reappointed 6/9/95)
     D  Garry (appointed 17/10/94, resigned 17/10/94)
     L  M  Head (appointed 17/10/94, resigned 17/10/94)

                                      112
<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


<TABLE>
<CAPTION>

                                                                                               1994      1995
                                                                                               ----      ----
                                                                                                $A        $A
<S>                                                                                            <C>      <C>
Total income received,  or due and receivable,  by directors of the Company from
   the Company and any related  body  corporate,  and by all  directors  of each
   entity in the Economic Entity from  corporations of which they are directors,
   or related bodies corporate or an entity controlled by the chief entity.................    52,500   363,786
                                                                                               ======   =======
The number of directors of the Company whose total income falls within the following
   bands:                                                                                          No        No
   $ANil -- $A9,999........................................................................         4         7
                                                                                               ======   =======
</TABLE>

   LOANS TO DIRECTORS

     There were no loans in  existence at balance date (or at December 31, 1994)
made,  guaranteed or secured by the Company to directors of a corporation in the
Economic  Entity  or a related  body  corporate,  their  spouses,  relatives  or
relatives of spouses.

   LOANS FROM DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>

                        TERMS AND CONDITIONS                                                    1995
     TYPE OF                    OF                 NAME OF RELATED              DIRECTOR        ----
   TRANSACTION          TYPE OF TRANSACTION           ENTITY                    RELATED          $A
<S>                      <C>                     <C>                     <C>                  <C>

                         Non-interest bearing,   Century United
Loans advanced           no set terms over       Programming Ventures    D Hagans and         14,523,960
   from stockholder....  payment                 Pty Limited             A Tow

Loans advanced           Non-interest bearing,   Foxtel Management Pty   R Freudenstein
 from stockholder......  set terms of            Limited                 and M Booth          14,523,960
                         repayment                                                            ----------
                                                                                              29,047,920
                                                                                              ==========
</TABLE>


   Loans from  director  related  entities  at  December  31,  1994  amounted to
$995,074.  Of  this  amount,   $820,074  had  been  advanced  by  UIH  Australia
Programming Inc. and $175,000 by Century Programming  Ventures Corp., both being
joint and equal stockholders in the Company at that date.

   LOANS TO DIRECTOR RELATED ENTITIES
<TABLE>
<CAPTION>

                        TERMS AND CONDITIONS                                                  1995
     TYPE OF                    OF                 NAME OF RELATED              DIRECTOR      ----
   TRANSACTION          TYPE OF TRANSACTION           ENTITY                    RELATED        $A
<S>                     <C>                    <C>                      <C>                 <C>


                        Non-interest bearing,  Century United
Loans advanced to       no set terms of        Programming Ventures     D Hagans and
   stockholder......... repayment              Pty Limited              A Tow               881,633
                                                                                            =======
</TABLE>

   There were no loans to Director Related Entities at December 31, 1994.

                                      113

<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


     OTHER TRANSACTIONS WITH DIRECTOR RELATED ENTITIES

<TABLE>
<CAPTION>
                        TERMS AND CONDITIONS                                                  1995
     TYPE OF                    OF                 NAME OF RELATED              DIRECTOR      ----
   TRANSACTION          TYPE OF TRANSACTION           ENTITY                    RELATED        $A
<S>                   <C>                    <C>                      <C>                   <C>

Establishment and
   restructuring      Normal commerical      UIH Australia
   fees paid......... terms and conditions   Programming Inc.         D Hagans              250,000

Establishment and
   restructuring      Normal commerical      Century Programming
   fees paid......... terms and conditions   Ventures Corp.           A Tow                 250,000

Establishment,
   operating and                             Century United
   management         Normal commercial      Programming Ventures     D Hagans and
   fees.............. terms and conditions   Pty Limited              A Tow                 860,444

Channel supply                               Continental Century
   license fee        Normal commercial      Pay Television Pty
   revenue........... terms and conditions   Limited                  A Tow                 943,358

Channel supply
   license fee        Normal commercial      Foxtel Management        R Freuderstein
   revenue........... terms and conditions   Pty Limited              and M Booth           330,753
                                             Continental Century
</TABLE>

     There  were no other transactions with Director Related Parties at December
31, 1994.

   LOANS TO OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
                        TERMS AND CONDITIONS                                        1995
     TYPE OF                    OF                       NAME OF RELATED            ----
   TRANSACTION          TYPE OF TRANSACTION                  ENTITY                  $A
<S>                      <C>                         <C>                          <C>
Loans advanced to        Non-interest bearing,
   associated            no set terms of             Nickelodeon Australia
   company.............. repayment                   Management Pty Limited       1,941,677

                         Non-interest bearing,
Loans advanced to        no set terms of
   related party........ repayment                   Nickelodeon Australia Inc.   1,326,578
</TABLE>

     There were no loans to Other Related Entities at December 31, 1994.

   OTHER TRANSACTIONS WITH OTHER RELATED ENTITIES
<TABLE>
<CAPTION>
                        TERMS AND CONDITIONS                                      1995
     TYPE OF                    OF                     NAME OF RELATED            ----
   TRANSACTION          TYPE OF TRANSACTION                ENTITY                  $A
<S>                        <C>                    <C>                           <C>

                                                    Nickelodeon Australia
                        Normal commercial           Management Pty
Subscriptions payable.. terms and conditions        Limited                       113,219
</TABLE>

     There were no other  transactions  with other related  entities at December
31, 1994.

                                      114
<PAGE>
                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


   TRANSACTIONS WITHIN THE WHOLLY-OWNED GROUP

     During the financial period,  the company provided  management  services to
other entities in the wholly-owned group at no charge. In addition,  the company
paid  license  fees  and  reimbursed  certain  costs to  other  entities  in the
wholly-owned  group in the  ordinary  course of business and on normal terms and
conditions.

   CONTROLLING ENTITIES

     The chief (parent) entity in the economic entity is XYZ  Entertainment  Pty
Limited.

     The ultimate holding company in the wholly-owned group is XYZ Entertainment
Pty Limited.

     The chief entity, at the year end, was jointly controlled by Century United
Programming  Ventures Pty Limited  ("CUPV") and Foxtel  Management  Pty Limited.
Both companies are incorporated in Australia.

     CUPV is jointly owned by UIH Australia Programming Inc. ("UIH") and Century
Programming Ventures Corp. ("CPVC"). The ultimate parent entity of UIH is United
International  Holdings, Inc.  The ultimate  parent  entity  of CPVC is  Century
Communications Corporation.

     Foxtel  Management  Pty  Limited is jointly  owned by The News  Corporation
Limited and Telstra Corporation Limited.

NOTE 9--SHARE CAPITAL
<TABLE>
<CAPTION>

                                                                       1994                1995
                                                                     --------            --------
                                                                        $A                  $A
<S>                                                                 <C>                <C>
Authorized Capital
     900,000 ordinary shares of $A1.00 each....................       900,000             900,000
     100,000 redeemable preference shares of $A1.00 each.......       100,000             100,000
                                                                    ---------           ---------
                                                                    1,000,000           1,000,000
                                                                    ---------           ---------
Issued and Paid-Up Capital
     2 ordinary shares of $A1.00 each..........................             2                   2
                                                                    =========           =========
</TABLE>

     Upon  incorporation the Company issued two fully paid ordinary shares of $1
each.

NOTE 10--FINANCIAL REPORTING BY SEGMENTS

     The Company predominantly operates in Australia and in one industry,  being
programming for subscription television services.


                                      115

<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


NOTE 11--NON-HEDGED FOREIGN CURRENCY BALANCES

     The Australian  dollar  equivalent of foreign currency balances included in
the accounts which are not effectively hedged are as follows:

                                               1994               1995
                                             --------           --------
                                                $A                 $A
US Dollars
   Liabilities
        Current............................       Nil           1,719,055
        Non-current........................   995,074             743,085
                                              -------           ---------
             Total.........................   995,074           2,462,140
                                              =======           =========
   Assets
        Current............................       Nil              25,729
                                              =======           =========
Sterling
   Liabilities
        Current............................       Nil              10,949
                                              =======           =========

NOTE 12--SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED
         IN AUSTRALIA AND THE UNITED STATES

     As stated in note 1, the consolidated financial statements of XYZ have been
prepared  in  accordance  with  accounting   principles  generally  accepted  in
Australia,  which differ in certain  significant  respects from those  generally
accepted in the United States.  A description of the major  differences  between
Australian GAAP and US GAAP affecting the Company follows:

   (a) STATEMENT OF CASH FLOWS

     Under US GAAP,  a Statement  of Cash Flows would not provide a subtotal for
"net cash used in operating activities before changes in assets and liabilities"
as shown in Reconciliation of Net Loss to Net Cash Used in Operating Activities.

   (b) DEFERRED TAXATION

     Australian GAAP adopts the full liability  method of tax effect  accounting
whereby deferred tax assets and liabilities  arising from timing differences are
recorded in the balance  sheet at the rate of tax expected to be  applicable  at
the time those timing  differences  reverse. A deferred tax asset in relation to
available  tax losses  may be  recognized  to the  extent  that there is virtual
certainty of its recovery against future taxable income.

     Under US GAAP,  deferred  taxes are provided on all temporary  differences.
Temporary  differences encompass timing differences and other events that create
differences  between  the tax basis of an asset or  liability  and its  reported
amount in the financial  statements.  A deferred tax asset is recorded in a loss
period and is reduced by a valuation  allowance  to the extent it is more likely
than not that the deferred tax asset will not be realized.

     No deferred tax asset has been recognized in these accounts.

                                      116

<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995


   (c) INVESTMENTS IN AND ADVANCES TO ASSOCIATED COMPANIES

     The Economic  Entity  equity  accounts for its  investments  in  associated
companies in equity supplementary  financial  statements.  Corporations in which
the Economic  Entity has a material  interest and over which the Economic Entity
exercises  significant  influence,  but does not control,  are  considered to be
associated  companies.  The ability to exercise  significant  influence over the
strategic  operating,  investing  and  financing  policies  of a company  may be
indicated   by,  for  example,   representation   on  the  board  of  directors,
participation in policy-making  processes,  material intercompany  transactions,
interchange of management personnel or provision of technical information.

     Investments  in  associated  companies are carried at the lower of cost and
recoverable amount.  Dividends are recorded in the profit and loss account after
they have been declared by the associated company in a general meeting.

     Under US GAAP,  the equity method of accounting is used for  investments in
which  the  Company  exerts  significant  influence.   Under  this  method,  the
investment,  originally recorded at cost, is adjusted to recognize the Company's
share of net earnings or losses of the associates,  limited to the extent of the
Company's  investment  in and  advances to the  associates,  including  any debt
guarantees or other contractual funding commitments.

     Investments in and advances to associated companies are as follows:

                                                                        $A
Investment.........................................................         1
Amounts due from associated company (net of provision
   for non-recoverability of $A1,696,160)..........................   245,517
                                                                      -------
                                                                      245,518
                                                                      =======

   (d)  RECONCILIATION  OF NET LOSS AND  STOCKHOLDERS'  DEFICIENCY  AS REPORTED
UNDER AUSTRALIAN GAAP TO US GAAP

   A reconciliation of net loss and  stockholders'  deficiency as reported under
Australian GAAP to US GAAP is not required as there is no difference between the
results reported under Australian GAAP and US GAAP at the balance date.

   FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS AND OTHER DISCLOSURES

   The  carrying  amount of the  following  instruments  approximate  fair value
because of the short  maturity of these  instruments--cash  at bank,  promissory
notes, trade and other receivables,  and trade creditors and accruals (including
amounts owing to related entities).

   NEW ACCOUNTING PRINCIPLES

   The US Financial  Accounting  Standards  Board ("FASB")  issued  Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  of" ("SFAS  121")
which is required to be adopted by affected companies for fiscal years beginning
after  December 15, 1995.  The Company does not believe that the  provisions  of
SFAS 121 will have a material effect on the Company's reported results.

                                      117
<PAGE>

                            XYZ ENTERTAINMENT PTY LTD
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  FOR THE PERIOD FROM OCTOBER 17, 1994 (DATE OF INCEPTION) TO DECEMBER 31, 1994
                      AND THE YEAR ENDED DECEMBER 31, 1995

NOTE 13--REPORTING OF SIX MONTH PERIODS
                                                                 Six Months
                                                   Six Months       Ended
                                                     Ended       December 31,
                                                 June 30, 1995       1995
                                                 -------------   ------------
                                                       $A             $A
Revenue
     Channel Supply.............................     100,747     1,016,344
     Other......................................         Nil       592,149
     Interest...................................      62,587       133,704
                                                  ----------    ----------
                                                     163,334     1,742,197
Operating Expenses
     Cost of services...........................  15,732,400     8,945,175
     Selling, general and administrative .......   7,162,916     5,312,681
     Depreciation and amortization..............   1,366,875     2,227,862
                                                  ----------    ----------
                                                  24,262,191    16,485,718
                                                  ----------    ----------
NET LOSS........................................  24,098,857    14,743,521
                                                  ==========    ==========


                                      118

<PAGE>
                                AUDITORS' REPORT

To the shareholders of
Saturn Communications Limited (formerly Kiwi Cable Company Limited):

     We  have  audited  the   accompanying   financial   statements   of  Saturn
Communications Limited (formerly Kiwi Cable Company Limited) for the years ended
31 December 1994 and 1995. These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on those
financial statements based on our audits.

     We conducted our audits in accordance with New Zealand Auditing  Standards,
which do not differ  substantially from generally accepted auditing standards in
the United States of America.  Those standards  require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free from material  misstatements.  An audit includes  examining,  on a test
basis,  evidence supporting amounts and disclosures in the financial statements.
An audit also includes assessing the accounting  principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects the financial position of Saturn Communications Limited
as of 31 December 1994 and 1995, and the results of the Company's operations for
the years then ended in accordance with New Zealand Accounting Standards.

     There are certain differences between New Zealand Accounting  Standards and
those  generally  accepted in the United States of America.  Application  of the
generally accepted  accounting  principles in the United States of America would
not result in material differences to these financial statements.


Arthur Andersen

Wellington, New Zealand
20 February 1996


                                      119
<PAGE>


                          SATURN COMMUNICATIONS LIMITED
                       STATEMENT OF FINANCIAL PERFORMANCE

                                                       For the Years
                                                     Ended December 31
                                                 --------------------------
                                    Note           1994              1995
                                                 --------          --------
                                                   NZ$               NZ$

Programming Revenue..............                   70,389            169,223
Other Revenue....................                       --             57,835
                                                ----------        -----------
Total Revenue....................                   70,389            227,058
Expenses
Programming Expenses.............                  203,901            448,243
Selling, general & administration                  684,811          1,306,969
Management fee expense to                          309,426             17,209
   related party.................
Other operating expenses.........                  845,791          2,506,326
                                                ----------        -----------
Deficit before taxation for the       2        (1,973,540)         (4,051,689)
   year..........................
Income tax expense...............    11                --                  --
                                               -----------         ----------
Net deficit for the year.........              (1,973,540)         (4,051,689)
                                               ===========         ==========






   The accompanying notes form an integral part of these financial statements.



                                     120
<PAGE>

                          SATURN COMMUNICATIONS LIMITED
                        STATEMENT OF MOVEMENTS IN EQUITY
                  FOR THE YEARS ENDED 31 DECEMBER 1994 and 1995

                                                                        NZ$
                                                                    ----------
Balance, at December 31, 1993...................................... (2,314,485)
Contributions from owners..........................................  7,155,259
Net deficit........................................................ (1,973,540)
                                                                    -----------
Balance, at December 31, 1994......................................  2,867,234
Net deficit........................................................ (4,051,689)
                                                                    -----------
Balance, at December 31, 1995...................................... (1,184,455)
                                                                    ===========




   The accompanying notes form an integral part of these financial statements.


                                      121
<PAGE>

                          SATURN COMMUNICATIONS LIMITED
                         STATEMENT OF FINANCIAL POSITION


                                                       As at 31 December
                                                   ------------------------
                                              Note     1994         1995
                                                   -----------  -----------
                                                       NZ$          NZ$
Owner's Equity
Share capital [Shares issued: 347,368
   (1994: 347,368)]......................       3     347,368      347,368
Reserves.................................       3   6,981,575    6,981,575
Retained earnings........................          (4,461,709)  (8,513,398)
                                                   -----------  -----------
                                                    2,867,234   (1,184,455)
Non-Current Liabilities
Related party loan.......................       8          --    3,076,199

Current Liabilities
Accounts Payable & Accruals
     Trade creditors.....................             103,584      135,894
     Other...............................             110,868      122,207
                                                   ----------   ----------
                                                      214,452      258,101
Employee Entitlements....................              24,554       62,747
Converter Deposits.......................              24,356           --
Current-portion finance lease liability..       9      23,701       14,270
Related party payables...................       8          --      879,336
                                                   ----------   ----------
                                                      287,063    1,214,454
                                                   ----------   ----------
Total Liabilities And Equity.............           3,154,297    3,106,198
                                                   ==========   ==========
Non-Current Assets
Property, plant and equipment
   Cost .............................               3,297,551    4,150,307
   Accumulated depreciation..........              (1,300,597)  (1,887,172)
                                                   ----------   ----------
                                                4   1,996,954    2,263,135
Investments--Unlisted Shares..........                     --        5,000
                                                   ----------   ----------
                                                    1,996,954    2,268,135
Current Assets
Cash    .                                             733,407      379,547
Accounts receivables
     Customers.......................                      --       21,746
     Employees.......................                  34,472       32,545
     Others..........................                  17,143       33,463
     Provision for doubtful debts....                      --      (10,000)
                                                   ----------   ----------
                                                       51,615       77,754
Inventories..........................                 170,709      160,074
Prepayments..........................                      --       29,351
Related party receivables............          8      201,612      191,337
                                                   ----------   ----------
                                                    1,157,343      838,063
                                                   ----------   ----------
Total Assets.........................               3,154,297    3,106,198
                                                   ==========   ==========

   The accompanying notes form an integral part of these financial statements

                                      122
<PAGE>

                          SATURN COMMUNICATIONS LIMITED
                             STATEMENT OF CASH FLOWS
                       FOR THE YEAR ENDED 31 DECEMBER 1995

<TABLE>
<CAPTION>

                                                                   For the years ended
                                                                      31 December
                                                                 -----------------------
                                                           Note     1994         1995
                                                                 ---------    ----------
                                                                     NZ$          NZ$

<S>                                                         <C>  <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was provided from:
     Customers.........................................              22,031      171,749
Cash was disbursed to:
     Payments to suppliers and employees...............          (1,496,891)  (3,624,231)
                                                                 -----------  -----------
Net cash flows from operating activities...............     10   (1,474,860)  (3,452,482)

CASH FLOWS FROM INVESTING ACTIVITIES
Cash was provided from:
     Proceeds from sale of fixed assets................             142,306       69,829
Cash was applied to:
     Purchase of fixed assets..........................            (726,123)    (932,018)
     Purchase of investments...........................                  --       (5,000)
                                                                 ----------   -----------
Net cash flows from investing activities...............            (583,817)    (867,189)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash was provided from:
     Share issue.......................................      3    7,155,259           --
     Related party loans...............................                  --    3,965,811
Cash was applied to:
     Related party loan repayment......................          (4,402,250)          --
                                                                 -----------  ----------
Net cash flow from financing activities................           2,753,009    3,965,811
Net increase/(decrease) in cash held...................             694,332     (353,860)
Add opening cash brought forward.......................              39,075      733,407
                                                                 ----------   ----------
Ending cash carried forward............................             733,407      379,547
                                                                 ==========   ==========

</TABLE>



   The accompanying notes form an integral part of these financial statements.


                                      123
<PAGE>

                          SATURN COMMUNICATIONS LIMITED
              NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
                       FOR THE YEAR ENDED 31 DECEMBER 1995

1.   STATEMENT OF ACCOUNTING POLICIES

   a) The  reporting  entity  changed its name  subsequent to year end from Kiwi
Cable  Company  Limited  to  Saturn  Communications   Limited.  These  financial
statements  have been prepared under the  requirements of the Companies Act 1955
and the Financial Reporting Act 1993.

     The measurement base adopted is that of historical cost and the New Zealand
dollar ("NZ$") as the reporting currency.


   b) CURRENCY

     These financial statements have been prepared in New Zealand dollars.


   c) FIXED ASSETS

     All fixed assets are  recorded at cost.  Additions,  retirements  and major
improvements  are  capitalized  and costs for normal repair and  maintenance are
charged to expense as incurred.


   d) DEPRECIATION

     Depreciation  is provided on a straight  line basis on all  tangible  fixed
assets at rates calculated to allocate the assets' cost, less estimated residual
value, over their estimated useful lives.

     Major depreciation rates are:

            Plant and equipment.........      10-20%
            Leasehold improvements......         20%
            Office equipment............         20%
            Motor vehicles..............         20%

     e) INCOME TAX

     The income tax expense  charged to the  statement of financial  performance
includes  both the current year  liability  and the income tax effects of timing
differences  after  allowing  for   non-assessable   income  and  non-deductible
expenses.

     Deferred   taxation  is  calculated   using  the  liability   method  on  a
comprehensive basis. Debit balances in the deferred tax account arising from net
accumulated  timing  differences  and future  income tax  benefits  arising from
income tax losses  carried  forward are only  recognised if  realisation is more
likely than not.

     f) INVENTORIES

     Inventories are valued at lower of actual cost or net realisable value.


                                      124
<PAGE>

                          SATURN COMMUNICATIONS LIMITED
              NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
                       FOR THE YEAR ENDED 31 DECEMBER 1995

     g) LEASES

     Finance leases,  which effectively transfer to the entity substantially all
of the  risks and  benefits  incident  to  ownership  of the  leased  item,  are
capitalised  at the  lower of the fair  value of the  leased  property,  and the
present value of the minimum lease payments. The leased assets and corresponding
liabilities  are disclosed  and the leased assets are amortised  over the period
the entity is expected to benefit from their use.

     Operating   lease   payments,   where  the   lessors   effectively   retain
substantially  all the risks and benefits of ownership of the leased items,  are
included in the determination of the operating surplus in equal instalments over
the lease term.


   h) EXPENDITURE CARRIED FORWARD

     Significant  items of expenditure  having a benefit or relationship to more
than one period are written off over the period to which they relate.


   i) REVENUE RECOGNITION

     Monthly  service  are  recognised  as revenue  in the  period  the  related
services are provided to the  subscribers.  Installation  fees are recognised as
revenue to the extent of direct selling costs.


   j) FOREIGN CURRENCIES

     Transactions  in foreign  currencies are translated at the New Zealand rate
of exchange ruling at the date of transaction.

     At balance date foreign  monetary  assets and liabilities are translated at
the closing rate, and exchange  variations  arising from these  translations are
included in the statement of financial performance as operating items.


ADDITIONAL UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DISCLOSURES

   k) USE OF ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  effect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  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 these estimates.


   l) CASH AND CASH EQUIVALENTS

     Cash and  cash  equivalents  include  cash and  investments  with  original
maturities of less than three months.

   m) NEW ACCOUNTING PRINCIPLES

     The  Financial  Accounting  Standards  Board  (FASB)  issued  Statement  of
Financial  Accounting  Standards  No.  121  "Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be disposed  of" ("SFAS  121")
which is required to be adopted by affected companies for fiscal years beginning
after  December  15,  1995.  SFAS No. 121 requires  that  long-lived  assets and
certain identifiable  intangibles to be held and used by the Company be reviewed
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying  amount of an asset may not be  recoverable.  The  Company  adopted the
principles of this  statement on January 1, 1996. The provisions of SFAS 121 did
not have an effect on the Company's reported results.

     The  Financial  Accounting  Standards  Board  (FASB)  issued  Statement  of
Financial   Accounting   Standards  No.  123  "Accounting  for  the  Stock-Based

                                      125

<PAGE>
                          SATURN COMMUNICATIONS LIMITED
              NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
                       FOR THE YEAR ENDED 31 DECEMBER 1995


Compensation" ("SFAS 123") which is required to be adopted by affected companies
for fiscal years beginning after December 15, 1995. The Company does not believe
that the  provisions  of SFAS 123 will have a material  effect on the  Company's
reported results.

   n) CHANGES IN ACCOUNTING POLICIEs

     There have been no material changes in accounting policies during the year.
All policies have been applied on consistent bases with previous years.


2.   DEFICIT BEFORE TAXATION

     HAS BEEN DETERMINED

                                                                1994     1995
                                                              -------- --------
                                                                 NZ$      NZ$
        After charging:
             Audit fees and expenses............               15,080    6,000
             Depreciation.......................              570,904  586,575
             Interest...........................                8,151       82
             Rental and leasing costs...........               71,804   77,489

3.   SHARE CAPITAL

                                                                1994     1995
                                                              -------- --------
                                                                NZ$      NZ$
     Issued 347,368 ordinary shares of $1.00 each
       (1994 347,368 shares) fully paid.........              347,368  347,368
                                                              -------  -------
                                                              347,368  347,368
                                                              =======  =======

     On 8 July 1994 United International Holdings, Inc, (UIH), a publicly listed
company  incorporated in the USA, acquired a 50% interest in the company via the
issue of 173,684 shares by the company.

     The shares were purchased by UIH at a price of $US14.39 ($NZ24.12),  giving
rise to a share premium reserve at balance date of $US2,389,509 ($NZ4,005,883).

     Also on the 8 July 1994 the balance of the Todd International loan account,
being $US 1,775,000  ($NZ2,975,692)  after forgiveness of $US50,176  ($NZ84,117)
and repayment of $US900,000 ($NZ1,508,801), converted to equity.

                                      126

<PAGE>

                          SATURN COMMUNICATIONS LIMITED
       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(Continued)
                       FOR THE YEAR ENDED 31 DECEMBER 1995


4.   FIXED ASSETS
<TABLE>
<CAPTION>
                                                                                1994
                                                                 -----------------------------------
                                                                            Accumulated   Net Book
                                                                    Cost    Depreciation   Value
                                                                 --------   ------------  ----------
<S>                                                              <C>        <C>           <C>
     Leasehold improvements.................................       121,516     (49,341)      72,175
     Office equipment (including Finance Lease Assets)......       227,909     (74,638)     153,271
     Plant and equipment....................................     2,895,750  (1,159,362)   1,736,388
     Motor vehicles.........................................        52,376     (17,256)      35,120
                                                                 ---------  ----------    ---------
                                                                 3,297,551  (1,300,597)   1,996,954
                                                                 =========  ==========    =========
</TABLE>

<TABLE>
<CAPTION>
                                                                                1995
                                                                 -----------------------------------
                                                                            Accumulated   Net Book
                                                                   Cost     Depreciation   Value
                                                                 --------   ------------  ----------
<S>                                                              <C>        <C>           <C>
     Leasehold improvements.................................       127,912     (74,197)      53,715
     Office equipment (including Finance Lease Assets)......       445,160    (143,085)     302,075
     Plant and equipment....................................     3,477,675  (1,640,460)   1,837,215
     Motor vehicles.........................................        99,560     (29,430)      70,130
                                                                 ---------  ----------    ---------
                                                                 4,150,307  (1,887,172)   2,263,135
                                                                 =========  ==========    =========
</TABLE>

5.   CONTINGENT LIABILITIES

     There are no contingent liabilities outstanding at year end (1994: nil).


6.   CAPITAL EXPENDITURE COMMITMENTS

     Estimated  capital  expenditure  contracted  for at  balance  date  but not
provided for NZ$659,235 (1994: nil).

7.   OPERATING LEASE COMMITMENTS

     At balance date the Company had the following  operating lease  commitments
for office space and certain vehicles:
<TABLE>
<CAPTION>
                                                                                  1995                 1994
                                                                                --------             --------
                                                                                   NZ$                 NZ$
<S>                                                                            <C>                  <C>
     Payable:
          within 1 year................................................          449,982              84,985
          between 1 and 2 years........................................          457,468              82,535
          between 2 and 3 years........................................          357,915              80,031
          between 3 and 4 years........................................          233,425              52,487
          between 4 and 5 years........................................          233,425              52,487
          greater than 5 years.........................................          571,989             393,653
                                                                               ---------             -------
                                                                               2,304,204             746,178
                                                                               =========             =======

</TABLE>

                                      127

<PAGE>


                          SATURN COMMUNICATIONS LIMITED
       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(Continued)
                       FOR THE YEAR ENDED 31 DECEMBER 1995


8.   RELATED PARTIES

     During the year ended December 31, 1995, Saturn Communications Limited were
involved in the following related party transactions:

          United International Holdings, Inc
           (significant shareholder)
               Received funding.........................NZ$3,910,256 (1994: nil)

          Funding was  provided by United  International  Holdings for Saturn to
meet its day to day obligations. The funding has been provided interest free and
repayable on demand. Although the amount is repayable on demand, a call will not
be made until Saturn can afford to meet its day to day  obligations and pay back
this funding.


          An affiliate of Todd International
           Limited (significant shareholder)
               Received funding...................  NZ$45,279 (1994: nil)

     Todd provided funding allowing Saturn to meet its day to day obligations.

     An affiliate of United International Holdings
          Received payment of prior year balance
          Cash Received...........................  NZ$22,195 (1994: nil)
          Balance Receivable......................  NZ$12,227 (1994: $34,422)

     Saturn also have a receivable balance owing from:

          Todd International Limited (significant
           shareholder)
             Receivable...........................  NZ$191,337(1994: NZ$201,613)

     The receivable from Todd  International is denominated in US dollars and is
on interest free terms.

     Funding was  provided by United  International  Holdings for Saturn to meet
its day to day  obligations.  The funding has been  provided  interest  free and
repayable on demand.  Although the amount is repayable on demand a call will not
be made until Saturn can afford to meet its day to day  obligations and pay back
this funding.

     United International  Holdings--Tahiti
        (subsidiary of United International
        Holdings, Inc.) Received payment of
        prior year balance
          Cash Received...........................  NZ$  Nil (1994: $22,195)
          Balance Receivable......................  NZ$  12,227 (1994: $12,227)

     Saturn also has the following balances with:

     Todd International Limited (significant shareholder)
          Receivable..............................  NZ$191,337(1994: $201,612)
          Payable.................................  NZ$ 45,279(1994: Nil)

     The receivable from Todd  International is denominated in US dollars and is
on interest free terms. The payable is denominated in New Zealand dollars and is
interest free repayable on demand.

                                      128

<PAGE>

                          SATURN COMMUNICATIONS LIMITED
       NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS--(Continued)
                       FOR THE YEAR ENDED 31 DECEMBER 1995


9.   FINANCE LEASES

     At 31 December the following finance lease existed:

                                                   Asset              Lease
                                                   Value            Liability
                                                   -----            ---------
                                                   NZ$                 NZ$

     Canon photocopier and fax
     1995........................................  19,263              14,270
     1994........................................  24,400              23,701

     The finance lease payment commitments as at balance date were payable:

                                                     1995               1994
                                                     ----               ----
                                                      NZ$                NZ$

     within 1 year................................   7,752              9,431
     between 1 and 2 years........................   6,518              7,752
     between 2 and 3 years........................      --              6,718
                                                    ------             ------
                                                    14,270             23,901
                                                    ======             ======

10.   RECONCILIATION OF NET DEFICIT AFTER TAXATION TO NET CASH OUTFLOW FROM
      OPERATING ACTIVITIES
<TABLE>
<CAPTION>
                                                                    For the Years Ended
                                                                        December 31,
                                                                   ---------------------
                                                                     1994         1995
                                                                   --------     --------
                                                                     NZ$          NZ$
<S>                                                              <C>          <C>
Net deficit after taxation...................................    (1,973,540)  (4,051,509)
Add non-cash items:
     Depreciation............................................       570,905      586,575
     Provision for doubtful debts............................            --       10,000
     Add/(less) movements in working capital items
     (Increase) in receivables and prepayments...............       (48,358)     (65,489)
     (Increase)/decrease in inventories......................      (170,709)      10,635
     Increase/(decrease) in accounts payable and accruals....       134,897       19,293
     Increase in employee entitlements.......................        11,945       38,193
                                                                 ----------   ----------
          Net cash outflow from operations...................    (1,474,860)  (3,452,302)
                                                                 ==========   ==========
</TABLE>

11.   INCOME TAXATION

     The Company has accumulated tax losses of approximately NZ$7,500,000 (1994:
NZ$3,785,650), tax effect NZ$2,475,000 (1994:NZ$1,249,330),  carried forward and
available  to offset  against  future  assessable  income.  The benefit of these
losses has not been brought to account. The ability to utilise these losses will
not expire,  subject to the company  maintaining  continuity  of  ownership  and
meeting other requirements of income tax legislation.

     The Company's net deferred tax asset is as follows:

                                                        As at December 31,
                                                   --------------------------
                                                     1994              1995
                                                   --------          --------
Net operating loss carryforward................    1,249,330         2,475,000
Valuation allowance............................   (1,249,330)       (2,475,000)
                                                  ----------        ----------
Net deferred tax asset.........................           --                --
                                                  ==========        ==========


                                      129
<PAGE>
                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) 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,  in the City of Denver,
State of Colorado, on this 31st day of March 1998.


                                       UIH Australia/Pacific, Inc.
                                       a Colorado corporation

                                       By:  /S/ J. Timothy Bryan
                                       -------------------------------------
                                       J. Timothy Bryan
                                       Chief Financial Officer and Treasurer

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has caused this Report to be signed by the following  persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
                                                        Title of Position
Signature                                            Held With the Registrant
---------                                            ------------------------
<S>                                                  <C>                                <C>
     *
---------------------------------
Gene W. Schneider                                    Chairman of the Board              March 31, 1998

     *
---------------------------------
Michael T. Fries                                     Director, President and
                                                     Chief Executive Officer            March 31, 1998
/S/ J. Timothy Bryan
---------------------------------
J. Timothy Bryan                                     Director, Chief Financial
                                                     Officer and Treasurer              March 31, 1998
/S/ Valerie L. Cover
---------------------------------
Valerie L. Cover                                     Controller (Principal
                                                     Accounting Officer)                March 31, 1998
     *
---------------------------------
Mark L. Schneider                                    Director                           March 31, 1998



*  By:   /S/ J. Timothy Bryan
      ---------------------------
      J. Timothy Bryan
      Attorney-in-fact
</TABLE>



                                      130