<PAGE>
 
                                   FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934 (FEE REQUIRED)

                                       OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the year ended December 31, 1996
Commission file number:  1-9953

                             JONES INTERCABLE, INC.
                             ----------------------
             (Exact name of registrant as specified in its charter)

     Colorado                                               84-0613514
     --------                                               ----------
(State of Organization)                                     (IRS Employer
                                                            Identification No.)
 
P.O. Box 3309, Englewood, Colorado 80155-3309           (303) 792-3111
---------------------------------------------           --------------
(Address of principal executive office and Zip Code)    (Registrant's telephone
                                                        no. including area code)

          Securities registered pursuant to Section 12(g) of the Act:
          ---------------------------------------------------------- 
                          Common Stock, $.01 par value
                      Class A Common Stock, $.01 par value

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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
                 Yes  x                              No
                     ----                               ----
 
Aggregate market value as of February 14, 1997 of the voting stock held by non-
 affiliates:
Common Stock   $22,337,714                   Class A Common Stock   $138,753,133
 
Shares outstanding of each of the registrant's classes of common stock as of
 February 14, 1997:
Common Stock:     5,113,021                  Class A Common Stock:    26,265,523

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405) 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.
                                    -------

(27916)
<PAGE>
 
                             JONES INTERCABLE, INC.

                           ANNUAL REPORT ON FORM 10-K
                      For the Year Ended December 31, 1996


                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
 
 
                                                                 Page No.
                                                                --------
 
<S>                                                             <C>
     PART I                                                         1
     ITEM 1.  BUSINESS                                              1
      The Company                                                   1
      The Cable Television Industry                                 1
        Industry Growth                                             3
        System Operations                                           3
        Programming                                                 4
        System Revenues                                             4
      The Company's Cable Television Business                       5
      The Company's Other Businesses and Investments                9
      Acquisitions of Cable Television Systems 
        in 1996 and January 1997                                    9
      Exchanges of Cable Television Systems in 1996                11
      Proposed Acquisitions of Cable Television Systems in 1997    11
      Proposed Dispositions of Cable Television Systems in 1997    12
      Proposed Exchange of Cable Television Systems in 1997        12
      The Company's Credit Facilities                              13
      Sales of Radio and TVRO Businesses in 1996                   13
      Cable Television Franchises                                  13
      Competition                                                  14
        Broadcast Television                                       14
        Traditional Overbuild                                      14
        DBS                                                        15
        Telephone                                                  15
        Private Cable                                              15
        MMDS                                                       16
      Regulation and Legislation                                   16
        Cable Rate Regulation                                      17
        Cable Entry Into Telecommunications                        18
        Telephone Company Entry Into Cable Television              18
        Electric Utility Entry Into Telecommunications/
          Cable Television                                         19
        Additional Ownership Restrictions                          19
        Must Carry/Retransmission Consent                          19
        Access Channels                                            20
        Access to Programming                                      20
        Other FCC Regulations                                      20
 
</TABLE> 
                                       i
<PAGE>
 
<TABLE>
<CAPTION>
 
 
                                                                 Page No.
                                                                --------
 
<S>                                                             <C>

       Copyright                                                   21
       State and Local Regulation                                  21
                                                                   
ITEM 2.  PROPERTIES                                                21
       Cable Television Systems Owned by the Company and its       
        Subsidiaries                                               22 
                                                                   
ITEM 3.  LEGAL PROCEEDINGS                                         25
       Alexandria Litigation                                       25
       Tampa Litigation                                            25
                                                                   
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY               
         HOLDERS                                                   27  
                                                                   
PART II                                                            27
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND                 
         RELATED STOCKHOLDER MATTERS                               27  
                                                                   
ITEM 6.  SELECTED FINANCIAL DATA                                   29
                                                                   
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF                   
         FINANCIAL CONDITION AND RESULTS OF                            
         OPERATIONS                                                30  
                                                                   
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY                    
         DATA                                                      38  
                                                                   
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH                         
         ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                                
         DISCLOSURE                                                69  
                                                                   
PART III                                                           69
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE                   
         REGISTRANT                                                69  
                                                                   
ITEM 11. EXECUTIVE COMPENSATION                                    75
                                                                   
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL                  
         OWNERS, DIRECTORS AND MANAGEMENT                          77  
                                                                   
ITEM 13. CERTAIN TRANSACTIONS                                      81
                                                                   
PART IV                                                            87
                                                                   
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K                          87
 
 
</TABLE>

                                      ii
<PAGE>
 
       Information contained in this Form 10-K Report contains "forward-looking
  statements" within the meaning of the Private Securities Litigation Reform Act
  of 1995.  All statements, other than statements of historical facts, included
  in this Form 10-K Report that address activities, events or developments that
  the Company expects, believes or anticipates will or may occur in the future,
  including such matters as changes in the cable television industry, the
  Company's acquisition and clustering strategies, capital expenditures, the
  Company's operating strategies, the liquidation of the Company's managed
  partnerships, the development of new services and technologies, particularly
  those in the telecommunications area, the effects of competition, the
  Company's expansion and growth of the Company's operations and other such
  matters, are forward-looking statements.  These forward-looking statements are
  based upon certain assumptions and are subject to a number of risks and
  uncertainties.  Actual results could differ materially from the results
  predicted by these forward-looking statements.

                                     PART I
                               ITEM 1.  BUSINESS
                               -----------------

  The Company
  -----------

       Jones Intercable, Inc. (the "Company") is a Colorado corporation
  organized in 1970.  The Company is primarily engaged in the cable television
  business.  The majority of the Company's cable television systems are owned by
  the Company's wholly owned subsidiaries, Jones Cable Holdings, Inc. ("JCH")
  and Jones Cable Holdings II, Inc. ("JCH II").  In addition, the Company
  operates cable television systems for its managed partnerships.  See Item 1,
  The Company's Cable Television Business.  The Company has a subsidiary engaged
  in the cable television system brokerage business and a subsidiary that
  manufacturers and markets data encryption products.  The Company also has
  minority equity interests in a cable communications company operating in the
  United Kingdom and in affiliated educational programming companies.  See Item
  1, The Company's Other Businesses and Investments.

       Jones International, Ltd. ("International") beneficially owns
  approximately 48% of the Common Stock of the Company and approximately 9% of
  the Class A Common Stock of the Company.  Glenn R. Jones, the Chairman of the
  Board of Directors and Chief Executive Officer of the Company, personally owns
  approximately 9% of the Company's Common Stock and approximately 2% of the
  Company's Class A Common Stock.  Because of his 100% ownership of
  International, Mr. Jones is deemed to be the beneficial owner of all shares of
  the Company owned by International, and his direct and indirect stock
  ownership gives him voting power over approximately 41% of votes to be cast by
  all shareholders of the Company on matters not requiring a class vote.  Bell
  Canada International Inc. ("BCI") owns approximately 38% of the Company's
  Class A Common Stock and, through such ownership, BCI has an approximate 32%
  economic interest in the Company.  Mr. Jones has the right to designate seven
  members of the Board of Directors, BCI has the right to designate three
  members of the Board of Directors and three members of the Board of Directors
  are jointly designated by Mr. Jones and BCI.  See Item 10, Directors and
  Executive Officers of the Registrant and Item 12, Security Ownership of
  Certain Beneficial Owners, Directors and Management.  In addition, BCI holds
  an option to purchase 2,878,151 shares of Common Stock of the 

                                       1
<PAGE>
 
  Company from International, Glenn R. Jones and certain of their affiliates
  which, if and when exercised, would enable BCI to elect a majority of the
  members of the Board of Directors of the Company.

       At December 31, 1996, the Company had a total of approximately 3,410
  employees.  The executive offices of the Company are located at 9697 E.
  Mineral Avenue, Englewood, Colorado 80112, and its telephone number is (303)
  792-3111.

  The Cable Television Industry
  -----------------------------

       The cable television industry developed in the late 1940s and early 1950s
  in response to the needs of residents in predominantly rural and mountainous
  areas of the country where the quality of television reception was inadequate
  because of geographic location, surrounding terrain, man-made structures or
  the curvature of the earth.  During recent decades, cable television systems
  have also been constructed in suburban areas and larger cities where signal
  interference problems or limited availability of channels created a desire for
  better reception and expanded service.  Television reception is substantially
  improved by cable television because of its insulation from outside
  interference.

       The cable television industry, which started as a technical solution to
  the problem of delivering television signals to remote areas of rural America,
  has now become an entertainment staple in a majority of American homes.  It is
  a dynamic, evolving and ever more complex industry.  Cable penetration, or the
  percentage of U.S. television households that subscribe to cable television,
  now stands at approximately 67%.

       A cable television system is a facility that receives satellite,
  broadcast and FM radio signals by means of high antennas, a microwave relay
  service or earth stations, amplifies the signals and distributes them by
  coaxial and/or fiber-optic cable to the premises of its subscribers, who pay a
  fee for the service.  A cable television system may also originate its own
  programming for distribution through its cable plant.

       The physical plant of a cable television system consists of four
  principal operating components.  The first, known as the "headend" facility,
  receives television and radio signals with microwave relay systems, special
  antennae and satellite earth stations.  The second component, the distribution
  network, originating at the headend and extending throughout the system,
  consists of coaxial and/or fiber-optic cables placed on poles or buried
  underground, and associated electronic equipment.  The third component of the
  system is a "drop cable" that extends from the distribution network into the
  subscriber's home and connects to the subscriber's television set.  The fourth
  component, a converter, is the home terminal device often necessary to expand
  channel capacity and to deliver pay-per-view and other premium services.

       The cable television industry is undergoing significant change. The
  Company believes that the nature of the cable television business is evolving
  from a traditional coaxial network delivering only video entertainment to a
  more sophisticated, digital platform environment where cable systems may
  deliver traditional programming as well as other services, including data,
  telephone and expanded 

                                       2
<PAGE>
 
  educational and entertainment services on an interactive basis. See Item 1,
  The Company's Cable Television Business.

       Industry Growth.  Based upon information obtained by the Company from
       ---------------                                                      
  industry sources, the Company believes that the following table demonstrates
  the growth of the cable television industry in the United States for the
  periods indicated:

<TABLE>
<CAPTION>
 
                                                       Approximate Percentage 
                               Approximate Number      of TV Households With 
        End of Year          of Basic Subscribers(1)   Basic Cable Service(2) 
        ----------           -----------------------   ---------------------- 
<S>                          <C>                       <C>
           1985                      39,872,250                46%
           1986                      42,237,140                48%
           1987                      44,970,880                51%
           1988                      48,636,520                54%
           1989                      52,564,470                57%
           1990                      54,871,330                59%
           1991                      55,786,390                61%
           1992                      57,211,600                62%
           1993                      58,834,440                63%
           1994                      60,495,090                63%
           1995                      62,956,470                66%
           1996                      63,692,280(3)             67%(3)

</TABLE> 
--------------------- 
 
 (1)  The number of basic subscribers is computed by dividing the sum of total
      individual-dwelling subscribers and total revenues from bulk-rate
      subscribers by the standard basic service rate.
 
 (2)  The percentage is computed by dividing the number of basic
      subscribers by the number of TV households in the United States.

 (3)  As of July 1996.

 
      System Operations.  The operation of cable television systems is
      -----------------                                               
  generally conducted pursuant to the terms of a franchise or similar license
  granted by the local governing body for the area to be served or by a state
  agency.  Franchises generally are granted on a non-exclusive basis for a
  period of 5 to 15 years.  Joint use or pole rental agreements are normally
  entered into with electric and/or telephone utilities serving a cable
  television system's area and annual rentals generally range from $5 to $15 for
  each pole used.  These rates may increase in the future.  See Item 1, Cable
  Television Franchises; Item 1, Competition; and Item 1, Regulation and
  Legislation.

                                       3
<PAGE>
 
       Programming.  Cable television systems generally offer various types of
       -----------                                                            
  programming, which include basic service, tier service, premium services, pay-
  per-view programs and packages including several of these services at combined
  rates.

       Basic cable television service usually consists of signals of all
  national television networks broadcast by their local affiliates, various
  independent and educational television stations (both VHF and UHF) and certain
  signals received from satellites, and also usually includes programs
  originated locally by the system, which may consist of music, news, weather
  reports, stock market and financial information and live or videotaped
  programs of a public service or entertainment nature.  FM radio signals are
  also frequently distributed to subscribers as part of the basic service.  The
  Cable Television Consumer Protection and Competition Act of 1992 (the "1992
  Cable Act") contains signal carriage requirements.  Rules promulgated under
  the 1992 Cable Act allow each commercial television broadcast station to elect
  every three years whether to require the cable systems in its area to carry
  its signal or to require the cable systems to negotiate with the station for
  "retransmission consent" to carry the station.  If a local commercial
  broadcast television station requires a cable system to negotiate with the
  station for retransmission consent, and the cable system is unable to obtain
  retransmission consent, the cable system is not permitted to continue carriage
  of such station.  See Item 1, Regulation and Legislation.  To date, no
  broadcast stations that elected retransmission consent in areas served by one
  of the Company's cable television systems have withheld consent to the
  retransmission of their signals by a Company-owned cable television system.

       In most systems, tier services are also offered on an optional basis to
  subscribers.  These channels generally include most of the cable networks such
  as Entertainment and Sports Programming Network (ESPN), Cable News Network
  (CNN), Turner Network Television (TNT), The Family Channel, The Discovery
  Channel and others.  Systems also offer a package that includes the basic
  service channels and the tier services.

       Cable television systems offer premium services to their subscribers,
  which consist of feature films, sporting events and other special features
  that are presented without commercial interruption.  The cable television
  operator buys premium programming from suppliers such as HBO, Showtime,
  Cinemax, Encore and others at a cost based on the number of subscribers served
  by the cable operator.  The per service cost of premium service programming
  usually is significantly more expensive for the system operator than the basic
  service or tier service programming, and consequently the system operator
  prices premium service separately when sold to subscribers.

       Cable television systems also offer to subscribers pay-per-view
  programming.  Pay-per-view is a service that allows subscribers to receive
  single programs, frequently consisting of recently released motion pictures
  and major sporting events, and to pay for such service on a program-by-program
  basis.

       System Revenues.  Monthly service fees for basic, tier and premium
       ---------------                                                   
  services constitute the major source of revenue for cable television systems.
  A subscriber to a cable television system generally pays an initial connection
  charge and a fixed monthly fee for the cable programming services received.
  The amount of the monthly service fee varies from one area to another, and

                                       4
<PAGE>
 
  historically has been a function, in part, of the number of channels and
  services included in the service package and the cost of such services to the
  cable television system operator.  In most instances, a separate monthly fee
  for each premium service and certain other specific programming is charged to
  subscribers, with discounts generally available to subscribers receiving
  multiple premium services.

       Cable television operators have been able to generate additional revenue
  through the sale of commercial spots and channel space to advertisers.  As
  with other forms of advertising, the cable television operator receives a fee
  from the advertisers that is based on the programming service on which the
  advertisements appear, the volume of advertising and the time of the day at
  which it is broadcast.  Advertising, as well as fees generated by home
  shopping and pay-per-view, represent additional sources of revenue for cable
  television systems.  These services are not regulated under the 1992 Cable
  Act.

       The 1992 Cable Act mandated a greater degree of regulation of the cable
  television industry, including rate regulation.  Under the 1992 Cable Act's
  definition of "effective competition," nearly all cable systems in the United
  States, including almost all of those owned and managed by the Company, are
  subject to rate regulation with respect to basic cable services.  In addition,
  the FCC is permitted to regulate rates for non-basic service tiers other than
  premium services in response to local complaints. Rate regulations adopted by
  the FCC provide for a benchmark and price cap system that is used to regulate
  basic and non-basic service rates, and cost-of-service showings are available
  to cable operators to allow them to justify rates above benchmark levels.  The
  1996 Telecommunications Act (the "1996 Telecom Act") eliminated rate
  regulation for small cable operators.  The 1996 Telecom Act sunsets FCC rate
  regulation of cable programming service tiers for all cable television systems
  regardless of size on March 31, 1999.  See Item 1, Regulation and Legislation.

  The Company's Cable Television Business
  ---------------------------------------

       The Company operates cable television systems for itself and for its
  managed partnerships.  At December 31, 1996, the Company managed 47 cable
  television systems, 33 of which, operating in 14 states, were owned by
  Company-managed partnerships and 14 of which, operating in 8 states, were
  owned by the Company.  The Company's 23 managed partnerships own cable
  television systems located in California, Florida, Illinois, Indiana,
  Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Mexico, Oregon,
  Texas and Wisconsin.  The Company-owned cable television systems are located
  in Arizona, California, Colorado, Florida, Georgia, Maryland, South Carolina
  and Virginia.

       At December 31, 1996, Company-owned systems served approximately 584,900
  basic subscribers who subscribed to a total of approximately 563,200 pay
  units.  And, at such date, systems held by Company-managed partnerships served
  approximately 865,000 basic subscribers who subscribed to a total of
  approximately 604,600 pay units.  (Each premium service that a basic
  subscriber takes equals one pay unit.)  According to industry sources, as of
  December 31, 1996 the Company ranked among the top 10 multiple system cable
  television operators in the United States.

                                       5
<PAGE>
 
       The Company is implementing a balanced strategy of acquiring cable
  television systems from its managed partnerships and from third parties.  As
  part of this process, certain systems owned by the Company and its managed
  partnerships will be sold to third parties and Company-owned systems will be
  exchanged for systems owned by other cable system operators.  It is the
  Company's plan to cluster its cable television properties on the basis of
  operating characteristics and/or geographic areas.  Clustering systems should
  enable the Company to obtain operating efficiencies, and it should position
  the Company to capitalize on new revenue and business opportunities as the
  telecommunications industry evolves.  To date, the Company has created two
  clusters of cable television properties.  The cable television systems owned
  by JCH form a geographic cluster in the suburban Washington, D.C. metropolitan
  area.  JCH's properties include the cable television systems serving the
  communities of Alexandria, Manassas, Dale City and Reston in Virginia and all
  or portions of Anne Arundel, Charles and Prince Georges counties in Maryland.
  The Company plans to add the cable system serving Annapolis, Maryland to this
  cluster during the first half of 1997.  The cable television systems owned by
  JCH II form a cluster of systems based on similar operating characteristics.
  JCH II's properties include the cable television systems serving the
  communities of Savannah and Augusta in Georgia and portions of Pima County in
  Arizona.  The Company plans to add the cable system serving Independence,
  Missouri to this cluster during the second half of 1997.

       The Company intends to maintain and enhance the value of its current
  cable television systems through capital expenditures.  Such expenditures will
  include, among others, cable television plant extensions and the upgrade and
  rebuild of certain systems.  The Company also intends to institute new
  services as they are developed and become economically viable.

       Key elements of the Company's operating strategy include increasing basic
  penetration levels and revenue per subscriber through targeted marketing,
  superior customer service, maintenance of high technical standards and growth
  of advertising sales and pay-per-view revenues.  The Company has deployed
  fiber optic cable wherever practical in its current rebuild and upgrade
  projects, which improves system reliability and picture quality, increases
  channel capacity and provides the potential for new business opportunities.

       The Company intends to liquidate its managed partnerships as such
  partnerships achieve their investment objectives and as opportunities for
  sales of partnership cable television systems arise in the marketplace.  In
  accordance with this strategy, the Company is marketing for sale many of the
  cable television systems owned by its managed partnerships.  As of the first
  quarter of 1997, the Company is in the process of liquidating seven of its 23
  managed partnerships by arranging on behalf of the partnerships for the sale
  of all of the remaining assets of such partnerships either to the Company or
  to unaffiliated entities.  Such liquidations are expected to be accomplished
  before the end of 1997.  In addition, several other of the Company's managed
  partnerships recently have sold or are in the process of selling cable systems
  to unaffiliated entities as intermediate steps toward their eventual
  liquidation.

       Acquisitions of cable television systems, the development of new services
  and capital expenditures for system extensions and upgrades are subject to the
  availability of cash generated from operations, borrowings under the Company's
  revolving credit facilities, debt and/or equity financing.  In addition, the
  Company is exploring other financing options such as private equity capital
  and the 

                                       6
<PAGE>
 
  disposition of non-strategic assets, including its investment in Bell
  Cablemedia plc.  There can be no assurance that the capital resources
  necessary to accomplish the Company's acquisition and development plans will
  be available on terms and conditions acceptable to the Company, or at all.
  See Item 7, Management's Discussion and Analysis of Financial Condition and
  Results of Operations.

       Within the past several years, the cable television industry has seen
  much change.  The Company believes that the nature of the cable television
  business is evolving from a traditional coaxial network delivering only video
  entertainment to a more sophisticated, digital platform environment where
  cable systems may be capable of delivering traditional programming as well as
  other services, including data, telephone and expanded educational and
  entertainment services on an interactive basis.  As this convergence of
  various technologies progresses, cable television companies will reevaluate
  their system architecture and upgrade their cable plants in order to take
  advantage of new opportunities.  As described above, in response to these
  changes the Company has decided to cluster its systems on the basis of
  operating characteristics and/or geographic areas to achieve economies of
  scale and reasonable returns on the investments made.  The Company is also
  being affected by the entry into the marketplace of local telephone companies
  that, as a result of the passage of recent legislation, now have the ability
  to provide telephone and video services in direct competition with the
  Company.  See Item 1, Regulation and Legislation.  This direct competition
  with local telephone companies is an additional consideration in the ongoing
  evaluation by the Company of its position in this changing marketplace.  See
  Item 1, Competition.  The Company intends, where possible, to pursue these new
  technological opportunities as they evolve.  The ability of the Company to do
  so, however, will be dependent in large part on the availability of debt and
  equity financing.

       The Company is involved in analyzing and testing new technologies used in
  the telecommunications area, including combined telephone and video services
  to multiple dwelling units.  The Company is utilizing the experience of BCI to
  provide expertise in the telecommunications area.  BCI, through its parent
  company and its affiliates, is engaged in many areas of the telecommunications
  business.  BCE Inc., the parent of BCI, through its wholly owned subsidiary,
  Bell Canada, is the largest telecommunications company in Canada.  Bell
  Northern Research, an affiliate of BCI, is Canada's largest research and
  development organization and is engaged in developing and analyzing new
  technologies used in the telecommunications area.  Northern Telecom, a 52%
  subsidiary of BCE Inc., is a leading global manufacturer of telecommunications
  equipment.  As cable television systems in the United States evolve and change
  into more sophisticated digital networks providing traditional television
  entertainment, but also telephone and data services, and as competition
  between cable television operators, telephone companies and others develops,
  the relationship between BCI and the Company may provide the Company with
  access to expertise and experience that it would not otherwise have available.

       With respect to the systems owned by the Company and its subsidiaries,
  the Company earns revenues through monthly service rates and related charges
  to cable television subscribers.  The Company's subscribers have the option to
  choose a limited basic service consisting generally of broadcast stations and
  a few cable networks ("basic" service) or a package of services consisting of
  basic service and tier services ("basic plus" service).  The basic plus
  service generally consists of

                                       7
<PAGE>
 
  most of the cable networks, including ESPN, USA Network, CNN, Discovery,
  Lifetime and others. See Item 1, The Cable Television Industry, Programming.

       Monthly service rates include fees for basic service, basic plus service
  and premium services.  At December 31, 1996 monthly basic service rates ranged
  from $6.43 to $16.43 for residential subscribers, monthly basic plus service
  rates ranged from $18.24 to $26.35 for residential subscribers, and monthly
  premium services ranged from $1.00 to $11.99 per premium service.  In
  addition, the Company earns revenues from pay-per-view programs and
  advertising fees.  Pay-per-view programs, which usually are either unique
  sporting events or recently released movies, are available on many of the
  Company's cable television systems.  Subscribers are permitted to choose
  individual movies for a set fee ranging from $1.50 to $6.95 per movie and
  individual special events for a set fee ranging from $2.98 to $54.95 per
  event.  Related charges may include a nonrecurring installation fee that
  ranges from $1.99 to $50.95; however, from time to time the Company has
  followed the common industry practice of reducing the installation fee during
  promotional periods.  Commercial subscribers such as hotels, motels and
  hospitals are charged a nonrecurring connection fee that usually covers the
  cost of installation.  Except under the terms of certain contracts with
  commercial subscribers and residential apartment and condominium complexes,
  subscribers are free to discontinue the service at any time without penalty,
  and most terminations occur because a subscriber moves to another home or to
  another city.  For the year ended December 31, 1996 of the total subscriber
  fees received by Company-owned systems, basic and basic plus service fees
  accounted for approximately 64% of total revenues, premium service fees
  accounted for approximately 18% of total revenues, pay-per-view fees were
  approximately 3% of total revenues, advertising fees were approximately 5% of
  total revenues and the remaining 10% of total revenues came from equipment
  rentals, installation fees and program guide charges.  The Company is
  dependent upon timely receipt of service fees to provide for maintenance and
  replacement of plant and equipment, current operating expenses and other
  costs.

       As the general partner of its managed partnerships, the Company earns
  management fees which are generally 5% of the gross revenues of the
  partnership, not including revenues from the sale of cable television systems
  or franchises.  The Company also receives reimbursement from the partnerships
  for certain allocated overhead and administrative expenses incurred by the
  Company in its management activities.  From time to time, and although not
  obligated to do so, the Company has made advances to certain of its managed
  limited partnerships and has deferred collection of management fees and
  expense reimbursements owed by certain of its managed limited partnerships to
  allow for expansion of a cable television system or other cash needs of such a
  partnership.  With respect to the managed partnerships formed by the Company,
  the Company as general partner is entitled to partnership distributions from
  the sale or refinancing of partnership cable systems equal to from 12.5% to
  40% of the net remaining assets of a partnership after the payment of
  partnership debts and after limited partners have received an amount equal to
  their original investment plus, in many cases, a preferential return on their
  investment.  Pursuant to the terms of the various limited partnership
  agreements, the Company has full operational control of the management and
  day-to-day business of the partnerships.

                                       8
<PAGE>
 
       The Company's business consists of providing cable television services to
  a large number of customers, the loss of any one or more of which would have
  no material effect on the Company's business.  Each of the cable television
  systems owned or operated by the Company has had some subscribers who later
  terminated the service.  Terminations occur primarily because people move to
  another home or to another city.  In other cases, people terminate on a
  seasonal basis or because they no longer can afford or are dissatisfied with
  the service.  The amount of past due accounts in systems owned or operated by
  the Company is not significant.  The Company's policy with regard to these
  accounts is basically one of disconnecting service before a past due account
  becomes material.

       The Company does not depend to any material extent on the availability of
  raw materials, it carries no significant amounts of inventory and it has no
  material backlog of customer orders.  The Company has engaged in research and
  development activities relating to the provision of new services.  Compliance
  with Federal, state and local provisions that have been enacted or adopted
  regulating the discharge of materials into the environment or otherwise
  relating to the protection of the environment has had no material effect upon
  the capital expenditures, earnings or competitive position of the Company.

  The Company's Other Businesses and Investments
  ----------------------------------------------

       The Jones Group, Ltd., a wholly owned subsidiary of the Company, is a
  cable television brokerage firm that may earn fees from the Company's managed
  partnerships when such partnerships sell cable systems.  Jones Futurex, Inc.,
  also a wholly owned subsidiary of the Company, manufactures and markets data
  encryption products and provides contract manufacturing services.  The Company
  has an interest in the cable/telephony business in the United Kingdom through
  its approximate 8.6% equity ownership of Bell Cablemedia plc, one of the
  United Kingdom's largest cable communications operators.  The Company owns
  minority interests in Jones Education Company and its subsidiary, Mind
  Extension University, Inc.  Jones Education Company offers a variety of
  integrated educational programming, products and services.  It provides
  educational programming through its two television networks, JEC Knowledge TV
  and Jones Computer Network.  The Company owns a minority interest in Jones
  Global Group, Inc., a company that from time to time has invested in
  cable/telephony systems outside of the United States.  In December 1996, the
  Company redeemed a portion of its equity interest for approximately $9,000,000
  and thereby reduced its equity ownership in Jones Global Group, Inc. from 38%
  to 20%.

  Acquisitions of Cable Television Systems in 1996 and January 1997
  -----------------------------------------------------------------

       Manassas System.  In January 1996, JCH, through its wholly owned
       ---------------                                                 
  subsidiary, Jones Communications of Virginia, Inc., purchased from
  unaffiliated companies the cable television systems serving areas in and
  around Manassas, Manassas Park, Haymarket and portions of Prince William
  County, all in the State of Virginia (the "Manassas System") for a purchase
  price of $71,100,000.  Jones Financial Group, Ltd. ("Financial Group"), an
  affiliate of the Company, was paid a fee of $896,000 upon closing of this
  transaction for acting as the Company's financial advisor in connection with
  this transaction.

                                       9
<PAGE>
 
       Carmel System.  In February 1996, JCH purchased from IDS/Jones Growth
       -------------                                                        
  Partners 87-A, Ltd., a Company-managed partnership, the cable television
  system serving areas in and around Carmel, Indiana (the "Carmel System") for a
  purchase price of $44,235,333.  The purchase price represented the average of
  three separate independent appraisals of the fair market value of the Carmel
  System.

       Tampa System.  In February 1996, JCH purchased from Cable TV Fund 12-BCD
       ------------                                                            
  Venture, a venture comprised of three Company-managed partnerships, the cable
  television system serving areas in and around Tampa, Florida (the "Tampa
  System") for a purchase price of $110,395,667.  The purchase price represented
  the average of three separate independent appraisals of the fair market value
  of the Tampa System.

       Orangeburg System.  In February 1996, JCH purchased from Jones Cable
       -----------------                                                   
  Income Fund 1-B, Ltd., a Company-managed partnership, the cable television
  system serving areas in and around Orangeburg, South Carolina (the "Orangeburg
  System") for a purchase price of $18,347,667, subject to normal closing
  adjustments.  The purchase price represented the average of three separate
  independent appraisals of the fair market value of the Orangeburg System.

       Lake Geneva System.  In April 1996, JCH purchased from Jones Spacelink
       ------------------                                                    
  Income/Growth Fund 1-A, Ltd. a Company-managed partnership, the cable
  television system serving the areas in and around Lake Geneva, Wisconsin (the
  "Lake Geneva System") for a purchase price of $6,345,667, which was the
  average of three separate independent appraisals of the fair market value of
  the Lake Geneva System.

       Ripon System.  In April 1996, the Company also purchased from Jones
       ------------                                                       
  Spacelink Income/Growth Fund 1-A, Ltd. the cable television system serving the
  areas in and around Ripon, Wisconsin (the "Ripon System") for a purchase price
  of $3,712,667, which was the average of three separate independent appraisals
  of the fair market value of the Ripon System.

       Lodi System.  In April 1996, JCH purchased from Jones Spacelink Income
       -----------                                                           
  Partners 87-1, L.P., a Company-managed partnership, the cable television
  systems serving the communities of Lodi, Burbank, Lafayette Township, New
  London, Bailey Lakes, Savannah, Shreve, Jeromesville, West Lafayette,
  Loudonville, Perrysville, Creston, Gloria Glens, Sterling, Seville, Westfield
  Center, Chippewa, Lake Area, Rittman, West Salem, Bloomville, Spencer, Polk
  and Congress, all in the State of Ohio (the "Lodi System") for a purchase
  price of $25,706,000, which was the average of three separate independent
  appraisals of the fair market value of the Lodi System.

       North Prince Georges County System. In January 1997, Jones Communications
       ----------------------------------                                       
  of Maryland, Inc., a wholly owned subsidiary of JCH, acquired the cable
  television system serving the communities of Berwyn Heights, Bladensburg,
  Bowie, Brentwood, Cheverly, College Park, Colmar Manor, Cottage City,
  Edmonston, Glenarden, Greenbelt, Hyattsville, Landover Hills, Laurel, Mt.
  Ranier, New Carrollton, North Brentwood, Riverdale, Takoma Park, University
  Park and portions of Prince Georges County, all in the State of Maryland (the
  "North Prince Georges County System").  The purchase price for the North
  Prince Georges County System was approximately $231,367,000, subject to final
  closing adjustments.  The Company paid Financial Group a fee of approximately
  

                                       10
<PAGE>
 
  $2,100,000 for acting as the Company's financial advisor in connection with
  this transaction.  The North Prince Georges County System is contiguous to the
  Company's South Prince Georges County System.  The acquisition of the North
  Prince Georges County System allows the Company to serve all 160,000
  subscribers in Prince Georges County, Maryland and brings the Company's owned
  and managed subscriber count in the Washington, D.C. metropolitan area to
  approximately 400,000 subscribers.

       The purchases of the Manassas System, the Carmel System, the Tampa
  System, the Orangeburg System, the Lake Geneva System, the Ripon System, the
  Lodi System and the North Prince Georges County System were funded by
  borrowings available under JCH's revolving credit facility.  The Carmel
  System, the Orangeburg System and the Tampa System subsequently were
  transferred to the Time Warner Entertainment-Advance/Newhouse Partnership, and
  the Lodi System, the Ripon System and the Lake Geneva System subsequently were
  transferred to Time Warner Entertainment Company, L.P., as discussed below.

  Exchanges of Cable Television Systems in 1996
  ---------------------------------------------

       Exchange with TWEAN.  In February 1996, the Company, pursuant to an asset
       -------------------                                                      
  exchange agreement (the "TWEAN Exchange Agreement") with Time Warner
  Entertainment-Advance/ Newhouse Partnership ("TWEAN"), an unaffiliated cable
  television operator, conveyed to TWEAN the Carmel System, the Orangeburg
  System and the Tampa System and cash in the amount of $3,500,000.  In return,
  the Company received from TWEAN substantially all of the assets of cable
  television systems serving Andrews Air Force Base, Capitol Heights,
  Cheltenham, District Heights, Fairmont Heights, Forest Heights, Morningside,
  Seat Pleasant, Upper Marlboro and portions of Prince Georges County, Maryland
  (the "South Prince Georges County System") and portions of Fairfax County,
  Virginia (the "Reston System").  This transaction was considered a non-
  monetary exchange of similar productive assets for accounting purposes.  The
  Company paid Financial Group a $1,668,000 fee upon the completion of this
  exchange as compensation to it for acting as the Company's financial advisor.

       Time Warner Exchange.  In April 1996, the Company, pursuant to an asset
       --------------------                                                   
  exchange agreement (the "Time Warner Exchange Agreement") with Time Warner
  Entertainment Company, L.P. ("Time Warner"), an unaffiliated cable television
  operator, conveyed to Time Warner the cable television systems owned by the
  Company serving Hilo, Hawaii (the "Hilo System") and Kenosha, Wisconsin (the
  "Kenosha System"), as well as the Lodi System, the Ripon System and the Lake
  Geneva System and cash in the amount of $11,735,667.  In return, the Company
  received from Time Warner the cable television systems serving the communities
  in and around Savannah, Georgia (the "Savannah System").  This transaction was
  considered a non-monetary exchange of similar productive assets for accounting
  purposes.  The Company paid Financial Group a $1,286,000 fee upon the
  completion of this exchange as compensation to it for acting as the Company's
  financial advisor.

  Proposed Acquisitions of Cable Television Systems in 1997
  ---------------------------------------------------------

       Independence System.  In February 1997, the Board of Directors of the
       -------------------                                                  
  Company approved the acquisition by JCH II from Jones Intercable Investors,
  L.P. (the "Partnership"), a Colorado 

                                       11
<PAGE>
 
  limited partnership managed by the Company, of the cable television system
  serving communities in and around Independence, Missouri (the "Independence
  System") for a purchase price of $171,213,667, which represents the average of
  three independent appraisals of the fair market value of the Independence
  System. The Company anticipates that it will receive a limited partner
  distribution totaling approximately $25,700,000 from the sale by the
  Partnership of the Independence System because of the Company's equity
  interest in the Partnership. The Partnership will pay The Jones Group, Ltd., a
  wholly owned subsidiary of the Company, a $4,280,342 fee in connection with
  this transaction. The closing of the Company's purchase of the Independence
  System is subject to the consents of governmental authorities and other third
  parties and is expected to occur in the second half of 1997.

       Manitowoc System.  In September 1995, the Company entered into an asset
       ----------------                                                       
  purchase agreement to purchase from Cable TV Joint Fund 11 (the "Venture"), a
  venture comprised of four Company-managed partnerships, the cable television
  system serving the City of Manitowoc, Wisconsin (the "Manitowoc System").
  Because the City of Manitowoc had not consented to the transfer of the
  franchise by the asset purchase agreement's original expiration date of
  September 30, 1996, the Company and the Venture amended the asset purchase
  agreement to extend the period in which to close the sale of the Manitowoc
  System to June 30, 1997.  Under the terms of the asset purchase agreement, as
  amended, the purchase price for the Manitowoc System will be $16,122,333,
  subject to closing adjustments.  The closing of the Company's purchase of the
  Manitowoc System is subject to the approval of the limited partners of each of
  the partnerships that comprise the Venture.  The Company anticipates that it
  will receive, from the four partnerships that comprise the Venture, general
  partner distributions totaling approximately $4,518,000 upon the closing of
  the sale of the Manitowoc System.  The closing of this transaction is expected
  to occur during the second quarter of 1997.

  Proposed Dispositions of Cable Television Systems in 1997
  ---------------------------------------------------------

       Walnut Valley and Oxnard Systems.  In August 1996, the Company entered
       --------------------------------                                      
  into an asset purchase agreement with Century Communications Corp., an
  unaffiliated party, to sell the Company-owned cable television systems serving
  areas in and around Walnut Valley and Oxnard, both in the State of California,
  for $104,000,000, subject to closing adjustments.  Century Communications
  Corp. subsequently assigned its rights and obligations under the asset
  purchase agreement to a joint venture affiliated with Century Communications
  Corp.  The Company will pay Financial Group a $1,567,000 fee upon completion
  of this transaction as compensation to it for acting as the Company's
  financial advisor in connection with this sale of systems.  The closing of
  this sale is subject to a number of conditions, including obtaining necessary
  governmental and other third party consents, and is expected to occur during
  the second quarter of 1997.

  Proposed Exchange of Cable Television Systems in 1997
  -----------------------------------------------------

       In October 1996, the Company entered into an asset exchange agreement
  with United CATV, Inc., an unaffiliated party that is an affiliate of Tele-
  Communications, Inc.  Pursuant to the exchange agreement, the Company will
  convey to United CATV, Inc. the Company-owned cable television systems serving
  areas in and around Evergreen, Idaho Springs and Jefferson County, all in the
  State 

                                       12
<PAGE>
 
  of Colorado (the "Colorado Systems"), in exchange for the cable television
  system serving areas in and around Annapolis, southern Anne Arundel County and
  the Naval Academy, all in the State of Maryland (the "Annapolis System"), and
  cash in the amount of $2,500,000, subject to normal closing adjustments. The
  Company will pay Financial Group a $675,000 fee upon completion of this
  exchange as compensation to it for acting as the Company's financial advisor
  in connection with this transaction. The transaction is expected to be
  completed in the first half of 1997.

  The Company's Credit Facilities
  -------------------------------

       In September 1996, JCH amended its reducing revolving credit facility to
  increase the maximum amount available to $600 million and to reduce by 1/8%
  the rates of interest charged on any amounts outstanding.  This credit
  facility provides liquidity for acquisitions by JCH and capital expenditures
  for cable television systems owned by JCH.  See Note 7 to the Notes to
  Consolidated Financial Statements.

       In October 1996, JCH II entered into a $600 million credit facility.  The
  credit facility consists of a $300 million reducing revolving credit facility
  and a $300 million 364-day revolving credit facility.  This credit facility
  provides liquidity for acquisitions by JCH II and capital expenditures for
  cable television systems owned by JCH II. See Note 7 to the Notes to
  Consolidated Financial Statements.

  Sales of Radio and TVRO Businesses in 1996
  ------------------------------------------

       Jones Galactic Radio, Inc.  In June 1996, the Company completed the sale
       --------------------------                                              
  of Jones Galactic Radio, Inc., which was a wholly owned subsidiary of the
  Company, to Jones Global Group, Inc., an affiliate of the Company, for $17.2
  million.  The Company's Board of Directors requested and received a fairness
  opinion related to this sale from an unaffiliated investment banking firm.
  The sales price was paid in the form of 984,968 ADSs of Bell Cablemedia plc.
  The number of ADSs represents the purchase price of $17.2 million divided by
  the 30-day average closing price of an ADS for the 30-day period immediately
  preceding the closing date.  As a result of this transaction, the Company now
  directly owns approximately 7.2 million ADSs of Bell Cablemedia.  Jones Global
  Group, Inc. subsequently sold Jones Galactic Radio, Inc. to Jones
  International Networks, Ltd., an affiliate of International.

       Jones Satellite Programming, Inc.  In July 1996, the Company sold the
       ---------------------------------                                    
  assets of Jones Satellite Programming, Inc., a wholly owned subsidiary, to an
  unaffiliated party for $2,873,871.  Jones Satellite Programming, Inc. was
  engaged in the TVRO business providing satellite programming to satellite dish
  owners.

  Cable Television Franchises
  ---------------------------

       The cable television systems owned or managed by the Company are
  constructed and operated under fixed-term franchises or other types of
  operating authorities (referred to collectively herein as "franchises") that
  are generally non-exclusive and are granted by state and/or local governmental

                                       13
<PAGE>
 
  authorities.  These franchises typically contain many conditions, such as time
  limitations on commencement and completion of construction, conditions of
  service, including the number of channels, types of programming and the
  provision of free service to schools and certain other public institutions,
  and the maintenance of insurance and indemnity bonds.  The provisions of local
  franchises are subject to federal regulation.

       The Company holds approximately 112 franchises.  These franchises provide
  for the payment of fees to the issuing authorities and range from 3% to 5% of
  gross revenues.  The 1984 Cable Act prohibits franchising authorities from
  imposing annual franchise fees in excess of 5% of gross revenues and also
  permits the cable television system operator to seek renegotiation and
  modification of franchise requirements if warranted by changed circumstances.

       The Company has never had a franchise revoked.  The Company's franchises
  initially had terms of approximately 10 to 15 years.  The duration of the
  Company's outstanding franchises presently varies from a period of months to
  an indefinite period of time.  The Company is currently negotiating the
  renewal of sixteen franchises that are either operating under extensions or
  will expire prior to December 31, 1997.  During the next three to five years,
  the renewal process must commence for a significant number of the franchises
  for cable television systems owned or managed by the Company and its
  affiliates.  The Company recently has experienced lengthy negotiations with
  some franchising authorities for the granting of franchise renewals.  Some of
  the issues involved in recent renewal negotiations include rate regulation,
  customer service standards, cable plant upgrade or replacement and shorter
  terms of franchise agreements.

  Competition
  -----------

       Cable television systems currently experience competition from several
  sources.

       Broadcast Television.  Cable television systems have traditionally
       ---------------------                                             
  competed with broadcast television, which consists of television signals that
  the viewer is able to receive directly on his television without charge using
  an "off-air" antenna.  The extent of such competition is dependent in part
  upon the quality and quantity of signals available by such antenna reception
  as compared to the services provided by the local cable system.  Accordingly,
  it has generally been less difficult for cable operators to obtain higher
  penetration rates in rural areas where signals available off-air are limited,
  than in metropolitan areas where numerous, high quality off-air signals are
  often available without the aid of cable television systems.

       Traditional Overbuild.  Cable television franchises are not exclusive, so
       ---------------------                                                    
  that more than one cable television system may be built in the same area
  (known as an "overbuild"), with potential loss of revenues to the operator of
  the original cable television system. The Company has experienced overbuilds
  in connection with certain systems that it has owned or managed for limited
  partnerships, and currently there are overbuilds in both owned and managed
  systems.  Constructing and developing a cable television system is a capital
  intensive process, and it is often difficult for a new cable system operator
  to create a marketing edge over the existing system.  Generally, an
  overbuilder would be required to 

                                       14
<PAGE>
 
  obtain franchises from the local governmental authorities, although in some
  instances, the overbuilder could be the local government itself. In any case,
  an overbuilder would be required to obtain programming contracts from
  entertainment programmers and, in most cases, would have to build a complete
  cable system, including headends, trunk lines and drops to individual
  subscribers homes, throughout the franchise areas. The Panama City Beach
  System has lost basic subscribers and commercial units to an overbuilder. This
  overbuild continues to provide significant competition and has had an adverse
  effect on the system's operations. The Company's Anne Arundel System also
  faces significant competition from an overbuilder.

       DBS.  High-powered direct-to-home satellites have made possible the wide-
       ---                                                                     
  scale delivery of programming to individuals throughout the United States
  using small roof-top or wall-mounted antennas.  Several companies began
  offering direct broadcast satellite ("DBS") service over the last few years
  and additional entrants are expected.  Companies offering DBS service use
  video compression technology to increase channel capacity of their systems to
  100 or more channels and to provide packages of movies, satellite network and
  other program services which are competitive to those of cable television
  systems.  DBS cannot currently offer its subscribers local programming,
  although at least one future DBS entrant is attempting to offer customers
  regional delivery of local broadcast signals.  In addition to emerging high-
  powered DBS competition, cable television systems face competition from a
  major medium-powered satellite distribution provider and several low-powered
  providers, whose service requires use of much larger home satellite dishes.
  Not all subscribers terminate cable television service upon acquiring a DBS
  system.  The Company has observed that there are DBS subscribers that also
  elect to subscribe to cable television service in order to obtain the greatest
  variety of programming on multiple television sets, including local
  programming not available through DBS service.  The ability of DBS service
  providers to compete successfully with the cable television industry will
  depend on, among other factors, the availability of equipment at reasonable
  prices.

       Telephone.  Federal cross-ownership restrictions historically limited
       ---------                                                            
  entry by local telephone companies into the cable television business.  The
  1996 Telecom Act eliminated this cross-ownership restriction, making it
  possible for companies with considerable resources to overbuild existing cable
  operators and enter the business.  Several telephone companies have begun
  seeking cable television franchises from local governmental authorities and
  constructing cable television systems.  Ameritech, one of the seven regional
  Bell Operating Companies ("BOCs"), which provides telephone service in a
  multi-state region including Illinois, has been the most active BOC in seeking
  local cable franchises within its service area.  It has already begun cable
  service in Naperville, Illinois and has also obtained franchises for Glen
  Ellyn and Vernon Hills, Illinois, all of which are currently served by cable
  systems owned by two Company-managed partnerships.  The Company cannot predict
  at this time the extent of telephone company competition that will emerge to
  Company owned or managed cable television systems.  The entry of telephone
  companies as direct competitors, however, is likely to continue over the next
  several years and could adversely affect the profitability and market value of
  the Company's owned and managed systems.  The entry of electric utility
  companies into the cable television business, as now authorized by the 1996
  Telecom Act, could have a similar adverse effect.

       Private Cable.  Additional competition is provided by private cable
       -------------                                                      
  television systems, known as Satellite Master Antenna Television (SMATV),
  serving multi-unit dwellings such as condominiums, apartment complexes, and
  private residential communities.  These private cable systems may enter into
  exclusive agreements with apartment owners and homeowners associations, 

                                       15
<PAGE>
 
  which may preclude operators of franchised systems from serving residents of
  such private complexes. Private cable systems that do not cross public rights
  of way are free from the federal, state and local regulatory requirements
  imposed on franchised cable television operators. In some cases, the Company
  has been unable to provide cable television service to buildings in which
  private operators have secured exclusive contracts to provide video and
  telephony services. The Company is interested in providing these same
  services, but expects that the market to install and provide these services in
  multi-unit buildings will continue to be highly competitive. In late 1995, the
  Company launched a competitive telephone service in selected apartments and
  condominium units in its Alexandria, Virginia System, and anticipates
  providing such service, commencing in the first half of 1997, in Maryland as
  well. The Company faces considerable competition in providing telephony
  service from incumbent local exchange carriers and a host of alternative
  carriers.

       MMDS.  Cable television systems also compete with wireless program
       ----                                                              
  distribution services such as multichannel, multipoint distribution service
  ("MMDS") systems, commonly called wireless cable, which are licensed to serve
  specific areas.  MMDS uses low-power microwave frequencies to transmit
  television programming over-the-air to paying subscribers.  The MMDS industry
  is less capital intensive than the cable television industry, and it is
  therefore more practical to construct MMDS systems in areas of lower
  subscriber penetration.  Wireless cable systems are now in direct competition
  with cable television systems in several areas of the country, including the
  Company's system in Pima County, Arizona.  Telephone companies have recently
  acquired or invested in wireless companies, and may use MMDS systems to
  provide services within their service areas in lieu of wired delivery systems.
  Enthusiasm for MMDS has waned in recent months, however, as Bell Atlantic and
  NYNEX have suspended their investment in two major MMDS companies.  To date,
  the Company has not lost a significant number of subscribers, nor a
  significant amount of revenue, to MMDS operators competing with the Company's
  cable television systems.  A series of actions taken by the FCC, however,
  including reallocating certain frequencies to the wireless services, are
  intended to facilitate the development of wireless cable television systems as
  an alternative means of distributing video programming.  The FCC recently held
  auctions for spectrum that will be used by wireless operators to provide
  additional channels of programming over larger distances.  In addition, an
  emerging technology, Local Multipoint Distribution services ("LMDS"), could
  also pose a significant threat to the cable television industry, if and when
  it becomes established. LMDS, sometimes referred to as cellular television,
  could have the capability of delivering more than 100 channels of video
  programming to a subscriber's home.  The potential impact, however, of LMDS is
  difficult to assess due to the newness of the technology and the absence of
  any current fully operational LMDS systems.

       Cable television systems are also in competition, in various degrees with
  other communications and entertainment media, including motion pictures and
  home video cassette recorders.

  Regulation and Legislation
  --------------------------

       The operation of cable television systems is extensively regulated by the
  FCC, some state governments and most local governments.  The new
  Telecommunications Act of 1996 ("1996 Telecom Act") alters the regulatory
  structure governing the nation's telecommunications providers.  It 

                                       16
<PAGE>
 
  removes barriers to competition in both the cable television market and the
  local telephone market. Among other things, it also reduces the scope of cable
  rate regulation.

        The 1996 Telecom Act requires the FCC to undertake a host of
  implementing rulemakings, the final outcome of which cannot yet be determined.
  Moreover, Congress and the FCC have frequently revisited the subject of cable
  regulation.  Future legislative and regulatory changes could adversely affect
  the Company's operations.  This section briefly summarizes key laws and
  regulations affecting the operation of the Company's cable systems and does
  not purport to describe all present, proposed, or possible laws and
  regulations affecting the Company.

       Cable Rate Regulation.  The 1992 Cable Act imposed an extensive rate
       ---------------------                                               
  regulation regime on the cable television industry.  Under that regime, all
  cable systems are subject to rate regulation, unless they face "effective
  competition" in their local franchise area.  Federal law now defines
  "effective competition" on a community-specific basis as requiring either low
  penetration (less than 30%) by the incumbent cable operator, appreciable
  penetration (more than 15%) by competing multichannel video providers
  ("MVPs"), or the presence of a competing MVP affiliated with a local telephone
  company.  The FCC has officially recognized that the Anne Arundel System and
  the Panama City Beach System face "effective competition," and a similar
  petition is now pending at the FCC concerning the Pima County, AZ system.

       Although the FCC rules control, local government units (commonly referred
  to as local franchising authorities or "LFAs") are primarily responsible for
  administering the regulation of the lowest level of cable -- the basic service
  tier ("BST"), which typically contains local broadcast stations and public,
  educational, and government ("PEG") access channels.  Before an LFA begins BST
  rate regulation, it must certify to the FCC that it will follow applicable
  federal rules, and many LFAs have voluntarily declined to exercise this
  authority.  LFAs also have primary responsibility for regulating cable
  equipment rates.  Under federal law, charges for various types of cable
  equipment must be unbundled from each other and from monthly charges for
  programming services.  The 1996 Telecom Act allows operators to aggregate
  costs for broad categories of equipment across geographic and functional
  lines. This change should facilitate the introduction of new technology.

       The FCC itself directly administers rate regulation of any cable
  programming service tiers ("CPST"), which typically contain satellite-
  delivered programming.   Under the 1996 Telecom Act, the FCC can regulate CPST
  rates only if an LFA first receives at least two rate complaints from local
  subscribers and then files a formal complaint with the FCC.  When new CPST
  rate complaints are filed, the FCC now considers only whether the incremental
  increase is justified and will not reduce the previously established CPST
  rate.

       Under the FCC's rate regulations, most cable systems were required to
  reduce their BST and CPST rates in 1993 and 1994, and have since had their
  rate increases governed by a complicated price cap scheme that allows for the
  recovery of inflation and certain increased costs, as well as providing some
  incentive for expanding channel carriage.  The FCC has modified its rate
  adjustment regulations to allow for annual rate increases and to minimize
  previous problems associated with regulatory lag. Operators also have the
  opportunity of bypassing this "benchmark" regulatory scheme in favor of
  traditional "cost-of-service" regulation in cases where the latter methodology
  appears favorable.  

                                       17
<PAGE>
 
  Premium cable services offered on a per-channel or per-program basis remain
  unregulated, as do affirmatively marketed packages consisting entirely of new
  programming product. Federal law requires that the BST be offered to all cable
  subscribers, but limits the ability of operators to require purchase of any
  CPST before purchasing premium services offered on a per-channel or per-
  program basis.

       The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems
  (regardless of size) on March 31, 1999.  It also relaxes existing uniform rate
  requirements by specifying that uniform rate requirements do not apply where
  the operator faces "effective competition," and by exempting bulk discounts to
  multiple dwelling units, although complaints about predatory pricing still may
  be made to the FCC.

       Cable Entry Into Telecommunications.  The 1996 Telecom Act provides that
       -----------------------------------                                     
  no state or local laws or regulations may prohibit or have the effect of
  prohibiting any entity from providing any interstate or intrastate
  telecommunications service.  States are authorized, however, to impose
  "competitively neutral" requirements regarding universal service, public
  safety and welfare, service quality, and consumer protection.  State and local
  governments also retain their authority to manage the public rights-of-way and
  may require reasonable, competitively neutral compensation for management of
  the public rights-of-way when cable operators provide telecommunications
  service.  The favorable pole attachment rates afforded cable operators under
  federal law can be gradually increased by utility companies owning the poles
  (beginning in 2001) if the operator provides telecommunications service, as
  well as cable service, over its plant.

       Cable entry into telecommunications will be affected by the regulatory
  landscape now being fashioned by the FCC and state regulators.  One critical
  component of the 1996 Telecom Act to facilitate the entry of new
  telecommunications providers (including cable operators) is the
  interconnection obligation imposed on all telecommunications carriers.  Review
  of the FCC's initial interconnection order is now pending before the Eighth
  Circuit Court of Appeals.  The Company has already secured authorization to
  provide local exchange service in Maryland and portions of Virginia and has
  begun offering some telecommunications services to customers in both
  jurisdictions.

       Telephone Company Entry Into Cable Television.  The 1996 Telecom Act
       ---------------------------------------------                       
  allows telephone companies to compete directly with cable operators by
  repealing the historic telephone company/cable cross-ownership ban.  Local
  exchange carriers ("LECs"), including the BOCs, can now compete with cable
  operators both inside and outside their telephone service areas.  Because of
  their resources, LECs could be formidable competitors to traditional cable
  operators, and certain LECs have begun offering cable service.  As described
  above, the Company is now witnessing the beginning of LEC competition in a few
  of its cable communities.

       Under the 1996 Telecom Act, a LEC providing video programming to
  subscribers will be regulated as a traditional cable operator (subject to
  local franchising and federal regulatory requirements), unless the LEC elects
  to provide its programming via an "open video system" ("OVS").  To qualify for
  OVS status, the LEC must reserve two-thirds of the system's activated channels
  for unaffiliated entities.

                                       18
<PAGE>
 
       Although LECs and cable operators can now expand their offerings across
  traditional service boundaries, the general prohibition remains on LEC buyouts
  (i.e., any ownership interest exceeding 10 percent) of co-located cable
  systems, cable operator buyouts of co-located LEC systems, and joint ventures
  between cable operators and LECs in the same market.  The 1996 Telecom Act
  provides a few limited exceptions to this buyout prohibition, including a
  carefully circumscribed "rural exemption."  The 1996 Telecom Act also provides
  the FCC with the limited authority to grant waivers of the buyout prohibition
  (subject to LFA approval).

       Electric Utility Entry Into Telecommunications/Cable Television.  The
       ---------------------------------------------------------------      
  1996 Telecom Act provides that registered utility holding companies and
  subsidiaries may provide telecommunications services (including cable
  television) notwithstanding the Public Utilities Holding Company Act.
  Electric utilities must establish separate subsidiaries, known as "exempt
  telecommunications companies" and must apply to the FCC for operating
  authority.  Again, because of their resources, electric utilities could be
  formidable competitors to traditional cable systems.

       Additional Ownership Restrictions.  The 1996 Telecom Act eliminates
       ---------------------------------                                  
  statutory restrictions on broadcast/cable cross-ownership (including broadcast
  network/cable restrictions), but leaves in place existing FCC regulations
  prohibiting local cross-ownership between co-located television stations and
  cable systems.  The 1996 Telecom Act also eliminates the three year holding
  period required under the 1992 Cable Act's "anti-trafficking" provision. The
  1996 Telecom Act leaves in place existing restrictions on cable cross-
  ownership with SMATV and MMDS facilities, but lifts those restrictions where
  the cable operator is subject to effective competition.  In January 1995,
  however, the FCC adopted regulations which permit cable operators to own and
  operate SMATV systems within their franchise area, provided that such
  operation is consistent with local cable franchise requirements.

       Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
  system from devoting more than 40% of its activated channel capacity to the
  carriage of affiliated national program services.  A companion rule
  establishing a nationwide ownership cap on any cable operator equal to 30% of
  all domestic cable subscribers has been stayed pending further judicial
  review.

       There are no federal restrictions on non-U.S. entities having an
  ownership interest in cable television systems or the FCC licenses commonly
  employed by such systems.  Section 310(b)(4) of the Communications Act does,
  however, prohibit foreign ownership of FCC broadcast and telephone licenses,
  unless the FCC concludes that such foreign ownership is consistent with the
  public interest.  BCI's investment in the Company could, therefore, adversely
  affect any plan to acquire FCC broadcast or common carrier licenses.

       Must Carry/Retransmission Consent.  The 1992 Cable Act contains broadcast
       ---------------------------------                                        
  signal carriage requirements that allow local commercial television broadcast
  stations to elect once every three years between requiring a cable system to
  carry the station ("must carry") or negotiating for payments for granting
  permission to the cable operator to carry the station ("retransmission
  consent").  Less popular stations typically elect "must carry," and more
  popular stations typically elect "retransmission consent."  Must carry
  requests can dilute the appeal of a cable system's programming offerings, and
  retransmission consent demands may require substantial payments or other
  concessions.  Either option 

                                       19
<PAGE>
 
  has a potentially adverse affect on the Company's business. Additionally,
  cable systems are required to obtain retransmission consent for all "distant"
  commercial television stations (except for satellite-delivered independent
  "superstations" such as WTBS). The constitutionality of the must carry
  requirements has been challenged and is awaiting a decision from the U.S.
  Supreme Court.

       Access Channels.  LFAs can include franchise provisions requiring cable
       ---------------                                                        
  operators to set aside certain channels for public, educational and
  governmental access programming.  Federal law also requires cable systems to
  designate a portion of their channel capacity (up to 15% in some cases) for
  commercial leased access by unaffiliated third parties.  The FCC has adopted
  rules regulating the terms, conditions and maximum rates a cable operator may
  charge for use of the designated channel capacity, but use of commercial
  leased access channels has been relatively limited.  The FCC released revised
  rules in February 1997 which mandate a modest rate reduction and could make
  commercial leased access a more attractive option to third party programmers.

       Access to Programming.  To spur the development of independent cable
       ---------------------                                               
  programmers and competition to incumbent cable operators, the 1992 Cable Act
  imposed restrictions on the dealings between cable operators and cable
  programmers.  Of special significance from a competitive business posture, the
  1992 Cable Act precludes video programmers affiliated with cable companies
  from favoring cable operators over competitors and requires such programmers
  to sell their programming to other multichannel video distributors.  This
  provision limits the ability of vertically integrated cable programmers to
  offer exclusive programming arrangements to cable companies.

       Other FCC Regulations.  In addition to the FCC regulations noted above,
       ---------------------                                                  
  there are other FCC regulations covering such areas as equal employment
  opportunity, subscriber privacy, programming practices (including, among other
  things, syndicated program exclusivity, network program nonduplication, local
  sports blackouts, indecent programming, lottery programming, political
  programming, sponsorship identification, and children's programming
  advertisements), registration of cable systems and facilities licensing,
  maintenance of various records and public inspection files,  frequency usage,
  lockbox availability, antenna structure notification, tower marking and
  lighting, consumer protection and customer service standards, technical
  standards, and consumer electronics equipment compatibility.  The FCC is
  expected to impose new Emergency Alert System requirements on cable operators
  this year.  The FCC has the authority to enforce its regulations through the
  imposition of substantial fines, the issuance of cease and desist orders
  and/or the imposition of other administrative sanctions, such as the
  revocation of FCC licenses needed to operate certain transmission facilities
  used in connection with cable operations.

       Two pending FCC proceedings of particular competitive concern involve
  inside wiring and navigational devices.  The former rulemaking is considering
  ownership of cable wiring located inside multiple dwelling unit complexes.  If
  the FCC concludes that such wiring belongs to, or can be unilaterally acquired
  by the complex owner, it will become easier for complex owners to terminate
  service from the incumbent cable operator in favor of a new entrant.  The
  latter rulemaking is considering whether cable customers must be allowed to
  purchase cable converters from third party vendors.  If the FCC concludes that
  such distribution is required, and does not make appropriate allowances for
  signal piracy concerns, it may become more difficult for cable operators to
  combat theft of service.

                                       20
<PAGE>
 
       Copyright.  Cable television systems are subject to federal copyright
       ---------                                                            
  licensing covering carriage of television and radio broadcast signals.  In
  exchange for filing certain reports and contributing a percentage of their
  revenues to a federal copyright royalty pool (that varies depending on the
  size of the system and the number of distant broadcast television signals
  carried), cable operators can obtain blanket permission to retransmit
  copyrighted material on broadcast signals.  The possible modification or
  elimination of this compulsory copyright license is the subject of continuing
  legislative review and could adversely affect the Company's ability to obtain
  desired broadcast programming.  In addition, the cable industry pays music
  licensing fees to BMI and is negotiating a similar arrangement with ASCAP.
  Copyright clearances for nonbroadcast programming services are arranged
  through private negotiations.

       State and Local Regulation.  Cable television systems generally are
       --------------------------                                         
  operated pursuant to nonexclusive franchises granted by a municipality or
  other state or local government entity in order to cross public rights-of-way.
  Federal law now prohibits franchise authorities from granting exclusive
  franchises or from unreasonably refusing to award additional franchises.
  Cable franchises generally are granted for fixed terms and in many cases
  include monetary penalties for non-compliance and may be terminable if the
  franchisee fails to comply with material provisions.

       The terms and conditions of franchises vary materially from jurisdiction
  to jurisdiction.  Each franchise generally contains provisions governing cable
  operations, service rates, franchise fees, system construction and maintenance
  obligations, system channel capacity, design and technical performance,
  customer service standards, and indemnification protections.  A number of
  states subject cable television systems to the jurisdiction of centralized
  state governmental agencies, some of which impose regulation of a character
  similar to that of a public utility.  Although LFAs have considerable
  discretion in establishing franchise terms, there are certain federal
  limitations.  For example, LFAs cannot insist on franchise fees exceeding 5%
  of the system's gross revenues, cannot dictate the particular technology used
  by the system, and cannot specify video programming other than identifying
  broad categories of programming.

       Federal law contains renewal procedures designed to protect incumbent
  franchisees against arbitrary denials of renewal.  Even if a franchise is
  renewed, the franchise authority may seek to impose new and more onerous
  requirements such as significant upgrades in facilities and services or
  increased franchise fees as a condition of renewal.  Similarly, if a franchise
  authority's consent is required for the purchase or sale of a cable system or
  franchise, such authority may attempt to impose more burdensome or onerous
  franchise requirements in connection with a request for consent.
  Historically, franchises have been renewed for cable operators that have
  provided satisfactory services and have complied with the terms of their
  franchises.


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

       The Company leases a portion of its executive offices from Jones
  Properties, Inc., a subsidiary of International.  The offices consist of a
  101,500 square foot office building located at 9697 East Mineral Avenue,
  Englewood, Colorado. The lease has a 15-year term expiring in July 2000 with

                                       21
<PAGE>
 
  three 5-year renewal options at market rates existing at the beginning of the
  option period.  The annual rent is currently $24.00 per square foot, plus
  operating expenses and will not, by the terms of the lease, exceed such amount
  during the remainder of the term.  The Company subleases approximately 46% of
  the building to International and certain other affiliates on the same terms
  and conditions as the primary lease.

       The Company leases from Jones Panorama Properties, Inc., a wholly owned
  subsidiary of the Company, an approximate 60,000 square foot office building
  (the "Panorama Falls Building") located at 9085 E. Mineral Avenue, Englewood,
  Colorado for a lease price of $12.00 per square foot.  The Panorama Falls
  Building contains additional executive offices of the Company.  The Company
  has subleased approximately 44% of the Panorama Falls Building to
  International and others on the same terms and conditions as the primary
  lease.

  Cable Television Systems Owned by the Company and its Subsidiaries
  ------------------------------------------------------------------

       The majority of the Company's 14 cable television systems are owned by
  JCH and JCH II.  As of December 31, 1996, JCH owned and operated the cable
  television systems serving areas in and around Alexandria, Virginia; Dale
  City, Virginia; Manassas, Virginia; Reston, Virginia; Anne Arundel County,
  Maryland; Charles County, Maryland; southern Prince Georges County, Maryland;
  and Jefferson County, Colorado.  In early 1997, certain of JCH's Maryland and
  Virginia systems will be combined: the Anne Arundel County, Maryland system,
  the Charles County, Maryland system and the Annapolis System to be acquired by
  JCH in the second quarter of 1997 will be operated as one system, to be known
  as the Chesapeake Bay Group; the southern Prince Georges County, Maryland
  system and the northern Prince Georges County system acquired by JCH in
  January 1997 will be operated as one system, to be known as the Prince Georges
  County System; and the Manassas, Dale City and Reston, Virginia systems will
  be operated as one system, to be known as the Prince William County System.
  As of December 31, 1996, JCH II owned and operated the cable television
  systems serving areas in and around Augusta, Georgia; Savannah, Georgia; and
  Pima County, Arizona.  As of December 31, 1996, the Company directly owned and
  operated the cable television systems serving areas in and around Oxnard,
  California; Walnut Valley, California; and Panama City Beach, Florida.

       The following sets forth (i) the monthly basic plus service rates charged
  to subscribers and (ii) the number of basic subscribers and pay units for the
  cable television systems owned by the Company and its subsidiaries.  The
  monthly basic plus service rates set forth herein represent, with respect to
  systems with multiple headends, the basic plus service rate charged to the
  majority of the subscribers within the system.  In cable television systems,
  basic subscribers can subscribe to more than one pay TV service.  Thus, the
  total number of pay services subscribed to by basic subscribers are called pay
  units.  As of December 31, 1996, cable television systems owned by the Company
  and its subsidiaries passed approximately 650,800 homes, representing an
  approximate 67% penetration rate.  Figures for numbers of subscribers and
  homes passed are compiled from the Company's records and may be subject to
  adjustments.

                                       22
<PAGE>
 
<TABLE>
<CAPTION>
 
Alexandria, Virginia                                   At 12/31
--------------------                    --------------------------------------
                                            1996         1995         1994
                                            ----         ----         ---- 
<S>                                        <C>          <C>          <C> 
Monthly basic plus service rate           $ 24.98      $ 23.33      $ 21.53
Basic subscribers                          40,525       38,916       37,690
Pay units                                  33,387       32,510       32,578

<CAPTION> 
Anne Arundel County, Maryland                          At 12/31
-----------------------------           --------------------------------------
                                            1996         1995         1994
                                            ----         ----         ----
<S>                                       <C>          <C>          <C> 
Monthly basic plus service rate           $ 24.15      $ 22.85      $ 22.85
Basic subscribers                          50,333       48,712       46,752
Pay units                                  43,491       43,895       42,009
 
<CAPTION>  
Augusta, Georgia*                                      At 12/31
-----------------                       --------------------------------------
                                            1996         1995         1994
                                            ----         ----         ----
<S>                                       <C>          <C>          <C> 
Monthly basic plus service rate           $ 25.73      $ 23.98      $ 21.39
Basic subscribers                          85,816       84,146       81,707
Pay units                                  70,619       67,428       62,754
 
*  Includes North Augusta subscribers. The Augusta system and the former North
   Augusta system were combined in 1995.
 
<CAPTION>  
Charles County, Maryland                               At 12/31
------------------------                --------------------------------------
                                            1996         1995         1994
                                            ----         ----         ----
<S>                                       <C>          <C>          <C> 
Monthly basic plus service rate           $ 26.33      $ 26.33      $ 24.80
Basic subscribers                          23,919       23,285       22,360
Pay units                                  36,848       35,589       33,799
 
<CAPTION>  
Dale City, Virginia                              At 12/31
-------------------                     ------------------------
                                            1996         1995
                                            ----         ----
<S>                                       <C>          <C> 
Monthly basic plus service rate           $ 25.57      $ 24.07
Basic subscribers                          49,943       49,297
Pay units                                  50,252       44,935

</TABLE>

                                       23
<PAGE>
 
<TABLE>
<CAPTION>
 
Jefferson County, Colorado*                            At 12/31
---------------------------             --------------------------------------
                                            1996         1995          1994
                                            ----         ----          ----
<S>                                       <C>          <C>           <C>
Monthly basic plus service rate           $ 24.54      $ 23.06       $ 22.06
Basic subscribers                          28,155       26,954        26,027
Pay units                                  27,659       26,666        25,574

</TABLE> 
*    Includes Clear Creek County subscribers. The former Clear Creek County
     system and the Jefferson County system were combined in 1995.

<TABLE> 
<CAPTION>  

Manassas, Virginia                      At 12/31/96
------------------                      -----------
<S>                                       <C>          
Monthly basic plus service rate           $ 26.35
Basic subscribers                          28,346
Pay units                                  25,264
 

Oxnard, California                                     At 12/31
------------------                      --------------------------------------
                                            1996         1995          1994
                                            ----         ----          ----
<S>                                       <C>          <C>           <C> 
Monthly basic plus service rate           $ 21.15      $ 19.15       $ 18.63
Basic subscribers                          40,134       39,101        38,500
Pay units                                  28,701       26,751        26,710
 
<CAPTION>  
Panama City Beach, Florida                             At 12/31
--------------------------              --------------------------------------
                                            1996         1995*         1994
                                            ----         -----         ----
<S>                                       <C>          <C>           <C> 
Monthly basic plus service rate           $ 21.10      $ 21.10       $ 21.10
Basic subscribers*                          7,248        7,380         8,088
Pay units**                                 7,251        6,285         4,758

</TABLE> 
*   The reduction in the number of basic subscribers following 1994 is due to
    an overbuild of the system.

**  The number of pay units in the system fluctuated during fiscal years 1994
    and 1995 due to pay unit marketing promotions. These marketing promotions
    resulted in periodic increases in pay units, followed by decreases in pay
    units upon the expiration of the promotional period.

<TABLE> 
<CAPTION> 

Pima County, Arizona                                   At 12/31
--------------------                    --------------------------------------
                                            1996         1995          1994
                                            ----         ----          ----
<S>                                       <C>          <C>           <C> 
Monthly basic plus service rate           $  25.80     $ 24.00       $ 22.50
Basic subscribers                           59,434      56,512        52,742
Pay units                                   38,949      35,532        34,306
 
</TABLE> 

                                       24
<PAGE>
 
<TABLE> 
<CAPTION> 
South Prince Georges                      
--------------------                        
County, Maryland                        At 12/31/96
----------------                        ----------- 
<S>                                     <C>   
Monthly basic plus service rate          $  25.89
Basic subscribers                          73,852
Pay units                                 134,975
 
<CAPTION> 
                                           
Reston, Virginia                        At 12/31/96
----------------                        ----------- 
<S>                                     <C>    
Monthly basic plus service rate          $  26.94
Basic subscribers                          14,662
Pay units                                  15,491

<CAPTION>  
                                
Savannah, Georgia                       At 12/31/96
-----------------                       ----------- 
<S>                                     <C>     
Monthly basic plus service rate          $  23.94
Basic subscribers                          62,780
Pay units                                  36,629
 
<CAPTION> 
 
Walnut Valley, California                        At 12/31
-------------------------            ---------------------------------
                                      1996         1995        1994
                                      ----         ----        ----
<S>                                  <C>          <C>         <C>  
Monthly basic plus service rate      $  23.21     $ 22.06     $ 22.06
Basic subscribers                      19,591      18,944      18,025
Pay units                              13,619      13,321      13,000
 
</TABLE>


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

Alexandria Litigation
---------------------

      Luva D. Vaughan, Allan J. Smith, Jr. and Hildegarde I. Smith,
      -------------------------------------------------------------
derivatively for the use and benefit of Jones Intercable Investors, L.P., a
---------------------------------------------------------------------------
Colorado limited partnership, v. Jones Intercable, Inc., a Colorado corporation
-------------------------------------------------------------------------------
(Circuit Court for Jackson County, State of Missouri, Case No. CV94-3652); Luva
-------------------------------------------------------------------------------
D. Vaughan, Allan J. Smith, Jr., and Hildegarde I. Smith, derivatively, for the
-------------------------------------------------------------------------------
use and benefit of Jones Intercable Investors, L.P. v. Jones Group, Ltd., a
---------------------------------------------------------------------------
Colorado corporation (District Court, City and County of Denver, State of
--------------------
Colorado, Case No. 94 CV 5486, Courtroom 14).

      On February 22, 1994, the Company and The Jones Group, Ltd. were named as
defendants in a lawsuit in Missouri brought by three individuals who are Class A
Unitholders in Jones Intercable Investors, L.P., a publicly traded limited
partnership of which the Company is general partner (the "MLP"). The suit
related to the sale of the Alexandria, Virginia cable television system by the
MLP to the Company. On October 21, 1994, plaintiffs filed a motion to dismiss
The Jones Group, Ltd. in response to The Jones Group, Ltd.'s argument that
Missouri lacked personal jurisdiction over it. Plaintiffs' motion was granted,
and plaintiffs then filed an action in Colorado against The Jones Group, Ltd.
seeking a return of the brokerage commission. All claims in both the Missouri
and Colorado litigation have been settled and actions dismissed with prejudice.

Tampa Litigation
----------------

      David Hirsch, derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable TV
      --------------------------------------------------------------------------
Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc. (Arapahoe
----------------------------------------------------------------------          
County District Court, Colorado, Case No. 95-CV-1800, Division 3) ("Hirsch");
                                                                    ------   
Jonathan Fussner and Eileen Fussner, derivatively on behalf of Cable TV Fund 12-
-------------------------------------------------------------------------------
B, Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones
-----------------------------------------------------------------------
Intercable, Inc. (Arapahoe County District Court, Colorado, Case No. 96-CV-1672,
----------------                                                                
Division 3) ("Fussner").
              -------   

      On September 20, 1995, the Company was named as a defendant in a Complaint
filed by David Hirsch, who purports to be a limited partner in Cable TV Fund 12-
D, Ltd., a limited partnership of which the Company is the general partner. On
January 25, 1996, the Company was served with an Amended Class Action Complaint
and Request for Jury Trial. On February 19, 1996, the Company filed a Motion to
Dismiss the Amended Complaint arguing that the action was improperly brought as
a class action. The Company argued that the plaintiff could only bring the
action as a derivative claim and that because the elements of a derivative claim
had not been properly pleaded, the Amended Complaint should be dismissed. After
briefing on this motion, the Court entered an Order on June 24, 1996 granting
the Company's Motion to Dismiss, and on July 25, 1996, the Court entered a
further Order allowing plaintiff to file another

                                      25
<PAGE>
 
Amended Complaint. On July 31, 1996, plaintiff Hirsch filed a Second Amended
Complaint.

      Plaintiff Hirsch alleges that he is a limited partner in Cable TV Fund 12-
D, Ltd. ("Fund 12-D") and that he now purports to bring this case as a
derivative action on behalf of Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV
Fund 12-C, Ltd. ("Fund 12-C") and Fund 12-D. The suit relates to the purchase by
the Company from Cable TV Fund 12-BCD Venture (the "Venture") (a general
partnership in which Fund 12-D is a general partner) of the Tampa System and
subsequent trade of the Tampa System, along with other cable systems, to Time
Warner for certain of Time Warner's cable systems. The Company was authorized to
purchase the Tampa System from the Venture pursuant to the terms of the limited
partnership agreements of Fund 12-B, Fund 12-C and Fund 12-D.

      Also on July 31, 1996, the same lawyers who represent Mr. Hirsch filed a
Verified Complaint on behalf of Jonathan Fussner and Eileen Fussner as
referenced above. The Fussners also purport to be joint owners of limited
partnership interests units in Fund 12-D and their Verified Complaint is
identical in all substantive respects to the Hirsch Second Amended Complaint. On
December 13, 1996, the Court consolidated the Hirsch and Fussner actions.
                                              ------     ------- 

      The Second Amended Complaint in Hirsch and the Verified Complaint in
                                      ------                              
Fussner allege that the Company breached its fiduciary duty to the plaintiffs
-------
and the other limited partners of Fund 12-B, Fund 12-C and Fund 12-D and the
Venture in connection with the purchase of the Tampa System and the trade of
that system to Time Warner. The Hirsch and Fussner Complaints also set forth a
                                ------     -------
claim for unjust enrichment and for breach of the implied covenant of good faith
and fair dealing. Among other things, the plaintiffs assert that the Company
paid an inadequate price for the Tampa System, even though the agreed-upon price
was the average of three separate appraisals, as required by the applicable
partnership agreements. The Hirsch and Fussner cases are now styled as
                            ------     -------                        
derivative actions and also seek a trial by jury. The plaintiffs in Hirsch and
                                                                    ------    
Fussner seek an unspecified amount of damages, including punitive damages, an
-------                                                                      
award of attorneys' fees and certain equitable relief.

      On August 13, 1996, the Company filed a Motion to Dismiss the breach of
fiduciary duty and unjust enrichment claims in the Hirsch and Fussner actions.
                                                   ------     -------          
On February 6, 1997, after briefing on this motion, the Court denied the
Company's Motion to Dismiss. The Company's Answer to the Complaints in Hirsch
                                                                       ------
and Fussner was filed on February 25, 1997 and generally denied the substantive
    -------                                                                    
allegations in the Complaint and asserted a number of affirmative defenses.
There is no trial date set in these cases, and there has been no discovery
conducted by the parties to date.


                                      26
<PAGE>
 
      Martin Ury, derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable TV
      ------------------------------------------------------------------------
Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc.,
-----------------------------------------------------------------------
Defendant, and Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable TV
-------------------------------------------------------------------------------
Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd., Nominal Defendants (Arapahoe
----------------------------------------------------------------          
County District Court, Colorado, Case No. 95-CV-2212, Division 5) ("Ury").
                                                                    ---   

      On November 17, 1995, plaintiff Martin Ury filed a Complaint against the
Company in the above-referenced action in Arapahoe County District Court.
Plaintiff Ury alleges that he is a limited partner in Fund 12-D. He purports to
bring this case as a derivative action on behalf of Fund 12-B, Fund 12-C and
Fund 12-D. As in Hirsch and Fussner, discussed above, this case relates to the
                 ------     -------                                           
Company's purchase of the Tampa System and the Time Warner exchange.

      The substantive allegations of the Ury Complaint are substantially similar
                                         ---                                    
to the allegations in the Hirsch Second Amended Complaint and the Fussner
                          ------                                  -------
Verified Complaint. The plaintiff in Ury alleges that the Company breached its
                                     ---
fiduciary duties to the limited partnerships and their limited partners in
connection with its purchase of the Tampa System from the Venture. Specifically,
the plaintiff alleges that the Company paid an inadequate price for the Tampa
System, even though the agreed upon price was the average of three separate
appraisals, as required by the applicable limited partnership agreements. The
Complaint seeks damages in an unspecified amount on behalf of the three limited
partnerships and an award of attorneys' fees. The Complaint does not seek a jury
trial or punitive damages.

      On February 1, 1996, the Company filed a Motion to Dismiss the Complaint
on the ground that it fails to state a claim against the Company upon which
relief can be granted. The thrust of the Company's motion was that the Company
cannot be liable for breach of fiduciary duty because it acted in accordance
with the terms of the limited partnership agreements in its purchase of the
Tampa System. The Company also argued that plaintiff does not have standing to
assert a derivative claim on behalf of Fund 12-B or Fund 12-C, since he is only
a limited partner in Fund 12-D. On July 12, 1996, the Court denied the Company's
Motion to Dismiss. The Company filed its Answer in this case on July 29, 1996,
generally denying the substantive allegations in the Complaint, asserting a
number of affirmative defenses and requesting a trial by jury. A Case Management
Order has been entered by the Court, setting the case for a two-week jury trial
commencing on September 22, 1997. The parties have made certain voluntary
disclosures pursuant to Rule 26 of the Colorado Rules of Civil Procedure, and
discovery has begun although no depositions have been taken to date.
 
      Because these cases are in their very early stages, it is not possible at
this time to present a realistic evaluation of the probability of a favorable or
unfavorable outcome.

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

      None.


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

      The Company's Common Stock and Class A Common Stock are traded in the 
over-the-counter market and authorized for quotation on the National Market
System operated by the National Association of Securities Dealers, Inc.
(NASDAQ), under the following symbols:

                              Common Stock - JOIN
                         Class A Common Stock - JOINA


                                      27
<PAGE>
 
      The following table shows the high and low prices as quoted on the
NASDAQ/National Market System for each quarterly period of calendar years ended
December 31, 1996 and 1995 for each class of the Company's stock:

<TABLE>
<CAPTION>
 
                                   Common Stock     Class A Common Stock
                                   ------------     --------------------
Calendar Year Ended 12/31/96      High       Low      High        Low
                                  ----       ---      ----        ---   
    <S>                          <C>        <C>      <C>         <C>
    First Quarter                17         12       15          11 7/8
    Second Quarter               16         14       14 5/8      13 1/8
    Third Quarter                15 1/2     12       14          11 3/8
    Fourth Quarter               13 7/8     10 1/4   13 7/8      10 1/8
                                           
<CAPTION> 
                                   Common Stock     Class A Common Stock
                                   ------------     --------------------
Calendar Year Ended 12/31/96      High       Low      High        Low
                                  ----       ---      ----        --- 
    <S>                          <C>        <C>      <C>         <C>
    First Quarter                17 1/2     11 7/8   17 1/2      12
    Second Quarter               16 1/4     13 1/2   16 1/2      12 7/8
    Third Quarter                16 1/4     14 5/8   15 1/2      13 3/8
    Fourth Quarter               14 1/2     13 3/4   14          13 1/4
 
</TABLE>

      At December 31, 1996, the Common Stock and Class A Common Stock of the
Company were held of record by 745 and 1,442 shareholders, respectively.

      The Company has never paid a cash dividend with respect to its shares of
Common Stock or Class A Common Stock, and it has no present intention to pay
cash dividends in the foreseeable future. The current policy of the Company's
Board of Directors is to retain earnings to provide funds for the operation and
expansion of its business. Future dividends, if any, will be determined by the
Board of Directors in light of the circumstances then existing, including the
Company's earnings and financial requirements and general business conditions.
If cash dividends are paid in the future, the holders of the Class A Common
Stock will be paid $.005 per share per quarter in addition to the amount payable
per share of Common Stock. Such additional dividends on the Class A Common Stock
are not cumulative but would be adjusted appropriately if cash dividends are
declared with respect to a period other than a quarterly period. Certain of the
Company's debt arrangements restrict the right of the Company to declare and pay
cash dividends.

                                      28
<PAGE>
 
Item 6.  Selected Financial Data
--------------------------------
      The following table sets forth selected financial data regarding the
Company's financial position and operating results.  This data should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing in Item 7.
<TABLE>
<CAPTION>
 
                                            1996           1995          1994          1993          1992
                                         ----------     ---------     ---------     ---------     ---------
                                                           (in thousands except per share data)
<S>                                    <C>            <C>           <C>           <C>           <C>   
REVENUES:
 Cable Television Revenue
  Subscriber service fees              $   248,626    $  135,350    $  103,335    $   99,438    $   82,033
  Management fees                           19,104        21,462        17,952        17,255        16,820
  Distributions and Brokerage Fees          15,483             -             -             -             -
 Non-cable Revenue                          28,497        32,026        10,602         7,624         6,943
                                         ---------      --------      --------      --------      --------
 
TOTAL REVENUES                             311,710       188,838       131,889       124,317       105,796
                                         ---------      --------      --------      --------      --------
 
COSTS AND EXPENSES:
 Cable Television Expenses
  Operating expenses                       131,529        77,638        55,196        54,307        38,579
  General and administrative                16,586         8,284         8,120        10,034         9,304
 Non-cable operating, general and
  administrative                            28,410        32,382        11,810         7,989         6,793
                                         ---------      --------      --------      --------      --------
OPERATING INCOME
 BEFORE DEPRECIATION
 AND AMORTIZATION                          135,185        70,534        56,763        51,987        51,120
 
Depreciation and amortization              131,186        55,805        45,585        43,328        39,597
                                         ---------      --------      --------      --------      --------
 
OPERATING INCOME                       $     3,999    $   14,729    $   11,178    $    8,659    $   11,523
                                         =========      ========      ========      ========      ========
 
LOSS BEFORE INCOME
 TAXES AND EXTRAORDINARY ITEMS         $   (62,660)   $  (21,024)   $   (8,691)   $  (36,066)   $  (26,308)
INCOME TAX PROVISION                             -             -             -             -             - 
                                         ---------      --------      --------      --------      --------
                                            
LOSS BEFORE
 EXTRAORDINARY ITEMS                       (62,660)      (21,024)       (8,691)      (36,066)      (26,308)
 
Extraordinary items-
 Loss on early
 extinguishment of debt                          -          (692)            -       (12,781)      (11,409)
Cumulative effect of change
 in accounting method-
  Change in method of
  accounting for income taxes                    -             -             -             -         3,862
                                         ---------      --------      --------      --------      --------
 
NET LOSS                               $   (62,660)   $  (21,716)   $   (8,691)   $  (48,847)   $  (33,855)
                                         =========      ========      ========      ========      ========
 
PRIMARY LOSS
 PER SHARE:
  Loss before
   extraordinary items                 $     (2.00)   $     (.67)   $     (.45)   $    (2.16)   $    (2.05)
  Extraordinary items                            -          (.02)            -          (.76)         (.88)
  Accounting change                              -             -             -             -           .30
                                         ---------      --------      --------      --------      --------
 
                                       $     (2.00)   $     (.69)   $     (.45)   $    (2.92)   $    (2.63)
                                         =========      ========      ========      ========      ========
 
WEIGHTED AVERAGE
 SHARES OUTSTANDING                         31,372        31,270        19,517        16,728        12,849
                                         =========      ========      ========      ========      ========
 
TOTAL ASSETS                           $ 1,134,129    $  860,499    $  608,289    $  434,298    $  434,670
                                         =========      ========      ========      ========      ========
 
TOTAL DEBT                             $   806,147    $  492,714    $  281,578    $  372,908    $  382,245
                                         =========      ========      ========      ========      ========
 
SHAREHOLDERS'
 INVESTMENT                            $   235,307    $  292,795    $  271,284    $   17,503    $   13,996
                                         =========      ========      ========      ========      ========
 </TABLE>

                                      29
<PAGE>
 
     Item 7.  Management's Discussion and Analysis of Financial Condition and
     ------------------------------------------------------------------------
     Results of Operations
     ---------------------

          FINANCIAL CONDITION

          The following discussion of the Company's financial condition and
     results of operations contains, in addition to historical information,
     forward-looking statements that are based upon certain assumptions and are
     subject to a number of risks and uncertainties.  The Company's actual
     results may differ significantly from the results predicted in such
     forward-looking statements.

          The Company is implementing a balanced strategy of acquiring cable
     television systems from its managed partnerships and from third parties.
     As part of this process, certain systems owned by the Company and its
     managed partnerships will be sold to third parties and Company-owned
     systems will be exchanged for systems owned by other cable system
     operators.  It is the Company's plan to cluster its cable television
     properties on the basis of operating characteristics and/or geographic
     areas.  Clustering systems should enable the Company to obtain operating
     efficiencies, and it should position the Company to capitalize on new
     revenue and business opportunities as the telecommunications industry
     evolves.

          The Company intends to liquidate its managed partnerships as such
     partnerships achieve their investment objectives and as opportunities for
     sales of partnership cable television systems arise in the marketplace.  In
     accordance with this strategy, the Company is marketing for sale many of
     the cable television systems owned by its managed partnerships.

          The Company also intends to maintain and enhance the value of its
     current cable television systems through capital expenditures.  Such
     expenditures will include, among others, cable television plant extensions
     and the upgrade and rebuild of certain systems.  The Company also intends
     to institute new services as they are developed and become economically
     viable.

          Acquisitions of cable television systems, the development of new
     services and capital expenditures for system extensions and upgrades are
     subject to the availability of cash generated from operations, borrowings
     under the Company's revolving credit facilities, debt and/or equity
     financing.  In addition, the Company is exploring other financing options
     such as private equity capital and/or the sale of additional non-strategic
     assets, including its investment in Bell Cablemedia plc.  There can be no
     assurance that the capital resources necessary to accomplish the Company's
     acquisition and development plans will be available on terms and conditions
     acceptable to the Company, or at all.

          In implementing the Company's acquisition strategy, the Company
     acquired the Manassas System, the South Prince Georges County System and
     the Reston System because they are near other systems owned by JCH and
     managed by the Company in the Washington DC area.  The Savannah System was
     acquired because its operating characteristics were similar to other
     properties owned by JCH II.  The acquisition of such systems has increased
     the Company's basic subscriber base by approximately 179,000 basic
     subscribers to approximately 585,000 basic subscribers at December 31,
     1996.  These transactions are described in detail in Note 2 of the Notes to
     Consolidated Financial Statements.

          The Manassas System was purchased for $71,100,000.  Funding was
     provided by borrowings available under JCH's revolving credit facility.
     The South Prince Georges County System and the Reston System were acquired
     in exchange for three systems that the Company purchased from managed
     partnerships.  The $176,479,000 of capital required by this transaction was
     provided by borrowings available under JCH's revolving credit facility.
     The Savannah System was acquired in exchange for two Company-owned cable
     television systems and three cable television systems purchased from
     managed partnerships.  The $47,500,000 of capital required by this
     transaction to purchase the three systems from managed partnerships was
     provided by borrowings available under JCH's revolving credit facility.

                                      30
<PAGE>
 
          In addition to the systems acquired during 1996, the Company entered
     into agreements to acquire additional cable television systems.  On January
     31, 1997, the Company purchased the North Prince Georges County System for
     $231,367,000.  Funding for this transaction was provided by borrowings
     available under JCH's revolving credit facility.  On October 25, 1996, the
     Company entered into an agreement to exchange its Colorado cable television
     systems for the Annapolis System.  This transaction is expected to close in
     the first half of 1997.  On September 5, 1995, the Company entered into an
     agreement to purchase the Manitowoc System.  As amended on September 30,
     1996, this agreement provides for a purchase price of $16,122,333 for the
     Manitowoc System.  Funding for this purchase is expected to be provided by
     the Company's revolving credit facilities.  This transaction is expected to
     close in the first half of 1997.  In February 1997, the Company entered
     into an agreement to purchase the Independence System for $171,213,667.
     Funding for this purchase, which is expected to close in the second half of
     1997, is expected to be provided by borrowings available under JCH II's
     revolving credit facility.  These transactions are described in detail in
     Note 2 of the Notes to Consolidated Financial Statements.

          From time to time, the Company makes loans to its managed
     partnerships, although it is not required to do so.  As of December 31,
     1996, the Company had advanced funds to various managed partnerships
     totaling approximately $3,996,000, a decrease of approximately $10,315,000
     over the amount advanced at December 31, 1995. These advances represent
     funds for capital expansion and improvements of properties owned by the
     Company's 23 managed partnerships where additional credit sources were not
     then available to the partnerships.  None of these advances are
     individually significant.  These advances reduce the Company's available
     cash and its liquidity.  The Company anticipates the repayment of these
     advances over time.  The Company does not anticipate significant increases
     in the amount advanced to its managed partnerships during 1997.  These
     advances bear interest at rates equal to the Company's weighted average
     cost of borrowing.

          The Company purchased property, plant and equipment totaling
     approximately $95,900,000 during 1996.  Such expenditures included
     $7,500,000 expended related to the development of a new customer
     care/billing system and $4,600,000 related to the development of telephone
     service in the State of Virginia.  The remainder of the capital
     expenditures, totaling $83,800,000, is principally the result of the
     following: (a) the upgrade and rebuild of the cable plant in the
     Alexandria, Virginia and Augusta, Georgia systems; and (b) new extension
     projects, drop materials, converters and various maintenance projects in
     the Pima County, Arizona; Anne Arundel, Maryland; South Prince Georges
     County, Maryland; and Augusta, Georgia systems.  Estimated capital
     expenditures for 1997 are approximately $105,000,000.  Of these capital
     expenditures, approximately $88,600,000 is for cable extensions, rebuilds
     and other enhancements in the cable television systems owned by the
     Company, $12,000,000 is for the development of a customer care/billing
     system and $4,400,000 is for the development of telephone service in
     Maryland and Virginia.  Funding for such expenditures is expected to be
     provided by cash generated from operations and borrowings available under
     the Company's revolving credit facilities, as discussed below.

          Sources of Funds

          The Company's main sources of capital consist of cash generated from
     operations and borrowings available under the Company's two revolving
     credit facilities, each of which has maximum available borrowings of $600
     million.
 
                                      31
<PAGE>
 
          The $600 million JCH Revolving Credit Facility is a reducing revolving
     credit facility.  The entire $600 million commitment is available through
     March 31, 1999, at which time the commitment will be reduced quarterly with
     a final maturity date of December 31, 2004.  The balance outstanding on the
     JCH revolving credit facility at December 31, 1996 was $183,000,000.

          The $600 million JCH II Revolving Credit Facility consists of a $300
     million reducing revolving credit facility and a $300 million 364 day
     revolving credit facility.  The reducing revolving credit facility allows
     for borrowings through the final maturity date of December 31, 2005.  The
     maximum amount available reduces quarterly beginning March 31, 2000 through
     the final maturity date of December 31, 2005.  The 364 day revolving credit
     facility allows for borrowings through the 364th day subsequent to the
     closing date of the loan, at which time any outstanding borrowings convert
     to a term loan payable in semi-annual installments commencing June 30, 2001
     with a final maturity date of December 31, 2005. The balance outstanding on
     the JCH II Revolving Credit Facility at December 31, 1996 was $160,000,000,
     this amount was borrowed under the reducing revolving credit facility. See
     Note 7 to Notes to Consolidated Financial Statements for detail concerning
     these credit facilities.

          The Company, in its capacity as the general partner of its managed
     partnerships, may from time to time receive distributions upon the sale of
     cable television systems owned by such partnerships.  During 1996, the
     Company received a distribution of $14,000,000 upon the sale of Cable TV
     Fund 11-B, Ltd.'s Lancaster, New York cable television system.  In
     addition, The Jones Group, Ltd. may receive brokerage fees upon the sale of
     the managed partnerships' cable television systems to third parties.
     During 1996, the Company received a brokerage fee of $2,100,000, less
     expenses of $617,000, upon the sale of Cable TV Fund 11-B, Ltd.'s
     Lancaster, New York cable television system.

           On August 16, 1996, the Company entered into an agreement with an
     unaffiliated party to sell the cable television systems serving areas in
     and around Walnut Valley and Oxnard, both in the state of California, for
     $104,000,000.  The closing of this transaction is subject to a number of
     conditions including obtaining necessary governmental and other third party
     consents.  Closing is expected to occur in the second quarter of 1997.
     Proceeds from this sale will be used to repay a portion of the amounts
     outstanding on the Company's revolving credit facilities.

           As part of the Company's strategy to simplify its corporate structure
     and concentrate on its core communications business, the Company has sold
     two of its subsidiaries engaged in non-cable businesses and redeemed a
     portion of its investment in Jones Global Group, Inc. ("Global Group").  On
     June 14, 1996, the Company completed the sale of Jones Galactic Radio,
     Inc., a wholly owned subsidiary ("Galactic Radio"), to Global Group, an
     affiliated company.  The sale price was $17.2 million.  The sale price was
     paid in the form of 984,968 ADSs of Bell Cablemedia plc.  On July 31, 1996,
     the Company sold the assets of Jones Satellite Programming, Inc. ("JSP"), a
     wholly owned subsidiary, to an unaffiliated party for $2,873,871 in cash.
     Also, on December 23, 1996, the Company redeemed 225 of its 380 shares of
     Global Group in exchange for a $8,950,188 note receivable from Global
     Group.  Through February 28, 1997, approximately $6,950,000 of this note
     had been repaid.

          The Company has an effective registration statement relating to the
     sale of $600 million of senior debt securities, senior subordinated debt
     securities, subordinated debt securities and Class A Common Stock.  The
     Company may, from time to time, issue securities not to exceed $600 million
     pursuant to this registration statement.

          The Company has sufficient sources of capital available, consisting of
     cash generated from operations and available borrowings from its revolving
     credit facilities, to fund its committed acquisition requirements and to
     meet its operational needs.

                                      32
<PAGE>
 
          RESULTS OF OPERATIONS

          Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
          ---------------------------------------------------------------------

          Revenues

          The Company derives its revenues from four primary sources:
     subscriber service fees from Company-owned cable television systems,
     management fees from managed partnerships, fees and distributions paid upon
     the sale of certain cable television properties owned by managed
     partnerships and revenues from non-cable television subsidiaries.  Total
     revenues for the year ended December 31, 1996 totaled $311,710,000, an
     increase of $122,872,000, or 65%, over the total of $188,838,000 for the
     year ended December 31, 1995.  This increase reflects the Company's
     acquisition of the following cable television systems:  the Augusta System
     on October 20, 1995; the Dale City System on November 29, 1995; the
     Manassas System on January 10, 1996; the South Prince Georges County System
     on February 29, 1996; the Reston System on February 29, 1996; and the
     Savannah System on April 12, 1996 (the "Acquired Systems").  Disregarding
     the effect of the Acquired Systems and the sales of Galactic Radio on June
     14, 1996, and the assets of JSP on July 31, 1996, total revenues would have
     increased $11,080,000, or 8%.

          The Company's subscriber service fees increased $113,276,000, or 84%,
     to $248,626,000 in 1996 from $135,350,000 in 1995.  The acquisition of the
     Acquired Systems accounted for $104,509,000, or 92%, of the increase in
     subscriber service fees.  Disregarding the effect of the Acquired Systems,
     subscriber service fees would have increased $8,767,000, or 8%.  This
     increase was due primarily to an increase in the number of basic
     subscribers and basic service rate adjustments in the cable television
     systems owned by the Company.

          The Company receives management fees generally equal to 5% of the
     gross operating revenues of its managed limited partnerships.  Management
     fees totaled $19,104,000 in 1996, a decrease of $2,358,000, or 11%, over
     the total of $21,462,000 reported in 1995.  The sale of certain systems
     owned by managed partnerships during 1995 and 1996 caused this decrease.
     As the Company liquidates its managed partnerships, management fees will
     continue to decrease.  On a pro forma basis, management fees would have
     increased $985,000, or 6%.  This increase was due to the revenue growth
     from basic rate adjustments and increases in the subscriber base of the
     remaining systems owned by managed partnerships.

          In its capacity as the general partner of its managed partnerships,
     the Company from time to time may receive revenue in the form of
     distributions upon the sale of certain cable television properties owned by
     such partnerships.  The Company received a distribution of $14,000,000 upon
     the sale of Cable TV Fund 11-B, Ltd.'s Lancaster, New York System in April
     1996.  No such revenue was recognized during 1995.  In addition, The Jones
     Group, Ltd., a wholly owned subsidiary of the Company, may earn brokerage
     fees upon the sale of certain managed cable television systems to third
     parties.  A brokerage fee of $2,100,000, less expenses of $617,000, was
     earned upon the sale of Cable TV Fund 11-B, Ltd.'s Lancaster, New York
     System in April 1996.  No such fees were recognized during 1995.

          The Company operates Jones Futurex, Inc. ("Futurex"), a manufacturer
     of various electronic components.  In addition, the Company owned and
     operated Galactic Radio, until its sale on June 14, 1996 and JSP, a
     distributor of satellite programming to satellite dish owners, until the
     sale of its assets on July 31, 1996.  Non-cable revenues totaled
     $28,497,000 in 1996, a decrease of $3,529,000, or 11%, over the $32,025,000
     recognized in 1995.  This decrease was primarily due to the sales of
     Galactic Radio and JSP.

                                      33
<PAGE>
 
          Costs and Expenses

          Operating, general and administrative expenses consist primarily of
     costs associated with the operation and administration of Company-owned
     cable television systems, the administration of managed partnerships and
     the operation and administration of the non-cable television entities.  The
     Company is reimbursed by its managed partnerships for costs associated with
     the administration of the partnerships.  The principal administrative cost
     components are salaries paid to corporate and system personnel, programming
     expenses, professional fees, subscriber billing costs, data processing
     costs, rent for leased facilities, cable system maintenance expenses and
     marketing expenses.

          Cable operating expenses increased $53,891,000, or 69%, to
     $131,529,000 in 1996 from $77,638,000 in 1995.  The acquisition of the
     Acquired Systems accounted for $49,396,000, or 92%, of this increase.
     Disregarding the effect of the Acquired Systems, cable operating expenses
     would have increased $5,095,000, or 8%, for 1996 compared to 1995.  This
     increase was due primarily to increases in basic and tier programming
     costs.

          Cable general and administrative expenses increased $8,302,000, or
     100%, to $16,586,000 in 1996 from $8,284,000 in 1995.  This increase was
     due to the effect of the Acquired Systems.  As the Company acquires cable
     television systems for its own account and sells cable television systems
     owned by managed partnerships, and thereby transitions from a management
     company to an operating company, the Company's proportionate percentage of
     total general and administrative expenses will increase.  Disregarding the
     effect of the Acquired Systems, cable general and administrative expenses
     would have decreased $682,000, or 8%, for 1996.  This decrease was due to
     effective cost controls relating to general and administrative expenses.

          Non-cable operating, general and administrative expenses decreased
     $3,972,000, or 12%, to $28,410,000 in 1996 from $32,382,000 in 1995.  This
     decrease was primarily due to the sales of Galactic Radio and JSP during
     1996.

          Depreciation and amortization expense increased $75,381,000, or 135%,
     to $131,186,000 in 1996 from $55,805,000 in 1996.  Depreciation and
     amortization relating to the Acquired Systems as well as the accelerated
     depreciation of certain cable plant being rebuilt in Company-owned cable
     television systems were primarily responsible for this increase.

          Operating Income

          Operating income decreased $10,730,000, or 73%, to $3,999,000 in 1996
     from $14,729,000 in 1995.  This decrease was due primarily to the increase
     in depreciation and amortization expense.

          The cable television industry generally measures the performance of a
     cable television company in terms of cash flow or operating income before
     depreciation and amortization.  The value of a cable television company is
     often determined using multiples of cable television system cash flow.
     This measure is not intended to be a substitute or improvement upon the
     items disclosed on the financial statements, rather it is included because
     it is an industry standard.  Operating income before depreciation and
     amortization increased $64,651,000, or 92%, to $135,185,000 in 1996 from
     $70,534,000 in 1995.  The Acquired Systems and the distribution and
     brokerage fee relating to the sale of Cable TV Fund 11-B, Ltd.'s Lancaster,
     New York System were primarily responsible for this increase.  Disregarding
     the effect of the Acquired Systems and the Company's receipt of the
     distribution and brokerage fee, operating income before depreciation and
     amortization would have increased $6,507,000, or 12%.

                                      34
<PAGE>
 
          Other Income (Expense)

          Interest expense increased $18,230,000, or 37%, to $67,782,000 in 1996
     from $49,552,000 in 1995.  This increase was due to higher outstanding
     balances on the Company's revolving credit facilities because borrowings
     were used to purchase the Acquired Systems.

          Interest income decreased $10,625,000, or 74%, to $3,758,000 in 1996
     from $14,383,000 in 1995.  This decrease was due to a reduction in cash and
     cash equivalents.  Such cash and cash equivalents were used to purchase the
     Acquired Systems.

          Equity in losses of affiliated entities increased $3,415,000 to
     $3,473,000 in 1996 from $58,000 in 1995.  This increase was due primarily
     to an increase in the recognition of losses of Jones Customer Service
     Management, L.L.C., an affiliate that is developing a subscriber billing
     and management system.

          The Company recognized gains on the sales of assets of $5,262,000
     during 1996.  Such gains resulted from the sale of JSP's assets and the
     Company's sale of certain marketable securities of an unaffiliated company.
     No such gain was recognized during 1995.

          Net loss increased $40,944,000, or 189%, to $62,660,000 in 1996 from
     $21,716,000 in 1995.  This increase was due primarily to the increase in
     depreciation and amortization expense related to the Acquired Systems.

          The Company anticipates the continued recognition of operating income
     prior to depreciation and amortization charges, but net losses resulting
     from depreciation, amortization and interest expenses are expected to
     continue in the future.  To the extent the Company recognizes distributions
     from its managed partnerships and/or gains on the sale of assets in the
     future, such losses may be reduced or eliminated; however, there is no
     assurance as to the timing or recognition of these distributions or sales.

          Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
          ---------------------------------------------------------------------
 
          Revenues

          Total revenues for the year ended December 31, 1995 totaled
     $188,838,000, an increase of $56,949,000, or 43%, over the total of
     $131,889,000 for the year ended December 31, 1994.  This increase reflected
     the Company's acquisition of the assets of Jones Spacelink, Ltd.
     ("Spacelink") on December 20, 1994, the purchase of the Augusta System on
     October 20, 1995, the purchase of the Dale City System on November 29, 1995
     and were offset, in part, by the sale of the Company's Gaston County, North
     Carolina cable television system (the "Gaston System") on July 22, 1994
     (the "Purchase and Sale Transactions").  Disregarding the effect of the
     Purchase and Sale Transactions, total revenues would have increased
     $10,898,000, or 9%.

          The Company's subscriber service fees increased $32,015,000, or 31%,
     to $135,350,000 in 1995 from $103,335,000 in 1994.  The effect of the
     Purchase and Sale Transactions accounted for $22,865,000, or 71%, of this
     increase.  Disregarding the effect of the Purchase and Sale Transactions,
     subscriber service fees would have increased $8,068,000, or 8%.  This
     increase was due primarily to an increase in the number of basic
     subscribers and basic service rate adjustments in the cable television
     systems owned by the Company.

          Management fees totaled $21,462,000 for 1995, an increase of
     $3,510,000, or 20%, over the total of $17,952,000 reported in 1994.  The
     growth of management fee revenue was the result of the acquisition of
     Spacelink's assets, which included general partner interests in a number of
     managed 

                                      35
<PAGE>
 
     partnerships, as well as increases in operating revenues of the Company's
     managed partnerships. Partnership revenues increased as a result of
     increases in basic subscribers, increases in advertising sales revenue and
     basic service rate adjustments. Disregarding the effect of the Spacelink
     transaction, management fees increased approximately 10%.

          No distribution or brokerage fee revenues were recognized during the
     years ended December 31, 1995 or 1994.  The general partner distribution
     received by the Company as a result of the sale of the Augusta System by
     Cable TV Fund 12-B, Ltd. in October 1995 was recorded as a reduction in the
     cost basis of the assets of the Augusta System due to the Company's
     continuing interest in the Augusta System.

          Non-cable revenue totaled $32,026,000 in 1995, an increase of
     $21,424,000, or 202%, over the $10,602,000 recorded in 1994.  The
     acquisitions of Futurex and Galactic Radio accounted for 79% of this
     increase.  The remainder of this increase was due to an increase in the
     revenue of JSP.

          Costs and Expenses

          Cable operating expenses increased $22,442,000, or 41%, to $77,638,000
     in 1995 compared to $55,196,000 in 1994.  The Purchase and Sale
     Transactions accounted for $13,954,000, or 62%, of this increase.
     Disregarding the effect of the Purchase and Sale Transactions, cable
     operating expense would have increased $6,406,000, or 12%.  This increase
     was due primarily to increases in premium and satellite programming costs.

          Cable general and administrative expense increased $164,000, or 2%, to
     $8,284,000 in 1995 from $8,120,000 in 1994.  Disregarding the effect of the
     Purchase and Sale Transactions, cable general and administrative expenses
     decreased $718,000, or 9%.  This decrease was due primarily to the fact
     that the Company paid no transponder fees to Jones Earth Segment, Inc. in
     1995.  The remainder of the decrease was due to effective cost controls
     related to general and administrative expense.

          Non-cable operating, general and administrative expense increased
     $20,572,000, or 174%, to $32,382,000 in 1995 from $11,810,000 in 1994.  The
     acquisitions of Futurex and Galactic Radio accounted for this increase.

          Depreciation and amortization expense increased $10,220,000, or 22%,
     to $55,805,000 in 1995 from $45,585,000 in 1994.  The effect of the
     Purchase and Sale Transactions, as well as capital additions in 1995, were
     responsible for this increase.

          Operating Income

          Operating income increased $3,551,000, or 32%, to $14,729,000 in 1995
     from $11,178,000 in 1994, due to the factors discussed above.

          Operating income before depreciation and amortization increased
     $13,771,000, or 24%, to $70,534,000 in 1995 from $56,763,000 in 1994.
     Disregarding the effect of the Purchase and Sale Transactions, operating
     income before depreciation and amortization would have increased
     $5,218,000, or 10%.

          Other Income (Expense)

          Interest expense increased $12,669,000, or 34%, to $49,552,000 in 1995
     from $36,883,000 in 1994.  This increase was due primarily to interest on
     the $200 million of Senior Notes sold in March 

                                      36
<PAGE>
 
     1995 which was offset, in part, by a decrease in interest expense on the
     Company's revolving credit facility due to lower outstanding balances.

          Interest income increased $8,497,000, or 144%, to $14,383,000 in 1995
     from $5,886,000 in 1994.  This increase was due to the increase in the
     Company's cash on hand during the year, prior to the acquisition of the
     Augusta System and the Dale City System, from the Bell Canada International
     Inc. investment in December 1994 and the sale of $200 million of Senior
     Notes in March 1995.

          In 1995, the Company recorded net equity in the losses of affiliates
     totaling $58,000 compared to $3,707,000 in 1994.  The Company recognized
     equity in the losses of its managed partnerships, Mind Extension
     University, IDS/Jones Joint Venture Partners and Jones Customer Service
     Management, L.L.C.  Such losses were offset, in part, by equity in the net
     income of Jones Intercable Investors, L.P. and Jones Global Group, Inc.
     ("JGG").  JGG, an affiliate, recognized gains on the sale of certain of
     JGG's Bell Cablemedia ADSs.

          The Company recorded a gain of $15,496,000 in July 1994 on the sale of
     its Gaston System.  No similar gain was recognized during 1995.

          The Company recognized a loss of $692,000 in 1995 related to the
     redemption of its 7.5% Convertible Subordinated Debentures.  No similar
     loss was recognized in 1994.

          Net loss increased $13,025,000, or 150%, to $21,716,000 in 1995 from
     $8,691,000 in 1994.  This increase was primarily due to the fact that the
     Company recognized no gain on the sale of assets in 1995 compared to the
     $15,496,000 gain recognized in 1994 on the sale of the Gaston System.

                                      37
<PAGE>
 
          Item 8.  Financial Statements and Supplementary Data
                   -------------------------------------------


                         INDEX TO FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----
                                                         
                                                         
     Report of Independent Public Accountants                               39
                                                         
     Consolidated Balance Sheets                                            40
                                                         
     Consolidated Statements of Operations                                  42
                                                         
     Consolidated Statements of Shareholders' Investment                    43
                                                         
     Consolidated Statements of Cash Flows                                  44
                                                         
     Notes to Consolidated Financial Statements                             45
 


                                      38
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



TO JONES INTERCABLE, INC.:


     We have audited the accompanying consolidated balance sheets of JONES
INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1996. 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 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 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 Jones Intercable, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.



Denver, Colorado
February 14, 1997                                 ARTHUR ANDERSEN LLP

                                       39
<PAGE>
 
CONSOLIDATED
BALANCE SHEETS                                            Jones Intercable, Inc.
As of December 31, 1996 and 1995                                and Subsidiaries
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                            1996             1995
                                               (Stated in Thousands)
--------------------------------------------------------------------------------
<S>                                           <C>              <C>
 
CASH AND CASH EQUIVALENTS                     $    1,671       $    2,314
 
RESTRICTED CASH                                    1,016            6,357
 
RECEIVABLES:
 Trade receivables, net of allowance for
  doubtful accounts of $1,483,000 in 1996
  and $1,056,000 in 1995                          16,327           19,332
 Affiliated entities                               3,996           14,311
 Other                                               962            2,442
 
INVESTMENT IN CABLE TELEVISION PROPERTIES:
 Property, plant and equipment, at cost          569,148          475,436
  Less - Accumulated depreciation               (184,738)        (171,948)   
                                               ---------        ---------
                                                 384,410          303,488
 Franchise costs and other intangible assets,
  net of accumulated amortization of 
  $219,783,000 in 1996 and $171,497,000 
  in 1995                                        492,219          309,813
 
 Investments in affiliates and domestic cable
  television partnerships                         31,483           45,745
 Investment in Bell Cablemedia plc               111,767           99,613
                                               ---------        ---------
TOTAL INVESTMENT IN CABLE TELEVISION 
 PROPERTIES                                    1,019,879          758,659
                                               ---------        ---------
 
DEFERRED TAX ASSET, net of valuation
 allowance of $53,006,000 in 1996 and
 $70,748,000 in 1995                               3,862            3,862
 
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS       86,416           53,222
                                               ---------        ---------
 
TOTAL ASSETS                                  $1,134,129       $  860,499
                                               =========        =========
</TABLE>






          The accompanying notes to consolidated financial statements
                 are an integral part of these balance sheets.

                                       40
<PAGE>
 
CONSOLIDATED
BALANCE SHEETS                                            Jones Intercable, Inc.
As of December 31, 1996 and 1995                                and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT               1996             1995
                                                       (Stated in Thousands)
--------------------------------------------------------------------------------
<S>                                               <C>             <C>
LIABILITIES:
 Accounts payable and accrued liabilities         $    89,563     $    69,411
 Subscriber prepayments and deposits                    3,112           5,579
 Subordinated debentures and other debt               463,147         462,714
 Credit facilities                                    343,000          30,000
                                                   ----------      ----------
 

TOTAL LIABILITIES                                     898,822         567,704
                                                   ----------      ----------
 
COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 11)
 
SHAREHOLDERS' INVESTMENT:
 Class A Common Stock, $.01 par value, 60,000,000
  shares authorized; 26,264,523 and 26,212,055
  shares issued at December 31, 1996 and 1995, 
  respectively                                            263             262
 Common Stock, $.01 par value, 5,550,000 shares
  authorized; 5,113,021 shares issued at 
  December 31, 1996 and 1995                               51              51
 Additional paid-in capital                           395,278         394,875
 Unrealized holding gain on marketable securities      47,272          42,504
 Accumulated deficit                                 (207,557)       (144,897)
                                                   ----------      ----------
 
TOTAL SHAREHOLDERS' INVESTMENT                        235,307         292,795
                                                   ----------      ----------
 

TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT    $ 1,134,129     $   860,499
                                                   ==========      ==========
</TABLE>





          The accompanying notes to consolidated financial statements
                 are an integral part of these balance sheets.

                                       41
<PAGE>
 
CONSOLIDATED STATEMENTS OF OPERATIONS                     Jones Intercable, Inc.
For the years ended December 31, 1996, 1995 and 1994            and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                            1996          1995           1994
                                           (In Thousands Except Per Share Data)
--------------------------------------------------------------------------------
<S>                                      <C>          <C>          <C>
 
REVENUES FROM OPERATIONS:
Cable Television Revenue
 Subscriber service fees                 $   248,626  $   135,350  $   103,335
 Management fees                              19,104       21,462       17,952
 Distributions and Brokerage Fees             15,483           -            -
Non-cable Revenue                             28,497       32,026       10,602
                                          ----------   ----------   ----------
TOTAL REVENUES                               311,710      188,838      131,889
 
COSTS AND EXPENSES:
Cable Television Expenses
 Operating expenses                          131,529       77,638       55,196
 General and administrative expenses
  (including approximately $4,309,000,
  $2,717,000 and $2,994,000 of related 
  party expenses during the years ended
  December 31, 1996, 1995 and 1994,
  respectively)                               16,586        8,284        8,120
Non-cable operating, general and
 administrative                               28,410       32,382       11,810
Depreciation and amortization                131,186       55,805       45,585
                                          ----------   ----------   ----------
OPERATING INCOME                               3,999       14,729       11,178

OTHER INCOME (EXPENSE):
Interest expense                             (67,782)     (49,552)     (36,883)
Interest income                                3,758       14,383        5,886
Equity in losses of affiliated entities       (3,473)         (58)      (3,707)
Gain on sale of assets                         5,262           -        15,496
Other, net                                    (4,424)        (526)        (661)
                                          ----------   ----------   ----------

LOSS BEFORE INCOME TAXES AND
 EXTRAORDINARY ITEM                          (62,660)     (21,024)      (8,691)
Income tax provision                              -            -            -
                                          ----------   ----------   ----------

LOSS BEFORE EXTRAORDINARY ITEM               (62,660)     (21,024)      (8,691)

EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
 net of related income taxes                      -          (692)          -
                                          ----------   ----------   ----------

NET LOSS                                 $   (62,660) $   (21,716) $    (8,691)
                                          ==========   ==========   ==========
 
PRIMARY LOSS PER SHARE:
Loss before extraordinary item           $     (2.00) $      (.67) $      (.45)
Extraordinary item                                 -         (.02)           -
                                          ----------   ----------   ----------

                                         $     (2.00) $      (.69) $      (.45)
                                          ==========   ==========   ==========

WEIGHTED AVERAGE NUMBER OF CLASS A
 COMMON AND COMMON SHARES OUTSTANDING         31,372       31,270       19,517
                                          ==========   ==========   ==========
</TABLE>


          The accompanying notes to consolidated financial statements
                   are an integral part of these statements.

                                       42
<PAGE>
 
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' INVESTMENT                                  Jones Intercable, Inc.
For the years ended December 31, 1994, 1995 and 1996            and Subsidiaries
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                                                     Unrealized 
                                                                                                      Holding  
                                  Class A Common Stock            Common Stock         Additional     Gain on     
                                  --------------------        --------------------      Paid-In      Marketable    Accumulated 
                                  Shares        Amount        Shares        Amount      Capital      Securities      Deficit
                                                                      (Stated in Thousands)
------------------------------------------------------------------------------------------------------------------------------------

<S>                             <C>         <C>             <C>         <C>           <C>             <C>          <C>  
BALANCES, December 31, 1993       12,275    $      122         4,913    $       49    $  119,997                   $ (102,665)
                                                                                                               
Proceeds from stock options                                                                                    
 exercised                            42             1           200             2         1,460             -             -
                                                                                                               
Sale of Class A Common                                                                                         
 Stock                             9,914            99            -             -        256,194             -             -
                                                                                                               
Class A Stock Option Grants           -             -             -             -            261             -             -
                                                                                                               
Purchase of Company Stock                                                                                      
 from Jones Spacelink, Ltd.        3,900            39            -             -         16,241             -        (11,825)
                                                                                                               
Net loss                              -             -             -             -             -             -          (8,691)
                                --------      --------      --------      --------      --------      --------       --------
  
BALANCES, December 31, 1994       26,131           261         5,113            51       394,153            -        (123,181)
 
 
Proceeds from stock options
 exercised                            81             1            -             -            461            -              -
                                                                                             
Class A Stock Option Grants           -             -             -             -            261            -              -
                                                                                             
Unrealized holding gain on            -             -             -             -             -         42,504
 marketable securities                                                                       
                                                                                             
Net loss                              -             -             -             -             -             -         (21,716)
                                --------      --------      --------      --------      --------      --------       --------
 
 
BALANCES, December 31, 1995       26,212           262         5,113            51       394,875        42,504       (144,897)
                                             
Proceeds from stock options                  
 exercised                            52             1            -             -            142            -              -
                                                           
Class A Common Stock Grants           -             -             -             -            261            -              -
                                                           
Unrealized holding gain on                                 
 marketable securities                -             -             -             -             -          4,768             -
                                                           
Net loss                              -             -             -             -             -             -         (62,660)
                                --------      --------      --------      --------      --------      --------       --------
 
BALANCES, December 31, 1996       26,264    $      263         5,113    $       51    $  395,278    $   47,272     $ (207,557)
                                ========      ========      ========      ========      ========      ========       ========
</TABLE>



          The accompanying notes to consolidated financial statements
                   are an integral part of these statements.

                                       43
<PAGE>
 
CONSOLIDATED STATEMENTS OF
CASH FLOWS                                               Jones Intercable, Inc.
For the years ended December 31, 1996, 1995 and 1994           and Subsidiaries
<TABLE> 
<CAPTION> 

------------------------------------------------------------------------------------------------------------------------------
                                                                                       1996              1995          1994
                                                                                               (Stated in Thousands)
------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>               <C>           <C>  
Net loss                                                                          $   (62,660)      $   (21,716)  $    (8,691)
Adjustments to reconcile net loss                                                               
    to net cash provided by operating activities:                                               
      Extraordinary loss on early extinguishment                                                
        of debentures, net of related income taxes                                          -               692             -
      Class A Common Stock option expense                                                 261               261           261
      Gain on sale of assets                                                           (5,262)                -       (15,496)
      Depreciation and amortization                                                   131,186            55,805        45,585
      Equity in losses of affiliated entities                                           3,473                58         3,707
      Decrease (Increase) in restricted cash                                            5,341            (8,574)       (1,196)
      Decrease (Increase) trade receivables                                             1,418            (7,549)       (2,193)
      Increase in other receivables, deposits,                                                  
        prepaid expenses and other assets                                             (18,529)          (14,526)         (827)
      Increase in accounts payable, accrued                                                     
        liabilities and subscriber prepayments and                                              
         deposits                                                                      17,672            19,040         7,597
                                                                                    ---------         ---------     ---------
  Net cash provided by operating activities                                            72,900            23,491        28,747
                                                                                    ---------         ---------     ---------
                                                                                                
  CASH FLOWS FROM INVESTING ACTIVITIES:                                                         
  Purchase of cable television systems                                               (298,929)         (253,724)            -
  Deposit on cable television systems                                                 (12,000)                -             -
  Sale of assets                                                                        5,262                 -        35,587
  Purchase of cable property and equipment                                            (83,805)          (63,216)      (28,801)
  Purchase of telephony property and equipment                                         (4,573)                -             -
  Investment in customer care/billing system                                           (7,522)                -             -
  Investment in cable television partnerships and affiliates                                -            (4,200)      (34,846)
  Acquisition Costs                                                                         -                 -        (5,438)
  Other, net                                                                            4,133              (304)          997
                                                                                    ---------         ---------     ---------
  Net cash used in investing activities                                              (397,434)         (321,444)      (32,501)
                                                                                    ---------         ---------     ---------
                                                                                                
  CASH FLOWS FROM FINANCING ACTIVITIES:                                                         
  Proceeds from borrowings                                                            506,000            30,000        84,000
  Repayment of debt                                                                  (193,000)                -      (251,000)
  BCI Investment                                                                            -                 -       258,893
  Equity acquisition fees                                                                   -                 -        (2,600)
  Proceeds from Senior Note Offering                                                        -           200,000             -
  Senior Note offering costs                                                                -            (3,500)            -
  Proceeds from issuance of Class A Common                                                      
    Stock and Class A Common Stock options                                                143               462         1,463
  Decrease (increase) in accounts receivable from affiliated entities                  10,315            13,712        (9,680)
  Redemption of debentures                                                                  -           (19,368)            -
  Other, net                                                                              433               315           670
                                                                                    ---------         ---------     ---------
  Net cash provided by financing activities                                           323,891           221,621        81,746
                                                                                    ---------         ---------     ---------
                                                                                                
  Increase (decrease) In Cash and Cash Equivalents                                       (643)          (76,332)       77,992
                                                                                                
  Cash and Cash Equivalents, beginning of year                                          2,314            78,646           654
                                                                                    ---------         ---------     ---------
                                                                                                
  Cash and Cash Equivalents, end of year                                          $     1,671       $     2,314   $    78,646
                                                                                    =========         =========     =========
 
</TABLE>

          The accompanying notes to consolidated financial statements
                   are an integral part of these statements.

                                       44
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              For the years ended December 31, 1996, 1995 and 1994


     1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Organization

          Jones Intercable, Inc. was formed in 1970 to own, operate and manage
     cable television systems.  Jones Intercable, Inc. and its subsidiaries are
     referred to herein as the "Company."  As of December 31, 1996, through a
     total of 47 owned and managed cable television systems, the Company served
     approximately 1.45 million subscribers in the United States.  The majority
     of the Company's 14 cable television systems are owned by two of the
     Company's subsidiaries.  Jones Cable Holdings, Inc. ("JCH") owns and
     operates the cable television systems serving areas in and around
     Alexandria, Virginia; Dale City, Virginia; Manassas, Virginia; Reston,
     Virginia; Anne Arundel County, Maryland; Charles County, Maryland; Prince
     Georges County, Maryland; and Jefferson County, Colorado.  Jones Cable
     Holdings II, Inc. ("JCH II") owns and operates the cable television systems
     serving areas in and around Augusta, Georgia; Savannah, Georgia; and Pima
     County, Arizona.  The Company directly owns the cable television systems
     serving areas in and around Oxnard, California; Walnut Valley, California;
     and Panama City Beach, Florida.  In addition, the Company manages 33 cable
     television systems for its 23 managed partnerships.

          On December 19, 1994, the shareholders of the Company approved an
     Exchange Agreement and Plan of Reorganization and Liquidation dated May 31,
     1994, as amended, between the Company and Jones Spacelink, Ltd.
     ("Spacelink") providing for the acquisition by the Company of substantially
     all of the assets of Spacelink and the assumption by the Company of all of
     the liabilities of Spacelink.  On December 20, 1994, the Company acquired
     all of the assets of Spacelink (except for the 2,859,240 shares of the
     Company's Common Stock owned by Spacelink) and assumed all of the
     liabilities of Spacelink (other than liabilities with respect to Spacelink
     shareholders exercising dissenters' rights) in exchange for 3,900,000
     shares of the Company's Class A Common Stock.  Glenn R. Jones, Chairman and
     Chief Executive Officer of the Company, controls the election of a majority
     of the Company's Board of Directors, through his ownership of a majority of
     the Company's outstanding Common Stock.

          Bell Canada International Inc. ("BCI") has acquired an approximate 32%
     economic interest in the Company through the purchase of approximately 38%
     of the Class A Common Stock of the Company.  BCI is a wholly owned
     subsidiary of BCE Inc., Canada's largest telecommunications company.  BCI
     also has a contractual commitment to invest up to an additional
     $141,100,000 to maintain a minimum 30% interest in the event the Company
     offers additional Class A Common Stock.  BCI has the right to maintain or
     increase its ownership by investing amounts beyond the $141,100,000
     commitment.

          On December 20, 1994, Jones International, Ltd. ("International"),
     which is wholly owned by Glenn R. Jones, Chairman and Chief Executive
     Officer of the Company, as well as certain subsidiaries of International,
     and Mr. Jones individually, granted BCI options to acquire 2,878,151 shares
     of the Common Stock of the Company.  Except in limited circumstances, the
     option will only be exercisable during the eighth year after December 20,
     1994.  The exercise of such options would result in BCI holding a
     sufficient number of shares of the Common Stock of the Company to enable
     BCI to elect a majority of the Company's Board of Directors.

                                       45
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              For the years ended December 31, 1996, 1995 and 1994

          Effective Registration Statement

          The Company has an effective registration statement relating to the
     sale of $600 million of senior debt securities, senior subordinated debt
     securities, subordinated debt securities and Class A Common Stock.  The
     Company, from time to time, may issue securities not to exceed $600 million
     pursuant to this registration statement.

          Summary of Significant Accounting Policies

          Basis of Presentation

          The Company changed its fiscal year end from May 31 to December 31,
     effective December 31, 1995.  Accordingly, the accompanying financial
     statements present the Company's financial position as of December 31, 1996
     and 1995 and its results of operations, changes in shareholders' investment
     and cash flows for each of the three years in the period ended December 31,
     1996.

          The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     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.

          Principles of Consolidation

          The consolidated financial statements include the accounts of the
     Company and its wholly owned subsidiaries.  The Company's investments in
     affiliates and domestic cable television partnerships (Note 4) are carried
     at cost plus equity in profits and losses.  All significant intercompany
     transactions have been eliminated in consolidation.

          Statements of Cash Flows

          The Company considers all highly liquid investments purchased with a
     maturity of three months or less to be cash equivalents.  Income taxes and
     interest paid during the periods presented are as follows:
<TABLE>
<CAPTION>
 
                                                 December 31,
                                   -------------------------------------
                                     1996           1995          1994
                                   -------------------------------------
<S>                                <C>            <C>           <C>
          (Stated in Thousands) 
          Income taxes             $    -         $       -   $    -
                                    =======        =======     =======
          Interest                  $67,441  $      43,079    $ 36,904
                                    =======        =======     =======
</TABLE>

          Non-cash transactions:

          As described in Note 4, on December 23, 1996, the Company redeemed 225
     shares of Jones Global Group, Inc. ("Global Group") in exchange for a
     $8,950,188 note receivable.  As described in Note 2, on June 14, 1996, the
     Company sold Jones Galactic Radio, Inc. ("Galactic Radio") to Global Group.
     The sales price of $17.2 million was paid in the form of 984,968 American
     Depositary Shares ("ADSs") 

                                       46
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              For the years ended December 31, 1996, 1995 and 1994

     of Bell Cablemedia plc. ("Bell Cablemedia"). As described in Note 4, on
     April 11, 1995, the Company converted its $20,000,000 in advances to Mind
     Extension University, Inc. ("ME/U"), an affiliate of the Company and a
     subsidiary of Jones Education Company ("JEC"), into Class A Common Shares
     of JEC. As described above, on December 20, 1994, the Company acquired
     substantially all of the assets of Spacelink and assumed all of the
     liabilities of Spacelink in exchange for 3,900,000 shares of the Company's
     Class A Common Stock. In July and October, 1994, the Company and certain of
     its wholly owned subsidiaries transferred all of their interests in their
     cable/telephony properties in the United Kingdom and Spain to Bell
     Cablemedia in exchange for 6,225,796 ADSs of Bell Cablemedia. During 1996,
     1995 and 1994, the Company recorded $261,000, $261,000 and $261,000,
     respectively of Additional Paid-in Capital related to Class A Common Stock
     option grants as discussed in Note 9.

          Restricted Cash

          Restricted cash consists of cash pledged to a commercial bank for
     letters of credit.

          Property, Plant and Equipment

          Depreciation of property, plant and equipment is provided using the
     straight-line method over the following estimated service lives:

               Distribution systems including capitalized
                 interest and operating expenses            Primarily 15 years
               Buildings                                    10-20 years
               Equipment and tools                          3-5 years
               Premium service equipment                    5 years
               Earth receive stations                       5-15 years
               Vehicles                                     3-4 years
               Other property, plant and equipment          3-5 years

          Franchise Costs

          Costs incurred in obtaining cable television franchises and other
     operating authorities are initially deferred and amortized over the lives
     of the franchises.  Franchise rights acquired through purchase of cable
     television systems are stated at estimated fair value at the date of
     acquisition and amortized over the remaining terms of the franchises.
     Amortization is determined using the straight-line method over lives of one
     to 18 years.

          Cost in Excess of Interests in Net Assets Purchased

          The cost of acquisitions in excess of the fair values of net assets
     acquired is being amortized using the straight-line method over a 40-year
     life.  The Company assesses the realizability of these assets through
     periodic independent appraisals.  Any impairments are recognized as an
     expense on the Company's Consolidated Statements of Operations.

                                       47
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              For the years ended December 31, 1996, 1995 and 1994

          Investment in Certain Marketable Securities

          The 7,210,764 ADSs of Bell Cablemedia held by the Company are
     considered available for sale per Statement of Financial Accounting
     Standards No. 115 "Accounting for Certain Investments in Debt and Equity
     Securities" ("SFAS No. 115") because of an effective registration statement
     available to the Company.  In accordance with SFAS No. 115, the ADSs are
     reflected at their quoted fair market value with the unrealized holding
     gain reflected as a separate component of shareholders' investment.

          Deferred Financing Costs

          Costs incurred in connection with the issuance of debentures and the
     execution of revolving credit agreements are deferred and amortized using
     the effective interest method over the life of such issues and agreements.

          Distributions from Managed Partnerships

          Distributions earned by the Company as general partner of its managed
     partnerships from cable television properties sold by such partnerships to
     unaffiliated parties are recorded as revenues when received.  Distributions
     earned by the Company as general partner of its managed partnerships from
     cable television properties sold by such partnerships to the Company are
     treated as a reduction of the purchase price of the cable television
     systems.  Distributions earned by the Company as general partner of its
     managed partnerships from cable television properties sold by such
     partnerships to entities in which the Company has a continuing equity
     interest are deferred and recognized as revenue in future periods.

          Earnings Per Share of Class A Common Stock and Common Stock

          Net loss per share of Class A Common Stock and Common Stock is based
     on the weighted average number of shares outstanding during the periods
     presented.  Common stock equivalents were not significant to the
     computation of primary earnings per share.

          Treasury Stock

          Shares held in treasury have been retired and classified as authorized
     but unissued shares in accordance with the Colorado Business Corporation
     Act.

          Reclassification

          Certain prior year amounts have been reclassified to conform to the
     1996 presentation.

     2.   ACQUISITIONS, EXCHANGES AND SALES

          Acquisitions by the Company
          ---------------------------

               On April 11, 1996, the Company purchased from Jones Spacelink
     Income/Growth Fund 1-A, Ltd., a Colorado limited partnership managed by the
     Company,  the cable television system serving the areas in and around Lake
     Geneva, Wisconsin (the "Lake Geneva System").  The purchase price was

                                       48
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years ended December 31, 1996, 1995 and 1994

     $6,345,667, which was the average of three separate independent appraisals
     of the fair market value of the Lake Geneva System.  The purchase of the
     Lake Geneva System was funded by available borrowings under JCH's revolving
     credit facility.

           On April 11, 1996, the Company purchased from Jones Spacelink
     Income/Growth Fund 1-A, Ltd., a Colorado limited partnership managed by the
     Company, the cable television system serving the areas in and around Ripon,
     Wisconsin (the "Ripon System").  The purchase price was $3,712,667, which
     was the average of three separate independent appraisals of the fair market
     value of the Ripon System.  The purchase of the Ripon System was funded by
     available borrowings under JCH's revolving credit facility.

           On April 11, 1996, the Company purchased from Jones Spacelink Income
     Partners 87-1, L.P., a Colorado limited partnership managed by the Company,
     the cable television systems serving the communities of Lodi, Burbank,
     Lafayette Township, New London, Bailey Lakes, Savannah, Shreve,
     Jeromesville, West Lafayette, Loudonville, Perrysville, Creston, Gloria
     Glens, Sterling, Seville, Westfield Center, Chippewa, Lake Area, Rittman,
     West Salem, Bloomville, Spencer, Polk and Congress, all in the State of
     Ohio (the "Lodi System").  The purchase price was $25,706,000, which was
     the average of three separate independent appraisals of the fair market
     value of the Lodi System.  The purchase of the Lodi System was funded by
     available borrowings under JCH's revolving credit facility.

           On February 28, 1996, the Company purchased from IDS/Jones Growth
     Partners 87-A, Ltd., a Colorado limited partnership managed by the Company,
     the cable television system serving areas in and around Carmel, Indiana
     (the "Carmel System").  The purchase price was $44,235,333, which was the
     average of three separate independent appraisals of the fair market value
     of the Carmel System.  The purchase of the Carmel System was funded by
     borrowings available under JCH's revolving credit facility.

           On February 28, 1996, the Company purchased from Jones Cable Income
     Fund 1-B, Ltd., a Colorado limited partnership managed by the Company, the
     cable television system serving areas in and around Orangeburg, South
     Carolina (the "Orangeburg System").  The purchase price was $18,347,667,
     which was the average of three separate independent appraisals of the fair
     market value of the Orangeburg System.  The purchase of the Orangeburg
     System was funded by borrowings available under JCH's revolving credit
     facility.

           On February 28, 1996, the Company purchased from Cable TV Fund 12-BCD
     Venture (the "Venture"), a joint venture of three of the Company's managed
     limited partnerships, the cable television system serving areas in and
     around Tampa, Florida (the "Tampa System").  The purchase price was
     $110,395,667, which was the average of three separate independent
     appraisals of the fair market value of the Tampa System.  The purchase of
     the Tampa System was funded by borrowings available under JCH's revolving
     credit facility.

           On January 10, 1996, the Company purchased the cable television
     systems serving Manassas, Manassas Park, Haymarket and portions of
     unincorporated Prince William County, all in the State of Virginia (the
     "Manassas System") from an unaffiliated party.  The purchase price of the
     Manassas System was $71,100,000.  The purchase was funded by borrowings
     available under JCH's revolving credit facility.  The Company paid Jones
     Financial Group, Ltd. ("Financial Group"), a subsidiary of  International,
     a fee of $896,000 upon closing of this transaction for acting as the
     Company's financial 

                                       49
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years ended December 31, 1996, 1995 and 1994

     
     advisor in connection with this transaction. All fees paid to Financial
     Group by the Company are based upon 90% of the estimated commercial rate
     charged by unaffiliated financial advisors.

          On November 29, 1995, the Company purchased the cable television
     system serving Dale City, Lake Ridge, Woodbridge, Fort Bevoir, Triangle,
     Dumfries, Quantico, Accoquan and portions of Prince William County, all in
     the state of Virginia (the "Dale City System") from an unaffiliated party.
     The purchase price was $123,000,000. The purchase was funded by cash on
     hand and borrowings available under JCH's credit facility. The Company paid
     Financial Group a fee of $1,328,400 for acting as the Company's financial
     advisor in connection with this transaction. All fees paid to Financial
     Group by the Company are based upon 90% of the estimated commercial rate
     charged by unaffiliated brokers.

          On October 20, 1995, the Company purchased the cable television system
     serving areas in and around Augusta, Georgia (the "Augusta System") from
     Cable TV Fund 12-B, Ltd. ("Fund 12-B"), a Colorado limited partnership
     managed by the Company.  The purchase price was $142,618,000.  The purchase
     price was determined by averaging three separate independent appraisals of
     the fair market value of the Augusta System.  The Company, as general
     partner of Fund 12-B, received a $13,222,000 distribution from Fund 12-B
     upon the closing of this transaction.  Such distribution reduced the
     Company's cost basis in the assets of the Augusta System.  Funding for this
     transaction was provided by cash on hand.

          Exchanges
          ---------

          On April 12, 1996, the Company, pursuant to an asset exchange
     agreement (the "Time Warner Exchange Agreement") with Time Warner
     Entertainment Company, L.P. ("Time Warner"), an unaffiliated cable
     television operator, conveyed to Time Warner the cable television systems
     serving Hilo, Hawaii (the "Hilo System") and Kenosha, Wisconsin (the
     "Kenosha System") as well as the Lodi System, the Ripon System, the Lake
     Geneva System and cash in the amount of $11,735,667.  In return, the
     Company received from Time Warner the cable television systems serving the
     communities in and around Savannah, Georgia (the "Savannah System").  This
     transaction was considered a non-monetary exchange of similar productive
     assets for accounting purposes and the Savannah System was recorded at the
     historical cost of the assets given up plus the $11,735,667 cash
     consideration, which was funded by borrowings available under JCH's
     revolving credit facility. The Company paid Financial Group a $1,286,000
     fee upon the completion of this transaction compensation to it for acting
     as the Company's financial advisor.  All fees paid to Financial Group by
     the Company are based upon 90% of the estimated commercial rate charged by
     unaffiliated financial advisors.

          On February 29, 1996, the Company, pursuant to an asset exchange
     agreement (the "TWEAN Exchange Agreement") with Time Warner Entertainment-
     Advance/Newhouse Partnership ("TWEAN"), an unaffiliated cable television
     system operator, conveyed to TWEAN the Carmel System, the Orangeburg System
     and the Tampa System and cash in the amount of $3,500,000. In return, the
     Company received from TWEAN the cable television systems serving Andrews
     Air Force Base, Capitol Heights, Cheltenham, District Heights, Fairmount
     Heights, Forest Heights, Morningside, Seat Pleasant, Upper Marlboro, and
     portions of Prince Georges County, all in Maryland (the "South Prince
     Georges County System"), and portions of Fairfax County, Virginia (the
     "Reston System"). This transaction was considered a non-monetary exchange
     of similar productive assets for accounting purposes and the South Prince
     Georges County System and the Reston System were recorded at the historical
     cost of the assets given up plus the $3,500,000 cash consideration, which
     was funded by borrowings available under JCH's

                                       50
<PAGE>
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994
 
     revolving credit facility. The Company paid Financial Group a $1,668,000
     fee upon the completion of this transaction as compensation to it for
     acting as the Company's financial advisor. All fees paid to Financial Group
     by the Company are based upon 90% of the estimated commercial rate charged
     by unaffiliated financial advisors.

          Acquisition by the Company subsequent to December 31, 1996
          ----------------------------------------------------------

          On January 31, 1997, the Company, pursuant to an agreement with
     Maryland Cable Partners, L.P., an unaffiliated party, purchased the cable
     television system serving the communities of Berwyn Heights, Bladensburg,
     Bowie, Brentwood, Cheverly, College Park, Colmar Manor, Cottage City,
     Edmonston, Glenarden, Greenbelt, Hyattsville, Landover Hills, Laurel, Mt.
     Rainer, New Carrollton, North Brentwood, Riverdale, Takoma Park, University
     Park and portions of Prince Georges County, all in the State of Maryland
     (the "North Prince Georges County System").  The purchase price was
     $231,367,000.  The purchase of the North Prince Georges County System was
     funded by borrowings under JCH's revolving credit facility.  The Company
     paid Financial Group a fee of $2,115,000 upon closing of this transaction
     for acting as the Company's financial advisor in connection with this
     transaction.  All fees paid to Financial Group by the Company are based
     upon 90% of the estimated commercial rate charged by unaffiliated financial
     advisors. The North Prince Georges County System is contiguous to the
     Company's South Prince Georges County System.  The acquisition of the North
     Prince Georges County System allows the Company to serve all 160,000
     subscribers in Prince Georges County and brings the Company's owned and
     managed subscriber count in the Washington, D.C. area to approximately
     400,000 subscribers.

          Sales
          -----

          On June 14, 1996, the Company completed the sale of Galactic Radio to
     Global Group for $17.2 million.  Global Group subsequently sold Galactic
     Radio to another affiliate of International.  The Company's Board of
     Directors requested and received a fairness opinion related to this sale
     from an unaffiliated investment banking firm.  The sales price was paid in
     the form of 984,968 ADSs of Bell Cablemedia.  The number of ADSs represents
     the purchase price of $17.2 million divided by the 30-day average closing
     price of an ADS for the 30-day period immediately preceding the closing
     date.  As a result of this transaction, the Company now directly owns
     7,210,764 ADSs of Bell Cablemedia.  Due to the related party nature of this
     transaction, no gain is reflected in the accompanying financial statements.

          On July 31, 1996, the Company sold the assets of Jones Satellite
     Programming, Inc. ("JSP"), a wholly owned subsidiary, to an unaffiliated
     party for $2,873,871.  The Company recorded a gain of approximately
     $2,873,000 upon the closing of this sale.  JSP provided satellite
     programming to satellite dish owners.

          The pro forma effect of the above-described acquisitions and exchanges
     of cable television properties and the sales of non-strategic subsidiaries
     on the Company's results of operations for the years ended December 31,
     1996 and 1995 are presented in the following unaudited tabulation:

                                       51
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years ended December 31, 1996, 1995 and 1994


                                  For the year ended December 31, 1996:
                         -------------------------------------------------------
<TABLE>
<CAPTION>
                                                    Acquisitions/              
                                  As Reported         Exchanges           Sales            Pro Forma
                                  ------------      --------------      ----------         ---------
<S>                            <C>                <C>                <C>               <C>       
                                                                                 
           Revenues              $    311,710     $     63,109        $     (8,962)      $    365,857
                                   ==========       ==========          ==========         ==========
                                                                                              
           Operating Income      $      3,999     $     (1,449)       $        455       $      3,005
                                   ==========       ==========          ==========         ==========
                                                                                              
           Net Loss              $    (62,660)    $    (20,075)       $        455       $    (82,280)
                                   ==========       ==========          ==========         ==========
                                                                                           
           Loss Per Share        $     (2.00)                                            $      (2.62)
                                   ==========                                              ===========
 
</TABLE>
 
                                      For the year ended December 31, 1995:
                                  ----------------------------------------------
<TABLE>
<CAPTION>
                                                    Acquisitions/              
                                  As Reported         Exchanges           Sales            Pro Forma
                                  ------------      --------------      ----------         ---------
<S>                            <C>                <C>                <C>               <C>       
                                                                                 
           Revenues              $    188,838     $    152,884        $    (17,814)      $    323,908
                                   ==========       ==========          ==========         ==========
                                                                                              
           Operating Income      $     14,729     $    (14,458)       $      1,092       $      1,363
                                   ==========       ==========          ==========         ==========
                                                                                              
           Net Loss              $    (21,716)    $    (63,178)       $      1,092       $    (83,802)
                                   ==========       ==========          ==========         ==========
                                                                                           
           Loss Per Share        $     ( .69)                                            $      (2.68)
                                   ==========                                              ===========
 
</TABLE>
           Proposed Acquisitions by the Company
           ------------------------------------

           In September 1995, the Company entered into an asset purchase
     agreement to purchase from Cable TV Joint Fund 11 (the "Venture"), a
     venture comprised of four managed partnerships, the cable television system
     serving the City of Manitowoc, Wisconsin (the "Manitowoc System").  Because
     the City of Manitowoc had not consented to the transfer of the franchise by
     the asset purchase agreement's original expiration date of September 30,
     1996, the Company and the Venture amended the asset purchase agreement to
     extend the period in which to close the sale of the Manitowoc System to
     June 30, 1997.  Under the terms of the asset purchase agreement, as
     amended, the purchase price for the Manitowoc System will be $16,122,333,
     subject to closing adjustments.  The closing of the purchase of the
     Manitowoc System is subject to the approval of the limited partners of each
     of the managed partnerships that comprise the Venture.  The Company
     anticipates that it will receive from the four managed partnerships that
     comprise the Venture, general partner distributions totaling approximately
     $4,518,000 upon the closing of the sale of the Manitowoc System.  The
     closing is expected to occur during the second quarter of 1997.

                                       52
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years ended December 31, 1996, 1995 and 1994


           In February 1997, the Board of Directors of the Company approved the
     acquisition, by JCH II from Jones Intercable Investors, L.P. (the
     "Partnership"), a Colorado limited partnership managed by the Company, of
     the cable television systems serving communities in and around
     Independence, Missouri (the "Independence Systems") for a purchase price of
     $171,213,667, which represents the average of three independent appraisals
     of the fair market value of the Independence System. The Company
     anticipates that it will receive a limited partner distribution totaling
     approximately $25,700,000 from the sale by the Partnership of the
     Independence System because of the Company's equity interest in the
     Partnership. The closing of the purchase of the Independence System is
     subject to the consents of governmental authority and other third parties
     and is expected to occur in the second half of 1997. The Partnership will
     pay The Jones Group, Ltd. a $4,280,000 brokerage fee in connection with
     this transaction.

           Proposed Exchange by the Company
           --------------------------------

           On October 25, 1996, the Company entered into an asset exchange
     agreement with United CATV, Inc., an unaffiliated party that is an
     affiliate of Tele-Communications, Inc.  Pursuant to the exchange agreement,
     the Company will convey to United CATV, Inc. the cable television systems
     serving areas in and around Evergreen, Idaho Springs and Jefferson County,
     all in the State of Colorado, in exchange for the cable television system
     serving areas in and around Annapolis, Southern Anne Arundel County and the
     Naval Academy, all in the State of Maryland (the "Annapolis System"), and
     cash in the amount of $2,500,000, subject to normal closing adjustments.
     The Company will pay Financial Group a $675,000 fee upon completion of this
     exchange as compensation to it for acting as the Company's financial
     advisor in connection with this transaction.  All fees paid to Financial
     Group by the Company are based upon 90% of the estimated commercial rate
     charged by unaffiliated financial advisors.  This transaction is expected
     to be completed in the first half of 1997.

           Proposed Sale by the Company
           ----------------------------

           On August 16, 1996, the Company entered into an agreement with an
     unaffiliated party to sell the cable television systems serving areas in
     and around Walnut Valley and Oxnard, both in the State of California, for
     $104,000,000.  The closing of this transaction is subject to a number of
     conditions including obtaining necessary governmental and other third party
     consents.  This transaction is expected to close in the second quarter of
     1997.  The Company will pay Financial Group a $1,567,000 fee upon
     completion of this sale for acting as the Company's financial advisor in
     connection with this transaction.  All fees paid to Financial Group by the
     Company are based upon 90% of the estimated commercial rate charged by
     unaffiliated financial advisors.

           Sale by Managed Partnership
           ---------------------------

           On April 1, 1996, Cable TV Fund 11-B, Ltd. ("Fund 11-B"), one of the
     Company's managed partnerships, sold the cable television system serving
     areas in and around Lancaster, New York to an unaffiliated third party for
     $84,000,000.  Upon closing, Fund 11-B repaid its indebtedness, a sales tax
     liability and a $2,100,000 brokerage fee, less expenses of $617,000, to The
     Jones Group, Ltd., a wholly owned subsidiary of the Company.  The remaining
     proceeds were distributed to Fund 11-B's partners.  The Company, as general
     partner of Fund 11-B, received a distribution of $14,000,000 related to
     this transaction.  Funds received in payment of the brokerage fee and the
     general partner distribution were used to reduce amounts outstanding on
     JCH's revolving credit facility.

                                       53
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years ended December 31, 1996, 1995 and 1994


     3.   TRANSACTIONS WITH RELATED PARTIES

          The Company and the managed partnerships for which the Company is
     general partner (see Note 5) have had, and will continue to have, certain
     transactions with International and its other subsidiaries.  Principal
     recurring transactions are as follows:

          Costs Shared by the Company and Managed Partnerships

          Jones Interactive, Inc. ("Jones Interactive"), a wholly owned
     subsidiary of International, provides information management and data
     processing services for operating companies affiliated with International.
     Charges to the various operating companies are based on usage of computer
     time by each entity.  Amounts charged to the Company and its managed
     partnerships for the years ended December 31, 1996, 1995 and 1994 totaled
     $5,784,000, $6,439,000 and $5,361,000, respectively.

          The Company is party to a lease with Jones Properties, Inc., a wholly
     owned subsidiary of International, under which the Company has leased a
     101,500 square foot office building in Englewood, Colorado.  The lease
     agreement, as amended, has a 15-year term, expiring July 2000, with three
     5-year renewal options.  The annual rent is not to exceed $24.00 per square
     foot plus operating expenses.  The Company has subleased approximately 46%
     of the building to International and certain affiliates of International on
     the same terms and conditions as the above described lease.  Rent payments
     to Jones Properties, Inc., net of subleasing reimbursements, for the three
     years ended December 31, 1996, 1995 and 1994 were $1,467,000, $1,645,000
     and $1,762,000, respectively.

          Upon the closing of the BCI investment in December 1994, the Company
     entered into a Secondment Agreement with BCI. Pursuant to the Secondment
     Agreement, BCI provided 12 secondees during 1996. These secondees worked
     for the Company and its managed partnerships. The Company reimbursed BCI
     for the full employment costs of such individuals. The Company reimbursed
     BCI $1,138,000 and $823,000 during the years ended December 31, 1996 and
     1995, respectively. No such reimbursements were made during the year ended
     December 31, 1994.

          The Company paid approximately 40%, 25% and 21% of the above-described
     data processing, rental and secondment expenses during the years ended
     December 31, 1996, 1995 and 1994, respectively.  The remainder of the
     expenses were allocated to and paid by the managed partnerships.

          Costs Borne and Payments Received by the Company

          The Company receives satellite programming from JEC. See Note 4.
     Payments made to JEC by the Company for programming provided to the
     Company's owned cable television systems for the years ended December 31,
     1996, 1995 and 1994 totaled approximately $818,000, $684,000 and $184,000,
     respectively.

          The Company receives satellite programming from Great American
     Country, Inc., an affiliate.  Payments made to Great American Country, Inc.
     for programming provided to the Company's owned cable television systems
     for the year ended December 31, 1996 totaled approximately $281,000.  No
     payments were made to Great American Country, Inc., for the years ended
     December 31, 1995 and 1994.

                                       54
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years ended December 31, 1996, 1995 and 1994



          The Company also receives satellite programming from Superaudio, an
     affiliate of Galactic Radio.  The Company sold Galactic Radio on June 14,
     1996.  See Note 2.  Payments made to Galactic Radio for programming
     provided to the Company's owned cable television systems for the period
     from June 15, 1996 to December 31, 1996 totaled approximately $119,000.

          In 1992, the Company entered into a license agreement with Jones Space
     Segment, Inc. ("Space Segment"), an affiliate of International, to use a
     non-preemptible transponder on a domestic communications satellite leased
     by Space Segment.  Under the license agreement, as amended, which expired
     December 31, 1994, the Company, Jones Infomercial Networks, Inc. and Jones
     Computer Network, Ltd. ("JCN"), both affiliates of International, had a
     license to use the transponder for their respective purposes.  The Company
     recognized $1,172,000 of rental expense related to this lease agreement
     during the year ended December 31, 1994.  Because the license has expired,
     no expense related to this lease agreement was recognized during the years
     ended December 31, 1996 and 1995.

          The Product Information Network Venture, ("PIN"),  is an affiliate of
     International that provides a satellite programming service.  PIN airs
     product infomercials 24 hours a day, seven days a week.  A portion of the
     revenues generated by PIN are paid to the cable television systems that
     carry PIN's programming.  Most of the Company's owned cable television
     systems carry PIN for all or part of each day.  Aggregate payments received
     by the Company from PIN relating to the Company's owned cable television
     systems totaled approximately $466,000, $300,000 and $103,000 for the years
     ended December 31, 1996, 1995 and 1994, respectively.

          Effective upon the closing of the BCI investment in December 1994, the
     Company entered into a Supply and Services Agreement with BCI.  Pursuant to
     the Supply and Services Agreement, BCI provides the Company with access to
     the expert advice of personnel from BCI and its affiliates for the
     equivalent of three man-years on an annual basis.  The Company pays an
     annual fee of $2,000,000 to BCI during the term of the agreement.  Payments
     to BCI under the Supply and Services Agreement during the years ended
     December 31, 1996 and 1995 totaled $2,000,000 and $2,000,000, respectively.
     No payments were made during the year ended December 31, 1994.

          Financial Group performs services for the Company as its agent in
     connection with negotiations regarding various financial arrangements of
     the Company.  In December 1994, the Company entered into a Financial
     Services Agreement for eight years with Financial Group pursuant to which
     Financial Group has agreed to render financial advisory and related
     services to the Company for a fee equal to 90% of the fees that would be
     charged to the Company by unaffiliated third parties for the same or
     comparable services.  The Company will pay Financial Group an annual
     $1,000,000 retainer as an advance against payments due pursuant to this
     agreement and will reimburse Financial Group for its reasonable out-of-
     pocket expenses. The Company paid fees totaling $3,850,000 in 1996 related
     to the acquisition of the Manassas System, the South Prince Georges County
     System, the Reston System and the Savannah System.  The Company paid fees
     totaling $1,328,400 in 1995 related to the purchase of the Dale City
     System.  In December 1994, the Company paid fees of $2,000,000 to Financial
     Group for its services to the Company in connection with the BCI
     investments in the Company (see Note 1).  In addition, the Company paid an
     advisory fee of (Pounds)414,854 (approximately $632,600) to Financial Group
     in 1994 for its services to the Company in connection with the Company's
     transfer of all of its interests in its cable/telephony properties in the
     United Kingdom to Bell Cablemedia.

                                       55
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years ended December 31, 1996, 1995 and 1994



          During 1994, the Company carried accounts receivable from
     International and its affiliates totaling $2,000,000.  This receivable was
     repaid in January 1995.  Interest on such receivables was charged at the
     Company's average cost of borrowing plus 2%.
 
     4.   INVESTMENTS IN CABLE TELEVISION PARTNERSHIPS AND JOINT VENTURES

          Jones Global Group, Inc.

          On December 23, 1996, the Company redeemed 225 of its 380 shares of
     Global Group in exchange for a $8,950,188 note receivable from Global
     Group.  The redemption price is subject to adjustment based on an appraisal
     of Global Group to be completed in the first half of 1997.  The note bears
     interest at 6%.  The note will be repaid from any proceeds received by
     Global Group for the sale of Bell Cablemedia ADSs held by Global Group and
     shall be payable in full no later than June 30, 1998.  As a result of this
     transaction, the Company will recognize a gain of $2,979,000.  Because this
     transaction is between affiliated parties, such gain will be deferred until
     the note is paid in full.  Through February 28, 1997, approximately
     $6,950,000 of the note had been repaid.  As a result of this transaction,
     the Company now only owns a 20% interest in Global Group.  The Company
     accounts for its investment in Global Group using the equity method.

          Bell Cablemedia plc

          The Company holds 7,210,764 ADSs of Bell Cablemedia.  Bell Cablemedia
     owns and operates certain cable television systems in the United Kingdom
     and Spain.  The Company acquired 6,225,796 ADSs in 1994 by contributing all
     of its cable/telephony properties in the United Kingdom and Spain to Bell
     Cablemedia.  The Company acquired an additional 984,968 ADSs upon the sale
     of Galactic Radio to Global Group in June 1996.  The 7,210,764 ADSs of Bell
     Cablemedia held by the Company are now considered available for sale
     because of an effective registration statement available to the Company.
     In accordance with SFAS No. 115 the ADSs are reflected at their estimated
     fair market value with the unrealized holding gain of $47,272,000 reflected
     as a separate component of shareholders' investment.

          Mind Extension University, Inc.

          During 1992, the Company invested $10,000,000 in ME/U, an affiliated
     company and subsidiary of JEC, that provides educational programming
     through affiliated and unaffiliated cable television systems, for 25% of
     the stock of ME/U, which also received certain advertising avails and
     administrative and marketing considerations from the Company.  The number
     of shares of Class A Common Stock of ME/U issued to the Company was based
     on the average of two separate independent appraisals of ME/U.  Through its
     acquisition of the assets of Spacelink, the Company obtained an additional
     13% interest in ME/U in December 1994.  Spacelink had acquired such
     interest for $3,135,000.  In 1996, additional issuances of ME/U's Class A
     Common Stock reduced the Company's investment in ME/U to 26 percent. At
     December 31, 1996, the Company's net investment in ME/U was $1,818,000.

                                       56
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years ended December 31, 1996, 1995 and 1994


          Jones Education Company

          In 1993, 1994 and 1995, the Company advanced a total of $20,000,000 to
     ME/U.  Interest on such advances was charged at the Company's weighted
     average cost of borrowing plus two percent.  On April 11, 1995, the Company
     converted its advances to ME/U into shares of Class A Common Stock of JEC,
     the parent company of ME/U, for an approximate 17% equity interest in JEC.
     In 1996, subsequent issuances of JEC's Class A Common Stock reduced the
     Company's investment in JEC to 16 percent.  JEC is an affiliate of
     International and, in addition to its 51% ownership of ME/U, JEC owns an
     81% interest in JCN.  The Company accounts for its investment in JEC using
     the equity method.  At December 31, 1996, the Company's net investment in
     JEC was $17,070,000.

          Jones Intercable Investors, L.P.

          The Company is the general partner of Jones Intercable Investors,
     L.P., a Colorado limited partnership managed by the company, which was
     formed on September 18, 1986, and the Company owns a 1% general partner
     interest.  In a series of transactions, the Company purchased limited
     partnership units, giving the Company an approximate 19% limited partner
     interest in Jones Intercable Investors, L.P.  The Company's net investment
     in this partnership totaled approximately $3,253,000 at December 31, 1996.
     Based upon the quoted market price of $13.63 per unit at December 31, 1996,
     the quoted market value of this investment was approximately $21,708,000.
     The Company accounts for this investment using the equity method of
     accounting.

          Jones Customer Service Management, L.L.C.

          The Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect
     subsidiary of International, have formed a venture, known as Jones Customer
     Service Management, L.L.C., for the purpose of developing a subscriber
     billing and management system.  As of December 31, 1996, the Company had
     invested $5,200,000 in the venture.  JCS is performing the basic system
     development work for the venture and is being paid periodically on a time
     and materials basis, plus 10% of the amount charged, for its own service.
     Upon the completion of the billing and management system software, the
     Company and JCS will have license rights to use such system in perpetuity.
     The venture will also perform additional services to the Company in the
     implementation of the new subscriber billing and management system.  The
     venture intends to subcontract such maintenance and conversion services to
     JCS on the basis of time and materials plus 10% of the amount of the JCS
     services.  The venture will grant to JCS the exclusive right to distribute
     the system to third parties for a period of five years for a commission on
     the license fees to be earned by the venture from such licensing.  The
     Company accounts for this investment using the equity method and as of
     December 31, 1996 had recognized losses of $5,200,000.

     5.   MANAGED PARTNERSHIPS

          Organization

          The Company is general partner for 23 Colorado limited partnerships
     formed to acquire, construct, develop and operate cable television systems.
     Partnership capital has been raised principally through a series of public
     offerings of limited partnership interests.  The Company generally made a
     capital contribution of $1,000 to each partnership and is allocated 1% of
     all partnership profits and losses.  

                                       57
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years ended December 31, 1996, 1995 and 1994


     The Company also purchased limited partner interests in certain of the
     partnerships and generally participates with respect to such interests on
     the same basis as other limited partners.

          Management Fees

          As general partner, the Company manages the managed partnerships and
     receives a fee for its services generally equal to 5% of the gross revenues
     of the managed partnerships, excluding revenues from the sale of cable
     television systems or franchises.

          Distributions

          For the managed partnerships formed by the Company, any partnership
     distributions made from cash flow, as defined, are generally allocated 99%
     to the limited partners and 1% to the general partner.  The general partner
     is also entitled to partnership distributions other than from cash flow,
     such as from the sale or refinancing of cable television systems or upon
     dissolution of the partnership, equal to 12 1/2% to 40% of the net
     remaining assets of the partnership after payment of the partnership's
     debts and after investors have received an amount equal to their original
     capital contributions plus, in many cases, a preferential return on their
     investments.

          For the partnerships formerly managed by Spacelink, any partnership
     distributions made from cash flow, as defined, are generally allocated 99%
     to the limited partners and 1% to the general partner.  The general partner
     is also entitled to partnership distributions other than from cash flow,
     such as from the sale or refinancing of systems or upon dissolution of the
     partnerships, which are a portion of the net remaining assets of such
     partnership ranging from 15% to 40% after payment of partnership debts and
     after investors have received an amount equal to their capital contribution
     plus, in most cases, a preferential return on their investment.

          The Company received distributions from managed partnerships totaling
     $14,000,000 and $13,222,000 for the years ended December 31, 1996 and 1995,
     respectively.  No such distributions were received during 1994.  The
     $13,222,000 distribution received during 1995 from Fund 12-B upon the sale
     to the Company of the cable television system serving the area in and
     around Augusta, Georgia was recorded as a reduction in the Company's cost
     basis in the assets of the Augusta System.

          Allocations

          The Company's managed limited partnerships reimburse the Company for
     certain allocated overhead and administrative expenses.  These expenses
     generally consist of salaries and related benefits paid to corporate
     personnel (including secondees of BCI), rent, data processing services and
     other corporate facilities costs.  The Company provides engineering,
     marketing, administrative, accounting, information management, legal,
     investor relations and other services to the partnerships.  Allocations of
     personnel costs have been based primarily on actual time spent by Company
     employees with respect to each partnership managed.  Remaining overhead
     costs are allocated based on the pro rata relationship of the partnership's
     revenues to the total revenues of all systems owned or managed by the
     Company.    Company-owned systems are also allocated a proportionate share
     of these expenses under the allocation formulas described above.  Amounts
     charged to managed partnerships and other affiliated companies have

                                       58
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994

     directly offset the Company's general and administrative expenses by
     approximately $25,322,000, $31,987,000 and $32,645,000 for the years ended
     December 31, 1996, 1995 and 1994, respectively.

          Advances

          The Company has made advances to certain of the managed partnerships
     primarily to accommodate expansion and other financing needs of the
     partnerships.  Such advances bear interest at rates equal to the Company's
     weighted average cost of borrowing which, for the year ended December 31,
     1996 was 10.47%.  Interest charged to the limited partnerships for the
     years ended December 31, 1996, 1995 and 1994 was $1,713,000, $2,592,000 and
     $4,250,000, respectively.

          Certain condensed financial information regarding managed
     partnerships, on a combined basis, is as follows:
<TABLE>
<CAPTION>
 
                                                  December 31,
                                      -----------------------------------
                                        1996          1995         1994
                                      -----------------------------------
                                             (Stated in Thousands)
     <S>                              <C>          <C>         <C>     
     Total assets                     $ 651,053    $ 806,319   $  923,117

     Debt                               591,564      676,760      688,393
     Amounts due general partner          3,996       14,969       25,735
     Partners' Capital (Net of                                 
       accumulated deficit)              24,172       99,505      174,001
                                                               
     Revenues                           380,865      427,877      397,318
     Depreciation and amortization      128,095      151,236      153,520
     Operating loss                     (11,896)     (16,438)     (34,565)
     Net income (loss)                  123,263       20,964      (80,988)
 
</TABLE>

          The fair market values of the partnerships' assets, as determined by
     independent appraisals, exceed the combined amounts due the Company and
     other outstanding indebtedness for each individual partnership.

          The amount reported as combined net income (loss) for all managed
     limited partnerships for the years ended December 31, 1996 and 1995
     included gains on sales and liquidations recognized by certain partnerships
     which totaled approximately $ 181,632,000, and $91,693,000, respectively.
     No such gains were recognized during the year ended December 31, 1994.

     6.   NOTES RECEIVABLE FROM AFFILIATES

          On December 19, 1994, Spacelink received a promissory note from Jones
     Earth Segment, Inc.("Earth Segment"), then an affiliate of Spacelink, in
     conjunction with the transfer of Earth Segment to International.  The
     Company acquired this note as part of the acquisition of Spacelink's
     assets.  The principal sum is $6,554,500.  Interest on the principal is at
     the prime rate plus one percent and is paid 

                                       59
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994

     quarterly. The note matures on December 19, 1999. The note is secured by
     the real and personal property of Earth Segment.

          Pursuant to a tax sharing agreement with International, Spacelink was
     allocated tax benefits based on its pro rata share of taxable loss
     generated as part of the consolidated group.  The tax sharing agreement was
     terminated effective June 1, 1993.  The allocated benefits are to be paid
     no later than five years from the date they were created.  The benefits
     accrue interest at the prime rate in effect at the time they were created.
     The Company, through its acquisition of Spacelink's assets, acquired a
     receivable from International relating to this tax sharing agreement.  The
     balance of this receivable at December 31, 1996 was $1,944,000.
 
     7.   DEBT
 
          Debt consists of the following:
<TABLE>
<CAPTION>
                                                             December 31,
                                                       -------------------------
                                                          1996           1995
                                                       ----------     ----------
                                                         (Stated in Thousands)
     <S>                                               <C>            <C>  
     LENDING INSTITUTIONS:
       JCH Revolving Credit Facility                   $  183,000     $   30,000
       JCH II Revolving Credit Facility                   160,000             -
 
     SENIOR NOTES:
       Senior Notes due March 15, 2002, interest 
        payable semi-annually at 9 5/8%                   200,000        200,000
 
     SUBORDINATED DEBENTURES:
       Debentures due July 15, 2004, interest payable
        semi-annually at 11.5%, redeemable at the 
        Company's option on or after July 15, 1997 at 
        106.75% of par, declining to par by 
        July 15, 2000                                     160,000        160,000
       Debentures due March 1, 2008, interest payable
        semi-annually at 10.5%, redeemable at the
        Company's option on or after March 1, 2000 
        at 105.25% of par, declining to par by 
        March 1, 2005                                     100,000        100,000
 
     OTHER:
       Capitalized equipment lease
        obligations due in installments through 1998
        and other debt                                      3,147          2,714
                                                       ----------     ----------
 
               Total debt                              $  806,147     $  492,714
                                                       ==========     ==========
 
</TABLE>

          On October 31, 1995, the Company, through JCH, a wholly owned
     subsidiary, entered into a $500 million reducing revolving credit facility
     with a group of commercial banks (the "JCH Credit Facility").  On September
     17, 1996, JCH amended this revolving credit facility to allow for
     borrowings up to $600 million and to reduce by 1/8% the rates of interest
     charged on any amounts outstanding.  This 

                                       60
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994

     credit facility required the transfer of certain of the Company's cable
     television properties to JCH. The entire $600 million commitment is
     available through March 31, 1999, at which time the commitment will be
     reduced quarterly with a final maturity of December 31, 2004. As of
     December 31, 1996, $183,000,000 was outstanding under this agreement, which
     included a $12 million downpayment on the North Prince Georges County
     System, which was purchased on January 31, 1997. Interest on outstanding
     obligations ranges from Base Rate (which generally approximates the prime
     rate) to Base Rate plus 1/8% or LIBOR plus 1/2% to LIBOR plus 1% based on
     certain leverage covenants. In addition, a commitment fee of 3/16% to 3/8%
     on the unused commitment is also required. The effective interest rate on
     amounts outstanding at December 31, 1996 was 6.07%.

           On October 29, 1996, the Company, through JCH II, a wholly owned
     subsidiary, entered into an additional $600 million credit facility.  The
     new credit facility consists of a $300 million reducing revolving credit
     facility and a $300 million 364 day revolving credit facility (the "JCH II
     Credit Facility").  The reducing revolving credit facility allows for
     borrowing through the final maturity date of December 31, 2005.  The
     maximum amount available reduces quarterly beginning March 31, 2000 through
     the final maturity date of December 31, 2005.  The 364 day revolving credit
     facility allows for borrowings through the 364th day subsequent to the
     closing date of the loan, at which time any outstanding borrowings
     automatically convert to a term loan payable in semi-annual installments
     commencing June 30, 2001 with final maturity date of December 31, 2005.  As
     of December 31, 1996, $160,000,000 was outstanding under this agreement,
     which was borrowed under the reducing revolving credit facility.  Interest
     on amounts outstanding varies from the Base Rate (which generally
     approximates the prime rate) to Base Rate plus 1/4% or LIBOR plus 1/2% to 
     1 1/4%, depending on certain financial covenants.  A commitment fee of  
     1/8% to 3/8% per year on available, but unborrowed, amounts is also 
     required. The effective interest rate on amounts outstanding at December
     31, 1996 was 6.03%.

           On October 6, 1996, the Company entered into a deferred interest rate
     swap with two commercial banks.  The deferred interest rate swap fixes the
     Company's interest at 6.5% on $50,000,000 of notional principal for three
     years commencing July 15, 1997.

          On March 23, 1995, the Company sold $200 million of 9 5/8% Senior
     Notes due March 15, 2002.  The Senior Notes bear interest from the date of
     issuance at the rate of 9 5/8% per annum, payable semi-annually on March 15
     and September 15 of each year.  The Senior Notes are not redeemable prior
     to maturity and are not subject to any sinking fund.  The Company paid fees
     of $3,500,000 relating to this transaction.  Such fees will be amortized
     over the life of the notes.

          The 11.5% Senior Subordinated Debentures due 2004 described above
     provide for annual sinking fund payments of $50,000,000 commencing July 15,
     2002 which are calculated to retire 62 1/2% of the issue prior to maturity
     after consideration of the debt redemptions.  There are no sinking fund
     requirements related to the 10.5% Senior Subordinated Debentures due March
     1, 2008.

          On October 12, 1995, the Company redeemed the remaining outstanding
     7.5% Convertible Subordinated Debentures (the "Convertible Debentures") due
     2007, at a price equal to 101.5% of the principal amount, plus accrued
     interest.  The total principal amount of the Convertible Debentures was
     $43,100,000, of which $23,732,000 were held by the Company and $19,368,000
     were held by unaffiliated investors. The Convertible Debentures were
     redeemed with cash on hand.  The Company recognized a loss of $692,000
     relating to this redemption.

                                       61
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994

          The Company has never paid a cash dividend with respect to its shares
     of Common Stock or Class A Common Stock, and it has no present intention to
     pay cash dividends in the foreseeable future.  The current policy of the
     Company's Board of Directors is to retain earnings to provide funds for the
     operation and expansion of its business.  Certain of the Company's debt
     arrangements restrict the right of the Company to declare and pay cash
     dividends without the consent of the holders of the debt.

          At December 31, 1996, the carrying amount of the Company's long-term
     debt was $806,147,000 and the estimated fair value was $835,847,000. The
     fair value of the Company's long-term debt is estimated based on the quoted
     market prices for the same issues. There are not significant debt
     maturities in the five years ended December 31, 2001.

     8.   INCOME TAXES

          Deferred tax assets and liabilities are recognized for the estimated
     future tax consequences attributable to differences between the financial
     statement carrying amounts of existing assets and liabilities and their
     respective tax bases.  Deferred tax assets and liabilities are measured
     using enacted tax rates in effect for the year in which those temporary
     differences are expected to be recovered or settled.  Deferred tax expense
     or benefit is the result of changes in the liability or asset recorded for
     deferred taxes.

          During 1996, 1995, and 1994, changes in the Company's temporary
     differences and losses from operations, which result primarily from
     depreciation and amortization, resulted in deferred tax benefits which were
     offset by a valuation allowance of an equal amount.  No current or deferred
     federal income tax expense or benefit was recorded from continuing
     operations during the reporting periods.

          Income tax expense attributable to income or loss from continuing
     operations differs from the amounts computed by applying the Federal income
     tax rate of 35% in 1996, 1995, and 1994 as a result of the following:
<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                          -----------------------------------
                                             1996         1995         1994
                                          -----------------------------------
                                                 (Stated in Thousands)
     <S>                                   <C>          <C>          <C>
     Computed "expected" tax benefit       $ (21,931)   $ (7,358)    $ (3,042)
     State and local taxes, net of
      federal income tax benefit              (2,036)       (619)        (194)
     Dividends excluded for income                                  
      tax purposes                              (897)        (73)        (118)
     Intangibles not deductible for                                 
      tax purposes                               752         500          971
     Tax credits                                  -           -            -
     Other                                      (449)        261           98
                                            --------     -------      -------
                                                                    
     Total income tax benefit from                                  
      operations                             (23,753)     (7,289)      (2,285)
     Tax effect of extraordinary                                    
      operations                                  -         (265)          -
     Valuation Allowance                      23,753       7,554        2,285
                                            --------     -------      -------
 
     Total income tax benefit              $      -     $     -      $     -
                                            ========     =======      =======
</TABLE>

                                       62
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994


          The tax effect of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities at
     December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
 
                                                          December 31,
                                                --------------------------------
                                                   1996                  1995
                                                -----------            ---------
                                                      (Stated in Thousands)
     <S>                                        <C>                    <C>
     Deferred Tax Assets
       Net operating loss carryforwards           $ 72,948             $ 58,411
       Investment tax credit carryforwards           1,076                1,076
       Alternative minimum tax credit
        carryforwards                                1,116                1,116
       Investment in affiliates and domestic
        television partnerships                     15,412                9,661
     Future deductible amounts associated
       with other assets and liabilities             3,761                2,330
                                                   -------             --------
 
     Total gross deferred tax assets                94,313               72,594
 
     Valuation allowance on deferred tax assets    (53,006)             (29,253)
 
     Deferred Tax Liabilities
       Property and equipment, due to differences
        in depreciation methods for financial 
        statement and tax purposes                 (24,504)             (24,608)
       Investment in Bell Cablemedia plc           (12,941)             (14,871)
                                                   -------              --------
 
     Net Deferred Tax Asset                       $  3,862             $   3,862
                                                   =======              ========
 
</TABLE>

          At December 31, 1996, the Company had net operating loss carryforwards
     for income tax purposes aggregating approximately $97,851,000 for
     alternative minimum tax ("AMT") and $190,715,000 for regular tax which
     expire $43,126,000 in 2005, $26,203,000 in 2007, $40,809,000 in 2008,
     $30,216,000 in 2009, $14,732,000 in 2010 and $35,628,000 in 2011. The
     Company also had investment tax credit carryforwards of $1,076,000 expiring
     in 1998 through 2005.

          The Company entered into transactions during 1994 which resulted in a
     change in greater than 50% of the ownership interests of the Company
     shares. Tax statutes limit the utilization of existing tax NOLs when this
     occurs to a specified amount each year plus the amount of existing built-in
     gain in corporate assets at the ownership change. Management believes that
     the application of the limitation will not likely cause taxable income to
     occur in a future period due to unavailability of limited NOLs.

          Management believes that sufficient taxable income will be incurred
     during the loss carryforward period to utilize approximately $52,137,000 of
     the $190,715,000 of regular tax loss carryforwards at December 31, 1996.
     Therefore, a valuation allowance has been established for approximately
     $138,578,000 of net operating losses and for all investment tax credits and
     alternative minimum tax credit carryforwards.

                                       63
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994


     9.   STOCK OPTIONS

          The Company has two stock option plans, the 1984 nonqualified stock
     option plan (the "1984 Plan") and the 1992 stock option plan (the "1992
     Plan"). The Company accounts for these plans under APB Opinion No. 25,
     under which no compensation cost has been recognized for option grants that
     equal market price at time of grant. Had compensation cost for these plans
     been determined consistent with Statement of Financial Accounting Standards
     No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
     Company's net loss and net loss per share would have been increased to the
     following pro forma amounts:
<TABLE>
<CAPTION>
                                              For the Year Ended December 31,
                                            -----------------------------------
                                              1996                      1995
                                            --------                  ---------
<S>                    <C>                  <C>                       <C>
Net loss:              As Reported          $ (62,660)                $ (21,716)
                        Pro Forma           $ (63,942)                $ (22,484)

 
Loss Per Share:        As Reported          $   (2.00)                $    (.69)
                        Pro Forma           $   (2.04)                $    (.72)
</TABLE>

          Because the method of accounting required by SFAS 123 has not been
     applied to options granted prior to January 1, 1995, the resulting pro
     forma compensation cost may not be representative of that to be expected in
     future years.

          The 1984 Plan was approved by the shareholders of the Company to
     provide for the grant of nonqualified stock options to key contributors to
     the Company. As of December 31, 1996, options to purchase 708,396 shares
     had been granted under the 1984 Plan, of which 436,091 shares were
     exercised and options to purchase 216,005 shares had been terminated or
     forfeited upon resignation of the holders. No additional options will be
     granted pursuant to the 1984 Plan.

          The 1992 Plan was approved by the Company's shareholders in August
     1992. Under the terms of the 1992 Plan, a maximum of 1,800,000 shares of
     Class A Common Stock and 200,000 shares of Common Stock are available for
     grant. All employees of the Company, its parent or any participating
     subsidiary, including directors of the Company who are also employees, are
     eligible to participate in the 1992 Plan. Options generally become
     exercisable in equal installments over a four-year period commencing on the
     first anniversary of the date of grant. The options expire, to the extent
     not exercised, on the tenth anniversary of the date of grant, or upon the
     recipient's earlier termination of employment with the Company. Options can
     be incentive stock options or non-statutory stock options. The exercise
     price may not be less than 100% of the fair market value for incentive
     stock options, but may be less than fair market value for non-statutory
     options. Stock appreciation rights may be granted in tandem with the grant
     of stock options. The Board of Directors may, in its discretion, establish
     provisions for the exercise of options different from those described
     above. In 1994, 1995 and 1996, the Company recognized approximately
     $261,000, $261,000 and $261,000, respectively, of non-cash compensation
     expense related to stock options granted on November 9, 1993 under the 1992
     Plan. As of December 31, 1996, options to purchase 1,474,547 shares of
     Class A Common Stock had been granted, of which options to purchase 37,335
     shares had been exercised and 164,350 shares had been terminated or
     forfeited upon resignation of the holders. As of December 31, 1995, all
     200,000 of the Common Stock options authorized by the 1992 Plan had been
     granted and exercised.

                                       64
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994


          Information concerning Class A Common Stock options is as follows:
<TABLE>
<CAPTION>
 
                                                                     Year Ended December 31,
                                ---------------------------------------------------------------------------------------------------
                                            1996                               1995                               1994
                                -----------------------------      -----------------------------      -----------------------------
                                                    Weighted                          Weighted                            Weighted 
                                                     Average                          Average                             Average 
                                Shares        Exercise Price       Shares        Exercise Price       Shares        Exercise Price 
                                ------        --------------       ------        --------------       ------        --------------
<S>                          <C>              <C>               <C>              <C>               <C>              <C>
Outstanding at
  beginning of year             1,508,362             $11.93         792,401             $10.74         852,628             $10.56
Granted                             3,540              13.25         812,479              12.71               -                  -
Exercised                         (52,468)              2.85         (80,667)              5.74         (42,000)              5.63
Canceled                         (130,272)             12.98         (15,851)             13.17         (18,227)             13.81
                                 --------                            -------                            -------   
 
Outstanding at end of year      1,329,162             $12.19       1,508,362             $11.93         792,401             $10.74
                                =========                          =========                            =======  
 
Exercisable at end of year        676,414                            412,095                            266,123
 
Range of exercise prices     $5.625-13.81                       $5.625-13.81                       $5.625-13.81
 
</TABLE>

     10.  CLASS A COMMON STOCK

          The Class A Common Stock has certain preferential rights with respect
     to cash dividends and upon liquidation of the Company. In the case of cash
     dividends, the holders of the Class A Common Stock will be paid one-half
     cent per share per quarter in addition to any amount payable per share for
     each share of Common Stock. In the event of liquidation, holders of the
     Class A Common Stock are entitled to a preference of $1 per share. After
     such amount is paid, holders of the Common Stock are entitled to receive $1
     per share for each share of Common Stock outstanding. Any remaining amount
     would be distributed to the holders of the Class A Common Stock and the
     Common Stock on a pro rata basis.

          In general, with respect to the election of directors, the holders of
     Class A Common Stock, voting as a separate class, are entitled to elect
     that number of directors which constitutes 25% of the total membership of
     the Board of Directors. Holders of common stock, voting as a separate
     class, are entitled to elect the remaining directors. Pursuant to the terms
     of the Shareholders Agreement dated as of December 20, 1994 among Glenn R.
     Jones, International, BCI and the Company (the "Shareholders Agreement"),
     the Company's Board of Directors consists of 13 Directors. The parties to
     the Shareholders Agreement have agreed that of the four Class A Directors,
     BCI will be entitled, but not required, to designate one Director and the
     remaining three directors, which shall be Independent Directors (as such
     term is defined in the Shareholders Agreement), will be jointly designated
     by Glenn R. Jones and BCI. The parties to the Shareholders Agreement also
     have agreed that Mr. Jones will be entitled, but not required, to designate
     seven of the nine Common Directors and that BCI will be entitled, but not
     required, to designate two of the Common Directors. In all other matters
     not requiring a class vote, the holders of the Common Stock and the holders
     of Class A Common Stock vote as a single class provided that holders of
     Class A Common Stock have one-tenth of a vote for each share held and the
     holders of the Common Stock have one vote for each share held.

                                       65
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994

     11.  COMMITMENTS AND CONTINGENCIES

          The Company rents office facilities and equipment under various long-
     term lease arrangements. Minimum commitments under noncancellable operating
     leases for the five years ending December 31, 2001 and thereafter are as
     follows:

<TABLE>
<CAPTION>
 
                                    Building   Facilities   Equipment
                                       Lease       Leases      Leases     Total
                                    --------   ----------   ---------     ------
                                              (Stated in Thousands)
         <S>                        <C>        <C>          <C>         <C> 
         1997                          1,315        2,380         380      4,075
         1998                          1,315        2,224         232      3,771
         1999                          1,315        1,895         156      3,366
         2000                            768        1,491         136      2,395
         2001                             -         1,216         131      1,347
       Thereafter                         -         2,551          11      2,562
                                       -----       ------      ------     ------
 
       Total commitments            $  4,713     $ 11,757    $  1,046   $ 17,516
                                       =====       ======      ======     ======
</TABLE>

          Rent, net of sublease reimbursements, paid during the years ended
     December 31, 1996, 1995 and 1994, totaled $4,195,000, $3,698,000 and
     $3,062,000, respectively.

          Certain amounts included in lease commitments will be allocated to
     managed limited partnerships using the method discussed in Note 5.

     Litigation

          David Hirsch, derivatively on behalf of Cable TV Fund 12-B, Ltd.,
          -----------------------------------------------------------------
     Cable TV Fund 12-C Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable
     ------------------------------------------------------------------------
     Inc. (Arapahoe County District Court, Colorado, Case No. 95-CV--1800,
     ----
     Division 3) ("Hirsch"); Jonathan Fussner and Eileen Fussner derivatively on
                   ------    ---------------------------------------------------
     behalf of Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd, and Cable TV
     -------------------------------------------------------------------------
     Fund 12-D, Ltd. v. Jones Intercable Inc. (Araphoe County District Court,
     ----------------------------------------
     Colorado, Case No. 96-CV-1672, Division 3)("Fussner").
                                                 -------

          On September 20, 1995, the Company was named as a defendant in a
     Complaint filed by David Hirsch, who purports to be a limited partner in
     Cable TV Fund 12-D, Ltd., a limited partnership of which the Company is the
     general partner. On January 25, 1996, the Company was served with an
     Amended Class Action Complaint and Request for Jury Trial. On February 19,
     1996, the Company filed a Motion to Dismiss the Amended Complaint arguing
     that the action was improperly brought as a class action. The Company
     argued that the plaintiff could only bring the action as a derivative claim
     and that because the elements of a derivative claim had not been properly
     pleaded, the Amended Complaint should be dismissed. After briefing on this
     motion, the Court entered an Order on June 24, 1996 granting the Company's
     Motion to Dismiss, and on July 25, 1996, the Court entered a further Order
     allowing plaintiff to file another Amended Complaint. On July 31, 1996,
     plaintiff Hirsch filed a Second Amended Complaint.

          Plaintiff Hirsch's Second Amended Complaint alleges that he is a
     limited partner in Cable TV Fund 12-D, Ltd. ("Fund 12-D") and that he now
     purports to bring this case as a derivative action on behalf of Cable TV
     Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund 12-C, Ltd. ("Fund 12-C") and
     Fund 12-D. The suit relates to the purchase by the Company from Cable TV
     Fund 12-BCD Venture (the "Venture") (a general partnership in which Fund
     12-D is a general partner) of the Tampa System and subsequent trade of the
     Tampa System, along with other cable systems, to Time Warner for certain of
     Time Warner's cable systems. The Company was authorized to purchase the
     Tampa System from the Venture pursuant to the terms of the limited
     partnership agreements of Fund 12-B, Fund 12-C and Fund 12-D.

          Also on July 31, 1996, the same lawyers who represent Mr. Hirsch filed
     a Verified Complaint on behalf of Jonathan Fussner and Eileen Fussner as
     referenced above. The Fussners also purport to be joint owners of limited
     partnership interests in Fund 12-D and their Verified Complaint is
     identical in all substantive respects to the Hirsch Second Amended
                                                  ------
     Complaint. On December 13, 1996, the Court consolidated the Hirsch and
                                                                 ------
     Fussner actions.
     -------

          The Second Amended Complaint in Hirsch and the Verified Complaint in
                                          ------
     Fussner allege that the Company breached its fiduciary duty to the
     -------
     plaintiffs and the other limited partners of Fund 12-B, Fund 12-C and Fund
     12-D and the Venture in connection with the Company's purchase of the Tampa
     System and the trade of that system to Time Warner. The Hirsch and Fussner
                                                             ------     -------
     Complaints also set forth a claim for unjust enrichment and for breach of
     the implied covenant of good faith and fair dealing. Among other things,
     the plaintiffs assert that the Company paid an inadequate price for the
     Tampa System, even though the agreed-upon price was the average of three
     separate appraisals, as required by the applicable partnership agreements.
     The Hirsch and Fussner cases are now styled as derivative actions and also
         ------     -------
     seek a trial by jury. The plaintiffs in Hirsch and Fussner seek an
                                             ------     -------
     unspecified amount of damages, including punitive damages, an award of
     attorneys' fees and certain equitable relief.

          On August 13, 1996, the Company filed a Motion to Dismiss the breach
     of fiduciary duty and unjust enrichment claims in the Hirsch and Fussner
                                                           ------     -------
     actions. On February 6, 1997, after briefing on this motion, the Court
     denied the Company's Motion to Dismiss. The Company's Answer to the
     Complaints in Hirsch and Fussner was filed on February 25, 1997 and
                   ------     -------
     generally denied the substantive allegations in the Complaint and asserted
     a number of affirmative defenses. There is no trial date set in these
     cases, and there has been no discovery conducted by the parties to date.

          Martin Ury, detrivatively on behalf of Cable TV Fund 12-B, Ltd., Cable
          ----------------------------------------------------------------------
     TV Fund 12-C. Ltd, and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc.,
     --------------------------------------------------------------------------
     Defendant and Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable
     ---------------------------------------------------------------------------
     TV Fund 12-C Ltd, and Cable TV Fund 12-D, Ltd., Nominal Defendants (Araphoe
     ------------------------------------------------------------------
     County District Court, Colorado, Case No. 95-CV-2212, Division 5) ("Ury")
                                                                         ---

          On November 17, 1995, plaintiff Martin Ury filed a Complaint against
     the Company in the above-referenced action in Arapahoe County District
     Court. Plaintiff Ury alleges that he is a limited partner in Fund 12-D. He
     purports to bring this case as a derivative action on behalf of Fund 12-B,
     Fund 12-C and Fund 12-D. As in Hirsch and Fussner, discussed above, this
                                    ------     -------
     case relates to the Company's purchase of the Tampa System and the Time
     Warner exchange.

          The substantive allegations of the Ury Complaint are substantially
                                             ---
     similar to the allegations in the Hirsch Second Amended Complaint and the
                                      ------
     Fussner Verified Complaint. The plaintiff in Ury alleges that the Company
     -------                                      ---
     breached its fiduciary duties to the limited partnerships and their limited
     partners in connection with its purchase of the Tampa System from the
     Venture. Specifically, the plaintiff alleges that the Company paid an
     inadequate price for the Tampa System, even though the agreed upon price
     was the average of three separate appraisals, as required by the applicable
     limited partnership agreements. The Complaint seeks damages in an
     unspecified amount on behalf of the three limited partnerships and an award
     of attorneys' fees. The Complaint does not seek a jury trial or punitive
     damages.

          On February 1, 1996, the Company filed a Motion to Dismiss the
     Complaint on the ground that it fails to state a claim against the Company
     upon which relief can be granted. The thrust of the Company's motion was
     that the Company cannot be liable for breach of fiduciary duty because it
     acted in accordance with the terms of the limited partnership agreements in
     its purchase of the Tampa System. The Company also argued that plaintiff
     does not have standing to assert a derivative claim on behalf of Fund 12-B
     or Fund 12-C, since he is only a limited partner in Fund 12-D. On July 12,
     1996, the Court denied the Company's Motion to Dismiss. The Company filed
     its Answer in this case on July 29, 1996, generally denying the substantive
     allegations in the Complaint, asserting a number of affirmative defenses
     and requesting a trial by jury. A Case Management Order has been entered by
     the Court, setting the case for a two-week jury trial commencing on
     September 22, 1997. The parties have made certain voluntary disclosures
     pursuant to Rule 26 of the Colorado Rules of Civil Procedure, and discovery
     has begun, although no depositions have been taken to date.

          Because these cases are in their very early stages, it is not possible
     at this time to present a realistic evaluation of the probability of a
     favorable or unfavorable outcome.

                                      66

<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994


          In addition to the above matters, the Company is involved in certain
     other litigation in its normal course of business. The Company is also
     negotiating the renewal of certain franchise agreements with franchising
     authorities. Management believes that the ultimate resolution of such
     matters will not have a material adverse effect on the Company's financial
     position or results of operations.

     12.  PROPERTY, PLANT AND EQUIPMENT

          Property, plant and equipment as of December 31, 1996 and 1995,
     consisted of the following:
<TABLE>
<CAPTION>
 
                                                      December 31,
                                                  -------------------    
                                                  1996           1995
                                                  ----           ----    
<S>                                          <C>            <C> 
Cable distribution systems                   $ 443,109      $ 362,271
Buildings                                       15,833         13,721
Land                                             3,665          3,665
Equipment and tools                             10,378         12,277
Premium service equipment                       37,412         33,481
Earth receive stations                           3,644          3,450
Vehicles                                         2,676          3,125
Leasehold improvements and office furniture     19,728         20,049
Other                                           32,703         23,397
                                              --------       --------
                                               569,148        475,436
 
Accumulated depreciation                      (184,738)      (171,948)
                                              --------       --------
                                             $ 384,410      $ 303,488
                                              ========       ========
 
</TABLE>

                                       67
<PAGE>
 
                    JONES INTERCABLE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             For the years ended December 31, 1996, 1995 and 1994


     13.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
                                                                   1996
                                         ----------------------------------------------------------
                                                             Three Months Ended
                                         ----------------------------------------------------------
                                          March 31       June 30     September 30      December 31
                                         ----------     ---------   --------------    -------------
                                                    (In Thousands Except Per Share Data)
          <S>                            <C>            <C>          <C>               <C> 
          Revenues                       $  66,987      $  93,166     $  75,143         $  76,414
          Depreciation and                                                               
           amortization                     25,361         28,677        30,654            46,494
          Operating income (loss)              373         17,444           735           (14,553)
          Net income (loss)                (14,789)           891       (17,208)          (31,554)
          Net income (loss) per share    $    (.47)     $     .03     $    (.55)        $   (1.01)
 
<CAPTION>   
                                                                   1995
                                         ----------------------------------------------------------
                                                             Three Months Ended
                                         ----------------------------------------------------------
                                          March 31       June 30     September 30      December 31
                                         ----------     ---------   --------------    -------------
                                                    (In Thousands Except Per Share Data)
          <S>                            <C>            <C>         <C>               <C> 
          Revenues                       $  43,891      $  43,816     $  44,736         $  56,395
          Depreciation and                                                               
           amortization                     12,014         12,811        12,796            18,184
          Operating income                   3,859          3,310         4,469             3,091
          Net loss                          (3,855)        (6,195)       (4,449)           (7,217)
          Net loss per share             $    (.12)     $    (.20)    $    (.14)        $    (.23)
 
</TABLE>

                                       68
<PAGE>
 
             ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
             ------------------------------------------------------
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE
                     --------------------------------------

       None.

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

       The Company's Articles of Incorporation provide that, with respect to the
  election of Directors, the holders of Class A Common Stock, voting as a
  separate class, are entitled to elect that number of Directors constituting
  25% of the total membership of the Board of Directors. If such 25% is not a
  whole number, holders of Class A Common Stock are entitled to elect the
  nearest higher whole number of Directors constituting 25% of the membership of
  the Board of Directors. Holders of Common Stock, voting as a separate class,
  are entitled to elect the remaining Directors. Directors of the Company serve
  until the next annual meeting of the Company and until their successors shall
  be elected and qualified.

       Pursuant to the terms of the Shareholders Agreement dated as of December
  20, 1994 among Glenn R. Jones, Jones International, Ltd., Bell Canada
  International Inc. ("BCI") and the Company (the "Shareholders Agreement"), the
  Company's Board of Directors consists of 13 directors.  William E. Frenzel,
  Donald L. Jacobs, John A. MacDonald and Robert B. Zoellick are serving as the
  Class A Directors and Glenn R. Jones, Derek H. Burney, Robert E. Cole, James
  J. Krejci, James B. O'Brien, Raphael M. Solot, Howard O. Thrall, Siim A.
  Vanaselja and Sanford Zisman are serving as the Common Directors.

       The parties to the Shareholders Agreement have agreed that of the four
  Class A Directors, BCI will be entitled, but not required, to designate one
  Director and the remaining three directors, which shall be Independent
  Directors (as such term is defined in the Shareholders Agreement), will be
  jointly designated by Glenn R. Jones and BCI.  The parties to the Shareholders
  Agreement also have agreed that Mr. Jones will be entitled, but not required,
  to designate seven of the nine Common Directors and that BCI will be entitled,
  but not required, to designate two of the nine Common Directors.

       The Company has agreed that in the event that Mr. Jones or BCI chooses to
  designate one or more nominees to the Board of Directors pursuant to the terms
  of the Shareholders Agreement, the Company will use its reasonable efforts to
  include each such nominee in the group of nominees proposed by management of
  the Company for election to the Board, recommend to the shareholders of the
  Company each such nominee's election to the Board and solicit proxies for each
  such nominee from all holders of voting securities entitled to vote thereon.
  In addition, each of BCI and Mr. Jones have agreed to vote or cause to be
  voted all of the shares of the Company owned or controlled by them at any
  meeting of shareholders of the Company, or in any written consent executed in
  lieu of such a meeting of shareholders, in favor of their mutual nominees to
  the Board of Directors.

                                      69
<PAGE>
 
       Certain information concerning the directors and executive officers of
  the Company is set forth below.

<TABLE>
<CAPTION>
 
      <S>                      <C>         <C>
       Glenn R. Jones           67         Chairman of the Board and Chief Executive Officer
       Derek H. Burney          57         Vice Chairman of the Board
       James B. O'Brien         47         President and Director
       Ruth E. Warren           47         Group Vice President/Operations
       Kevin P. Coyle           45         Group Vice President/Finance
       Christopher J. Bowick    41         Group Vice President/Technology
       George H. Newton         62         Group Vice President/Telecommunications
       Raymond L. Vigil         50         Group Vice President/Human Resources
       Cynthia A. Winning       45         Group Vice President/Marketing
       Elizabeth M. Steele      45         Vice President/General Counsel/Secretary
       Larry W. Kaschinske      37         Vice President/Controller
       Robert E. Cole           64         Director
       William E. Frenzel       68         Director
       Donald L. Jacobs         58         Director
       James J. Krejci          55         Director
       John A. MacDonald        43         Director
       Raphael M. Solot         63         Director
       Howard O. Thrall         49         Director
       Siim A. Vanaselja        40         Director
       Sanford Zisman           57         Director
       Robert B. Zoellick       43         Director
</TABLE>

       Mr. Glenn R. Jones has served as Chairman of the Board of Directors and
  Chief Executive Officer of the Company since its formation in 1970, and he was
  President from June 1984 until April 1988.  Mr. Jones is the sole shareholder,
  President and Chairman of the Board of Directors of Jones International, Ltd.
  He is also Chairman of the Board of Directors of the subsidiaries of the
  Company and of certain other affiliates of the Company.  Mr. Jones has been
  involved in the cable television business in various capacities since 1961, is
  a member of the Board of Directors and the Executive Committee of the National
  Cable Television Association. Additionally, Mr. Jones is a member of the Board
  of Governors for the American Society for Training and Development, and a
  member of the Board of Education Council of the National Alliance of Business.
  Mr. Jones is also a founding member of the James Madison Council of the
  Library of Congress.  Mr. Jones has been the recipient of several awards
  including the Grand Tam Award in 1989, the highest award from the Cable
  Television Administration and Marketing Society; the President's Award from
  the Cable Television Public Affairs Association in recognition of Jones
  International's educational efforts through Mind Extension University (now
  Knowledge TV); the Donald G. McGannon Award for the advancement of minorities
  and women in cable from the United Church of Christ Office of Communications;
  the STAR Award from American Women in Radio and Television, Inc. for
  exhibition of a commitment to the issues and concerns of women in television
  and radio; the Cableforce 2000 Accolade awarded by Women in Cable in
  recognition of the Company's innovative employee programs; the Most
  Outstanding Corporate Individual Achievement Award from the International
  Distance Learning Conference for his contributions to distance education; the
  Golden Plate Award from the American Academy of Achievement for his advances
  in distance education; the Man of the Year named by the 


                                      70
<PAGE>
 
  Denver chapter of the Achievement Rewards for College Scientists; and in 1994
  Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame.

       Mr. Derek H. Burney was appointed a Director of the Company in December
  1994 and Vice Chairman of the Board of Directors on January 31, 1995.  Mr.
  Burney joined BCE Inc., Canada's largest telecommunications company, in
  January 1993 as Executive Vice President, International.  He has been the
  Chairman of Bell Canada International Inc., a subsidiary of BCE, since January
  1993 and, in addition, has been Chief Executive Officer of BCI since July
  1993.  Prior to joining BCE, Mr. Burney served as Canada's ambassador to the
  United States from 1989 to 1992.  Mr. Burney also served as chief of staff to
  the Prime Minister of Canada from March 1987 to January 1989 where he was
  directly involved with the negotiation of the U.S. - Canada Free Trade
  Agreement.  In July 1993, he was named an Officer of the Order of Canada. He
  also is a director of Bell Cablemedia plc, Mercury Communications Limited,
  Videotron Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc.,
  Bimcor Inc., Rio Algom Limited, The Montreal General Hospital Corporation, The
  Japan Society, Moore Corporation Limited, Northbridge Programming Inc. and
  certain subsidiaries of Bell Canada International.

       Mr. James B. O'Brien, the Company's President, joined the Company in
  January 1982.  Prior to being elected President and a Director of the Company
  in December 1989, Mr. O'Brien served as a Division Manager, Director of
  Operations Planning/Assistant to the CEO, Fund Vice President and Group Vice
  President/Operations.  Mr. O'Brien was appointed to the Company's Executive
  Committee in August 1993.  As President, he is responsible for the day-to-day
  operations of the cable television systems managed and owned by the Company.
  Mr. O'Brien is a board member of Cable Labs, Inc., the research arm of the
  U.S. cable television industry.  He also serves as a director of the Cable
  Television Administration and Marketing Association and as a director of the
  Walter Kaitz Foundation, a foundation that places people of ethnic minority
  groups in positions with cable television systems, networks and vendor
  companies.

       Ms. Ruth E. Warren joined the Company in August 1980 and has served in
  various operational capacities, including system manager and Fund Vice
  President, since then.  Ms. Warren was elected Group Vice President/Operations
  of the Company in September 1990.

       Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice
  President/Financial Services.  In September 1985, he was appointed Senior Vice
  President/Financial Services.  He was elected Treasurer of the Company in
  August 1987, Vice President/Treasurer in April 1988 and Group Vice
  President/Finance and Chief Financial Officer in October 1990.

       Mr. Christopher J. Bowick joined the Company in September 1991 as Group
  Vice President/Technology and Chief Technical Officer.  Previous to joining
  the Company, Mr. Bowick worked for Scientific Atlanta's Transmission Systems
  Business Division in various technical management capacities since 1981, and
  as Vice President of Engineering since 1989.

       Mr. George H. Newton joined the Company in January 1996 as Group Vice
  President/Telecommunications.  Prior to joining the Company, Mr. Newton was
  President of his own consulting business, Clear Solutions, and since 1994 Mr.
  Newton has served as a Senior Advisor to 


                                      71
<PAGE>
 
  Bell Canada International. From 1990 to 1993, Mr. Newton served as the
  founding Chief Executive Officer and Managing Director of Clear
  Communications, New Zealand, where he established an alternative telephone
  company in New Zealand. From 1964 to 1990, Mr. Newton held a wide variety of
  operational and business assignments with Bell Canada International.

       Mr. Raymond L. Vigil joined the Company in June 1993 as Group Vice
  President/Human Resources.  Previous to joining the Company, Mr. Vigil served
  as Executive Director of Learning with USWest.  Prior to USWest, Mr. Vigil
  worked in various human resources posts over a 14-year term with the IBM
  Corporation.

       Ms. Cynthia A. Winning joined the Company as Group Vice
  President/Marketing in December 1994. Previous to joining the Company, Ms.
  Winning served since 1994 as the President of PRS Inc., Denver, Colorado, a
  sports and event marketing company. From 1979 to 1981 and from 1986 to 1994,
  Ms. Winning served as the Vice President and Director of Marketing for
  Citicorp Retail Services, Inc., a provider of private-label credit cards for
  ten national retail department store chains. From 1981 to 1986, Ms. Winning
  was the Director of Marketing Services for Daniels & Associates cable
  television operations, as well as the Western Division Marketing Director for
  Capital Cities Cable. Ms. Winning also serves as a board member of Cities in
  Schools, a dropout intervention/prevention program.

       Ms. Elizabeth M. Steele joined the Company in August 1987 as Vice
  President/General Counsel and Secretary.  From August 1980 until joining the
  Company, Ms. Steele was an associate and then a partner at the Denver law firm
  of Davis, Graham & Stubbs, which serves as counsel to the Company.

       Mr. Larry Kaschinske joined the Company in 1984 as a staff accountant in
  the Company's former Wisconsin Division, was promoted to Assistant Controller
  in 1990, named Controller in August 1994 and was elected Vice
  President/Controller in June 1996.

       Mr. Robert E. Cole was appointed a Director of the Company in March 1996.
  Mr. Cole is currently self-employed as a partner of First Variable Insurance
  Marketing and is responsible for marketing to National Association of
  Securities Dealers, Inc. firms in northern California, Oregon, Washington and
  Alaska.  From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar
  Life Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President
  of PMI Inc., a third party lender serving the special needs of Corporate Owned
  Life Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and
  co-founder of a specialty investment banking firm that provided services to
  finance the ownership and growth of emerging companies, productive assets and
  real property.  Mr. Cole is a Certified Financial Planner and a former United
  States Naval Aviator.

       Mr. William E. Frenzel was appointed a Director of the Company in April
  1995.  Mr. Frenzel has been a Guest Scholar since 1991 with the Brookings
  Institution, a research organization located in Washington D. C.  Until his
  retirement in January 1991, Mr. Frenzel served for twenty years in the United
  States House of Representatives, representing the State of Minnesota, where he
  was a member of the House Ways and Means Committee and its Trade Subcommittee,
  the Congressional Representative to the General Agreement on Tariffs and Trade
  (GATT), the Ranking Minority 


                                      72
<PAGE>
 
  Member on the House Budget Committee and a member of the National Economic
  Commission. Mr. Frenzel also served in the Minnesota Legislature for eight
  years. He is a Distinguished Fellow of the Tax Foundation, Vice Chairman of
  the Eurasia Foundation, a Board Member of the U.S.-Japan Foundation, the 
  Close-Up Foundation, Sit Mutual Funds and Chairman of the Japan-America 
  Society of Washington.

       Mr. Donald L. Jacobs was appointed a Director of the Company in April
  1995.  Mr. Jacobs is a retired executive officer of TRW.  Prior to his
  retirement, he was Vice President and Deputy Manager of the Space and Defense
  Sector; prior to that appointment, he was the Vice President and General
  Manager of the Defense Systems Group and prior to his appointment as Group
  General Manager, he was President of ESL, Inc., a wholly owned subsidiary of
  TRW.  During his career, Mr. Jacobs served on several corporate, professional
  and civic boards.

       Mr. James J. Krejci was President of the International Division of
  International Gaming Technology, International headquartered in Reno, Nevada,
  until March 1995.  Prior to joining IGT in May 1994, Mr. Krejci was Group Vice
  President of Jones International, Ltd. and was Group Vice President of the
  Company.  He also served as an officer of subsidiaries of Jones International,
  Ltd. until leaving the Company in May 1994.  Mr. Krejci has been a Director of
  the Company since August 1987.

       Mr. John A. MacDonald was appointed a Director of the Company in November
  1995.  Mr. MacDonald is Chief Technology and Network Officer of Bell Canada
  International Inc.  Prior to joining Bell Canada in November 1994, Mr.
  MacDonald was President and Chief Executive Officer of The New Brunswick
  Telephone Company, Limited, a post he had held since March of that year.
  Prior to March 1994, Mr. MacDonald was with NBTel for 17 years serving in
  various capacities, including Market Planning Manager, Corporate Planning
  Manager, Manager of Systems Planning and Development and General Manager,
  Chief Engineer and General Manager of Engineering and Information Systems and
  Vice President of Planning.  Mr. MacDonald was the former Chairman of the New
  Brunswick section of the Institute of Electrical and Electronic Engineers and
  also served on the Federal Government's Information Highway Advisory Council.
  Mr. MacDonald is Chairman of MediaLinx Interactive Inc. and Stentor Canadian
  Network Management and is presently a Governor of the Montreal Exchange.  He
  also serves on the Board of Directors of Tele-Direct (Publications) Inc.,
  Bell-Northern Research, Ltd., SRCI, Bell Sygma, Canarie Inc., and is a member
  of the University of New Brunswick Venture Campaign Cabinet.

       Mr. Raphael M. Solot was appointed a Director of the Company in March
  1996.  Mr. Solot is an attorney and has practiced law for 31 years with an
  emphasis on franchise, corporate and partnership law and complex litigation.

       Mr. Howard O. Thrall was appointed a Director of the Company in March
  1996.  Mr. Thrall had previously served as a Director of the Company from
  December 1988 to December 1994.  Mr. Thrall is Senior Vice President-Corporate
  Development for First National Net, Inc., a leading service provider for the
  mortgage banking industry, and he heads First National Net's Washington, D.C.
  regional office.  From September 1993 through July 1996, Mr. Thrall served as
  Vice President of Sales, Asian Region, for World Airways, Inc. headquartered
  at the Washington Dulles International 


                                      73
<PAGE>
 
  Airport. From 1984 until August 1993, Mr. Thrall was with the McDonnell
  Douglas Corporation, where he concluded as a Regional Vice President,
  Commercial Marketing with the Douglas Aircraft Company subsidiary. Mr. Thrall
  is also a management and international marketing consultant, having active
  assignments with Cheong Kang Associated (Korea), Aero Investment Alliance,
  Inc. and Western Real Estate Partners, among others.

       Mr. Siim A. Vanaselja was appointed a Director of the Company in August
  1996.  Mr. Vanaselja joined BCE Inc., Canada's largest telecommunications
  company, in February 1994 as Assistant Vice-President, International Taxation.
  In June 1994, he was appointed Assistant Vice-President and Director of
  Taxation, and in February 1995, Mr. Vanaselja was appointed Vice-President,
  Taxation.  On August 1, 1996, Mr. Vanaselja was appointed the Chief Financial
  Officer of Bell Canada International Inc., a subsidiary of BCE Inc.  Prior to
  joining BCE Inc. and since August 1989, Mr. Vanaselja was a partner in the
  Toronto office of KPMG Peat Marwick Thorne.  Mr. Vanaselja has been a member
  of the Institute of Chartered Accountants of Ontario since 1982 and is a
  member of the Canadian Tax Foundation, the Tax Executives Institute and the
  International Fiscal Association.

       Mr. Sanford Zisman was appointed a director of the Company in June 1996.
  Mr. Zisman is a member of the law firm, Zisman & Ingraham, P.C. of Denver,
  Colorado and has practiced law for 31 years, with an emphasis on tax, business
  and estate planning and probate administration.  Mr. Zisman currently serves
  as a member of the Board of Directors of Saint Joseph Hospital, the largest
  hospital in Colorado, and he has served as Chairman of the Board, Chairman of
  the Finance Committee and Chairman of the Strategic Planning Committee of the
  hospital.  Since 1992, he has also served on the Board of Directors of Maxim
  Series Fund, Inc., a subsidiary of Great-West Life Assurance Company.

       Mr. Robert B. Zoellick was appointed a Director of the Company in April
  1995.  Mr. Zoellick is Executive Vice President for Housing and Law of Fannie
  Mae, a federally chartered and stockholder-owned corporation that is the
  largest housing finance investor in the United States.  From August 1992 to
  January 1993, Mr. Zoellick served as Deputy Chief of Staff of the White House
  and Assistant to the President.  From May 1991 to August 1992, Mr. Zoellick
  served concurrently as the Under Secretary of State for Economic and
  Agricultural Affairs and as Counselor of the Department of State, a post he
  assumed in March 1989.  From 1985 to 1988, Mr. Zoellick served at the
  Department of Treasury in a number of capacities, including Counselor to the
  Secretary.  Mr. Zoellick received the Alexander Hamilton and Distinguished
  Service Awards, highest honors of the Departments of Treasury and State,
  respectively.  The German Government awarded him the Knight Commanders Cross
  for his work on Germany unification.  Mr. Zoellick currently serves on the
  boards of Alliance Capitol, Said Holdings, the Council on Foreign Relations,
  the Congressional Institute, the German Marshall Fund of the U.S., the
  European Institute, the National Bureau of Asian Research, the American
  Council on Germany, American Institute for Contemporary German Studies and the
  Overseas Development Council.


                                      74
<PAGE>
 
                        ITEM 11.  EXECUTIVE COMPENSATION
                        --------------------------------


  Compensation Summary
  --------------------

       The following table sets forth certain information relating to the
  compensation paid by the Company during the Company's past two fiscal years
  ended May 31, 1995 and 1994 and for the twelve months ended December 31, 1996
  and 1995 to those persons who were, at December 31, 1996, the Chief Executive
  Officer and the other four most highly compensated executive officers of the
  Company.

<TABLE>
<CAPTION>
                                                                                        
                                                                                         
                                                                                 Long Term      
                                                                               Compensation    
                                                  Annual Compensation             Awards        
                                                 ----------------------           ------        
           Name and                                                                                  All Other
       Principal Position            Year (1)        Salary       Bonus           Options          Compensation(2)
       ------------------            -------         ------       -----           -------          ---------------

<S>                              <C>            <C>             <C>             <C>              <C>
Glenn R. Jones  (3)               YE 12/31/96    $2,620,102      $      0              0             $   157,380
Chairman of the Board             YE 12/31/95     2,500,067             0        125,937(8)              150,006
and Chief Executive Officer       FYE 5/31/95     1,401,846       900,000        122,269(8)              135,623
                                  FYE 5/31/94       530,420       630,000        418,708(8)              136,226
                                                                            
James B. O'Brien  (4)             YE 12/31/96    $  240,961      $163,366              0             $    25,978
President                         YE 12/31/95       230,866       139,870         17,000(8)               19,852
                                  FYE 5/31/95       224,961       250,000         14,387(8)               28,498
                                  FYE 5/31/94       196,568        52,500         12,307(8)               19,404

Kevin P. Coyle  (5)               YE 12/31/96    $  184,185      $ 72,750              0             $    15,558
Group Vice President of           YE 12/31/95       177,160        74,895          8,085(8)               15,811
Finance                          FYE  5/31/95       173,616        45,000          7,762(8)               12,814
                                 FYE  5/31/94       168,559        40,000          5,008(8)                6,618

Christopher J. Bowick (6)         YE 12/31/96    $  169,302      $ 96,872              0             $    15,152
Group Vice President/             YE 12/31/95       162,211        48,725          7,850(8)               10,159
Technology                       FYE  5/31/95       158,061        54,529          7,378(8)               12,756
                                 FYE  5/31/94       153,458        45,000          5,317                  11,907

Ruth E. Warren  (7)               YE 12/31/96    $  170,454      $ 77,327              0              $   12,558
Group Vice President/Operations   YE 12/31/95       163,314        49,056          7,860(8)                9,644
                                 FYE  5/31/95       149,854        50,126          7,418(8)                7,888
                                 FYE  5/31/94       139,052        40,500          8,000                   3,414
</TABLE>
 
  -----------------

  (1)  In 1995, the Company changed its fiscal year from a year ending May 31 to
       a calendar year ending December 31.

  (2)  The Company's employees are entitled to participate in a 401(k) profit
       sharing plan.  Certain senior employees of the Company are also eligible
       to participate in a deferred compensation plan.  The amounts shown in the
       column reflect the Company's contributions pursuant to these plans for
       the benefit of the named person's account.

                                      75
<PAGE>
 
  (3)  Mr. Jones' salary, bonus, options and all other compensation for the
       transition period 6/1/95 through 12/31/95 were $1,458,391, $0, 125,937
       and $87,504, respectively.

  (4)  Mr. O'Brien's salary, bonus, options and all other compensation for the
       transition period 6/1/95 through 12/31/95 were $137,133, $139,870, 17,000
       and $8,228, respectively.

  (5)  Mr. Coyle's salary, bonus, options and all other compensation for the
       transition period 6/1/95 through 12/31/95 were $104,820, $53,007, 8,085
       and $6,289, respectively.

  (6)  Mr. Bowick's salary, bonus, options and all other compensation for the
       transition period 6/1/95 through 12/31/95 were $96,352, $48,725, 7,850
       and $5,781, respectively.

  (7)  Ms. Warren's salary, bonus, options and all other compensation for the
       transition period 6/1/95 through 12/31/95 were $97,007, $49,056, 7,860
       and $5,236, respectively.

  (8)  Represents the number of shares of the Company's Class A Common Stock
       underlying the options granted.


       During the year ended December 31, 1996,  no stock options were granted
  to or exercised by the Executive Officers named in the Summary Compensation
  Table.

  Compensation of Directors
  -------------------------

       Directors of the Company who are not full-time employees of the Company
  or any of its affiliates receive $5,000 per fiscal quarter for their services
  as director, with an additional $1,250 to be paid to each such director for
  each regularly scheduled quarterly meeting of the Board of Directors attended
  in person.  No additional compensation for director service is paid to
  directors who are full-time employees of the Company or any of its affiliates.

  Employment Agreement
  --------------------

       On December 20, 1994, the Company entered into an Employment Agreement
  with Glenn R. Jones (the "Employment Agreement") pursuant to which the Company
  agreed to employ Mr. Jones as Chief Executive Officer of the Company for a
  period of up to eight years.  Under the terms of the Employment Agreement, Mr.
  Jones is to receive a base compensation of $2,500,000 in fiscal year 1995
  (which approximates his fiscal year 1994 combined compensation from the
  Company and Spacelink), with an annual cost of living index based adjustment.
  In addition, Mr. Jones is entitled to participate in the Company's bonus,
  stock option and other employee plans at a level generally commensurate with
  his previous participation.  No other employee of the Company has an
  employment agreement with the Company.


                                      76
<PAGE>
 
  Compensation Committee Interlocks and Insider Participation
  -----------------------------------------------------------

       A compensation committee was established in January 1995. Glenn R. Jones,
  Derek H. Burney and Donald L. Jacobs are the current members of the
  compensation committee.  Mr. Jones is an executive officer and director of the
  Company, and Messrs. Burney and Jacobs are directors of the Company.  Mr.
  Jones also serves as a director of Bell Canada International Inc., and Mr.
  Burney is an executive officer of Bell Canada International Inc.  Glenn R.
  Jones, James B. O'Brien and Elizabeth M. Steele, executive officers of the
  Company, serve as directors of certain of the Company's affiliates.  As
  individuals, these executive officers had no transactions with the Company.


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

       The following table sets forth certain information as of February 14,
  1997, regarding ownership of the Company's Common Stock or Class A Common
  Stock by persons (including any group) known to the Company to be beneficial
  owners of more than 5% of either class of stock, the individual directors of
  the Company, each of the executive officers named in the Summary Compensation
  Table and the executive officers and directors of the Company as a group.
  Under the rules of the Securities and Exchange Commission, a person (or group
  of persons) is deemed to be a "beneficial owner" of a security if he or she,
  directly or indirectly, has or shares the power to vote or to direct the
  voting of such security, or the power to dispose of or to direct the
  disposition of such security.  Accordingly, more than one person may be deemed
  to be a beneficial owner of the same security.  A person is also deemed to be
  a beneficial owner of any security which that person has the right to acquire
  within 60 days.

<TABLE>
<CAPTION>
 
 
                                                                  
                                                   Amount and Nature   
   Name and Address of                               of Beneficial       
   Beneficial Owner (1)        Title of Class        Ownership (2)        Percent of Class
   -------------------         --------------        -------------        ----------------
<S>                            <C>                 <C>                     <C>
Jones International, Ltd.      Common Stock          2,441,751(3)(4)           47.76
9697 East Mineral Avenue
Englewood, CO  80112              Class A            2,447,568(3)(5)            9.32
                               Common Stock
                          
Glenn R. Jones                 Common Stock          2,916,151(3)(6)           57.03
9697 East Mineral Avenue  
Englewood, CO  80112             Class A             3,121,110(3)(7)           11.69
                               Common Stock
                          
Christopher J. Bowick          Common Stock               2,678                  .05
9697 East Mineral Avenue  
Englewood, CO  80112              Class A                 9,637(8)               .04
                               Common Stock
 
</TABLE> 

                                      77
<PAGE>
 
<TABLE> 

<S>                            <C>                <C>               <C> 
Derek H. Burney                   Class A                350        less than .01
1000 rue de la                 Common Stock   
Gauchetiere West                              
Montreal, Quebec,                             
Canada H3B 4Y8                                
                                              
Kevin P. Coyle                 Common Stock              345(9)               .01
9697 East Mineral Avenue                      
Englewood, CO  80112              Class A              9,726(10)              .04
                               Common Stock   
                                              
William E. Frenzel                Class A                400        less than .01
1775 Massachusetts Ave.,       Common Stock   
 N.W.                                         
Washington, D.C.  20036                       
                                              
James J. Krejci                   Class A              5,000                  .02
1133 Race Street, 16N          Common Stock   
Denver, CO  80206                             
                                              
James B. O'Brien                  Class A             33,896(11)              .13
9697 East Mineral Avenue       Common Stock   
Englewood, CO  80112                          
                                              
Raphael M. Solot               Common Stock              300        less than .01
55 Madison Street                             
Denver, CO  80206                             
                                              
Ruth E. Warren                 Common Stock              208        less than .01
9697 East Mineral Avenue                      
Englewood, CO  80112              Class A             16,737(12)              .06
                               Common Stock   
                                              
Sanford Zisman                 Common Stock              500(13)    less than .01
3773 Cherry Creek N.S.                        
Denver CO  80209                              
                                              
Robert B. Zoellick                Class A                300        less than .01
3900 Wisconsin Avenue, N.W.    Common Stock   
Washington, D.C.  20016                       
                                              
All executive officers and     Common Stock        2,920,362                57.11
 directors as a group                         
(21 persons)                      Class A          3,218,648(14)            12.02
                               Common Stock   
                                              
Christine Jones Marocco        Common Stock        2,749,679(15)            53.78
25 East End Avenue, #14F                      
New York NY  10288                Class A             90,757(16)              .35
                               Common Stock    

</TABLE> 

                                      78
<PAGE>
 
<TABLE> 
<CAPTION> 

<S>                          <C>                 <C>                  <C>   
Mutuelles AXA group             Class A            1,356,200(17)(22)    5.16
Vie Mutuelle                 Common Stock
101-100 Terrasse Boieldieu
92042 Paris La Defense France
 
       AXA
       23, Avenue Matignon
       75008 Paris France
 
       The Equitable Companies
       Incorporated
       787 Seventh Avenue
       New York, New York
       10019
 
Bell Canada International    Common Stock          2,878,151(18)(22)   56.29
BVI VI Limited
Arawak Chamber
Road Town
Tortola, BVI
 
Bell Canada International       Class A           10,022,500(19)(22)   38.16
BVI III Limited              Common Stock
Arawak Chamber
Road Town
Tortola, BVI
 
The Capital Group Companies,    Class A            1,555,000(20)(22)    5.9
Inc.                         Common Stock
333 South Hope Street
Los Angeles, CA  90071
 
Neuberger & Berman              Class A            1,862,652(21)(22)    7.09
605 Third Avenue             Common Stock
New York, NY  10158
</TABLE> 

  (1)  Directors and executive officers named in the Summary Compensation Table
       who are not listed in the table do not beneficially own any of the
       Company's shares.  Shares shown as subject to options means that such
       options are exercisable within 60 days.

  (2)  Unless otherwise noted, all persons indicated in the table have full
       voting and investment power with respect to the share ownership
       described.

  (3)  Glenn R. Jones, Chairman of the Board of Directors and Chief Executive
       Officer of the Company, owns all of the outstanding shares of Jones
       International, Ltd. ("International") and is deemed to be the beneficial
       owner of all shares of the Company owned by International.  By virtue of
       this ownership, Mr. Jones controls approximately 41% of the total votes
       to be cast by all shareholders of the Company's shares on matters not
       requiring a class vote, because, with regard to such matters, a share of
       Common Stock has one vote and a share of Class A Common Stock has 1/10th
       of a vote.  The holders of Class A Common Stock, as a class, are able to
       elect the greater of 25% or the next highest whole number of the
       Company's Board of Directors.  Thus, holders of the Class A Common Stock,
       as a class, are presently entitled to elect four Directors.

                                      79
<PAGE>
 
  (4)  Includes 38,000 shares held by International; 2,239,416 shares held by
       the Jones International Grantor Business Trust; 100,400 shares held by
       Jones Entertainment Group, Ltd.; 35,707 shares held by Jones Space
       Segment, Inc.; 27,585 shares held by Jones Global Group, Inc.; and 643
       shares held by Jones Interdigital, Inc.  International may be deemed to
       be the beneficial owner of all shares of Common Stock owned by Jones
       Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global Group,
       Inc. and Jones Interdigital, Inc.

  (5)  Includes 2,223,414 shares held by International; 136,946 shares held by
       Jones Entertainment Group, Ltd., 48,705 shares held by Jones Space
       Segment, Inc., 37,626 shares held by Jones Global Group, Inc.; and 877
       shares held by Jones Interdigital, Inc.  International may be deemed to
       be the beneficial owner of all shares of Class A Common Stock owned by
       Jones Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global
       Group, Inc. and Jones Interdigital, Inc.

  (6)  Includes 474,400 shares held by the Glenn Jones Grantor Business Trust;
       38,000 shares held by International; 2,239,416 shares held by the Jones
       International Grantor Business Trust; 100,400 shares held by Jones
       Entertainment Group, Ltd.; 35,707 shares held by Jones Space Segment,
       Inc.; 27,585 shares held by Jones Global Group, Inc.; and 643 shares held
       by Jones Interdigital, Inc.

  (7)  Includes 236,893 shares owned by Mr. Jones; 436,649 shares deemed to be
       held by Mr. Jones pursuant to exercisable stock options; 2,223,414 shares
       held by International; 136,946 shares held by Jones Entertainment Group,
       Ltd.; 48,705 shares held by Jones Space Segment, Inc.; 37,626 shares held
       by Jones Global Group, Inc.; and 877 shares held by Jones Interdigital,
       Inc.

  (8)  Represents shares deemed to be held by Mr. Bowick pursuant to exercisable
       stock options.

  (9)  Includes 320 shares held by Mr. Coyle's wife.

  (10) Includes 9,657 shares deemed to be held by Mr. Coyle pursuant to
       exercisable stock options.

  (11) Includes 23,896 shares deemed to be held by Mr. O'Brien pursuant to
       exercisable stock options.

  (12) Includes 11,673 shares deemed to be held by Ms. Warren pursuant to
       exercisable stock options.

  (13) Represents shares held by the Sanford Zisman PC Profit Sharing Plan.

  (14) Includes 512,516 shares deemed to be held by various executive officers
       and directors pursuant to exercisable stock options.

  (15) Includes 8,799 shares held by Mrs. Marocco; 357 shares held by the
       Joseph Michael Marocco Irrevocable Trust; 26,707 held by the Christine
       Jones Marocco Irrevocable Trust; 2,239,416 shares held by the Jones
       International Grantor Business Trust in which Mrs. Marocco has shared
       voting power; and 474,400 shares held by the Glenn Jones Grantor Business
       Trust in which Mrs. Marocco has shared voting power.

  (16) Includes 44,972 shares held by Mrs. Marocco; 970 shares held by the
       Joseph Michael Marocco Irrevocable Trust; 34,815 shares held by the
       Christine Jones Marocco Irrevocable Trust; and 10,000 shares held by Mrs.
       Marocco's husband.  Mrs. Marocco disclaims beneficial ownership of the
       shares held by her husband.  Mrs. Marocco's husband is a principal in a
       firm that may from time to time invest in the Company's securities.  Mrs.
       Marocco disclaims beneficial ownership of any securities of the Company
       that said firm purchases or in which Mr. Marocco may therefor have an
       interest.

  (17) The Mutuelles AXA group includes AXA Assurances I.A.R.D. Mutuelle, AXA
       Assurances Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha
       Assurances Vie Mutuelle and Uni Europe Assurance Mutuelle.  The Mutuelles
       AXA group, AXA and The Equitable Companies Incorporated have sole voting
       power over 1,341,700 shares and sole dispositive power over 1,356,200
       shares.


                                      80
<PAGE>
 
  (18) Bell Canada International Inc. ("BCI"), the sole shareholder of Bell
       Canada International BVI III Limited, may be deemed to have beneficial
       ownership of the 2,878,151 shares of Common Stock covered by Option
       Agreements dated December 20, 1994 among Morgan Guaranty Trust Company of
       New York, acting as agent for BCI, and the Glenn Jones Grantor Business
       Trust, the Jones International Grantor Business Trust, Jones
       Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global Group,
       Inc. and Jones Interdigital, Inc.

  (19) Bell Canada International BVI III Limited is a wholly owned subsidiary of
       Bell Canada International Inc., 1000 de la Gauchetiere Street West, Suite
       1100, Montreal, Quebec, Canada H3B 4Y8.

  (20) The Capital Group Companies, Inc. has sole voting power over 540,000
       shares, shared voting power over no shares and sole dispositive power
       over 1,555,000 shares.

  (21) Neuberger & Berman has sole voting power over 477,700 shares, shared
       voting power over 1,019,000 shares and shared dispositive power over
       1,862,652 shares.

  (22) This information is based upon filings made by the shareholders with the
       Securities and Exchange Commission, copies of which were provided to the
       Company.



                         ITEM 13.  CERTAIN TRANSACTIONS

       Set forth below is a description of the Company's transactions with Jones
  International, Ltd. ("International"), certain of its subsidiaries and certain
  other affiliates of the Company during the year ended December 31, 1996.
  While the Company believes that these transactions generally are as favorable
  as could have been obtained from unaffiliated third parties, in most instances
  no third party bids or appraisals were obtained and certain of the
  transactions are by their nature unique to the companies involved.
  Accordingly, no assurance is given to such effect.  In some instances the
  amounts of transactions have been rounded to the nearest thousand.  Certain of
  the transactions described below are expected to continue during the current
  fiscal year.

  Jones International, Ltd.

       Jones International, Ltd. and certain of its subsidiaries provide various
  services to the Company and its managed limited partnerships, including
  information and data processing services, office space and programming
  services, as described below.  The costs of these services are charged to the
  Company, and the Company reimburses International accordingly.  In some cases,
  a portion of certain of these expenses are reallocated to the Company's
  managed partnerships pursuant to the terms of the limited partnership
  agreements of such limited partnerships.

  Jones Galactic Radio, Inc.

       Jones Galactic Radio, Inc. is a company now owned by Jones International
  Networks, Ltd., an affiliate of International.  The Company sold Jones
  Galactic Radio, Inc. on June 14, 1996.  See Item 1, Sales of Radio and TVRO
  Businesses in 1996.  The Company receives satellite programming from
  Superaudio, a joint venture between Jones Galactic Radio, Inc. and an
  unaffiliated entity.  Payments made by the Company to Jones Galactic Radio,
  Inc. for programming provided to the Company's 


                                      81
<PAGE>
 
  owned cable television systems for the period from June 15, 1996 to December
  31, 1996 totaled $119,000.

  Jones Education Company

       Jones Education Company ("JEC"), a company owned 63% by International, 9%
  by Mr. Jones, 12% by BCI and 16% by the Company, operates two television
  networks, JEC Knowledge TV and Jones Computer Network.  JEC Knowledge TV
  provides programming related to computers and technology; business, careers
  and finance; health and wellness; and global culture and languages.  Jones
  Computer Network provides programming focused primarily on computers and
  technology.  JEC sells its programming to certain cable television systems
  owned by the Company.  Payments by the Company to JEC Knowledge TV and Jones
  Computer Network with respect to programming provided to cable television
  systems owned by the Company for the year ended December 31, 1996 totaled
  approximately $818,000.

  Jones Financial Group, Ltd.

       Jones Financial Group, Ltd. ("Financial Group") performs services for the
  Company as its agent in connection with negotiations regarding various
  financial arrangements of the Company.  Financial Group is owned 81% by
  International and 19% by Glenn R. Jones.  In December 1994, the Company
  entered into a Financial Services Agreement with Financial Group pursuant to
  which Financial Group has agreed to render financial advisory and related
  services to the Company for a fee equal to 90% of the fees that would be
  charged to the Company by unaffiliated third parties for the same or
  comparable purposes.  The Company will pay Financial Group an annual
  $1,000,000 retainer as an advance against payments due pursuant to this
  agreement and will reimburse Financial Group for its reasonable out-of-pocket
  expenses.  The term of the Financial Services Agreement is for eight years
  from December 1994.  Financial Group and BCI have entered into a separate
  agreement pursuant to which BCI is entitled to receive one-half of the net
  fees earned (gross fees less reasonable and customary operating expenses) by
  Financial Group under the Financial Services Agreement.  During the year ended
  December 31, 1996, the Company paid Financial Group fees of:  $896,000 upon
  the acquisition of the Manassas System, $1,668,000 upon the exchange of the
  Carmel System, the Orangeburg System and the Tampa System for the South Prince
  Georges County System and the Reston System; and $1,286,000 upon the exchange
  of the Hilo System, the Kenosha System, the Lodi System, the Ripon System and
  the Lake Geneva System for the Savannah System.

  Jones Global Group, Inc.

       On June 14, 1996, the Company completed the sale of Jones Galactic Radio,
  Inc., which was a wholly owned subsidiary of the Company, to Jones Global
  Group, Inc., a company then owned 38% by the Company and 62% by International,
  for $17.2 million.  The Company's Board of Directors requested and received a
  fairness opinion related to this sale from an unaffiliated investment banking
  firm.  The sales price was paid in the form of 984,968 ADSs of Bell Cablemedia
  plc.  The number of ADSs represents the purchase price of $17.2 million
  divided by the 30-day average closing price of an ADS for the 30-day period
  immediately preceding the closing date.  As a result of this transaction, the


                                      82
<PAGE>
 
  Company now directly owns approximately 7.2 million ADSs of Bell Cablemedia.
  See The Company's Equity Investments in Affiliates for a description of the
  Company's current investment in Jones Global Group, Inc.  Jones Global Group,
  Inc. subsequently sold Jones Galactic Radio, Inc. to Jones International
  Networks, Ltd., another affiliate of International.

  Jones Interactive, Inc.

       Jones Interactive, Inc. ("Interactive"), a wholly owned subsidiary of
  International, provides information management and data processing services
  for operating companies affiliated with International.  Charges to the various
  operating companies are based on usage of computer time by each entity.  The
  amount charged to the Company and its managed partnerships by Interactive for
  the year ended December 31, 1996 totaled $5,784,000.  Approximately 40% of
  this amount was paid by the Company, and the remainder was allocated to and
  paid by the Company's managed partnerships.

  Jones Properties, Inc.

       Jones Properties, Inc. is a wholly owned subsidiary of International.
  The Company is a party to a lease with Jones Properties, Inc. under which the
  Company has leased a 101,500 square foot office building in Englewood,
  Colorado.  The lease agreement, as amended, has a 15-year term expiring July
  2000, with three 5-year renewal options.  The annual rent is not to exceed
  $24.00 per square foot, plus operating expenses.  The Company has subleased
  approximately 46% of the building to International and certain other
  affiliates on the same terms and conditions of the above-mentioned lease.
  Rent payments to Jones Properties, Inc. by the Company, net of subleasing
  reimbursements, for the year ended December 31, 1996 were approximately
  $1,467,000.  Approximately 40% of this amount was paid by the Company, and the
  remainder was allocated to and paid by the Company's managed partnerships.

  Mind Extension Institute, Inc.

       Mind Extension Institute, Inc. ("MEI"), a subsidiary of Jones Education
  Company, provides cable-related instructional videos and other training
  materials to multiple system operators, including the Company and its
  affiliates.  During the year ended December 31, 1996, the Company and its
  affiliates paid MEI approximately $75,580 for these materials.

  Product Information Network

       The Product Information Network Venture (the "PIN Venture") is a venture
  among a subsidiary of Jones International Networks, Ltd., an affiliate of
  International, and two unaffiliated cable system operators.  The PIN Venture
  operates the Product Information Network ("PIN"), which is a 24-hour network
  that airs long-form advertising generally known as "infomercials." PIN has an
  affiliation agreement with the Company that expires on February 1, 2005.  The
  PIN Venture generally makes incentive payments of approximately 60% of its net
  advertising revenue to the cable systems that carry its programming.  Most of
  the Company's owned cable television systems carry PIN for all or part of each
  day.  Aggregate payments received by the Company from the PIN Venture 


                                      83
<PAGE>
 
  relating to the Company's owned cable television systems totaled approximately
  $466,000 for the year ended December 31, 1996.

  Great American Country

       The Great American Country network provides country music video
  programming to certain of the Company's owned systems.  This network is owned
  and operated by Great American Country, Inc., a subsidiary of Jones
  International Networks, Ltd., an affiliate of International.  During the year
  ended December 31, 1996, the Company paid Great American Country, Inc.
  $281,400 for programming provided by Great American Country to Company-owned
  cable television systems.

  Certain Transactions Related to Acquisition of Company Stock by BCI
  -------------------------------------------------------------------

       In addition to the foregoing described transactions, the Company has
  engaged in certain transactions in connection with the acquisition by BCI of
  shares of the Company's Class A Common Stock.  The transactions described
  below are expected to remain in force during the Company's current calendar
  year.

       On December 20, 1994, contemporaneous with the closing of the acquisition
  by BCI of shares of the Company's Class A Common Stock,

       1.   International and Glenn R. Jones and certain affiliates of
  International (collectively, the "Grantors") entered into option agreements
  providing for the grant of options to Morgan Guaranty Trust Company of New
  York, acting as agent for BCI, to purchase all of the shares of the Company's
  Common Stock then held, directly or indirectly, by International, Mr. Jones
  and the affiliates of International.  BCI purchased such options at a price of
  $19.00 for each share of the Company's Common Stock owned by Grantors on the
  date of the execution of the option agreements.  This option payment resulted
  in the Grantors receiving approximately $54,684,869 from BCI.  This amount
  will not be offset against the exercise price for the shares of Common Stock
  under the option agreements should BCI elect to exercise these options in the
  future.

       2.   The Company entered into an Employment Agreement with Glenn R. Jones
  (the "Employment Agreement") pursuant to which the Company agreed to employ
  Mr. Jones as Chief Executive Officer of the Company for a period of up to
  eight years.  Under the terms of the Employment Agreement, Mr. Jones is to
  receive a base compensation of $2,500,000 in fiscal year 1995 (which
  approximates his fiscal year 1994 combined compensation from the Company and
  Spacelink), with an annual cost of living index based adjustment.  In
  addition, Mr. Jones is entitled to participate in the Company's bonus, stock
  option and other employee plans at a level generally commensurate with his
  previous participation.  No other employee of the Company has an employment
  agreement with the Company.

       3.   BCI, International, Glenn R. Jones and the Company entered into
  certain arrangements concerning the operation and governance of the Company
  and other related matters pursuant to a Shareholders Agreement ("Shareholders
  Agreement").  Certain provisions of the Shareholders Agreement grant to Mr.
  Jones, International and their affiliates the right to use a number of
  channels on 


                                      84
<PAGE>
 
  cable television systems now or hereafter owned or controlled by the Company
  for distribution of their programming networks for a period of 15 years after
  December 1994; BCI was also granted a similar right for a fewer number of
  channels. International was granted certain non-exclusive rights to provide
  the Company with goods and services on competitive terms which will, at the
  Company's discretion, be pursuant to competitive bidding or other processes.
  BCI was granted identical rights pursuant to a Supply and Services Agreement
  among the Company and BCI.

       4.   The Company entered into a Supply and Services Agreement with BCI.
  Pursuant to the Supply and Services Agreement, BCI will provide the Company
  with access to the expert advice of personnel from BCI and its affiliates for
  the equivalent of three man-years on an annual basis.  The Company will pay an
  annual fee of $2,000,000 to BCI during the term of the agreement.  Payments
  made by the Company under the Supply and Services Agreement during the year
  ended December 31, 1996 totaled $2,000,000.

       5.   The Company entered into a Secondment Agreement with BCI.  Pursuant
  to the Secondment Agreement, BCI provided twelve secondees during 1996.  These
  secondees worked for the Company and its managed partnerships.  The Company
  reimbursed BCI for the full employment costs of such individuals.  The Company
  reimbursed BCI $1,138,000 during the year ended December 31, 1996.
  Approximately 40% of this amount was paid by the Company, and the remainder
  was allocated to and paid by the Company's managed partnerships.


  The Company's Equity Investments in Affiliates
  ----------------------------------------------

       The Company has equity investments in the following affiliated entities:

       1.   Until December 1996, the Company owned a 38% interest in Jones
  Global Group, Inc. ("Global Group"), a Colorado corporation, and International
  owned the remaining 62% interest.  In December 1996, Global Group redeemed 225
  shares of its stock held by the Company at a price of $39,778.61 per share,
  for an approximate redemption price of $8,950,188.  The redemption price is
  subject to the results of an appraisal, which is expected to be completed in
  the first half of 1997.  The redemption price was paid in the form of a
  promissory note bearing interest at 6% per annum and is payable from time to
  time out of any proceeds from the sale by Global Group of its ADSs in Bell
  Cablemedia, and in any event no later than 18 months after issuance.  As a
  result of this redemption, the Company now owns a 20% interest in Global
  Group, and International owns an 80% interest in Global Group.  Through
  February 28, 1997, Global Group had paid $6,950,000 of the note.

       2.   The Company holds 7,210,764 ADSs of Bell Cablemedia plc.  Bell
  Cablemedia plc owns and operates certain cable/telephony systems in the United
  Kingdom and Spain.  The Company acquired 6,225,796 ADSs in 1994 by
  contributing all of its cable/telephony properties in the United Kingdom and
  Spain to Bell Cablemedia.  The Company acquired an additional 984,968 ADSs
  upon the sale of Jones Galactic Radio, Inc. to Jones Global Group, Inc. in
  June 1996.  The 7,210,764 ADSs of Bell Cablemedia plc held by the Company
  represent an 8.6% interest in Bell Cablemedia as of February 28, 1997, and the
  Company's ADSs are now considered available for sale because of an effective
  registration statement available to the Company.


                                      85
<PAGE>
 
       3.   The Company is the general partner of Jones Intercable Investors,
  L.P., a Colorado limited partnership, which was formed on September 18, 1986,
  and the Company owns a 1% general partner interest.  In a series of
  transactions, the Company purchased limited partnership units, giving the
  Company an approximate 19% limited partner interest in Jones Intercable
  Investors, L.P.  The Company's net investment in this partnership totaled
  approximately $3,253,000 at December 31, 1996.  Based upon the quoted market
  price of $13.63 per unit at December 31, 1996, the quoted market value of this
  investment was approximately $21,708,000.

       4.   During 1992, the Company invested $10,000,000 in Mind Extension
  University, Inc. ("ME/U"), an affiliated company and subsidiary of JEC, that
  provides educational programming through affiliated and unaffiliated cable
  television systems, for 25% of the stock of ME/U, which also received certain
  advertising avails and administrative and marketing considerations from the
  Company.  The number of shares of Class A Common Stock of ME/U issued to the
  Company was based on the average of two separate independent appraisals of
  ME/U.  Through its acquisition of the assets of Jones Spacelink, Ltd., the
  Company obtained an additional 13% interest in ME/U in December 1994.  In
  1996, additional issuances of ME/U's Class A Common Stock reduced the
  Company's investment in ME/U to 26%.

       5.   The Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect
  subsidiary of International, have formed a venture, known as Jones Customer
  Service Management, L.L.C., for the purpose of developing a subscriber billing
  and management system.  As of December 31, 1996, the Company had invested
  $5,200,000 in the venture.  JCS is performing the basic system development
  work for the venture and is being paid periodically on a time and materials
  basis, plus 10% of the amount charged, for its own service.  Upon the
  completion of the billing and management system software, the Company and JCS
  will have license rights to use such system in perpetuity.  The venture will
  also perform additional services for the Company in the implementation of the
  new subscriber billing and management system.  The venture intends to
  subcontract such maintenance and conversion services to JCS on the basis of
  time and materials plus 10% of the amount of the JCS services.  The venture
  will grant to JCS the exclusive right to distribute the system to third
  parties for a period of five years for a commission on the license fees to be
  earned by the venture from such licensing.

       6.   In 1993, 1994 and 1995, the Company advanced a total of $20,000,000
  to ME/U.  Interest on such advances was charged at the Company's weighted
  average cost of borrowing plus 2%.  On April 11, 1995, the Company converted
  its advances to ME/U into shares of Class A Common Stock of JEC, the parent
  company of ME/U, for an approximately 17% equity interest in JEC.  In 1996,
  subsequent issuances of JEC's Class A Common Stock reduced the Company's
  investment in JEC to 16%.  JEC is an affiliate of International.


                                      86
<PAGE>
 
                                    PART IV
 
Item 14.    Exhibits and Reports on Form 8-K
-------     --------------------------------
 
            (a)(1)  Financial Statements and Report of
            Independent Public Accountants.
 
            (a)(2)  Schedules.
 
            (a)(3)  Exhibits.
 
            The following exhibits, which are numbered in accordance with Item
            601 of Regulation S-K, are filed herewith or, as noted, incorporated
            by reference 

2.1         Exchange Agreement and Plan of Reorganization and Liquidation, dated
            as of May 31, 1994 by and between the Company and Jones Spacelink,
            Ltd. (1)

2.2         Stock Purchase Agreement dated as of May 31, 1994, between Bell
            Canada International Inc. and the Company. (1)

2.3         Transaction Agreement dated as of May 31, 1994, among Glenn R.
            Jones, Jones International, Ltd., Bell Canada International Inc. and
            Jones Spacelink, Ltd. (1)

2.4         Purchase and Sale Agreement dated February 22, 1995 between Cable TV
            Fund 12-B, Ltd. and the Company. (2)

2.5         Amendment No. 1 dated July 24, 1995 to Purchase and Sale Agreement
            dated February 22, 1995 between Cable TV Fund 12-B, Ltd. and the
            Company. (3)

2.6         Asset Purchase Agreement dated May 31, 1995 between Benchmark
            Manassas Cable Fund Limited Partnership and the Company. (4)

2.7         Asset Purchase Agreement dated May 31, 1995 between Cablevision of
            Manassas Park, Inc. and the Company. (4)
 
2.8         Asset Purchase Agreement dated as of June 30, 1995 between Columbia
            Associates, L.P. and the Company. (3)
 
2.9         Purchase and Sale Agreement dated as of August 11, 1995 between
            IDS/Jones Growth Partners 87-A, Ltd. and the Company. (3)


                                      87
<PAGE>
 
2.10        Purchase and Sale Agreement dated as of August 11, 1995 between
            Jones Cable Income Fund 1-B, Ltd. and the Company. (3)

2.11        Purchase and Sale Agreement dated as of August 11, 1995 between
            Cable TV Fund 12-BCD Venture and the Company. (3)

2.12        Asset Exchange Agreement dated as of August 11, 1995 between Time
            Warner Entertainment-Advance/Newhouse Partnership and the Company.
            (3)
 
2.13        Asset Purchase Agreement dated September 5, 1995 between Cable TV
            Joint Fund 11 and the Company relating to the Manitowoc System. (5)

2.14        Asset Purchase Agreement dated September 5, 1995, between Jones
            Spacelink Income Partners 87-1, L.P. and the Company relating to the
            Lodi System. (5)
 
2.15        Asset Purchase Agreement dated September 5, 1995, between Jones
            Spacelink Income/Growth Fund 1-A, Ltd. and the Company relating to
            the Ripon System. (5)
 
2.16        Asset Purchase Agreement dated September 5, 1995, between Jones
            Spacelink Income/Growth Fund 1-A, Ltd. and the Company relating to
            the Lake Geneva System. (5)
 
2.17        Asset Exchange Agreement dated September 1, 1995, between the
            Company and Time Warner Entertainment Company, L.P. (5)
 
2.18        Assignment and Assumption Agreement dated as of September 15, 1995
            between the Company and Jones Cable Holdings, Inc. (6)

2.19        Purchase and Sale Agreement dated as of October 15, 1995 between the
            Company and Jones Cable Holdings, Inc. (6)

2.20        Asset Purchase Agreement (Walnut) dated August 16, 1996 between
            Jones Intercable, Inc. and Century Communications Corp. (7)
 
2.21        Asset Purchase Agreement (Oxnard) dated August 16, 1996 between
            Jones Intercable, Inc. and Century Communications Corp. (7)
 
2.22        Asset Exchange Agreement dated October 25, 1996 between Jones
            Communications of Colorado, Inc. and United CATV, Inc. (8)
 
2.23        Asset Purchase Agreement dated July 30, 1996 between Maryland Cable
            Partners, L.P. and Jones Communications of Maryland, Inc. (9).
 


                                      88
<PAGE>
 
2.24         First Amendment to Purchase Agreement dated January 30, 1997
             between Maryland Cable Partners, L.P. and Jones Communications of
             Maryland, Inc. (9)
             
3.1          Articles of Incorporation and amendments thereto of the Company.
             (10)
             
3.2          Amendment to Articles of Incorporation of Company filed July 24,
             1995. (3)
             
3.3          Amendment to Articles of Incorporation of Company filed September
             18, 1996.
             
3.4          Bylaws of the Company.  (3)
             
4.1          Indenture, dated as of May 15, 1987, between the Company and United
             Bank of Denver National Association. (11)
             
4.2          Indenture, dated as of July 15, 1992, between the Company and First
             Trust National Association. (12)
             
4.3          First Supplemental Indenture, dated as of July 15, 1992, between
             the Company and First Trust National Association. (12)
             
4.4          Second Supplemental Indenture, dated as of March 1, 1993, between
             the Company and First Trust National Association. (13)
             
4.5          Form of Shareholders Agreement among Glenn R. Jones, Jones
             International, Ltd., Bell Canada International Inc. and the
             Company. (1)

4.6          Indenture dated March 23, 1995 with respect to the Senior Notes,
             between the Company and U.S. Trust Company of California, N.A. (14)

4.7          First Supplemental Indenture dated as of March 23, 1995 with
             respect to $200,000,000 aggregate principal amount of the Company's
             9 5/8% Senior Notes due 2002, between the Company and the Trustee.
             (14)
             
10.1.1       Form of Financial Services Agreement between Jones Financial Group,
             Ltd. and the Company. (1)
             
10.1.2       Form of Employment Agreement between Glenn R. Jones and the
             Company. (1)
             
10.1.3       Form of Supply and Services Agreement between Bell Canada
             International Inc. and the Company. (1)

                                       89
<PAGE>
 
10.1.4       Form of Secondment Agreement between Bell Canada International Inc.
             and the Company. (1)
             
10.1.5       Form of Option Agreement for Glenn R. Jones and Jones
             International, Ltd. between Bell Canada International Inc. and
             Newco. (1)
             
10.1.6       Affiliate Agreement dated August 1, 1994 between the Company and
             Jones Computer Network, Ltd. (3)
             
10.1.7       Affiliate Agreement dated August 1, 1994 between the Company and
             Jones Infomercial Networks, Inc. (3)
             
10.1.8       Services Agreement between the Company and Jones Interactive, Inc.
             (3)
             
10.1.9       Indemnification Agreement dated March 14, 1994, among the Company,
             Howard O. Thrall and George J. Feltovich. (15)
             
10.2.1       Non-Qualified Stock Option Plan of the Company. (16)
             
10.2.2       Form of Non-Qualified Stock Option Agreement. (16)
             
10.2.3       1992 Stock Option Plan. (17)
             
10.2.4       Form of Basic Incentive Stock Option Agreement. (17)
             
10.2.5       Form of Basic Non-Qualified Stock Option Agreement. (17)
             
10.3.1       Office Lease, dated June 8, 1984, between the Company and Jones
             Properties, Inc., regarding office space at 9697 East Mineral
             Avenue, Englewood, Colorado. (18)
             
10.3.2       Office Building Lease dated December 9, 1994 between Jones Panorama
             Properties, Inc. and the Company regarding Lot 4, Panorama Office
             Park. (3)

10.4.1       Partnership Agreement for Cable TV Fund 11.  (19)
             
10.4.2       Partnership Agreement for Cable TV Fund 12.  (18)
             
10.4.3       Partnership Agreement for Cable TV Fund 14.  (20)
             
10.4.4       Partnership Agreement for Jones Cable Income Fund 1.  (21)
             
10.4.5       First Restated Agreement of Limited Partnership for Jones
             Intercable Investors, L.P. (22)

                                       90
<PAGE>
 
10.4.6       Partnership Agreement for IDS/Jones Growth Partners. (23)
             
10.4.7       Partnership Agreement for Cable TV Fund 15.  (24)
             
10.4.8       Partnership Agreement for IDS/Jones Growth Partners II, L.P. (25)
             
10.4.9       Partnership Agreement of Jones United Kingdom Fund, Ltd. (26)
             
10.5.1       Credit Agreement dated October 31, 1995 among Jones Cable Holdings,
             Inc. and NationsBank of Texas, N.A. and The Bank of Nova Scotia, as
             lenders and as managing agents and various other lenders. (6)
             
10.5.2       First Amendment dated as of September 17, 1996 to Credit Agreement
             dated October 31, 1995 among Jones Cable Holdings, Inc. and
             Nationsbank of Texas, N.A., individually and as agent for various
             other lenders.
             
10.5.3       Credit Agreement dated as of October 29, 1996 among Jones Cable
             Holdings II, Inc. and The Bank of Nova Scotia, Nationsbank of
             Texas, N.A. and Societe Generale, as managing agents for various
             lenders.
             
21           List of Subsidiaries of the Company.
             
23           Consent of Arthur Andersen & LLP, independent public accountants,
             to the incorporation by reference of its report into the Company's
             Form S-8 and Form S-3 Registration Statements.
             
27           Financial Data Schedule

-----------                                          
             
(1)          Incorporated by reference from the Company's Current Report on Form
             8-K, filed on June 6, 1994.
             
(2)          Incorporated by reference from the Company's Current Report on Form
             8-K dated March 10, 1995.
             
(3)          Incorporated by reference from the Company's Annual Report on Form
             10-K for the fiscal year ended May 31, 1995.
             
(4)          Incorporated by reference from the Company's Current Report on Form
             8-K dated June 7, 1995.
             
(5)          Incorporated by reference from the Company's Current Report on form
             8-K dated September 8, 1995.

                                       91
<PAGE>
 
(6)          Incorporated by reference from the Company's Annual Report on Form
             10-K for the year ended December 31, 1995.
             
(7)          Incorporated by reference from the Company's Current Report on Form
             8-K dated August 28, 1996.
             
(8)          Incorporated by reference from the Company's Current Report on Form
             8-K dated November 5, 1996.

(9)          Incorporated by reference from the Company's Current Report on Form
             8-K dated February 7, 1997.
             
(10)         Incorporated by reference from the Company's Annual Report on Form
             10-K for the fiscal year ended May 31, 1988.
             
(11)         Incorporated by reference from the Company's Registration Statement
             No. 33-13545 on Form S-2, filed on April 17, 1987, and Amendment
             No. 1 thereto, filed on May 8, 1987.
             
(12)         Incorporated by reference from the Company's Registration Statement
             No. 33-47030 on Form S-3, filed on April 8, 1992, and Amendment
             Nos. 1 and 2 thereof, filed on April 24, 1992 and June 4, 1992,
             respectively, and Post-Effective Amendment No. 1 thereof, filed on
             July 15, 1992.
             
(13)         Incorporated by reference from the Company's Current Report on Form
             8-K, filed on March 1, 1993.
             
(14)         Incorporated by reference from the Company's Current Report on form
             8-K dated March 23, 1995.
             
(15)         Incorporated by reference from the Company's Form S-4 Registration
             Statement filed on July 11, 1994.
             
(16)         Incorporated by reference from the Company's Registration Statement
             No. 2-91911 on Form S-2, filed on June 27, 1984, and Amendment No.
             1 thereto, filed on July 17, 1984.
             
(17)         Incorporated by reference from the Company's Registration No. 33-
             54596 on Form S-8, filed on November 16, 1992.
             
(18)         Incorporated by reference from the Company's Registration Statement
             No. 2-94127.
             
(19)         Incorporated by reference from the Company's Annual Report on Form
             10-K for the fiscal year ended May 31, 1983.

                                       92
<PAGE>
 
(20)         Incorporated by reference from the Company's Registration Statement
             No. 33-6976, filed on July 3, 1986, and Amendment No. 1 thereto,
             filed on November 17, 1986.
             
(21)         Incorporated by reference from the Company's Registration Statement
             No. 33-00968 on Form S-1, filed on October 18, 1985.
             
(22)         Incorporated by reference from the Company's Annual Report on Form
             10-K for the fiscal year ended May 31, 1992.
             
(23)         Incorporated by reference from the Company's Registration Statement
             No. 33-12473.
             
(24)         Incorporated by reference from the Company's Registration Statement
             No. 33-24358.
             
(25)         Incorporated by reference from the Company's Registration Statement
             on Form 8-A No. 0-18133, dated November 16, 1989.
             
(26)         Incorporated by reference from Form 8-A of Jones United Kingdom
             Fund, Ltd. (Commission File No. 0-19889).
             
(b)          Reports on Form 8-K
             
             Current Report on Form 8-K dated November 5, 1996 describing the
             execution of an asset exchange agreement providing for the exchange
             of the Company's Jefferson County and Clear Creek County Systems
             for United CATV, Inc.'s Annapolis, Maryland cable television
             systems.

                                       93
<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.

                                    JONES INTERCABLE, INC.



                                    By:  /s/ Glenn R. Jones
                                         ------------------
                                         Glenn R. Jones
                                         Chairman of the Board and
  Dated:  March 4, 1997                  Chief Executive Officer



       Pursuant to the requirements of the Securities Exchange Act of 1934, this
  report has been signed below by the following persons on behalf of the
  registrant and in the capacities and on the dates indicated.


                                    By:  /s/ Glenn R. Jones
                                         ------------------
                                         Glenn R. Jones
                                         Chairman of the Board and
                                         Chief Executive Officer
  Dated:  March 4, 1997                  (Principal Executive Officer)


                                    By:  /s/ Kevin P. Coyle
                                         ------------------
                                         Kevin P. Coyle
                                         Group Vice President/Finance
  Dated:  March 4, 1997                  (Principal Financial Officer)


                                    By:  /s/ Larry W. Kaschinske
                                         -----------------------
                                         Larry W. Kaschinske
                                         Controller
  Dated:  March 4, 1997                  (Principal Accounting Officer)

                                       94
<PAGE>
 
                                    By:  /s/ James B. O'Brien
                                         --------------------
                                         James B. O'Brien
  Dated:  March 4, 1997                  President and Director


                                    By:  /s/ Derek H. Burney
                                         -------------------
                                         Derek H. Burney
  Dated:  March 4, 1997                  Director


                                    By:  /s/ Robert E. Cole
                                         ------------------
                                         Robert E. Cole
  Dated:  March 4, 1997                  Director


                                    By:  /s/ William E. Frenzel
                                         ----------------------
                                         William E. Frenzel
  Dated:  March 4, 1997                  Director


                                    By:  /s/ Donald L. Jacobs
                                         --------------------
                                         Donald L. Jacobs
  Dated:  March 4, 1997                  Director


                                    By:  /s/ James J. Krejci
                                         -------------------
                                         James J. Krejci
  Dated:  March 4, 1997                  Director


                                    By:  /s/ John A. MacDonald
                                         ---------------------
                                         John A. MacDonald
  Dated:  March 4, 1997                  Director


                                    By:  /s/ Raphael M. Solot
                                         --------------------
                                         Raphael M. Solot
  Dated:  March 4, 1997                  Director


                                    By:  /s/ Howard O. Thrall
                                         --------------------
                                         Howard O. Thrall
  Dated:  March 4, 1997                  Director

                                       95
<PAGE>
 
                                    By:  /s/ Siim A. Vanaselja
                                         ---------------------
                                         Siim A. Vanaselja
  Dated:  March 4, 1997                  Director


                                    By:  /s/ Sanford Zisman
                                         ---------------------
                                         Sanford Zisman
  Dated:  March 4, 1997                  Director


                                    By:
                                         ---------------------
                                         Robert B. Zoellick
  Dated:  March __, 1997                 Director

                                       96